Dear MOD community members
I am sad to announce that MOD Devices GmbH has reached the end of its line.
This is the result of a two-year crisis that started with the COVID impacts on our supply chain in Q2/2020, and the snowball effect of the cash flow disruption triggered by the failure of the Crowdcube campaign in Q4/2020.
During these last 24 months, the founders and shareholders have bridged the finances multiple times in failed attempts to get back on track. But the private cash from shareholders only is not sufficient and, with the worsening of the general economy and growing fear from financial institutions and investors, the remaining financing options have all retreated, forcing me to file the company for insolvency.
It is not the end of MOD though. Not yet.
Part of the founders, team and shareholders believe very much in the project and a reboot is being put in place, with the fundraising for a fresh company.
Does it mean it is all good? No. Not at all. There is a chance that it all falls apart. In order to be all good to go, we need to make a successful reboot and the next 2 weeks are critical.
In the spirit of full transparency, I am opening this topic to discuss the situation directly with the MOD community. This is a key moment and I want to hear from stakeholders to discuss this reboot, possible new ownership and direction of the project, and how it will affect the outstanding deliveries.
An important part of the reboot is fundraising. As we are very keen on collective ownership models and many users have previously contacted me interested in investing, I have put in place a participation model for individual small investors at this reboot stage, allowing investment as low as 1.000€. I kindly ask those who are interested in investing to fill out this form in order to receive the investment-related information.
Now, before we can speak about solutions and the future, it is important to understand how we ended up here. Below is a rough timeline of the most important events that took place since 2020.
- Q2.2020 - COVID compromises the Duo X production, removing our main source of revenue for that year. From 1400 planned units for the year, only 250 get to be produced and shipped through the whole year.
- Q3.2020 - The company keeps developing and investing in the finalization of the MOD Dwarf due to its better business case. To compensate for the lost revenue of Duo X, a crowd investment campaign at Crowdcube was put in place.
- Q3+Q4.2020 - The Crowdcube fiasco
- Preparations for the campaign started in June.2020, with an entire collection of content - video, and text - being produced for the campaign.
- A requirement was set by Crowdcube that we brought at least 60% of the funding goal from investors in our own networks with the remaining 40% supposed to be completed by the Crowdcube audience.
- MOD Devices brings the minimum required 60% of the £294.000 goal by having our lead investor commit in the form of a convertible loan.
- The campaign launches in October and, after one month of very slow growth, it becomes apparent that Crowdcube would not bring all the supposed investors from their network and, in order to reach the funding goal, the private shareholders decide to commit with an additional 15%.
- On December 7th the company reached the full £294.000 of funding just before closing time.
- Minutes after closure, an investor cancels his pledge, putting us just above the threshold for completion. In principle, reaching more than 90% of the goal should be enough to move into the completion phase.
- After more than a month of discussions between MOD and Crowdcube’s legal department, Crowdcube decided not to move forward with the completion of the campaign.
- January.2021 - We deliver the beta MOD Dwarf units
- February.2021 - Our lead investor denies further investments and denies the conversion of the Crowdcube-related Loan, triggering the accumulation of outstanding company shares and debts.
- March.2021 - Production is threatened due to insufficient funds.
- Q2.2021 - Founders and private shareholders bridge finances for B2C push, with a bigger margin, to compensate for cash needs.
- Production is unlocked.
- Heavy B2C campaign
- June - First retail units of the MDW are shipped.
- Q3.2021 - Multiple stop-and-goes due to impacts and cash constraints
- July - end of COVID-related support. No more Kurzarbeit. 2020 COVID-related deferred payments become due.
- July - Reverb.com campaign in the US. Dwarf units start selling to European dealers.
- September - a new bridge from shareholders to unlock production and pay urgent bills
- Dwarf exhibits good traction and gets positive reviews
- Q4.2021 - Preparation for a new fundraiser
- Pitch based on Dwarf good results and the company managing to double sales on a quarterly basis.
- Dwarf reaches #2 Sales rank at Thomann
- Lead investor sustains denial to participate and conversion of the outstanding loan.
- Further shareholder bridging
- Decline of economic activities. MI industry feels the retreat post COVID boom.
- MOD attracts multiple leads for investment, but not a closing deal.
- Further shareholder financial bridge
- Q2.2022 - Search for exit due to worsening of the external conditions, no fundraising advances and no general agreement between shareholders.
- Positive interest and advanced negotiations with multiple potential buyers, including due diligence
- Negative outcome from all negotiations
- Bad economic forecast
- Open Source related concerns
Historically we have been quite resilient to difficulties. The team has withstood many months of late salaries, management and founders have worked with no salary, always finding a way to get through. But this time the accumulation of problems plus the lack of institutional investment support became bigger than us and hence, the insolvency, accumulating losses of more than 1M€ from founders, another 1M€ from Investors, 287k€ from the Seedmatch crowd, and 177k€ from backers.
The insolvency is also blocking all the accounts, as no payments are authorized. We have managed to keep the forum operational and will also keep the website. For the moment all other services are stopped.
A group has formed with the people who wish to reboot the business and we are now in the process of enabling a transition. At the current stage, it mostly boils down to obtaining financing. A redirection of the strategy is in place, the team is agreed on and the key partners are secured.
A total of 500k€ is required for a possible break-even in between six and eight quarters, with 300k€ being sufficient for a 6-month runway, which would allow us to have a “go” signal right now and raise the remaining 200k€ in the next two quarters.
Our evaluation is that the company has repeatedly suffered from a lack of focus, not managing to fully explore its products. The reboot will fully focus on the Dwarf, not because we prefer guitarists instead of electronic musicians, but because the Dwarf is the most mature product - on industrial design and manufacturability, but also regarding UX. It also has the biggest potential audience, as the fretted instruments category continues to be, by far, the biggest segment in the Musical Instruments market.
The Duo X, on the other hand, is still a victim of component shortages. Even after spending a whole quarter of the team on the redesign, we are still blocked and would need to invest further. This would raise the funding demand and compete with the Dwarf for critical resources. Therefore the delivery of new Duo X units will not be continued. We will keep supporting existing users.
The focus on one product will also help with marketing. All of us have a different approach to explaining “what the MOD does”, as our devices become whatever we want from them. This is a huge marketing problem, as there is no person that enters Google or Youtube to search for “a pedal that does it all”. With a focus on a single product, we are able to work on specific uses that are easy to convey and provide a door for new users to get to know more about the platform. The Guitar Synths that we have released some months ago are a good example of such applications and we have some very exciting ones in the planning.
Furthermore, the redirection includes making the transition of the platform from a device-centric model to a user-centric model, allowing us to explore more of what we call the “online experience”, which further differentiates us from the traditional effect units.
As mentioned above, the reboot includes the carry-over of the owed crowdfunded units, both of Dwarf as Expression Pedals, planned to be delivered in the first 6 months of runway provided by the minimum funding.
We don’t even consider not delivering these units. The only scenario in which these units are not delivered would be if the whole thing falls apart but, in that case, everybody loses. In any other scenario, the carryover is a sure thing.
The financial cost of this carry-over represents a significant portion of our minimum required funding. You can imagine how tough it is to defend this to investors when there is no legal base that enforces us to act as such. Our argument is that, while a non-delivery would save funds but generate an unpayable amount of bad karma, committing to the delivery in such difficult conditions can bring a positive effect. I hope that our customer community can grasp the level of commitment that we have towards them. The mutual commitment can be of great help for the company, as reviews, comments, and manifested personal opinions are still the best marketing there is.
The next two weeks are going to be decisive for the future of MOD and we will update you directly here in the Forum.
Like any disruption or uprising, this is a moment of anxiety and fear, but also excitement and opportunity.
In case anyone wishes to reach me, I am available both on public channels and directly if preferred.
My dearest wishes to you all
Gianfranco Ceccolini, aka, The MODFather