Raisebook

​New Investment Opportunity: Amazon-Backed Home Security Startup
Scout Security Limited
Scout Security Limited
ASX:SCT

The Company

Scout is a self-installed, wireless home security system that launched into the IOT market in late 2014. Amazon.com made an investment in Scout shortly after, in 2015.

Scout stands out from the competition with its design-centric security system that is modern, open and affordable. Scout is unique in that it integrates with a number of best-in-class devices and platforms, including official partnerships with Google Nest, Amazon Echo and Samsung SmartThings.

Raise Amount
$5,000,000
Offer Price
$0.2000
Closes
Aug 22, 2017

Scout's hardware is a vehicle to deliver its powerful software and service platform - a Trojan horse into the IOT, solving a problem (security) that people will pay for.

Scout's recurring revenue potential is significant, with the company currently receiving USD$52k (AU$68k) a month in subscription revenue.

Scout's revenue potential is enhanced by a number of distribution agreements, including with Direct Energy (5mm North American users) and DSI, one of the US's largest resellers of DirectTV. Discussions have advanced with a number of other large potential distribution partners.

Business Model

Scout’s product offerings consist of a “hub” that is the brains of the Scout alarm system, which talks wirelessly to individual sensors with information transmitted to Scout’s servers. The sensors that Scout currently has available are as follows:

  1. a battery-powered, wireless, passive infrared motion sensor:

  2. a battery-powered open/close sensor an access sensor for monitoring the opening and closing of windows, doors, cabinets, safes, etc;
  3. a battery-powered door panel that detects opening and closing of a door that also includes an RFID reader (radio-frequency identification), which allows users a manual way to arm and disarm the system outside of an app or computer;

  • Scout is party to a dealer agreement with C.O.P.S, which provides wholesale 24/7 monitoring to Scout for use by Scout’s customers.
  • Scout is party to arrangements with Amazon Alexa (a voice powered virtual assistant), Google Nest (home automation products), LIFX (wifi enabled lighting) and IFTTT (automation service for all internet connected things) to integrate the services provided by these companies into Scout’s product offerings.
  • The Scout Alarm is primarily installed and controlled through a user’s smartphone. The system can be armed, disarmed, monitored and permissions managed in Scout’s iOS, Android or web app. Scout also have extensions for the Apple Watch, Androidwear and Amazon Alexa-enabled devices.
  • The company’s array of security devices represents the core equipment that a residential home security customer would need to secure their home or apartment. Scout sells its systems and services through its website, Amazon and through reseller and partnership arrangements with third parties.

Scout’s security hardware packages are completely customisable to suit the users’ needs, with the average kit selling for US420(AU$546). Gross margin on the hardware sits at around 35%. Customers are required to sign up to one of two monthly monitoring plans (no contract) for either US$9.99 (AU$13) per month or the premium plan which includes 24/hr professional monitoring for US$19.99 (AU$26) per month. Gross margins on the recurring monthly revenue is currently above 90%.

Investment Highlights

  • Scout currently has US$52k (AU$68k) a month in recurring subscription revenue - a big value driver at over 90% gross margin
  • Amazon.com is an investor in Scout
  • Scout is an official partner of Google Nest, Amazon Echo and Samsung SmartThings
  • The company has signed key distribution deals with Direct Energy, DSI Distributing and Samsung SmartThings and is in discussions with a number of other partners including bricks and mortar retail
  • When in stock, Scout has proven to be one of the top selling self-installed home security systems on Amazon
  • New tier 1 supplier ramped up in Q4 2016 offering Net30 terms, a cost-down and a credit line
  • Marketing makes up majority of use of funds from IPO and are expected to directly relate to multiple times in sales and recurring monthly revenue
  • Version 1S of the product has been launched with additional features (including 4G/LTE, Z-wave, Zigbee) and a 11% cost down
  • Scout has committed to monthly news flow on revenue and customer numbers from the outset

The Deal

Scout is raising AU$5,000,000 via IPO for up to 25,000,000 shares at an issue price of AU$0.20 per share, together with an oversubscription offer of up to a further 5,000,000 shares at an issue price of AU$0.20 per share to raise up to a further A$1,000,000.

Funds will fuel sales, marketing and inventory purchasing power. This will allow the company to grow the number of systems sold, better serve existing reseller partners and secure new reseller relationships.

Capital Structure

A pro forma capital structure following settlement is set out below based on an issue price of A$0.20 per share:

Shares Minimum raising of $5,000,000 Maximum raising of $6,000,000
Current 5,000,001 5,000,001
Seed Capital Raising 1,875,000 1,875,000
Consideration Shares
69,900,000 69,900,000
Prospectus Offer 25,000,000 30,000,000
TOTAL 101,775,001 106,775,001
Performance Shares 36,000,000
Capital Raising Options 15,000,000
Director Options 6,000,000

Additional Information

This deal closed on August 22, 2017