Another.Red.Year w3w

Today is the day that geo-geeks around the world have been waiting for, a little later than expected, What3Words have published their 2021 accounts. I have expressed some doubt about the usefulness of what3words and I may have also commented unfavourably on their business model even doubted that investors could ever get a decent return on their investment.

Well I was wrong!

Yes, I said that – I was mistaken in my assessment about what3words. The business is powering ahead despite a small fall in sales to £444,382 (no I have not missed out a couple of zeros), they have managed to increase losses from just under £17m last year to just under £44m this year. For most companies losing that much would be considered disastrous given that cumulative losses are now £96m and one would be looking for the grim reaper of the insolvency practitioner to be knocking on the door. But no, it seems that investors have been lining up to put more funds into what3words presumably convinced that it is on the cusp of success.

The Group has continued to successfully raise investment finance, with £28.4m of Series C equity investment completed in the year from a range of new and existing investors….

The Group also completed on £74.2m of investments via convertible instruments across a mixture of cash and media for equity deals.

what3words Strategic Report

That’s £100m of investment in 2021, one can but heartily applaud the fund raising skills of the what3words team, the pitch to investors must have been very impressive and those of us who have been sceptical clearly have not understood the ambition and potential of the company. They have continued to successfully raise investment in 2022 via a further media investment of £2m from an existing media investor and £8m from a second crowdfunding campaign attracting 13,000 retail investors (I missed out on that).

It seems that what3words strategy is to ramp up consumer usage of their 3 word “addresses” as a precursor to monetising their user base through licensing to commercial organisations (in vehicle navigation, courier/delivery services, ..?).

The Group also continued to target specific local markets around the world to drive consumer awareness and usage of the product on a free-to-use basis …

The focus on providing free licenses to emergency services world wide starts to look smart if the implied endorsement by trusted government service providers can encourage consumers to adopt 3 word “addresses”.

The substantial media for equity deals that they have done will enable what3words to go large on TV advertising in 2022/23

During the year the Group significantly ramped up its spending consumer acquisition and brand awareness … deploying the funds raised in the current and prior years from both cash and media for equity investments to deliver strong growth in user numbers.

I am a self-confessed paleo-business person so I have found it hard to imagine how spending millions on acquiring free-to-use users will eventually deliver the kind of revenues and profits that would ultimately deliver a return to £150m plus of investment that they have received to date. To offer a good risk return what3words needs to get close to unicorn level ($1bn) and that is most likely to happen with a sale to a much larger company who sees competitive advantage in their users or technology.

I have been wrong about what3words continuing ability to fund growing losses with further investment rounds and have been a lonely(ish) voice suggesting the emperor has no clothes, perhaps I will also be proved wrong and a business model or a mega buyer will appear to deliver a happy exit for all of those investors.

Has anyone else read The Cult of We?