S1 Update & IPO Deal Terms

To further clarify what I just stated, a 30% discount of the IPO would mean that those who purchased 1000 earlier shares would receive 130 shares at the IPO price and would then be comparable to the 30% discount from the recent offering and reward your earlier investors accordingly.

No, that is not correct. We will send out an email with all the information as we get closer to the IPO.

I've also invested into DSTLD on a different platform. Here is the answer I received when asked about the pre-IPO reverse split: 

We're aware of the email that Hil sent recently but please note that other than that there has been no formal communication between the company and our Legal and Compliance teams (and just as an FYI, potentially filing the S-1 in the coming few days does not mean the company's shares will be traded in that time frame). In any case, the specifics will primarily be a function of the market the company potentially lists its shares on, which we are currently not privy to. As the company gets closer to actually potentially listing its shares and our team works out the details with theirs we will most certainly reach out with information on next steps, to-do's, etc.

I have invested in this company on three different platforms.  The following explanation was received from those platforms: 

Your private shares will be converted into public common stock, transferred to a broker of your choice, and can be sold or traded like any other public stock. This is handled by the company (DSTLD, DBG) at the time of the liquidation event. It is the responsibility of the company to reach out to you with details when that time comes.

We will send out an email with the instructions, but your crowd platforms hold your shares not us.  They will be required to follow the steps.

Hello. As an investor in DSTLD on another crowdfunding platform, I was wondering if someone could tell me whether the Series A-2 preferred stock as previously offered will convert to DBG's common stock upon its future IPO listing? Thanks.

Yes it will. We will send out an email with all the information needed closer to the IPO.

John, Once again you are not answering the questions raised.  I have purchased 4 investments from DSTLD to DBG and believe in their success now and for the future.  We all fully understand what a reverse stock split is and we understand that you indicated that with your example of investing $500 at 50cents per share would be the same $500 at a 1:10 reverse stock split at $5.00 per share.  What is being asked, are you or are you not rewarding your long time investors for their prior support?  As I indicated below, your most recent offering is providing a 30% discount to the IPO price for those investors.  Are the earlier investors going to get at least the same valuation for their investment?  We did not invest earlier to get the same number of shares at the IPO as those who by the IPO at its offering price.  We expect to get some value for our earlier support.  I spoke to my investment advisor and he said that you are running around in circles and NOT answering the questions presented by your many investors.  A simple yes or no answer to the questions above is all that you prior investors are asking for.

As I have stated several times, there is not a yes or no answer at this point as we do not know the final inputs that will determine this. We need to know what 2021 revenues look like given the recent COVID spike and impact on Q1 and maybe Q2 revenues and how that impacts our IPO multiple and that impacts the Harper & Jones dilution and all dilution.

Again, until we know these inputs, we cannot answer this

Sorry John, but you are clearly looking at this using the wrong lens. No one is talking about value here - we fully understand that a reverse stock split doesn't impact value, and we also fully understand that if we wait for the long-term we might get the returns we want (or not); but what doesn't make any sense here is that someone who has invested 3-4 years ago is getting exactly the same deal in terms of share price as someone who is investing at IPO. Unless you think that the company value did not increase at all in the past 3-4 years. Is this the case?

Also, do you have VCs amongst your early investors in previous rounds? If so, I wonder how they are letting you do this. I feel you are actually doing this just because you raised funds via crowdfunding and have all the leverage you want on small investors.

To be honest, I think you are the one who should talk to an investment advisor, because your arguments clearly don't make any sense from a seed investor standpoint...

Anyway - no need for an answer, as you keep circling around the issue without tackling it. Good luck with the IPO, and I hope you make the right decisions when it comes to the reverse stock split ratios..

Again, you or any of the previous investors are not getting the IPO price. Please talk to an investment adviser as they can explain your price and the IPO price are two completely different things, before or after any reverse share split. 

We do have VC investors and they agree we should go public given the impact COVID has had on revenues, lack of funding from the VC and debt community, the acquisition prices we can pay for brands with public stock.  They do not care about the IPO price as they understand the ROI they will get on their investment within 12, 24 and 36 months as we acquire companies and have meaningful capital to grow the brands.

They see first hand  how COVID is really hurting apparel and retail companies, and why getting public is critical to success.  Many of them had invested at 3x+ revenues for these companies and are only getting 0.5x to 1.0x revenues now.  

In reading through the various comments I noticed mention of a 30% discount to IPO price for those that invested in the current round.  That would mean a 3.50 cost per share for the 5.00 per share IPO price.  Since I own over 4000 shares from prior investments, would those shares also convert at a 3.50 cost per share when computing the reverse split.  If not, that means that my most recent investment would be worth considerably more than my prior investments in DBG.

The valuation and terms of this round are different than all previous rounds, just like how VC and PE deals work.  Whether it is AirBNB, Tesla, Uber, etc, each funding round has its own deal terms.  

Please see the motley fool article on reverse stock splits and the NYSE listing requirements. 

The reason we are doing a reverse stock split is to list on the NYSE or NASDAQ markets, which have minimum share price requirements as noted in this article. 
https://www.fool.com/investing...

https://www.nyse.com/publicdoc...

Reading through this thread, I'm seeing the same thing over and over again: investors concerned about losing potential gains and Hil Davis saying to not worry about it, it didn't change a thing. 

As an early investor, my goal is to 10x-25x my money by investing early. That potential WAS there by buying at around 50 cents per share and then it IPOing at $5 per share. But with a 10:1 reverse split, those gains are gone. We haven't lost money on the investment, but we haven't gained any, either. Hil, you're trying to make this seem like a good thing to investors. All you're saying is that you've had our money for years and we've gained nothing because you're taking the 90% potential profit away from us early investors. Where's the reward for buying into your company early and helping you survive??? We're getting the same price as anybody else on IPO day. So why should we have invested early in your company? This 10:1 reverse split makes it so ONLY THE COMPANY has been rewarded and NOT the shareholders, us believers who funded this venture. Our money could have been much better spent elsewhere, because we're getting less interest than a paltry savings account! This reverse split has definitely turned me off from investing with you, and I personally will NOT be supporting any of your future ventures if this goes through like this.

First, a reverse stock split has no impact on the valuation, it is indifferent to your return. Please consult an investment advisor. It is clear by your statement that you are getting the same share price as IPO investors.  That is not how it works. 
The IPO price is not the price of your shares.

Also, as I have stated, we do not know what the reverse share split is.  I used the 10:1 for as an example, and not as the actual ratio.  

Please please please talk to an investment advisor to understand this.

Second, we have to do a reverse stock split to hit the minimum share price to list on the NYSE.  This is fact, the NYSE requires a $3.00 share price to list.  If you prefer, we can list on the OTC which has no minimum share price and no real liquidity.

Third, what determines your returns are our revenues, our revenue multiple and the dilution from the IPO, acquisitions and all funding rounds.

Fourth, if you desire a 10x to 25x return then you should be a long term holder of the stock and be pushing us to get public as soon as possible to make accretive acquisitions and increase your shareholder value.

Please consult an investment advisor to understand how a reverse stock split works.  The IPO price is not the price of your shares.  Please consult an investment advisor to understand. 

Hi John

I understand your reasons for doing it, I'm not arguing that you're wrong and it's clearly a necessary step for you guys.

I also understand if I bought $1000 of shares it's will still be worth $1000 after a reverse split. But, if this split is done prior to the IPO then it WILL massively reduce initial the return. That's what everyone on this thread is arguing, not the total value they bought the shares for.

You forget that some investors have had this money locked away in this for 4 years and are considering getting out right away. You answer all your questions for the viewpoint of a CEO and clearly have no apathy for someone on the other side of the table. Please show some empathy and be clear with everyone here.

And you still managed to avoid the one simple question I was clearly asking in my previous comment - is the split coming before the IPO or after? I assume you avoided it because it's coming prior and that's the answer most investors here don't want to hear.

Alastair- the stock split comes before the IPO, but that has no impact on the value.  If we want to go public, we have to raise capital as part of the IPO. This will be dilutive to all investors, as new investors and their capital will dilute all shareholders, regardless of whether we reverse split or do not reverse split.

Regarding your empathy comment, we have empathy and this management team has had lots of offers to leave to take higher paying roles at larger well funded companies.  We did not take these jobs and stayed to navigate this company through a pandemic that crushed the revenue of one of our brands.  It would have been much easier to leave and take the higher paying jobs.

I have not taken a salary since Q1 2018, which is one month short of 3 years.   How do you think impacts someone's life.  And I am not paying myself back with the IPO proceeds, as that capital needs to put to work to grow the revenue and market cap, which increases the share price.

Again, this management team does not care about the IPO price or a reverse split, we care about the medium and short term value for shareholders.  We are not going to sacrifice the company and the majority of its shareholders for trying to maximize the IPO price, especially when it will do significant damage to the brand short, mid and long term.

You are asking us to put your needs to dump the stock at the IPO over the needs of mid and long term shareholders. 

Great news! This company was one of my first private 

Investments, as I started  in 2019.  I didn't  believe the business plan could rumble forward in acquiring quality and complimentary brands as fast as the business plans indicated, I was wrong, and I have the equivalent of my investment in some really nice clothes to boot!! So thank you to the team for the vision, and the amazing work in following thru with the business plans in some of the most challenging environments for business ever!

I know there will be confusion over how this will work out given multiple funding campaigns.  I invested in 3 different ones but am confident the final results will show how it all ties together.  

the reverse split concerns, in it of itself, i know it can be confusing, but essentially the inputs in the equation are switched in order to meet certain per share requirements by regulators. It has no bearing at all on the value invested nor and more importantly, the value of that investment once listed post- split.  Often the confusion arises in focusing on a single factor such as × of shares, however if the focus is on the total valuation, there are no differences in owning 10 shares at $1per or 1 share at $10 per...its still  a $10 investment value.  That view always worked for me at least and, and as I said given the regulatory reviews, audits, etc, im confident it will be explained in the filings.

  I plan to focus on the return from each funding campaign so I understand this process better and adjust my investment plans in future offerings.  I find there is a tremendous leap of faith needed in these future equity securities,.and that needs to change overtime with more clarity, hopefully,.as these esrly companies get publicly  valued.

thanks again to all...very impressed so far (sorry for the lengthy  comment, I'm the worst at being concise!).

Thank you and please understand that our goal is to drive mid and long term shareholder value and not focus on the IPO price.

The best recent example of a company doing this is AirBNB, which raised a round of capital at $18B this year due to COVID vs a valuation of $31B a year ago.  The Company went public this month and is now valued at $90B

The IPO unlocked the value creation, not the IPO price. Now the shareholders have been rewarded.

Like many other on here I'm a little concerned and confused by this reverse split. Is it happening pre or post IPO? I like others here, are rubbing their hands together at having 10K shares at a possible starting price of $5 when I paid only $0.48 per share.

However if my number of shares are going to be reduced by X prior to the first day of trading then that has a significant reduction on the return I was calculating.

I understand that if you reduce the number of shares by 10, you increase the value of each share by the same number and thereby makes no difference to the holder of said shares; you still have the same total value. However this is only true when the shares are split post-IPO, not before. Prior: you're only reducing the number of shares, not doubling any value whatsoever.

https://www.bizjournals.com/sa...

If you are doing this prior to IPO it feels like a very raw deal to those who've had their money locked away for 4 years waiting for you to get there.

@John H Davis I think you need to be clearer with this in your comments as everyone appears to be quite confused still.

A reverse stock split has no impact on your value, please consult an investment professional.

The number of shares outstanding, the revenue and the valuation will impact the stock price.

We are doing a reverse stock split because the NYSE requires a $3 share price.  Please see the link to the NYSE listing requirements.  Please review this to better understand the requirements.  

https://www.nyse.com/publicdoc...

Additionally, we have been told by several investment banks that brokerage accounts will not take IPO shares below $5.00.

So to be clear, you would prefer to not list on a national exchange and not be able to move your shares to your brokerage account?  

John H Davis I completely understand how reverse splits work and realize 100 shares at .50 is the same as 10 shares at $5 but shouldn't a investment of $1000 in 2017 be worth more than a $1000 investment now since they took on more risk

Im assuming investors in 2017 got the same 30% Safe discount right?

Previous investors do not get the same terms as this round. Each round has different terms and legal documents.  This is no different than any VC backed company or Reg A company.  

Look at Airbnb... They raised a round this year at an $18B valuation, down from its $31B valuation last year, due to COVID. Their previous investors did not get the new terms. They went public in December and now have a $90B market cap. 

COVID also had an impact on our business, as it has all apparel brands and retailers, as shown by their share prices. We will lap the effects of COVID the 2H of next year and revenues will return to more normalized levels. 

COVID has impacted our revenue, as shown in our decks, and that impacts our short term valuation. It is a 1x event and as we lap this 1x event, we will see revenues and therefore our valuation/market cap return to normalized levels.

Again Hil, investors who got in back in 2016/2017 did not invest to to see their shares reduced 10X or more. You keep trying to justify how a reverse split is for the good of the company but I will never agree to this! You’re basically punishing your very early investors.  And you tell me  how someone who bought 100 shares and now owns 10 shares from a 10:1 reverse split  is going to make substantial money? 

Gregg - A reverse split is neither good nor bad, it is indifferent. You need to speak to an investment professional to understand. 

If you bought 1,000 shares at $0.50 for a total investment of $500 and then we do a 10:1 reverse split, you will have 100 shares valued at $5.00 a share, which is also worth $500. 

There is no difference in your value.  Please speak to a professional investment so you can understand this. 

I am still confused to be honest. In one of the answers it was mentioned that "All preferred shares will convert to common shares at a 1:1 ratio", then in other answers we are talking about a reverse stock split. Which one is it? 

If indeed there is a 10:1 reverse stock split for those who invested in 2018, then someone who invested 5000$ back then @​0.53$/share, would have gotten 9430 shares, which will end up being 943 shares at IPO @​5$/share (due to the 10:1 split)​​. Versus someone investing 5000$ in this round, getting a 30% discount, i.e. getting 1428 shares (5000/(5*0.7)). Not sure it makes sense..

These are two different concepts. 
The conversion of preferred to common is one concept and the reverse split is a different concept.

The preferred will convert to common on a 1:1 basis. Then there will be a reverse split of all common shares.

So if you own 100 preferred shares, you will be converted to 100 common shares.  Then for example sake only, we do a 10:1 reverse, then you have 10 common shares at 10x the value of the pre-split price.

Some companies issue preferred shares at a 2:1 or 3:1 ratio. Assume you had a 3:1 pref to common conversion, then your 100 pref shares would convert to 300 common shares.  Then assuming the same 10:1 reverse split, you would have 30 shares at 10x the value of the pre-split price.

Hil, I still have to disagree with the reverse split. So the $4000 investment I made back in 2016 and 2017 which gave me just under 8300 shares would be reduced to roughly 830 shares at a 10 to 1 reverse split. At a $5 listing price with 830 shares, this now makes my initial investment worth $4150 four years later. Personally, I would rather have my 8300 shares valued at $1 in hopes that 4-5 years down the road, this would substantially increase with all your projected growth. This is strictly my own opinion. 

Greg, that is not how the math works.  You are mixing two factors that do not mix. From Investopedia...

• A reverse stock split consolidates the number of existing shares of stock held by shareholders into fewer, proportionally more valuable, shares.
• A reverse stock split does not directly impact a company's value.
• A reverse stock split has no inherent effect on the company's value, with market capitalization remaining the same after it’s executed.

So not only is there no impact to the market cap of the company, more importantly, the only market that will take a market cap below $3 is the OTC.  I am pretty sure our investors would prefer us to list on the NYSE or NASDAQ vs the OTC or not list at all.  Especially since a reverse split has no impact on the market cap of a company.

Also, if we stay private or list on the OTC, it will limit our acquisition opportunities and therefore the potential market cap and investor returns. 
This management team is focus on driving medium and long term shareholder value and not the short term IPO share price.  
Interestingly, Square is a perfect example of this. They went public at a valuation and share count that was dilutive to their shareholders over the last several rounds. But the capital raised and public stock allowed them to increase their share price from $13 to $235.  The IPO is simply a financing event and critical to our future growth. Like Square, we are focused on the $235 and not the $13.

Are you clear on this?  I am happy to discuss it in more detail.  The reverse stock split has no impact on market cap or value.  It is the share count from additional dilution, the market cap based on revenues and revenue multiple received that impact the share price and value, not the reverse stock split.

It doesn't appear the previous WeFunder round DSLTD credit was applied to accounts after the previous round. Will that credit and the credit from this round be combined and applied, and when it is, when is it expected to be applied? (Post IPO?)

They will be two different credits still.  We will issue when we can get back in stock on inventory as COVID continues to limit production at our mills and factories in Europe. Our plan is March based on what we are being told, but COVID is spiking again and countries, like the US, are ordering stay at home.

Thank you for the update and hope you continue a fast road to recovery. I want to echo the concerns of the other shareholders, although I have not heard this be mentioned yet as a possibility being considered. I understand the reverse split is based on equivalence of value, but the investment was not for an equivalent value. It was for that 10x capital gain at IPO and continued growth through those future acquisitions and valuation increase. Please continue to take us who have believed in you all along into consideration as you have done so thus far. Best of luck, and I am looking forward to what the future holds.

A reverse share split does not change your investment. You increase the share price by the same amount as you decrease the total shares. It is irrelevant to whether it is good or bad, as it is neither. If you had 100 shares at $1 the your investment is $100. If you did a 10:1 reverse split, you now have 10 shares at $10, which is also $100. The reverse split itself has no impact.

The impact is dilution vs accretive from acquisitions, the revenue multiple at the IPO, the revenue pre and post COVID, etc.

Regarding a share split, you have to achieve a minimum of a $3 share price in order to list on the NYSE and $5 for brokerage accounts to take the IPO shares.

Our other options are not to list on an exchange and stay private and provide no liquidity and/or not have brokerage accounts take your IPO shares, which means you cannot trade your shares.

Great News. Keep up the good work.

From what I interpret, 'if' the company gets to a 250M valuation at the end of next year as you project, that would yield the 6x return...on this round's investments only.  What post-IPO return (on basis of $5) would you project for those who acquired shares in the 50¢ range from prior rounds?  Also, please provide details on your planned reverse split, as that certainly can't be good for existing shareholders?  Thanks and all the best!

We do not know the reverse share split yet. As we get closer to the IPO, we will update everyone on what their share price will be post the reverse split. 
Regarding a share split, you have to achieve a minimum of a $3 share price in order to list on the NYSE and $5 for brokerage accounts to take the IPO shares.