German VC group Kimvestor has said it will invest E50 million in Letsbuyit.com.
Following its last-minute escape from liquidation last week, eRetailer Letsbuyit.com has once again cheated death. It needed to raise E4 million last night to cover its trustees’ legal costs, which it managed to raise from German venture capitalists Kimvestor and from existing investors. Now Letsbuyit has another week to prove it has a viable business plan and can continue trading, by which time it expects to have provisionally secured E50 million from Kimvestor.
This is the best news for the UK-based, German-listed, Dutch-registered eRetailer for months. If the Kimvestor money comes through, then on its own forecasts Letsbuyit might reach profitability before it is used up. Analysts estimate it needs about E70 million to reach profit, leaving a small shortfall. But CEO John Palmer believes Letsbuyit actually only needs E40 million or less. If his prediction is realistic, Kimvestor could be Letsbuyit’s savior.
Unfortunately, there are reasons to be pessimistic. Bankruptcy trustees van Doorne and KMPG are under-impressed with Letsbuyit’s potential, saying in an official report that the situation at the administrative level is deplorable and that regional subsidiaries have been competing to see who could spend the most money. On one level, this is positive news – at least the situation can now be addressed and cash flow can be reduced without significantly damaging revenue potential. However, most of the managers who allowed this to happen are still in place. Whilst Kimvestor’s plan involves major cost-cutting initiatives, closing four of the firm’s 14 European offices, it remains to be seen how successful these will be.
Investors and creditors should also remember that Kimvestor’s offer of long-term support is provisional. The fund is itself trying to raise E20 million at the moment and is likely to need to bring other investors on its side. Kim Schultz, who runs the fund, is a friend of Mr Palmer; whether this will encourage or discourage other investors remains to be seen. The new move buys Letsbuyit some time and may just, possibly, see it through to profitability. But investors and creditors would be unwise to get their hopes up too much.
