US investor throws fintech Douugh a $20 million lifeline

Sydney-based fintech Douugh (ASX: DOU) is building up a $20 million reserve of cash to stay afloat, partnering with US investor Long State which is coming on board as an equity partner.

The deal will see DOU dilute its pool of securities by around 5 per cent in exchange for a flexible, on-demand funding facility that Douugh hopes will enable it to continue to scale in the US and finally launch its banking and budgeting app in Australia.

Under the deal, New York City-based investor Long State will become dual-listed Douugh’s second largest shareholder once the 35 million shares are issued - done periodically as the fintech uses its discretion to draw down on the $20 million facility, essentially worth as much as the company itself which had a market capitalisation of approximately $24 million at the close of trade last Friday.

In addition, Douugh will issue $50,000 worth of shares to Long State for fees relating to setting up the facility, plus another 10 million unlisted options to be purchased at $0.108 per share subject to shareholder approval to generate another $1 million.

Long State's approximately 5 per cent holding will place it above buy-now pay-later Humm (ASX: HUM), which is a joint venture partner of Douugh in the United States.

The fintech's top shareholder which held 28.9 per cent of total shares issued as of FY21's financial report is The Digital Bakery - an investment vehicle run by Douugh CEO and co-founder Andy Taylor.

Andy's brother and DOU co-founder Mark Taylor is a minority shareholder, alongside share trading app operator Superhero, former Humm chair Andrew Abercrombie, and Indomain Enterprises, linked to the family of non-executive director Bert Mondello.

It comes after penny-stock Douugh reported a $7.1 million loss in the six months to 31 December, exacerbated by $6.8 million in cash outflows and just $100,522 in receipts from customers during the half. That loss would have been even worse had Douugh not secured $288,349 in JobSaver support during the half. The company also tabled expectations it would receive a $1.26 million R&D grant from the government.

That result led auditor RSM Australia to declare “a material uncertainty which may cast significant doubt as to whether the consolidated entity will continue as a going concern”.

However, as Douugh had $9 million in cash on hand, the ability to raise additional capital, and R&D tax and other incentives totalling more than $1 million, RSM decided it was ultimately appropriate to prepare the financial statements on a going concern basis.

The $20 million facility also comes as Douugh’s share price languishes in the record-low territory. At just $0.036 per share, DOU's circumstances are a far cry from the highs the company enjoyed shortly after listing in 2020 - hitting $0.36 per share in November of that year.

With these factors in mind, Douugh CEO Andy Taylor is likely pleased that the listed company has $20 million to draw upon if things get worse.

“The securing of this facility provides us with tremendous funding flexibility and access to growth capital needed to further develop our banking super app and accelerate revenue growth,” Taylor said.

“Access to this fully flexible strategic funding facility should enable Douugh to achieve economies of scale and therefore maximise gross margin and profitability, whilst minimise dilution for existing shareholders, with the timing of the drawing down of funds being completely at our discretion.

“Further, it grants us the opportunity to capitalise on emerging global B2B enterprise licensing opportunities, allowing potential partners to white-label our technology for their own customers’ use.”

The CEO added Douugh is focused on customer acquisition, activation and engagement, and hopes new features will encourage the adoption of its banking and budgeting app.

“Our goal is to unlock the platform revenue opportunity prior to dialling up paid marketing channels, as we work to accelerate our path to unit profitability,” Taylor said.

“The pending launch of Crypto and Single Stock trading services are crucial to the banking super app positioning in the eyes of consumers to increase the value of our subscription, drive up interchange revenue and increase the number of customers using Douugh as their main financial institution.”

Shares in DOU are down 2.78 per cent to $0.035 per share at 11.30am AEDT.