Ad Fontes Media (VC) – Yea or Nay

So for those who have been following us, this is a spin on our Yea or Nay series. We’ll also be evaluating venture capital investment opportunities sourced from various platforms (eg. Wefunder, Microventures etc.). In this article, we’ll be taking a closer look at Ad Fontes Media, a news rating startup based in the greater Denver metropolitan area. FYI, I also recommend listing to this song while going through this because there’s some next level mental Olympics on the startup’s part…

Want to be updated every time a Yea or Nay article is released and invest alongside with us? Subscribe to our mailing list! (We promise to never send you spam)

Overview

“We currently create our news content ratings with a small team of human analysts who have political views from across the spectrum. They are trained to look at the content of the news and score it according to our methodology. We provide the news source ratings themselves as a reference product for consumers and educators—mainly a Media Bias Chart. We also offer a software platform for educators to teach students how to rate the news themselves.”

About page of Ad Fontes Media

Financials

Financials provided by startup were unaudited so this is a cleaned up version.

At a glance, what the startup thinks they’ll be at seems way too high. I attended an investor call today (10/9/2020) and the CEO was all over the place in terms of where the startup is going to be and at the lowest end she said that the startup was planning to fundraise at $3mm. The spreadsheet above shows the breakeven pre-money valuation where the startup would have to raise above at in order for the valuation cap to apply, otherwise the discount would apply. Even if the next round was at the low end of $3mm, this would be at ~200x EV / PF Revenue. No one in the right mind would invest with that multiple!

Pros

  • Planning to add podcast/radio news ratings
  • Industry and public demand to recognize fake and questionable news and bias in mainstream news reporting

Cons

  • CEO works part-time with another full-time day job and has revealed that she will also be taking on a business development role to drum up sales
  • CEO has revealed in call that as of 10/9/2020 after further questioning that there is no future pipeline for fundraising (probably because the valuation cap is ridiculous!!)
    • Valuation cap at their current sales level is way too high

Miscellaneous

I thought it was deceitful that their financials were provided as following GAAP convention but they included line items such as donations and crowdfunding as part of revenues. It was a mess and thus I didn’t want to link to the actual financials since I had to clean that up, shown above. Additionally, the CEO during the call suddenly started showing financials of a competitor which I thought was irrelevant. She was trying to spin it as “this is where we could reach in a few years” but I was concerned more about their near-term plan and historical performance.

Verdict

NAY – this is a clear pass for us. There are already established competitors in the field and while the product is unique as it combines AI heuristics and human verification which other competitors don’t do, a product alone does not make up a business. As Mike Patey best puts it, time to get “back to work!”

Leave a Reply

Your email address will not be published. Required fields are marked *