Mergermarket — TOP Network plans USD 20m-USD 30m raise after cash flow positive at year-end, CEO says

NOTE: The following article was published by Mergermarket. It has been copied verbatim.

Author: Xinyi Jiang

TOP Network, a Sunnyvale, California-based provider of blockchain-based cloud communication services, plans to start raising USD 20m to USD 30m in equity after becoming cash flow positive at year-end, said Steve Wei, CEO and cofounder.

TOP has raised around USD 3m in equity through cash so far, and its management and employees collectively own around an 85% stake of the firm, Wei said. TOP has also raised about USD 12m through selling TOP tokens, he said, adding that tokens can count as credits to use on the apps.

It accepted cryptocurrencies such as Bitcoin and Ethereum in the token sales and periodically swaps a portion of raised cryptocurrencies for US dollars for expense. Investors include Danhua Capital (DHVC), NEO Global Capital, LD Capital, Fenbushi Capital, ONTology.

The firm doesn’t plan to give out more than 20% equity for the new round, Wei noted. It hasn’t started working on fundraising and plans to target its existing investors and more US-based venture capital firms that are willing to pay legal tender, he added.

In 2012, Wei founded Hangzhou Tengzhan Technology, which operates texting and picture-sharing app Dingtone, secure texting and phone call app CoverMe, and SkyVPN, a high-speed virtual private network app. Hangzhou Tengzhan reported RMB 6.22m (USD 878,000) in net income in 1H19.

TOP, founded in 2017, has developed an open-source, non-profit blockchain-based communication network that provides infrastructure for decentralized apps. TOP also provides a subscription-based BitVPN app that uses its blockchain network. BitVPN charges USD 47.99 a year, according to app stores.

TOP currently generates around USD 100,000 a month and has a cash burn rate of USD 400,000 to USD 500,000 a month, Wei said. The firm has spent around half of the USD 15m raised capital and expects the rest will allow it to become cash flow positive, he said.

TOP is also developing video games, work collaboration software, and information transfer applications in healthcare, Wei said. Some video games will generate revenue soon and so a USD 5m 2020 revenue is achievable, he said.

Many people use TOP’s BitVPN service during travels for security purposes, and the recent COVID-19 outbreak has reduced its daily active users by around 30% to 100,000, Wei said. But TOP has billed many subscribers before the pandemic and so the impact is yet under control, he said, adding that more than half of its VPN users are in the US.

Proceeds from the new round will be used to expand marketing channels for its video games, support R&D and build edge computing infrastructure for 5G initiatives, Wei said.

VCs tend to have conservative valuation models during a market downturn, and that’s why a cash flow positive mark is an essential condition for a further capital raise, he said.

TOP hasn’t looked at any debt facilities, he said, adding that it’s hard for early-stage startups to raise debt.

TOP currently has 70 to 80 developers, and plans to have around 100 developers in three to five months, Wei said. It has offices in Sunnyvale, Hangzhou, Nanjing and plans to establish a site in Eastern Europe soon to hire engineers in Ukraine, Czech Republic and Romania, he said.

TOP competes with Telegram in many businesses, he said.

Wei said he has never thought about selling TOP and his firm hasn’t been approached by any suitors.

Wei founded video conferencing software provider Cenwave Communications in 2004, and sold Cenwave to Huawei in 2010. Huawei was one of Cenwave’s partners, he said.

It works with several individual lawyers but hasn’t mandated a law firm. It is not actively looking for financial advisors but welcomes approaches.

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TOP Network is a decentralized blockchain ecosystem composed of public blockchain, DApps & decentralized communication. Website: www.topnetwork.org