© 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!