AtomBeam is raising a convertible note at a valuation cap of $10 million with a 20% discount rate. The valuation is a bit high for a company with a product whose efficacy has yet to be verified and has high levels of debt for its pre-revenue stage. However, the valuation is not stratospheric, and the discount rate does help investors as well. Taken all together, the price score for AtomBeam is above average.

AtomBeam’s target is in the IoT market, which is expected to expand to a massive size in the coming years. The global market was valued at $219 billion in 2019 and is forecast to reach $1.567 trillion by 2025. That’s rapid growth, if current forecasts can be relied upon.

However, AtomBeam’s software will account for only a small fraction of each data transaction or transfer. It is providing its software to businesses, which then provide those services to the consumer. The IoT market currently accounts for smart fridges, smart cars, and smartphones — though other devices will be added over time. AtomBeam’s only role is reducing the cost of data transmission for these smart devices. Therefore, AtomBeam’s obtainable market size will be significantly smaller. It is due to this limited market niche that the company’s market score is its lowest across all five metrics.

At AtomBeam’s head, CEO Charles Yoemans holds an MBA in Finance and Strategy from Stanford University. Yoemans is a longtime executive in insurance and employee benefits work, culminating in nearly five years as president and CEO of Portal Group Holdings, an employee benefits technology firm. Following an acquisition by Relation Insurance Services, Yoemans migrated to biotech with the presidency of Trigemina, a small company possessing two unique pain relief compounds (one of which was recently sold). Yoemans remains chairman of the company. While Yoemans’ leadership experience is adequate, it’s not clear that he has any relevant experience in data compression or security.

CTO Asghar Riahi brings the relevant expertise. Originator of the AtomBeam concept and developer of this IP, Riahi holds a Master’s Degree in Computer Science from TU Wien, known until recently as the Vienna University of Technology. Riahi has two-and-a-half decades of experience working in system architecture and cloud storage systems. One particularly significant period is the 13 years he worked for computer industry giant HP, integrating some of the first cloud solutions. On a more personal level, Riahi is a volunteer, serving for 12 with Boy Scouts of America and a volunteer member of LAMORINDA’s Community Emergency Response Team.

These team leaders are supplemented by a number of part-time employees, including CRO Kent Warren and Chief Scientist Josh Cooper, Ph.D. Warren is also a principal with K3 Clouds, following stints at @Risk and ManTech in senior leadership roles. He also spent 13 years with German software company SAP working with the U.S. Department of Defense. Cooper is a professor of mathematics at the University of South Carolina and has published more than 40 papers on discrete mathematics and, more relevantly, computer science.

Overall, this is a team that has respectable levels of relevant experience across its membership but has no notable exits in this space. However, the strength of the team outweighs the lack of entrepreneurial experience, thus yielding AtomBeam with a strong team score.

In the interest of protecting software that could be readily duplicated by industry experts, AtomBeam has taken the precautions of obtaining seven patents. These patents cover its basic concept, its autonomous codebook, the use of a concept called “count-sketch” to estimate probabilities, and other technical aspects. Three other patents are currently pending. It can’t be said that AtomBeam doesn’t have its bases covered in this area.

And have its bases covered AtomBeam must, because this kind of software would not be technologically difficult to duplicate. Barriers to entry for this kind of non user-facing software are low, enabling AtomBeam and any potential competitors to set up shop without large investments in intensive capital. The good news is production is basically free after design is complete, so profit margins are as high as can be, and the tech is easy and safe to integrate into devices.

It should be noted that while AtomBeam’s particular program is unique, data compression has been around almost as long as data has. A number of companies provide data compression services that offer similar benefits to various market sectors. Wandera, for example, is a U.K. company specializing in mobile phone data compression.

Balancing AtomBeam’s many patents against the ease of replicating the services its offering, the differentiators score for the company is middle of the road.

When it comes to performance, there are definite questions potential investors will want to consider. AtomBeam’s raise page makes much of the innovative capability of its software, but such praise has yet to be substantiated by validated testing results. It should be noted that demonstrations of the product have been favorable.

Of more significant concern is AtomBeam’s finances. The company has been burning funds in excess of what is expected for a pre-revenue startup. Short-term debt increased by $76,083 to almost $90,000 from 2018 to 2019, and long-term debt ballooned by $567,509 to reach around $830,600 over the same period. The company has seen no appreciable increase in assets. With such a high burn rate, AtomBeam will need to prove successful and do so quickly. The company’s middling performance score reflects the need for better financial health.

The fate of AtomBeam will largely rest on the performance of its first product, which is in the testing phase. Performance will need to be in line with or at least comparable to company estimates. Its various other benefits — traceability and ultralight security — will also need to be demonstrable.

These things must be true, because given the company’s extravagant expenses, it will have a limited runway to reach significant levels of revenue. AtomBeam must absolutely demonstrate that its product is safe, effective, and easy to use while also securing a sizable portion of its limited available market. However, these are major requirements to place on an early-stage company, and there is currently little evidence indicating that AtomBeam will be up to the task.

The internet has become a factor of daily life. Software that can reduce the cost of internet connection across multiple use cases, enhances security, and is easy to integrate into existing devices could be a massive boon to the market.

Thanks to AtomBeam’s extensive patent protection, it has a lot of leeway to worm its way into relations with established and emerging service providers, and there are a number of companies already testing its products. Depending on how successful the early product is, AtomBeam could see huge levels of interest in its program, enough to justify its early financial expenditures and drive significant revenue increases. As society grows ever more interconnected, the use cases for AtomBeam’s services could be quite large.

AtomBeam is providing a patent-protected software that shrinks and adds previously-nonexistent security to data files used across the massive Internet of Things. The company claims to use machine learning to reduce redundancy and increase storage capacities by up to 75%. The technology is unproven but has broad use cases for devices across various military, industrial, and commercial markets. 

Despite the promise of AtomBeam’s proprietary program, the technology has yet to be verified in efficacy, which means it could fail to significantly surpass existing data compression software in the space. Furthermore, significant early financial expenditures for a project requiring low capital investment cast some doubt on the company’s long-term viability, given its early stage. Therefore, AtomBeam is 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 Benjamin Potts.