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Chip

Platform:
Crowdcube
Stage:
Expansion
Industry:
Business Services
Location:
UK - London
Date Rated:
29/11/17
Raise:
£600,000
Equity:
11.51%
Valuation (Pre Money):
£4,612,858
Industry: Business Services
Location: UK - London
Platform: Crowdcube
£600,000 Expansion
Valuation: £5,212,858
Date Rated: 28/11/17

MANAGEMENT

PRODUCT

INVESTMENT
Tax Status: EIS

Business Summary

Chip is a service helping users to save money by regularly suggesting small payments be made into a dedicated account that a proprietary algorithm has indicated the user should be able to get by without. There are over 25,000 accounts opened and over 12,000 active savers. Monetisation will come from offering short-term 'overdraft saving' loans, and from other services and recommendations. These funds will be used to invest in the team and technology, and to cover user acquisition costs.

Financial Overview

Date (y/e) Dec-18 Dec-19 Dec-20
Sales Dec-18£37,938 Dec-19£1,594,901 Dec-20£8,170,098
Gross Profit Dec-18-£442,966 Dec-19£364,618 Dec-20£5,580,242
GP as % sales Dec-18-1168% Dec-1923% Dec-2068%
Overheads Dec-18£888,931 Dec-19£2,662,397 Dec-20£6,341,281
Operating Profit Dec-18-£1,331,897 Dec-19-£2,297,779 Dec-20-£761,039
OP as % sales Dec-18-3511% Dec-19-144% Dec-20-9%
Closing Cash Dec-18- Dec-19- Dec-20-

Note: This financial information has been sourced from the company on 28/11/2017 or from public sources. Financial data is NOT verified by Wheatfromchaff Ltd.
51%
SKILLS:
EXPERIENCE:
COMMITMENT:
Chip's management team covers the major roles and key personnel have received endorsements for their skills. At this level of funding we would expect to see a CFO/FD on board.
The team is young and has not had much opportunity to amass experience but there are multiple individuals with exits behind them, and they are well advised.
Some members appear to have other ongoing commitments and we note that the Chairman doesn't appear to be a Director. Further Senior hires are planned, but are currently unknown quantities.
63%
MARKET:
PRODUCT:
COMPETITION:
The market for financial services is large and multiple 'challenger banks' (and similar) have arisen to provide a new generation of services. Chip has shown an ability to resonate with its users.
Chip has rapidly gained traction, with over 12,000 active users entrusting it with their finances. Their feedback is enthusiastic and a significant part of this round comes from their loyalty.
CHIP is one of many recent start-ups disrupting traditional banking services and the competition will only get fiercer once Open Banking legislation comes into force next year.
38%
PROFITABILITY:
CASHFLOW:
RETURNS:
The financial projections, while showing multiple KPI's, unfortunately don't divulge much on the operational side. Marketing will be driven by referrals which may prove hard to control.
There is insufficient information available to fairly rate this aspect of the business
If the growth projections can be achieved and the business model proven then investors stand a very good chance of seeing significant rewards. Potential loss of EIS is a concern.


Conclusion

Chip's team has rapidly developed a service that users love and the decision to capitalise on that sentiment by focusing marketing efforts on user referrals may be more cost effective, but conversely could mean that it is harder to drive new signups as the budget provision is more reactive than proactive.

Investors may be tempted by the valuation - businesses of this nature have the potential to achieve very good exit valuations and 'challenger banks' and similar businesses attract a lot of interest. However, investors should bear in mind that if they claim any EIS benefits that may arise from this investment there is the possibility that if Chip are successful in obtaining a banking license, it may well retrospectively lose its EIS status, leaving investors liable to pay back any EIS tax relief they have received.

With significant further funding rounds planned in the mid-term, investors should also be prepared to follow-on their investment and may want to consider the rights that come with the A-shares.

Related Links

Crowdcube Pitch

www.getchip.uk

 

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The Ratings we publish have been approved and issued at Financial Promotions in the United Kingdom by Wheatfromchaff in the United Kingdom who is Authorised and Regulated by the Financial Conduct Authority FRN: 751017. Wheatfromchaff Limited registered office is Kilver Court, Kilver Street, Shepton Mallet, Somerset, BA4 5NF and telephone number +44 (0) 1749 347 577. Telephone calls may be recorded. VAT No: 214 0196 49

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