by Yolanda Redrup
Amazon-backed US home security start-up Scout Security will cross the Pacific to list on the Australian Securities Exchange, with a $5 million capital raising plan aimed at taking its product global.
Founded in 2013 by Chicago natives Dan Roberts and Dave Shapiro, the company has created a connected home security system that is cheaper than the incumbent players and gives owners the ability to monitor their homes via a smartphone app, receive alerts, 24/7 police dispatch and also connect to smart home products such as Google Home and Amazon's Alexa devices.
Mr Roberts said he was inspired to start the business when he moved from an apartment block to an up-and-coming neighbourhood in Chicago and wanted to buy a home security system. He found his options to be too expensive and with lock-in contracts that were prohibitive for anyone who might move houses within three years.
"Traditional providers had tech from the 1980s which cost $US60-70 a month for monitoring and had lock-in contracts of three to five years," he said.
"We designed what we wanted as customers and did a crowdfunding campaign to see if other people wanted it. We did it independently on our own site and we pre-sold $US200,000 worth of devices in 30 days and went onto sell $US500,000 worth before launch."
Scout's average home security kit sells for $US420 ($550) and it offers two monthly subscription plans, one for $US9.99 ($13) and another for $US19.99 ($26) which includes police dispatch.
Recurring revenue
Unlike many small cap tech companies with limited revenue, the business is already turning over $US1.85 million ($2.45 million) annually and depending on how the capital raise goes, it is on track to be cash flow positive by the end of 2017.
The company has also reached $US52,000 ($69,000) in monthly recurring revenue, which it hopes will help it win over local investors. The company's customer churn rate is 12.5 per cent, which Mr Roberts said was on par with the industry average of 12-14 per cent.
Rather than targeting existing home security users, the company's focus is on middle income and up millennials and Gen X householders who have likely never owned a home security system before.
IBISWorld has estimated that home security is a $23 billion market and Mr Roberts believed many home owners' first forays into smart homes was via security products.
"A number of research reports have shown that the number one reason people buy their first connected device is for security. It could be a camera or a connected door lock, but it all stems from security," he said.
"We want to make sure the user experience gets simpler over time and devices fades into the background. It doesn't seem like that much of a friction to take a phone out of your pocket, but the ability to say 'Alexa, arm Scout', as you walk out the door makes it that extra step more convenient."
Since 2013 Scout has raised $US3.6 million in funding, including $US250,000 from Amazon through its $US100 million Alexa fund.
Amazon approached Scout wanting to invest in the business, having noticed its strong sales through its marketplace. Post listing, Amazon will own roughly a 2.6 per cent stake in the company.
The US-based company was convinced to list on the ASX after meeting the founders of other US companies trading on the ASX and hearing positive stories of their experience.
Mr Roberts said the capital raised through the listing, which is likely to occur in mid-July, would go towards marketing and inventory production, with the intention of expanding its product sales to Australia, the UK and Canada in 2018.
"Home security has a unique opportunity to be central to the connected home. People want it, they understand it and they're used to paying for it."
SCT Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
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