Arrow AI by Custom Social

Early Stage

Our mission is to make digital advertising work for everyone

Analytics

Raised to Date: Raised: $165,970

Aggregate Commitments $

Platform

StartEngine

Start Date

06/25/2021

Close Date

12/22/2021

Min. Goal

$10,000

Max. Goal

$1,069,999

Min. Investment

$250

Security Type

Equity - Common

Funding Type

RegCF

Series

Seed

Pre-Money Valuation

$18,050,000

Rolling Commitments $

Status

Active

Reporting Date

09/22/2021

Days Remaining

91

% of Min. Goal

1,660%

% of Max. Goal

16%

Likelihood of Max
unlikely
Avg. Daily Raise

$1,865

Momentum
cold
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Location

Berkeley, California

Industry

Marketing & Advertising

Tech Sector

AdTech

Distribution Model

B2B

Margin

High

Capital Intensity

Low

Business Type

Growth

Arrow AI by Custom Social, with a pre-money valuation of $18.1 million, is raising funds on StartEngine. The company helps small businesses target their social media ads using artificial intelligence. The patent-pending technology of the company uses interest-based targeting and creates a proprietary data set. Rolan Reichel and Pablo Munoz De Cote founded Arrow AI by Custom Social in January 2019. The current crowdfunding campaign has a minimum raise of $9,999.70 and a maximum raise of $1,069,999.25, and the funds will target technology investments, scalability, and AI development. Arrow AI by Custom Social became revenue positive in the first year and has generated $681,000 since its founding.

Summary Profit and Loss Statement

Most Recent Year Prior Year

Revenue

$395,453

$289,107

COGS

$224,301

$264,834

Tax

$0

$0

 

 

Net Income

$-347,941

$-495,641

Summary Balance Sheet

Most Recent Year Prior Year

Cash

$28,414

$52,356

Accounts Receivable

$33,198

$64,281

Total Assets

$61,612

$126,637

Short-Term Debt

$415,964

$55,098

Long-Term Debt

$499,040

$577,000

Total Liabilities

$915,004

$632,098

Financials as of: 06/25/2021
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Analyst Report

Synopsis

One of the most difficult parts of running a small business is building a steady stream of new customers. Whether a business is selling shoes online or selling tacos locally, revenue will stagnate unless more people learn about the brand. Social media advertising is the most obvious way to acquire new customers in today’s market. Roughly 55% of small businesses in the US advertise on social media, and two-thirds of those businesses run ads on Facebook. 

However, Facebook advertising isn’t automatically effective. Even though Facebook rakes in almost $85 billion in revenue from ads each year, most companies waste 20-50% of their social media spend. Entrepreneurs’ confidence in Facebook ads is low — 62% of them say that Facebook ads are ineffective. These issues are compounded by Apple’s recent iOS 14 privacy controls that allow users to restrict data tracking, making core Facebook ad strategies like retargeting impossible. 

Arrow AI by Custom Social hopes to save the day for small businesses at their wits’ end with Facebook ads. The company’s simple Google Chrome browser extension layers on top of brands’ Facebook ads manager, leveraging an extensive data set of user interests to recommend innovative audience targeting strategies. For just $9 a month (or $49/month for larger teams), small businesses can run ad campaigns at 80% accuracy. 

Arrow AI’s current StartEngine raise has been rated a Deal to Watch by the KingsCrowd investment team.

Price

Arrow AI is offering equity at a $18.1 million valuation. This valuation is too high for Arrow’s current level of revenue. At just $395,453 in revenue from 2020, an $18.1 million valuation represents more than a 45x revenue multiple, which is not justifiable. Advertising technology revenue multiples are typically closer to five-to-10x, so Arrow AI is significantly overpriced. That’s why its price rating is below average. 

Market

There are 31.7 million small businesses in the US, and almost all of them are good candidates for Facebook advertising. Facebook generated almost $11.9 billion in advertising revenue from businesses in the US and Canada in the first quarter of 2021 alone. Some analysts estimate that companies spend an average of between $200 and $800 on Facebook ads per month. At that budget, a $9 spend on Arrow AI per month (or even a $49 spend on the premium Arrow plan) is easily justified, if Arrow drives the optimizations it promises. 

Let’s break the opportunity down a little further. Assume Arrow reached just 1% of small businesses in the US (317,000 small businesses), and they each paid $9 per month for the Arrow browser extension (omitting higher revenue potential from the $49 premium plan, to be conservative). That would generate more than $34 million in annual revenue for Arrow. That figure is still just a drop in the bucket compared to total Facebook ad spend. 

In sum, Arrow AI is addressing a huge, lucrative market with tens of millions of eligible customers. As a result, the company’s market rating is one of its highest.

Team

Arrow AI was founded by Rolan Reichel and Pablo Munoz de Cote. Riechel, the company’s CEO, is an experienced entrepreneur. His marketing career began in the mid-2000s, when he served as a sales and marketing director for various companies and advertising agencies. He subsequently founded RLLCLL, a programmatic advertising technology company that was acquired by Aquarius AI (which trades on the Toronto Venture Stock Exchange) in roughly 2017.

Less is known about Munoz de Cote’s background. He is apparently a serial entrepreneur in e-commerce and biotechnology. He also runs a multinational pharmaceutical and housewares company out of Mexico City. He is only a director for Arrow AI, so he doesn’t seem to be committed full-time. 

Beyond the co-founding team, Arrow AI is led by CTO Bill Rose and Vice President of Product Justin Lockwood. Rose has more than 30 years of experience in engineering and has held the CTO role twice before at advertising technology companies. He is deeply experienced in this space. Lockwood is himself an entrepreneur, having founded both a startup and a digital design agency. He lends more than 15 years of design experience to the Arrow team. 

Altogether, the Arrow AI team has decades of combined experience in entrepreneurship, much of it specifically within the fields of advertising and advertising technology. The team is well balanced with business leaders, technology leaders, and product/design leaders. Therefore, Arrow AI’s team rating is one of its highest. 

Differentiators

Arrow AI’s pitch is centered around being the most efficient, most lightweight Facebook ad optimization tool on the market. Those claims are difficult to verify. Many other companies offer similar ad optimization solutions and also boast improved ad accuracy. Hubspot, for instance, offers an ad optimization feature alongside its much broader set of marketing tools. Smartly.io also touts the ability to create custom target audiences from data. There is no shortage of ad tech companies making similar claims. 

The Arrow AI Chrome browser extension does seem to be one of the simplest ways for business owners who are not advertising experts to quickly optimize their Facebook ad spend. Additionally, the pricing plan for Arrow’s extension is very competitive, offering small businesses a cheap and easy way to improve their Facebook ads. If the product is as effective as the company claims, it might also outperform competitors from a quality standpoint. However, Arrow AI’s simplicity could also be its downfall. At present, the product feels more like a feature than an entire company. Other, more established ad tech companies could introduce similar browser extension tools that integrate with their broader product suites. Arrow’s technology is patent-pending, so the company has limited defensibility at this time.

Overall, Arrow AI’s product does offer limited differentiation from the crowded space of advertising technology companies, but it lacks a substantial defensive moat. Therefore, the company’s differentiation rating is close to average. 

Performance

Arrow AI was founded in 2019 and has generated more than $681,000 in revenue over the last two years. Year-by-year revenue is less impressive. In 2019, Arrow brought in just over $289,000 in revenue, which grew  to $395,453 in 2020. These aren’t eye-popping revenue figures, but 37% year-over-year revenue growth is no small feat. It’s also impressive that Arrow has generated this amount of revenue from a relatively inexpensive product. At $9 per month, or $49 per month for a premium plan, Arrow has clearly brought in at least several hundred customers. Plus, the company has built a waitlist of 2,000 businesses. 

Arrow AI is also making plans to expand to other advertising methods. The company has secured access to Shopify and Pinterest to continue deepening data insights and serving business owners across additional platforms. 

Finally, Arrow AI has raised $900,000 in seed capital thus far, so the company’s fundraising capabilities are proven. With a seasoned and well-connected team of past entrepreneurs, raising additional capital to fund growth will likely be easier for Arrow than it would be for most companies. 

Arrow isn’t yet demonstrating explosive growth, but the company has brought a product to market, monetized it, and is growing steadily year-over-year. Each of those points is key for strong performance, so Arrow AI’s performance rating is quite high.

Risks

All in all, Arrow AI is a relatively low-risk investment. The company has already brought a product to market, has hundreds (perhaps up to thousands) of customers, and is generating decent revenue. Prospective investors should note some risk contained within Arrow’s financial statements. The company is carrying some $1 million in liabilities and was low on cash at the end of 2020. An investment in Arrow also bears smaller risks on investment terms (the company’s valuation is far higher than industry revenue multiples would recommend) and time (at this pace, it will take Arrow a long time to grow to the point that investors would reap a return). All in all, though, Arrow AI’s risk rating is relatively low.

Bearish Outlook

Arrow AI has built a solid product that is generating revenue from a decent amount of customers. However, there isn’t any proof yet that this business is worth $18 million, or that it will ever grow explosively to be a major startup success story. Arrow’s simple Chrome browser extension seems more like a feature than a startup at this point, which raises a defensibility risk (particularly in the highly competitive space of advertising technology). Plus, Arrow AI’s burn rate seems quite high for a very young software company. It’s not clear where almost $500,000 in general and administrative expenses are going, and this burn might be part of the reason why Arrow AI was low on cash at the end of 2020. It’s simply a bit too early to say for sure that Arrow AI has the staying power to flourish in this crowded industry.  

Bullish Outlook

Arrow AI has proven early product-market fit, which is no small feat in the highly competitive advertising technology industry. Hundreds or even thousands of customers are already paying for the Arrow AI browser extension, with thousands more on a waitlist. Arrow’s pitch of simplifying Facebook ad management for small business owners seems to be working. The company is buoyed by recent iOS changes that complicate retargeting and make customized, audience-based advertising much more attractive. 

In addition, the sheer size of the social media advertising market means that Arrow AI could carve out a tiny niche and still thrive. With more than $11 billion being spent on Facebook ads per quarter in the US and Canada, there is clearly no shortage of budget for acquiring new customers. If only a small percentage of small businesses are willing to pay a measly $9 per month to see if Arrow can help optimize their ads, Arrow will be generating revenue hand over fist. 

Beyond these attractive tailwinds, Arrow AI benefits from the strong fundamentals investors look for in any startup. The founding team is very experienced, with decades of expertise not just in founding companies, but in founding advertising technology companies specifically. Revenue has grown steadily year-over-year since Arrow was founded, thanks in part to the $900,000 in seed capital that Arrow has already secured. Overall, there are several positive signals that Arrow AI has what it takes to continue its steady growth and capture value for investors.

Executive Summary

Arrow AI is an advertising technology startup offering a simple Google Chrome browser extension that layers on top of Facebook’s ads manager and helps small businesses better target their ads. Arrow AI has a proprietary database with trillions of data points on Facebook users’ interests and behavior. It leverages this data to recommend custom targeted ad audiences for each individual small business, supposedly resulting in 80% ad accuracy. After just two years in the market, Arrow has already generated more than $681,000 in revenue, with the potential of additional scaling after integrating with Shopify and Pinterest. 

Despite this traction, prospective investors should note that Arrow AI’s $18.1 million valuation is overpriced relative to typical advertising technology revenue multiples. There’s also concern that Arrow AI isn’t defensible enough to survive the intense competition of the ad tech space. A browser extension to optimize ads is more of a feature than a company, and competitors might be able to offer the same level of convenience within their more robust ad optimization suites. Nonetheless, Arrow AI is led by a team of deeply experienced advertising technology executives, has already raised almost $1 million in capital, and has generated strong interest from thousands of users eager to optimize their ads. Therefore, Arrow AI has been rated a Deal to Watch. 

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

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