January 21, 2009
Diligent Board Member Services (lots more info here) yesterday announced that they’d been successful in raising another round of funding. Diligent is positive saying that;
[Diligent] that its ability to raise capital under such severe market conditions underlines the quality and potential of its Boardbooks product. This investment will strengthen Diligent’s financial position through the current fiscal year so it can continue to drive sales and build its corporate governance focused business.
But funding at what cost?
Looking at the terms it seems like a pretty predatory sort of a deal – vulture-some even
- Spring Street Partners gained 20000000 shares at 10cents a pop – remember that original investors paid $1. SSP shares are also preferential further eroding the investment of the original shareholders
- SSP receives a guarantees 11% dividend. This despite no dividend being paid to other shareholders – win/win for SSP: if diligent flies their shares rocket and if it doesn’t they still get to scrape all the cash out of it
- The SSL shares rank a higher priority both in the event of a liquidation and a general dividend payout
- SSL can require Diligent to convert it’s shares into cash any time after 60 months
- Get this – upon a liquidation of DIL, a sale of the majority of DIL’s issued stock or assets, or a merger by DIL with another entity, DIL will be obliged to make a cash payment to Spring Street equal to 1.5 times the face value of all Preferred Shares, after which point the Preferred Shares will convert to common stock and participate pro rata with common stock in distributions to stock holders
- SSL must consent to a liquidation, a change to the constitution, new borrowing or the issue of more equity
The tale of two listings huh – at the same time that Diligent listed so to did hometown success story Xero. One has built a global product and is ramping up revenue in number of markets, while the other is struggling for its very survival.