The AIM-quoted firm said it has made good progress in reducing its cost base, refocusing its strategy and identifying new opportunities, but needs a cash injection to help take it to the next step.
Long-term backer and former Morgan Stanley managing director Roberto Sella has agreed to subscribe for up to £3.4mln worth of convertible secured loan notes.
The first tranche of £1.7mln should hit the company’s bank account before the end of the year and it is confident that this will be “sufficient to take the company to profitability”.
For cloudBuy to get the money in that timeframe though, shareholders will need to approve the financing at a general meeting on December 27.
The firm warned that if shareholders don’t back the proposals it would need to find another way of getting some money together or risk becoming insolvent further down the line.
This initial £1.7mln has been earmarked for working capital and in particular to continue with investment to drive revenue growth in PHBChoices – a secure web-based care marketplace that enables patients to purchase goods and services from suppliers that support their care plan.
If cloudBuy asks him at any point over the next decade, Sella will also have the option to subscribe for the other half of the notes.
Under the terms of the deal, the US-based investor will also have the right to appoint up to 40% of the total number of directors on the board.
A bumpy road to profitability
The fund-raising represents a reboot for cloudBuy, which made a dash for growth back in 2016 that did not entirely come off.
Investment was made in its technology and in sales & marketing in the hope that it would generate a step-change in revenue generation; there were some successes but not on the scale foreseen and after learning some painful lessons the company has since changed it approach.
The cost base has been cut back while in terms of revenue generation, the focus is now on winning projects that have a larger upfront fee, as this mitigates the risk for cloudBuy and provides a larger incentive for the customer to continue through to the transaction revenue phase.
Like most software companies these days, the watchwords for cloudBuy are “recurring revenue”.
The company’s cloud-based platform already has more than a million users, including many of Britain’s universities and colleges, which use the ‘generic emarketplace’ tool to buy anything from chairs to highlighters.
Another major customer is the NHS, which has identified over £500mln in cost savings using its SpendInsight programme, while in 2017 the focus was very much on the PHBChoices UK Care Marketplace.
Once a company signs up with cloudBuy, it tends to stick around; executive chairman Ronald Duncan has indicated that a client who signs up today would still be generating revenue for the company in ten years’ time.
The company succeeded in halving in losses in 2017, despite revenue being below market expectations.