Weekly Report (Nov 9, 2021)

Nov 12, 2021 9 min read
IN THIS REPORT:

Iris (Part 2): Backed by leading VC firms, the company has already raised $600k+ from 880+ investors on Republic. As discussed in one of our previous weekly reports, I was going to dig deeper into it. Find out what my final decision was.

KingsCrowd: Probably the most requested startup in the last few weeks. But how could I make an investment decision without any meaningful metrics or financials shared by the company?

UpCounsel: An online marketplace for legal services with almost a decade of history. I am interested in evaluating a potential investment but there are still some things missing.

Rasa: A bootstrapped company growing +100% YoY, with $5M run rate, 80% of revenue is recurring, GAAP profitable in 2020 (the company is growing fast without burning cash like crazy). Lopa, the company's founder invested more than $2M of her own money. This probably deserves further due diligence!

Other Companies: Other companies that some of you shared with me that might deserve a closer look.

Iris (pt. 2)

Invest in Iris
Iris is a social stock market app that lets users connect their brokerage accounts and share real-time trade and portfolio data with their family and friends.

Platform: Republic
Offering Type: Reg CF
Security Offered: Crowd SAFE
Valuation Cap: $20M
Amount Raised: $749k+

What they do: As mentioned in a previous report, Iris offers a social trading platform, like eToro, but without limiting users to just one broker. So it is a broker-agnostic, social stock market app that lets users connect their brokerage accounts and share real-time trade and portfolio data with their family and friends.  

Thoughts: As discussed in the previous report, considering the success of social trading made popular by eToro, I can absolutely see the tremendous potential for Iris. Indeed, from a user point of view, I don't see the point in limiting the experience to just one broker when you can have them all.

But I still had some concerns about the company's valuation and its business model (their monetization strategy). Below is the message I left on the Republic's discussion board:

Hi Aditya,

Considering the success of social trading made popular by eToro, I can definitely see the huge potential for Iris. Indeed, from a user point of view, I don't see why to limit the experience to just one broker when you can have them all.

From an investor point of view, that advantage might actually be a huge limitation, though, and I would love it if you could provide some additional color to the following:

I believe the main reason other platforms didn't opt for a broker-agnostic business model is monetization. Indeed, if the platform is the broker, the user enjoys the service for free, and the platform makes money thanks to brokerage fees.

Not only that, but eToro itself pays its popular investors to be on the platform. This creates a tremendous growth loop where:

1) They pay influencers to manage money on the platform (fixed monthly payments to get them in and then as a % of AUM as the asset under management grows).
2) Influencers' audiences get in for free and start using the service.
3) Users that get in understand that they can actually make money by becoming popular investors themselves.
4) They open a popular investor account and make their friends sign up to manage their money.
5) The growth loop starts again.

All of this is possible because, being the broker, they have the funds to fuel this mechanism which is a WIN-WIN for every part involved in the process.

So, while I LOVE the idea of a broker-agnostic social platform, I would also love it if you could explain how you will be able to re-create the above growth loop and what monetization strategy you are currently considering.

The founder did reply to my message, but didn't address my concerns at all. I sent him a request on LinkedIn and we had scheduled a time to chat. In the meantime, I asked him if he could update me on the growth metrics shared on the company's pitch (Number of users, Active monthly users, Orders volume, Total Portfolios Value, Growth channels, CAC).

Unfortunately, he canceled the call and has not answered any of my messages since then. I know that some of you were very interested in knowing more about Iris, and it is a shame that this is how it has ended - at least for now. I will keep you posted if they reengage with me.

For now, I still believe that the company's $20M cap is not justifiable — there is no moat yet, no deep tech involved in the product, and no clear direction on the app's monetization. The only way to justify that valuation would be growth. So I will follow the company's progress closely and keep you posted.

KingsCrowd

Invest in KingsCrowd
The financial data platform for the online private market

Platform: Republic
Offering Type: Reg A+ (Tier 2)
Security Offered: Common Stock
Valuation: $45M
Amount Raised: $2.1M+

What they do: KingsCrowd is a financial data platform for private markets. Their main focus right now is Reg CF—they offer data on Reg CF portals, a screener to easily search for startups raising funds on equity crowdfunding platforms, and more. They also offer a higher-tiered service where you can get access to analyst reports that select the best startups raising funds on Reg CF platforms, similar to Angel Notes.

I have a starter account on KingsCrowd that grants me access to data and I love their product. However, I also tried the higher tier to get access to analyst reports and I was not happy at all with them. There was almost no due diligence, with startups selected solely based on what is stated on their pitch deck, without any kind of independent research.

With their focus being data, I don't have any great problem with that. I understand that it would be economically impractical for them to properly assess and independently analyze every single startup. And with their focus being on quantity rather than quality, their reports naturally lack the in-depth research that I would like to see. And at the end of the day, that's why I started Angel Notes. There was an obvious gap in the market!

Nevertheless, they have a huge moat and no competitor at all when it comes to data. And that's what makes me really interested in investing. But there are problems.

Thoughts: The company is the leading player in a large market that keeps growing at pace — 350k investors used Reg CF portals in 2021, up from just 18k two years ago. KingsCrowd has a clear moat, well-defined growth channels, and no competitors.

The first point is that the company hasn't shared any metrics or KPIs to assess how good they are at acquiring and retaining customers. Not only that, the only revenue figure disclosed is from 2020, when the company made ~$500k.

With a valuation of $45M, it would be impossible to properly evaluate the investment without knowing more about the company's revenue since then. I asked for more information on the company's discussion board but the founder answered that, due to Reg A+ rules, they cannot share any unaudited financials. I'm not sure how true that is.

I am aware that companies cannot conduct a Reg A+ without audited financial statements and cannot share any forward-looking statements. But, whilst audited financial statements are required to conduct the Reg A+ offering, I don't believe there are rules that prevent companies from sharing information on current figures on the Reg A+ website as long as they state that the figures are unaudited. In fact, I see many companies doing just this on equity crowdfunding portals. I might be wrong, so I asked the founder to point out the regulation referred to. I haven't received a response so far.

With no metrics and no updated financials shared, it is nearly impossible to evaluate an investment. I'll keep you posted if there is any update on this.

UpCounsel

Invest in UpCounsel: Leading legal services marketplace cutting the fat out of the old law firm model | Wefunder
Leading legal services marketplace cutting the fat out of the old law firm model

Platform: Wefunder
Offering Type: Reg CF
Security Offered: SAFE
Valuation: $28M
Amount Raised: $2.7M+

What they do: UpCounsel is an online marketplace for legal services. The company connects individuals and businesses to vetted lawyers. There is an interesting story behind the company that I'm sure some of you may have already heard.

UpCounsel was founded in 2012, but finding the right business model and cost structure took time. That is why in February 2020, despite serving millions of users, the website announced it would be shutting down. A few of UpCounsel’s biggest fans heard the news and took action. Enduring Ventures acquired the company, installed new leadership, and revolutionized the business model.

According to what's stated in the pitch deck, the company has a $3.7M annual run rate, up 42% since launching their fundraising a few months ago.

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