First Stage Investor

Important Correction: DBG IPO a Down Round

Important Correction: DBG IPO a Down Round

We missed out on a big piece of information in last Thursday’s update on DBG (Digital Brands Group). And it led to some bad math. At First Stage Investor, we own our mistakes. And we made a big one. We apologize. We screwed up. We hate when it happens. We wish it didn’t happen at all. That’s been our goal, and it’ll continue to be our goal. 

All we can do at this point is set the record straight. The DBG IPO involves a “reverse stock split” that takes effect “immediately prior to the closing” of the IPO. Here’s how it’s stated in the S-1:

“…the conversion of all shares of preferred stock into common stock on a one-for-one basis and a 1-for-15.625 reverse stock split, each to occur immediately prior to the effective date of this offering.”

For those of you who invested in DBG’s earlier rounds, you paid $0.50 per share, give or take a few pennies. Your effective price per share is $7.8125 (15.625 multiplied by $0.50). The IPO share price is $5.00. So, this is a down round for early-stage investors.

Again, please ignore my prior conclusion that early investors would be making a profit from the IPO. That’s not the case. Post-IPO, you have a choice of selling your shares at a loss or keeping your shares and seeing what happens — especially in terms of DBG’s next expansion moves. 

Along those lines, I’m absolutely sticking with what I wrote and sent to you on Thursday. Let me repeat it again…

“I believe that DBG’s growth through acquisition strategy is as compelling as ever. DBG targets three groups of companies that all offer nice upside and would be receptive to buyout offers…

    • Strong legacy brands that have been mismanaged.
    • Strong brands that do not have capital to grow.
    • And wholesale brands that are struggling to transition to e-commerce.

There will be no lack of companies to choose from within those three buckets.” 

In short, I still believe that DBG has enticing upside. And that the company’s best days are still ahead. It needs to make acquisitions that excite investors and increase revenue. That’s what I’ll be looking for in the following months. And I’ll be relaying what I see to you.

The ball is now in DBG’s court. 

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