Monday, 7 March 2016

What can you make of Pact?

Pact is aiming high - it's plan is to be supplying 1% of the world's coffee.

In order to achieve this, it has to raise £30m over 3 years, which it then loses on customer acquisition. Then we dont know what happens. Brave or plain daft, it's hard to know.

The Crowdcube pitch for the first £1m has been slow - only raising £165k so far from over 750 investors. They had a meet the founder day today and this coming Saturday (clearly not Rugby fans) but only 10 out of 24 slots were taken up.

The company is up and running, has an excellent team and its turnover for last month was £450k. This is impressive until you realise that the turnover for this year is projected at £11m rising to £95m in 2018. They call the plans ambitious.

It is possible that the style is that of the ubiquitous Unicorn - where ever increasing valuations on new funding rounds drive up company value like a game of hot potato. The companies never make profits and eventually the game ends and the one holding the spud is the loser.

We really havent got a clue if they can do what they say they will and it's clear from the reaction on Crowdcube that many people feel the same way.

In our opinion it would have been wiser to raise at least a good slug of the rest of this year's £8m before offering this to the Crowd. One thing that ECf investors should have learnt by now,  is that plans that show future funding rounds are wholly unreliable. For whatever reasons, there are numerous examples of companies stating that they will raise X after their ECF campaign and this never happens.

Mix into this, the sort of unpredictable factors that a natural product based company faces and maybe this doesnt amount to whole hill of beans. As an example how many investors or indeed members of the company, expected winter cauliflowers to hate the Cauli Rice process - none. So when they found that winter caulis reacted to being packaged as rice, they had to close down production for two months. Luckily they have found a solution, but it could have been curtains. It has certainly been a costly setback.

The valuation doesnt seem to acknowledge any of these possibilities - which it should.  

2 comments:

  1. What do you make of the valuation?

    I took a look when the subject came up on the Motley Fool (investment website) in the thread http://boards.fool.co.uk/pact-coffee-13338025.aspx?sort=whole . An enthusiast who's invested, and some cynics looking at the valuation.

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    1. I have to say Im a little bemused by this one. The valuation depends on the projections being met and this depends on them raising another 29m in the next 3 years and making losses of £26m. From experience this is unlikely to happen as planned - with the knock on effect that the business will stall, may well crash or will be picked up by another coffee co at a price that gives some return but nothing like the one predicted. For me the down side of all of this is way too big for the upside and I think these guys have gone off grid. I would have liked to see at least a good chunk of this year's £8m raise already in the bag.

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