However, sources said investors would not be refunded their prepaid management fees – the fees for the remaining 1½ years of the five-year period – as the undrawn portion had been used to directly support Shoes of Prey in its restructuring efforts.
Shoes of Prey ceased trading in August and had been working on options aimed at avoiding a formal wind-down or liquidation.
The company sold its manufacturing equipment to Estas Brands, which rehired its Chinese workers. This “ensured that the manufacturing equipment, team and know-how was preserved in the event a restart strategy was possible,” it said.
But Shoes of Prey was unable to renegotiate terms with its lender, Comerica, which had provided it with $2 million of venture debt.
It said Comerica “elected to foreclose (as is their right) last month, which has eliminated the option of a restart for Shoes of Prey Inc”.
In November 2015, Brisbane-based alternative asset manager Blue Sky raised just more than $10 million to invest in Shoes of Prey via the Blue Sky Private Equity Shoes of Prey Fund.
This venture firm attracted annual management fees of $200,000, comprising an annual asset management fee, a third-party expense fee and an ongoing financial services licensing fee.
Under the terms of the raising, the first five years of management fees were paid upfront, totalling $1 million.
Shoes of Prey ceased operating 2¾ years into the life of the fund, and filed for liquidation 3¾ years into the fund’s life.
That means investors have prepaid between $250,000 and $450,000 in management fees and expenses beyond the operation of the company. Sources said the prepaid period equated to 1½ years, or $300,000.
The 2015 information memorandum stated that if Blue Sky exited the investment early, “all annual fees paid upfront will be refunded”.
Blue Sky also charged $580,000 upfront in transaction fees.
Shoes of Prey was founded in 2009 and was once one of Australia’s most promising start-ups, having raised capital from venture capital funds such as Blackbird Ventures, Southern Cross Venture Partners and Silicon Valley heavyweight Khosla Ventures, in addition to Blue Sky.
The venture had early success selling custom-made shoes online and raised $US15.5 million in venture capital funds in 2015.
But the company was forced to switch strategies several times and most recently planned to target the “Cinderella” market – people with unusually small or large feet.
In March last year, Blue Sky injected additional capital into the business alongside Greycroft Partners to provide sufficient funding to June 30 as the company sought buyers.
Meanwhile, Brisbane-based Blue Sky came under attack from short seller Glaucus, which claimed it was over-stating its assets under management and over-charging its investor clients.
Blue Sky shares fell from $14.60 to below $1 in 2018. Last October, distressed-debt fund Oaktree injected $50 million of capital.