The Stellar Development Fund (SDF) has loaned micropayments firm SatoshiPay $550,000 in XLM tokens after the coronavirus pandemic put the kibosh on its Series A funding round.
Under lockdown in his Berlin flat, SatoshiPay CEO Meinhard Benn told CoinDesk via Google hangout the Series A, which was to have been finalized by the start of Q2, "fell apart" at the last minute because of the coronavirus pandemic as it became impossible to arrange meetings with potential investors, and market turbulence led to previously committed investors to pull out.
Through its Enterprise Fund, SDF had already pledged $550,000 to the Series A. After it became clear the round wouldn't happen, the Foundation agreed to convert their investment into a loan to provide the company with cash flow for the next 12 months. The value of the loan was transferred in lumens at a fixed exchange rate, which SatoshiPay can choose to convert out again into fiat currency when required.
"It was very kind of them, you know. They see this situation happening [and] they sit on $550 million and they thought, okay, we might as well help these guys, just to kind of safely get them through all of this, and then have a proper raise afterwards,” Benn said.
Overall, SatoshiPay has reduced costs by almost 60%, which gives it a year-long runway – enough, Benn believes, to see the back of the coronavirus. He rubs his shaven head – a "necessity" as restrictions mean barbers will remain shut for months.
Like many other German companies, SatoshiPay is reliant on Kurzarbeit – a scheme where the German state pays a share of employee salaries to keep them on the payroll. SatoshiPay's staff is currently working half-days, with the government paying 50% of the wages, Benn said.
Luckily, Benn added, SatoshiPay had been in a comfortable cash position prior to the pandemic. The SDF loan will allow the company to continue, in a slim-downed format, to operate until such time as it can begin a Series A in 2021. Once the funding round is over, SDF's loan will be converted into an equity stake.
But is SDF interested in perhaps a larger stake? "That's not been talked about at all," Benn said. "If the raise stays as planned, then they will not."
The relationship between SatoshiPay and SDF was already close. SatoshiPay runs Stellar nodes and launched Solar, an open-sourced wallet on the protocol. "We're a close ally," Benn said. "We have, like, two or three calls with the Foundation every week on technical matters and strategic matters."
Benn wouldn't say exactly how much his company expects to raise through the Series A, only that it was "north of a couple of million."
How much would the SDF equity stake be worth? Benn wouldn't go into details – "this would give away an equity valuation" – but to give perspective, it would be less than the 27.7% stake held by SatoshiPay's biggest investor, the London-listed Blue Star Capital, which invested $700,00 in early 2017.
Delaying the Series A because of the coronavirus wasn't great, but Benn sees a possible silver lining. Lockdown gives the company more time to work on product development. By the time the Series A does take place, SatoshiPay will have a new B2B solution for cross-border money transfers and micropayments in public beta, Benn said.
Does the loan give SDF too much control over SatoshiPay? Benn doesn't think so: "They want to maintain us as independent as much as possible while still supporting us," he said. "They need independent players, independent companies that have a real-world need for what they're doing and not just because they are paid off partly by SDF."
"I think we've managed to maintain that balance quite perfectly," he added.
Correction (May. 28, 16:50 UTC): A previous version of this article misstated the loan amount. This has been corrected.