Has anyone done an analysis yet on how significant of a moat and competitive advantage Aiforia’s European origin is in the European market, given the desire to reduce dependence on American IT systems? It would be quite a situation if “made in Europe” allows Aiforia to conquer the entire continent.
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As far as I know, this is so new that there haven’t been any American or European players in this space before. If I remember correctly, they have won every competitive tender, which must say something. I don’t know if it’s a moat, but it’s at least some kind of qualitative head start.
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Here are Antti’s comments regarding this recent pleasant news. 
Aiforia announced on Thursday that it has been selected as the provider of AI-assisted diagnostic solutions for a Spanish regional healthcare provider. The agreement covers nine hospitals, which will be supplied with AI applications for breast and prostate cancer. The news is a continuation of the company’s positive development in terms of new customer wins. We are not making any changes to our forecasts following this news, as we already expect strong revenue growth from the company in the coming years.
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https://investors.aiforia.com/release/6afe7354-1e24-475f-b7ba-7af3d179bfeb
The probability of a share issue in the near future drops significantly if growth starts to be accelerated with debt financing. It’s a bit of a shame if there isn’t an offering at these bottom prices, as it would have been nice to load up more at a discount.
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Well, there’s certainly been plenty of time to ‘feast’ on the falling share prices; personally, I’m starting to feel bloated and a bit nauseous.
Some synthetic warrants would need to be agreed upon with the EIB; the analyst will likely weigh in on what that’s all about.
Inside information: Aiforia and the European Investment Bank have agreed on a non-binding preliminary term sheet for EUR 20 million in venture debt financing
Aiforia Technologies Plc (“Aiforia”) and the European Investment Bank (“EIB”) have today agreed on a non-binding preliminary term sheet for a venture debt financing facility of up to EUR 20 million. Should a binding financing agreement be executed, Aiforia plans to use the facility to accelerate its product development projects related to existing and new image analysis solutions, as well as to boost its commercial operations.
According to the term sheet, the planned EUR 20 million venture debt financing would be divided into three (3) tranches: the first tranche would be EUR 5 million, the second tranche EUR 7 million, and the third tranche EUR 8 million. The drawdown of each loan tranche would be subject to the achievement of certain revenue and other milestones within predefined availability periods, all of which are within 36 months of the signing of the binding financing agreement. Each loan tranche includes a three-year grace period, after which the loan will be amortized. The interest rates for the loan tranches are at market terms and comparable to similar financing arrangements. The term for each tranche is seven years from its drawdown. The financing would also be subject to certain customary commitments and covenants, such as restrictions on the distribution of funds prior to loan repayment.
In addition to the progress of ongoing negotiations and the signing of a binding financing agreement, a prerequisite for drawing down the venture debt financing is that Aiforia enters into a synthetic warrant agreement with the EIB. A synthetic warrant is a financial instrument typical for venture debt arrangements of growth companies, linked to the increase in the company’s value. The warrants could be exercised in connection with certain triggering events, in which case Aiforia would pay them in cash, thereby avoiding an immediate dilution effect for shareholders. According to the term sheet, the EIB would receive synthetic warrants as consideration for each tranche of the financing facility. Synthetic warrants would be granted to the EIB free of charge upon the drawdown of each loan tranche in an amount corresponding to half of the loan principal available in the first tranche, 40 percent of the loan principal available in the second tranche, and one-third of the loan principal available in the final tranche. Upon exercise of the synthetic warrants, the exercise price—representing 95 percent of the share’s market price preceding the issuance of each warrant tranche—would be deducted from the cash settlement amount payable by Aiforia.
”We are pleased to reach this stage in our negotiations with the EIB. This type of venture debt financing would complement other financing options, such as equity financing, while limiting the immediate dilution effect for current shareholders. If implemented, the arrangement would help us advance our strategic growth plans. It would allow us to accelerate the diversification of our portfolio, expand our operations in Europe and other key markets, and further strengthen our commitment to improving patient care,” comments Aiforia’s CEO Jukka Tapaninen.
Venture debt financing negotiations are ongoing, and there is no certainty that the process will lead to the signing of a final and binding financing agreement.
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I’m left with a bit of a “meh” feeling if they start playing around with warrants. Personally, I would rather take a 10-15% dilution via a share issue now, and if that isn’t enough to reach positive cash flow, then just go to the bank hat in hand for a standard loan.
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You can draw information about this form of financing from there. I suppose this gives them time to build the company without dilution, provided it goes through. This is a bit over my head, but I’m sure we’ll get some analysis on it eventually. I assume you don’t get this without the EIB’s (European Investment Bank) trust in the company, right?
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Using debt financing certainly brings a good amount of cash into the coffers, but equity could start approaching zero by the end of next year. At that point, organizing a share issue may become even more topical, and arranging a rights issue for the owners of a heavily indebted company is by no means a desirable situation. However, capital would be needed both for the repayment of old debt and for operational activities.
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I personally see it the other way around: the growth targets are ambitious, long-term, and capital-intensive, which is why a debt component is needed to complement equity financing.
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Below are the analyst’s comments.
Referring to management’s previous statements, this is bridge financing instead of share issues for the period between the current situation and cash flow profitability, right?
Here is more about these synthetics:
Unlike traditional stock options, synthetic warrants are paid in cash when certain conditions are met, which prevents an immediate increase in the number of shares and the resulting dilution effect for shareholders. The downside is a significant cash payment obligation in the future as the company’s value rises. Nevertheless, we consider the instrument a better alternative for current shareholders than heavy share issues at the current valuation level.
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Yeah, even if the loan eliminates the acute financing risk, we will likely see at least one more share issue. It is also possible that the potential bridge financing includes a covenant regarding equity. However, the nature of the offering changes quite completely when we shift from a rescue emergency issue to an accelerating growth issue. The company can also be opportunistic with the timing.
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Usually a company can and should raise debt only when the stock and cash flows are strong enough, this is kind of the opposite situation 
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These types of bridge financing arrangements are quite common nowadays. It also indicates that the company genuinely believes cash flow positivity is only a few years away. This is a very logical financing solution, whereas the alternative would be to issue new shares at bargain-basement prices. Based on the company’s valuation, the market is essentially expecting a bankruptcy. It’s disadvantageous to dilute further by printing more shares when sentiment is this low.
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