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Initial investors in the start-up had withdrawn financial support which raised questions about the validity of Everledger’s business model and the confidence backers had in the company’s management.
Initial investors in the start-up had withdrawn financial support which raised questions about the validity of Everledger’s business model and the confidence backers had in the company’s management.

Everledger collapse: Questions raised around business model, management

The future of Everledger, the Brisbane-based technology company with strong ties to the jewellery industry, remains up in the air after a second creditors meeting was postponed to 28 June.

In May, it was confirmed that Everledger, led by CEO Leanne Kemp, had entered voluntary administration after failing to secure a second round of funding.

Initial investors in the start-up had withdrawn financial support which raised questions about the validity of Everledger’s business model and the confidence backers had in the company’s management. 

The company was placed under voluntary administration on 24 April by Steven Staatz and Ashley Leslie from Vincents Chartered Accountants.

Staatz confirmed that he had discussions with Kemp and her lawyers about a Deed of Company Arrangement [DOCA] proposal.

“From our discussions with the director [Kemp] and her legal advisors, it appears likely that the anticipated DOCA proposal will provide creditors with a better financial return than a liquidation scenario.”

“The financial results and subsequent collapse suggest a misguided business model; a ‘solution looking for a problem’.”

According to the Administrator’s report filed with the Australian Securities and Investments Commission (ASIC), Everledger owes the Australian Tax Office $AU368,000 and a further $AU9 million to Foreverhold Limited, its parent company.

Everledger Australia is wholly owned by UK-based Foreverhold Limited, a company that is in the process of being liquidated. Kemp is also a director of Foreverhold.

According to documents lodged by UK liquidator John Noon with Companies House in the UK, Foreverhold owes creditors £7.4 million ($AU14.1 million) including more than £320,000 ($AU597,000) to HM Revenues and Customs.

Documents filed with ASIC reveal that Kemp attributes the collapse of her company solely to decisions made by other people.

» Read more: Uncovering the financial truth with Everledger

It states: “The director has advised that the failure of an investor to complete an agreement to provide new working capital to Foreverhold Limited was the reason of the failure of the company.”

However, the administrator’s report paints a different story. Everledger Australia has amassed losses close to $AU10 million since 2018.

In the past two years its total revenue barely covered the ‘cost of sales’ let alone other operating expenses, and in the first four months of this year (to 24 April) Everledger's losses had already amounted to 40 per cent of its total loss for the entire 2022 calendar year.

For each year from January 2018 to April 2023 Everledger has never generated enough revenue to satisfy its expenses.

Worse, judging by the ASIC report’s ‘Profit and Loss Analysis’, it would appear that little of its income came from services to the jewellery industry.

In a surprising admission, the report highlights that the company effectively survived on government grants.

“The Company's income for the year ended 31 December 2021 and 2022 were largely attributable to grant income which represented 83 per cent and 84 per cent of the total income respectively,” the report states.

Between 2019 and 2022, Everledger recorded operating losses in excess of $AU1.94 million each year. The company undertook research and development activity funded by the Australian Taxation Office, receiving $AU1.32 million in 2021.

 


The above table shows the mounting losses of Everledger, while the administrator notes that the company’s income was largely attributable to government grants. | Data Source: ASIC Administrator
The above table shows the mounting losses of Everledger, while the administrator notes that the company’s income was largely attributable to government grants. | Data Source: ASIC Administrator's Report

 
» Click to view enlarged table

“The company completed another project which commenced in 2022 which is subject to further funding by the ATO,” says Staatz.

An article titled, 'Startup queen Leanne Kemp’s failed Everledger survived on taxpayer grants’ published in The Courier Mail on 1 June reported: “The failure of Everledger came despite attracting $54.7 million from investors, including $3 million from the government’s blockchain pilot grants program and Chinese internet giant Tencent, which owns social media program WeChat.”

The story also detailed a debt of £3.3 million to Hong Kong-based company Image Frame Investment, a wholly-owned subsidiary of Tencent.

Not going away without a fight

The collapse of Everledger took the jewellery industry by surprise in large part due to the significant amount of investment the company accrued since its launch in 2016.

Start-up companies are by nature volatile businesses. Research by Forbes has suggested that 90 per cent of start-up companies will fail.

With that said, not all start-ups can boast the backing of a tech giant such as Tencent, the owner of Chinese social media app WeChat.

Tencent has a stock market valuation of more than $US400 billion and previously led Everledger’s $US20 million Series A funding round in 2020.

Leanne Kemp, founder and CEO Everledger
Leanne Kemp, founder and CEO Everledger
“This is not a company that scaled too fast or took on venture capital and burnt it in 18 months.”
Leanne Kemp, Everledger

Moreover, the company’s platform has previously been endorsed by the Gemological Association of America, the De Beers Group, and many major retailers, including Chow Tai Fook.

While the behind-the-scenes circumstances for the withdrawal of the company’s ongoing funding remains unclear, Kemp told JCK Online: “We had a legal agreement [with an investor(s)] and we feel there’s been a breach of that agreement. We will let the legal process run its course.”

Kemp has proclaimed herself a 'serial entrepreneur and innovator' and her LinkedIn profile states that she has a “25-year track record of delivering unparalleled value at a rapid pace through product, innovation, and growth strategies.”

She has previously denied Everledger was a ‘cash-burning’ start-up under her management.

“This is not a company that scaled too fast or took on venture capital and burnt it in 18 months,” she told The Australian Financial Review on 8 May.

"We planned this investment round as the last external funding round required before profitability. Certainly, our use of capital and operational footprint was in total alignment with the board’s direction under a controlled growth plan.”

Jeweller has previously asked Staatz if his investigations have revealed any mismanagement; however, he was unable to comment.

Flawed business model?

Although the reasons for Kemp’s failure to secure vital second-round funding - and/or the investors’ refusal to provide ongoing working capital - remain a mystery, some industry pundits have suggested that another explanation is that Everledger’s jewellery industry business model is flawed.

The financial results and subsequent collapse suggest a misguided business model; a ‘solution looking for a problem’.

The administrators' report seems to indicate that, over the past five years, only a small portion of Everledger’s total revenue ($AU5.3 million) has been generated from its jewellery industry products or services.

During the same period the company incurred losses in excess of $AU8.2 million.

» Background reading: Second collapse in Everledger saga; CEO denies ‘cash-burning’

On 9 June, Jeweller contacted Kemp raising this issue and subsequently asked if the investors withdrew from the second-round funding because they had no confidence in the company’s management or withdrew because they had no confidence in the future success of the business model – or both.

At the time of publication, Kemp had not responded.

She avoided similar questions on 24 May: “This is quite an old story. Why now? It’s such old, old news,” she reportedly told The Australian senior business reporter Glen Norris while declining to comment on the reasons for the company’s collapse.

The ’old story’ remark seemed odd at the time given the company’s staff were only made redundant around three weeks earlier on 31 March.

What the future holds for Everledger remains to be seen; however, Kemp has described the venture as a ‘forever company’ and in a recent interview, suggested that the best was yet to come.

“Everledger is here. I am the largest shareholder, and I’m not going anywhere. We have seven entities in five countries, and some are being wound up and others are being restructured,” Kemp told JCK Online.

“The technology is live and has been since this event happened in March. All of that is uninterrupted. I have had conversations with every one of our customers.”

Practice what you preach

Everledger’s website claims that its blockchain-based platform is applicable to many industries - jewellery and gemstone provenance are not the only target market.

With that said, Kemp has been vocal on many topical issues facing the jewellery industry.

She often speaks at major industry events and has written many opinion pieces preaching about the importance of transparency in business and in particular the jewellery industry.

This has led to some questioning whether Everledger adheres to the same standards espoused by the company’s founder.

The Everledger website is still ‘live’ but it has not been updated to inform visitors that the company is under voluntary administration, or that the parent company is in liquidation.

According to Companies House in the UK, outside of Kemp, the board of Foreverhold has three other directors – Alex Leung, Wei Luo, and Alan Yu.

“The Company’s income for the year ended 31 December 2021 and 2022 were largely attributable to grant income which represented 83 per cent and 84 per cent of the total income respectively,”
Administrator's Report, ASIC

While Kemp remains a director of Everledger - something her Linkedin profile confirms - she no longer has legal control over the company. Under Australian law, the legal powers of a director are suspended during an administration process.

Despite this, she continues to publicly state the importance of ‘transparency’ in the jewellery industry, even though her profile makes no reference to the collapse of Everledger and/or Foreverhold.

While many business leaders use platforms such as Linkedin sparingly, the same cannot be said for Kemp, who recently took the time to praise the Financial Times for an article discussing transparency in journalism.

As recently as one week ago - more than one month after the collapse of Everledger - Kemp was once again demanding transparency from the jewellery industry.

The June issue of industry publication Jewellery World contains another article penned by Kemp in which she states: "Everledger's transparency reports and provenance statements are a testament to the company's commitment to educating consumers and transforming the industry towards greater sustainability and transparency.”

“By doing so, they are helping to create a new standard for the diamond and jewellery industry, one that is based on values, transparency, and sustainability."

Given the importance that Kemp places on transparency and ethics, the article - the third since she lost control of the company - makes no mention of any of the financial problems encountered by Everledger under her management.

Rules for thee…

Jeweller has previously documented Kemp’s vocal calls for the jewellery industry to embrace change and to "work towards a future that prioritises sustainability, ethics, and responsible sourcing to create a brighter future for everyone involved.”

Kemp’s online commentary about transforming the industry was published on 2 May despite the fact that Everledger was placed under voluntary administration a week earlier - on 24 April.

Further, another article was published on 7 March - only three weeks before Everledger's Brisbane staff lost their jobs - and was ironically titled, ‘Uncovering the truth with Everledger’.

“Everledger’s transparency reports and provenance statements are a testament to the company’s commitment to educating consumers and transforming the industry towards greater sustainability and transparency”
Leanne Kemp, Everledger

Kemp wrote that “the diamond industry has consistently been shrouded in secrecy, with a complex supply chain that has often made it difficult for consumers to know where their diamonds come from and whether they were ethically sourced.”

All three articles penned by Kemp were published amid the collapse of her company. According to records from Companies House in the UK, Kemp owns more than 50 per cent (but fewer than 75 per cent) of Foreverhold’s shares.

Indeed, Kemp has been untransparent about the reasons why initial investors have ‘pulled the plug’ on Everledger after ardently supporting the venture just three years ago.

It may also be worth noting that the industry publication has not included an editor’s or publisher’s note to Kemp’s byline making reference to the collapse of Everledger and the liquidation of Foreverhold - in the interest of industry transparency - so that readers are fully informed.

As previously mentioned, Kemp has not responded to multiple requests for comment from Jeweller.
 

UNCOVERING THE FINANCIAL TRUTH WITH EVERLEDGER

The above bar chart shows the company’s yearly losses - totalling $AU9.5 million - since its founding in 2016. | Data Source: ASIC Administrator
The above bar chart shows the company’s yearly losses - totalling $AU9.5 million - since its founding in 2016. | Data Source: ASIC Administrator's Report

» Click to view enlarged chart

Everledger was founded in 2016 by Leanne Kemp, who describes herself as a "serial entrepreneur and innovator".

The company was placed under voluntary administration on 24 April.

It has incurred losses amounting to $9,469,308.00.

Everledger does not hold any intellectual property that may be commercially realised because the coding work performed by employees of the company was dependent upon and intermingled with the coding work performed by other employees of the parent company, Foreverhold Limited.

Everledger’s profit and loss revealed that it did not generate sufficient revenue to satisfy its expenses for the year ended 31 December 2018 up to being placed under Administration.

The company undertook R&D activities which were funded by the Australian Taxation Office under the Australian Government Grant program.

Everledger’s income for the year ended 31 December 2021 and 2022 was largely attributable to Australian Government Grant income which represented up to 84 per cent of the total income respectively.

During the year ended 31 December 2021 the company received government grant funding in the amount of $1,318,946.

The company's negative net assets increased year-on-year from 31 December 2018 onwards.

The monies loaned by the parent company, Foreverhold Limited, and other related entities were recorded as current liabilities in the company accounts as a result, the company had a substantial deficiency of current assets to current liabilities from 2018 onwards.

When placed in voluntary administration the company held a bank account with a credit balance of $15,000.

 

More reading
Second collapse in Everledger saga; CEO denies ‘cash-burning’
Australian diamond tracing tech company collapses
New blockchain platform can track pearl provenance and ownership
Australian-led start-up launches new blockchain platform

 











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