DINEDIRECT Deal Memo (Closing Date: 2021–04–01)

Software company is trying to be the super low cost version of Grubhub/Uber Eats, essentially like a free/open-source self hosted CRM solution for restaurants. That said, giving away value is easy, creating and capturing value is hard.

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Deal Abstract

Software company is trying to be the super low cost version of Grubhub/Uber Eats, essentially like a free/open-source self hosted CRM solution for restaurants. That said, giving away value is easy, creating and capturing value is hard.

Financials

1. Fundraising Target? $178050
2. Fundraised So Far? $170500
3. Pre-Money Valuation? $4000000
4. Previous Year’s Annual Revenue: $608
5. Previous Year’s Annual Net Income (+ Profitable, — Burning Cash): $-143869

Six Calacanis Criteria

1. A startup that is based in SV? False, Reno, NV
2. Has at least 2 founders? True, Three, though some company Posigent LLC owns 93% of the voting power
3. Has product in the market? True, Customers seem to love it
4. 6 months of continuous user growth or 6 months of revenue? True, ‘Dine.Direct is growing fast. Over 60% M/M growth for the last 6 months.’
5. Notable investors? False, No one I recognize
6. Post-funding, will have 18 months of runway? True, Needs $250 for 18 mths of runway

Seven Thiel Tests

1. Engineering? 2, Product seems fine, differentiation really is on pricing
2. Timing? 3, Very good. Restaurants are hurting and need to get all the money they can.
3. Monopoly? 2, Has three users who love it but not many more
4. People? 2, Team seems fine but not seeing huge food SaaS background
5. Distribution? 1, Only three restaurants from what I can tell
6. Durability? 2, Good product but also because so lightweight/no contract, if a better free product comes along would compete
7. Secret? 1, Giving away lots of value to restaurants will ultimately help this business make up lesser margin for more volume

What Has to Go Right

1. Get more customers; 2. Figure out how to get margins on other services; 3. Build something defensible

What Could Go Wrong

1. Giving away value is easy, capturing value is hard; 2. Not pre-product but very few users and revenue low; 3. Feels like the open source version of a CMS for restaurants, which is great (WP powers 34% of the Internet,) but need to see this become a platform

Muhan’s Bonus Notes

From the scout who found this deal: “Simple software coming for the big boys. 0.25 to a $1 is exactly how much this should cost a restaurant. Customers should pay the delivery service directly. I want to understand more about the delivery strategy. Starting with bikes and walking sounds great. Then add a car network. Gig economy. Simple. This will work great with autonomous networks too. Obvious risk is branded services drop their rates. However everyone knows restaurants hate the big boys. I agree the value is using them as an acquisition channel. Then transition customers over to the lowest cost channel. The cost wars are about to begin.”; https://matr.net/news/world-class-information-technology-services-available-on-the-fort-peck-indian-reservation-from-integrated-solutions,-inc.-and-fort-peck-tech-services,-inc/ seems like Burleson was just a product manager

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/DINEDIRECT
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