Solace (August 2020)

Deal Abstract

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

Solace is a direct-to-consumer direct cremation provider. Achieved $300k in revenue to date but also burned $426k last year. Raising money to enter the CA market. Needs to answer some existential questions about go-to-market state playbooks, unit economics, and how to transcend just being a broker of cremation services.


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Decision

Invest

Why Investing/Passing

  1. Digital Experiences Revitalizing stubborn industries that haven’t gone tech yet due is a solid hypothesis.
  2. Has the Potential to Become a Platform: Even though I don’t have the vision for it, I can imagine there being some type of platform play here. One of the commenters mentioned pet cremation, which is a good example of something that never occurred to me.
  3. Tackling a “Death-inite” Market: people have to die and it seems obvious that the experience of this transition will become more digital. The key question is whether Solace will come out on top as one of the big players?

The 6 Calacanis Characteristics (91 161 18)

CheckYes/No
1. A startup that is based in SVNo: Portland OR, and Seattle WA
2. Has at least 2 founders Yes: 3
3. Has product in the market Yes
4. 6 months of continuous user growth or 6 months of revenue.Yes: Revenue increased from $0 (2018) to $136k (2019.)
5. Notable investors?No: Surprisingly.
6. Post-funding, will have 18 months of runway No: 2019 burn was $426k representing ~$35k/mth, raised $557k which is 15 months.

+32% revenue growth from Q1 2020 to Q2 2020 (unaudited)

Reduced CAC by over 26%, Q2 2020 vs. Q1 2020

Highest rated cremation service in Portland based on Google reviews

Solace Highlights

The 7 Thiel Questions (ETMPDDS)

  1. The Engineering question:
    • Good: If Solace can build the UI/UX experience, this will definitely be better than the current funeral home experience.
  2. The Timing question
    • Good: If there’s any time to be in this business, COVID would be it.
  3. The monopoly question
    • Good: Can scale very quickly. Though the regulation per state for cremations might be complicated.
  4. The people question: 
    • Good Not Great: Team seems strong with NIKE background, but no experience in funeral cares or small startup environments. No technical cofounder.
  5. The distribution question
    • Not Great Yet: Needs to be able to establish partnerships and have other organizations that are before death/cremation recommend them.
  6. The durability question
    • Bad: If they build a direct to consumer cremation app, what’s to stop another company from getting a white-label and doing the same thing? My suspicion is regulation and trust, but this is an important thing to solve.
  7. *What is the hopeful secret?: 
    • COVID and the year 2020 are the year that millennial consumers who are increasing decision makers for their loved ones passing, will be comfortable ordering cremation services through a digital experience.

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

  1. Good Unit Economics: Documents are showing me 40% margins of gross profit. Need to see why G&A were that high, that definitely cannot scale.
  2. Even if No Upsell, Platforms: What other value can be provided besides being a one-time broker of cremation services? Willing sold to MetLife and I always wondered how much platform potential there were in Wills. Carta became a unicorn managing paperwork and stock certificates.
  3. Partner With Orgs: Not to be grim, but nursing homes, hospice, hospitals, etc. Establish affiliate revenue sharing.

What the Risks Are

  1. Team Has No Special Advantage: No one has a deep background in technology or funeral homes. They have the teammate now but that’s not the core team. Fundamentally, how critical is a design experience at a large corporation to revamping the cremation market?
  2. One-Time Transaction, High CAC, Low LTV: Again, what is the recurring platform that Solace can help manage? Wills? Inheritance?
  3. Not Raising Enough Capital to Hit Strategic Milestones: The company raised 15 months of burn to enter SoCal and NorCal. Will this be enough money to enter the Californian market? The company burned that much last year operating in Portland and Seattle, and I can foresee CA being even more competitive.

Muhan’s Bonus Notes

Company seems promising but there is real challenge. Also interesting to see KingsCrowd/Early Investing/SeedInvest team up to give this company a second chance at fundraising. I wonder if this is a bias in equity crowdfunding to avoid uncomfortable businesses.

In colloquial rules of polite conversation, there is the idea of talk about FORD, and avoid PEARs. FORD being: family, occupation, recreation, and dreams. PEAR being: politics, economics, abortion, and religion. I wonder if there are similar rules/benchmarks of the types of company that overperform and underperform one equity crowdfunding campaigns.

Financials (References)

  • Current Fundraised: $557k
  • Valuation: ~6.5MM

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. Also, somewhat of a dearth of materials (whose the team? where are the comments? why are the financials so opaque?)

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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