Backing Pre-Revenue Companies: Why Previous Funding Matters

CHART OF THE WEEK 📈

By Léa Bouhelier-Gautreau | Read

Investing in pre-revenue companies can be risky, but it is often the only way to enter at a reasonable valuation when a product requires long-term development, like a new drug or complex hardware. Innovation requires risk, but investors can minimize exposure by focusing on specific data points.

One key factor is the amount of money a company has raised before its current round. A significant amount of pre-round funding signals that other investors believe in the company’s potential, making it worth deeper consideration. Raising substantial capital in prior rounds also reduces risk by demonstrating that the company can attract the resources needed for its growth.

We analyzed five pre-revenue companies currently raising capital through Reg CF and Reg A+, focusing on those with the highest previous funding.

• Future Cardia leads the list. This MedTech startup, developing a heart failure cardiac monitor, has already conducted human trials—an unusual milestone for a company raising through equity crowdfunding (ECF). Its success in securing funding reflects the unique investment opportunity at this stage.

• Pirouette Medical, another innovative pre-revenue medtech company with strong growth potential, has already attracted backing from prestigious institutional investors, including Y Combinator, Liquid 2 Ventures, and Safar Partners.

• Spectrum Spine, specializing in proprietary surface treatment for implant devices, has secured over $9.7 million in funding and holds over 85 issued patents.

• Starfighters focuses on aerospace and defense, offering hypersonic testing and small satellite launch services. Aerospace companies typically require significant capital before generating revenue, making early investments critical to their development.

• Ryca International is innovating in the consumer goods space with its advanced toothbrush technology. The company has advanced its product development through multiple crowdfunding platforms and is targeting a product launch by early 2026.

While pre-revenue investments carry inherent risks, these companies demonstrate the potential to deliver substantial value backed by significant prior capital raises and innovative products.

INVESTMENT ROUNDTABLE

By Sam Fiske / Watch

The Roundtable crew analyzes data on venture capital vs. crowdfunding trends, assessing Boxabl's $3.4 billion valuation, whether it’s justified and understanding why it has two active raises. The team also reviews AptDeco's current offering, a rising platform transforming the secondhand furniture market with $6.5M in revenue and top-tier partnerships.

EXCLUSIVE WEBINAR

PITCH REVIEW 💸

By Léa Bouhelier-Gautreau \ Deal Report

Brief: StorEn Technologies specializes in renewable energy storage with its patented all-vanadium flow battery technology, offering a cost-effective and long-lasting solution. Targeting residential users and utility companies, the company’s batteries promise more charge-discharge cycles than traditional lithium-ion options, while being 100% recyclable. This makes them a safer, more sustainable alternative for long-term energy storage, with shipments expected to begin in 2024.

Key People: CEO John Davis brings over 28 years of executive experience, particularly in sales and business development for flow batteries and fuel cells. Founder and CTO Angelo D'Anzi, with expertise in energy storage and four international patents, drives the company's technical innovation. CFO Davide Biggi, with 15 years in financial management and capital raising, ensures the company’s financial growth. VP of Marketing Jessica Ann, responsible for building the brand since 2017, focuses on increasing visibility and customer acquisition.

Summary

Here's what we like: StorEn Technologies is well-positioned in the renewable energy storage market. The company’s focus on vanadium flow battery technology, which offers longer lifespans and higher cycle life compared to lithium-ion batteries, gives it a competitive edge. StorEn also holds four international patents, enhancing its market defensibility and credibility. Additionally, it aims to be the first to market with a residential vanadium flow battery, positioning itself to capture early market share in this growing segment.

The company has raised over $10.9 million from more than 8,000 investors, reflecting strong confidence in its vision and potential. StorEn is currently building systems for its Investor Purchase Program and expects to deliver trial systems to the telecom industry in 2024. These partnerships and achievements provide a solid foundation for future growth and expansion in the energy storage space.

StorEn's plans to expand into both residential and utility markets enable it to address a broad customer base. The rising need for grid stability and renewable energy integration will likely drive demand for efficient energy storage solutions. StorEn’s innovative approach, particularly its focus on residential vanadium flow batteries, sets it apart from competitors and positions it for future success.

Here's what we don't: The company faces challenges, such as overvaluation and raising funds at a down round, which could hinder its growth. Additionally, competition from established players like Tesla, whose lithium storage solutions are widely adopted, poses a significant threat.

StorEn’s financial health is also concerning, with just $34.7k in annual revenue compared to a monthly burn rate of $110k. This imbalance between revenue and operational costs highlights difficulties in achieving profitability, casting doubt on the company’s ability to sustain long-term growth.

Further growth inhibitors include technological and regulatory hurdles, such as high vanadium extraction costs and potential regulatory changes, which could affect product adoption. Combined with the company's high valuation, these factors may deter investors who are seeking more balanced risk-reward opportunities, especially in a competitive market where significant marketing and sales efforts are needed to expand the customer base.

LAST WEEK’S POLL RESULTS

Would you invest in Rally?

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27 Votes

🎙️ INSIDE STARTUP INVESTING

By Sam Fiske \ Listen

In this episode of Inside Startup Investing, host Chris Lustrino speaks with Doron Kempel, founder and CEO of Our Bond, a company revolutionizing personal security. Our Bond provides a mobile security service that protects individuals rather than just physical spaces, offering real-time assistance and intervention in unsafe situations. Kempel shares his journey from founding companies sold to major corporations to creating Our Bond, driven by the mission to democratize personal security globally.

STAFF PICKS 🌶️

Citizens Coffee

Citizens Coffee is a leading breakfast and coffee brand with profitable locations across the US, including in New York and Texas. The company has generated $27 million in lifetime sales and is on track for a 2024 sales run rate of $7.2 million, outpacing Starbucks in growth.

• Pre-Money Valuation: $25.9 million

• Minimum Investment: $251

Heartstone Farm

Heartstone Farm connects consumers directly with over 50 local farmers in the Northeast U.S., bypassing traditional supermarkets and large processors. The company offers high-quality, antibiotic- and hormone-free chicken, beef, turkey, and pork to customers in 15 states, with 50% of its sales coming from recurring subscriptions. Serving more than 17,000 customers, Heartstone Farm reported 130% year-over-year growth in early 2024 and an annual recurring revenue of $1.25 million.

• Valuation Cap: $15 million

• Minimum Investment: $300

Zirconia

Zirconia creates clean and sustainable ceramic coatings designed to strengthen, repair, and preserve concrete and steel infrastructure for green projects. The company's non-ceramic coating technology addresses porosity and instability in infrastructure, contributing to more durable and long-lasting structures. Since its inception in May 2017, Zirconia has generated $800,000 in revenue and has established a strong demand pipeline and strategic partnerships.

• Valuation Cap: $25 million

• Minimum Investment: $1,000

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