Djibble 1A

Type 1 – Project risk

1.      Risk associated with the team's knowledge of the market and correctness of forecasts

Risk: The DJIBBLE team might not have (proper) knowledge of the market and/or make incorrect forecasts, in particular an overestimation of the number of sales and the selling price.

Consequence: If the team does not have sufficient knowledge of the market, it could set incorrect targets. This could lead to a lower valuation in the event of a possible exit because the business plan could not be executed as planned. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy, with partial or complete loss of the invested capital.

Note: DJIBBLE's financial plan is based on conservative assumptions. For example, costs per installation (Costs per Installation / CPI) are estimated at ~€6 per user in the first year, although the pilot launch yielded a CPI of about €3 per user. Revenue projections do not include any revenue for the first 10 months after the capital increase.

EBITDA is expected to turn positive from year 3. The financial plan anticipates revenue of €3.7 million after 4 years. Since social media companies are typically valued at three times their revenue, DJIBBLE could be worth about €15 million in four years - about 15 times its current valuation. The pre-money valuation of this round provides significant protection against downside risk. Even if only 10% of the revenue target is met in year four, shareholder value is preserved, assuming the company's value/sales multiple remains constant.

2.      Risk associated with the need for new financing

Risk: Given the stage of development that project owner is in, it is likely that there will be a need for new financing. 

Consequence: On the one hand, there is the risk that the company will not find investors, which would lead to the dissolution or bankruptcy of the company, causing the investor to lose part or all of his investment. On the other hand, there is the possibility that the company will find new investors, which will lead to dilution, which will be even greater if there is a lower valuation than the one currently used.

Note: Investors will have the opportunity to co-invest in new rounds, at the then current investment terms if new investors are found. The low fixed cost structure allows DJIBBLE to align its expenses with its revenues. In addition, DJIBBLE will immediately focus on customer acquisition and sales tracking and invest 80% of the funds raised during the current fundraising campaign in sales and marketing. Such an approach distracts from the next potential fundraising campaign, as there are typically many more venture capitalists and other investors interested in investing in commercial-stage companies that already have some proven traction.

1.         Risk associated with a new lockdown due to a pandemic

Risk: There is a risk of a new pandemic circulating, causing the government to decide on a lockdown. 

Consequence: Given DJIBBLE's objective to facilitate meeting people in a live environment, pandemic lockdowns would force DJIBBLE to suspend its operations. This could result in a lower valuation in the event of a potential exit because the business plan could not be executed as planned. In that case, there could be lower or even non-existent returns. In the worst case, there could even be a liquidation and bankruptcy of DJIBBLE, with partial or complete loss of the invested capital.

Note: Given the low fixed cost structure, it would be relatively easy to put DJIBBLE into temporary dormancy if necessary.

Risk: The risk of insolvency means that DJIBBLE does not have sufficient funds to meet its payment deadlines (cessation of payments). 

Consequence: If the company does not find alternative financing (shocked credit), it may go bankrupt. The insolvency or bankruptcy of DJIBBLE may lead to lower or non-existent returns and in the worst case to a partial or total loss of the invested capital. 

1.           Risk associated with the lack of guarantees.

Risk: Neither the shares of DJIBBLE nor the Participatory Notes of the DJIBBLE 1A compartment of Spreds Finance provide guarantees of a return or repayment of the invested capital. 

2.           Risk associated with the lack of a fixed return.

Risk: Participatory Notes do not offer a fixed return. The return of the Participatory Notes depends solely on the performance of the Underlying Asset, namely the shares of DJIBBLE. 

Consequence for both risks: If the project owner's predictions do not come true (within the predetermined timing), there is a risk of lower or non-existent returns and, in the worst case, partial or complete loss of the invested capital. 

Note for both risks: Investors in Participatory Notes bear the same economic risk as if they were investing directly as shareholders of DJIBBLE.

Risk: Although each Spreds Finance compartment is ‘bankruptcy remote’ (meaning that no other creditor can claim a right on or against this compartment) in relation to the others and in relation to the ‘general’ liabilities of Spreds Finance itself, as a result of (i) the terms and conditions of the Notes, (ii) the articles of association of Spreds Finance and (iii)  Article 4 of the Law of 18 December 2016 on crowdfunding; there is a subsidiary risk of  insolvency of Spreds Finance. 

Consequence: Should such insolvency occur, Noteholders may be exposed to the risk of a significant delay in the recovery of their investment.

Note: The probability of this risk occurring is extremely low given the structure and organization of Spreds Finance, in particular the compartmentalization mechanism and the "bankruptcy-remoteness" described above. Each participation taken or loan granted to a project owner is recorded in a separate compartment and is appropriately accounted for in the accounts, taking into account the fact that the accounts are kept by compartment. As a result of (i) the conditions attached to the issue of Participatory Notes, (ii) the articles of association of Spreds Finance and (iii) article 10 of the law regulating the recognition and delimitation of crowdfunding and containing various provisions relating to finance and notwithstanding articles 7 and 8 of the Mortgage Law of 16 December 1851, the assets of a particular compartment serve exclusively to guarantee the rights of investors with respect to this compartment.

1.               Risk associated with the absence of an organized exchange market for Participatory Notes

Risk: Neither the project owner nor Spreds Finance organizes an exchange market for Participatory Notes. It is thus up to the investor himself to find a buyer for his Participating Notes. Given the absence of an exchange market for Participatory Notes, there is no way to adequately establish a comparative pricing methodology for Participatory Notes.

Consequence: A holder of Participatory Notes may not be able to find a buyer for the Participatory Notes it wishes to sell (at the price at which it wishes to sell).

Note: The intention is not to sell the Participatory Notes but to sell the Underlying Asset, often on the occasion of the sale of the Company itself.

2.           Risk associated with the vote by the general meeting of holders of Participatory Notes to sell

Risk: Any decision by Spreds Finance to sell shares of DJIBBLE is subject to the approval of the holders of Participatory Notes representing at least 75% of the outstanding Participatory Notes, unless Spreds Finance is required to sell them under a contractual or statutory provision. 

Consequence: Investors thus bear the risk that the general meeting of the holders of Participatory Notes may refuse to approve the sale of the participation, in which case all investors are bound by this decision and thus must wait to obtain redemption of the Participatory Notes.

1.               Risk associated with the absence of analysis by Spreds Finance

Risk: Spreds Finance has not conducted an analysis of the proposed project or of the financial situation of the Company.

Consequence: Any investor considering subscribing to Participatory Notes should make its own analysis of DJIBBLE's solvency, activity, financial situation and prospects.

Note: Any decision to invest in Participatory Notes should be based on a comprehensive analysis of the project and of this sheet of essential investment information. Spreds Finance's model does not provide for the presentation of analyzed projects to investors but allows investors to invest based on the information made available to them, after making their own analyses.

2.               Risk associated with the lack of (periodic) reporting

Risk: There is no obligation for periodic reporting in unlisted companies (except for the cases provided by law, such as the annual general meeting of shareholders and an alarm bell procedure). While some entrepreneurs proactively communicate good and bad news (with a certain periodicity), others do not. As a (minority) shareholder, one cannot enforce reporting (other than in cases provided by law).

Consequence: If an entrepreneur does not do (periodic) reporting, there can be long periods during which investors have no insight into the (financial) state of the company. The lack of reporting does not in itself change the (financial) state of the company but can create a sense of unease among investors. If at some point a company has to file a procedure of judicial reorganization or bankruptcy, this can be a (big) surprise for the investor. 

Note: Investors in Participatory Notes bear the same risk as if they invested directly in DJIBBLE and became shareholders. However, Spreds, as a crowdfunding service provider, tries to encourage each project owner to report at least 2x per year.

To the best of the project owner's knowledge, there are no other material risks associated with its activities.