Deal Memo – QPay (June 2021)

NameQPay
AboutAutomated AI-powered financial literacy for students
HeadquarterSydney, Australia
Raise DescriptionSeries A Crowdfunding
Security TypeFully Paid Ordinary Shares
Current Round Size$1,500,000
Pre-Money Valuation $14,994,976
Revenue Multiple~8x*
Crowdfund PlatformBirchal
Existing InvestorsProto Investment Partners aka Sydney Angels
Angelcube
Startmate
Blackbird Ventures
Steve Baxter (Sharktank Australia)
Other angel investors. See offer document for more details.
Key CompetitorsTidyHQ
Campus Labs
Uni One
Related WebinarsSharktank Pitch in 2018 – $380k for 8.4% at $4.5M valuation

* Based on FY21 revenue forecast

The Startup Investigator Scorecard

Characteristics of Good Problems:18/ 3060.0%
Characteristics of Ideal Solution:22/ 3073.3%
Traction to Date:14/ 2070.0%
Business Model Defensibility:14/ 2070.0%
Chracteristics of Founding Team:23/ 3565.7%
Total Overall Score:91/ 13567.4%
Overall Scorecard
Peter Thiel 7 Questions (Product):23/ 3565.7%
Berkus Method (Risk):18/ 2572.0%
Supplementary Scorecard

TL;DR

QPay is a student engagement management SaaS provider based in Sydney, Australia. It markets itself as a ” Automated AI-powered financial literacy for students” but at its current state, it mainly creates products / services to support universities in managing student engagements i.e. student unions, clubs / societies and university merchants.

Unique Product

It managed to create a transaction / savings account product with Mastercard debit card for students and hence interact with students through the product. This is a relatively intuitive approach to penetrate into the millennial (age 18-25) banking market as the product was pitched as a replacement to traditional loyalty cards typically issued by student unions and clubs / societies for students to access membership benefits. A debit card can solve the same problem (i.e. allowing students to access discounts and cashback deals with participating merchants) and more.

Growing Problem / Market Size

The administrative burden of managing a student union or club / societies in universities has been a problem since the very start. The process of managing student engagement has evolved over-time from very manual to less manual with the creation of the internet and cloud productivity tools. However, there has been a lack of an end-to-end solution and that’s where QPay comes in. The serviceable available market (SAM) for Australia and UK is ~$50M, and ~$10.6B at global scale.1 QPay is expected to achieve a revenue of ~$2M in FY21, hence there are significant more room for growth. The only possible downside to scale now is timing, where many universities in Australia is suffering from lower international admission and hence lower budget to operate. The industry is expected to contract by 6.9% in 2021.2

Is QPay solution 10x better than existing solution or competition?

It’s probably not, but its competitive edge lies in the ecosystem of products / services (i.e. coverage) it boasts in supporting student engagement services. It seems to have achieve product-market fit with presence in over 100 universities across the world and have signed enterprise agreement with 8 universities, which allows all services offered by QPay to be implemented across those campuses. The business model is clear with multiple revenue streams contributing a reported 12% gross margin. Its solution are also scalable as the marginal cost of acquiring additional customers does not proportionally increase cost.

Strong Traction to Date but Slowed Due to Covid Impact

QPay has managed to gather significant traction to date, with revenue growing ~2.3x every year since 20173. They aim is to scale aggressively in the next 18-24 months with the funds raised in this crowdfund. However, there was no clear timeline in terms of how QPay plans to expand and deliver on their plans in the next 18-24 months. The high level GTM strategy is to focus on the commonwealth countries of Australia, New Zealand, UK and Canada with the “Top-Down” approach of acquiring universities instead of individual clubs / societies.

Reasonable Business Defensibility as It Scales

QPay has a business model that can potentially build a strong moat as it scales. Once a university and / or club gets onboarded to the QPay platform, the direct financial cost of switching might be minimal but the logistical cost can be significant as existing club members have to be migrated to a new system. Club members would also have to reconfigure tooling i.e. download / use a new app or re-apply for a different loyalty card / debit card with another provider. These costs are more significant than the cost of ending the contract with QPay. There are two key favorable network effects as QPay scales.

  1. 2-sided Network Effect where more universities come onboard, more merchants would be willing to come onboard as well because of increased exposure.
  2. Data Network Effect where more universities come onboard, more user behavior data QPay can collect and study, and the better it can provide services to its universities through ML and AI.

Founding Team with Significant Support Network

The original founding team consists of three members. Two of the three previously worked together for 4-5 years building Imagine Team, one of the biggest app development agency in Canberra. However, one of the founding member has since “exit” the business? The team has a good mix of technical, financial and operation background which will be crucial for the next phase of growth. The team is supported by industry leading accelerator in Australia i.e. Startmate and Angelcube and prominents angels i.e. Sydney Angels. The team is also backed by Blackbird Venture and won funding through Sharktank Australia. Andrew Chick which is a prominent figure in the fintech space is also a non-executive director for QPay and he will be able to provide the connections and advice on strategic direction for QPay.

Summary

Overall, QPay looks like a solid business to invest in with quite a fair valuation. The pre-money valuation of $15M is only approximately 8 times revenue multiple (assuming QPay achieve its expected revenue of $2M in CY2021). It’s burn rate is relatively slow which means the current funding round should be able to allow it to implement its growth plan for the next 18-24 months before further funding is required. It is also already gross margin positive which means that as it scales, it will directly contribute to the bottom line assuming fixed cost remains relatively fixed.

1 Based on QPay’s offer document
2 https://www.ibisworld.com/au/industry/university-other-higher-education/600/
3 Except the Covid year

Thanks for reading. Feel free to let us know what you think about the company and crowdfunding campaign in the comment box below! 🙂

Zoom… Zoom. Happy Hunting!

The Startup Investigator

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