After a fascinating Seedsummit, this weekend brought the other extreme of start-up investing: Spinvox’s alleged fire sale to Nuance for £92m.
Some people have been asking how £92m could be seen as a fire sale? And how come, according to the Sunday Times, Christina Domecq will end up with nothing?
The answer is simple: Spinvox had raised between £120 and £150m in capital, most recently in a series of very tough bridging loans. These totalled some £73m in various loan instruments to Tilsbury, according to the Register.
Most of these loans would have attracted high interest rates, as Spinvox would neither have had the assets for collateral or cashflow to service loan payments. (Spinvox’s revenus next year were forecast at £7m, according to The Times.)
Loans are senior to equity, meaning that on a disposable of the company bondholders receive their money in full before equity holders see any. £92m does not go very far when Spinvox was holding as much debt as it did.
Is this an achievement? You be the judge. Turning £150m of investors capital into £92m is an achievement in some (very rare) circumstances.
As to the executives, well they rightly would have held the lowest class of shares-to be paid out after everyone who has actually taken financial risk (i.e. put real pounds and pence on the line) has been paid out.
There are a two lessons here for many of the parties involved:
- Valuation always comes out in the wash: You can raise massive tranches of capital with a good name, smart advisors and a slick presentation. And some of it may be on lenient terms. But as an entrepreneur, you then set the bar for your success extremely high. The higher this bar, the more likely that as your business naturally deviates from your monoline plan, you’ll need more capital and those new investors will lay down tougher terms. So Spinvox may be sold for £92m but for its common shareholders (including its earliest investors and its staff), it may as well has been declared insolvent.
This might have been so very different if Spinvox had adopted a ‘hypothesise, build, test, improve, invest’ model, edging there way forward as they ironed out commercial, technology and operational issues. The funding announcements may have been less gob-smacking but the success for shareholders may have been better. - As @maxniederhofer says: it proves that not everyone can do early stage investing.
Spinvox (the product/service) will probably find a good home in Nuance, which is really the leader in speech processing, and wtih 40+ carrier relationships Nuance is probably getting a good deal for its £92m. As for staff who were paid in equity over the summer…
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