23 February 2013
About a year ago I met the management of Simple Audio, a start up in Glasgow. Peter Murphy, the founder and CEO had spent most of his career at Linn finishing as MD. I had crossed the paths of Ivor Tiefenbrun, the founder of Linn back in my Sony days. We had both served on a working party committed to getting a new consumer show for consumer electronics off the ground. That was eventually Live’93 for which I was the first signatory. The show was a great success and I guess I retained a soft spot for Linn.
Peter’s aim was to make high quality digital music accessible to more people. His solution was a networked audio product, the Roomplayer, with some clever software, smart design and keen pricing. The product had just been launched and in the next few months Simple rolled it out across most of Europe. I was invited to join the Board and was appointed in June last year. Officially I was appointed as the representative director of Scottish Enterprise (SE). While the coalition government has closed the Regional Development Agencies in England and Wales, Scotland retains its own Agency and in my dealings with them I found they lived up to their name; they were professional and enterprising.
The shareholding was complex and after a number of funding rounds shareholders included the original management, some angel investors, Scottish Enterprise and a Private Equity syndicate fronted by Edinburgh-based Par Equity with whom SE had a joint investment agreement. The business was still severely undercapitalised and shortly after I joined the Board we organised another funding round in which I participated through becoming a member of the Par syndicate. I was involved in several key discussions particularly with a couple of investors who became cornerstones to the round. We had already received an exploratory offer for the company but it was based on sales history. Valuations are always very difficult but I argued very strongly that anyone buying the company would not be buying it for its sales history but for its potential and particularly for reducing time to market for another player.
Then In September a Chairman was recruited to complete the Board which at the same time was rationalised down to just six. George Elliott had a fine career as Finance Director to Wolfson Microelectronics. Wolfson is a company I have followed with interest and nearly joined at one point as an NED so it was a pleasure to meet and work with George. He now enjoys a portfolio career like me and has a number of Non-Executive appointments including several Chairmanships. One of his directorships is Corsair Memory, a global company bringing innovative, high-performance components to the PC gaming market. Specialising in very high performance memory, ultra-efficient power supplies, and other key system components, its products are the choice of overclockers, enthusiasts, and gamers everywhere.
Founded as Corsair Microsystems in 1994, Corsair originally developed Level 2 cache modules for OEMs. After Intel incorporated the L2 cache in the processor with the release of its Pentium Pro processor family, Corsair changed its focus to DRAM modules, primarily in the server market. In 2002, Corsair began shipping DRAM modules that were specifically designed to appeal to computer overclocking enthusiasts. From its roots in high-performance memory, Corsair has expanded its award-winning product portfolio to include ultra-efficient power supplies, builder-friendly cases, ground-breaking CPU coolers, blazing-fast solid-state drives, and other key system components.
Corsair has developed a global operations infrastructure with extensive marketing and distribution channel relationships. Corsair’s products are sold to end users in over sixty countries worldwide, primarily through leading distributors and retailers.
Interestingly we became aware that Corsair was also interested in the audio market and had set up a division to develop a range of products in that sector. Introductions were arranged between the two management teams.
Andy Paul, the founder of Corsair, is California-based but hails from Reigate in Surrey where I lived for 14 years! After a short time at the beginning of December Andy made a multi-million pound offer for all the stock of Simple Audio. We had appointed Investec to advise us on further fundraising but the offer from Corsair included an exclusivity payment for a few weeks so we suspended that activity. Both parties set the target of completion by the end of January and although the offer involved a combination of cash and promissory notes and there were a great number of shareholders with different interests the deal was completed on 7th February, while I was away in Costa Rica.
The deal marks another positive chapter in the Simple Audio story and puts the company in a strong position to extend its reach globally. Simple Audio’s world-class engineering and product development teams will continue to develop and market the company’s range of music streaming products from its offices in Glasgow. I would expect it to launch its products in the USA and Asia during this year.
Corsair with half a billion dollars in annual revenue has built an excellent reputation for designing and manufacturing innovative components and peripherals for PC enthusiasts and gamers. It has recognised that the way music lovers’ access and listen to music has been revolutionised. Digital music is overtasking physical formats, the number of subscribers to music streaming services such as Deezer has soared, and at the same time cloud-based services are helping to drive the popularity of music downloading. Corsair identified the Simple Audio vision as a way for the company to take part in this new entertainment revolution. Corsair decided to invest in Simple Audio because of the outstanding audio development credentials of the team, the elegance of the product design and the musical performance of the Roomplayer system.
The capital investment and logistics support of Corsair will enable the Simple Audio team to accelerate its product development roadmap and increase its world-wide distribution much faster. Corsair will retain the Simple Audio brand that has quickly earned recognition and respect among the hifi community with a series of excellent reviews from the hifi press. And importantly for SE whom I represented the current Simple Audio management team and staff led by Peter Murphy will continue to work out of their offices in Scotland.
For me it has been a relatively short term assignment. When you take on a Non-Executive Director role you can never be sure how long it will last. Another directorship I have has lasted over ten years already while this was scarcely six months. But in that time I gave much more time than one would normally expect as is often the way with start-ups, short of cash and hungry for advice on a whole range of issues. In the end it has worked out very well for all the shareholders. The average IRR in the PAR syndicate was over 30% and as my own investment was for less than six months for me much more. I’ve decided to put some of it to replacing my 25-year old hifi separates but I’m still quite traditional in my hifi taste and I don’t think I’ll be buying an audio streaming system.
Copyright David C Pearson 2013 All rights reserved