Rocket­Tutor: How posi­tive can you talk about your startup? #DHDL

The pitch was praised right from the start, with Frank Thelen, one of the first lions, empha­sising the profes­sional level. But what exactly excited the lions so much? The viewer is not told, and the very confi­dent demeanour of the founders will certainly have played a large part in this. But what set this pitch apart from some of the others in the cave were the numbers, which were allowed to play a bigger role here. Espe­cially in the venture capital envi­ron­ment, pitching is not primarily about the idea or the beau­ti­fully built solu­tion, but about the ques­tion of where the startup stands and how well its busi­ness model works and will continue to develop.

Among other things, the founders show a graphic that is supposed to prove that students can improve their A-​level grades by learning with the app. But if you think about it more closely, you should actu­ally be a little perplexed. The graph shows the corre­la­tion between the learning progress made and the grades achieved. With 80% learning progress, an average grade of 1 was achieved. But what exactly does this prove? In prin­ciple, exactly what the founders claim: that grades can be improved by learning with the app. But the emphasis here is on CAN. Because what the graph only shows is that IF users achieve learning progress of around 80%, they then achieve an average grade of 1. However, it does not show how many users achieve which learning progress. In an extreme case, the users who have really made progress could there­fore be in the extreme minority.

There are also indi­ca­tions that the graph was not created on a very large data­base: because 1. the curve shows strong fluc­tu­a­tions (users with 15% learning progress achieve a better average grade than those with over 40% learning progress) and 2. – and this should gener­ally be surprising – the curve starts at grade 3-4, so users without measur­able learning progress achieve an average grade in the suffi­cient range. Here one would actu­ally expect a grade of 5-6.

Of course, there are various expla­na­tions for this. One less favourable one for the startup would be that the students who actu­ally need it the most don’t even use the app. Another, much more favourable one would be that the app already has a strong effect without any concrete learning progress being measur­able, for example through the expla­na­tions or because the task type is then also included in the Abitur and the solu­tion has been viewed at least once. This seems rather unlikely, and there may also be other expla­na­tions for the picture in the graphic.

But taken together, at least in the edited programme, the impres­sion is created that the lions are deeply impressed and do not ques­tion the graphic in any more detail.

Unfor­tu­nately, this is some­thing that can also often be observed outside the cave: founders who appear very self-​confident always manage to impress investors, even though the state­ments in their figures and graphics are not partic­u­larly strong.

Although they can still score points with the fact that in their first year, one in 10 Bavarian school leavers prepared for their maths A-​level exams with the help of their app, their current turnover of around €14,000 leaves the lions almost speech­less at the valu­a­tion of around €9.5 million.

This is because many investors still like to calcu­late the multiple, i.e. the number by which the turnover must be multi­plied in order to arrive at the valu­a­tion. The lions are there­fore not exactly thrilled with the multiple of the current offer of almost 700, Ralf Dümmel even comments that this is prob­ably the highest in the history of ‘Die Höhle der Löwen’. However, multi­ples in such early phases must of course always be put into perspec­tive, e.g. the €14,000 did not appear to be a complete annual turnover and no growth was included. Many other points relating to the busi­ness model – as Carsten Maschmeyer will mention later – also play a role here.

Partic­u­larly in the early phases, people also look at prelim­i­nary valu­a­tions. For example, the founders state that they still hold a 75% stake in the company and have raised 1.2 million euros in a ‘first major financing round’. It is not entirely clear whether there were any smaller financing rounds, but if these are disre­garded for the time being, the founders achieved a post-​money valu­a­tion of 4.8 million. With their current offer, they would there­fore almost double their valu­a­tion, and that only after around half a year, based on the approx­i­mate date of recording. But even an increase of 50% would still be a lot and would have to be well justi­fied.

Here, the founders state that they have increased their number of users 2.5-fold since then. But again, this is a very skil­fully applied figure, because here too the refer­ence value is missing. Because, to put it quite provoca­tively: if they had only had 10 users at first and then 25, they would also have achieved a factor of 2.5.

However, even if the chrono­log­ical sequence is not entirely clear, it should be assumed that the 10% of Bavarian school leavers had already been reached at this point, which Carsten Maschmeyer honours with ‘Super achieve­ment!’.

But how many users does that corre­spond to? A little internet research reveals 34,000 school leavers in Bavaria, which would mean 3400 users. Not too many for an app in its first year, espe­cially as it is free to use and only requires a subscrip­tion for certain premium func­tions. This costs €15 per month, and on average the prepa­ra­tion for the Abitur prob­ably takes around 4 months. The startup there­fore earns around €60 with each paying customer. Unfor­tu­nately, we do not know the marketing costs and, above all, the propor­tion of paying customers to total users.

A quick calcu­la­tion using the figures from the first year (3,400 users and €11,000 revenue, assuming the average is correctly trans­ported) results in average revenue of just over €3 per user. Unfor­tu­nately, we don’t know anything about marketing costs.

A quick calcu­la­tion with the figures from the first year (3,400 users and €11,000 turnover, if trans­ported correctly on average) results in average revenue of just over €3 per user. Unfor­tu­nately, we don’t know anything about marketing costs.

It is there­fore not clear whether the indi­vidual customer is prof­itable at all and to what extent the busi­ness is really scaling. The founders claim that the global demand would be huge, espe­cially if they were to expand into the younger age groups – an argu­ment that can certainly be under­stood. But whether the case is really that huge is not deter­mined by the size of the market. After all, if the marketing costs exceed the revenue per customer, e.g. because the propor­tion of paying customers is very low or use is not neces­sarily contin­uous over a large part of the school career, the indi­vidual customer cannot become prof­itable and there­fore neither can the entire company.

But perhaps the founders mean some­thing else here too, because their sentence about prof­itability can also be under­stood differ­ently than it initially appears. After all, they are not saying that their start-​up will be prof­itable, but that they no longer need to worry about prof­itability. This can also be the case if they achieve corre­sponding growth and there are always investors, espe­cially in the USA, who will pay immense valu­a­tions for a non-​profitable startup until it is perhaps sold for a lot of money at some point. Here, however, we are leaving the realm of commer­cial start-​up invest­ments and entering the world of spec­u­la­tive objects.

Perhaps Carsten Maschmeyer wanted to make precisely this bet, or perhaps his due dili­gence process revealed far more posi­tive figures than the viewers were told. After all, he seems to have gone through with the hard-​negotiated deal of €500,000 for 7% – i.e. a valu­a­tion of around €7.1 million.

And even if it would of course be desir­able for this app to help school­children with their maths: what it prob­ably can’t do is increase under­standing of numbers, data and their presen­ta­tion, which is some­thing that not only founders, but unfor­tu­nately also many investors in Germany, are in dire need of.