Case Studies

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BEAT THAT QUOTE 

Ecosystem Economics Case Study. An Acquisition for Strategic Value

BeatThatQuote was a British-based priced comparison website specialised in personal finance products. The company launched in 2005 and invited consumers to share their personal data in exchange for cash back and discounts. The company essentially redistributed wealth through its incentivisation process and financial intelligence. Ariadne Capital founder and CEO Julie Meyer first met John Paleomylites, managing director of BeatThatQuote, in 2006 in the early years of his business.

The company had been named Young Company of the Year by the Growing Business Awards. Three years passed before Paleomylites reached out to Meyer when Google’s Head of Corporate Development in Europe Anil Hansjee was expressing interest in BeatThatQuote. At the time, Google was moving into vertical search tools eventually acquiring travel firm ITA Software in April 2011 for $700m. Google had not made a large acquisition in the UK at that time.

Ariadne Capital was the sole financial adviser to BeatThatQuote on its sale to Google – managing the sell-side M&A mandate and setting the company’s valuation to £100m at an early stage in the negotiations. Paleomylites accepted an offer for £37.7m, which was a 122 EBITDA multiple (BeatThatQuote had £250k of EBITDA). Paleomylites went on to work for Google for two years, directly reporting to Larry Page.

BeatThatQuote exemplifies Ecosystem Economics:

  1. BeatThatQuote was a Digital Enabler to large non-tech traditional businesses – itscustomers who included the Daily Mail and Argos – who needed to build digital revenues
  2. Consumer Data drives all applications in the digital world. The more large enterprises incentivise individuals for the use of their data in order to determine consumer intent andconsumer segments, the faster they will shift to a digital-centric future.
  3. BeatThatQuote also exemplifies how Digital Enablers get acquired for their Strategic Value (the left side of the David & Goliath Grid) as it had low Financial Value, but enabled Googleto achieve its goals in vertical search diversification

BeatThatQuote’s business model of incentivising individuals for the use of their consumer data in order to have better insights into their choices and needs enabled the company to provide a wealth of information to people while generating leads for businesses that they engaged with. Ecosystem Economics is fundamentally a sharing of profits of a transaction across multiple parties. BeatThatQuote implicitly did this ahead of the market with the effect of creating strategic value for Google and positioning itself for a larger exit than would have happened given their financial profile.


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MONETISE 

Ecosystem Economics Case Study. An Early Winner in Mobile Banking

Monitise provides the specialised technology needed by financial institutions and other businesses to create digital and mobile experiences – enabling them to forge closer relationships with their customers and reduce the demands on internal IT resource. The company was founded by Alastair Lukies and Steve Atkinson who foresaw the potential of using mobile phones for more than just basic messaging and voice communications.

Ariadne Capital was the trusted adviser of Monitise for eight years from 2004 to 2012. During this period, Ariadne Capital assisted in the company’s transformation into a world recognised brand by strategically introducing it to investors, customers, executives, channel partners and the media.

When Ariadne Capital began working with Monitise in November 2004, the company was still part of listed IT firm Morse. The two companies subsequently underwent a demerger in June 2007 a few weeks before Monitise went public on the second market in London, AIM, at 22 cent a share with a market capitalisation of £55.9m. Following its IPO, Monitise successfully scaled its business enabling the company’s market capitalisation to peak at just over £1.3bn in April 2014.

Monitise, at one time, a global leader in mobile money solutions served 1000 financial institutions, was backed by VISA five times and acquired its US competitor, Clairmail in 2012. Their brilliance was to create an economic model for the mobile banking ecosystem, and drive the profitability of the overall sector, by expanding the pie, rather than charging high fees to transfer funds as some traditional firms do. The individual got a lower cost of capital, and the banks and operators were incentivised by getting a cut of each transaction to adopt and drive volumes of transactions through the Monitise platform. This is almost a class case of Ecosystem EconomicsTM as Monitise, a Digital Enabler, cut non-tech traditional businesses in on digital revenues that they otherwise would not have secured.

Ariadne’s role has been to support Alastair Lukies, the CEO, in the following ways from 2004 to 2012:

  • In 2009, Ariadne advised to focus on the smartphone as a key driver of adoption for mobile banking services, a position that was proven to be true as with the launch of the Nat West iPhone app, the Monitise share price took off.
  • Help to build the market by being an early believer and communicating the market vision that Alastair had to the media, partners and investors
  • Develop the investor base
  • Attract partners and influence customer acquisition
  • Identify and help secure 2 Board Directors and 2 members of the senior management team
  • Scan the market for intelligence and acquisition
  • Nominate Alastair Lukies for the World Economic Forum Technology Pioneer award which was granted to him.Monitise’s business model is still reliant on partnership with traditional businesses. The company just partnered with Europe’s largest bank Santander and telco operator Telefónica in October 2015. The company now serves 33 million people who account for $101bn payments, purchases and transfers annually in 2015.

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NORWOOD SYSTEMS 

Ecosystem Economics Case Study. Roaming through the Shared Economy

Ariadne Capital founder and CEO Julie Meyer knows Norwood Systems founder and CEO Paul Ostergaard through INSEAD where they are both alumni. Norwood Systems’ World Phone is an award-winning, revolutionary communications app, delivering effortless “shared economy” consumer access to leading fixed-line network service providers around the world, providing unparalleled local access to high-quality voice networks in more than 90 countries.

In a recent interview with EntrepreneurCountry Global, the company’s founder Paul Ostergaard explained that there are currently two ways to make a phone call when travelling: VoIP and cellular roaming, with the former being unreliable, and the latter being sometimes costly for consumers and businesses alike. The idea behind World Phone was to improve the quality of VoIP by using local network partners. The application allows customers to have secure, reliable, high-quality international calls at a fraction of the price by partnering with local operators. In addition to providing savings of greater than 80%, Norwood offers a frictionless and superior customer experience.

Norwood Systems has a B2B2C business model – partnering with local telecommunications operators to deliver a seamless, high-quality voice communication experience at a fraction of the cost consumers would pay.

As an investor in and a strategic adviser to Norwood since 2013, Ariadne Capital has advised Norwood Systems to apply the principles of the shared economy to the communications industry. Norwood Systems has captured more than one million customers by developing strategic partnerships with companies such as Booking.com in just over three months. As a member of the board, Ariadne Capital managing director Amit Pau has provided strategic advice to scale the business. Since its launch in late July 2015, Norwood Systems’ World phone App has been the number one downloaded travel application in 93 countries and the highest grossing travel app in 57 countries on the Apple Store alone. We are delighted to see that Norwood Systems has continued with its network effect. This weekend the company launched its application on the Android Store gaining an additional quarter of a million customers in a matter of days.

Ariadne Capital advised Norwood on theirs investment strategy. Norwood Systems listed on the Australian Stock Exchange – ASX – debuting at 2 cents in June 2015; its current share price is 16 cents. Norwood Systems is an ongoing success story with the company raising $7.1million to reach a market cap of over $130million AUD in late November 2015.

Norwood Systems exemplifies Ecosystem EconomicsTM for the following reasons

  • WorldPhone is a Digital Enabler and platform which relies on its network effect to expand its consumer reach
  • The company partners with regional telecommunications companies to help them build digital revenues
  • Consumers are at the core of Norwood System’s value proposition thus ensuring high-end user experience

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Ecosystem Economics Case Study. Object Matrix – The Ariadne Capital’s Bearhug

We grab hold of entrepreneurs and just figure out every which way we can help them grow.

Most of the great entrepreneurs looked rather tired and depressed the first time I met them…. Working 100 hours a week can do that to you….

I’ll never forget when Howard Hartenbaum, Partner at August Capital now, but then managing money for Tim Draper’s father sent me an email introducing me to Niklas Zennstrom in August 2003. Something along the lines of: ‘He did Kazam; he’s taking on telecoms’. Niklas had been raising capital for a long while at that point, and he didn’t look like he was going to sell for $2.5 billion within 2 years …

This is what I love about what I do … most of the world doesn’t get it … NEVER underestimate an entrepreneur … the more you tell them they can’t do it, the more they’re thinking – I’ll just show you….

We went on to do a lot of work with Skype, and four of the early Ariadne team flipped into Skype in 2004.

When I met Jonathan Morgan, CEO and Founder of Object Matrix, he looked pretty dishevelled it has to be said too. He seemed frankly depressed but I could see that he had something with his storage business despite only making £20 K of revenue in the entire year of 2007. It’s not normal to work 100 hours a week for years when you’ve only sold £20 K. Jonathan was a fighter. I could tell.

Ariadne introduced Bob Morton, one of our founding shareholders, soon after meeting him, and Bob plunked £150 K into Object Matrix before you could say, ‘can you spot a big company emerging…..’

Object Matrix is the leading provider of object storage and nearline archive solutions to the media/entertainment industry. Established in 2003, Object Matrix is a software company based in Cardiff, Wales that provides tightly integrated digital preservation platforms and works with global broadcasters, telcos, banks and utilities companies to ensure that their video content is always available. Customers include BBC, BT, Deutsche Banks, Fox Sports, France Televisions, Globo, the Miami Heat, NBC Universal, and Sony Pictures.

I then introduced Jonathan to Felda Hardymon, Partner at Bessemer Ventures, one of the top VC firms in the US. They looked very very seriously at investing in Object Matrix, and though they didn’t, actually Jonathan got a big kick in the derriere out of their interest, and it spurred him on. He knew he had something. And he was off!

Finally, I introduced Jonathan to one of Ariadne’s Senior Advisors, Travis Baxter, who became their Chairman two years ago.

We call all of this the Ariadne Capital Bear Hug (I know I know – very scientific term), but it’s what we do … we grab hold of entrepreneurs and just figure out every which way we can help them grow.

There’s all the rough and tumble of start-up life that Jonathan can tell you all about someday, but a global leader in storage to media firms is based in Cardiff.

Watch this space: Object Matrix is flying…..


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Ecosystem Economics Case Study. SliceThePie / SoundOut – A Digital Enabler for the Music and Fashion Industries

SoundOut is a crowdsourced foresight tool enabling companies to predict future trends when data has yet to be available.

Ariadne Capital began its involvement with Slicethepie in 2008 when one of Ariadne’s Executives in Residence Paul Brown (formerly Commercial Director at Slicethepie, then MD of Spotify, and currently Vice President & General Manager, Disney Online and Disney Music Group, EMEA) introduced the founder David Courtier-Dutton to Ariadne Capital to help with both fundraising and strategic development advice. Ariadne supported the company through five fundraising rounds in which a total of £3.3m was invested in the company from a group of high net worth and strategic private investors.

As a pioneer in applying B2C2B business models to their portfolio, Ariadne Capital managed the partnership with Bauer Media, one of the largest publishers in Europe, which resulted in a number of trials with radio stations Kerrang and Kiss. The collaboration proved so successful that Travis Baxter, MD of Bauer Radio, went on to invest in Slicethepie during the company’s funding round in 2010.

SoundOut’s proposition was essentially crowdsourcing insights into new, unsigned artists. Courtier-Dutton thought the record labels would be interested in this new digital service. However, the record labels were not playing ball as fast as David needed. Travis Baxter, who became a Senior Advisor at Ariadne Capital, through his deep knowledge of the radio industry recommended an alternative route to market: invite the radio stations to break new artists with the use of SoundOut. Travis joined the Board of Directors of SoundOut. The involvement of Travis strengthened the SoundOut proposition and pitch to the radio segment for SoundOut to become a strong commercial product offer to broadcast radio.

Based on the success of SoundOut’s crowd analytic platform, Ariadne Capital shaped their proposition for adjacent markets such as retail. The company has teamed up with WGSN launching ‘WGSN StyleTrial’ in May 2015. This crowdsourced validation platform for the fashion industry utilises the power of big data analytics and consumer panels to predict the likely performance of items accurately and to identify best-sellers before they hit the shop floor.

SoundOut exemplifies Ecosystem EconomicsTM for the following reasons:

  1. It is a digital platform predicting future trends through a network (effect)
  2. The company partners with Goliaths including Sony Music, Warner Brothers and the BBC helping them to build digital revenues
  3. It incentivises consumers in exchange for the use of their personal data thus building wealth for all involved – consumers, corporates and SoundOut

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Ecosystem Economics Case Study. Switchless/BitX – The Future of Payments and Banking

Digital currencies such as Bitcoin have been hailed as the future of financial systems. Cryptocurrencies’ decentralised system is reliant on blockchain technology – in short all transactions are encrypted and stored in a vast public ledger called blockchain.

Founded in 2013, Switchless/BitX’s business model is based on a dual synergetic approach – Switchless is a platform enabling leading banks, private wealth managers and brokerage firms to transact Bitcoin. This B2B software offers the following modules: Wallet, Vault, Brokerage, Merchant services and controller – which manages interactions with existing banking infrastructure such as online banking and KYC verification.

– BitX is a B2C exchange platform which enables end users to buy and sell Bitcoin. BitX is live in

South Africa, Namibia, Kenya, Malaysia and Indonesia. The company focuses on high growth countries with large populations where the need for and impact of cryptocurrencies are likely to be the biggest and where the barriers for adoption are lower than in the developed markets.

Switchless/BitX is led by well-rounded founders with top finance with engineering talent; Marcus Swanepoel has worked for Standard Chartered’s Leveraged Finance team in Singapore, 3i and Morgan Stanley while Timothy Stranex was a software engineer and tech lead at Google in Zürich.

Switchless successfully completed a pilot project with Standard Bank in South Africa in 2014 thus becoming the first company to build a fully-integrated and operational Bitcoin system for a large multinational financial institution. A growing number of banks in South Africa, South East Asia and Italy have also expressed interest in the technology.

Ariadne Capital’s fund invested £250,000 into Switchless/ Bitx selling its stake less than two years later at a profit as the startup took in strategic investment from Naspers. Ariadne’s bearhug contributed to raising the company profile through its dedicated communication channels, thought leadership on the EntrepreneurCountry website, speaking opportunities at the EntrepreneurCountry Forum and at the Follow The Entrepreneur Investor Summit. Ariadne also assisted in the company’s market development strategy by managing C-Level meetings with leading international banks.

Switchless/Bitx exemplifies Ecosystem EconomicsTM for the following reasons:

  1. Switchless/Bitx is a Digital Enabler to leading banks and retailers helping them build a Digital P&L
  2. The company’s B2C2B approach places consumers at the heart of its business modelSwitchless/BitX leverages its B2C application to help its customers, now Naspers in particular, to become platforms.