Few people seemed to bat an eyelid when CloudCall announced a conditional placing of £12 million. Given that they usually raise around £2-3m, this is a clear step change – to raise £12 million in a terrible funding market at just a few percent discount to the prevailing stock price is impressive.
Clearly, Simon’s laced up his presenting boots and gone to work. And delivered. So, what’s he been selling?
CloudCall’s offering
For those that don’t know, CloudCall provides a digital solution to communicate simply with its clients’ contacts through their CRM. It increases efficiency, and allows more output, through things like clicking to dial rather than punching in numbers (I did this in recruitment and it was a real annoyance), an automated dialer, local presence (which offers a local number to increase answer rate), and pre-recorded voicemail drops. It does more, but you get the idea.
Now, what’s so exciting? What’s happened? The business has always been growing, nobody can doubt that, but with the next fundraise already around the corner, people (including myself) have been reluctant to buy as funding is such a dangerous minefield in the small cap sector. Most directors just don’t get it – preferring to wait until last minute to raise before they are promptly bent over the barrel by funders.
This fundraise for CloudCall has achieved three things:
No fear of a fundraise, because £12 million removes any doubts
It also significantly strengthens the balance sheet – which gives the company more credibility when dealing with Tier 1s or large clients
It offers CloudCall the chance to now be conservative and get on with the job
Let me expand on that last point. When you don’t have any money – you can’t afford to be conservative. You can’t afford 100% focus on the job at hand, because you know that the next fundraise is only around the corner. Better to reach high and miss if it means getting vital funding in. Unfortunately, this damages sentiment with investors and patience runs thin, but directors need to play the game because if they’re conservative they won’t get the cash.
CloudCall now has the cash. So, perhaps we can now start to see management have a proper swing of the bat.
The difference between UK and US funding markets and why this raise is significant
There is a very big difference across the ocean to funding. Americans are gaga for growth, and they will fund it to ridiculous valuations. But that’s why the US has such huge and dominant tech companies and the UK doesn’t have a single global behemoth. The US has at least 100 tech companies that would fit into the FTSE 100 alone. Uber, Snapchat, Lyft, Slack – all have been funded by investors drunk on growth.
The UK tends to be conservative and focus on cash flow, but this comes at the expense of growth. There just isn’t the money available to fund huge land grabs. And this is why this fundraise is significant, because now CloudCall has the green light from investors to now step on the gas, with around 50% of the new money coming in from the States.
Some insights into CloudCall’s SaaS One of the interesting facts about CloudCall’s model is that it is highly scalable. The company is seeing a rate of long-term value being 7x the cost of acquisition. So, for every £1 the company invests in acquiring a customer – the company gets £7 back.
With users growing quickly, and the recurring revenue building, this model can grow at an increasingly faster rate. The company has a 106% retention rate, calculated by taking customers at the start of the year, and adding any increases in users from those customers and subtracting decreases in users from customers who leave.
This is why it makes sense to seek investment in this highly attractive LTV/CAC ratio. Rather than holding back and missing out on opportunities, the company can now push forward and is aiming to hit 30% organic revenue growth for FY19 and FY20. The overall goal is to have an annualised run rate of over £50m in revenue by 2025.
Conclusion
I will be keeping this company on my watchlist. It’s a raise that could be (and hopefully will be for the company) game-changing, and is completely different to what the company were doing previously when they were knocking out their £1m-£3m raises. When the facts materially change, it’s worth doing some digging into what exactly has changed. This is where money can be made, as we all know the market is slow to catch on at times.
Author Michael Taylor’s website
www.shiftingshares.com contains numerous tutorials on how to trade and invest as well as his free book – ‘How to Make Six Figures in Stocks’.
