I’ve written about Tungsten Corporation a few times in the last six months (here and here).  I’m fascinated with the company because it is a pure-play public company in two hot markets popular with VC and PE firms:  e-invoicing and supply chain finance.

Here’s the picture Tungsten (neé OB10) draws of its business model:

In February, when Tungsten Corporation stock hit £1.50, from a high of £4.00, I noted the stock would continue to be a roller coaster.  That was an understatement.  The stock has now been as low as £0.70 and rebounded Friday to £0.95.

Tungsten made a flurry of announcements to keep the roller coaster running:

• The company raised (thru a private placement) £17.5 at £0.80 per share.  The Vice Chairman invested £3 million.
• The company announced its CEO was moving to Vice Chairman and its Head of Americas would become CEO.
• The company pre-announced results for the year ended April 30, 2015:
  • Revenues will exceed market expectations of £22.5 million
  • Losses will be less than market expectations of £31.2 million
  • Buyer groups using the network increased to 173 from 124
  • Dollar and invoice volumes on the network appeared to increase in the 8-10% range
  • 1 Customer had signed up for the Analytics product, 40 are in pilot

The dollar and invoice volume growth targets were likely disappointing to investors, as the overall market appears to be growing more quickly.

Supply Chain Finance Product

With respect to the new, but important, Tungsten Early Payment product, I’ll quote directly from the Tungsten press release (which you can read in its entirety here, without clicking through the onerous legalese found on the Tungsten Corporation website).  Underlined sections are my emphasis:

By 30 April 2015, 188 suppliers had signed a contract to use Tungsten Early Payment, and 38 suppliers had completed the registration process to become a customer of Tungsten Early Payment. Total invoices financed was £32 million.

 Tungsten’s experience has shown the two distinct markets, large corporates and SMEs, have different average yields, with large corporate invoice financing having an average yield of 4.5% p.a. and SMEs having an average yield of 12.4% p.a. The penetration rate was 6.6% of SME suppliers targeted, while the penetration rate for large corporates may be higher but has a smaller population. Customers using Tungsten Early Payment finance repeatedly use the service, financing an average of 79% of the value of their available invoices.

 Since launching Tungsten Early Payment at the end of last year, we have determined that the sales and enrolment processes take longer than desireable; require more sales people and marketing resources; and need a simpler supplier financing approval process to gain traction. We have hired Early Payment sales people, plan to increase the marketing budget in the current financial year, and are simplifying and shortening the process for suppliers to be approved for Tungsten Early Payment, which currently takes several months before a supplier is allowed to finance their invoices. 

Those of us who have competed in the SCF market recognize these issues of optimal interest rates, penetration, and enrollment!   Investors probably did not want to hear about the time and cost required to onboard suppliers.

Summary

When Tungsten Corporation acquired Ob10 and went public, I noted that the company was going to need to grow more quickly and increase its “gross yield” to meet investors’ lofty expectations for the sector.  So far, Tungsten has done neither.  Topline growth remains tepid  (though some future-oriented indicators, such as number of buyers, seem more positive).  “Gross yield” is the amount (in this case British Pounds) Tungsten is able to extract for each £ flowing through the Tungsten Corporation network.  This yield remains about 2.2 bps–very low.

Part of me is rooting for Tungsten Corporation to succeed.  Tungsten is trying to do something important, hard, and beneficial on a massive scale–all while being public.  (At Ariba, I had the luxury of growing our e-invoicing network while being a part of a much larger entity. We could, and did, fly under the radar.)

Another part of me feels Tungsten is experiencing the natural aftershocks of  “overselling” their capabilities during and subsequent to the IPO process.  (Also, what is up with buying a bank to provide supply chain finance?  You can “get the milk without buying the cow”.  Or at least you can buy the cow after you know you really need the milk!)

As I sort my feelings about Tungsten Corporation out, I cannot stop watching.  Tungsten is either a slow rolling car crash or a phoenix about to rise from the ashes.  Big investors are making both bets.