Deal to Watch: Interactive Digital Advertising for Modern Consumers

$45M

Key Stats: 1World Online on Republic

Valuation Cap

$45M

Amount Raised

$179,798

Number of Investors

570

Minimum Raise

$107,000

Maximum Raise

$107,000

Likelihood of Max Exceeded
Start Date

04/06/2020

Stop Date

01/01/2021

Days Remaining

143

Security Type

SAFE

Investment Minimum

$100

Deal Analytics

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Summary

The 1World Online 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.

The Problem

Since 2000, internet adoption and use has exploded. Just 20 years, only 412 million of the world’s 6.51 billion people had internet access. Today, that figure is estimated to be 4.57 billion, or 58.7% of the world’s nearly 7.80 billion people. With the proliferation of the internet, amazing opportunities, opportunities once thought impossible, have come to the fore. 

 

A big driver of value on the internet is digital advertising. The ability to collect data from users in real-time is valuable, and so too is the ability to engage in target advertising based on that data. It certainly makes the internet a better forum for marketing than traditional methods like television and radio. Just as technology made this opportunity possible, though, it threatens to destroy it. By one account, 47% of internet users back in 2018 were using ad-blockers to avoid unwanted advertising. This usage is a challenge for companies looking to monetize the world’s largest platform, and it’s also a problem for users who want a largely-free online experience.

The Solution

Engineering around ad-blocker technology may be an avenue for firms to use. But why focus on forcing users to see that kind of content when the market has spoken about the level of annoyance and inconvenience it causes? 1World Online has an alternative solution. Instead of working to battle ad-blockers, the firm has developed immersive, interactive content that drives increased user engagement and creates value across all parties that it touches. Primarily, this interactive content involves providing targeted polls for websites.

 

What the company does is provide polls geared toward the content users are viewing. They call these polls 1World Widgets. They then place relevant advertising in one or more spots around the widgets. This isn’t all though. Management has designed their system to act as a loyalty program. When users respond to the polls in question, they accumulate points, which can then be exchanged for 1WO Tokens. These tokens act as a digital currency of sorts for the 1World Online platform. They can be traded in for unspecified benefits or cash back. 1WO Tokens are also used by advertisers to purchase ad space that is delivered alongside the company’s widgets.

 

According to management, the results since launching have been encouraging. It claims its customers have seen increases of more than 60% in terms of reader loyalty. They have measured this by keeping track of the number of customers who revisit the sites in question. In all, the company’s widgets encourage up to 10 times the conversions compared to advertising as done through other platforms, such as Google, Facebook, and Twitter. This success has allowed the firm to gain an attractive amount of traction. They have more than 3,000 registered content publishers and advertisers on their network. Globally, 15 million users have engaged with their widgets, placing a cumulative 64 million votes. Additionally, more than 27 thousand wallets have been created to hold 1WO Tokens. The company’s primary source of revenue is an unspecified percent it charges on advertising revenue generated by the firms that work with it. It also engages in licensing and data analytics activities.

 

As you might expect, the financial side for the firm has been interesting. In 2017, the company generated just $1.27 million in revenue, which grew to $1.82 million in 2018. Official financial filings have not been provided for 2019, but management claims that sales last year were $2.40 million. That amount represents a year-over-year growth rate of nearly 32%. Management claims that 2019 was profitable, but there’s a lot to unpack there due to how the company’s books look.

 

While we do not know what 2019’s bottom line was, we do know that 2017 saw a profit for the business of $2.55 million. Its operating cash flows were even more robust at $3.69 million. These results require a big asterisk next to them because there were some interesting items on their income and cash flow statements. In 2017, 1World Online sold $1.34 million worth of 1WO Tokens that were not considered part of revenue. It then reported a $2.30 million loss on the sale of ‘digital assets’, which it describes as being cryptocurrency networks. In 2018, the firm’s net loss was $2.22 million, while it saw cash outflows of $4.42 million. That year, it saw a gain on a sale of digital assets worth $6.30 million. These should all be considered irregular events.

 

Moving forward, management has big plans for its platform. It hopes to use its current capital raise to enable content creators to generate polls and other interactive content. These creators, in turn, will be compensated with cryptocurrency and/or Amazon Moments. They believe this content creation strategy will result in richer, more diverse content that will ultimately lead to even higher conversion rates.

A Large Market

The market that 1World Online operates in is large and growing rapidly. Before we dive into that, we should discuss management’s own view of the space. In their filings, they claim their target market is a three-way cross-section of a $308 billion space. There are some issues with this claim though. For starters, some of their reference data comes from as far back as 2012, which is surprisingly out of date for a startup. Another issue is that a $40 billion slice of this space relates to all data ‘research,’ and that seems overly broad.

 

This is not to say that management is wrong to consider their space to be more than one area. We have settled on two specific areas that we believe applie to the firm and what it’s aiming to do. The smaller of these is the web analytics market. According to one source, the space should be worth about $3.47 billion this year. A 15.2% annualized growth rate places the market at $7.05 billion by 2025. A second source sees a higher annualized growth rate of 19% taking the market from $3.04 billion this year to $6.10 billion by 2024 with 36% of this growth occurring in North America. A third source pegs the market at $3.74 billion. With a 19.3% annualized growth rate, it expects the opportunity to grow to $10.73 billion by 2024.

 

Web analytics is a fairly small market no matter how you look at it. However, the firm’s other opportunity is much larger. We consider this the global digital advertising space. Estimates here vary a bit. One source pegs the market at $326.3 billion this year. According to it, the market should expand at a rate of 16.6% per annum until hitting $517 billion by 2023. A second source places the market today at $374.16 billion. A third source puts it closer to the second at $369.66 billion. This source expects an annualized growth rate of 21.6% through 2025, at which point the market opportunity would grow to $982.82 billion. Of this, the US currently makes up $148.56 billion and that’s expected to grow to $275 billion in all by the end of the forecast period.

Terms of the Deal

In order to continue growing its business, the management team at 1World Online is hoping to raise some capital. Their goal is to raise $107,000. Nothing more and nothing less. They are doing this by issuing a SAFE, subject to a minimum investment per participant of $100. As of this writing, the company has $45,156 contributed to its round. The SAFE will convert at the value of the company upon its next capital raise. This conversion will be subject to a 20% discount and a valuation cap of $45 million. Even if the company did generate $2.4 million in revenue last year, this figure seems awfully high. Add to this the low amount of money management is looking for, and it feels like the round is more geared toward establishing a high valuation cap than actually needing the money. After all, in its lifetime, the firm has already raised in excess of $12 million, making $107,000 is paltry by comparison.

An Eye on Management

Though the firm has some employees, there is one core member of the business, Alex Fedosseev. He is 1World Online’s founder and its CEO. According to his bio, he has worked on three successful startups over the years. Immediate prior experience includes multiple advisor/mentor roles, including his role as an advisor and an investor in Fifth Era, a San Francisco boutique investment firm focused on early stage startups involved in blockchain and tokenization. He has also served as a mentor at Google LaunchPad Accelerator. Another role he held was as Director of Product and Program Management at Motorola Mobility.

The Rating

1World Online is an impressive business. Management has done well to establish and grow the enterprise with strong revenue growth in recent years showing that there’s demand for what it offers. Its plans moving forward and the traction the company has seen from a customer adoption perspective have both been stellar. The fact that 1World Online also operates in a large and rapidly growing industry is great. So too is the fact that its solution seems to address a major issue that’s spanning across the internet. These are all excellent signs that the future of the company will be attractive.

 

Of course, there are some problems that need to be addressed. Though the firm looks appealing conceptually, the valuation proposed is certainly lofty. Its financials are also difficult to judge because of certain items on its income statement and cash flows statement. These are issues that investors need to think about before investing. Even with these problems though, the company does look to offer some attractive long-term prospects, and we are rating it as a Deal to Watch.

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About: Daniel jones

Daniel Jones is a graduate of Case Western University with a degree in Economics. He has spent several years as an equity analyst writer for The Motley Fool where he focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics, in addition to contributing equity research to publications such as Seeking Alpha.

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