Invest in Streamlining and Disrupting the Construction Industry

By Andy Gordon, Co-Founder, First Stage Investor

Some of the biggest investment opportunities come from large markets that are completely and utterly broken… are about to undergo a growth spurt… and can’t seem to leverage technological advances.

The construction industry forces architects and owners to choose among 7,000 disconnected software tools and data services. The few dozen they end up using for a project can’t even work together. Each requires its own individual set of inputs to run and manage.

And things could get worse. The construction industry will be building thousands of bigger and smarter cities in the next three decades to accommodate a booming population.

If things don’t change, it could get very ugly.

Fortunately, Cityzenith has a solution.

Digital Twins

Cityzenith is a company that’s using breakthrough “digital twin” technology to address many of the problems that ail construction projects.

Digital twins are 3D virtual replicas of buildings, infrastructure and other physical assets that also contain data. For example, you can click on a building’s boiler room and see temperature settings, water pressure levels and energy outputs.

Digital twins are smart. They allow users to visualize exactly what one or dozens of buildings will look like. And they allow users to coax better performance from key operations, like maintenance, energy consumption, space utilization, traffic management and public safety.

It’s great technology. But to harness it the way Cityzenith founder and CEO Michael Jansen wants to – as a platform that can help ALL the major real estate user groups and that covers ALL the phases of a project from beginning to end – isn’t easy.

It took Cityzenith six years of intense development to get its product right. It officially launched its platform in 2018.

Stunning Wins

It was worth the wait. Since July 2018, the company has secured projects with 11 major customers.

These include one of India’s most prestigious projects: the development of Amaravati, a new $6.3 billion world-class smart city capital for the state of Andhra Pradesh.

For a new company to be entrusted with such a high-profile project is very unusual. That speaks to the strength of Cityzenith’s platform.

And Cityzenith has already delivered on three of the five milestones it has promised to do during Phase 1.

The Amaravati project led to an even bigger catch: a contract to participate in one of the biggest smart city projects in the Middle East. This wildly ambitious project covers a 10,200-square-mile area. (Sorry, but we’re prevented from sharing more details on the project right now.)

Cityzenith has also landed two sizable contracts with Lendlease, one of the world’s most successful developers. Cityzenith will help Lendlease engineers and clients visualize and analyze data from Lendlease’s two megaprojects in the heart of London.

All this and more in the company’s first full year of operation. That’s one heck of an impressive start.

Looking forward, Cityzenith expects that its revenues will surge from $1 million (projected by the end of this year) to $7 million next year, assuming it raises the money it needs in this round and the next. Jansen expects the company to take on one to two new projects a month. And he plans to expand to bigger and bigger projects as the company progresses.

The Four M’s

Cityzenith passes my four major criteria (market, monetization, metrics and management) with flying colors…

• Its market is global, huge and growing rapidly. Cityzenith is already a global company with projects in the U.S., the U.K., Asia and the Middle East. The digital twin market is expected to grow from $1.82 billion in 2019 to $15.66 billion by 2023. And the markets that digital twin technology addresses are also huge and global. Global infrastructure is expected to reach $4.4 trillion by 2022. And the global smart city market is surging at an 18.9% compound annual growth rate, which should take it to $237.6 billion by 2025.
• Its monetization model appeals to companies of all sizes. Cityzenith’s monetization model has annually recurring fees that increase as the number of people using the system increases. The model also includes per building and hourly fees to give users a wide array of options to match their needs. This versatile pricing model accommodates all kinds of customers while maintaining comfortable margins. And it makes Cityzenith’s great technology as accessible as possible. Recurring revenue is the best kind of revenue. The company says all the customers that have had the chance to re-up have done so (though it’s admittedly a small sample size), which is exactly what it set out to achieve.
• It has one great metric, and that’s what matters most… for now. Cityzenith has a three- to four-year head start on the competition. Jansen told me that a particularly well-funded company could possibly make up that deficit in half the time. But that’s still a big cushion. It allows Cityzenith to grab dozens and perhaps hundreds of customers to give it a critical lead.
• Its management has an enviable record of success. Jansen has degrees from Cambridge and Yale. And he’s been a respected innovator in the global building industry for the past 25 years. In 2007, his previous company attracted $11 million from venture capital firm Sequoia Capital – a Silicon Valley heavyweight. That company grew to 500 employees in just four years and generated a 1,700% return for early investors. He knows the industry inside and out, having lived it from all angles as an architect, developer and technologist.

Now Cityzenith has to execute.

Seeing as the company has an experienced founder and team in place, I have every reason to believe it will.

Jansen knows what’s at stake.

“The most important thing now is to execute on our current 10 projects well,” he told me. “If we do that, we’ll get the next 100 projects. And then there’s nothing stopping us.”

How to Invest

Cityzenith is raising up to $1.07 million on Republic. If you don’t already have a Republic account, you can sign up for one on Republic.co.

Once you verify your account and are logged in to Republic, visit the Cityzenith deal page.

Now click the blue “Invest in Cityzenith” button. Enter the amount you want to invest, starting as low as $100, and proceed through the required steps. Be sure your investment is confirmed, then you’re good to go.

Risks

This opportunity, like all early-stage investments, is risky. Early-stage investments often fail. Cityzenith might need to raise another round of funding in a year or two, if not sooner.

If it executes well, this shouldn’t be a problem. But that’s a risk worth considering when investing in early-stage companies.

The investment you’re making is NOT liquid.

Expect to hold your position for five to 10 years. An earlier exit is always possible but should not be expected.

All that said, I believe Cityzenith offers an attractive risk-reward ratio here. ■

The Future of Medical Marijuana

Don’t Sleep on Medical Marijuana

By Adam Sharp, Co-Founder, First Stage Investor

Over the past 20 years, we’ve seen a series of stunning victories for cannabis advocates.

So far, 33 states and Washington, D.C., have legalized marijuana in some form. But we should remember that this fight has been ongoing since at least the 1950s.

It’s been a long and brutal battle because there’s quite a lot at stake.

Cannabis competes with many products, including alcohol, painkillers, cotton and hundreds of brand-name drugs. Each of these industries is a monster. And none of them want cannabis in their markets.

Despite the victories cannabis advocates have secured, the marijuana industry is still very much in its infancy. It still faces a lot of opposition. And opponents of marijuana may slow its adoption.

But they cannot stop it.

Unmet medical needs are driving cannabis legalization, an important fact its opponents can’t change.

And that means investment opportunities with massive potential for those who know where to look.

The Birth of an Industry

Recent polling shows that support for legal cannabis is at an all-time high of 66%.

That’s up from just 12% approval in 1969, when Gallup began this particular survey.

Opinions today are largely split along generational lines. Young people support legalization overwhelmingly, with 72% of 18- to 24-year-olds in favor. Only 49% of those ages 65 and up support legalization.

Regardless, cannabis is winning the battle for public opinion.

But make no mistake. We are still very, very early in the cannabis story. The ink is still wet on most legalization bills. A huge industry is being born before our eyes.

However, cannabis usage among Americans is still quite low. According to a recent Gallup poll, 12% of Americans say they use marijuana. That’s lower than the 15% who smoke cigarettes! And it’s way below alcohol use, which is around 70%. Opioid use is also far higher, with 1 out of 3 Americans prescribed them annually. Meanwhile, 1 in 6 U.S. residents is on a prescription antidepressant.

The majority of people using cannabis today do so recreationally. The recreational market has been estimated at $200 billion per year and was mostly a black market until recently.

Recreational marijuana is a huge opportunity, and everybody knows it. It has a long way to go, but I suspect it will eventually rival alcohol as the world’s recreational drug of choice.

However, most people are still seriously underestimating marijuana’s medical potential.

They Still Don’t Get Medical

Cannabis is poised to disrupt the medical establishment in a major way.

It has already provided breakthrough treatments for pain, some types of epilepsy, anxiety, nausea, lack of appetite and many other conditions.

For example, nonpsychoactive cannabis extract CBD is often the best choice to treat childhood epilepsy. The alternative is usually putting the child on a highly addictive benzodiazepine like Xanax.

And when faced with a choice between cannabis and addictive painkillers, more and more people are choosing pot to relieve their pain and inflammation.

Yet there are still skeptics out there calling medical cannabis “snake oil” or a scam.

And while the medical use of cannabis has become widespread in some areas, it’s still in its infancy.

Let’s look at the number of medical marijuana patients in a few states that allow only medical marijuana and require a license to purchase it.

These numbers reflect the percentage of that state’s residents who are medical marijuana patients.

• Maryland: 0.80%
• Montana: 3.40%
• New Mexico: 2.75%
• Pennsylvania: 0.62%
• Hawaii: 1.84%

No state on the entire list has more than 4% of its population in its medical marijuana program.

But I believe that, in the future, almost everyone will use cannabis-based medicines.

Many people will use it throughout their lives to treat chronic conditions, such as epilepsy or severe pain.

It’s also highly likely that most chemotherapy will be complemented with cannabis therapy in the future.

Cannabis relieves the side effects of chemo, boosts appetite and may even extend life in cancer patients.

A study published by GW Pharmaceuticals, a leading U.K.-based medical cannabis company, shows that brain cancer patients given cannabis extract along with their chemo survived a full six months longer than the control group.

As reported in Fortune…

Results so far show that the drug boosted brain cancer patients’ median survival rates by about six months compared to a placebo. Typically, this type of cancer ravages the brain and (on average) leaves 70% of patients dead within two years of being diagnosed.

I have told dozens of people about this and other promising studies, and none were familiar with them.

This is yet another sign that people simply don’t get how big the medical cannabis opportunity really is.

We are just beginning to understand this amazing plant and the ways it interacts with our bodies.

A Rare Opportunity

Progress seems slow. The change won’t happen overnight. People need time to become comfortable with the idea that medical cannabis actually saves lives.

And while everyone else is adjusting to the idea that cannabis is real medicine, we’ll already be finding the best investments to take advantage of this sea change.

In the next month or so, I’ll be releasing new recommendations for our cannabis portfolio.

We now have a rare opportunity to invest in great cannabis stocks before big institutional investors get involved.

And we’re aiming to help you find the plays with the highest potential. Stay tuned. ■

Crypto Going Mainstream

For Crypto, There’s No Such Thing as Bad Publicity

By Vin Narayanan, Senior Managing Editor, First Stage Investor

After years of ignoring bitcoin and other cryptocurrencies, Washington suddenly can’t stop talking about them. Treasury Secretary Steven Mnuchin is among the most vocal.

Here’s Mnuchin at a July press briefing on crypto:

Cryptocurrencies, such as bitcoin, have been exploited to support billions of dollars of illicit activity like cybercrime, tax evasion, extortion, ransomware, illicit drugs, human trafficking. Many players have attempted to use cryptocurrencies to fund their malign behavior. This is indeed a national security issue…

Treasury has been very clear to Facebook, bitcoin users and other providers of digital financial services that they must implement the same anti-money laundering and countering financing of terrorism – known as AML/CFT – safeguards as traditional financial institutions.

Then Mnuchin went on CNBC:

We’re going to make sure that bitcoin doesn’t become the equivalent of Swiss-numbered bank accounts, which were obviously a risk to the financial system…

I want to be careful that anybody who’s using bitcoin – regardless of what the price is – is using it for proper purposes and not illicit purposes… And there are billions of dollars of transactions going on in bitcoin and other cryptocurrencies for illicit purposes.

When confronted with the fact that criminals launder dollars for (or from) illicit activities, Mnuchin feigned ignorance:

I don’t think that’s accurate at all, that cash is laundered all the time. We combat bad actors in the U.S. dollar every day to protect the U.S. financial system.

Mnuchin wasn’t done bashing bitcoin. He made a return appearance on CNBC with this gem:

I can assure you, I will personally not be loaded up on bitcoin.

President Trump tweeted about bitcoin last month too.

Congress also got in on the action while talking about Facebook’s proposed Libra cryptocurrency during congressional hearings.

“Facebook is apparently trying to create a new global financial system that is intended to rival the U.S. dollar,” said House Financial Services Chair Maxine Waters (D-Calif.). “This venture is slated to be based in Switzerland, which has a history as a monetary haven for criminals and shady corporations.”

“I don’t think you should launch Libra at all,” added Rep. Carolyn Maloney (D-N.Y.). “Because the creation of a new currency is a core government function.”

That’s just a small sampling of the congressional outrage surrounding crypto.

Most of this outrage is just hot air.

Bitcoin is NOT a haven for criminals. Just as the U.S. dollar, diamonds and artwork are NOT havens for criminals.

Do people use all of these things to launder money? Yes. But that doesn’t make them havens for criminals.

In fact, law enforcement likes it when criminals use bitcoin. Bitcoin is a public blockchain, meaning transactions can be seen by anyone. This makes the money trail easier to track.

Criminals DO launder cash.

According to FBI testimony to Congress last year, cash transactions, misuse of banks and trade-based money laundering are three of the most popular methods to move illicit money.

The FBI also testified that illicit money exceeded $2 trillion globally and $300 billion in the U.S.

And crypto’s value isn’t based on thin air.

Just as they did with the dollar, gold and diamonds, people have agreed that bitcoin has value.

Without societal buy-in, none of these assets would be valuable.

Crypto Fears

Washington politicians spouting off about things they don’t understand without bothering to get the facts right is business as usual.

But there is one primal emotion driving this crypto backlash – fear.

For the first time, politicians are beginning to appreciate the power of crypto. And it scares them.

“The wild fluctuations [surrounding bitcoin] mean it’s not going to be put into widespread use,” said Sen. Chris Van Hollen (D-Md.) during the Senate’s Libra hearing.

He also noted that because Facebook has billions of members, Libra could come into widespread use.

And there we have it. Facebook’s size and reach (2.3 billion users across the world) have forced world governments to take crypto seriously.

As long as politicians thought bitcoin and other cryptocurrencies lived on the margins of the global economy, they didn’t care.

But when Facebook showed it could bring crypto to the masses, the alarm bells went off.

All of a sudden, crypto seemed like it could become a viable alternative to the U.S. dollar. And politicians started to understand that crypto could be a threat to the fiat money economy.

They’re afraid that, for the first time in history, crypto could usher in an era in which people choose their preferred currency.

And for people in power, that’s truly a scary thought. Because controlling money is how the rich and powerful stay that way.

And the Washington (and global) elites want to squash (or co-opt) cryptocurrencies before the majority of people truly understand how powerful they are.

That’s why we’re seeing a fierce pushback on crypto now. But in the long term, this is actually a positive development for crypto.

Bitcoin and other cryptos like it have two things going for them. First, no country or person can kill bitcoin. Rep. Patrick McHenry (R-N.C.) admitted as much during the House Libra hearing.

“Digital currencies exist. Blockchain technology is real,” McHenry said. “We should not attempt to deter this innovation. Governments cannot stop this innovation. And those that have tried have already failed.”

McHenry also told CNBC, “There’s no capacity to kill bitcoin.”

McHenry is right. Bitcoin isn’t going anywhere. Congress can’t subpoena bitcoin the way it did Facebook and tell it to stop (which Facebook isn’t doing).

Sure, it can make life tough for the exchanges by enforcing strict “know your customer” and anti-money laundering rules.

But even that has its limits. Good exchanges will figure out how to comply. Bitcoin and crypto are here to stay.

The second reason is the old public relations adage: There’s no such thing as bad publicity.

(Or there’s the Oscar Wilde variation: There is only one thing in life worse than being talked about, and that is not being talked about.)

In talking about bitcoin, crypto and Libra, Congress hoped to scare away investors and delay adoption.

But the exact opposite has happened.

“Clients are asking for [crypto],” TD Ameritrade CEO Tim Hockey told TheStreet. “Especially given the discussions around Libra and the rebound in bitcoin, there’s heightened interest again.”

The more exposure people get to bitcoin and crypto, the more they like it.

And you can’t buy the type of exposure bitcoin had last month.

Crypto is sound money for the digital age.

You can program it. You can transfer it easily. You can trade it. It’s secure. It’s decentralized.

And much like gold, it will – over time – hold value.

Crypto is coming. It’s going mainstream.

And politicians are just starting to figure out there’s not much they can do about it. ■

Portfolio Update

Portfolio Update: CHRGR

By Andy Gordon, Co-Founder, First Stage Investor

We recommended CHRGR in July 2017. CHRGR hands out free reusable phone chargers sponsored by companies like Lyft.

The chargers are distributed via CHRGR’s network of thousands of hotels, bars, clubs, music festivals, rideshares, gyms and resorts.

CHRGR charges its clients $10 per unit while paying $2.80 itself – a very nice margin (and its margins actually improve on larger orders!).

The chargers can be branded. And they usually come with a special offer, like a $20 credit for first-time users of Lyft.

We liked the company’s unique product and business model. We thought the idea would really resonate with companies aiming to boost their brands and with consumers dealing with phones constantly running out of juice.

So far, so good.

CHRGR tripled its revenue from 2018 to 2019, generating sales of $700K last year. That’s the best validation that the idea works.

Lyft, for example, made just under $1.2 million in new sales on a $90,000 buy with CHRGR.

And around 70% of CHRGR corporate customers decided to use it again. That’s a great retention rate.

Lyft, Heineken, Fanatics, CLIF, Red Bull, Instagram, American Express, Nike, Audi, First Republic Bank, Mack Weldon and many more have re-upped with CHRGR.

With strong growth comes a higher valuation.

So CHRGR raised again last month on Republic at a valuation of $8 million. That’s double the valuation First Stage Investor members invested at.

It was looking to raise $535,000. And it completed its raise a month ahead of schedule.

What’s Next

CHRGR is now developing “smart batteries.”

Plugging the charger into a phone automatically generates content that offers special deals and connects brands to customers through other kinds of content.

CHRGR is also upgrading the batteries so users can recharge their CHRGR in eight to 10 minutes. That’s a big step up from its previous charge time of 1.5 to 2.5 hours.

An even bigger initiative is the patent-pending near-field communication (NFC) and radio-frequency identification (RFID) technology CHRGR is applying to its charger.

This turns it into a surrogate hotel key card or smart pass for venues like ski resorts, festivals and theme parks.

By expanding its product offerings, CHRGR hopes to accelerate revenue growth.

The company is projecting sales will quadruple this year and reach $30 million by 2022.

CHRGR’s current valuation multiple is 11X, meaning 11 times revenue.

So using that same multiple on CHRGR’s projected $30 million revenue objective translates to a valuation of $330 million, an 82.5X increase over the valuation of the company when we recommended it.

Now, there’s no guarantee that CHRGR will meet its growth objectives. There are a lot of variables to take into account.

But even if CHRGR meets only half of its revenue objective, that’s still more than 40 times the valuation First Stage Investor members got when they invested a couple of years ago.

The company is coming off a year of surging revenue growth with significant momentum and exciting new ideas.

It’s smartly expanding its market by expanding its technology. This creates a much bigger upside than it had when we first recommended it.

We’re more than satisfied with where the company is right now and the direction it’s heading. We’ll keep you abreast of future developments as CHRGR continues to execute on its ambitious plans. ■

Meet Adam Sharp. In Silicon Valley, He’s Known as “the Startup Guy.”

He’s invested in 98 startups, including one that grew by 35X and one that grew by 60X. He’s on a first-name basis with some of the brightest minds in the startup world. And he now runs the country’s leading research firm for startup investing. His new mission in life? Helping Main Street Americans tap into the explosive gains of the startup space. He’s just discovered a little-known gateway to this exciting market. To learn more, visit www.PreIPOProfits9.com, or call 800.514.5876 or 443.353.4335 and mention priority code GPREV800