Exclusive Den Automation, the once-promising UK smart home startup that raised nearly £4.5m via equity crowdfunding and boasted former Amstrad chief Bob Watkins as CEO, has agreed to go into liquidation, The Register can report.

Documents seen by this publication show Wilkin Chapman Business Solutions Limited has been appointed as liquidators, with Ian Michael Rose and Karen Tracey Potts the named practitioners.

UK law prioritises creditors according to a set order. Liquidators take precedence and shareholders get the leftover scraps. It's therefore extremely unlikely that any of the 1,104 investors who backed the company on Seedrs will see much – or any – of a return on their investment.

Promising beginnings

Den Automation was founded in 2014 by Yasser Khattak, a 17-year-old wunderkind from Maidstone, Kent, who came up with the idea for the business while studying for his A Levels.

Khattak subsequently dropped out to focus on the business full time.

The concept behind Den Automation was simple. It built "smart" light switches and wall sockets that were visually indistinguishable from their "dumb" equivalents and could be installed by a layman, rather than a trained electrician.

Den's switches used a proprietary wireless protocol developed in-house that wasn't compatible with any of the existing standards, like Zigbee or Z-Wave. They did, however, work with the popular automation platform IFTTT, as well as Amazon Alexa and Google Assistant.

The concept took flight, attracting investors across seven equity crowdfunding rounds, the most recent of which concluded on 15 February 2019. It also steadily accrued media interest, culminating in an appearance on Channel 5's cult Gadget Show programme. These factors helped drive pre-orders of the company's devices and built the profile of Khattak, dubbed a "boy genius" by The Mirror.

Unfortunately, Den Automation struggled to convert that enthusiasm into a sustainable, cashflow-positive business.

Cracks start to emerge

Part of the problem is that hardware is... well... hard. Bringing any kind of physical product to market is difficult, as manufacturers have to wrestle with supply chain and certification issue. Den Automation was no exception.

As the product neared its promised release date, it was beset with repeated delays. One delay, which added more than eight weeks to the company's delivery schedule, was to address a flaw that could potentially result in a fire hazard.

"The last big delay was caused by a manufacturing defect that would stop the switch from clicking off," a company insider told The Reg. "Considering the whole idea was you could turn off your devices out of the home, that would mean something wasn't powered off."

On 6 February, Den Automation's network went live for customers. Early reviews were mostly positive, with Mighty Gadgets' James Smythe complimenting the design, but criticising the proprietary nature of the communications protocol.

After six uneventful months, things started to go sour. On 5 October, the company's servers were switched off without warning. This rendered all previously sold switches and sockets useless.

Irate customers messaged the company's social media profiles, as well as its Zendesk page, but their queries went unanswered. A few weeks later, Smythe posted a blog post speculating that the company may have ceased trading. However, with no updates to Den Automation's website or Companies House page, there was no way to be certain.

Hardware is hard

We now know that Den Automation is in the process of winding up. This potentially leaves thousands of investors out of pocket, as well as an unknown number of customers who are now saddled with what is likely to be useless kit.

For those who spent hundreds rigging their home with Den's switches and sockets (one person on the company's Facebook page alleges to have spent £700 kitting out her house), their only hope is that a rival firm acquires the assets of the company and restarts operations.

The Register spoke to a former outsourced service provider for Den Automation, who requested anonymity. They blamed the company's repeated delays and reliance on equity crowdfunding for its ultimate failure.

"Hardware is expensive, you need a chunky amount of capital to get it right and the product development has absolutely got to be nailed before the first product gets shipped. Den used equity crowdfunding plus money from private investors to fund its development and grow the team but was always in a situation where it needed to raise further money," they said.

"It sold units ahead of the products being ready, which grew a community and gave them further capital, but it was then in a situation where early adopters were increasingly getting pissed off from more and more delays. Delays which grew and grew. Each time there was a product development delay, they burned more capital and then needed to raise more. So a lot was invested before the product made it out the building, by which point investors are less likely to engage because there is minimal return so far. The company hit a big cashflow issue it tried to fix, and couldn't."

Long before Den failed, it struggled with cash flow to pay its bills, with this provider owed several thousands of pounds for services rendered during the 2019 financial year.

"The financial loss put a significant strain on the business, we were able to keep paying our own staff, but the hit has been felt much higher up. As a small business ourselves, the amount owed was enough to cause a serious cashflow issue, the stress of which is still being felt," they said.

"It's been more of a mental health burden than anything else. The whole thing could have been avoided had Den recognised its cashflow problem months ahead, and put our services on pause, rather than accumulating further debt."

Ultimately, Den Automation feels like a modern-day retelling of the story of Icarus. It's a cliché, but there's some truth to it.

The firm was undeniably ambitious. It wanted to rework one of the oldest pieces of technology we use on a day-to-day business – the light switch and wall socket. In doing so, it flew too close to the Sun. Thanks to manufacturing flaws and communications issues, as well as a questionable cashflow strategy, the firm ended up plummeting into the choppy seas beneath. ®