Deal Abstract
precursor
Forecasting earthquakes days to weeks before they occur
Technologists have created a novel way to predict earthquakes ahead of time. Can this team build a business model to monetize on the damage prevented?
Financials (VRB)
| Question | Notes |
|---|---|
| 1. Fundraising Target? | $5000000 |
| 2. Fundraised So Far? | $1214388 |
| 3. Pre-Money Valuation? | $25000000 |
| 4. Previous Year's Annual Revenue | $12885.5 |
| 5. Previous Year's Annual Net Income (+ Profitable, - Burning Cash) | ~$-435132.54 |
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: Seattle, WA |
| 2. Has at least 2 founders? | False: Two |
| 3. Has product in the market? | True: But very modest revenue |
| 4. 6 months of continuous user growth or 6 months of revenue? | True: Yes, but no revenue in 2018 or 2019 |
| 5. Notable investors? | False: No one I recognize |
| 6. Post-funding, will have 18 months of runway? | True: Already has over $750k revenue raised |
The 7 Thiel Questions (Every Time Man Profits, Don't Dismiss Serendipity)
| Question | Score | Notes |
|---|---|---|
| 1. Engineering? | 2 | Predicts earthquakes, cool |
| 2. Timing? | 2 | Climate change making this type of software necessary |
| 3. Monopoly? | 1 | Very little revenue, so not a lot of penetration |
| 4. People? | 2 | Fine technologists, but is there a market for this? |
| 5. Distribution? | 1 | Distribution to whom? Insurance companies? Large plant maintenance? Requires strong B2B connections. |
| 6. Durability? | 3 | Very defensible if built. |
| 7. Secret? | 2 | Earthquakes are going to be more of a cost center for all sorts of businesses, forcing businesses to have to pay more money to anticipate and prevent earthquake damages. |
What has to go right for the startup to return money on investment:
1. Figure out the business model; 2. Sell to businesses efficiently; 3. Be able to sell it as some form of insurance
What the Risks Are
1. Market risk; 2. Really low revenue for a high valuation; 3. People don't like buying prevention most of the time
Bonus Muhan's Notes
Very cool, though I wonder if it's selling the platform itself or an insurance company powered by this engine that makes more sense.
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.