Changed, another overvalued startup.

Changed

This is about a company that was recently on Shark Tank. This is only my opinion, and in no way does it represent my thoughts on student debt. Student debt is now around $1.5 trillion. This is what could be called a financial crisis, and can be represented by the tale of putting a frog in a pot, and slowly turning the heat up. The frog doesn’t notice until it is fried.
Changed makes $1/user per month. At the time of air, they state to have 800 to 1000 paid users. That is at most $1000 per month. $12,000 annualized run rate, without growth of course. Say they double their paid user base. 2000 paid users. $24,000 a year. You get the math. They provide the service of rounding up your purchases via your bank account every day to the nearest dollar, thus a $3.45 coffee will round up to $4. The $.55 will be placed in a fund that will only liquidate against your student debt every time it hits $100.
Yet, they value their business at $1.6 million, and end up receiving an investment valuing their company at $1 million dollars, after a founder says “experts” valued their company anywhere from $1.6 to around 2 million. Red flag number one: that is a huge variation in valuation. I understand early stage investment can be a different ballgame, and Shark Tank investors usually get a premium, but a difference of 100% is a big difference statistically in business.
Second, how are they looking at TAM? How many colleges are putting a significant amount of students in debt, how many students are looking for a paid way to alleviate the debt they already have?
Let’s look at the number of colleges. According to the U.S. Department of Education and a Google search, 19.9 million students are attending somewhere between 5300-6000 colleges. Let’s go to the best case scenario (for Changed and other student debt servicing companies, not for students of course).
10-13 million students of those 19.9 go into debt.
-Another best case scenario: Changed somehow gets a hold of 1% of those 10-13 million every year after 10 years of heavy marketing and sales.
-After 10 years of work, assuming no regulations or problems kick in, and no extra money has to be raised, their user base is 100,000 -130,000 users/month
That is a $1.2 million run rate worst case scenario. How about their CPA, CPC, employee salaries/commission, potentially low operating expenses, fees? What is the LTV of a user? $12/year for how many years? Let’s call it 30. LTV= maybe $360-400 ?
With a LTV/user of $400, Mark Cuban will need to see quite a few users before any sort of 5,10, 15x return on his investment takes place. Where is the exit strategy? What’s the burn rate?
How about the typical user profile? Someone in debt may not be willing to, or may not have the resources to put funds away every day!
Now, not only are they paying more money to get out of debt, but they are technically losing money in the process out of their bank account each day, maybe around $1 tops, but that’s $7-10/week, which is solid grocery money/partial-share investment money. Plus, this is something that you could completely do on your own! Yes, they have more content like a debt tracker. Wells Fargo online has a similar account growth tracker that shows you how close you are to a financial milestone!
I believe that for $1 million dollars, Mark Cuban could have built this and scaled it by hiring a team, even without going into an office more than 10 times in a year.
Again, just a passionate opinion here. Seeing a company that has about $1000 in revenue over around a half a year receive a valuation of $1 million dollars is interesting. Kudos to Changed for partnering with Mark Cuban, as he can definitely take this there with the hustle that the founders have.
I do believe, however, that this represents the problem that is becoming more and more clear: overvalued “technology” startup companies, the on-paper valuations of which will not be seen on true green paper for years to come.
Opinionated,
J

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s