Deal to Watch: Connection Mapping for Professionals

Key Stats:

Summary

The Lifograph team has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

Before the advent of the internet, connecting with individuals used to be difficult and time-consuming. Today, with platforms like Facebook, LinkedIn, Twitter, and more, this task has become far easier. However, there are still challenges that individuals and companies alike face when it comes to establishing meaningful relationships. Trying to trace potential lines of connections, both personal and professional, is tedious and likely to yield limited results. Yet the best opportunities and ideas often come from the collaboration of people who share advantageous commonalities. There is still a need for a service to fill this gap in social media.

Solution

The management team at Lifograph has a vision: to make a world where having difficulty connecting with one another is a thing of the past. To achieve this, the firm has created a new type of platform that it claims will operate as a GPS of sorts for relationships. What the company does is have its system search the web for news and other public data on individuals. Its technology uses that information to create user profiles. It then uses the data from the content it processes to create a web-like framework that shows how closely people are related, giving any user the ability to find the shortest path connecting them from a person or company they currently know to a person or company they want to know.

Since launching, the company has grown its footprint rather rapidly. According to management, the business ended 2019 with 7.3 million profiles on its system. That’s up from just 500,000 a year earlier. Its number of connections grew from 1.2 million to 4.7 million year-over-year. Meanwhile, the number of updates passed through its program grew from 500,000 to 4.1 million. Management hopes to expand all of these metrics further in the current year.

One might think that with such an expansion would come significant revenue growth, but in this case that would be wrong. In 2017, the company’s sales totaled $65,599. This amount dropped to $52,525 in 2018 and then to $35,142 last year. Given the circumstances, these numbers are peculiar since you would expect strong metric growth to be accompanied by strong revenue growth. Management has been opaque in disclosing the composition of sales, though. They have only stated that events, advertising, and data services made up revenue. A change in service mix could easily account for this disparity, but that doesn’t make it any less unsettling.

As one might expect, a company as early in its lifecycle as Lifograph is currently losing money. In 2017, the firm generated a net loss of $51,741. This loss narrowed to just $11,339 in 2018. As management ramped up the business, this narrowing was destined to be temporary. According to the firm’s own statement on the matter, its loss in 2019 rose materially, eclipsing both prior years combined. Last year, its net income was a hefty -$124,063. It’s likely that future years will continue to see growing net losses.

If revenue does take off, the picture for Lifograph could improve some, especially if management succeeds in bringing on new lines of business. They intend to come out with a subscription model at some undisclosed time in the future. This package will include unspecified advanced data services and business intelligence. In addition, they are looking to offer other premium features, but those look to be a la carte.

Two Major Industries

Some companies fit into more than one industry. Such is the case with Lifograph today. The firm, at its core, seems to fit into two different spaces, each of which needs to be examined. The first of these is the Business Data Analytics market. According to one source, this market today stands at about $63.74 billion in size. While this is large, it should not be construed as slow growing. If anything, the space is expanding rapidly. Through 2023, the industry is forecasted to grow at an annualized rate of 30.08%, implying an opportunity at the end of our forecast period of $140.30 billion.

The other market the company fits in is Digital Advertising, which is a given when you consider the firm is already generating revenue off of digital ads. That market today is estimated to be worth about $470.4 billion. Analysts currently expect it to grow at a rate of about 40% per annum through 2025. 

There are, naturally, other revenue streams for Lifograph to explore. The LinkedIn model of offering premium subscriptions is something management has spoken about. However, until we have a better idea about how popular this subscription service will be, the forecast for this segment remains hazy.

Terms of the Deal

In order to maintain current operations and continue growing, the management team at Lifograph is seeking out additional capital. It is doing this by offering up a SAFE that will convert into equity in the future subject to a 20% discount and a valuation cap of $7 million. For the first $30,000 committed, the company is lowering that valuation cap to just $6.25 million. The goal at this time is to raise between $50,000 and $300,000, with minimum commitments per participant set at $100.

An Eye on Management

At this time, there are three individuals who seem core to Lifograph and its operations. The first of these is its founder and CEO, Dea Wilson. Over the years, she has participated as a founder of multiple Silicon Valley oriented social groups. She also founded and ran two unnamed startups: one focused on fashion and another focused on social networking. Before all of that, though, she served as a Senior Associate at PricewaterhouseCoopers. 

Another influential individual in the company is Dr. Stylianos Kampakis, a data scientist at Lifograph. He is the CEO and an Instructor at The Tesseract Academy. He has experience as a Chief Data Scientist and Head of Tokenomics at Electi Consulting as well. The third individual of note is CTO Daniel Miranda. He is a full stack developer who was previously employed by Acklen Avenue.

Rating

Looking over everything, we have decided to rate Lifograph a Deal to Watch. This rating is based on the novelty and opportunity we believe exists for investors by buying into the business. The overall concept is interesting and the ability to easily explore entire networks of individuals is value-add. This service would be especially useful for working professionals, entrepreneurs, and companies that are in search of the best talent. If run appropriately, the upside for investors who get in today could be material.

Having said all of this, there are some downsides that need to be considered. The first issue is the declining revenue from the business, which is most certainly worrisome. Another negative is the valuation of the firm. A $7 million valuation cap is extraordinarily high for a firm that is seeing falling revenue and rising net losses. One might think a valuation cap of $3 million to $4 million would be far more realistic. Keeping that in mind, though, this is not the kind of opportunity that will go on to be worth only several million dollars. If it does take off, the potential upside could be far greater than the valuation cap implies, though the alternative would likely be a loss for shareholders. While this is binary, we do believe the upside is at least worth consideration for shareholders.