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The rapid growth in cloud based storage and applications is changing the way people and businesses interact and access software. It has been called the “driving force in the information technology world” and over 90% of global enterprises report using cloud as part of their business (Economist, 2015). Businesses small and large have been drawn to the obvious benefits from monthly subscriptions, ongoing functionality updates and easy scalability. The accounting industry has been an early mover with the adoption of the cloud, and alongside the likes of Xero, MYOB & Intuit, a range of complementary cloud-based applications have sprung up around them.
SuiteFiles Limited (‘SuiteFiles’) is a software as a service (SaaS) business based in Wellington, New Zealand. With a focus on the accounting industry, we offer small and medium enterprises (SMEs) an easy to use cloud-based document management solution that integrates seamlessly with Microsoft Office 365 and cloud applications (e.g. Xero) to deliver a feature rich piece of essential business infrastructure. SuiteFiles provides SMEs with a file management solution on par with an enterprise grade solution for a fraction of the price.
SuiteFiles was started by the Provoke Group (‘Provoke’) in 2012 following a request from Xero to create a simple cloud-based document management system to partner with their offering. Provoke is a Wellington based IT services business with offices in NZ and the US. They saw the early opportunity in cloud based software services, and the growth in this industry is forecasted to continue with cloud SaaS services totaling over $58.6bn in 2017, growing at a compound annual growth rate (CAGR) of 19.38% to $100bn by 2020.
SuiteFiles currently as at 31st July 2018 has over 4,300 paying users, and annualised recurring revenue (ARR) of $900k. Actual total revenue is higher due to additional services, such as migrations which add circa $150k pa to the total, and are growing. This strong adoption is backed by favourable unit economics, with a <1% churn, and a Lifetime Value (LTV) of $1,738 compared to a Customer Acquisition Cost (CAC) of $133. We have already grown the business into Australia, the UK, North America, and Asia with just 4 full-time staff members. We are forecasting revenue growth to $10.7m by the end of FY24 at a CAGR of over 50% over the period post investment.
Having successfully proven the business model in the accounting vertical and built a solid platform to scale from, we are now raising $1m of growth capital at a pre-money equity valuation of $5m. Funds raised will go toward additional sales and marketing resources, with a key focus on expanding our international partner reseller program to drive further subscription growth in overseas markets. This will free up operational cashflow to continue developing our industry leading SuiteFiles product offering.
We invite investors to join us as we scale SuiteFiles on its growth trajectory, giving more SME’s worldwide the cloud tools to get their business humming.
The move to the cloud has delivered a step change in the way businesses operate, but without affordable feature rich software solutions such as SuiteFiles, the SMEs that generate around half of the global GDP remain restricted in their ability to fully maximise the benefits of working in the cloud.
Businesses have traditionally built their computing infrastructure around onsite servers but the cloud computing revolution has rendered these outdated and lacking in flexibility.
Moving businesses away from their legacy file servers is a huge market, and there are a plethora of solutions that deal with storage issues but that don’t assist with the additional business challenges of file management, security controls and access in user-friendly ways for employees to collaborate.
There are enterprise solutions at the top end that do tackle all of these issues, but these are far too expensive for the average SME and require complex deployment projects with existing infrastructure. A typical starting point for an enterprise solution is $150 to $180 pm per user, far in excess of what most SMEs would derive value from for their needs.
Accountancy firms in particular have been highly engaged with the move to the cloud through the rapid uptake of practice platforms such as Xero & MYOB. They need a simple, complementary tool that allows document storage, collaboration, security, and app integrations at an affordable price point. Mainstream cloud providers focused on synchronisation do not provide the specialist functionality this type of customer requires.
SuiteFiles is built on the Microsoft Office 365 cloud platform, Microsoft’s fastest growing product ever, and the Microsoft Azure infrastructure platform. The SuiteFiles application helps organisations securely migrate and manage files, collaborate on files, and integrates seamlessly with other cloud-based applications such as Xero.
The file management application seamlessly integrates across the various applications an accountant uses throughout their day, removing the significant pain point of having to work across multiple applications to execute simple tasks. For example, SuiteFiles integrates with Outlook so that accountants can quickly save emails to client folders, integrates with Xero for creating client documents from pre-set templates, and allows collaboration across the entire Microsoft Office Suite.
Like every SaaS offering the focus is on the acquisition of subscription paying customers, retention of those customers, and upsell/cross selling options through new product features.
SuiteFiles currently has 5 full time employees and 1 part time employee who is budgeted to come on full time in FY19.
Additional staff members are Jamie Bruin, who focuses on customer support; Jack Slater and Dragos Bercea, our developers; and Roshni Mortensen who is focussed on customer success.
We have been able to grow relatively lean by employing a partner reseller model to sell our product via commissions. This has allowed product excellence to be our key focus over the initial growth period. Our partner network currently totals 16 active resellers across Australia, New Zealand and the UK, who offer SuiteFiles in conjunction with other software programs to offer professional service businesses customised IT Solutions. The partner network made up 28% of our sales in FY18.
Business Continuum specialise in process improvement for professional service businesses around Australia. They are a Xero Practice Manager and WorkflowMax certified partner and can help integrate, train and support your staff with SuiteFiles.
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Post the capital raise, additional head count will be added in the areas of partner relationship management, customer success, and development support. This will allow current staff to focus on higher value-add areas such as developing the product suite.
Provoke will continue to provide central services including HR, payroll, finance and accounting, risk management as well as maintaining their governance role, taking 2 out of 4 current board seats. Post the capital raise, Provoke will charge a maximum of $1,000 per month for these central services. The Governance Board will be separated out from the operational group so that there is clear delineation between the two. Reporting to the operational group will go to the Board for comment, and then to shareholders.
Doug Taylor (Provoke) will also be charged to the business for his operational activities by Provoke. Doug will undertake a hands-on role in the general operations and management of SuiteFiles to enable it to scale and will charge a portion of his direct costs to the business. This will be a third of his actual salary cost, given he will spend a third of his time helping to manage the business.
Any time John Robson (Provoke) expends with finance work will be part of the $1,000 per month retainer for central services, and no other charges will be made at any time for his management or governance board tasks.
The total addressable market for SuiteFiles is a function of both the size and growth in the use of cloud application services internationally, and the specific portion of that is attributable to SME’s, particularly those in the professional services space.
The global market for public cloud services such as Microsoft Azure is in a sustained growth period, increasing over 18% in 2017 to total $260.2bn, according to Gartner Inc. This growth is projected to continue to $411.4bn by 2020, at a CAGR of 16.5%. The SaaS portion of this market in 2017 is estimated to be worth $58.6bn.
World Bank research estimates that SMEs account for 95% of existing businesses and that their products and services make up around 49.8% of the global economy.
According to ReportsnReports.com, the global Electronic Document Management System Market is forecast to reach $6.78bn by 2023 from $3.59bn in 2017 at a CAGR of 11.17% during 2017 - 2023 driven by the benefits of these systems, initiatives from organisations to reduce paper wastage, the increasing need to streamline business operations, benefits of digitalising content across enterprises, increasing need to adhere to compliance requirements, and increasing adoption of cloud-based services and cloud computing.
Microsoft continues to dominate the market for business productivity tools, with annual sales of the Microsoft Office toolset stated at US$13.8bn versus Google Suite sales of around $1.3bn. This favours the SuiteFiles model which is based off Microsoft Office 365. The growth of the Google offering has helped normalise the cloud-based monthly subscription model for core business software.
The current penetration of SuiteFiles to Xero customers is around 0.5% in Australia and New Zealand, being close to 4,000 subscribers compared to Xero’s 884,000 subscribers; this clearly represents a large market opportunity for SuiteFiles to leverage as a high-profile partner.
The penetration in the UK and other overseas markets is negligible, but growth in the UK is secondary to Australia. SuiteFiles signed an exclusive reseller agreement in June 2018 with a UK based partner to offer SuiteFiles to UK-based customers, and to provide all support services. This will underpin growth in the UK under contract, whilst the SuiteFiles team focus on Australia for the next 24 months.
Our customers are SMEs who generally have between 10-250 employees. They are typically underserved in IT expertise and infrastructure, with high quality offerings priced out of their budget.
Our software is suitable for a variety of verticals but a lot of our early traction has been via Chartered Accountancy practices due to our partnership with Xero, their leadership in the cloud computing sector and our growing range of tools based around Workflow Max and Xero Practice Manager.
SuiteFiles has been able to attract a global client base from early on with subscription clients from 4 key regions – NZ (27%), Australia (71%), UK (1%), North America, Asia & ROW (1%).
In addition to our partner reseller network, SuiteFiles has strategic alignment with both Microsoft & Xero.
Xero is a key strategic partner to SuiteFiles. SuiteFiles was originally developed to dovetail into the Xero offering to provide a cloud based document management system to reinforce the Xero messaging for accountants to adopt the cloud. As Xero continues to take on MYOB, Quickbooks, Handisoft, Sage, Intuit, and Reckon, SuiteFiles continues to receive customer feedback that it fits into this eco-system perfectly. This means that Xero’s sales teams in New Zealand and Australia are continually promoting and recommending SuiteFiles to accounting practices that are looking to move to Xero. This relationship has led to significant growth and opportunity in the accounting vertical.
Microsoft is another key strategic partner of SuiteFiles. SuiteFiles is built on Office 365 and we use SharePoint Online to store the files in SuiteFiles while building our productivity applications over the top. Office 365 is Microsoft’s fastest selling product ever. Businesses all around the world are trading in their servers for cloud based services because they offer huge cost efficiencies plus greater flexibility in the way people are working. SuiteFiles is complementary product to the Microsoft offering that is focused on generating value for SME’s.
Our success in achieving this has been recognised through a number of awards:
We see our competitive space as two distinct categories - SharePoint Online Solutions (SPO – those like us, who are wrapped around the Microsoft offering) and more general mainstream cloud storage solutions.
Why not just Sharepoint? Sharepoint Online is itself a document storage system, however it is more focused at an enterprise grade solution. Users find it complex to run and often needs internal IT expertise to run. It is estimated only 5-10% of SME users of Office 365 use Sharepoint for document storage.
HubOne – (Australia) HubOne provide integrated IT solutions to the accounting sector, that incorporates document and email management. HubOne look to manage the full IT stack for customers. We estimated their customer base across all verticals at 400-500 customers. They have tried to expand into NZ but with limited success. SuiteFiles has never migrated a customer to HubOne and their pricing is opaque and not published online, indicating it is likely more service orientated.
eShell – (Australia) This competitive solution was built in partnership with FGS Advisory, a Xero Practice Studio Partner in Australia. eShell is a simple SharePoint Online template and we understand that there are less than 20 customers using it; we’ve migrated 5 eShell customers to SuiteFiles in the last 12 months. Their website appears to have been taken down, and this is consistent with some market rumours that the solution was no longer being offered.
Zee Drive – (UK) This solution was built by Myles Jeffrey from the UK; Zee Drive is a Windows Explorer app that connects to SharePoint Online and it is very similar conceptually to SuiteFiles Drive. Like most Windows Explorer applications, it is simply a way to read and write files and offers no other real document management functionality. It is a good solution if a user is looking for a straight swap from a file server, and to utilise cloud storage functionality. It does not offer a comprehensive document management solution, and does not have any integration to other applications, hence it has a low price point of around $5 pm per user.
The primary difference between SuiteFiles and these products is that they are built around synchronising files between the cloud and the local computers in the office network. This approach differs fundamentally from SuiteFiles as we do not synchronise any files, nor do we recommend it for businesses. Synchronisation exposes fundamental security and governance risks to an organisation and provides less of a benefit to SMEs because they likely operate out of a sole location.
SuiteFiles is built to encourage collaboration within organisations once they reach a size which requires that document versions are maintained in the cloud. By focusing on SME’s in the professional service space, we have been able to roll out integrations and tools for the specific applications that these professionals use daily. This gives SuiteFiles an enhanced level of functionality compared to the mainstream cloud competitors and also means we are more flexible and contactable than these offerings.
Our Xero integration has been a key aspect to our competitive advantage.
Xero works with three document storage providers (Box, Dropbox & Google), but only one document management provider (SuiteFiles). This means that firms looking for more integration benefits are constantly marketed the SuiteFiles offering in conjunction with + Xero. Our integration makes administrative tasks considerably quicker than competitors, such as our letter template functionality integrating data from Xero Practice Manager.
There are many cloud file share options in the market, ranging from free single user solutions, to expensive and expansive (enterprise) business solutions; SuiteFiles exploits a large gap in the middle of these two offerings, and provides the simple file share experience, coupled with the extensive functionality of a major platform solution, but without the typically high costs to deploy such a solution.
Whereby DropBox and Google Drive, and the other “consumer” type products, simply provide a mechanism to store files, SuiteFiles provides the ease of simple file storage, combined with the enterprise features that many businesses desire, all in a simple user interface, with a small migration effort.
Moving files to a cloud file share is a basic process, but replicating a business taxonomy, ensuring all files are safely moved, and creating specific permissions and security, are all part of a move to SuiteFiles that a small business typically cannot do alone. This middle market is vast, and we believe that SuiteFiles is perfectly positioned to capture both clients at the top end of the small enterprise who need more than simple file storage, right through to mid-size enterprise that today have no real options outside of the major platforms.
SuiteFiles was started in 2012 by the Provoke Group. Our initial focus was based around a challenge from the Xero team to build a cloud based document management system that would accompany their offering.
Our first 9 months was focused on providing cloud migration services, in order to validate the trend and assess our potential customers issues and pain points. We also wanted to see how Office 365 was being adopted in our target market. Over time we began to develop additional functionality, such as the web and mobile applications and our Outlook integration. The support from Provoke was crucial over this period as it allowed the business to grow without the stress of capital raising or short-term cashflow constraints.
Growth via the partners channel and maintaining the alignment with Xero was prioritised as it allowed us to keep the team lean and maintain a strong focus on product development for this customer set. This resulted in strong growth in the Accounting vertical, particularly in Australia through our focused positioning and high levels of customer service.
By July 2018, we had over 4,300 paying users, from 6 different countries, generating over $900k of annualised recurring revenues. We have developed very favourable unit economics for a SaaS business, and had been operating at a small loss whilst we focussed on growth. The business is well positioned to scale following the strong validation received to date, our core technological infrastructure and the significant market opportunity in front of us.
Additional revenue from services (from migrations) adds a further $15,000 per month, or over $150k pa.
SuiteFiles, like all start-ups, has grown up lean, which has meant applying resource where necessary and roles straddling several disciplines. We are at a stage now where we would like to free up our CTO solely for product development and bring on specialist developers.
This should enable the SuiteFiles product suite to maintain its advantage over our competitors and make growing our market share a much easier proposition. Similarly, the hiring of specialist sales staff should free up our CEO’s time to focus on leadership and strategy.
Like nearly every SaaS business, we have evolved our pricing strategy, and have been successful in growing our ARPU as a result of improved features that have been released to premium plan users. The offering of a free trial is also a standard sales model, and is now baked into how we sell direct, and how we then convert customers to a paying subscription.
This metric is monitored in our Sales Dashboard, and is a good measure of future pipeline and increased ARR. We have also developed a multi-currency price model that determines the location of the customer, and determines the subscription price in their local currency; this provides a higher ARPU for international customers than in New Zealand.
When we launched SuiteFiles we looked at the various models of support for similar offerings, and quickly realised that the quality of initial and on-going support was critical to maintaining a low churn rate; further, we recognised that it was not possible for the small SuiteFiles team to support a large volume of direct customers, and this was supportive of the reseller model that was introduced. It was clear that event attendance generated sizable leads, and that the SuiteFiles team would struggle to convert these leads in a timely fashion without assistance.
The model quickly developed to finding and supporting key partners who were incentivised to resell the product through a commission model, and with services revenue attached to migration activities. In addition, they were able to bundle their existing services to SuiteFiles, and to offer support. The partner channel is now an important part of the growth strategy (below) and is a proven model.
Our growth plan has three key aspects to it that will drive global growth:
They will directly manage these relationships in key strategic locations. We have seen strong organic growth in this area, as demonstrated by our traction to date, but we can escalate this growth by committing additional resources. Our initial focus will be Australia, followed by the United Kingdom and Europe, then the United States and Asia. Areas where Xero has significant traction will continue to be a key focus for us as an easy way to win customers.
We have had great success over our years of operations at attending appropriate industry conferences and spreading the word about SuiteFiles. More capital will allow us to increase these activities and drive direct sales, especially offshore where we have had little exposure previously.
Being cloud based offers opportunities to build and easily deploy functionality that cannot be provided with simple file servers. With increased spend going to generating sales, our focus still needs to be on delivering a leading solution that is easy to sell. Through customer feedback and our own expertise, we continue to see opportunities to add value to the SuiteFiles offering.
Our vision for SuiteFiles is to grow beyond a solely Office 365 based offering and firmly establish our product in other verticals outside of the Accounting industry. Our product road map is centered around increasing functionality relating to the sharing of documents, search, electronic signatures and scaling our tools to allow bulk processing.
In an ever-changing operating environment, we aim to stay flexible with our product planning to include the ability to rapidly respond to customer feedback and requests.
The SUITE, BUSINESS IS BETTER IN THE CLOUD Logo trade mark is a registered trade mark in New Zealand in connection with SAAS (software as a service) and related services.
The SUITEFILES and the SUITEFILES Logo trademarks are the subject of trade mark applications in New Zealand. Registration is sought in connection with software, SAAS, and related goods and services. Applications for these trademarks will be made in Australia and the USA within the six month Convention priority period.
SuiteFiles is focused on growing the considerable market opportunity it sees in front of it from increasing cloud acceptance, its Xero Partnership, and further future expansion beyond Office 365 and the accounting vertical.
There are no current formal discussions or circumstances that we have had that suggest a full exit is likely to happen (or will happen at all) in the short-term. If an exit opportunity was to arise, we believe the most likely opportunity would be via a trade sale to a larger cloud focused operator, through a bid by a major reseller, or from a major provider of document storage solutions that is seeking to diversify their portfolio.
There is naturally a strong relationship between Xero and SuiteFiles, and they have an increasing stable of apps that they offer as part of their package to accountants. It would be inappropriate to speculate on if Xero would themselves consider SuiteFiles as an acquisition target, but the support that the product provides to them in the area of online document management is important.
In addition, we do expect Microsoft themselves to take more of an interest in SuiteFiles as it starts to consume sizable amounts of Azure storage, which is very sympathetic to the Microsoft growth strategy. We do have plans to decouple from Office 365 as part of the risk mitigation plan, but this does not impact our use of Azure for core storage, and as an application development platform.
When developing the roadmap and strategy for 2018/19, we mapped out two scenarios; the first was the organic growth model that assumed no investment, and was designed to self-fund, and to grow the business organically. The second model was focused on a more rapid growth through a capital raise that would see $1m of new capital available to grow the business. In order to provide clarity over how investment capital would be utilised, it is important to first understand the non-investment model and budget.
With no investment, the following is the basic budget model:
Under this budget model, we see $13.1m spent across these 5 specific budget classifications over the next 5 1/2 years, with the largest costs being in Marketing and Sales salaries.
If we look to the investment model, and map out the same classifications, it provides a very clear picture of the impact of such investment capital on the FTE growth, and associated costs of those staff.
Under this budget model, we see $17.8m spent across these 5 specific budget classifications over the next 5 1/2 years, with the largest costs (by far) being in Advertising, Marketing and Promotion. The investment model sees a headcount differential of 5 FTE over the period, with the express purpose of driving sales across the business and through significantly more spend on advertising and promotional activities. The $1m investment translates to a $4.7m leverage of spend over the period (being $13.1m to $17.7m).
The company’s operations are reliant on the retention and attraction of key employees, Andrew Sims and Callum McNeill. Both hold significant equity positions in the business and are highly motivated to see the business succeed. This risk is also mitigated by the oversight into the company’s operations the Provoke Group has maintained from SuiteFiles inception, which ensures the organisational knowledge and capability built up has not been overly concentrated in these two persons. Expanding the development team is also supportive of reducing the technical risk associated with Callum, only considered a risk if he should be unable to work for any reason.
SuiteFiles has been fortunate as a start-up business to have had a strong governance structure in place since day one, with clear delineation between the board and the executive team. The board meet monthly, and board reporting will be condensed and provided to investors on a quarterly basis; informal investor briefings will be offered monthly, with summary reporting of sales and revenue.
SuiteFiles business and its performance are subject to market forces and effective delivery of technology products for customers. Issues surrounding product performance, disputes over quality, failures in the product infrastructure, and a failure to deliver new features against agreed product milestones, are examples of such technology delivery risks. Such risks are typically managed through active governance and detailed management reporting as well as stringent reporting to ensure that the product roadmap is robust and deadlines met. Our use of Microsoft infrastructure provides significant guarantees over uptime and security.
The Company faces competition from a number of other software product companies. Competition may lead to price pressures, but the Company has a proven product and detailed roadmap of feature development to maintain a competitive edge. There is a chance this competitive edge is eroded when entering other industry verticals due to less synergy between SuiteFiles and the key software tools used. SuiteFiles will aim to add additional functionality where possible and are always open to the requests of its customers. In addition, the strong relationships with Microsoft and Xero are a result of many years of working in partnership and any new entrant would be required to build up such networks and trust.
SuiteFiles business would most likely be impacted negatively by an economic downturn in either New Zealand or further abroad. Such risks are managed through having a global sales channel not dependent on one geography to diversify this risk. SuiteFiles does have a current and likely medium term exposure to the accounting vertical, so they are also exposed to a specific industry economic event also. The accounting industry is reasonably stable despite economic conditions so we think the likelihood of this having a large adverse effect on SuiteFiles is unlikely.
The existing relationship with Xero and Microsoft are extremely important to SuiteFiles. If the Xero sales channel discontinued support to SuiteFiles, this would negatively impact our growth trajectory. This risk is being addressed through development of the Partner Programme to lessen the reliance on Xero, and to build a channel that is owned by us. The platform design of SuiteFiles is intrinsically linked to Microsoft SharePoint, and should Microsoft abandon the platform, or make it unavailable this would cause some issues for SuiteFiles. The likelihood of such a change is low, and any such move would be signalled well in advance and could be mitigated in a number of ways. Similarly, any price or margin pressure exerted by Microsoft would also require a tactical response.
Legal and other disputes may arise from time to time in the ordinary course of operations. Any such disputes may impact on the earnings of the Company. There are no outstanding disputes at the current time.
Provoke Group has insurance cover against business interruption, public and statutory liability insurance, and Directors and Officers cover for all subsidiaries, including SuiteFiles.
The Company is seeking to expand the use of credit card billing to all new customers; whilst the costs of such services are reasonably high, this eliminates the credit risks of the sector in which the Company operates, and collections are not an issue. The Company’s existing lending facilities with its parent are being phased out as part of this issue and the existing debt has been assigned as a shareholder loan on the balance sheet.
SuiteFiles believes their financial forecasts represent a fair and achievable view of the company’s prospects. As a growth business there is an increased uncertainty around product development and the ability to scale but we believe these forecasts to be our best estimates.
SuiteFiles is built on SharePoint and as such is reliant on the stability of the underlying Microsoft technology. Whilst a systemic failure of the Microsoft stack is unlikely, it is possible that minor changes that Microsoft make in the underlying architecture impact on our ability to offer our service. This risk is mitigated through our relationship with Microsoft and our deep technical understanding of the platform. It should be noted that there is an explicit plan to de-couple legacy features from SharePoint.
All financial forecasts and projections included below are based on our best assessment for future potential financial performance. That being said, we are a young company operating in a rapidly evolving online world. Accordingly, the assumptions on which the forecasts and projections are made may prove to be incorrect, and actual results may differ significantly.
Our financial year runs from 1st April to 31st March.
NB: the financial forecasts presented below are on the basis of $1m of new equity being raised as part of the offer, and being available to the business on 1st October 2018.
Current revenue for SuiteFiles is made up of services (migrating file systems to SharePoint Online) and monthly subscriptions for the SuiteFiles apps. Migration revenue is one-off when moving new customers to the cloud. The Partner Programme allows IT companies to operate as resellers of SuiteFiles to their clients and use our other add-on tools for migration and backup in addition to selling Office 365, Xero etc.
Revenue growth is underpinned by continued penetration in Xero’s target markets, initially targeting expansion in New Zealand, Australia and the United Kingdom in FY19, before we look to the US market more directly. We have begun to drive sales in the United Kingdom through attending key accounting conferences there, and through a new partnership with a large local reseller. Our marketing spend and conference attendance is projected to increase over the forecast period as we grow the customer base via these channels.
Reseller revenue is currently 28.5% of our annual recurring figure and this is projected to grow at an increased pace to over 50% of this figure over the next 5 years as we drive this channel more aggressively.
Our cost assumptions are based on current costs per customer and they decrease over time as SuiteFiles scales. Credit card expenses are constant and estimated for customer’s payments the month in advance. There is a detailed build-up of fixed costs based on current levels that increase in tandem with staffing levels.
Cost increases are largely due to increased staffing and marketing activities. Another key area of cost growth is the hire of additional developers to drive the product development roadmap.
There is also an increase in customer support staff to free up Management to focus on technology and leadership.
The investment capital will be held as cash or cash equivalents (term deposits) by the business, and will be used exclusively in support of the company; we have modelled out the cash burn rate of the business taking into account known/forecast liabilities (such as salaries, tax and all creditors) plus funds received from the capital raise, trade debtors, and other revenue streams.
This provides for a detailed position of cash in/out over the period, and is directly linked to the investment budget that the business has prepared. The full budget provides an extremely granular model around forecast revenue and costs, and based upon the last 3 plus years of actuals.
The Provoke Group will provide additional working capital should the business require it into the end of 2020, and early 2021, but this is considered unlikely (and would be at arms-length commercial terms).
There is a ~$1m shareholder loan in place provided by Provoke that is the result of accrued operating losses in the business and as part of the funding commitment to develop the business. The loan carries no interest, is unsecured, and is not callable by Provoke. Refer to the ‘Disclosures’ section for further details.
Valuation of the company before funds are invested
Amount required for the offer to be deemed successful
The maximum amount the company is looking to raise
Percentage of the company offered at the minimum target
Percentage of the company offered at the maximum target
The cost of each share
The minimum investment amount for this offer
See the Subscription Agreement for details
The company may have rights to shorten or extend this period
The company may have rights to shorten or extend this end date
The pre-money equity valuation of SuiteFiles Limited is calculated at NZ$5m, accounting for both the proven historical growth and the significant market opportunity. This equates to a multiple of 5.5x annualised recurring revenue, as at 31st July 2018 (actual), where ARR is calculated at $905k and based on actual subscription revenue for July. A more reflective value is 5x ARR plus recurring revenue from migrations, which average $13k over the last 12 months or $162k of services that are directly linked to subscriptions.
SuiteFiles is offering ordinary voting shares (Ordinary Shares) ranking equally with all other shares on issue. Except for Ordinary Shares issued for investments of $100,000 or more pursuant to the Subscription Agreement, the Ordinary Shares to be issued by SuiteFiles are to be issued to Snowball Nominees Limited (“Nominee”), who will hold legal title to those Ordinary Shares on trust for the relevant beneficial owner of those Ordinary Shares (i.e. the investor). Further detail on why SuiteFiles is choosing to use a Nominee is described under the heading “Nominee shareholding structure” below.
Holders of Ordinary Shares have:
Holders of Ordinary Shares are also subject to drag and tag along rights (as set out in the Constitution).
The Subscription Agreement and Constitution set out other terms that will apply to a shareholding in SuiteFiles. You should read these documents before subscribing for Ordinary Shares under the Offer.
We are making use of a nominee shareholding structure to prevent the company from becoming a “Code Company” for the purposes of the Takeovers Code. In broad terms, a company becomes a Code Company when it has 50 or more (voting) shareholders and share parcels, and shareholders of Code Companies can be restricted in how and when they are able to transfer their shares. Due to its size, our advisers and board do not believe it is in the best interests of SuiteFiles, its existing shareholders, or investors for SuiteFiles to become a Code Company and bear increased compliance costs.
Except for Ordinary Shares issued for investments of $100,000 or more pursuant to the Offer, the Ordinary Shares to be issued by SuiteFiles are to be issued to the Nominee, who will hold legal title to those Ordinary Shares on trust for the relevant beneficial owner of those Ordinary Shares (i.e. the investor).
The full terms on which the Nominee will hold the shares are set out in the Nominee Deed Poll (which forms part of the Offer Documents).
In broad terms, the Nominee must:
Under the Nominee Deed Poll, each beneficial owner indemnifies the Nominee against any losses, damages, costs, actions, proceedings, claims and demands that may be made against or incurred by the Nominee as a result of it holding the Ordinary Shares under the Nominee Deed Poll (unless the Nominee has been fraudulent or grossly negligent).
The executive team of SuiteFiles are paid a base salary, and incentivised at fair value as determined by the Board, and as agreed with the non-executive Directors. The remuneration of Andrew Sims includes an 'At-Risk' component that is linked to special business KPI's agreed with the Board and reported monthly.
There are no Director fees payable at this time, and no plans to introduce such fees without shareholder approval.
Provoke will maintain a 62% equity stake in the business following the raise, along with a ~$1m shareholder loan that is the result of accrued operating losses in the business and as part of the funding commitment to develop the business.
The loan carries no interest, is unsecured, and is not callable by Provoke. There are two specific conditions in which the loan becomes repayable:
1. A share transaction that sees greater than 25% of the used share capital purchased by an unassociated third party at a price of greater than $150 per share, being 3x the current value of $50 per share; and
2. If the repayment of the loan does not directly result in the technical insolvency of SuiteFiles Limited.
If SuiteFiles Limited becomes insolvent, then the loan becomes immediately due for repayment as a preferred creditor of the company. The Directors of Provoke have provided a written undertaking concerning the loan conditions, and copies of the associated board resolutions that underpin it will be made available on request.
The SuiteFiles Board meets monthly and consists of:
SuiteFiles has no additional funding plans at this time and as such intends to fund future growth through internally generated cash flow. The cash model provides a strong indication of the expected cash burn, and then subsequent build up of reserves as subscriptions outpace spend into FY21/22; there are no concerns over cash flow management on this budget model, with prudent spend being matched to revenue to ensure the business can trade through an anticipated tight period in FY20/21.
The Provoke Group are comfortable providing short-term working capital at arms-length commercial terms to assist with any cash management hurdles. The model allows for very conservative revenue, and high costs. Much of the spend through that period is discretionary on sales activities, and phasing of such spend, or deferment to align to revenue, is preferred over a need to look to additional external capital.
External capital will only be sought in the event that sales are beyond forecasts and the business needs to expand at a level well beyond what has been forecast; in such a case, a decision of this importance would of course be taken to all shareholders.
Snowball Effect will be managing our share register post the capital raise.
We intend to keep investors updated through:
Snowball Effect charges an initial fee of $5,000 and a fee if a company successfully reaches its funding target. The latter fee is the larger of $25,000 or 7.5% of funds raised. Snowball Effect may amend this fee in discussions with the company before an offer is listed on Snowball Effect.
The distribution of this offer outside of New Zealand may be restricted by law. This is not intended to, and does not, constitute an offer of securities in any place which, or to any person to whom, the making of such offer would not be lawful under the laws of any jurisdiction outside New Zealand. This includes, but is not in any way limited to, Australia and the United States. It is the responsibility of any Snowball Investor to ensure compliance with all laws of any country outside New Zealand relevant to their subscription, and any such Snowball Investor should consult their professional advisers as to whether any governmental or other consents are required, or other formalities need to be observed to enable them to apply for securities pursuant to each offer. The failure to comply with any applicable restrictions may constitute a violation of securities law in those jurisdictions. The securities in each offer have not been and will not be registered under the US Securities Act or the securities laws of any state of the United States.
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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.