Groomit Deal Memo (September 2020)

Deal Abstract

https://wefunder.com/groomit

Managed marketplace for pet grooming. Generated $600k in revenue in 2018, bootstrapped all the way to current valuation of $6 million. Needs to scale up rapidly, but could become a platform for pet-care and expand in a low-regulation market to dozens of cities in the next few years.

Shout out to reader Max for forwarding me the deal!


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Decision

Invest

Why Investing/Passing

  1. Disciplined Progress: Company generated $597k in revenue last year while bootstrapping the business with debt.
  2. Thesis Checks Out: Managed marketplace for pets during COVID-conomy makes complete sense to me. I checked a16z’s chart for managed marketplace and was surprised no one is doing this already.
  3. Valuation: $6MM for a company with this much progress and upside is exactly what I look for.

The 6 Calacanis Characteristics (91 161 18)

CheckYes/No
1. A startup that is based in SVNo: Yonkers, NY
2. Has at least 2 founders Yes: 2 (Each owns 37% of stock, one is CEO and the other is VP.)
3. Has product in the market Yes (4 star review with 50 ratings on iPhone App Store)
4. 6 months of continuous user growth or 6 months of revenue.Yes: 2019 revenue was $597k and 2020 revenue halfway through was 376k (if extrapolated to double is 752k)
5. Notable investors?No: mostly bootstrapped and debt financed!
6. Post-funding, will have 18 months of runway No: 2019 burn was $933k/yr, raising total of $1070k, so 13.76 months.

The 7 Thiel Questions (ETMPDDS)

  1. The Engineering question:
    • Good: this is a marketplace which is by definition a better UI/UX than individual providers.
  2. The Timing question
    • Uncertain: Not sure if it’s still true, but historically, pets is an extremely recession proof industry: link.
  3. The monopoly question
    • Good: one marketplace to rule all the pet groomers forever.
  4. The people question: 
    • Fine: Team seems fine, but not seeing anyone with marketplace. Zege has plenty of pet experience which is crucial.
  5. The distribution question
    • Good: Taking individual pet care locations and putting them on marketplaces.
  6. The durability question
    • Good: bulk insurance, network effects, booking systems and automation.
  7. *What is the hopeful secret?: 
    • Groomit can be the managed marketplace for pet care services. By validating the market then getting organizational wide advantages (bulk insurance for service providers, booking automation, texting reminders, etc.) they can unite a fragmented market a la a16z.

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

  1. 100x Revenue: NYC could easily be responsible for ~1MM in revenue by end of 2021, but they’ll need to expand much quicker. 5 cities should be done by next year which means you’d be looking at $3MM-$5MM.
  2. Become a Platform: Is there a ZocDoc for pets? What about teaming up with other enterprise pet companies like Mella.ai? Just like Airbnb started with lodgings and is now expanding into experiences, can Groomit go from spa-days for pets into wellness?
  3. Recurring Revenue: Spitballing here, but what happens if Groomit roles out a spa-pass for pets? Increase demand at healthy economics while providing recurring revenue for its partners and itself. See Uber Pass and Lyft Pink.

What the Risks Are

  1. Niche Business: As said before, I have to imagine hard to see a pet spa company that nets $250MM in ARR within 5-10 years. If the market is $6 billion currently, that’s 4% market share in a decade from nothing, which is massive.
  2. Scaling Hurts: How efficiently can the team role out a playbook? Are there that many cities in America that can generate $1MM in AR? When does this company go international and hit Paris, London, Shanghai, Hong Kong, etc.?
  3. Pandemic: Although recessions are historically good for petcare, the new COVID-conomy brings many unknowns.

Muhan’s Bonus Notes

Financials (References)

  • Current Fundraised: $37k
  • Valuation: ~$6MM

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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