Shareholders in the online mattress retailer promoted by Gareth Bale are facing a nightmare after the company’s valuation was slashed to just £20m in a bid to secure new funding.
Sky News has learnt that Simba Sleep, one of Britain’s most hyped start-ups, has been forced into a radical restructuring of its latest funding round.
The company finalised proposals on Monday to raise £10m at a valuation of just £20m – one-fiftieth of the prospective £1bn price tag that one of Simba’s founders said it could be worth within the next couple of years.
The development highlights the enormous volatility that can afflict the valuation of privately owned technology start-ups.
Sources said that several million pounds of the new funding would be underwritten by Allan Leighton, the company’s new chairman, and Nigel Wray, the Saracens rugby club owner who is a long-standing Simba shareholder.
The reduction in Simba’s valuation is the second time in less than three months that its founders have had to agree to such a move.
In November, the company said it was seeking to raise between £40m and £50m at a £125m valuation, itself a much lower level than the original target of a £200m price tag.
Insiders said that lukewarm investor feedback had prompted the latest savage cut to Simba’s value, which could entail a delay of several years to a sale or stock market flotation.
One source said that Mr Leighton, one of the UK’s most respected business figures, would remain as chairman of the company.
“Leighton and Wray must still believe there’s a viable business there or they wouldn’t be underwriting such a substantial chunk of the new funding,” the source added.
Weakening sentiment towards Simba has been partly a consequence of the declining share price of Eve Sleep, its publicly quoted rival.
Eve recently raised millions of pounds from investors but on Monday its shares were trading at a level which meant that it had a market value of just £15.7m.
In a statement issued to Sky News, Steve Reid, Simba’s co-founder and chief executive, said: “The funding environment became increasingly challenging after November 2018 due to a number of external factors.
“These included macroeconomic and political uncertainty, as well as the well-publicised decline in the market capitalisation of other e-commerce and direct-to-consumer businesses.
“We have had to adapt our fundraising plan to accommodate the above, whilst ensuring we remain on track to hit full profitability in the UK this year as per our business plan.”
People close to Simba said that Mr Leighton’s arrival had already delivered meaningful improvements to the performance of the company, including a halving of customer acquisition costs and the consolidation of four corporate offices into one.
Simba attracted huge publicity when it signed the Real Madrid galactico Gareth Bale as the face of its brand.
It announced the appointment of Mr Leighton, the Co-op Group chairman, last summer, and continued to tell shareholders that its Series C fundraising would be the last meaningful capital injection before a sale or float.
In a message to investors late last year, it said that such an exit could value Simba at a level “potentially significantly north of £1bn”.
Launched in 2016, Simba Sleep is one of a new breed of online mattress retailers which aspire to premium valuations by virtue of their business models and the advanced spring technology they deploy in their products.
The company continues to expect to break even in its home market this year, and has gained greater distribution by partnering with Bensons for Beds, one of the biggest mattress retailers on the UK high street.
Some investors were angered by the upbeat nature of the message communicated to them in October with so much of the current funding round yet to be secured.
Simba Sleep has embarked upon a breakneck international expansion, with a presence in more than a dozen countries, including China.
Since its launch, it has sold well over 230,000 mattresses, along with about 300,000 “additional sleep products”.