AdWallet is raising a SAFE round with a valuation cap of $15 million and a discount rate of 10%. According to its Form C, its most recent annual revenue is $432,911. This yields a revenue multiple of 35 times, which is on the higher side even for a software company. Factoring in its potential future growth, AdWallet scores an average rating for price. 

AdWallet operates in a highly competitive digital advertising market. Overall ad spending in the US is more than $120 billion. Digital advertising agencies carve out just $17.2 billion with a 4.4% annual growth rate. 

Third-party “click farms” and soft advertisement platforms such as survey companies are also consuming a portion of market share. Third-party click farms have a very similar business model where users get money from clicking a certain number of ads. 

The market also has established data-driven, pay-per-click performance marketing agencies such as KlientBoost, Disruptive Advertising, and JumpFly. Due to the stagnant market growth, average addressable market size, and established competitors, AdWallet is rated slightly below average in the market category.   

AdWallet CEO Adam Greenwood founded the company in May 2017. He has more than 20 years of experience in the advertising industry. Prior to founding AdWallet, Greenwood acted as executive creative director at Esparza, a digital advertising company, for 11 years. Greenwood also served as former president of the American Advertising Federation and received more than 100 advertising industry awards. 

The key team members of AdWallet are diverse and have complementary skills. However, only one c-suite executive has extensive advertising experience prior to joining AdWallet. Chief Revenue Officer Toby McKenna helped create and scale digital ad platforms for The New York Times, Priceline, American Express, Yahoo, and Bazaarvoice. AdWallet has a total of 14 employees, the majority being in sales and software development. 

Therefore, AdWallet scored the highest on the team category rating with its founder rating well above average.       

Even though click farms and AdWallet have similar business models, the data generated from click farms offers little to no value to advertisers. AdWallet’s differentiator is that it can use the data, tailor ads according to its members’ preferences, and produce predictive models. This is also AdWallet’s sustainable advantage.

AdWallet’s true competitors are digital marketing agencies who are also leveraging user data. AdWallet appears to be less defensible and differentiated in comparison. Many competitors in the industry have superior databases, while AdWallet’s suffers from sheer lack of users and brands. For instance, KlientBoost has generated a positive ROI for more than 617 brands across different industries. AdWallet’s small user database will hurt its ability to create a robust algorithm. Due to its lack of defensibility and product differentiation against competition, AdWallet scores well below average in the differentiators category. 

AdWallet has impressive prior funding rounds with more than $5 million raised so far. Some of the early-stage investors are Kickstart Fund and ABQid Catalyst Fund. AdWallet has reported a gross revenue of $432,911 on its SEC filing. Its 2020 net revenue is reported to be $165,000, according to the discussion section on its raise page. It’s notably somewhat misleading for investors that the revenue growth projection is based on its gross revenue and not net revenue. The threefold revenue growth since 2019 is also calculated based on gross revenue. 

AdWallet has a relatively low monthly burn rate and mature product development. Therefore, in the performance category, AdWallet scores an above average rating.  

The biggest team risk for AdWallet is the lack of industry expertise among its c-suite executives other than the founder. AdWallet has a slightly above average funding risk due to the fact that it will need to burn more cash to onboard members. Considering the company has raised $5 million in the past, AdWallet does not have an impressive capital efficiency. With a $15 million valuation cap, AdWallet’s investment term yields a potential 35 times revenue multiple, which is on the higher side. This results in a slightly above average investment term risk and financial risk rating. For those reasons, AdWallet has an above average risk rating overall. 

Perhaps the biggest question for AdWallet is what the ultimate ROI would be for brands. Digital marketing is a brutally competitive market. It’s also not sustainable to burn large amounts of cash to acquire users, even though this may be necessary at the company’s current stage. With the competition from click farm companies, AdWallet needs to have a well-built algorithm to utilize its data. At its current burn rate, it may take a long time for AdWallet to earn a profit.

It’s comforting for investors to know that AdWallet founder and CEO Adam Greenwood has extensive advertising expertise. He also showed his ability to fundraise prior to the current crowdfunding campaign. With the proceeds that AdWallet raises for the current round, it is likely that it will double its member base. Greenwood did an excellent job keeping the customer acquisition cost below $2 per member. At its current revenue growth rate, AdWallet is projected to reach $100 million gross revenue in 2024.

AdWallet is incentivizing users to view ads in exchange for compensation. The platform may serve not only as a lead data generator for brands but also a data aggregator for more effective ad targeting. The success of AdWallet depends heavily on its ability to scale at a fast pace. Its industry is full of companies vying to dominate the digital advertising market, potentially giving AdWallet more competition than it can handle. For these reasons, KingsCrowd has rated AdWallet as a Neutral deal.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.

Analysis written by Zee Zhong.