Booxby is raising on a convertible note at a $4 million valuation with a 20% discount. The product is targeted and scalable for a large industry, making this low valuation exceptional for a company in this position. Therefore, Booxby’s price rating is above average.

The publishing industry overall is a huge one. Americans remain huge consumers of books in all forms, purchasing more than 130 million units of adult fiction alone in 2019. In the midst of the COVID-19 pandemic, ebook and audiobook sales are exploding. Despite the economic impact of the pandemic, the publishing industry is still expected to remain at 85.9 billion in 2020, then grow at a 2% CAGR and make up most of its recent losses by 2023.

At the moment, Booxby is limiting its customer base to independent publishers, which may limit how quickly it can grow and how much of the market it can reach. In an industry that — while still massive — is shrinking in important metrics, this narrow target market presents challenges for the kind of aggressive growth Booxby hopes for. As a result, the company’s market score is its lowest.

Booxby CEO and founder Holly Payne is herself an independently published writer. Her third novel, Kingdom of Simplicity, won the highest award in independent publishing, the gold Benjamin Franklin Award. Payne received an MFA in Professional Writing from the University of Southern California and has formed her own publishing company, Skywriter Books. She brings a high level of industry knowledge to Booxby.

Josh Conviser, who serves as the company’s COO, works in Hollywood as a writer and producer. His books have been published by one of the “Big Five” in publishing, Random House. Les Chasen is the chief architect. He holds a B.S. of Information Systems from Central Connecticut State University and has decades of experience in systems engineering and software development. 

Overall, this is a team with a high level of industry experience (though not as much entrepreneurial experience as one might hope for), leading to a decent team rating.

Booxby has now spent six years building up its software by feeding it massive quantities of content to better “teach” its AI to recognize standout works. Beyond relying on publicly available media from Project Gutenberg, Booxby purchased a license from Ingram Content Group, which holds the industry’s largest active book inventory. This partnership also led to Ingram strategically investing in Booxby.

Booxby has also secured a patent for its content-recognition and marketing technology, which may pay dividends as publishers move to take advantage of advances in artificial intelligence. Despite the seeming strengths here, Booxby’s system has not actually been proven. There is still a risk that it will not perform as strongly as the company expects. Thus, Booxby’s differentiators score is above average, but not particularly strong.

While Booxby has yet to turn a profit, it has secured a strategic investment from the Ingram Content group and a non-equity STTR grant from the National Science Foundation. The company currently has two products in beta. It has also run pilots with Hachette Book Group, Simon & Schuster, and ICG. For all of that, the company has no clear proof of product. And no revenue as a result. Balancing the lack of sales with the impressive partnerships and pilots, Booxby’s performance score is — again– above average, but not particularly strong.

After six years, Booxby’s product is still in development — a concern for any responsible investor. As the business has yet to turn a profit and is suffering from cash concerns, it is vital for the software to be proven viable and for contracts with publishers to be secured. If neither of those things happen, Booxby’s prospects are not encouraging. And the company may face resistance from the very publishers it wants to work with. The traditional publishing process has proven remarkably resistant to change in a transforming market. The use of AI to market unproven authors may be a difficult leap for these old-school sales targets. If Booxby only works with indie publishers, growth may be slow, resulting in disappointing returns. As the company plans to ramp up spending following this raise to meet growth targets, it will need to show promising results in a relatively short amount of time.

Booxby’s proprietary machine learning is unlike any other on the market and is coming into its own at a time when traditional publishing is struggling to remain afloat. If the current, targeted version of the product proves to be reliable, Booxby should be able to secure contracts with publishers and scale to similar content. By expanding to other content forms — like audiobooks, podcasts, and video media — Booxby could tap into a total market in the billions of dollars. There is plenty of room in the market for a new player like Booxby to emerge and thrive. Depending on how successful the software is at unearthing unknown writers and promoting them, the business could see profits in the millions over the next several years.

Booxby is a marketing technology company that has developed machine learning software to analyse fiction. The software — which used Natural Language Processing to analyse thousands of texts from the Gutenberg Project and the Ingram Content Group — can determine the difference between works that are derivative and unlikely to perform well and works that are innovative and could lead to massive sales when properly marketed. The program then calculates the most suitable audiences for these texts and targets those audiences with fine-tuned strategies.

While Booxby has developed a software that is highly targeted for a massive market, a long development process and financial woes spell possible troubles for the business if it fails to start producing results and proof of concept. The team has relevant industry experience, however, and the concept is patent-protected while being unlike other market offerings for publishers. Therefore, Booxby has been rated a Neutral Deal.

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Analysis written by Benjamin Potts.