Quarterly Company Progress Report December Q4 2015
When we launched Snowball Effect, there were a couple of key things that we wanted to achieve in our first 12 – 18 months. The first one was to provide companies with an efficient way to raise capital, and investors with a simple way to invest in a variety of interesting growth stage businesses. The second was for those that invested to have an exciting, relevant relationship with the companies that they invested in – to be close to a young company’s learning, growth, success or failure. Shareholder communication in private companies is typically poor, and we were keen to play a part in significantly raising the bar.
As a result of discussions with investors in recent months it has become apparent that the level of engagement that we hoped to facilitate hasn’t occurred in some instances. In response to this we have committed to become more hands on, and provide greater support to companies in their efforts to communicate with shareholders.
Good shareholder communication is not only valuable to shareholders, it’s valuable to the companies themselves.
Good shareholder communication is not only valuable to shareholders, it’s valuable to the companies themselves. Shareholders are more likely to support future capital raises if they feel that they have been taken on the journey and been informed promptly as significant events unfold (this holds true even if the news is bad). And companies can unlock significant value from shareholders who act as advocates for their products if they’re mobilised by engaging and regular information.
We’d also like to keep the wider public informed on how companies that have previously raised capital through Snowball Effect are progressing. Improving this aspect of a company’s post raise performance will be a work in progress, and it will evolve over time, however we acknowledge that we need to do more to encourage companies to communicate in a timely, relevant fashion.
One of our initiatives is to provide the public with a Quarterly Company Progress Report. This report will present an overview of how companies that have raised capital publicly through Snowball Effect are progressing post-offer. It’s an opportunity for these companies to continue to tell their story to a wider audience, and it’s an opportunity for you to gain insight into the communications that shareholders receive and to understand the milestones that these companies have reached.
Companies each commit to providing quarterly reports to shareholders within six weeks of each quarter’s end (including an annual financial report at the end of the financial year). The progress report will be released shortly after that period, and will include key points from the shareholder quarterly reports of all companies that choose to be involved. The details included in the progress report are only summaries of information that has already been communicated to shareholders.
The current report covers the quarter from October to December 2015. All information has been provided by the companies and has not been verified by Snowball Effect. Not all companies could be featured in this report for various reasons (such as commercial sensitivity). Companies that have raised capital in 2016 have not been included, but will be added in when our quarterly report is in sync with their shareholder reporting.
All of the missing companies have committed to be included in the next report. Examples include the feature film Mahana (previously called The Patriarch), which is currently screening in NZ and finalising Box Office and international sales figures for shareholders, and Renaissance, which is in the process of employing a new CEO and will soon be reporting to shareholders on commercial milestones.
We are frequently asked how Snowball Effect is progressing. We’ll also include an overview of how we’re tracking in each report. Our first overview is a snapshot of progress to date, rather than the previous quarter.
Invivo
Invivo is one of New Zealand’s fastest-growing wine brands. It produces, markets, and sells a range of wines and spritzers, mostly into offshore markets. Invivo raised $2m through Snowball Effect in April 2015 - the first company in New Zealand to raise the full $2m that can be raised by each company from retail investors through the equity crowdfunding regulations.
- We successfully released the second vintage of Graham Norton’s Own Sauvignon Blanc after a ‘fun' London Sauvignon Blanc blending session with Graham: Watch the video
- Invivo secured distribution in Ireland for the first time. We partnered with Ireland’s largest grocery chain, Musgraves (500 stores), to launch Graham Norton’s Sauvignon Blanc nationwide. In the UK, Graham Norton’s 2015 Sauvignon Blanc launched nationwide with Majestic (220 stores).
- Graham’s wine has received a double gold medal at Asia’s largest wine competition and five silver medals at wine competitions in both UK and New Zealand.
- The Marlborough region experienced a challenging 2015 harvest that was between a 20-30% decrease in volume in grapes compared to 2014. Sales will be around 75% of our initial forecast sales due to the smaller harvest. As a result, we’ve had to re-budget sales for FY16 and we’re on par with this re-forecast. With our pipeline sales, a more favourable exchange rate and stringent cost control, we are on-track to achieve net profit before tax in line with our original forecasts.
- We have secured a long-term lease and full control of an historic 114-year-old winery south of Auckland in Te Kauwhata. The winery will give winemaker Rob Cameron even greater creative control and an on-site bottling plant will turn out up to 12,000 bottles a day of Invivo’s award-winning Sauvignon Blanc, Pinot Noir, Chardonnay and other New Zealand varietals. Take a look at our new winery here: Watch the video
- Invivo was named a finalist in the 2015 Export New Zealand Food and Beverage Export of the Year category at the Export New Zealand awards and Finalist 2015 New Zealand Food Awards: New Zealand Trade and Enterprise Export Innovation Award.
- The first orders have been received from the US for Invivo Sauvignon Blanc. Discussions are ongoing with potential US retailers and an on premise partner.
- We have also opened an international office in Adelaide, Australia and have appointed Mark Boardman as International Sales Manager. Mark has 20 years’ experience in the international wine industry.
Invivo raised a total of $2,000,000 in March 2015
Breathe Easy
Breathe Easy is developing Citramel™, an inhaled medicine for the treatment of cystic fibrosis (CF) a chronic genetic illness affecting the lungs and digestive systems of approximately 75,000 children and adults worldwide. Breathe Easy raised over $600k through Snowball Effect in May 2015.
- In the October - December quarter Breathe Easy undertook its Phase I clinical trial. This involved administering Citramel to five healthy volunteers. The trial was a success and was passed by the Data Safety Committee. This indicates the treatment is well tolerated and safe. Passing Phase I of a clinical trial is a significant achievement, as typically 50% of drugs fail this early milestone.
- Breathe Easy is now activating its Phase IIa CF trial across two trial sites in Christchurch and later Auckland, in April and May 2016.
- Concurrently the company is commencing a capital raise initially through a rights offer to fund the expanded Phase IIa trial over multiple sites. Adding the Auckland site speeds CF subject recruitment and significantly reduces the risk of being unable to recruit CF subjects within the trial criteria.
- Breathe Easy is also investigating two other potential CF drug candidates and remain interested in pursuing a food supplement. These will be considered after the success of fundraising is known.
Breathe Easy raised a total of $613,428 in May 2015
Red Witch
Red Witch is a boutique manufacture of world-leading premium analog guitar and bass effects pedals. Red Witch raised $406k through Snowball Effect in June 2015.
- The capital raise allowed Red Witch to undertake the planning and implementation of its marketing ambitions.
- In October 2015, Red Witch launched an intensive three month campaign announcing the Red Witch’s latest bass pedal, the Zeus. This was directed predominantly at the USA and UK. This was the company’s largest ever marketing campaign and was completed with an abundance of artists’ endorsements and reviews.
- In November, MDG, Red Witch’s US distributor represented Red Witch and the Zeus pedal at Bass Player Live Expo.
- The Professional Development Course, a core part of Red Witch’s marketing strategy, was constructed under budget and implemented at the beginning of January 2016. The course has been embraced enthusiastically by Red Witch’s distribution partners, with distributors in the USA, Germany, UK, China and Australia making commitments to bring the course to their dealer bases. The course is being heralded as an industry first.
- A commitment to its distribution network means Red Witch now has established loyal distributors in every key market: USA, UK, Germany, Australia and China.
- Sales for the December quarter were $108,735.
- Sales show an increase month on month for that quarter and are growing in all regions. However, total sales are below budget.
- COGs have been sharpened at 44% (compared to the same quarter last year at 53%).
- Red Witch undertook its first full review of pricing in seven years. The result has been enthusiastically received as it better matched RRP with ‘street price’. Some of Red Witch’s products were regularly being sold by dealers below RRP while others were perceived as being too cheap and were retailing above RRP. The overall effect of the review has been to closer align ‘street’ price with RRP, while protecting margins for both dealers and ourselves.
Red Witch raised a total of $406,000 in June 2015
Mad Group
Mad Group is one of New Zealand’s fastest growing companies, with two extremely passionate brands under one shelter: Mad Mex and Habitual Fix. Mad Group raised $500k through a Snowball Effect Private offer in June 2015.
- Mad Group is very much a story of growth and we expect that to continue. Less than three years ago the business had about three staff and less than $500k in revenue. We now have about 110 employees with an annualised turnover around $8M (not including HF franchisee sales).
- We won fastest growing consumer business in New Zealand in the 2016 Deloitte fast50 and placed third overall with a three year growth rate of 603%, following on from our eighth placing the previous year.
- FY15 EBITDA was below budget due to pressure on Mad Mex margins and increased Habitual Fix costs. However, we are constantly growing monthly revenues and improving margins which will naturally flow through to the bottom line in FY16. In Q1 of FY16 Q1, revenue was up 37%, versus FY15. In addition, FY16 Q1 operating EBITDA was up 48% on FY15.
- We opened three Mad Mex and one Habitual Fix in Q2 FY16. We have walked away from several Mad Mex locations in the original forecasts and have replaced them with better locations, including Westfield Manukau.
- Construction costs have increased substantially over the past 12 months across all trades, resulting in a $25-50k increase in setup costs for Mad Mex locations going forward. We are working on ways to mitigate these increases.
- Northwest Mall opened in October 2015 and apart from the opening week, the whole mall has significantly under performed forecasts (all tenants, not just Mad Mex). We are now in a low volume holding pattern until stage 2 opens directly opposite our tenancy in October 2016, which should have a material positive impact on sales of the mall.
- A new role has been established at MM Support Office - Financial Performance Manager. This is an operational role based in the field with the primary focus and responsibility of driving store level EBITDA performance and store manager coaching.
- On the International front, we have received a second deposit from our Japanese partners and are expecting to travel to Tokyo in early 2016. We are currently reviewing our strategy for the USA. We have had initial interest from a number of other countries and are currently evaluating these opportunities. Mad Group is in the process of appointing an International Franchise Broker to represent us in a number of key markets for 2016 and remain bullish on International opportunities and expansion.
Mad Group raised a total of $500,000 in June 2015
Punakaiki Fund
Punakaiki Fund is one of the most active venture capital investors in New Zealand, with investments in 14 high-growth companies across New Zealand. Punakaiki Fund raised $2m through Snowball Effect in July 2015, and over $400k further from Snowball Effect wholesale investors in January 2016.
- The fund grew from $6 million in assets at the time of the Snowball offer to over $16 million in assets at the end of January 2016. The fund retains a significant pipeline of proprietary deal flow.
- Punakaiki Fund elected Mike Bennetts (Z Energy), John Berry (Pathfinder Asset Management) and Bryan Hutchens (Real Journeys) to the board of directors, with Mike Bennetts appointed as Chair.
- We placed new investments with Vend, Mobi2Go, Mindfull and EverEdgeIP.
- We also made follow-on investments into InfluxHQ, RedSeed, Weirdly, Boardingware, Onceit and Melon Health.
- We have seen the businesses in which Punakaiki Fund has invested deliver combined annualised revenues of over $55 million for the 12 months to 31 December 2015.
- The company has seen an equity weighted average revenue growth rate from companies of 54% over the last year.
- The fund raised an additional $6m from wholesale offers and the exercise of existing options, with the latest round at $16.50 per share (including an attached option). This compares to the $14.50 share pricing during the June 2015 equity crowd funding round.
- We have seen an increase in the number of shareholders to 492.
- Established in a number of new governance documents and procedures, including a Board Charter, Delegated Authority Policy, Business Continuity Policy and Investment Valuation Policy.
- Moved into new offices on Kitchener Street, Auckland.
Punakaiki Fund raised a total of $2,000,000 in July 2015, and $462,000 in January 2016
WOOP — World On Our Plate
WOOP makes cooking dinner easy and is a world leader in the pre-prepared food-kit delivery space. Founded by Thomas Dietz in 2015 WOOP is answering to the demands of busy professionals in Auckland who are time poor but still looking to cook delicious healthy dinners. WOOP raised $800k through the Snowball Effect in September 2015.
- WOOP launched their first delivery in August 2015 and has been delivering WOOP boxes every Sunday across Auckland. Each box contains all the fresh and pre-prepared ingredients to cook three delicious dinners for the week, along with easy to follow recipe cards.
- Since launch WOOP has developed over 100 recipes and measured the rating and feedback on each recipe in order to constantly improve their product and customer satisfaction.
- Based on customer feedback analysis and conversion performance WOOP launched a refreshed website which better articulates their value proposition resulting in a higher conversion rate and an enhanced user experience for customers.
- WOOP was the first food-kit subscription business to launch a Gluten Free offering in New Zealand and has built a strong loyal following of GF customers.
- Having not properly anticipated the seasonality of the product over the summer we saw a lower acquisition and retention from the 3rd week of November with customers adopting a Christmas party/summer/barbecue mode.
- We had planned a strong reactivation campaign for the start of 2016.
- We grew the team hiring specifically William Lockie, a brilliant marketer that you might have seen recently on the final of My Kitchen Rules.
Woop raised a total of $800,000 in September 2016
UrbanSherpa
UrbanSherpa is an innovative technology that allows Auckland customers to get practically anything picked up, dropped off or purchased within an hour. Urban Sherpa raised over $300k through Snowball Effect in November 2015.
- Urban Sherpa saw strong user base growth over the October - December quarter, with more than 6,600 people registered.
- Monthly trip volume has grown by almost 30% over the last quarter, and our overall trip completion rate has risen to over 92%. We are also seeing an encouraging distribution of delivery types, with approximately a third of all trips now being for non-food delivery.
- Partnership with Menulog (part of the global JUSTEAT Group) is proving very successful, and we will shortly complete a tighter integration with their IT systems that will enable us to scale the partnership further.
- We are currently in discussions with a number of major national businesses and are on track to announce significant partnerships in coming months.
- During December 2015, we expanded our service area in Auckland to cover the lower North Shore (including Takapuna, Devonport and Birkenhead). We continue to focus upon growth and are planning to expand further in Auckland and into Wellington within the next quarter.
- We will be launching a new Urban Sherpa app within coming weeks, which will help users order Sherps on the run.
UrbanSherpa raised over $300,000 in November 2015
Snowball Effect
Snowball Effect is an online marketplace for financial products. Our mission is to simplify investment into high growth Kiwi companies. We’ve been funded by existing shareholders and cash flow to date to support the continued growth and development of the equity capital market for early-mid stage New Zealand growth business.
- December was a busy month for Snowball Effect as it launched its wholesale investor offering to the public. This was followed by two successful wholesale investor offers: SOS raising over $200k and Punakaiki Fund raising over $400k.
- The wholesale investor database has grown to over 700 members. Growing awareness of our wholesale offering will be a key area of focus for Snowball Effect over the next six months.
- In December Snowball Effect Co-Founder, Simeon Burnett, left his previous portfolio manager role at Fonterra to join the Snowball executive team as CEO.
- January saw innovative paint company D’arcy Polychrome unsuccessful in its offer to raise $500k.
- Early stage tech investment company, Powerhouse Ventures, raised $1.8m in February, which is the fourth largest raise through an equity crowdfunding marketplace in New Zealand to date.
- Wearable technology company, Heyrex, successfully raised over $800k in late February.
- The last month of this financial year (March) determines whether Snowball Effect achieves budgeted revenue or not. The company remains on-track to beat budgeted earnings for FY16. Revenue growth is forecast to be up 51% on FY15.
- Squirrel, a high growth financial services business operating mortgage broking and P2P lending services, is currently raising up to $4.97m from both wholesale and retail investors. Squirrel has already raised over $2.7m, making it the largest raise in New Zealand to date through an equity crowdfunding marketplace.
- Jackson Rowland left Snowball Effect in early February to pursue his not-for-profit interests. His role will not be replaced in the near future.
- Eight equity crowdfunding licenses have been issued, and other applications have been lodged with FMA. Snowball retains a greater than 70% market share.
- Snowball Effect is currently finalising its 3 year business plan.
- Our primary focus is continuing to facilitate offers for growth companies across a diverse range of industries. We intend to facilitate offers from more established companies as well as continuing to service earlier stage ventures. We aim to be well-resourced and patient so that the marketplace will grow organically by attracting sophisticated investors to interesting deal flow.
- There are no firm capital raising plans at this point.
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