First Stage Investor: Issue No. 12

Mobile Battery Power on Demand
New Recommendation: CHRGR

By Adam Sharp, Co-Founder, First Stage Investor

The best startups solve common problems. The more frequent the problem, the bigger the opportunity.

This month’s recommendation, CHRGR (pronounced “charger”), aims to solve a problem that affects millions of people every day: having a low phone battery and no good place to charge it.

And unlike all its competitors, CHRGR has found a way to solve this problem in a way that’s free for users.

This is an early-stage opportunity valued at $4 million.

The company is profitable and growing rapidly. (To see both at this stage is rare.) It reached profitability in its second year of business. The team is hungry, innovative and determined. CHRGR knows how to run lean and grow fast.

I encountered CHRGR last month at TechCrunch Disrupt and talked with CEO and founder John Mullin for more than an hour, and I’ve spoken with the team on conference calls multiple times since.

Each time, I come away impressed with the group’s tenacity, ingenuity and drive.

CHRGR has one of the more unique business models I’ve come across in the startup world. It’s not your typical product, so I’m going to break things down into bite-sized chunks.

Here are the basics.

• CHRGR is an advertising/media company.
• It hands out reusable phone chargers, usually at no cost to users.
• Corporations like Lyft, Red Bull and Live Nation sponsor the chargers as part of branding campaigns.
• CHRGR’s cost per charger unit is around $2.80 (and dropping).
• Its clients pay around $10 per unit.
• Chargers are distributed through CHRGR’s network of concert venues, bars and other locations where people frequently need a charge for their phones.
• Advertisers can target their ideal demographics, establishments and neighborhoods.

It’s a fascinating business model… and it’s working. CHRGR expects to do $1.6 million in sales this year, and it projects $7.1 million for 2018.

Companies that run campaigns with CHRGR get to brand the units with their logos. They can also include a special discount code or other offer.

The chargers are reusable and can stay in users’ pockets for months.

Users get a free and convenient tool for their phones, and that goodwill is passed on to the sponsoring company.

There’s also a unique interactive aspect to these campaigns: the utilization of near-field communication (NFC) chips embedded in the chargers.

Certain phones can access these chips by “tapping,” which triggers an action such as an application install and credit.

For now, this is mostly limited to Android devices. But John expects it to be possible for Apple products soon.

This is very technical, so I’m going to use an example to show how it works.

Lyft, the $7.5 billion ridesharing company that competes with Uber, ran a sizable campaign with CHRGR in New York City last year.

Each CHRGR unit gave users a code for a $20 ridesharing credit.

Users could access this by using a promotional code printed on the charger or by having their Android phones tap into the NFC chip and activate the app.

Here’s an excerpt from Lyft’s blog post about the campaign:

Lyft will be offering free phone chargers at top venues in NYC as part of a new partnership with CHRGR. New riders will receive $20 off their first ride when they use code CHRGR. Bartenders and wait staff will have more than 5,000 CHRGR devices available for use at nearly 200 nightlife destinations throughout the East
Village, Murray Hill and Williamsburg. The sleek, pink credit card-sized chargers are compatible with iPhone and Android.

Having a CHRGR means you won’t have to worry about running out of juice before you request a Lyft ride home for the night. Keep an eye out at participating bars and clubs, including Webster Hall, Donna and Hotel Chantelle.

For Lyft, advertising with CHRGR was a success. Approximately 10% of units resulted in a new Lyft account activation. Of those, 91% went on to use Lyft more than once.

Multiple Expansion Opportunities

CHRGR is also exploring alternative sales channels. It sells customized CHRGR units to companies that give them away at trade shows and conferences.

It also has a deal with Vengo, a large mobile charging machine company, to sell CHRGR units in a vending machine model.

These additional streams of income are a nice bonus for CHRGR. They help pay the bills and could turn into something larger.

The CHRGR team ultimately wants to see the company’s cheap, reusable chargers become a fixture around the world.

Rather than fighting with the thousands of
other competitors in the traditional charging
unit retail space, it’s found an alternative method of distribution.

So far, it’s working. If CHRGR can keep it up, I see the company becoming an attractive acquisition target.

How to Invest

CHRGR is raising up to $600,000 on the SeedInvest website. Here’s how to invest.

If you’re already registered with SeedInvest…

• Go directly to the CHRGR listing at
  https://www.seedinvest.com/chrgr/seed, then click on the blue box labeled “Invest.”
• You will then be asked a series of quick and easy questions to execute your investment.
• The first one is “How much do you wish to invest?” CHRGR has set the minimum investment at $500. You can invest more, but you can’t invest less.
• Follow the instructions and choose your
  preferred payment method. Complete
  the process and email SeedInvest at
  contactus@seedinvest.com if you run into any problems.

If you’re not registered with SeedInvest…

• Go to www.seedinvest.com and click “Sign up.”
• Once registered, search for “CHRGR.”

Editor’s Note: If you’re new to First Stage Investor, or if you just need a refresher on how to invest in startups through portals like SeedInvest, check out our video tutorial “Investing in Startups Through Online Portals” at https://earlyinvesting.com/reports/investing-startups-online-portals/.

Risks

Like all early-stage investments, there is a
significant risk the company will fail.

It could fail to secure further funding, lose important revenue streams or have any number of other things go wrong.

This is the nature of early-stage investments.

You should not invest any money you can’t afford to lose.

Deal Summary

Company: CHRGR
Valuation: $4 million
Platform: SeedInvest
Security type: Crowd note (similar to a convertible note)
Minimum investment: $500
Offering ends: August 2, 2017
Company raising: Up to $600,000
Raised so far: $89,000 ■

Playbook

Equity Crowdfunding Playbook Part 8
Five Things You Need to Know About Founders

By Andy Gordon, Co-Founder, First Stage Investor

Editor’s Note: This is Part 8 of a 12-part series called the First Stage Investor Equity Crowdfunding Playbook. If you missed the previous installments, you can find them here: www.earlyinvesting.com/playbook/.

How important is a great founder?

Conventional wisdom says a muc

h-needed product in a fast-growing market will trump poor leadership.

It also says the best CEOs in the world cannot overcome mediocre products serving slow-growth markets.

Conventional wisdom is wrong.

Bad leaders are more than capable of mucking up a great product that practically sells itself.

I’ve seen founders turn gold into straw many times.

Leaders who don’t give a damn (or have a clue) lead unfocused companies that can’t execute.

Fortunately, there’s the other side of the coin…

I’ve also seen uninspired “me too” ideas turn into great companies, thanks to great leaders.

Founders matter. In my opinion, they matter more than anything else.

Five Key Elements

Choosing a great founder can be tricky…

They can talk a good game but make poor decisions. They may be brilliant but have the wrong personality.

Can they create a winning culture? Can they listen? Can they engender trust and confidence?

My co-founder Adam and I have talked to hundreds of founders. The vast majority came off as smart, capable and thoughtful.

We still nixed all but a handful. They simply didn’t show us enough.

Startups are a unique challenge. The stakes are high. The path to success is long and extremely difficult.

Failure often results when founders are good but not great.

That’s why I’m constantly on the lookout for a perfect founder.

I haven’t found one yet, but I need to get very close to feel good about them. That slightly lower bar has allowed me to recommend numerous startups on the strength of their leadership.

Here are five elements you should pay close attention to, along with some examples of founders we work with who exemplify these…

A Keen Business Sense

It’s the most important trait of the five. A startup isn’t a charity or force for good. It’s a business. It needs paying customers and an efficient cost structure.

A founder is a businessperson, first and foremost. They’ll be asked to make one astute business decision after another. And they need to be right most of the time.

Price point? Marketing channels? Market segment to target? Balancing short-term revenue with long-term growth needs? When to initiate the first big rollout? When to scale?

It goes on and on. A thousand decisions. A thousand ways to go down the wrong path.

In theory, a top CEO or chief financial officer could make up for a founder’s lack of business sense. But I’m likely to stay away in that case.

It should be the founder giving their C-suite
advice and direction, not the other way around.

First Stage Investor portfolio example: DSTLD

Here’s what founder Mark Lynn says about making DSTLD a success: “To become truly sustainable, we’ll have to increase our customer lifetime value to $200. We were at $100. Now we’re doing $180. At $200, we’ll have the margins to generate increasing profits as we expand.”

That’s a founder with a keen sense of the
bottom line.

Deep Knowledge and Experience in the Sector

I’ve never met a founder who didn’t sound knowledgeable about the sector their startup was in.

So what do I mean by “deep knowledge”?

Experience and knowledge must impart insight and foresight. Where is the sector heading? Where are the moneymaking opportunities? How will the startup help customers?

I’m not interested in the obvious. I want answers that surprise and confound me… answers that I don’t know, and that nobody else does either.

When a founder attains the level of what I call “unfair” knowledge, they are one step (or
several) ahead of the competition. And as competitors try to catch up, the founder is working on a solution to the sector’s next great problem.

First Stage Investor portfolio example: Scrap Connection

The founder was in the scrap business for 12 years. His finger is on the pulse of this industry. He himself was the victim of an industry scam.

He understands how traders are cheated and what changes they need to conduct business efficiently.

His unfair knowledge allowed him to craft a multifaceted business model that protects his customers from these shady business practices.

I expect competitors will find it next to impossible to make a better product.

Serial Entrepreneurship

Entrepreneurial experience is the greatest teacher. In order to succeed, first-time founders who don’t have that experience must have great boards, great mentors and great VC firms backstopping their efforts.

But even with that support network, I’d rather rely on the capabilities of more experienced founders.

If they’ve already done it, it means one of two things: One, they’ve learned the hard lessons. Or two, they have it in their DNA to grow startups successfully.

Maybe the hard lessons were kept to a minimum. That also works for me, because they showed that they could do it.

Past entrepreneurial success is most meaningful when it comes from the same sector as the founder’s current startup. Otherwise, the hard lessons learned may not be relevant.

Other questions I ask include…

Is the founder burned out? Is the idea and/or technology as outstanding as what went into the founder’s earlier startups? Is the leadership structure different from before? (For example, were they the tech person in earlier founding teams and are now the business person?)

And, finally, did time pass them by? At the age of 25, perhaps their instincts were more spot-on than they are at the age of 35. Every now and then a founder loses their “magic touch.”

First Stage Investor portfolio example: BrewDog

The entrepreneurial experience is recent, direct and unlikely to mislead. BrewDog has been the fastest-growing food and beverage company in the U.K. for the past three years. Our inescapable conclusion is that BrewDog’s team knows what it’s doing.

The Ability to “Think Big, Act Big”

It sounds like one of those new-age slogans, right?

But our investing model demands that a startup be incredibly ambitious. And that ambition should come from the very top…

Founders should have a knack for solving huge problems and conquering huge markets… the ability to dominate their chosen sectors… and a willingness to increase market share and grow customers at the expense of making a profit sooner as opposed to later.

Here’s the thing: Achieving massive growth in the short term is incredibly hard.

Everything is sped up… Decisions are magnified… Strategies are riskier. Founders can’t help but make mistakes… choose directions and then quickly abandon them… while sinking profits into unproven growth strategies.

It’s crazy. “Grow today and worry about mistakes tomorrow” is a heck of a way to run a company.

That’s not what I look for.

What I envision, for example, is a marketing director listening to his team map out initiatives to achieve 50% growth… and the director asking for initiatives that aim for 200% growth.

Not all the proposals make sense. In fact, only a handful do, and they’re flawed.

But the marketing director now has a few ways to boost growth to another level (even if 200% growth remains out of reach).

First Stage Investor portfolio example: VirZOOM

VirZOOM entered into a partnership with a powerful Chinese company to capture China’s massive virtual gaming market. It will also be licensing out the manufacture of its VR bike to OEM Partners as soon as possible to keep from falling behind on orders. Just two of many ways that VirZOOM thinks and acts big.

Charisma

I put this one last not because it’s least important, but because I get to ask you this question…

If a founder has the other four traits – business sense, deep knowledge of a sector, entrepreneurial experience, and the ability to think and act big – do they really need to also be charismatic?

Absolutely.

A founder spends a great deal of their time persuading people to follow their example, advice and requests.

Too many “no” responses would sabotage their ability to lead. Even spending a lot of time getting “yes” responses is problematic.

How do you measure charisma? You don’t.

These people naturally engender trust and confidence.

If a founder had that ability, you’d know. You’d feel it yourself in your first conversation with them. That’s the easy part.

First Stage Investor portfolio example: Keen Home

I’ve never met Keen Home co-founder Nayeem Hussain in person, but I’ve talked to him about a half-dozen times on the phone. He exuded confidence.

It’s true. All it took was my first conversation to know he had the charisma I look for in founders.

Where to Find the Founders

Knowing that you can’t pick up the phone and call founders like we can, how do you gather information and get to know them?

There are several ways you can do this.

Crunchbase.com has a good database of startups and people in the startup community, including founders. So does Angel.co.

In both databases, you can click on a founder’s current and recent startups, as well as their startup investments, if they have any.

If you have a question you want to ask a founder, you can go to the portal that lists the startup in question.

Most of these portals have Q&A sections where the founder actually responds.

It’s not foolproof; in teams with multiple founders, you might not necessarily reach the founder you want to talk to.

But it’s a great way to directly communicate with the leadership of a startup to get your questions answered.

You can also go to the startups’ websites, where many founders post their blogs. Founders do a million things, but they all find time to blog, it seems.

I encourage you to use all of these methods. Collectively, it allows you to reach an informed opinion. And if you’re not super impressed, don’t invest.

Technically, you’re investing in the company.

But, really, you’re investing in the people who run the company.

Founders really do matter. ■

Q&A With Seedinvest

My Love for Inspiring Entrepreneurs
An Interview With SeedInvest Director of Marketing Alex Tynion

By Andy Gordon, Co-Founder, First Stage Investor

SeedInvest is definitely one of the better portals for startup investment opportunities. We’ve talked about SeedInvest before, and we visit the site every day to check out any new raises. (It’s also where we found our latest recommendation, CHRGR.)

Alex Tynion, a principal and director of marketing at SeedInvest, gives us an inside look at what SeedInvest is up to these days, including details on its big plans to step up its services to both startups and investors.

Andy: Hi, Alex. First, tell our readers who you are.

Alex: I head SeedInvest’s Venture Growth team. I have an amazing job… I work with inspiring entrepreneurs every day. We help the companies raising capital on SeedInvest raise capital from the crowd. We also work with investors in our network to match them with their investment preferences.

I’m lucky. I love what I do.

Andy: That’s one heck of a laundry list. So let’s start off with something exciting, shall we? What’s a recent initiative of SeedInvest that really has you excited?

Alex: We just launched Auto Invest, something that should really help investors’ bottom lines down the road. It makes building a diversified portfolio of up to 25 highly vetted, early-stage startups hassle-free.

Investment minimums start as low as $200 per startup. That’s 50% lower than our standard $500 minimum for Regulation Crowdfunding and 80% lower than our $1,000 minimum for
Regulation A+ deals.

Andy: How exactly does that benefit investors?

Alex: Historically, building a large portfolio of early-stage startup investments has been linked to higher returns. This is because individual startups have high failure rates.

Again, I don’t think I’m revealing any secrets here. But this one stat really highlights what I’m talking about. It comes from a recent Angel Resource Institute study and says that 10% of startups have historically accounted for 85% of angel investor returns.

So if you want to add startups to your investment portfolio, one of the most important things you can do is diversify. Auto Invest makes it easy.

Andy: I’ve noticed a dip in current Reg. A+ listings on your site. Any particular reason why?

Alex: Anything new takes time to settle in. Conditioning the market, making entrepreneurs comfortable with this new form of fundraise, you know… it doesn’t happen overnight.

And there are barriers to entry, like the cost and time it takes to file a Form 1-A, which is an SEC requirement. It’s roughly three times more than filing a Form C, which is required for Reg. CF fundraises.

It takes a certain type of company to undertake such a raise. That said, we’ve seen a substantial increase in interest over the past two months from larger, more established companies.

For example, we just launched Kindara, a leading tech company providing women with the tools and technology to manage their reproductive health and fertility.

We’re excited for a few others in the pipeline to launch later this year.

Andy: How is your current crop of Reg. CF raises doing?

Alex: Really well, Andy. Three of them have raised more than $1 million, including your recently added Lendsnap. It has $1.2 million so far. Only HelloMD has done better, with $1.38 million raised. Leaf has collected $1.07 million in funding.

Andy: I see you have 170,000 active users right now. Pretty good. How do you plan to grow your user base from here?

Alex: Both organically and with paid marketing. Our organic growth stems from our listed companies promoting their campaigns across multiple channels and signing up with SeedInvest in order to invest.

This is great exposure. It means the more companies we have on our platform, the more our community grows. We’ve seen a big increase in new investor sign-ups this quarter, thanks to more companies raising capital on SeedInvest.

Our paid marketing activities are also picking up. We’re currently rolling out a number of new marketing tactics, including paid ads, press exposure, partnerships and more traditional media advertising (i.e., newspaper ads and TV ads.)

Andy: How about anything new in terms of how you source deal flow or how you curate?

Alex: This quarter we introduced “live investing” partnerships. It’s a major step forward. It’s with some of the largest startup conferences in the world, like Launch Festival and eMerge Conference.

It works like this: We start with thousands of companies that apply. That’s whittled down to the hundreds of companies that demo. We then handpick the standouts – a selection of investment opportunities to list on our platform and launch at the conference.

At the conference, investors can purchase shares right on the spot. Others can tune in via livestream to watch the pitches in real time.

As far as curating? Since we began, SeedInvest has chosen quality over quantity, accepting about 1% of companies that apply to raise on SeedInvest. This emphasis on vetting separates us in
the market and paves the way for a top-notch selection of investment opportunities.

Andy: Anything you see on the regulatory front that could push startup investing to more people?

Alex: Changes have been proposed, but they are still in the preliminary phase of review. Nothing is concrete.

A fair amount of what we lobbied for is now part of the final rules. There’s plenty to work with. We’re moving full speed ahead. ■

Chart of the Month

Chart of the Month
Why Nobody Wants Your Product

By Cory Templeman, Managing Editor, First Stage Investor

There’s a saying among VCs: “For every 10 startups you see in the market, 11 will fail.”

Many in the startup world (including entrepreneurs and investors) joke about this.

But in reality, it’s true.

We don’t hide from this reality. The most important rule of startup investing is that you need to invest in a lot of companies.

Why? Because more startups fail than succeed.

But have you ever thought about WHY these startups fail?

ThinkGrowth.org compiled more than 100 failed startup stories to better understand the “why” behind their demise.

The overarching reason why these companies failed? Lack of market.

Even if a company has created the best product, it won’t last if the market is nonexistent.

As you can see in the chart below, 49% of these companies failed because of this.

Companies can fix and refine their marketing efforts. They can raise additional money or get additional funds to keep the business afloat.

Heck, they can even build better products. What they can’t do is create a market that isn’t there.

To take it a step further, successful startups not only have a market, but also have founders who clearly understand it.

The better ones usually have a superior technology or product to take advantage of growing demand.

They have often learned from the mistakes of their predecessors, and they refine rather than reinvent growth strategies.

An established market is, and will continue to be, a cornerstone of the research model we use for any company in the First Stage Investor portfolio. ■

Portfolio Review

July Portfolio Review

Many of our portfolio companies continue to move forward with their customer acquisition strategies, product development and fundraises.

This month, we have only one specific update to share. It’s from an email we received from the founders of one of our portfolio companies – a company that continues to break through with one of the nation’s leading mortgage loan companies.

Let’s take a look.

As a reminder, you can see the entire First Stage Investor portfolio at www.earlyinvesting.com/fsi-companies/.

Lendsnap

Last month, we highlighted that Lendsnap recently started working with Fannie Mae, one of the biggest mortgage buyers in the country.

As a refresher, Lendsnap is developing a standalone web and mobile application that helps financial institutions quickly collect from the cloud all the financial information required to complete a mortgage application.

Lendsnap’s first big initiative with Fannie Mae is getting approved for the mortgage buyer’s “Day 1 Certainty.” Per Fannie Mae’s website, Day 1 Certainty gives lenders freedom from representations and warranties, as well as greater speed and simplicity, and enables an improved borrower experience.

In an email, Lendsnap CEO Orion Parrott reported that Lendsnap is now listed as…

“A Prospective Report Supplier on Fannie Mae’s list of Desktop Underwriter® (DU®) Validation Service Verification Report Vendors. This moves us closer to being one of the first providers of transactional data for Day 1 Certainty, vs. competitors who are not on the list.”

Stay tuned for more updates from Lendsnap. ■