CHAPTER2

Chapter2 produce high specification carbon bike frames. The company was created by Michael and Neil Pryde, with Neil having previously founded and exited a global sporting goods business, the Pryde Group. Chapter2 sells direct to consumers (D2C) and direct to dealers (D2D) online.
$1,362,303
Funded
Min target: $1,000,000 (28.57% equity) Max target: $1,500,000 (37.50% equity)
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$1,362,303 Funded
$1,000,000 Min target (28.57% equity)
$1,500,000 Max target (37.50% equity)

Executive Summary

CHAPTER2 was created by Michael Pryde and inspired by his years of dedication to design and cycling. From the time he started racing BMX as a kid, he has pursued his passion for competitive cycling for almost 4 decades, having raced at the highest level in both Downhill/Cross-Country and Road.

CHAPTER2 produces high specification carbon bike frames, with unique designs that inspire desirability in our customers.

Based on a depth of industry experience at Neil Pryde Limited, CHAPTER2 represents the next step for our founding directors as we develop a boutique bike brand with a unique business model crafted to succeed across the international bike market.

We sell direct to consumer (D2C) and direct to dealers (D2D) online with ‘just in time’ delivery allowing us to build strong relationships with customers and service centers, while generating superior gross margins via the elimination of third party distributors.

Road cycling, particularly at the higher performance end, has undergone strong popularity growth where it has been referred to as the “New Golf” (Financial Times, 2016) for busy professionals. Asia has a relatively underdeveloped bike market with China and Japan considered the fastest growing bike markets in the world (Nielsen). The European centric industry is yet to truly capitalise on this trend and there is a dearth of ‘new world’ biking brands. Our Tier 1 markets (130+ frames sold) are currently Australia, Korea, Thailand, China and Indonesia, with sales of 300 in Japan. Our largest target markets are Europe and the US.

CHAPTER2 bikes and branding tap into the psyche of professionals who want the latest and greatest piece of biking kit. Our bikes have been popular because of their unique designs and the value for money the carbon frames represent at our price point.

CHAPTER2 has been able to create the desirability of a boutique frame builder, but via a production method that is scalable and a business model that has a price and margin advantage over much larger incumbents in the market with regard to quality.

CHAPTER2 achieved NZD $1.3m in revenue in its first full year and we are forecasting revenue of NZD $2.1m for FY19. Executing our strategic plan will see forecast growth to NZD $38.9m by FY26.

The business has delivered ~56% gross margins since inception and we are forecasting to deliver at scale above ~50% as we grow via our omni-channel strategy. This will deliver positive EBITDA by FY21 and EBITDA of NZD $8.1m by FY26 creating several possible return streams for investors.

CHAPTER2 intends to continue growing its business through opening up new distribution channels, increasing marketing spend, and ensuring the right resources are available to grow existing markets. Funds raised through the capital raise will help fund sales and marketing initiatives in key markets, especially Europe, USA, Japan and Australia, while building out our management team.

We have proven the market and business model for our bikes with over 1,500 frames sold in 35 countries since launching in July 2017. As the recent recipient of a Gold Pin at the Designers Institute of New Zealand’s Best Design Awards, CHAPTER2 has quickly grown into an enviable brand with a high performing reputation. We are now seeking capital and further expertise to take the business to the next level.

Join us as we take the road less travelled and build an iconic Kiwi cycling brand.


Investment Highlights

  • Strong traction since launch in July 2017 – 1,522 frames sold in 35 countries generating revenue of NZD$3.2m.
  • Business model has delivered superior gross margins of ~56% versus industry norms of 20-25%.
  • Highly experienced management and board with significant international industry experience, including the founding and subsequent exit from a USD$100m revenue p.a. global sports business based in Hong Kong.
  • Recent recipient of a Gold Pin award at the 2018 DINZ Best Awards.


Operational Structure

Company Structure

The CHAPTER2 brand has previously operated out of a company in Hong Kong, called Performance Sports Limited. As part of the capital raise, a holding company called CHAPTER2 Sports has been established in New Zealand, which will hold all the relevant interests in the CHAPTER2 business, including Brand IP, Trademarks, Performance Sports Limited and the bike moulds.

Investors will be buying shares in this holding company. Part of this switch to New Zealand from an operational perspective will also lead to the establishment of another NZ subsidiary of the holding company, CHAPTER2 International. CHAPTER2 International will take over management operations from Hong Kong, with Performance Sports Limited remaining as a cost centre, handling warehousing and shipping.


Warning statement

It's crucial for you to understand the characteristics and risks of this investment opportunity. New Zealand law normally requires people who offer financial products to provide in-depth information to investors before they invest. The usual rules do not apply to offers by companies through Snowball Effect. As a result, you may not be given all the information you need to make an informed decision. Investing is risky. Some of the key risks include loss of capital, illiquidity, lack of returns, dilution, loss of key people and customers, and lack of control. You should only invest money that you can afford to lose.

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