1) Other than its image as a sustainable fibre, how does your fibre compare with other yak fibre?

We work with a specific breed of yak, only found in Mongolia and indigenous to the Khangai mountains, so its hair has different qualities. Mongolia is a mineral rich country so the fibres produced in this part of the world will have unique textures and colourings only found in animals living in this part of the world.

 

2) What other unique qualities are either inherent in the material, sourcing or technology for processing the fibre?

The best heritage manufacturers in the world are in Britain and Italy. We carefully select and work with leading heritage manufacturers in Britain who manufacture and supply the luxury goods sector. Companies which source Chinese, Tibetan, Nepalese, Mongolian or South American yak fibre would not be able to manufacture to same level of the standards of yarns we produce. Nor would they be able to supply the raw materials of the same calibre and in bulk, for two reasons: the breed of animal produces a different quality and colour of fibre, combined with geographical, logistical and infrastructure challenges to scale and manufacture industrially to the level of craftsmanship and refined quality as in Britain. We also plan to expand our yarns production into Italy.

 

3) What other propositions do you have that set you apart from your competition?

Unlike other fashion brands and their suppliers, we have a fully transparent and ethical supply chain which we can deliver at scale. 

As a fashion brand, we can diversify our product offering into other articles of fashion and lifestyle products, and we aspire to expand into other materials where we use our yarn technology to blend other sustainably sourced material to create new yarns for our own products and for the market. Potential blends include other exotic and natural animal and plant fibres indigenous to the regions where we source fibres. We will be replicating our model in other parts of the world beyond Mongolia where we have strong NGO partnerships and local knowledge and expertise to help set up and replicate the supply chain.

‘Yak’ in general is considered a ‘commodity’ material in luxury fashion, whereas ‘Khangai Noble fibres’ is a unique fibre in it's own right. We have trademarked ‘Tengri Noble Yarns’ and ‘Khangai Noble Yarns’ to set our materials apart from the commodity market, and have firmly positioned ourselves in the luxury goods sector. We are already in the early stages of licensing our trademark for use by our buyers (luxury brands). Any competitor will have to create a new brand and undertake substantial marketing to position itself successfully in the luxury market. Potential competitors will have to work hard to come up with more creative marketing – we have had zero spend on advertising to date.

 

4) What are the expected challenges in marketing this to the premium luxury market against established incumbents?

Please see (1) above. The team is very well linked and Nancy Johnston, Tengri founder and CEO, is part of the Responsible Ecosystems Sourcing Platform, an invite-only membership founded by top luxury brands with a pure emphasis on supply chains and responsible sourcing from natural ecosystems. See http://www.resp.ch/our-network/our-members.

Unlike most start-ups, fashion brands are approaching Tengri to be their supplier. Our first B2B sale is with a very prestigious luxury brand-owner, with whom we are currently finalising further purchase of our yarns for other brands owned by them and for licensing our trademark in their marketing.

 

5) If yak fibre takes off, how large can you scale and what would be the barriers to competition?

The carrying capacity of the land has not been reached. Mongolia can sustainably source 5x its current amount. At present only 20 tonnes are ‘combed’ in the region where we have 40% of total supply across the country. This can be expanded to 100 tonnes. We have also been offered yak from other cooperatives in the rest of Mongolia, and approached to scale our model to Nepal and Tibetan yak herders. We offer an attractive proposition as we share a percentage of profits with herders in a ‘fairshare’ model, so they get paid 3x per year as opposed to once and mostly on uplift of value-added from British manufacturing and design and based on UK £GBP. A little goes a long way.

Additionally, yaks are found in Nepal, Tibet and South America, but live in challenging mountainous environments around 6000+ metres above sea level, areas that lack the infrastructure, logistics and the means to easily aggregate and scale. This minimises competition to scale. Mongolia is flat, with roads, and its international trade is relatively mature, backed by government policies and support, which is why it is the world’s second-largest supplier of luxury fibres.

 

6) If yak fibre turns out to be a niche market, do you have thoughts of other growth possibilities to leverage the Tengri brand?

Yes, please see the answers to questions (1) and (3). Yak animals provide not just fibres but also leather, which we intend to incorporate into our product offering under the Tengri lifestyle brand in the future. Mongolia is the source of the best animals due to their organic nature and the mineral-rich land, which translates to the quality of the animal leather, a natural by-product. Our ambition is to become a fashion brand worth £25 million in 10 years and be known for producing desirable design-led products made with the highest level of integrity, craftsmanship and natural sustainable luxury.

7) What guarantees can you give your shareholders that equity would NOT be diluted if you take in further funding in the future?

We anticipate profits in year 2, in which case dividends would be paid to shareholders, and we have a planned investor exit in 3-5 years. Our expected turnover is well in excess of £3 million in the next four years. We can guarantee that shareholders will not have their investments diluted as 15% of the company equity remains unallocated. We’ve taken on board the interests of investors early on when  the company was formed and looked at our growth needs very carefully to ensure no dilution.

The other advantage for early stage investors being considered is that we are building three separate divisions and potential businesses under one unified brand of Tengri. The assurance to investors is that should the company eventually split into three companies (pending performance), early stage investors and shareholders will have equity across all companies (Yarn, Fashion, Furniture). If we need to raise equity for one company over another, we would set it up as an independent company.

However, we do not anticipate further funding requirements after this injection as we expect to be self-finance based on the 1800%-2800% uplift value we inject into our products. We are in fact a low-cost operation to run. Our supply is one source, our manufacturers are vertically aligned in our business, so we need no investment in production or manufacturing materials. Nor do our manufacturers have upfront costs for materials, so it’s a win-win low-cost operation to scale and grow together from this point onwards.

8) Is there an outstanding director’s loan and can you please confirm that none of this investment will to used to pay back any of the loan?

None of the investment will be used to pay back any outstanding director’s loan. Any payments will be made through revenue generated through other income streams not reflected in the business plan – mainly sporadic consultancy Nancy Johnston undertakes, which is billed through Tengri because of her expertise.

 

9) When can investors expect a dividend? 

The company anticipates to be profit-making in year two, in which case we will begin paying shareholders a dividend, pending capital requirements.

 

10) How is the current equity split amongst the current shareholders and founders, and how would this look after investment? I am interested in understanding how the current company governance and decision-making works with so many founding members.

15% of the company’s shares are unallocated so as to not dilute shareholders’ equity if further funding rounds are taken in. 10% is allocated for investment under our early stage round 1 and a further 5% for future rounds.

Nancy Johnston’s co-founders have collectively a 20% equity stake, split in various amounts based on 'sweat' equity. They contribute to decisions based on their fields of expertise.

Decision-making is with Nancy as CEO. Tengri's governance structure consists of four people, Nancy to contribute her expertise and the support of three directors (two exec and one non-exec) with a broad range and wealth of experience in organisational governance in the corporate sector.

As a CEO, Nancy is also supported by an informal advisory board comprising technical experts in the field of conservation, animal health, agriculture, global supply chains, corporate social responsibility, international development, textiles and sustainable fashion, helping to inform her to make the right decisions.

 

11) Our understanding is that you are currently aiming to raise £150k SEIS. What is the current valuation?

Current valuation is £1.35m pre-investment, substantiated against our ability to scale in three markets:

- Luxury fibres and yarns industry (cashmere market worth £4bn).

- Menswear fashion market (22% growth over last 3 years, valued at approximately £13bn).

- Luxury furniture market (projected value of £18bn by 2020).

 

12) How much of the round has already been committed and by whom?

Having raised £100,000 previously (£33,000 a few weeks ago) from private investors in the US, we are currently seeking to raise another £150,000 in the UK under the SEIS tax incentive scheme and are also open to investment from foreign investors.

 

13) What revenue has been generated to date? 

Much of 2014-15 was spent on R&D. Since the start of 2016 we have been focusing more on selling product. This is highly targeted towards building key relationships, because we don’t want to waste our precious stock on one-off sales of fibre. We only started selling in the current calendar year so this will only be reflected in the 2016 accounts. We are currently finalising the 2015 accounts.

 

14) What brands does Tengri supply yarn to?

During the last quarter:

•    We have sold 1 tonne of by-product fibres into luxury bedding, a relationship worth £120,000-£150,000 per year.

•    The sales value of current ‘physical’ product in stock, consisting of fibre and yarns, is worth £400,000. We want to build the right relationships to grow sales with the right partners, rather than sell on a short-term ad-hoc basis.

•    We have secured a test purchase of premium yarns to a luxury fashion brand, which is now requesting further volume purchase. We are also finalising negotiations for our next purchase and licence usage of our trademark Tengri Noble Yarns® for marketing in their products.

 

15) Can you please provide a five-year financial forecast?

Yes, please email hello@tengri.co.uk to request and for more details.