Deal Abstract
Subscription box for cannabis paraphernalia. Solo founder and teammate bootstrapped a business to $2m in revenue with $140k in profit. The entrepreneurial dream, but is it the investor's dream?
Financials (VRB)
|Question|Notes|
|---|---|---|
|1. Fundraising Target? |$1070000|
|2. Fundraised So Far?|$6700|
|3. Pre-Money Valuation?|$8500000|
|4. Previous Year's Annual Revenue |$2396800|
|5. Previous Year's Annual Net Income (+ Profitable, - Burning Cash) |~$151140|
The 6 Calacanis Characteristics ("Sow Passion, Not easy mediocrity", or S2 P6 N18)
| Criteria | Yes/No |
|---|---|
| 1. A startup that is based in SV? | False: Phoenix, AZ |
| 2. Has at least 2 founders? | False: Two |
| 3. Has product in the market? | True: Subscription! |
| 4. 6 months of continuous user growth or 6 months of revenue? | True: Grew from $2m to $2.3m in 2018 to 2019 |
| 5. Notable investors? | False: Bootstrapped! |
| 6. Post-funding, will have 18 months of runway? | True: Profitable! |
The 7 Thiel Questions (Every Time Man Profits, Don't Dismiss Serendipity)
| Question | Score | Notes |
|---|---|---|
| 1. Engineering? | 2 | Not an engineering play, but a recurring distribution play |
| 2. Timing? | 2 | Good time for subscription and cannabis |
| 3. Monopoly? | 2 | Will check in with weed smoking friends, haven't heard of it but hard to argue with revenue |
| 4. People? | 2 | Small team of two, but bootstrapping to this level on two is incredibly impressive |
| 5. Distribution? | 3 | Direct to consumer subscription! |
| 6. Durability? | 2 | Owns the relationship with the user, though no barrier to entry for someone else to come in |
| 7. Secret? | 2 | Cannabis use and growth is going to make a subscription box for this business venture backable |
What has to go right for the startup to return money on investment:
1. Grow faster; 2. Become more vertically integrated; 3. Develop product further not just to newbies but regular smokers
What the Risks Are
1. Growing too slow, esp the 2018 to 2019 revenue; 2. Subscription box is not a technology play, why can't a competitor show up and split the market; 3. This is selling pick axes to the goldminers (smokers?), so it risks fundamentally being a widgets market fundamentally
Bonus Muhan's Notes
Gotta love the subscription economy.
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.