AlphaFlow Deal Memo (September 2020)

Deal Abstract

https://republic.co/alphaflow

Marketplace for sellers and buyers of real estate financial instruments. Has nearly $1 million in revenue as of 2019 and in a good position to grow. Valuation at $40mm means I’m auto-out of the deal, but not a bad growth investment for those who like real estate.

Shout out to reader and fellow investor Peter for forwarding me the deal!


Interested in startup investing? Subscribe to my premium newsletter, Startup Investing, to receive exclusively weekly content, tailored for the startup investor.


Decision

Pass

Why Investing/Passing

Preach, Jimmy McMillan, preach.
  1. Valuation: See above.

The 6 Calacanis Characteristics (91 161 18)

CheckYes/No
1. A startup that is based in SVYes: San Francisco, CA
2. Has at least 2 founders No: One
3. Has product in the market Yes
4. 6 months of continuous user growth or 6 months of revenue.Yes: 2018 revenue was $126k, 2019 was $922k
5. Notable investors?Yes: Y-Combinator, Social Capital (and 2018 scandal,) and others.
6. Post-funding, will have 18 months of runway No: Burned $3mm in 2019, raised only $500k.

The 7 Thiel Questions (ETMPDDS)

  1. The Engineering question:
    • Good: this market exists and is indeed very fragmented.
  2. The Timing question
    • Good: managed marketplaces for the win.
  3. The monopoly question
    • Good: Look at that revenue. But I will say, regulatory may slow it down.
  4. The people question: 
    • Good: Team seems well positioned to execute. Interesting that founder found and sold RealtyShares. Not sure how the company was, but an exit’s an exit.
  5. The distribution question
    • Good: Hobnobbing with finance bros.
  6. The durability question
    • Good: Solid.
  7. *What is the hopeful secret?: 
    • Not much secret, there’s definitely a market for digitizing the purchase and selling of digital real estate financial instruments.

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

  1. Pretty certain this will return money on investment.

What the Risks Are

  1. Capital Risk: Only raised $502k, which is two months of burn.

Muhan’s Bonus Notes

I think this company will make money. But to put it into perspective, let’s say you put $25k into financing this company. If you invested that same amount of capital in 10 companies at a $4 million valuation, you’d be potentially looking at tripling your money instead of 50%-75%.

Also happy bonus that Lesley Brice from Groundfloor gave them a positive review!

Financials (References)

  • Current Fundraised: $986k
  • Valuation: ~$40MM

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

Get New Posts Automatically By Email:
 
Leave a Reply

Your email address will not be published. Required fields are marked *

Feedback
Feedback
How would you rate your experience?
Do you have any additional comment?
Next
Enter your email if you'd like us to contact you regarding with your feedback.
Back
Submit
Thank you for submitting your feedback!