Patch Plants is crowdfunding

Investing and Markets 📈 Startups Crowdfunding 🔨
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Hey Engineeer,

On our business model:

  1. Customers - We deliver to both consumer customers and businesses at the moment. Our footprint currently covers London and Paris, and we are looking to extend further

  2. Scalability - whilst you are right that there are some variable costs in our business that will always exist (ie the cost of the plants), we are able to reduce these by building relationships directly with growers (and the per item costs also reduce with volume), and much of the rest scales as our delivery density increases (reducing drop costs) and our reach increases (reducing customer acquisition costs)

  3. Defensibility - If you’ve downloaded our investor deck from the Crowdcube page, we have a slide on this (p18). Our business is defensible because of our unique combination of category expertise, and operational excellence. If you wanted to build our business today, you would need to replicate both. Ie our rich customer insight into buying preferences, plant care content, personal customer experience, alongside our tech platform, delivery density, and scale in buying and logistics. Amazon can’t provide all of this. And Amazon is great for buying things if you know exactly what you want. But what if you’ve never owned a plant before (as many of our customers haven’t). We help people who are nervous about owning plants pick the right plants for them, and keep them alive.

  4. Market - The gardening market is big - £22bn in W. Europe, and significantly underpenetrated online at the moment, at just 7%. See our pack for more details.

  5. Assets - I think this misunderstands our business model. We are a Direct-to-Consumer eCommerce business.

In short - I encourage you to read our pitch deck!

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22

I think it’s fairly key to note that Europe (and the EU) doesn’t really have much thyme for Amazon, so whilst the UK could be an issue, sales in the EU could grow nicely.

That’s the hedge (ahem).

(That’s all the gardening puns I can fit in)

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23

Germany alone is the second biggest amazon market, so no idea how you get this idea.

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No worries, thank you! It’s healthy to have different views on a business model that’s growing. Andreessen Horowitz VC fund runs red-team exercises to stress-test business ideas. And we here are all learning how to do research and invest.

We aren’t VCs who have other investors’ money to effectively bet with—gotta be extra careful.

In addition, a market size can be “massive”, but we have seen plenty of crowdfunded business fall apart because of many factors:

Those are just assumptions, not facts—customer acquisition costs can vary—and, as in the case of several UK and US unicorns, they can only grow, as some customers need to incentivised, before they become “sticky”. Plants aren’t a necessity, unlike food and getting around, so it can be difficult.

There’ve been plenty of unicorns that stopped growing as fast after a hitting a certain size, despite a large potential market size for each category.

(Also, to readers—to scale and to grow/expand are two different things. I’ve heard plenty businesses misuse the terms.)

Re: Amazon—I’d never underestimate them. They have a culture of Day 1. I am not a shareholder of Amazon but have studied them for long enough to see they don’t care about margins. Tesco and the likes used to say cheeky stuff to reporters back when Amazon announced it’d do groceries in the UK a few years ago—because its a “hard business”, “supply chain” , “relationships”, etc etc. Today, Tesco, M&S, Sainsbury’s are in a different world. Having such large and small competitors would be under “Risk Factors” if crowdfunding required to prepare S-1 / pre-IPO style legal doc.

Regarding smaller competitors—users still have a choice with Small and Medium and “large” (Waitrose) operators, so this should be considered by investors:

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In the end, users will always win with more offerings (think Uber or Deliveroo—both of which are no technically tech), but this doesn’t guarantee that businesses will keep growing, which affects future valuation.

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26

@Patchplants I just have one point on this. Won’t Patch Plants only inspire customers to grow the next plant themselves after 1 or 2 purchases? After all isn’t that more satisfying. You are at the end of the day pitching to the ESG consumer many of which aren’t a million miles away from just doing their own growing.

Will you be heading into the garden accessories market? Or whatever the term for it is. Seeds, pots, feed etc.

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27

I think you make some good points here. However I wouldn’t underestimate the defensibility of a strong brand in addition to excellent customer experience. On the scalability piece I agree this is a question mark… but I think you’d have had the same scepticism about Away luggage… and they’ve done alright!

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We hope so! And we hope to be able to continue to provide customers with products and advice to support them in this journey. We already sell pots and some accessories (soil, plant food, care equipment, hand tools etc): https://www.patchplants.com/gb/en/accessories/

And for those who keep wanting to just buy plants, we of course will have those too! :slight_smile:

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Interesting! Hope to get an update on crowdcube soon as an investor. Very little communication going on there.

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Not that interesting for investors getting a part of Arena Online Ltd. No exit!

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I’m assuming it screws EIS status?

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Wasn’t that three years ago?

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Just looked. Date of share issue is 3rd Dec 2019. Date of EIS from 8th Jan 2022….so just ok. Phew

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But curious, if the exit results in a share holding of a new business, and those new shares are not EIS, do they subsequently become liable to CGT?

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What would be the gain?

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As the EIS 3 year period has passed my understanding is that the crowdcube shares convert to acquirer shares at X price (this would be the cost basis that would be reflected in your broker account) and you would only pay CGT on any profit/gain beyond X price when you sell them. In the US there is an extra caveat which is if you hold the new shares >12 months the CGT is capped at 20% rather than being taxed as regular income. I have a few filtering through into this category and the difference is huge if paying 40-45% tax rate.

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No details of the exit yet and technically no gain as I this seems to have been a distress sale to keep the business alive. Had always thought someone like Amazon May buy them but maybe this makes them a bigger acquisition target. But if it just ticks along with no need to exit, that will be be form that we didn’t get asked about taking a cash option.

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Forward Partners Group plc (LSE: FWD), the London-based investment firm specialising in supporting high growth, early-stage technology businesses, announces the acquisition of portfolio company Patch Gardens Ltd (“Patch”), by Arena Online Ltd (“Arena”).

● Arena acquires 100% of Patch in an all-share deal

● Forward Partners will now join Arena’s shareholder register alongside Patch’s other early supporters, including Octopus Ventures

● As at 30 June 2022, the Company’s stake in Patch was held at a valuation of £3.0m. The Group’s new position in Arena will be assessed at year end, but the acquisition is not expected to result in an uplift in valuation

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41

The email today:

You have received this email because you are an investor in Patch Gardens Ltd (referred to as “Patch” or the “Company”) and your shares are held on your behalf by Crowdcube Nominees Limited (“Crowdcube Nominees”).

Crowdcube Nominees has been made aware of the purchase of all outstanding share capital of Patch by Arena Online Limited (“Arena”). Arena is the UK’s leading ethical flower business. The company fulfils tens of thousands of deliveries each week of cut flowers, plants and gifts on behalf of some of the UK’s best-known brands, as well as through its own direct-to-consumer brand Arena Flowers .

The Company has advised that the acquisition completed successfully on 12 January 2023. For more details, please see the press release, here.

This will be on a cashless basis, i.e. your shares will be exchanged from shares in Patch to shares in Arena. The Crowdcube Nominees shareholding of 1,512,150 shares in Patch will be exchanged for an initial allocation of 90,477 Ordinary Shares in Arena (the “Consideration Shares”) representing approximately 0.68% of the entire issued share capital of Arena following completion of the Transaction. Further information will follow on individual beneficial ownership of the Consideration Shares and how this value relates to your original investment. Note that the terms of the sale and purchase agreement includes a mechanism for a potential increase in the number of consideration shares to be issued based on the certain financial performance conditions, which means that the number of Consideration Shares could potentially increase.

Patch has served a “Drag Along Notice’’ on Crowdcube Nominees. A “Drag Along” right is a mechanism commonly found in a company’s articles of association under which majority shareholders can compel the remaining minority shareholders to accept an offer from a third party to purchase a controlling interest in the company. The majority shareholders who are ‘dragging’ the other shareholders must ensure the buyer offers the minority shareholders the same price, terms and conditions that majority shareholders have been offered, subject to the provisions of the company’s articles on how sale proceeds are distributed amongst shareholders.

The Drag Along Notice received by Crowdcube Nominees is signed by the required shareholders (the Selling Members) to effect the ‘drag’ and the correct process has been followed by Patch and the Selling Members.

The implication is that you have sold your shares in Patch and you are now a beneficial owner of shares in Arena. We will be able to provide more details about this following the confirmed valuation; this is not currently possible due to the valuation adjustment mechanism and the information made available to us. We recommend seeking independent tax advice on the steps you need to take as a result of this investment no longer qualifying for EIS relief, as this will depend on your individual circumstances.

What are the next steps?

You are not required to do anything at this stage. Crowdcube are awaiting receipt of the share certificate from Arena; when this is received, we will be able to generate new Statement of Beneficial Ownership for investors. We will keep you updated on the timeline of this - all current Statement of Beneficial Ownership can be found in your portfolio here .

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