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22 November 2019

Digging Deep – Why We Restructured In 90 days

by Ben Strange, CEO, Strada Global

Imagine you know of a technology that could literally save the world. This technology is able to unlock an endless supply of clean, renewable energy which, if used correctly, could provide heating, electricity and fresh water for everyone. It is very simple and uses existing materials and equipment in a very clever way. It is also very affordable to deploy, has a small footprint and could run for decades with virtually no input. You have basically found the Holy Grail of renewable energy; a solution to climate change, capable of revolutionising how we responsibly power the planet earth, forever. This new, unique system is proven – one critical piece of technology needs final testing, and then it will be ready to use.

There is just one issue…

The network of companies holding this technology is in such a bad state that investors have written them off. The corporate structure is a convoluted web of companies which are linked by agreements and contracts, each having different assets, shareholders and revenue models.  The culture in the organisation is rapacious, leading to a high cash burn rate and no accountability; the founder controls all discussions, votes and influence.  Debts are increasing, and the strategy to cover loses is becoming riskier.  As time passes, it begins to look as if administrative and governance issues will prevent an earth-saving technology from reaching the marketplace.

This is the almost unbelievable situation I found myself in in 2017…  

Initially, I was brought into the organisation with a remit to focus primarily on marketing.  The then-management believed that lack of communication was the reason that we weren’t gaining traction, and they thought that I could help them to solve that.  Within days, however, I realised that this wasn’t the case.  The culture was that of an already successful company, despite being pre-revenue. The company would set high salaries, buy cars, entertain at long lunches, rent penthouse offices and apartments and take staff on international holidays or conferences. Perception of value was set on potential revenues, and that translated to high cash burn. I began to understand what was happening within the business and what would be required to make it work. It would need a serious culture shift and management input.

I chose to move to the head office…

After demonstrating that I understood the business, and had a practical strategy to improve things, I was appointed CEO of the IP company in 2018. While I had a daunting task ahead of me, I have a passion for corporate governance, leadership and (sadly some would say!) dashboards. Each month I would sit the board down to introduce budgets, policies and reporting requirements and each month I would also have to explain to the shareholders why we didn’t achieve the set targets. There were a lot of arguments and tensions between the directors during this time.  I met people who mortgaged their house to invest in the companies, and I also saw funds being spent on penthouses and holidays. The moral injustice I felt during this time fuelled me, and I was determined to protect their investments if I could.

I also wanted to find a way to protect this valuable technology from destructive management…

Eventually, a potential funding injection failed. The web of companies quickly became insolvent, and there was not enough time to start fundraising again. Liquidation would likely mean a fire-sale of the assets and a fight over which company creditors get a slice. It would also mean no more world-changing technology and a lot of unhappy people who had invested in the vision.  Commercially, it could make sense to let the company go broke and for someone to buy the technology from liquidation. This would have meant paying only a portion of the overall debt and owning all of the technology, instead of sharing it with the existing equity holders. It would be a fresh start, with all the assets and none of the mess. However, I knew if I let this happen, that a lot of good people would lose money and that the heart of the business would be morally bankrupt, even if it were financially solvent.

Instead, I proposed a takeover…

I bought out the founder and became the major shareholder of the entire group of companies, with the hope of turning them around to something valuable. I had unique knowledge of the hundreds of intricate agreements, asset values, company accounts and, most importantly, existing relationships with the stakeholders.  I also felt I had a moral obligation to try my best to untangle the web and realise the potential of the technology, making sure that all existing stakeholders would receive the benefit. I’m proud to say that in just a few months, I had restructured and recapitalised the whole group using a simple (but very stressful) five-step process.

1.   Stabilise

The first step in the process was to stop the bleeding – I ceased all trading and negotiated informal arrangements with our creditors. All staff were immediately let go, and I made sure that everyone connected to the organisation knew what was happening.

2.   Consolidatie

Every investor had a different perception of the value of their shares, so it took some time and careful negotiation to bring all shareholders together into one consolidated company. I used a third-party valuation to avoid any bias for the weighting of shares or conflicts of interest. I also negated my personal shareholding in one company to increase all other shareholders’ position by more than 25% of the total. In the consolidated company, all shareholders would receive equal benefits and be protected by the highest governance measures.

3.   Structure

A complete overhaul of the Strada companies was necessary to align all stakeholders, achieve fundraising requirements and enable proper governance. This included; new articles of association, new banking mandates and a new board of directors. The overhauled company governance measures included anti-dilution clauses, one vote per director, delegation policies and a majority of independent directors. All of these measures were carefully designed so that the company would highly functional and accountable. Debts would remain in the subsidiary companies and protected so that they can all eventually be paid.

4.   Fund

The organisation had been trying to get the technology to market for four years.  It had received £10million in funding and still had no revenue. Somehow, despite this, I needed to find additional funds to complete our final critical testing.  I managed to persuade the most decent and visionary of our investors that things had changed and that if they would trust me, with a new culture and a new structure, that I would not let them down.  I am humbled to say that they supported me, despite everything that had happened under previous management.

5.   Test

We are currently, finally, testing the last piece of this incredible technology, which we believe could unlock the potential renewable energy for the world.

I’ve outlined these steps in stages, but in reality, they all happened contemporaneously; funding was linked to the new structure, on the condition that the companies were stabilised, consolidation was complete, and the proceeds were to be used only to secure the IP and test the technology. This aligned all shareholders interests to be a part of the funded, secure and consolidated company and made sure everyone would receive equal benefit from the exciting new plan.

What comes next?

I am very excited to say that we will soon be able to publish the results of our testing.  This will be a huge milestone for us as an organisation and genuinely demonstrate that our technology can do what we say it can.  I was always excited about the technology, though – we all were.  Now, I am equally looking forward to seeing what sort of organisation we can build.  Which, is part of the reason I have written this frank, somewhat scary account of our journey so far.  Transparency and integrity are how we have turned the company around to be an organisation I am already proud of and is how we will continue to grow. It is also how we will attract the right investors and clients in the future. Changing the world starts from within – I want our business culture and how we conduct ourselves to be worthy of our technology’s potential.