UpChoose Deal Memo (2021-04-30)

Deal Abstract

Invest in UpChoose
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Subscription clothing for baby clothes! Fixed monthly fee to get high quality baby clothes delivered to doorstep. Wants to become the Rent the Runway for baby clothes

Financials (VRB)

|Question|Notes|
|---|---|---|
|1. Fundraising Target? |$1070000|
|2. Fundraised So Far?|$67676|
|3. Pre-Money Valuation?|$8000000|
|4. Previous Year's Annual Revenue |$51568|
|5. Previous Year's Annual Burn |~$13064|

Source

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 Francisco, CA
2. Has at least 2 founders? ****: Two
3. Has product in the market? True:
4. 6 months of continuous user growth or 6 months of revenue? True: 'We currently have more than 750 customers in about 180 US cities across 40 states. We've been able to grow Monthly Recurring Revenues (MRR) 10x over the last 5 quarters and total revenues grew 300% year-to-date compared to last year. We have seen a 70-75% retention rate after 6 months for our subscription service. We also currently have a pipeline of 17K+ qualified sign-ups.'
5. Notable investors? ****: Mostly bootstrapped, 'The founder has personally invested $100K+, with a friends & family investment of $25K. We also received a $25K grant from Levi's. Since then, we've focused on building a unique service and vibrant customer base. We have used our revenue and non-dilutive capital from Stripe Capital and Clearbanc to fund our growth in the past 12 months.'
6. Post-funding, will have 18 months of runway? True: Pretty lean shop
Source

The 7 Thiel Questions (Every Time Man Profits, Don't Dismiss Serendipity)

Question Score Notes
1. Engineering? 4 Subscription baby clothes, brilliant!
2. Timing? 3 Great time for subscription, COVID friendly distanced e-commerce, etc.
3. Monopoly? 2 Not a parent but don't know anything similar
4. People? 2 Strong solo founder but no other cofounders/first venture of a corporate professional
5. Distribution? 3 Direct to consumer, e-commerce
6. Durability? 2 On the one hand, this seems great and durable. On the other hand, does this mean customers churn every few years due to babies growing up?
7. Secret? 3 Baby clothes is the beachhead for any subscription based cloth company (think renting graduation gowns, marriage, etc.)

What has to go right for the startup to return money on investment:

1. Keep costs low and scalable; 2. Grow fast and like a weed; 3. Leverage trust with consumer to provide other services, either double down on baby or go wider into apparel.

What the Risks Are

1. Costs of shipping back and forth at a low margin makes this a modest business, 2. High churn e.g. high customer acquisition cost with low lifetime value, 3. Market size, though to be honest I concede that just baby clothing is a very sizable market

Bonus Muhan's Notes

I'd easily use this service if I had a child right now.

Updates

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