Cloudastructure Deal Memo (Closing Date: 2021–03–31)

Repeat founders are building a cloud based facial recognition/security solution. I worked for a startup in this space in 2015, so color me biased.

Want to see the complete rich format deal memo? Read the original post at: https://muhanzhang.com/Cloudastructure

Deal Abstract

Repeat founders are building a cloud based facial recognition/security solution. I worked for a startup in this space in 2015, so color me biased.

Financials

1. Fundraising Target? $28000000
2. Fundraised So Far? $24000000
3. Pre-Money Valuation? $30000000
4. Previous Year’s Annual Revenue: $77000
5. Previous Year’s Annual Net Income (+ Profitable, — Burning Cash): $-536000

Six Calacanis Criteria

1. A startup that is based in SV? True, San Mateo, CA
2. Has at least 2 founders? False, One founder
3. Has product in the market? True, Revenue generating
4. 6 months of continuous user growth or 6 months of revenue? False, Declined from 130k to ~70k, 2018 to 2019
5. Notable investors? False, No one I recognize reeally
6. Post-funding, will have 18 months of runway? True, Only needs $1m for 18 months at 2019 burn

Seven Thiel Tests

1. Engineering? 2, It’s security systems to the cloud. Better than nothing but not sure where the engineering is better.
2. Timing? 2, Still not sure whether facial recognition/detect will take off now. I worked as a software engineer for a facial recognition startup in 2015 and 6 years later, still don’t really see the industry having proceeded.
3. Monopoly? 1, Honestly embarrasingly small revenue for a company valued at $30m
4. People? 4, Really stacked team
5. Distribution? 3, Team definitely has the ability to sell this product… assuming the market exists
6. Durability? 3, If they can build it, definitely not easy to replicate
7. Secret? 2, The facial recognition/analysis market is going to be captured significantly more by cloud providers… if the market is that large

What Has to Go Right

1. Bring revenue up; 2. Figure out who are the specific customer demographics and rinse-lather-repeat that group; 3. Probably develop a freemium model

What Could Go Wrong

1. Market doesn’t exist; 2. Tons of capital, little to no revenue; 3. Lots of questions

Muhan’s Bonus Notes

Amazing to see the company blow past milestone after milestone, but need to see more revenue, and also confused why revenue dropped from 2018 to 2019. https://republic.co/cloudastructure https://wefunder.com/cloudastructure

So, did I invest?

1. Subscribe to https://muhanzhang.com/ to see my final investment decisions, keep track of my portfolio, and receive ongoing updates on my journey to investing in 50 startups as an unaccredited investor.
2. Read the rich format deal memo here: https://muhanzhang.com/Cloudastructure
3. Want me to cover your startup? Submit your ‘Request for Startup’ (RFS) submission here: https://airtable.com/shrzNK8tguH8qEUF6

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