Answers to Frequently Asked Questions about our Friends & Family Investment Round
Friends and Family Investment FAQ
About the Product:
Q: What need will your product meet that isn’t being met now on a cost effective basis?
A: Our product will serve two business needs that are currently unmet in the market in any cost effective way. The first is the need for data about how physical spaces are being used. Business across a variety of verticals - healthcare, retail, commercial office space - need a way to better understand and measure how their physical spaces are being used. Having data about who and how a space is occupied allows a business to derive insights that help them better manage their costs and revenue.
The second need is to provide better end-user experiences to their customers and employees through custom location-based applications that can built on top of our platform. An analogy to these experiences would be the GPS-based apps and services that exist for the outdoors - Yelp, Waze, Google Maps etc. An obvious example would be a mobile app that provides turn-by-turn directions and inventory search to a customer within a mall or big-box retail store.
Q: In the mall example shown on the website, who would be the customer - the individual store or would the mall itself offer the service as an add on for their tenants?
A: In this example, the property management company that runs the mall would be the customer. Across Canada, most malls are run by a handful of property management firms that have marketing agreements in place with their tenants that require them to opt-in to marketing initiatives such as indoor location systems.
Q: Who will produce your hardware and at what cost per unit ? How do you estimate your hardware costs for installations?.
A: Currently, our hardware components are being produced in Canada and China, with final assembly happening in Canada. We have professional relationships with device manufacturers in Taiwan and China and expect to move manufacturing offshore within 18 months. Current low volume cost per unit is approximately $650 CAD, but we expect to be able to reduce this significantly with higher volumes and offshore manufacturing.
The density of deployment - how many units are required to cover a particular space - is dependent on the complexity of the space being mapped. In open spaces, each unit covers 8000 sq-ft, with a minimum of 3 units required. Our business model is based on a monthly recurring service fee which includes a lease portion to cover our hardware costs. In typical deployments we recover the cost of our hardware investment in 1-3 months, depending on the density.
Q: Who has agreed to (or has already) test(ed) the product? If tested what were the results of that test from their perspective? What’s the next step?
A: We have completed an initial paid pilot with Steelcase Inc (USA) to demonstrate the accuracy of our mapping and positioning technologies and our ability to deliver basic spatial analytics. The results of this pilot were delivered as a report which was positively received. The next step is a paid deployment into their large head office in Michigan, but doing so requires us to hit the product milestones outlined as one of the projects to be funded by this round of investment. Furthermore, we have agreement from Klick Health and IBM Canada to test the product in their respective headquarters once the defined product milestones are met.
About the Business:
Q: What are the business objectives over the next 1-2 years and the time table for various product development and financial milestones to be met?
A: Our primary business objective over the next 12 months is to achieve first revenue that will allow for an institutional investment to scale our team to drive global sales and deliver new product features. In the 6 months following the close of this round of investment, our product development roadmap is focused on 5 specific projects with the following goals:
- Steelcase M2: Delivers on an agreed upon feature set to enable a large scale paid deployment at Steelcase head office in Michigan. This unlocks initial revenue from this key strategic partner, as well as provides the basics of a minimum sellable product that could be used for other deployments in the commercial office space vertical.
- IBM Bluemix Integration: Delivers on an agreed upon technical integration with IBM’s development platform to enable a pilot deployment at IBM’s Canadian headquarters on behalf of one of their large corporate customers who is very interested in our technology. Moreover, this integration unlocks our a business development relationship with IBM, who is keen to leverage our technology as a sell-in tool for their Bluemix platform.
- Klick Health M1: Delivers on an agreed upon platform API to enable a pilot deployment at Klick’s head office in Toronto. This enables Klick’s development team to start work on a variety of custom location experiences for their customers. As these experiences are dependent on our location platform, this project unlocks a business development relationship with Klick, the second largest Healthcare agency in North America, to sell our platform to their customers.
- Improved Location Calculations: Enhances on our ability to more clearly express to potential customers and investors the performance advantages of our technology stack. This is a research project with a university research group with the goal of vastly improving our location and positioning performance over competitors in the space and providing a unique story to tell in the market regarding our location technology.
- Publicity Deployments: Enhances our public visibility and raises awareness of our technology. Delivering these deployments will help to unlock new commercial and investment discussions and provide valuable technical feedback about real world deployments.
Beyond the 6 months following this investment round, our focus will be on the following in priority order:
- Raising $1.7M CAD in institutional investment.
- Refining the feature set of the Commercial Office Space product (details available on request)
- Delivering on the minimal sellable feature set for Healthcare vertical (details available on request)
- Delivering on the minimal sellable feature set for Retail vertical (details available on request)
Q: Who are the competitors who are providing indoor mapping now and how or why will your product/service be better than the competition?
A: The competitive landscape in which we operate is populated by a handful of companies, but is fragmented across Indoor Mapping service providers, Indoor Location technology providers and BI/Analytics software providers. No one in the space provides an end-to-end solution that customers can use ‘out of the box’ - they all depend on 3rd party integrators to integrate disparate solutions into something that can deliver value to the business. Our product is better because it automates all of the hard work currently required to install an indoor location experience and allows a business to get value from their investment immediately. This ease and speed of deployment means we will scale far faster than anyone else.
Q: What are your target markets and geographies, and what type of building/facility will be your focus initially?
A: We are focusing on the Retail, Healthcare and Enterprise/Government markets, which represent the top 3 verticals in the indoor location market and 92% of the projected market size. For Retail, this means malls and big-box retailers. For Healthcare, the opportunity is in hospitals and clinics. In Enterprise/Government, we are primarily looking at office spaces, though museums and airports are a secondary interest. We have a queue of interested parties coming from US and Canada, as well as Europe.
Q: Where can I find a reference to the projected target market size and YOY growth?
Q: What is your current burn rate and how is it being spent?
A: At this time, our burn rate is at a historical low. All of our current full time employees are not drawing salary, and our only recurring payroll expense is $2700/month for coop students. Other recurring monthly expenses cover software licenses and bookkeeping.
Q: Can you provide a copy of your up to date financials?
A: Yes. Current financial statements are available on request.
About the Company:
Q: Who provided the original seed capital ($370K)
A: The original seed capital of $340k CAD was an investment made by Will Unicorn Foundation, a local non-profit organization that supports health and educational ventures. This friends and family round of investment will use the same SAFE terms as offered in the previous round. Additionally, $35k CAD was secured from OCE (Ontario Centres for Excellence) as a grant.
Q: Which VC has agreed to fund once you can confirm the second round of seed funding has been raised and necessary milestones have been met?
A: There are a number of institutional partners who have expressed interest or intention to fund or engage in paid commercial projects when we have achieved the necessary milestones, including Ignite Farm (VC) , Steelcase Inc., IBM Canada and Klick Health.
Q: Who are the company directors?
A: James Wu and Jason Gamblen are the current directors of the company. Additionally, Mike Serbinis, founder of Kobo and League is an active advisor. We are actively seeking to expand the board and welcome recommendations and introductions.
About the Investment:
Q: How is the additional seed capital to be used?
A: The proceeds of this round will be used to fund 5 separate projects with the goal of unlocking revenue and enabling larger institutional investment. Details of these projects and their expected impact is available on request.
Q: What plans do you have if you burn through this second round and haven’t achieved desired milestones to seek/receive VC funding?
A: While we will always do whatever it takes to execute on our plan to achieve our desired results, the best laid plans of mice and men often go awry. If this should be the case, we would step back to reassess our target milestones and their potential impact in the current business landscape, identify what effort is still required to hit them and determine whether additional funding or a continued ‘lean’ effort would complete them in the short term.
Q: What are the terms of this investment?
A: This opportunity is being offered using a Simple Agreement for Equity, also known as a SAFE. Some links to more info about this instrument are included below. In short, a SAFE is an agreement to get equity in a company at a future date. There are a variety of advantages to using this instrument at early stages in a company - it is simple to administer, it is very low cost to execute and, importantly, it avoids placing a premature valuation on a company.
There are two key parameters to the terms of a SAFE - the Valuation Cap and Discount. The valuation cap refers to an upper limit on the eventual valuation of the company at the time the SAFE converts to equity. It is a mechanism for protecting an investor from missing out on ‘rocket ship growth’ between their investment and the time it converts in a priced equity round. The discount refers to a price discount applied to the determined price of the shares at the equity round. This discount represent the advantage given to early SAFE investors over the equity round investors at the time of the priced equity round. A SAFE investor's investment converts to equity using either the Cap or Discount, depending on which is most favourable to the investor.
For this Friends and Family round of investment, the Valuation Cap is being set at $7.5M CAD and the Discount being offered is set at 20%.
Learn more about SAFEs:
Q: What is the current valuation of the company?
A: As mentioned above, one of the primary reasons to raise using the terms of a SAFE is to defer placing a valuation on an early stage company in the absence the information typically needed to do so. Once the company’s business trajectory is more clearly visible (typically at the priced equity round), a more accurate valuation can applied. So at this stage, we are not claiming any valuation on this company. The Valuation Cap set in the SAFE essentially says that, if the future valuation of the company at the priced equity round should vastly exceed the Cap, then SAFE investors will get to invest as though the valuation of the company at that time were equal to the Cap (assuming it is more beneficial to the investor than converting at the discount). But is it important to understand that the Cap does not represent a current valuation.
Q: I am interested in investing. How does this work and what is my long term involvement?
A: If you are interested in investing, there is some simple documentation that needs to be completed. These documents include the SAFE agreement itself which defines the Valuation Cap and Discount, and the Ontario Securities Commission’s (OSC) Risk Acknowledgement Form 45-108F2 which is required for any investment rounds of this type. After completing the documents, we will need a cheque made out to InnerSpace Technology Inc. for the amount of your investment.
Long term, as an investor in our company you will receive regular updates on our progress towards the our milestones and one any significant business developments. Once your SAFE converts to equity, you will be entitled to all shareholder privileges as defined in the Shareholder Agreement.