Loop (Sept 2019)

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

  1. Validation by Calacanis, checks nearly all his characteristics, does reasonably well against Thiel’s questions
  2. 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.
  3. 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)

CheckPass/Fail
1. A startup that is based in SVPass: (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)

  1. The Engineering question:
    • Bad: not convinced Loop can do better at engineering than Facebook and friends.
  2. The Timing question
  3. 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.
  4. The people question: 
    • Good: people seem good. Not the best (ideally someone whose shipped this type of hardware exactly,) but certainly not shabby.
  5. The distribution question
    • Good: The fact that it sold out in 4 weeks through online and Best Buy distribution is very promising.
  6. 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.
  7. *What is the hopeful secret?: 
    • Trust and privacy is enough to build a great business on.

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

  1. Rinse, lather, repeat with hardware manufacturing and sales. Hardware is very hard.
  2. The trust and privacy brand, along with nailing the marketing to emerging millennial families is very on point.
  3. 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

  1. 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.
  2. 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?
  3. 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

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