Boxing Clever

“Satisfying both customers and investors is a hard task for a new business.”

 

I don’t work with start-up businesses because there are just too many uncertainties. There is rarely enough evidence to persuade me that someone’s apparently good idea makes any commercial sense. The risk is just too high. But when does an early stage investment make sense? Well, if you follow the VC model, only if you take a portfolio approach so that the one or two winners subsidise the losers and allow you to come out ahead in the end.

How then should you view the forthcoming IPO of The Snooze Box? This small business provides pop-up hotel rooms in steel containers for sporting and other events. Started by two ex Arcadian International managers, you’d have thought they should know something about hotels as Arcadian International owns the Mal Maison and Great Eastern Hotels.

Prefabricated hotels are going to be a little different to a normal hotel so I guess there will be a lot of potentially costly learning curves to climb, but The Snooze Box has been tested at Silverstone motor racing circuit last July and it is now permanently on site there. It is current installing a further 320 rooms for the Queen’s Jubilee celebration and other events, including the Olympics and Glastonbury, are being discussed.

To fund the idea The Snooze Box is hoping to raise £10m of funding in an IPO that will see it listed on AIM in the next few weeks. David Coultard liked the idea enough to become the company’s president but, unlike Victor Kiam, he didn’t buy the company.

All businesses have two customer groups to satisfy, investors and end users. They have different needs and success criteria and a successful business needs to be able to meet both. End users often have an easier decision to make but when considering an investment you need to think about some fundamentals like demand, competition, economics and execution risk to even begin to access its attractiveness.

Well, to my mind it seems like a good idea to be able to satisfy very peaky and localised demand for accommodation and I can see why some people might want what The Snooze Box has to offer so a tick there then if, and it might be a big if, it can be done at an acceptable cost. It is a pretty easy idea to copy but with this investment these guys could go a long way to dominating this space, at least for a while, as there is a strong benefit in being first to market.

On the downside though, it seems like the operational risk could be quite high and the costs too, so is there really enough money in it to satisfy the primary concern of any investor, which should be return on capital? Perhaps it can pay its costs, even make a good return for management’s time and effort, but is there really enough money in it to make this a sensible investment? Is there really enough demand to achieve the minimum scale size at a price to satisfy both customers and investors?

Only time will tell, but it will be an interesting business to watch as it spends its new money and the business develops from here. It is one thing to be able to tell a compelling enough story to raise funds but quite another to turn that into cash in the bank for shareholders.

All early stage investments are high risk so is there a big enough return in this to justify the risk? I’m really not sure.

Mark

 

 

 

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