Taste (June 2019)

Deal Abstract

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

Website (taste.io) and app that makes recommendations via a single unified “Taste” score. Secret sauce is the calculating of the “Taste” score via benchmarking you to similar people (things you liked in common.) Plans to commercialize via ads and subscription. Would have to go against IMDB, Spotify, Rotten Tomatoes, Spotify, etc.

Decision

Not yet.

Why Investing/Passing

  1. Existential business model risk in a winner take all game, with no starting niche. (e.g. Taste is THE app for audiobooks, then podcasts, then all radio, then music, etc.)
  2. The founders seem promising, but they are not the Daniel Ek. To take on such a competitive business without already having some deep experiential and capital reserves is a deep uphill battle.
  3. Unclear what the plan to conversion to freemium looks like. If it’s ad revenues, then these two need someone who knows how to sell B2B to advertisers.

The 6 Calacanis Characteristics (91 161 18)

Passed on 4/6.

CheckPass/Fail
1. A startup that is based in SVFail: (New York, NY)
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.Pass
5. Notable investors?Fail
6. Post-funding, will have 18 months of runway Pass: burn rate is $14k/mth, at $300k raise this is 23 months.

Burn for 2018 was ($122,674). Monthly burn is therefore 10.2k/month. At the successful raise of a $753k raise, they have 73 months of burn. Running a very lean ship.

Taste.io Financial Summary (Hosted link.)

The 7 Thiel Questions (ETMPDDS)

  1. The Engineering question:
    • Bad: Uncertain that Taste’s secret sauce is that much better of an algorithm. They need more than 10% marginal improvements, much more like 50% to 500%.
  2. The Timing question
    • Bad: in a time of mass consolidation of taste makers in a market that is independently not growing at a tremendous rate (more that companies are buying/doing in-house recommendations for marginal improvements on their core products,) Taste.io would have to do a lot of new things to be a billion dollar recommendation app.
  3. The monopoly question
    • Bad: As mentioned, I use Spotify for music, Overdrive/Libby recommendation, Patreon for some sponsorship, Goodreads for book reviews at times, Amazon reviews, etc. There is no cost to multihoming for recommendations.
  4. The people question: 
    • Good: the founders seem well positioned to execute on this.
  5. The distribution question
    • Bad: needs to partner with a lot of juggernauts to finally get to revenue.
  6. The durability question
    • Bad: if the secret sauce is data and the interpretation of that data, there are a lot of companies with a lot more of it and well capitalized with bigger teams to make sense of things.
  7. *What is the hopeful secret?: 
    • No one has figured out recommendations in a way that is trusted, effective, and scalable, which is why this problem is still not solved and people still have to ask what to read/watch/listen to/experience.

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

  1. Get to meaningful revenue as soon as possible, probably by going deep on a niche at first that is good enough for freemium, or premium advertising rates.
  2. The secret sauce of their recommendation engine needs to be really good to have a vastly-more-than-marginal improvement.
  3. Partnerships partnerships partnerships—individual willingness to pay for subscription freemium is not that thick of a market. Partnering with distribution providers, bundling and sharing data with other recommendation apps, is probably the API-esque way to keep oneself relevant.

What the Risks Are

  1. Market risk: what is the real scalable business model?
  2. Product risk: what is taste.io doing that no one can/wants to do?
  3. Partner risk: why would various businesses (advertisers, recommendation companies, etc.) want to partner and support this company, rather than cannibalize it?

Financials (References)

  • Total Amount Raised: US $753,724
    Total Round Size: US $850,000
    Raise Description:  Seed
    Minimum Investment:  US $500 per investor
    Security Type:  Crowd Note
    Valuation Cap:  US $3,000,000
    Offering Type:   Side by Side Offering
  • Target Minimum:US $300,000

Updates

Review these deal memos every time the startup raises a new round

Test if original thesis still applies

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