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Tuesday, November 1, 2016

Thoughts on Paktor fund raising

This one pipped my curiosity as its the 3rd >30M dollar deal for a Sporean company that I am aware of this year alone! Ninja Van, then Caurosell and now Paktor. You can read more about what I think about caurosell here. I never reviewed Paktor space before though I did meet and are friends with Violet & Jamie who run Lunch Actually which is a more traditional offline dating company which now has also ventured into the online space. No vested interest in both parties.


Company story & financing so far
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Paktor is founded by Joseph Phua, Charlene Koh & Ng Jing Shen. They run a combination of various dating apps and offline dating services in 4 countries. They started in 2013 and grew the company via VC money.

Paktor did revenues of 21.5K SGD In 2014 and 1.05M SGD in 2015. This rapid growth is impressive and does perhaps show that there is demand on consumers part to pay for dating and social dating related services. However, this growth came with spending 9.1M SGD in 2015. So I think any reasonable person would say the jury is definitely still out on whether their current business model makes sense. The strength is that they claim to have 22M users. So that is a cheap $0.5 per user acquired if I just use their last 2 years costs. Not bad and if these users are engaged, then that is a reason for optimism.

Joseph further claims in his msg to me to be profitable 3Q16. If he is referring to GAAP accounting profitable as a consolidated entity, I am extremely impressed as it means top line must have grown 10X with costs constant. Perhaps this explains the investment. However, I would wait for ACRA report next year to verify this fact. They had deferred revenue of 261k sgd for 2015, assuming that is 1 month sales, their run rate in Jan 2016 is still just 1/4 of what they need per month.  I have yet to see any ASEAN startup grow revenue so fast AND be profitable. Its usually one or the other. Happy to be wrong though. Actually, if Paktor grows revenue 10 fold for 2016 to 10M SGD without increasing costs, nevermind profit, I think they would have justified the round already simply because the speed of revenue growth is screaming at demand.


Company Founders
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Joseph is the main owner with about 31-32% before most recent round. The other 2 founders own  2-3% each. Of course, may be there is private agreement to split more shares. On salary front, they don't overpay themselves and it is a fair sum for the 2 directors of a well funded startup.

I have never met any of them but Joseph immediately contacted me after I posted a comment on FB and I must say I like his style and what he says. Considering he is from a very privileged background, he does genuinely come across deeply engaged with his business and clearly cares. He also talks about profits which resonates very well with me. Of course to have some many VC (esp Vertex who has had some nice wins this year) support them it should be that way. Anyway feedback is also good about how the company culture is run.


Financing Details
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Since  2013, Paktor has raised Seed, Series A, B of about 18M USD from Vertex, Majuven, Yahoo Japan etc and now apparently $32.5M USD Series C from MNC group and K2 global vc with follow on from existing investors. I say apparently because the newest round have not been lodged as far as I can see.

The most recent rounds valued Paktor at about 33.6M USD. So this latest run in Nov is really a large and quick round considering they raised and settled last round only in Jul 2016. Valuation (if indeed it is a full cash Series C round) should be anything from 60-100M USD premoney.

This is a pretty large investment for MNC and K2 Global.  The latter is a newish fund that came out last 2 years saying they aim to raise 100M to invest in pan Asian plays. So even if K2 took 10M of the 32M, it is a bold first investment. For MNC group, they are large media player in Indonesia with holding company having a market cap of around 660M USD. However, they have large bond/debt obligations which need to be refinanced which caused their Ottawa USD to be marked down a fair bit. I can't imagine MNC taking all the rest, so their existing investors must have ponied up more money. We will know when the filing is made.


Deal Rational/Market Sizing
======================
In the USA, Match.com group does around 900M USD and has profits in excess of 300+M. So the potential is huge if they are able to make it work the same way  in Asia.  Match was valuing themselves at around 4-6 times revenues. Closer to home, Jiayuan which was china's listed dating online/offline play, was taken private in 2015 at 233M USD market cap which was just 2+ times revenues of 110M USD.

So if we account for per capita differences and of course higher mobile adoption, it looks like there is an opportunity here on paper. However, experience tells me things always take longer. China and USA are ahead of us in this area and I suspect total dating revenues in ASEAN will be lucky to approach 50M USD next 5 years. But of course, readers know I am conservative. The VCs obviously think Paktor will be closer to Match rather than Jiayuan. I don't know why though.

BTW, closer to home Lunch Actually has much larger revenues at least back in 2015 but has taken many years just to get here. This is another reason why I think the market will take time.

How about this whole social entertainment thing? Its rather vague so I am not sure that it means. I guess we will know as they execute. But there is a company called Migme which I analysed before which tries to monetize social networks differently. Still very much a work in progress and is facing a big cash crunch next few months.

In a nutshell, Paktor will need to find some scalable new  product within this dating and social space that is radically different from jiayuan or lunch actually in order to grow well to justify this kind of round and deliver for their investors.

Summary
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Overll, my assessment is that this round is very much a selling the future type of story similar to Caurosell. It is is a lot of funding  for a proven S$1M revenue. They need not just superb business execution as they expand regionally and improve/create products, they also need market wind behind them for adoption via subscriptions or advertisements to grow fast enough to justify their spend and valuations. It will be interesting to see what happens next. My gut is market wind is not that strong next 5 years but this is a viable good market but it may be a long haul game. Good luck to Joseph and team!

One a final note, if more such deals happen and set the benchmark, we are going to see larger deals with even less fundamentals moving forward! Is this good or bad? Well, I see it as part and parcel of the ecosystem evolution. Some founders/investors who get the timing off will lose big and those who read it right will gain big as the markets run up and down, but so long as usage grows, revenues grow, the overall ecosystem will continue to do well. Just be clear what is niche and what is broad market and make sure you have enough cash in the bank to do the battle!







4 comments:

  1. Dershing - could you do a post on redmart's acquisition please (:

    ReplyDelete
  2. Thanks Der Shing for sharing the insights. It's interesting to see dating apps valuation. I'm a user of Paktor before. Didn't find it appealing and has removed it. The space of dating is evolving fast and Innovation has to take place in order to thrive this scene.

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  3. An amazing article. It’s nice to read a quality blog post. I think you made some good points in this post.

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    ReplyDelete