Tim Dean-Smith, chairman of internet incubator firm Cube8, called speculation that Cube8 is facing liquidation “total and utter rubbish”.
“We have £2.9m in the bank, we’re sitting on our investments and we are expecting to announce another one in a couple of weeks,” he said. The proposed investment will be a stock swap worth £50,000 (Cube8 has no plans for further cash investments).
Earlier this month the company reported losses of £4.6m (E7.4m) and announced restructuring in an effort to create new revenue streams. Cube8’s shares stand at 0.81p, 96 per cent off its flotation price of 25p, giving the company a valuation of about £2.84m.
Cube8, which made its first investment in March last year – £300,000 into Mailtrack, an email marketing company – is one of many incubators which arrived shortly before the internet bubble burst.
Exits have receded sharply since the dramatic fall in technology stocks. It is estimated that the incubation period for portfolio companies has gone from about three months to nearer three years. Many incubators put a lot of capital into consumer-orientated companies with a high cash burn rate. The market now reviles such companies and incubators are left stranded with their investments.
However, Dean-Smith is positive about the prospects of his portfolio. “They aren’t doing too badly,” he said. “They are not wasting money. Out of the 14 companies we have I hope to come out with about 12 at the end of the year, but I don’t know which ones they will be.” So far, Cube8 has lost two of a total of 16 investments.
He blames this uncertainty on the harsh funding climate. “Between four and eight of our companies need further funds to reach break-even,” he said. “But it is very difficult to raise money. Venture capitalists have gone from funding anyone in a funny hat to not funding sound businesses.”
He cites Unmissable.com, a travel website. “The company has beaten every target it has set. It has a merger lined up with a profitable bricks-and-mortar travel agent. But it can’t get the funding.” Cube8 invested £250,000 for 16 per cent of Unmissable.com in February last year. An option it has to invest another £250,000 for a further 10 per cent expires tomorrow.