© john mullins 2007 deep sea world: the rest of the story john w. mullins
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National Entrepreneurship Network © John Mullins Ellesmere Port Opened by the Queen, July 1998 Named “Outstanding New Tourist Attraction” for 1998 But all was not well… –Huge cost overrun – again! –Visitor count at half of forecast (2,000/day vs. 4,000 planned) –Located at the edge of the population belt, not city centreTRANSCRIPT
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© John Mullins 2007
Deep Sea World: The Rest of the Story
John W. Mullins
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The Flotation: October 1996
• DSL floated on AIM at £10 million market capitalisation, £1.60 per share
• New option package for Crane put into place
• Construction on Ellesmere Port went ahead
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Ellesmere Port Opened by the Queen, July 1998
• Named “Outstanding New Tourist Attraction” for 1998
• But all was not well…– Huge cost overrun – again!– Visitor count at half of forecast (2,000/day
vs. 4,000 planned)– Located at the edge of the population belt,
not city centre
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Implications?
• Not making the numbers: commercial risk?
• Was financed mostly with debt: financial risk?
• Cash running short, DSW can’t service the debt
• Implications for Norman Yarrow? For Crane?
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Dealing with the Banks
• Irish banks threatened insolvency• Yarrow countered: “Here are the keys.”
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The Outcome
• The Irish banks took a £2 million haircut• Bank of Scotland (thanks to NVM
contacts) stepped in
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Two Years On: Summer 2000
• Ellesmere Port two years old• Visitor count still at half of forecasts• Crane sacked• Rights offering at £2 million valuation,
30p per share, raised cash • Spanish leisure operator Aspro bought
29% stake (mostly shares of NVM LPs) at 45p, Aspro management stepped in
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What about Crane?
• In 2002, Crane sold his shares to Aspro at 38p, a 9% discount to the trading price, netting him £1 million– Recovered his investment
• Thus, both NVM and Crane escaped a difficult venture largely unscathed– All in a day’s work for a VC investor
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Lessons for Investors
• On structuring start-up deals: the instruments hold the key– All the money required up front, but with
early cash flow? • Use mostly debt-like instruments to reap early
cash flow– No early cash flow anticipated?
• Use multiple rounds combining prefs and ords, hope for a big exit
• When things go wrong, who gets to fix them?
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Lessons for Entrepreneurs
• You can influence the deal structure and instruments used. Don’t leave it to the VC.
• If you don’t deliver, you’ll eventually be gone
• Thus, make sure your stock vests as early as possible
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Lessons re Grant Money
• Applying is time-consuming, probability of winning is low
• There is no free lunch – if it looks like one, find out why it is being offered!
• Don’t let a grant distort your strategic logic– Ask, “Are we still on mission and strategy?”
• But, if a grant fits, it is very cheap money!
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By 2005
• The outlook had brightened– Visitor count still only 60% of original
forecast, but…– Revenue per visitor up sharply
• Management does make a difference!• DSL pre-tax profit £1.6 million
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2007
• Visitor count down• Pre-tax profit off sharply• Market cap £9.5 million December 2007
– Same as at flotation in 1996, after considerable dilution
• Still very stormy seas!