For this raise, Life Magnetics is offering preferred equity at a pre-money valuation of $3.05 million. This valuation is entirely reasonable given the company’s potential to bring a game-changing technology to market. It’s also quite low in comparison to other startups currently raising funds online. However, the company is still taking in little revenue, resulting in a low revenue multiple. As a result, Life Magnetics earns a moderate price score.

Life Magnetics is aiming to provide at-home medical testing, and its tech could have broader applications down the line. The global self-testing market is forecasted to reach a valuation of $11 billion over the next decade. North America accounts for approximately $3 billion of that greater market. This isn’t a huge market, but the COVID-19 pandemic has significantly accelerated its adoption, as the convenience of at-home testing has pushed consumers and businesses to find solutions. The expected CAGR for the RNA therapeutics market is an impressive 28.4%. This high growth rate could indicate that Life Magnetics is tapping into a market that’s poised to take off in the next few years. Balancing the market’s current small size against its strong growth rate, Life Magnetics scores well in the market metric.

Life Magnetics’s team is a small one. Founder Kevin Hagedorn is currently the only fully committed member. Hagedorn is a PhD (doctorate of philosophy in materials chemistry) graduate from the University of Michigan, and he performed the research necessary to come up with a theory for Life Magnetics’ product. As a materials scientist, he has worked with IMRA America and SurClean, using lasers to remove paint and machine objects. While he definitely has the medical research expertise to support Life Magnetics on the tech side, he lacks experience in startup management.

CTO Rishabh Kala is largely responsible for turning Hagedorn’s theory into viable tech. Because he is in the US on a visa, he requires full-time employment, so he is working as a senior scientist for Genemarkers while he waits for Life Magnetics to get its business into full swing. Kala has a PhD from the University of Alabama at Birmingham and started working at the University of Michigan Medical School in 2016, where he met Hagedorn. In the past year, Kala distinguished himself by conducting research on COVID-19, uncovering a virus variant, and setting up a testing lab. Like Hagedorn, he holds the required technical credentials to lead the business. 

The team’s lack of business experience is highly concerning and cannot be fully mitigated by the advice of board members in pushing for patents and a profitable exit. This gap in expertise results in Life Magnetics scoring only moderately well in the team metric.

Life Magnetics is fairly differentiated. Its technology has a method patent covering the use of carbon beads to bind RNA. The company also has the data to issue a composition of matter patent to cover the manufacturing method. The technology is significantly different from other offerings in the market at this point. That advantage could be temporary, though. Direct competition is likely to emerge as interest in RNA-based biotech draws public and private interest. Capital intensity is high, however, as technology of this kind is incredibly complicated and difficult to develop. Overall, Life Magnetics has a good defensive moat, but it will likely need to continue innovating in order to maintain its lead over competitors. The differentiators score for the company is strong in reflection of this.

Life Magnetics is in a pre-profit stage, and most of its funding has come through about $600,000 in federal grants. That said, the company has begun to take in revenue. Last year it took in $14,235 with $32,833 in cost of goods sold (COGS). This revenue was a decrease from $19,236 the year before. Given that the company has yet to begin manufacturing and selling its product in earnest, revenue at this point is not expected to be significant. What is important is that the company is taking in revenue and has shown an ability to raise funds and responsibly manage finances in the past (currently holding just under $200,000 in liabilities). With its product mostly through the development phase, Life Magnetics is poised to prove its product-market fit and begin monetizing. The company scores highly in the performance metric due to its steady growth and healthy financial status.

An investment in Life Magnetics at this stage comes with significantly high risk. This is generally the case for biotechnology companies, but in this case, investors have some additional concerns to watch. One of the biggest concerns is the company’s team, which is not fully committed to the product and has little experience in business. The company hopes to see an exit soon, but exits require successful deal-making and early results, which in turn require a strong business model. However, Life Magnetics has little in the way of a strong business model to show how it can corner the market — or indeed, to precisely define its target market. It’s unclear if it intends to follow a business-to-business (B2B) or business-to-consumer (B2C) route. Not having a clear business model will likely lead to marketing, sales, and monetization struggles down the road. Given the high capital intensity associated with biotech, it is also likely that Life Magnetics will need to raise more funds in the future. This raises concerns for investors, who could see their shares dilute over time.

Right now, investors’ main concerns should be the startup’s lack of strong business expertise. Its CEO and CTO are certainly capable enough on a technological level, but that may not be enough to achieve successful monetization. Without a specific and target go-to market strategy, Life Magnetics will struggle to find or prove a product-market fit for itself, despite the strong differentiation its product has. A specialized innovation doesn’t necessarily mean a guaranteed acquisition either. Life Magnetics is likely to face growing levels of competition as other biotech organizations capitalize on the high levels of interest in RNA-based drugs. If the company is unable to maintain momentum, it could be surpassed by more mature organizations. 

Like the mRNA COVID-19 vaccine producers, Life Magnetics has been waiting for this moment in the history of medical science. As mRNA proves to be a medical miracle, interest in RNA-based medicine is at an all-time high, and Life Magnetics is positioned to capitalize on that.

Depending on how existing licensing and supply discussions go, Life Magnetics is positioned to begin carving out a respectable slice of the at-home testing market. The startup has the manufacturing capacity to churn out as much as $2 million a year in sales. Since that isn’t the same as $2 million in profit — and Life Magnetics will still need to make arrangements to sell those products — having the infrastructure already laid out is a good business move. As at-home testing sees high levels of interest, Life Magnetics could see high levels of returns in the coming years — and should, if it expects to recoup its high starting costs.

Life Magnetics plans to accelerate adoption of RNA-based drugs with its patent-protected, carbon-based RNA extraction methods. It has developed an at-home testing kit that will allow subjects to easily extract and ship quickly-degrading RNA samples to labs for study. The company is discussing licensing and supply with potential customers as well as conducting R&D to address concerns of COVID-19 vaccine suppliers.

The market is seeing an increase in demand, and the valuation for this round is a decent deal for investors. However, there is a notable lack of commitment from one of the company’s main team members and an overall lack of business experience on the team. The investment is high risk, as this kind of business has high costs and a limited market to recoup those costs. However, for investors that understand and are excited by the potential of RNA-based bioscience, this represents an opportunity to own a piece of that future. Therefore, Life Magnetics is a Neutral Deal.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.

Analysis written by Benjamin Potts.