For this raise, Tapa is issuing a SAFE that will convert subject to a 20% discount to the company’s future value and subject to an $8 million valuation cap. The valuation sought after by the firm appears to be more or less in line with what similarly-staged firms would be asking for. Thus, Tapa’s price score is middle-of-the-road.

The smart building market is decently-sized and growing at a nice clip. According to one source, the industry was worth $49.28 billion in 2019. The expectation is for it to grow at a rate of 12.5% per annum, eventually hitting $127.09 billion by 2027. A second source pegged the market at about $49.14 billion for 2019. Its projection called for annualized growth of 12.6%, which would take it to $109.48 billion by 2026. This broader market is attractive, but it’s important to keep in mind that Tapa is unlikely to touch all aspects of this market. 

Zooming in, though, they certainly do touch more on what’s called the integrated building management systems market. One source we identified indicates that this market should be worth about $14 billion this year. Its current forecast is for the market to grow at a rate of about 12% per annum through 2024. That would take it to a size of $24.7 billion by the end of the forecast period. A second source confirmed a similar range of value, with the market in 2019 being worth $11 billion. That source suggested that the market should expand at a rate of nearly 14.5% per annum through 2027. That would take it to $26.1 billion by the end of the forecast period.  

All in all, the market that Tapa is targeting is a decent size. More encouraging is that it has a robust growth rate that indicates increasing market opportunity in the future. Balancing these factors together, Tapa’s market score is middle-of-the-road.

The team behind Tapa is extremely qualified. There are three core members to the team. The first, Paul Meng, is one of Tapa’s co-founders. In addition to running the business, Meng serves as a Principal at Smart Building Technologies. This is, again, the business that spun Tapa off from itself. His emphasis there has been on a variety of things, including Internet of Things functionality and cloud-based systems. The second co-founder behind Tapa is Mike Schmitz. He, too, is a co-founder of Smart Building Technologies. While there, he worked in operations. He also has extensive experience in advanced technical problem solving in the automation industry. 

Sometimes the best measure of a team isn’t what they know, but what they realize they don’t know. Both of the co-founders of Tapa are tech-oriented, but that does not always translate into quality management. To round the team out, they brought in Ben Steinberg, who is currently serving as Tapa’s CEO. Previously, Steinberg was employed as a Chief Information Officer for the Telecommunications Industry Association. While there, he gained experience modernizing the organization’s corporate and client-facing platforms. Prior to that, Steinberg was the CIO at the Council of Better Business Bureau (BBB). There, he developed and managed IT tech solutions for BBB locations throughout the US and Canada. Before that, he was the Principal of TCS Consultants. That firm focused on internet applications, web videos, mobile development, and more. And prior to working at TCS, Steinberg was the CTO for Grab Networks. That firm worked on video platform distribution technology for media and advertising companies. Customers included Fox, P&G, and Meredith Corp. 

Co-founders Meng and Schmitz bring deep technical experience paired with past industry work. The team is fully rounded out by the addition of Steinberg, who provides solid managerial experience to the company. Therefore, Tapa’s team score is extremely strong as well as its highest across all five metrics.

Tapa provides prospective investors with a rather comprehensive list of competitors. In their filings, it distinguishes between three types of firms. The first are established building control system players. These are companies like Honeywell, Siemens, and Johnson Controls, among others. Their products are often large, complete, but closed solutions. As such, they leave little opportunity for third-party integration. They can also be rather costly. The second group Tapa outlines is what would be referred to as building work-flow process companies. Examples include Office App and The Hive. These firms usually only focus on one or two features, though, failing to act like comprehensive offerings. 

The final group is classified as tenant solutions firms. These are businesses like Modo Labs and Particle Space that offer friendly, unique services. But Tapa does not see these as competition. Instead, it views them as potential integration partners. In short, Tapa is positioning itself as a combination of the best attributes of the first two groups. While doing so, it plans to partner with companies in the third group. 

This strategy may appear to set Tapa apart. However, it is important to keep in mind that when you stop talking about application and move to technology, the picture changes some. It’s difficult to see how Tapa differs materially from its home-oriented competitors. Its technology should be remarkably similar. This offers it differentiation in terms of application, but not in terms of functionality. Because of this, Tapa’s differentiators score is its weakest. 

Since launching their first product in May of 2019 — and ending in December of that same year — Tapa generated revenue of $123,833. This is impressive for its first partial year. Management has not detailed what 2020 is likely to yield. But we do know that if their forecasts are accurate, the firm should generate EBITDA next year of $2.4 million. While revenue in 2019 was really robust, the company did generate a net loss and operating cash outflows for the year totaling $733,601. That’s quite painful and was due in large part to a bloated cost structure that included $561,916 toward payroll. In the early stages of a startup’s life, though, revenue growth is more important than the bottom line. Because of this, Tapa scored slightly above average on the performance metric. Had the company’s bottom line been better, this figure could have very well been considerably higher.

Right now, there are some bearish considerations to keep in mind regarding Tapa. The biggest is the firm’s weak bottom line last year. More likely than not, this will only worsen in the near-term. The possibility is that if management doesn’t grow out of this issue fast, it could affect where and how the company’s money is spent. Add in the fact that other players in the smart building market could, if they were so inclined, replicate this technology with little effort, and there is clearly risk here.

Bearish considerations are important to be cognizant of. But there are bullish considerations regarding Tapa as well. The company’s top-quality management team is the most obvious. A strong team can greatly increase the odds of a company’s success. The firm’s performance is also fairly attractive, and the price of the deal seems appropriate. The market the business operates in is a reasonable size and is growing rapidly. Throw in the proven usefulness of Tapa’s services, and it’s clear that there is a bullish case to consider. 

Taking everything as a whole, Tapa is an interesting business, but it’s not a prime prospect for investors to consider. The firm has a solid team and it’s in a good market, but there are negative attributes to consider in this value proposition as well. The lack of defensible differentiators and the need for increasing performance are risks for investors. Putting this all together, Tapa 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 Daniel Jones.