When You Come to a Fork in This Road… Take It!
New Recommendation: Bitcoin Cash
I have a small but valuable piece of paper on my desk that simply says…
“Help everyday people understand and profit from opportunities OUTSIDE the stock market.”
It’s a great reminder of why we started First Stage Investor. It’s also a constant source of encouragement to create awareness among investors about how quickly early-stage investing opportunities are growing.
Our portfolio began with exclusive early-stage startup equity and has grown to include our newest opportunity outside the stock market: cryptocurrencies.
We started recommending cryptocurrencies like bitcoin in early August. Since then, more and more people have begun to recognize the benefits and value of cryptocurrencies. (I’ve been a believer for years.)
New cryptocurrencies, all with their own unique traits, continue to emerge, and they’re growing fast.
This month’s recommendation, Bitcoin Cash, is no exception.
Bitcoin Cash (or “Bcash”) is a spinoff of the original bitcoin and represents a fork in the road for cryptocurrencies.
It’s essentially a clone of the entire bitcoin network that split off and changed certain rules. These rule changes could make Bcash transactions faster and cheaper than bitcoin transactions.
Everyone who owned bitcoin on July 31, 2017, received an equal number of Bcash coins. This is due to the fact that Bcash shared bitcoin’s history up until midnight on July 31.
It is important to note that I do not believe Bcash is a major threat to bitcoin at this time. Bitcoin has a famous brand, top-of-the-line security and the largest network effect.
However, there’s a small chance that Bcash could take off due to its lower transaction fees. It costs $7 to send bitcoin, but only an average of $0.50 to send Bcash.
The original bitcoin network is now working to fix its high-fee problem, but so far there’s been a lot of infighting and little progress.
For this reason, I believe it’s prudent to hedge our bitcoin exposure (which accounts for 50% of our cryptocurrency portfolio) with a small amount of Bcash.
Here’s the specific action to take…
If you’ve taken advantage of our current cryptocurrency recommendations…
Move a quarter of your Litecoin holdings into Bcash. Litecoin currently makes up 20% of our portfolio, so I’m recommending that you either…
- Sell a quarter of your Litecoin and buy Bcash with the proceeds
- Or simply add a 5% position to add Bcash to your portfolio.
If you don’t own cryptocurrencies but want to
get started, be sure to structure your portfolio
as follows:
- Bitcoin (BTC): 50%
- Litecoin (LTC): 20%
- Ethereum (ETH): 15%
- New Economy Movement (XEM): 10%
- Bcash (BCH): 5%.
This Is a Hedge for Bitcoin Owners
I’m not thrilled with the way that Bcash has been created. They’re capitalizing on bitcoin’s name and making it sound more liquid by adding the word “cash.”
However, since Bcash was given to all bitcoin owners, it has wide distribution. As a result, there is high Bcash volume on cryptocurrency exchanges all around the world.
And Bcash has the potential to be both cheaper to send and more profitable for miners, so it’s a threat we can’t afford to ignore, as there’s a small chance that it will catch on and rival bitcoin at some point in the future.
For a detailed rundown on the differences between Bcash and bitcoin, I recommend checking out an excellent piece from BitcoinMagazine.com. We’ve provided the link at the end of this article.
It was written by a bitcoin fan, but it accurately describes the conundrum faced by owners and miners of these coins.
You shouldn’t be overly concerned about the threat that Bcash poses to bitcoin. This recommendation is simply a way to protect our primary bitcoin position with a hedge.
How to Buy Bcash
Bcash trades under the crypto ticker “BCC.” Bittrex.com is the exchange I recommend using to buy it. Here are some step-by-step instructions to get started:
If you don’t already own bitcoin, you’ll need to buy that first. The easiest way to do that is through Coinbase.com. (Check out my report “How to Become the Next Bitcoin Millionaire” on www.earlyinvesting.com for complete instructions.) It should be noted that, due to anti-money-laundering laws, Coinbase is one of the few cryptocurrency exchanges in the U.S. that accepts dollars, so it’s widely used as an entry point into the cryptocurrency world.
Next, go to Bittrex.com and register for an account if you haven’t already done so.
Once you’re registered and logged in to Bittrex, go to the Wallets section on the top navigation bar.
Look for bitcoin and click on the + sign. That will show you a wallet address that you can send bitcoin to. Hit Control+C on your keyboard to copy that address to your computer’s clipboard. If you’re on a phone, highlight the text and select “copy.”
You will now transfer bitcoin from your Coinbase wallet to your Bittrex wallet.
Now, in a new browser window, log in to your Coinbase account. (You’ll need to have completed your bitcoin purchase first, which can take a few days to process.)
On Coinbase, click on the “Send/Receive” tab. In the “Send to” field, paste your Bittrex address (which you copied to your clipboard earlier).
Enter the amount of bitcoin you want to send to Bittrex. Remember, decimals are fine. You can send 0.002 bitcoin or 10.
I recommend doing a test send before sending any substantial amounts.
Do a small amount first, make sure it arrives in your Bittrex wallet, and then do it again once you’re sure you’re doing it right.
If you enter the wrong address, your coins could be lost, so double-check that you’re sending from your Coinbase Wallet to your new Bittrex bitcoin wallet.
Once your transfer is complete, go back to the Bittrex Wallets page.
Use the search box and type in “BCC.”
Click on the blue BCC link, which will take you to the Bcash page.
Scroll down, and on the left-hand side, under “Trading,” you’ll see a box titled “Buy Bitcoin Cash.”
As of the time I’m writing this, Bcash trades for around $670. You can see the current price on Bittrex. So first, figure out how much you want to buy. (Decimals are fine.)
Enter the number of coins you want to buy in the “units” field.
Under price, you can select “ask,” which is the current lowest asking price for BCC. Or you can enter a limit order.
Everything on Bittrex is priced in bitcoin, so entering an order for the first time will seem strange.
Each Bcash unit currently costs 0.16100000 bitcoin.
Everything Worth Doing Has Some Risks
Bcash is a highly speculative, volatile investment. There are regulatory risks and possible technological problems involved.
Invest only as much as you can stand to lose, because that is one possible outcome.
I recommend investing no more than 3% or so of your portfolio in Bcash and other cryptocurrencies. If you have a longer time horizon, a heavier allocation could be justified.
However, a large investment is not necessary to give yourself significant upside.
If you have the patience, start with small investments and spread your bets out over time. The payoff could be worth it. ■
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Q&A With DSTLD
Back for More Funding
An Interview With DSTLD Co-Founder and Co-CEO Mark Lynn
Last August, we recommended DSTLD, an LA-based startup specializing in high-end denim at great prices.
It manufactures and sells “three-in-one” jeans: fashion, quality and affordability… all rolled into one extraordinary pair of pants.
Mark Lynn, the co-founder and co-CEO of DSTLD, gives us a close-up view of what DSTLD has been up to since we recommended the company last August.
For those of you who have already made an investment in DSTLD, this is a chance to get caught up on its latest accomplishments.
And if you haven’t yet invested, it’s a chance to find out how well the startup’s growth strategy is doing… and to learn why there’s still a chance to invest.
Andy: We recommended you last August. A year has gone by.
What are some of the things you’ve accomplished?
Mark: Most notably, we’ve stepped up the company’s growth.
We’ve achieved 192% sales growth in the first half of 2017 versus the first half of 2016.
We’ve increased our lifetime revenue from just over $3 million this time last year to more than $9.1 million today.
We’ve also nearly doubled our team compared to what it was last year, hiring some of the best talent in the fashion and tech space and allowing us to increase our output across marketing, product and development.
Andy: Could you bring us up to date on some of the metrics you capture?
Mark: Here’s a snapshot of some of our main metrics…
- Revenue: $9.4 million in 2017 (up from $3.3 million 2016)
- Revenue growth: 184%
- Net burn: Half of what it was last year
- Number of employees: 14 (vs. eight in 2016).
Andy: Have you increased the amount and variety of products you offer?
Mark: Absolutely. Last year the bulk of our line was made up of men’s and women’s denim and T-shirt styles, alongside a few light outerwear pieces and a small accessories collection.
We now host a full lifestyle collection: jackets and coats, dresses and skirts, pants and leggings, knits and sweaters, shirts and button-downs, cashmere accessories, wallets, and belts.
Andy: What’s the metric you keep the closest eye on?
Mark: Our top four metrics are…
- Average order value
- Customer lifetime value
- Gross margin
- Customer acquisition cost.
Taken together, these four metrics pretty much determine our ability to scale profitably.
Andy: Who would you say was your most important hire in the past year?
Mark: That’s a tough one. We’ve had a number of outstanding hires.
But if we had to choose one, it would be our design director, Paul Roughley.
For 20 years now, Paul has been cultivating his remarkable design talent, achieving a broad range of fashion experience.
He spent a decade as design director with cutting- edge denim label Kill City, where he oversaw creative direction for Kill City and its subsidiaries.
At the end of the day, the metrics I just mentioned are all affected by our product.
Paul’s experience, combined with his attention to “fit,” has keyed the development of our product line and improved retention and customer growth rate.
Andy: Is the competition in your space getting better or worse?
How are you keeping your competitors at bay?
Mark: The retail landscape is changing dramatically.
At a macro level, we feel incredibly well-positioned to take advantage of these changes.
For example, 9,000 retail store closures were forecast in 2017, and $50 billion in apparel retail sales are expected to move online in the next four years.
While Amazon has eroded value in traditional retail, it hasn’t made inroads in our space – namely, direct-to-consumer apparel.
Andy: Why did you decide to come back to SeedInvest to do another raise? Weren’t VCs interested in you?
Mark: We’ve decided to return for a second round because of our success with our first one.
We haven’t talked to any VCs by choice – we’re committed to embracing Regulation A+ as our core strategy to finance growth.
We think it’s the most impactful type of fundraising and investing you can do.
Take, for example, the recent 213-million-pound ($274 million) investment from TSG in BrewDog.
Brewdog’s 55,000 crowdfunded investors will be making a much bigger profit than TSG, which valued BrewDog at 1 billion pounds ($1.3 billion).
The early adopters who purchased shares in the company’s first crowdfunded round could make up to a 2,800% return.
Andy: Do you feel you’re getting better at your job?
Mark: As the key variables become more known to us, we’re better able to manage them.
There are three that specifically come to mind.
- Sourcing: We’ve continued to diversify and create successful partnerships with our factories and vendors.
- Marketing: Whether paid, influencer or SEO, we find out what works through informed testing.
- Technical prowess: We’ve learned to leverage technology to optimize operations, from website development to customer service to finance.
There are still challenges.
As a vertically integrated brand, we handle everything ourselves, from marketing, customer service, product, development and finance… and we do it cost-effectively.
One of the hardest things about running a fast-growing company is managing all the
moving parts and getting all the departments communicating with one another.
At the end of the day, you need to be prepared for anything.
Andy: Every startup has its ups and downs.
What’s giving you the most trouble or is simply not working? Do you have any thoughts on how to fix it?
Mark: The supply chain has always been challenging. It takes time to develop relationships with the right people – for example, vendors who meet our rigorous criteria.
It’s a big challenge.
They need to meet our commitment to sustainability and eco-friendly practices; have ethical factory conditions, treatment and pay; and be able to produce smaller runs at the right price.
True story: We’ve turned down working with partners because they proposed pricing that was too low, as we knew it was impossible to provide a lasting, top-quality garment at such a low rate.
Nor are most factories used to the timelines and order sizes we depend on, so educating partners on our ethos and business model is important.
Ultimately, we’re looking to build lasting relationships, the kind that take a bit of time to grow. That said, I do absolutely feel like we’ve risen to the challenge.
Andy: As I think you know, our readers have a lot of choice when it comes to investing in startups, so here’s a question for you: Why you? What makes your company so special?
Mark: Ah, if they could only see what I’m seeing! An opportunity to outflank and disrupt some of the biggest apparel players.
The business is complex, but we’ve worked hard to put DSTLD in the position where it can take advantage of a massive opportunity… challenging and winning the battle against the three largest “fast fashion” players that control more than $200 billion worth of market cap.
Andy: Did any of your family members invest in DSTLD?
Mark: Yes, both friends and family are investors. Same goes for my co-founder Corey. Everyone has been extremely supportive.
It does dominate the conversation at family gatherings, though!
I suspect I’ve become terribly boring to talk to.
Andy: Just the opposite: What you guys have done is quite fascinating.
Invite me to your next family gathering, and I’ll tell them so myself.
Mark: Thanks, Andy. I really appreciate your support and the support of your subscribers.
New Recommendation
A Second Chance to Invest in a Now $130 Billion Disruptor
New Recommendation: DSTLD
We first recommended online retailer DSTLD last August. Its first product was what I call “three-in-one” jeans: fashion, quality and affordability… all rolled into one extraordinary pair of jeans.
By eliminating the middleman, DSTLD has been able to pass on considerable savings to the consumer.
As I said in our original recommendation…
Retail has changed forever. The retail landscape is littered with corpses. Traditional brick-and-mortar retailers have been forced to adapt or suffer the consequences. One VC investor puts it this way: “Everything bad that happened to media in the last decade is going to happen to retail.”
It’s painfully obvious that’s how it’s now playing out. Nine retailers went bankrupt in 2016. This year, we hit nine bankruptcies by April. By the time August drew to a close, many more had followed.
Many others are scuffling. Sports Authority has liquidated. Payless has filed for bankruptcy.
RadioShack, J.C. Penney, Macy’s and Sears have each announced more than 100 store closures.
Others are fighting for survival, including Lululemon, Urban Outfitters, Neiman Marcus, J. Crew, Eddie Bauer, Vince, David’s Bridal, Nine West, Claire’s Stores, Charlotte Russe, American Eagle and Ralph Lauren.
Yet retail spending is on the rise. So what gives?
Online retailers are rushing into the breach, scooping up all this online shopping demand.
DSTLD’s timing couldn’t be better. It has aggressively pushed its way to the forefront of the fast-growing online apparel market that is set to expand from $80 billion today to $130 billion by 2021.
So we’re recommending it again.
This Is a First
And, to tell you the truth, it wasn’t that hard of a decision, even though we’ve never done it before.
We’ve had plenty of opportunities. But they just weren’t compelling enough.
To double down on an investment, the opportunity has to be pretty special. This one more than meets our high standards.
The good news is that DSTLD is just getting started. There’s room for it to grow much bigger.
The global apparel market is $3 trillion!
Co-founder Mark Lynn once told me the global market is large enough to support several huge companies.
“As in billion-dollar companies?” I asked. “As in tens of billions,” he replied. “Nike has a $93 billion cap. Under Armour… $26 billion. H&M… $56 billion. And Zara… $100 billion.”
When Mark told me this a year ago, it sounded laudable. I really like founders with big audacious plans. But I harbored some doubts.
And, to tell you the truth, I still do. Let’s face it, the Under Armours of this world don’t grow on trees.
But now a big part of me believes that Mark and Corey Epstein, DSTLD’s other co-founder, can do it.
In the past year, DSTLD has exceeded our expectations in several key areas: sales, customer growth, cost efficiency, profit margin expansion, product line expansion and supply line management.
To its credit, the company made this an easy decision. So, here’s the deal. With a $22 million valuation a year ago, DSTLD was a good investment.
Now that it has a $30 million valuation, we think it’s an even better one.
DSTLD was able to significantly reduce risk to growth, business and profit margin in just a year’s time – a major achievement that more than justifies its increase in valuation.
The company has made progress in three particularly crucial ways…
1. It’s selling more expensive items. That’s what DSTLD’s two founders promised me they’d do a year ago. They were true to their word.
They’ve extended their product lines beyond premium jeans to “luxury essentials” like LA cotton T-shirts, French Terry sweatshirts, Italian-made leather accessories and several other items.
Mark rightfully draws attention to DSTLD’s “full lifestyle collection.” (Please read my Q&A with Mark that precedes this article if you haven’t already done so. It has lots of great details and insights.)
Why did I extract this promise?
A couple of reasons. One, even at 60% to 80% off competitive retail prices, luxury items carry fat margins.
Two, this allows DSTLD to better take advantage of the size and rapid growth of apparel’s $80 billion online market (with $50 billion more expected to migrate online in the next four years).
2. It’s lowering expenses. This is what every early investor loves to see!
As a company matures, it should become more cost-effective. DSTLD has been able to take advantage of volume discounts in many areas, from the factories it contracts to the ships it uses.
It’s yet another strong signal that DSTLD’s execution remains top-notch.
3. It’s improving customer acquisition costs (CAC). DSTLD has trimmed the cost of acquiring a new customer to $40, giving the company a payback of 4.5X.
That’s really good. I look for paybacks of three to four times as a precursor to rapid growth. DSTLD does better.
Customer acquisition is just one number. To see the bigger picture, here’s a beautiful chart that depicts how well the numbers are working for DSTLD…
Let’s break this down (starting from the top of the chart)…
- Lifetime Revenue of $360. This is the companion metric to CAC: $40 out and $360 in. Nice.
- Gross Profit of 50%. Cost of goods and services (to make, sell, ship, etc.) is $180, half of the $360 DSTLD makes from each of its customers over the first three years.You have to understand that gross profit is not as revealing as operating profit, which includes marketing and other costs. Still, 50% is a nice fat margin that’s possible with online retail, but not brick-and-mortar retail.
- CAC of $40. It’s delightfully low compared to lifetime revenue, as already explained. But it’s also low when compared to average order value. In the last three months, average order value has ranged from $106 to $129.
When we recommended DSTLD a year ago, its lifetime revenue was $100.
A half year ago, it was $180. At the time, I reached out to DSTLD’s founders to congratulate them on their progress and to find out what new milestones were coming up. They told me they wanted to reach a lifetime revenue figure of $200.
This would make them “truly sustainable” with “the margins necessary to generate increasing profits as they expanded.”
They’ve accomplished that and much more, quite nicely setting themselves up for their next phase, which will feature exponential growth.
Sales have already picked up…
They’ve brought their current lifetime sales to more than $9 million, up from $3 million in June 2016, for a compounded annual growth rate of 194%.
Use of Proceeds
The company’s first Regulation A+ raise garnered $1.7 million. DSTLD used it to make key hires in the marketing department and others.
Its staff grew from eight to 14 over the past year.In this second Reg. A+ round, the company aims to raise $200,000 to $10 million.
It will allocate half of that to online marketing.
The next $50,000 will go toward hiring marketing and customer service personnel, and another $50,000 will be used to expand products.
If DSTLD raises more than the minimum of $200,000, it will use any additional funds as follows:
- 20% for product buys
- 15% for personnel costs
- 55% for advertising
- 10% for capital expenses.
Based on that breakdown, the company is set to make a big push in online marketing and advertising that should accelerate its revenue growth.
I like our timing for this recommendation.
Rapid revenue growth usually goes hand in hand with a rapid rise in valuation.
We know a lot more about the company now, and DSTLD has made it easy for us to dip into its second Reg. A+ raise.
Before we tell you how to go online and reserve your investment in DSTLD, I encourage you to read our original DSTLD recommendation here.
You’ll learn more about the company’s backstory and its two co-founders, Corey and Mark.
How to Invest
Right now, you’re allowed to make a reservation by going online and visiting DSTLD’s page on the SeedInvest site here.
By clicking on the blue “Reserve Your Investment” box, you are requesting a spot to invest in DSTLD’s upcoming offering.
By the way, this reservation is nonbinding.DSTLD will be accepting investments beginning on September 10.
So by the time you receive this issue in your mailbox, DSTLD’s raise will be in full swing.
Here’s what you should do. If you’re already registered with SeedInvest…
- Go directly to the DSTLD listing at https://www.seedinvest.com/dstld/series.a.2, then click on the blue box labeled “Reserve Your Investment.”
- 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?” DSTLD has set the minimum investment at $1,000. You can invest more, but you can’t invest less.
- Follow the instructions and choose your preferred payment method. Complete the process and, if you run into any problems, email SeedInvest at contactus@seedinvest.com.
If you’re not registered with SeedInvest…
- Go to www.seedinvest.com and click “Sign up.”
Once registered, search for “DSTLD.”
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/.
If you encounter difficulty at any point in the process, all you have to do is click on the “Chat with Us” link on the SeedInvest site. It’s on every page as you go through the application process.
How You Can Help
Courtesy of Hannah Laverty, DSTLD’s marketing director…
If you haven’t checked out DSTLD’s website (www.dstld.com) recently, do so now. We’re very proud of our product selection.
Each piece is considered to the point of exhaustion, guaranteeing that the fit, functionality, and aesthetic appeal last for years to come.
We’d love to hear from you. What would you like to see DSTLD offer next? How can we help you solve a wardrobe problem? Drop us a line at invest@dstld.la. And, if you like what we’re doing, spread the word about DSTLD to your friends!
Risks
As with all early-stage investments, there is significant risk the company could 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: DSTLD
Valuation: $30 million
Platform: SeedInvest
Minimum investment: $1,000
Raising up to: $10 million
Share price: $0.50 per share
Security: Preferred equity
The Oxford Club’s 20th Annual Investment U Conference
March 15-18, 2018 |The Four Seasons Las Vegas
Join us as we celebrate two decades of success and tremendous profit opportunities brought to life through our premier spring event: The Oxford Club’s Annual Investment U Conference.
At this event, you’ll have a front-row seat to presentations on dozens of profitable ideas from our entire team of Oxford Club experts, as well as investment insights from more than two dozen of the industry’s top economists and investment minds.
Year after year, we’ve seen the recommendations revealed at this event soar through the roof. In fact, attendees from last year’s event had the chance to see gains of 151% and a whopping 233% on just two of the recommendations released… which is a guarantee that your attendance could more than pay for itself – and then some.
This year’s Investment U Conference promises to be unlike any other – a true extravaganza. During our first-class receptions and gatherings, you’ll have the chance to mingle with the experts in person, as well as other like-minded investors… allowing you the opportunity to create everlasting memories, build lifelong friendships and even expand your professional network.
Reserve your spot at a tremendous value today by simply clicking here. If you have any questions about the event, please email us at voyagerclub@oxfordclub.com or call 443.708.9411.
September Portfolio
