Deal Abstract
Repeat founders are building a cloud based facial recognition/security solution. I worked for a startup in this space in 2015, so color me biased.
Financials (VRB)
| Question | Notes |
|---|---|
| 1. Fundraising Target? | $28000000 |
| 2. Fundraised So Far? | $24000000 |
| 3. Pre-Money Valuation? | $30000000 |
| 4. Previous Year's Annual Revenue | $77000 |
| 5. Previous Year's Annual Net Income (+ Profitable, - Burning Cash) | ~$-536000 |
The 6 Calacanis Characteristics ("Sow Passion, Not easy mediocrity", or S2 P6 N18)
| Criteria | Yes/No |
|---|---|
| 1. A startup that is based in SV? | True: San Mateo, CA |
| 2. Has at least 2 founders? | False: Two |
| 3. Has product in the market? | True: Revenue generating |
| 4. 6 months of continuous user growth or 6 months of revenue? | False: Declined from 130k to ~70k, 2018 to 2019 |
| 5. Notable investors? | False: No one I recognize reeally |
| 6. Post-funding, will have 18 months of runway? | True: Only needs $1m for 18 months at 2019 burn |
The 7 Thiel Questions (Every Time Man Profits, Don't Dismiss Serendipity)
| Question | Score | Notes |
|---|---|---|
| 1. Engineering? | 2 | It's security systems to the cloud. Better than nothing but not sure where the engineering is better. |
| 2. Timing? | 2 | Still not sure whether facial recognition/detect will take off now. I worked as a software engineer for a facial recognition startup in 2015 and 6 years later, still don't really see the industry having proceeded. |
| 3. Monopoly? | 1 | Honestly embarrasingly small revenue for a company valued at $30m |
| 4. People? | 4 | Really stacked team |
| 5. Distribution? | 3 | Team definitely has the ability to sell this product... assuming the market exists |
| 6. Durability? | 3 | If they can build it, definitely not easy to replicate |
| 7. Secret? | 2 | The facial recognition/analysis market is going to be captured significantly more by cloud providers... if the market is that large |
What has to go right for the startup to return money on investment:
1. Bring revenue up; 2. Figure out who are the specific customer demographics and rinse-lather-repeat that group; 3. Probably develop a freemium model
What the Risks Are
1. Market doesn't exist; 2. Tons of capital, little to no revenue; 3. Lots of questions
Bonus Muhan's Notes
Amazing to see the company blow past milestone after milestone, but need to see more revenue, and also confused why revenue dropped from 2018 to 2019.
Updates
This is where I’ll post updates about the company. This way all my notes from offering to post-offering updates will be on one page.
Review these deal memos every time the startup raises a new round
Test if original thesis still applies
Notice trends in how you think
So, did I invest?
Click here to find out.Other thoughts, questions, comments, or concerns? Write me at mail@muhanzhang.com and let me know.