Precursor Deal Memo (Closing Date: 2021–04–02)

Technologists have created a novel way to predict earthquakes ahead of time. Can this team build a business model to monetize on the damage prevented?

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Deal Abstract

Technologists have created a novel way to predict earthquakes ahead of time. Can this team build a business model to monetize on the damage prevented?

Financials

1. Fundraising Target? $5000000
2. Fundraised So Far? $1214388
3. Pre-Money Valuation? $25000000
4. Previous Year’s Annual Revenue: $12885.5
5. Previous Year’s Annual Net Income (+ Profitable, — Burning Cash): $-435132.54

Six Calacanis Criteria

1. A startup that is based in SV? False, Seattle, WA
2. Has at least 2 founders? False, One CEO
3. Has product in the market? True, But very modest revenue
4. 6 months of continuous user growth or 6 months of revenue? True, Yes, but no revenue in 2018 or 2019
5. Notable investors? False, No one I recognize
6. Post-funding, will have 18 months of runway? True, Already has over $750k revenue raised

Seven Thiel Tests

1. Engineering? 2, Predicts earthquakes, cool
2. Timing? 2, Climate change making this type of software necessary
3. Monopoly? 1, Very little revenue, so not a lot of penetration
4. People? 2, Fine technologists, but is there a market for this?
5. Distribution? 1, Distribution to whom? Insurance companies? Large plant maintenance? Requires strong B2B connections.
6. Durability? 3, Very defensible if built.
7. Secret? 2, Earthquakes are going to be more of a cost center for all sorts of businesses, forcing businesses to have to pay more money to anticipate and prevent earthquake damages.

What Has to Go Right

1. Figure out the business model; 2. Sell to businesses efficiently; 3. Be able to sell it as some form of insurance

What Could Go Wrong

1. Market risk; 2. Really low revenue for a high valuation; 3. People don’t like buying prevention most of the time

Muhan’s Bonus Notes

Very cool, though I wonder if it’s selling the platform itself or an insurance company powered by this engine that makes more sense.

So, did I invest?

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2. Read the rich format deal memo here: https://muhanzhang.com/Precursor
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