TukToro: When KPI juggling is exposed #DHDL

Most investors cannot emphasise enough how important key figures are for their investment decision.

Unfortunately, many start-ups simply don’t provide them, preferring to propagate storytelling until they drop in pitch training sessions. But smart founders can use this to their advantage: If you have your figures under control and a solid idea of what the most important key figures are for your own business and how they will develop, you will stand out positively.

But if you rely solely on this effect, or even use it to cover up weaknesses or justify an abstruse valuation, knowledgeable investors will recognise this and even judge it negatively.

This was also the experience of the founders of TukToro in the latest episode of ‘Die Höhle der Löwen’.

Their start-up, which had developed a maths learning toy for children, was actually very well received by the lions. However, its price of €79, production costs of €25 and, above all, the proposed valuation of a whopping €5 million did not arouse any enthusiasm among the lions.

Of course, the familiar valuation discussion soon began. The founders initially cited their sales pipeline, which was said to be worth an impressive 1.3 million euros. However, the lions Ralf Dümmel and Carsten Maschmeyer drilled this down until there was not much left. When questioned more closely, the founders had to admit that the €1.3 million in sales were not signed orders, but rather declarations of intent – legally non-binding letters of intent that did not have to materialise as actual sales, or perhaps not at all. The startup had only actually realised 56,000 euros so far, but the paraphrase ‘in the account’ again allowed for intentional or unintentional errors, which the audience did not find out whether they had been clarified.

However, Carsten Maschmeyer’s reaction was very vivid: he clearly pointed out that Ralf Dümmel’s enquiries were primarily based on the very high valuation, which he very much doubted due to the rather uncertain sales situation.

However, the founder countered more than confidently that he believes he can justify the valuation ‘in any case’ and argued that TukToro could be sold or licensed to learning institutes as a software-as-a-service model – he then found the multiple of around 4 on the – not yet certain turnover, mind you – completely justified by this other business model.

It is true that such business models can achieve higher valuations, because of course recurring revenue is a more attractive metric than one-off sales. However, if you are relying on this, you should have already implemented at least parts of the business model and be able to show that you can win customers with it.

But justifying a multiple on potential sales with a potential business model is clearly beyond self-confidence.

Carsten Maschmeyer promptly criticised this, because for him the business model of €79 one-off sales was still the measure.

But the founders weren’t finished yet: they are reportedly confident that they can increase the customer lifetime value from €79 to €250 with additional figures, e.g. through licences with superhero figures.

And indeed, such arguments with these key figures are very popular with investors, as they show that the founder has a plan for how to continue growing.

However, tripling the important CLV figure should not be presented as something that can be achieved ‘just like that’, as this will make any investor who is even halfway competent suspicious.

For Carsten Maschmeyer, the founders’ approach to the valuation argument was “completely weird and audacious”, but they still didn’t give up.

They challenged the lions, saying that they were exactly the founders who had the big vision that was so often sought after, and that they needed a lot of money to realise it. This was followed by flowery sentences such as ‘before we’re on the market, people are already running into us’, or, in relation to an upcoming study, ‘for the first time in the history of mankind, we can quantify education’. In both cases, at least the viewers – but also the lions, judging by their reaction – are completely deprived of any explanation.

Carsten Maschmeyer contradicted these seemingly abstruse claims with increasing vehemence, and the TV investors dropped out one after the other. Yet the founders were so sure of getting a deal – on a scale of 1 to 10, one of them gave 11, the other 12-13 in the pre-interview.

In addition to the KPIs, this is another example of dealing with numbers that even the best learning app cannot explain.

Afterwards, the lions understandably surmised that the founders were probably never really interested in a deal.

Whether this is the case will probably remain pure speculation. However, it cannot be ruled out that they will get through to other investors with exactly this type of ‘argumentation’ with a completely abstruse valuation – because many German investors in particular are always happy to show that they prefer to support precisely this type of founder. Unfortunately, some of them need some extra tuition themselves when it comes to company key figures.