Contiq (July 2020)

Deal Abstract

https://www.seedinvest.com/contiq/seed

A team of Indian bros from old school, 500 lb gorilla tech companies (VMWare, Microsoft, Intel, and EMC) are banding together to build an integrated SaaS tool for custom, trackable, sales websites. Combining Google Analytics, Blanket, some portions of Canva and Visible together into one smooth, streamlined tool. Backed by broke angel granddaddy Jason Calacanis. Tl;dr a no brainer in my book.

In addition, happy fourth of July weekend, everyone!

Decision

Yah bros—take my money.

Why Investing/Passing

  1. Self denigrating humor aside, this startup/product space is basically the dream. Total SaaS B2B play. I love this type of company and should clarify my thesis statement to include this type of product.
  2. Passed every single one of Calacanis of characteristics not to mention having Calacanis as an investor.
  3. I essentially made a decision before making it to the Thiel characteristics, will be curious to write notes as I continue. [Update: Yup, intuition did not change as I went through Thiel characteristics. Could be bias, or could be confirmation that fundamentals of business are strong.]

The 6 Calacanis Characteristics (91 161 18)

CheckPass/Fail
1. A startup that is based in SVPass. Source.
2. Has at least 2 founders Pass (2)
3. Has product in the market Pass
4. 6 months of continuous user growth or 6 months of revenue.Pass: 2019 was $325k and 2018 was $36k.
5. Notable investors?Pass: Author of Angel and these characteristics, JCal Jason Calacanis himself. Also, VMWare and Deloitte as customers.
6. Post-funding, will have 18 months of runway Pass: Raised $253k, burning $187k annually or $16k monthly, at best will have 65 months of runway at present spend.

The 7 Thiel Questions (ETMPDDS)

  1. The Engineering question:
    • Yes: Combining Blanket, Google Analytics, Google Slides, etc. all into one trackable deployable specific sales site. So straightforward yet so clearly better than cobbling those tools together.
  2. The Timing question
    • Yes: I’ve been on the buying side of a B2B high touch sales protocol multiple times, and was impressed by the explosion of B2B sales efficiency tools such as Calendly, Lever + automatic scheduling, CRM sales tools that track to email, etc. This is a very good time to be building sales automation and personalization tools.
  3. The monopoly question
    • Yes: The beauty of this tool is that the concept is not hard, it’s just doing a great job at combining disparate tools into a single UI/UX that is good.
  4. The people question: 
    • Good: A bunch of Indian tech bro’s from VMWare, Microsoft, Intel, and EMC.
  5. The distribution question
    • Good: Have worked on the enterprise software side and so probably have the clout to have convos with big, hesitant B2B clients.
  6. The durability question
    • Very: one could easily see if this product is successful, it would have huge position to enter into adjacent market e.g. email marketing, CRM, etc. Not that it wants to, but getting the spout of customer and sales acquisition data is very powerful.
  7. *What is the hopeful secret?: 
    • Making highly personalized, highly tracked sales pitch websites is a scalable enterprise that allows for large margins on enterprise SaaS costs.

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

  1. Be cautious but aggressive during COVID: this company launched in January 2020, making it look like one of the new companies started in the COVID-conomy. As long as they can keep selling to enterprise during this period of uncertainty, they are going to be very well positioned as other players die.
  2. Build a great defensible product: this company already has a solid business model, so now the goal is retention and good operations. Creating a delightful and end-to-end user experience a la Canva will be key to making sure their product is sticky and ARR keeps growing.
  3. Look for smart opportunities to eat other companies lunches: this company isn’t trying to be Mailchimp or Salesforce. But if the conversion for B2B sales is there, there isn’t a reason why this company can eat (or at least nibble) at the lunches of these specialized providers. Another business comparable would be Lever.

What the Risks Are

  1. Disruption From Peers: what’s to stop a HubSpot/Blanket/Salesforce from funding a team to build out a clone once the product is good? This isn’t a high concern, but the exact same beauty of its simplicity in concept is what makes its barrier to entry for other well capitalized peers lower. (That said, especially for HubSpot and the like, the move is probably buy over build.)
  2. Scalability of the Content, UI/UX: How much of the content is really “AI powered”? If the automatic suggestions at the beginning are trash, then that means it’s still a manual endeavor and adoption will be slower.
  3. Clear value proposition for customers: attribution is the El Dorado of sales and marketing. Ultimately you get one conversion and the person who made the sale has to use their own judgment to figure out what tools helped and what didn’t. Related to UI/UX, not only does the person using Contiq’s software have to find value, but ideally that sales rep’s competition also has to be envious of Contiq and lobby their firm to buy licenses.

Muhan’s Bonus Notes

  1. I absolutely detest buzzwords such as “AI powered,” but this company turned it around for me with the non-buzzy, straightforward product.
  2. Loved seeing that annual burn go from $667k (2018) to $187k (2019.)
  3. Amused that “intangible assets” value went from $500k in 2018 to 1.94 million in 2019.

Financials (References)

  • Total Amount Raised: US $1.044 million
  • Total Round Size: US $2 million
  • Raise Description:  Seed
  • Minimum Investment:  US $200 per investor
  • Security Type:  Crowd Note
  • Valuation Cap:  US $9,000,000
  • Offering Type:   Side by Side Offering

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

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9 comments
  1. Yina
    Yina
    July 16, 2020 at 11:15 am

    – Loved seeing that annual burn go from $667k (2018) to $187k (2019.)
    – Amused that “intangible assets” value went from $500k in 2018 to 1.94 million in 2019.

    These numbers are mindblowing. Do you have a theory of what they did operationally?

    Reply
  2. muhan
    muhan
    August 4, 2020 at 9:14 am

    Answering points in order:
    1. 2019 burn went down because
    a. revenue 10x (36k to 320k) d(x) of 280k
    b. payroll costs dropped by 60% (280k to 100k) d(x) of 180k
    c. just between increasing revenue and decreasing payroll costs, you have 460k improvement in business operation costs, which is 95% of the 480k in saved burn from 2018 to 2019.
    2. For intangibles, if you check out the financial disclosures, the company is saying developed application worth went from 495k to 1123k, ($628k,) which makes sense both from input standpoint (development costs) and also revenue the platform drives (10x increase of revenue.)
    3. I don’t have much insight into what they did operationally, but I could probably surmise/that’d be great content to ask the founders themselves. I imagine some combination of honing in on their profit centers, acquiring more customers, and getting larger customers to convert.

    Reply
  3. Shyam Sudhakar
    Shyam Sudhakar
    August 24, 2020 at 11:58 am

    My investment in Contiq has been cancelled as Contiq did not hit its minimum escrow target for this fundraise 🙁

    Reply
    • muhan
      muhan
      August 24, 2020 at 12:08 pm

      Me too!!! I just emailed SeedInvest and am investigating how this happened.

      Reply
      • muhan
        muhan
        August 24, 2020 at 1:39 pm

        SeedInvest: “I am so sorry for the trouble – there was an issue with the escrow target and us not counting an investment from an affiliate investor. Since that was not included, the company didn’t hit the amount it had to raise to close on new funds. As such we will be relaunching the campaign (shortened timeframe) due to this mishap on our side.

        We so appreciate your patience. Please let me know if you have any questions in the interim.”

        It was a technical error but they have a fix coming. Stay tuned.

        Reply
  4. FreddyFresh
    FreddyFresh
    August 27, 2020 at 8:06 pm

    I’ve been using several of the funding sites, and hands-down Seed Invest scares me the most. Customer Services and the website are very bad, site is confusing and lacks the UI of all the other sites, and they either don’t respond to inquiries or give responses which don’t give you a warm and fuzzy feeling. Really questioning my decision to invest with them when all the other platforms are so much more professional. Hearing that they screwed up this offering through admitted negligence makes me even more concerned. Have you had similar experiences?

    Reply
    • muhan
      muhan
      August 28, 2020 at 4:00 am

      I’m so sorry to hear you’ve had a bad experience with them! They were really cutting edge with pushing legislation and Auto Invest back in the day. That said, I’m sure organizational structure has changed ever since they got acquired by Circle.

      To answer your question, my experience is generally positive but certainly with some less than ideal experiences. I’ve had Auto Invest investments cancelled, investments blocked, and chatted plenty with their customer service. With Contiq, however, I’ve found the customer service to be prompt, helpful, and clear. In addition, I’ve found their organizing of financial and organizational docs to be the best of all platforms.

      In general, I try to keep in mind that all these equity crowdfunding platforms are startups aka broke and trying to figure it out. If a less-than-ideal UI/UX and customer service is the price to pay-and play, I’m happy to be an early adopter and assume the platforms will get better in the coming years.

      BTW in case this type of comparison is useful: https://www.muhanzhang.com/equity-crowdfunding-platforms-comparison/

      Reply
  5. Max
    Max
    August 29, 2020 at 9:33 pm

    Contiq’s pre-money seed valuation was $8m. That was two years ago. Are you concerned that the company has had nothing more than what I see as a tokenistic increase in value in 2 years?
    I have enquired about their customer churn and net-promoter score as proxies for product/market fit

    Reply
    • muhan
      muhan
      August 30, 2020 at 2:33 pm

      Good spot. With pre-money of $8m and $2.4m round that means with no multiple they should have at least been $10.4m, so in a sense this is a down-round.

      I’m not too concerned, personally. I’m not sure who those funders are, but especially if their family/friends supporting someone before they have a product, I’m glad that F&F would shoulder the pre-product risk. Building a large SaaS platform that’s ready for big clients can definitely get costly, and if I recall correctly, 2018 was a big loss year but 2019 was when the $$$ started rolling on in (with costs becoming more disciplined.)

      Love that you’re asking about churn and NPS, feel free to post updates when/if they respond.

      Reply
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