Deal Abstract
https://www.seedinvest.com/loop/seed/highlights
Hardware and software play to become the “one distributed social network” for families. It’s the privately owned version of Facebook’s “Portal.” Has $1MM in revenue, backed by Jason Calacanis, with team that has done interesting things.
Decision
Yes
Why Investing/Passing
- Validation by Calacanis, checks nearly all his characteristics, does reasonably well against Thiel’s questions
- This market definitely exists, and the timing is right. The real question is how an upstart competes against the ginormous mights of Amazon, Facebook, and Google.
- Feels like a plausible team of people, working on the right thing with the right differentiation, and could make for an attractive acquisition target.
The 6 Calacanis Characteristics (91 161 18)
| Check | Pass/Fail |
| 1. A startup that is based in SV | Pass: (San Francisco, CA) |
| 2. Has at least 2 founders | Pass |
| 3. Has product in the market | Pass |
| 4. 6 months of continuous user growth or 6 months of revenue. | Fail: (2018 revenue was 357k, 2017 revenue was 407k.) |
| 5. Notable investors? | Pass: Calacanis and friends |
| 6. Post-funding, will have 18 months of runway | Pass: 2018 burn was 1.18M and 2.98M was raised, giving 30 months of burn. |
The 7 Thiel Questions (ETMPDDS)
- The Engineering question:
- Bad: not convinced Loop can do better at engineering than Facebook and friends.
- Bad: not convinced Loop can do better at engineering than Facebook and friends.
- The Timing question:
- Good: on the flip side, Amazon, Google, and Facebook working on this means this is definitely the right timing.
- The monopoly question:
- Good: very uphill battle, but if Loop can nail being the “DuckDuckGo” of family-centric smart displays, the network effects are strong.
- The people question:
- Good: people seem good. Not the best (ideally someone whose shipped this type of hardware exactly,) but certainly not shabby.
- The distribution question:
- Good: The fact that it sold out in 4 weeks through online and Best Buy distribution is very promising.
- The durability question:
- Bad: The literal product is a commodity, but the brand and trust built in being a private, consumer paid for social network is pretty durable. Also, would make for a great acquisition by Microsoft/Apple/large tech firm.
- *What is the hopeful secret?:
- Trust and privacy is enough to build a great business on.
- Trust and privacy is enough to build a great business on.
What has to go right for the startup to return money on investment:
- Rinse, lather, repeat with hardware manufacturing and sales. Hardware is very hard.
- The trust and privacy brand, along with nailing the marketing to emerging millennial families is very on point.
- Loop successfully builds out a hardware and software presence, then using its positioning as a platform for owning the brand experience, or as an ecosystem. Unsure it makes sense for Loop to go the Snapchat route and go public, a premium acquisition fueled by a sustainable business via subscriptions seems more likely.
What the Risks Are
- Based on the cap table, the head of software Sital Mistry only owns 15% of the company through his company New Punjab Inc (?.) For a company that relies on hardware and software as core offering, the incentives have some risk.
- Although Amazon, Google, and Facebook prove the market, this is also a classic case of how can Loop weather these giants. What’s to make Loop survive Amazon coming in and Diapers.com-ing it up? What happens when Amazon prime includes Echo Look subscription, or Google One includes Google Nest subscription?
- Consumer fatigue—how enthusiastic are consumers going to be for another subscription service? How does Loop either sneak into another company’s subscription service, or include other services to become a platform itself? Classic cooperate vs. compete dilemma.
Financials (References)
- Total Amount Raised: US $2,989,813
Total Round Size: US $3,250,000
Raise Description: Seed
Minimum Investment: US $1,000 per investor
Security Type: Convertible Note
Valuation Cap: US $8,500,000
Offering Type: Side by Side Offering