Smilelove (November 2018)

Deal

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

Decision

Yes.

Why Investing

  1. Hard to argue with a business that went from $0 to $1MM in revenue in a year. 
  2. Super boring business model that I understand.
  3. Lean team and great margins.

Bonus

I figured out how to add highlights in Gutenberg via HTML:

<ul>
<li>
<span style="background-color: rgb(232, 234, 235);">
<b><i>Good: </i></b>
<i>Smile Direct Club raised $380 million at a valuation of $3.2 billion in October 2018.</i>
</span>
</li>
</ul>

Master Checklist

CheckPass/Fail
1. Ssyndicate lead has >5 years investing and >1 unicorn investmentFail
2. A startup that is based in SVFail (Holladay/Salt Lake City, Utah)
3. Has at least 2 founders Pass 
4. Has product in the market Pass: Yes
5. 6 months of continuous user growth or revenue.Pass: Revenue grew from $0 to $1MM in 2018
6. Notable investors?Fail: Bootstrapped, heck yeah
7. Post-funding, will have 18 months of runway Pass: Yes, incurred 113k in second half of 2017, so 226k annual, raised $738k. 
8. Proprietary technology?Fail
9. Network effects?
Fail
10. Economies of scale?
Pass
11. Great branding?
Pass: (Huzzah for UX cofounder)

Seven Questions

  1. The Engineering question
    • Bad: betting on the kiosk
  2. The Timing question
    • Good: Smile Direct Club raised $380 million at a valuation of $3.2 billion in October 2018.
  3. The monopoly question
    • Bad: not sure why this would be a winner-take-all market. Should be a fairly profitable and straightforward e-commerce play.
  4. The people question: 
    • Good: Startup professionals who were both reasonably senior at exit to start this company. Bootstrapped.
  5. The distribution question
    • Good (with a catch): Smile Love is making a big bet on these kiosks. Uncertain what a growth channel this will be. Otherwise, online economics are good.
  6. The durability question
    • Bad (by default): not sure how much innovation is going on in the teeth aligning space. Unless someone comes out with a radically cheaper and/or better solution. should be durable.
  7. The secret question: 
    • Bad (by default): people want great teeth, and apparently InvisAlign (Smile Direct Club) is not the best solution.

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

  1. Growth of this market continues.
  2. Either proprietary technology is developed or the company develops something more defensible. Somewhat skeptical about this kiosk, but certainly gaining a unique brand and distribution channel would be key.
  3. This company is less of a venture investment and more of a play in e-commerce. I’m 100% fine with that, but good to clear expectations. There are plenty of lucrative e-commerce plays (Chewy.com, Dollar Shave Club, Bonobos)

What the Risks Are

  1. Competition: will Smile Direct Club take its gigantic war chest to choke its competitors a la Amazon and Diapers.com?
  2. Technology: whoever Smile Love’s supplier is, what’s to stop another firm from licensing the technology and doing what Smile Love is doing?
  3. Ambition: this business looks like an amazing lifestyle business, and given the governance structure, unsure what the liquidity event would be. 

Updates

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!