The picture above is apropos. Because it appears the person shown is setting fire to cheap paper.
LX Ventures (TSXV:LXV) was seen by many as the ascending tech rocket that would boost the local sector. CEO Mike Edwards is a renowned tech player, he's got nice exits behind him, and witht he Mobio social media platform, boosters saw LXV as headed to the mooon.
And it did, prior to Mobio's release. Now, despite signing up megastars like football god Cristiano Ronaldo and reality TV's Kim Kardashian, LXV can't catch a rise to save itself.
So why are investors dumping LXV? Cheap paper is one reason. Stock dilution is another. A host of new purchases, like that of Strutta and Copper.IO, raise questions also.
There are questions surrounding financing: Which is why Stockhouse columnist Danny Deadlock dropped coverage on the company, and partly why IR monster Keir Reynolds says he has resigned from the board.
For the uninitiated, LX Ventures is a tech incubator that listed on the Venture last year and ran up a big price rise on the back of Mobio. Mobio allows fans and celebrities to mingle, and allows celebrities to earn a revenue split through a 'watch this video to see the celebrity answer' system.
It has the potential to be a big deal, especially in the wake of the WhatsApp $16 billion acquisition by Facebook last week, and that's why investors have.. sorry, had... been gobbling it up.
And yet, LX Ventures stock, even in the wake of the WhatsApp deal, has been dropping like a stone for a month now.
Why? Because the focus has changed. Mobio needs user volume and upgrades and marketing, but the company doesn't appear to be giving it much, or at least that's the perception, as it spends money and generates new shares to buy speccy new deals that investors don't see the appeal of and didn't buy in for.
Reynolds wrote an exit letter on his roon.io page yesterday that laid out an 'everything is fine, don't read anything into my departure, they're just bringing in heavy hitters' scenario, before burying the lede:
- Look deeper into the Strutta and Copper acquisitions, ask questions, meet management…more info needs to come to light about these companies.
If you're reading between the lines, that would indicate either the companies LX bought are bleeding cash, or the deals were more about helping friends or putting out news releases than making rich exits.
Of course, there's likely another side to the story. But the fact that investors don't know what it is is kind of my point.
Reynolds also threw out a cryptic (yet not so cryptic) reference to dilution, saying:
- Upon founding in late 2012, approx. 22M shares @ $0.10 and 11M warrants at $0.30 were issued.
Now, the shares outstanding sit at 73 million, with several deals in the pipeline that will further dilute things, including an 8 million-share private placement coming up at $0.35. That's a lot of cheap paper if the company is undervalued now and will ensure the company doesn't go above the mid $0.30's easily any time soon.
Deadlock ceased coverage earlier in the year, despite riding it from $0.19 to nearly a dollar over a few months, telling subscribers his concern was due to a lack of clear information from the company regarding finances.
I was one of those early LX investors. I rode it to that pre-Mobio launch high, then held on to it as it dropped down again to half that, taking the long term view that Mobio was acquisition-bait (something company execs echoed, stating that they were exit-focused on all their investments).
But this week it became all too clear that there's no imminent spike upwards coming for LX Ventures. If an insider like Keir Reynolds is moving on, it's clear you either hold it for several years and hope the cash burn (or constant fundraising for more acquisitions) eventually turns out a winner, or you get out now and go find something else that can elevate quickly and cleanly.
After all, that's what Keir Reynolds has done... and he started the damn thing.
"Yes, I have a new vision and will be assembling another talented team in an entirely different sector," he said yesterday.
I'm all ears. And I have a half of a formerly nice wedge waiting for his next move.
2 thoughts on “Dilution, cash burn and founder overboard: The LX Ventures (LXV) problem”
Pretty sure Facebook bought Whatsapp…. not Google…
Look up his SEDI filings before defending.
You have to search him as “Reynolds Keir”. Interesting? First Sedi Filer I’ve seen who list his first name as his last and vica versa.
He picked up a tonne of cheap stock – 500,000 at 0.20 in his Mammoth HoldCo and then blew out 255,000 at 0.59 and 205,000 at 0.64. All publicly disclosed.
Do some due-diligence before slagging the company for dilution. These guys were all in on it together. It was a typical Vancouver cheap paper load up and blow out into a high volume promo campaign.
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