KC Underweight Deal: App-Fueled Complimentary Appetizers

2M

Key Stats: App-App on Wefunder

Valuation Cap

2M

Amount Raised

$256,583

Number of Investors

1,186

Minimum Raise

$20,000

Maximum Raise

$300,000

Likelihood of Max Unlikely
Start Date

05/30/2019

Stop Date

07/31/2019

Days Remaining

19999856

Security Type

SAFE

Investment Minimum

$100

Deal Analytics

Click Here

Summary

As of June 10, 2019, App-App has raised $12,025 of a goal of $20,000 Minimum Goal.
Everyone loves a free appetizer. So, why not turn this simple truth about human nature into a mobile app? That’s exactly what the founders of “App App” thought.

 

App-App is a mobile application launched in 2018 that offers complimentary appetizers to the users whenever they dine out. It is primarily focused in the New York City and has already partnered with 75 restaurants. The users get to order a complimentary appetizer, up to three per month with the applications free version, whenever they dine at one of the participating restaurants.

 

App-App is currently rethinking and redesigning its application after it suffered a cold response at TechDay 2018. The company has taken the feedback of its users and restaurants into consideration and is starting anew. It is working more closely with the participating restaurants and food influencers to increase its visibility and is offering its Premium Version for free until September 1, 2019.

 

App-App’s moves toward consistent improvement are laudable. However, as we shall soon learn, there are a number of issues related to sustainability, scalability, and revenue-generation with the application’s overall business concept.

 

Additionally, being an early-stage company, App-App suffers from the inherent risks associated with all startups. The company may not be able to attract a large number of users or partner restaurants and may not be able to generate profits for a long period of time. These facts should always be top-of-mind for early-stage investors.

 

Below we expand on the positives and negatives associated with App-App that might affect the future performance and profitability of the company. Investors should carefully consider them before deciding to invest in the company.

 

App-App: Raising on WeFunder

Overview

1. Lofty Revenue Targets

App-App plans to generate revenues through the conversion of its free users to premium users. The free users are eligible for three (s) free appetizers per month, whereas the premium users can claim one free appetizer per day at $10.99 per month.

 The company is currently generating revenue of just $300 per month presently. For the sake of argument, let’s say it needs to make $1 million in revenue per year. The premium payment of $10.99 per month will require about 7,500 premium users for the application, whereas the company is currently at only 700 free users.

 This is where things get tricky – how many free users will willingly convert to the Premium version?

 After doing some digging, we found the average conversion rate from free application users to paid users is about 1%. An exceptional conversion rate, achieved by success stories like Dropbox, come in at around 4%. Taking a conservative view, App App would have to have approximately 750,000 free users in order to expect 7,500 Premium customers reasonably.

 It’s absolutely possible that they pull it off – but we wouldn’t bet on it. The population of the New York metropolitan area sits at just over 8.6 million. True, App App can expand nation-wide, but in order to do so, it would have to expand its partner restaurant network vastly.

Which brings us to…

2. Scaling Difficulty

The primary offering of App-App is free appetizers at participating restaurants. To support the offering, the company must have a large number and variety of partner restaurants.

Making matters all the more complicated, App App also needs a balanced blend of restaurants to make it attractive for both the users and the restaurants. Bottom line: App-App must get a large number of diverse partner restaurants in a given geographic area to agree to participate in their program. They have not been able to prove this yet.

 3. Value Proposition

The business model of App-App revolves around getting free users to subscribe to a premium version at $10.99 per month. With this, Premium Users are allowed one free appetizer per day each and every month.

 What remains hazy is just how much free appetizers are worth it to users. How many even order appetizers regardless of discounts or App App’s existence? For users who do not dine out a lot, $10.99 may not create much value as the appetizers may themselves not be very expensive.

 4. Competition

App-App is entering a highly competitive market with a number of well-funded and more-established competitors. The most significant competitors of App-App are Yelp and Groupon, which also have various free and discounted options, as they have what it takes to drive people to the restaurants and challenge App-App.

Additionally, the industry does not have strong barriers to entry. New competitors can easily enter the market, steal the idea, and develop it faster and better in a new or same geographical domain.

5. Broad Uncertainty

App-App is an early-stage company with a high risk of operating losses. The company may not be able to attract new users and partner restaurants or may not be able to survive the tough competition.

Moreover, App-App has very limited capital, and even after raising funds through the current crowdfunding raise, the company will remain dependent on additional rounds of funding to survive. There is no certainty that App-App will be able to expected targets and provide suitable returns on investment.

The Rating

Underweight Deal

App App needs a huge user base to become profitable. This is on top of the obvious scaling difficulties and a fiercely competitive landscape. For these reasons, we are assigning it with the rating of Underweight.

App-App is a “nice to have” application, but it does not appear to hold much potential for free users to become paying users and turn it into a “must have.” Moreover, the company will need to have a massive user base of free users, convert them to premium users, and keep retaining and adding new restaurants to sustain and survive.

Therefore, we caution investors considering an investment in App-App. As always, they should conduct thorough due diligence before investing in the offering.

If you have any questions regarding the underweight rating of App-App, you can reach us at hello@kingscrowd.com

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About: Sean o'reilly

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