Underweight: G-Cloud Limited Aims Too High

Key Stats:

Summary

G-Cloud Limited has been selected as an “Underweight Deal” by KingsCrowd. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

Everyday the world shifts more toward a digital existence. Companies continue to develop and integrate their technology across industries. In the past, integrating services was often done on a one-by-one basis, and the costs were enormous. The end result: companies had custom-tailored technology solutions that succeeded in integrating. But these tailored builds often lacked the efficiency to realize their full potential. The advent of the cloud changed all of this. Companies today are more easily able to integrate their services with other solutions on the market as a result. Even so, this process is not yet complete as many businesses still are missing out on the cloud’s full range of benefits. For the firms that can grab hold of a sizable slice of this market, the returns will be astronomical.

Solution

One business that has its sights set on this opportunity is G-Cloud Limited. The firm, under the leadership of its management team, has pushed to become a Certified Cloud Service Provider. Its goal is to deliver IT environments to its customers. What this will mean is a platform whereby customers can integrate their offerings to other systems across the globe and quickly deploy their applications and data. Ideally, the end result will be decreased costs and complexity for the businesses that use this service.

G-Cloud envisions itself as a comprehensive player in this space. It wants to provide more than just environments for its customers. It also intends to operate as a cloud broker, which will enable it to service private sector markets using hybrid cloud management. Hybrid cloud is a mix of both public and private cloud solutions. Where a public system is open for other parties to participate in, private systems are those that are often company-specific. Examples of public clouds include Amazon’s AWS and Microsoft’s Azure. Private cloud systems are those held close and controlled by the client company.

G-Cloud also wants to play in the cloud enabler space. This involves facilitating enterprise data storage. It also involves providing cloud-based services like data encryption and data transfer.

Naturally, the bulk of G-Cloud’s revenue is likely to come from its role as an SaaS provider. Customers should pay for services based on the amount of data and the type of service they consume. As of yet (through July 8th), the business has generated no revenue. Its total net loss during this period was $939, while its operating cash flow was the same amount. The business had a largely blank balance sheet as well. This signals that the firm is about as early as a startup can get. At least as of July 8th, it’s safe to say that they had nothing of substance developed that could even come close to getting deployed to its customers. So when management discusses all of these services they want to provide clients, it’s important to know they have none of them developed yet. Investors would be investing more in the idea of the business than the business itself.

Market

There are few — if any — market opportunities that can match the cloud revolution. The industry has the rare mix of being both massive in size and exhibiting strong growth year-over-year. One source pegged the global market in 2019 at $266 billion. Between 2019 and 2027, that source believes the industry will grow at an annualized rate of 14.9%. If true, that will place it at $808.1 billion at the end of the forecast period. A second source believes the market for the cloud this year should be worth $371.4 billion. With an annualized growth rate of 17.5%, it should reach a size of $832.1 billion by 2025. Yet a third source sees the market growing from $194.4 billion last year to $761 billion by 2027. This implies an annualized growth rate of 18.6%.

With an opportunity like this, it’s tempting for any player to jump in. The only problem is that for a new entrant with no known differentiators, it may be too late. Consider Amazon and Microsoft for instance. Amazon’s AWS is a massive player in the market. In its latest fiscal year (2019), AWS generated $35.03 billion in sales. This was 36.5% higher than what the segment generated a year earlier. The profit for AWS, meanwhile, came in at $9.20 billion, which was about 26.1% higher than the firm reported in 2018. Its operating margin in 2019 was an impressive 26.3%. Though Microsoft’s Azure is a bit smaller than AWS, Microsoft’s Intelligent Cloud segment as a whole dwarfs AWS. Revenue for the segment was $48.37 billion in its latest fiscal year (2020). This was up 24.1% over a year earlier. Segment profits of $18.32 billion were 31.6% higher than they were in 2019, and the segment’s profit margin was a monstrous 37.9%.

Terms of the Deal

In order to get its idea moving, G-Cloud is hoping to raise up to $1.07 million. It is willing to close the round with as little as $10,000. The firm is raising this money through an offering of Class A common stock, with units valued at $1.50 apiece. In order to participate in the round, investors must contribute a minimum of $450 to the deal. Management is seeking a pre-money valuation on the firm of $3 million. Generally speaking, this is low for a startup that’s doing a crowdfunded raise, but with the firm’s lack of traction, even $3 million is likely too high. That may be why — as of this writing — it has received commitments totaling just $525.

Team

As can be expected, the management team running G-Cloud is presently small. At the top of the firm is Lynda Chervil, the company’s Chairwoman, President, and CEO. At present, she also serves as the CEO of Internet Sciences Inc (or ISI for short). Not much is known about ISI except that it claims to work in areas like IT, communications, and telecommunications. It supposedly has various subsidiaries that it runs its operations through. Prior to starting up ISI, Chervil was employed as the Managing Partner at Pearl Strategic Consulting. And before that she was a Vice President for a division of Citigroup. The other key person at G-Cloud is Dino Michetti. He currently works as the Head of Business Development and Account Management at IPONWEB. Before this, he was employed as a Senior VP of Account Management, Strategy, and Analytics at Connexion’s Loyalty. It is unclear what his current role is at G-Cloud.

Rating

After careful consideration, our team has rated G-Cloud as an Underweight Deal. This low rating is reflective of a number of issues with the business. The vague business model management is touting is just the start. There appears to be no real differentiation compared to other Cloud providers. If G-Cloud had some nice traction already — or if the firm had some way to truly differentiate itself from the pack — it could make for a good prospect. This could also be true if the shift to cloud was only beginning to happen now. Sadly, none of that is true. The business has none of these. Not only that, it’s important to consider that big players like Amazon and Microsoft have the benefit of having invested countless billions of dollars into their services. They have scale, reputation, and a wide array of services already compatible with their platforms. G-Cloud lacks all of these things.