Tern investee Device Authority raising up to $7m

The AIM-traded firm said the funding would consist of $4m from Ten Eleven Ventures and $0.3m from Alsop Louie Capital 3, via the conversion of short-term loans.

Of the total fundraising amount, $4m was expected to be completed in the first tranche before the end of 2023.

The remaining $3.3m in the second tranche was contingent on approval under the National Security and Investment Act (NASI), and the acceptance of the approval by Ten Eleven Ventures.

Tern said Device Authority would use the proceeds to support its growth strategy beyond the end of 2024, with a particular focus on expanding its operations in the United States.

In tandem with the fundraising, Device Authority would convert $2.1m of its convertible loan notes into equity, aligning with the conversion terms of the loan notes.

Furthermore, Tern would convert all of its Device Authority convertible loan notes, including accrued interest totaling $1m, into equity.

However, Tern would not make any new investments in this Device Authority fundraising round.

From the funds raised in the fundraising, Device Authority would repay Tern in cash for the $175,000 of short-term loans, along with accrued interest to date.

Following the completion of the first tranche of the fundraising, including the conversion of Tern's convertible loan notes to equity, Tern's equity ownership in Device Authority will be 35.7% before any dilution due to the exercise of share options.

That was estimated to be valued at $7.7m based on the implied valuation from the fundraising issue price.

Upon the acceptance of NASI approval by Ten Eleven Ventures and the completion of the second tranche, Tern's equity ownership in Device Authority would be 29.5% before any share option dilution.

That was expected to be valued at $7.4m based on the implied fundraising valuation.

“We are pleased with the progress Device Authority is continuing to make and with a substantial investment from astute investors we, and the other shareholders in the business, believe that Device Authority's progress will be accelerated, particularly in the US,” said Tern chairman Ian Ritchie.

“The board of Tern is constantly assessing all of our portfolio companies for the value that can be achieved from an immediate exit versus that potentially achievable with further growth capital.

“We do not believe that now is the right time for Tern to sell its interest in Device Authority given the current valuation landscape and with the further progress that Device Authority can make with this investment.”

Ritchie said that, while the valuation of the Device Authority fundraising reflected the current venture capital market conditions, Tern believed that it would provide the growth platform to enable a premium valuation on exit, and a substantially greater return for Tern's shareholders in the future.

“Cybersecurity is essential for global commerce and the completion of the total series B type funding will give Device Authority a sufficient runway to achieve its potential during 2024 and beyond.

“Ten Eleven Ventures has a strong track record of providing a hands-on approach to develop cybersecurity technology businesses to the stage when a valuable exit can be achieved.

“We look forward to working with the Ten Eleven team to maximise the investment value for Tern shareholders from Device Authority and I look forward to making further announcements in due course.”

Reporting by Josh White for Sharecast.com.