September 7, 2021 BACK
See the big ParentSquare update below!
Featured in this issue:
Welcome to the September 2021 issue of the Pasadena Angels newsletter. August was our “off” month, and this month we’re highlighting three companies that will present at the September 8th meeting.
Below that you'll find an in-depth look at:
ParentSquare Update - New investors and a cash out opportunity
LÜK Network - Streamlining modeling during the pandemic
Brandon Cavalier - Payment processing for used cars
Nancy Dandridge - PA member and multidimensional person
Startups Presenting Wed, Sept 8
COMPANY: OYA https://wearoya.com/
Presenter: Mitchella Gilbert & Patrick Ayers; Deal lead: Larry Uhl
OYA Femtech Apparel is building a multi-billion-dollar global category with high-tech apparel design and OB/GYN backed insights. OYA’s signature legging with a removable pad is the first OB/GYN-approved legging (provisional patent and trademark filed). OYA’s D2C launch generated a 12X return on CAC and we have 3K social media followers. OYA manufactures in Los Angeles, CA.
COMPANY: HearHere https://hearhere.com/
Presenter: Woody Sears; Deal lead: Kevin Herzberg
For the curious road-tripper, HearHere is a location-based audio platform that shares stories about the people, places, and history of the land they are traveling through. A hands-free experience that delights, informs and entertains by fostering a deeper connection.
COMPANY: Park Place https://www.getocra.com/
Presenter: Ethan Glass; Deal lead: David Mandel
ParkPlace built a platform to solve problems that parking operators experience today, such as dynamically managing inventory and rates across multiple channels. The lack of data standardization combined with immense fragmentation in the industry causes parking facilities to lose thousands of dollars in revenue annually while struggling to manage their sales channels.
Pasadena Angels Portfolio News
Private and Secure Facebook for schools with specialized parent communications tools.
Congratulations to ParentSquare and to the Pasadena Angel Investors for an 11.5x return from an initial investment in 2016.
Investors: Stender Sweeney, Dave de Csepel, Pat Holmes, Stanley Liu, Ken Merchant, Janice Orlando, Mark Son and Luke Wang.
Serent Capital out of San Francisco has made a substantial investment into ParentSquare which has given investors the option to sell 33%-100% of their shares.
Most, if not all investors, have opted to sell the minimum of 33% of their shares and let the growth continue with this new capital infusion.
Company Profile - LÜK Network: Every Agency, One Location
For some companies (e.g., ParentSquare, MagicLinks), the COVID pandemic wasn’t exactly a good break, but at least it had a solid silver lining. Not so with LÜK Network. CEO Zack Parker’s exact quote was:
“When your revenue drops to zero, you have to figure some (stuff) out pretty quickly.”
(He didn’t say “stuff” exactly.)
LÜK is in the modeling business. They connect talent agencies to the brands that buy their models’ time and images. COVID has shut down modeling completely three times so far. Zack knew it would be very bad right from the beginning, so he acted quickly. On March 18th of 2020, he furloughed ⅔ of his staff. Calling each of those 16 people individually on that day was gut-wrenching for him and devastating for them. “Is this really necessary?” and “Why me?” were hard questions to answer. Zack faced each one of them one-on-one, offered them severance, extended their benefits for several months, and marketed them to his contacts to try to help them find work.
Those layoffs were only seven months after closing a $2.2 Million seed round, so Zack actually had some runway. But, he knew that funds would be limited and that it would be better to be decisive and conservative, a conclusion reinforced by the 100% drop in revenue.
LÜK took stock in March of 2020. The team assessed the market and came to two bold conclusions. First, modeling would be back, and it would be bigger than ever, because brands will still be marketing, and they’ll be doing it online, and that requires picture and video content in ever-increasing volume. Second, models and modeling agencies like getting paid. And, they don’t like waiting for their money. Brands are slow to pay for modeling, so there’s an opportunity to facilitate the invoice payment, i.e., factor the payments process.
The COVID-19 pandemic has caused a lot of surprises. Who expected that Toyota would be cutting production in Japan by 40% in September of 2021 for want of microchips? Or that there would be a chicken shortage? So, making any sort of bet on the outcome of the pandemic seems bold. But, Zack and his team knew their industry and had faith. The question was: how to be ready when the industry comes back?
They analyzed their best customers and learned some things. Helping brands find talent is a fine thing, but LÜK’s real value added is simplifying the workflow required to book talent. The process is cumbersome and time consuming. So, LÜK decided to change their value proposition. Instead of “a talent discovery place” they would be a “producer workflow tool.”
Large customers would often book 15 models a week through LÜK. They’d put out an RFP and receive back proposals from agencies in the form of links to models’ pictures. The producers would choose models, which is the easy part, and then reach out to schedule casting meetings. They’d go back and forth with the agencies doing scheduling. And, then they’d be billed by 15 different talent agencies and have to make 15 separate payments.
LÜK solves those problems. Producers can use the LÜK Network to see all the talent available. They can drag and drop pictures into casting lists, and that shrinks 15 hours of tedium into 15 minutes of planning. Then, the producer receives one invoice from LÜK and makes one payment, while LÜK handles all the intermediating details.
From the agencies’ perspectives, they simply submit their invoice for LÜK to review and then get paid almost immediately instead of the usual 60-100+ days later. LÜK takes a percentage for the trouble. And, the businesses of talent search, workflow simplification and payment facilitation are all mutually reinforcing.
The results have been fantastic. Conversions increased from 52% to 93%, contribution margin more than doubled and revenue per job doubled. LÜK rehired six of the furloughed employees. LÜK recently turned down multiple term sheets for $30M in debt to finance working capital and instead raised that money internally from confident insiders. The pandemic isn’t over, and more shutdowns are by no means unimaginable, but LÜK is in a much better place than just 18 months ago. Sometimes crisis is a crucible from which steel is forged.
Founder Profile - Brandon Cavalier, CEO of Carpay
A lot of high school kids with drive and ambition will set their sights on a selective university, get good grades, run for student government and play a musical instrument. But, for those who just can’t abide by convention dictating what they should be doing, well, they have to find a different way.
At age 16, Brandon Cavalier was running a thriving eBay business selling Apple iPhone accessories and pulling in as much money as his high school teachers. On his 18th birthday, he was applying for his used car dealer’s license, having studied and planned for two years how to open his dealership. By age 19 he was neck deep in selling 250 used cars, ringing up $1,000,000 in revenue bit by clanky bit. By age 20, he was starting a software company. That is not a conventional path. Brandon is not a conventional guy.
I’m always amazed at how successful people don’t end up where they were headed. At age 18, Brandon was starting a car dealership. It didn’t go badly. Nevertheless, within two years he was starting a successful software company, and within a few more years, he would raise over $10M in funding, hire over 30 employees and service half a billion dollars of receivables on behalf of car dealers around the country.
A wise man knows himself, and after 18 months selling used cars, Brandon knew that didn’t want to be a used car dealer. But, in wrapping up and winding down the business, he realized that there was no easy way to set up a payment system for his borrowers to continue paying their loans. He still had 40 loans. How were these borrowers going to pay him if he left town? There was no software solution. He looked.
And, he realized that there were a lot of car dealers in the same boat - 35,000 of them - who held something like $100 Billion in debt. And, there’s no solution for their borrowers to make payments online, see their balance, get a payoff, etc. Even the Dealer Management Systems used by independent car dealers didn’t provide that functionality.
Recognizing the opportunity, he found a software engineer who would eventually become his co-founder. A few months later they were signing up dozens of dealers at a small back table at the National Independent Automobile Dealer Association convention. And that was without functional software, thereby demonstrating an overlap in the skillsets of “startup CEO” and “used car dealer.”
Car dealers are an interesting breed - BHPH dealers, to be specific. Buy Here, Pay Here is the term used for small, mom-and-pop dealers who often self-finance the cars that they sell. They are not motivated by the “cause” (of providing transportation). No, it’s a business. But, they also usually share the name with the sign above the lot. Their livelihoods and their reputations are tied up in a bundle. They have gotten this far on the success of a lot of gut-instinct decisions. Brandon understands them because he was one.
And, that understanding led him to a keen insight into their bigger problem. BHPH dealers have a working capital issue. Selling cars makes them money, but financing the cars requires money. Brandon realized that if he was processing the payments for lots of dealers, then he has much better information on the quality of a dealer’s receivables than any bank. With that information, he can do a better job of providing credit to BHPH dealers, using their receivables as collateral.
Brandon couldn’t wait to get out of Pensacola, and he somehow knew that California was the destination. Initially, it seemed like Silicon Valley was the logical place, but a good meeting with the Pasadena Angels led to a good meeting with Amplify, and not long after, Brandon was looking for space in Los Angeles.
He’s been settled in for a few years now, and he’s excited about the potential that Carpay has. He figures that the software business for BHPH dealers is a $300-$400 Million market, and he’s got a new strategic partner to connect Carpay with borrowers. But, he also figures that the interest on all those BHPH loans is a $28 Billion market. At the moment of our meeting, Carpay was a few weeks away from closing on a $500 Million credit line from a Wall St. bank to help dealers fund their BHPH sales. His challenges have increased in scale by a few orders of magnitude over the years, but his drive, ambition and disregard for convention haven’t changed.
Member Profile - Nancy Dandridge: Overlapping Circles of Excellence
What Nancy Dandridge likes about being part of the Pasadena Angels is the power of having 100 experts in different fields all able to focus their expertise on an opportunity, ask insightful questions and educate everyone else in the process. So, I asked her, “What’s your area of expertise?”
Her answer to that question got me thinking that if there is a prototypical case study in how to build a career to really add value, she would be it. The formula is: Learn a skill, build it into a strength, leverage that to a new adjacent area, where you build a new skill and repeat the process until you have depth in multiple overlapping areas. Where that Venn diagram converges, your combination will be nearly unique and highly valuable.
Her resume says that Nancy’s career started at a public accounting firm where she earned her CPA. However, that ignores a critical catalyst to her working life: the field trip to the pretzel factory when she was nine years old. Unlike most kids, she wasn’t in love with the tantalizing fragrance of baking pretzels that wafted through the place. She loved the conveyor belts and all the people and machines that whirred around and converted all that activity into wonderful pretzels at the end of the line.
Accounting was her entrée into a manufacturing company where she became a controller. Hard work there enabled her to leverage into a logistics role, where she developed manufacturing expertise alongside her accounting expertise. On her own, she built skills in a new area: SQL and data analysis, which led to some special report-creating projects. That set of skills led her to SpaceX, where manufacturing, accounting, and database expertise landed her in a role developing an ERP system, where she built another field of expertise.
I should explain that a little. SpaceX had an ERP system, but Elon Musk didn’t like it. He challenged his team, which included Nancy, to build their own ERP system to replace SAP. Most CEOs, if they were to challenge a team of nine people to build an ERP system to replace SAP, could justifiably be committed to a facility with padded walls and jello on the menu. You could count on one hand the number of CEOs that could pull something like that off. Elon is undeniably one of them. So, the team started building a purchase order system.
After a few months… wait for it… Elon lost patience. “You’ve got 12 weeks to launch.” Nothing inspires like a deadline… let me tell you. The team kicked it into high gear. They worked seven days a week. They worked around the clock. When the big deadline came, they were ready. They deployed on time and felt like heroes, the little team of David that slayed the big Goliath SAP!
Later, Nancy would study information systems at Northwestern and learn that they did a lot of things right. Sadly, developing training and a carefully measured roll-out wasn’t included on that list. Nevertheless, the system worked, and the rollout pains were short-lived, and the project was a raging success. It was such a success that Tesla eventually adopted the ERP system and liked it enough to take credit for it. (If imitation is the sincerest form of flattery, what is plagiarism?)
After SpaceX, Nancy went and got a Master’s degree in Information Systems at Northwestern, formalizing and expanding on what she learned by doing in the trenches.
All that experience has made her Venn diagram sweet spot the overlap of ERP systems for manufacturing companies, with expertise in accounting, reporting and information systems. And that mix is perfect for her role with Inovativ. I should say, “roles.” She’s an investor, through the Pasadena Angels. She’s also a board member. And, to complete the trifecta, she’s an employee, having just wrapped up the implementation of their new ERP system.
Leadership matters. Nancy can attest to it at SpaceX, and she can recognize it at Inovativ. She loves the team there and the integrity of the leadership, the people and the products. Her experiences enabled her as a potential investor to recognize the value at Inovativ and the size of the hurdle that they faced. She also realized that she could help them clear that hurdle, and it seems to me that that’s a case study in how the Pasadena Angels can have an impact above and beyond what most investors can.
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Dave de Csepel
Chairman, Pasadena Angels