Cortex is raising via a Crowd SAFE at a $20 million valuation with a 15% discount. While this price is in line with other software startups raising capital online, it is still higher than most other early stage startups. Additionally, Cortex’s previous crowdfunding round in late 2020 had a valuation of $8.4 million. The company has increased its price even though its revenue decreased by 17% between 2019 and 2020. Its revenue-to-valuation multiple for this round is around 39.5x, which is rather high. Therefore, Cortex is slightly overvalued for this round, and its valuation cap inflation doesn’t reflect its recent revenue performance.

The global digital marketing software market was worth $49.43 billion in 2020. It’s growing quickly at an annual rate of 18.2%. With the current growth rate, the global marketing software market is expected to reach $182.21 billion in 2028. That market includes software solutions that optimize advertising on search engines and marketing email as well as through social media. Thus, Cortex’s actual target market is a niche of this robust sector.

Digital market is growing rapidly due to increased access to smartphones, internet, and social media platforms over the world. In 2021, 4.48 billion people actively use social media in the world. Social media is one of the most efficient ways to advertise due to the high engagement of users and the possibility for marketers to precisely target their audiences. This particular market niche is likely to see continued growth in the coming years. Therefore, Cortex is positioned in a large and rapidly expanding market.

Cortex co-founder and CEO Brennan White has ample experience in both entrepreneurship and marketing. He spent a decade as a co-founder and managing director of social media marketing company Pandemic Labs. He is also a board chairman for the International Advertising Association, and in May 2021 White began The Voice of Creativity podcast. Overall, White has been focused on starting and running efforts in marketing. 

Cortex co-founder and Chief Customer Officer Matt Peters holds a bachelor’s degree in English and creative writing from Emory University. Peters co-founded Pandemic Labs with White in 2007. The company was nominated for two years in the Inc. 5000, an independent guide listing the top private US companies on a yearly basis. Pandemic Labs closed in 2018 as the two co-founders launched Cortex. Before Pandemic Labs, Peters worked on three television and film projects. While he does not have wide-ranging experience, his time at Pandemic Labs should enable Peters to lead Cortex well. 

In addition to the founders, the Cortex team includes several software engineers, data scientists, and product designers. Thanks to the founders’ joint experience and their complementary team, Cortex’s team is strong.

Most social media marketing software focuses on helping marketers write efficient social media posts to convert users’ engagement into product consumption. Cortex employs a different strategy. It focuses on helping marketers produce images and videos that will boost engagement on social media. Cortex’s key differentiator is the timing of its insights. Brands and companies can use its product before publishing their advertising campaigns to predict consumer behavior. Its artificial intelligence (AI) technology helps to optimize both consumer engagement and marketing resources. This feature is a major differentiator from many other social media marketing software solutions currently available.  

Cortex has one major competitor, Pattern89. Similarly to Cortex, this AI-powered software predicts social media’s content performance and helps marketers create content that will spark engagement. Pattern89 has been recently acquired by Shutterstock. Cortex’s main differentiation from Pattern89 appears to be its focus on purely visual content. Additionally, since the acquisition, it is unclear whether Shutterstock will continue to grow Pattern89’s market share or just use Pattern89’s technology to improve its own product. 

Cortex’s strength is also validated by its inclusion as one of 10 startups accepted into the highly selective Techstars Boston’s accelerator class of 2020. This achievement shows its potential as a company and gives the founders access to a strong network. Although Cortex does not hold any patents on its solution, it has still built a product that stands out from the competition and offers strong benefits to users. 

Cortex was profitable in 2019, but its revenue decreased by more than 16% to $505,977 in 2020. It saw a net loss of more than $470,000, and its monthly burn rate increased to nearly $40,000 in 2020. In 2021, the company projects earning revenue of $300,000, a 50% decrease compared to 2019. While it is normal for startups to burn money as they scale, it is less usual to see their revenues decrease as much as Cortex’s has. The Cortex team has stated that revenue decreased because the company shifted priority from sales and into product development through the third quarter of 2021. The company intends to refocus on sales and marketing efforts moving forward.

Cortex’s revenue decrease is balanced by the reimbursement of most of the company debts. The company now holds just under $210,000 in debt. Additionally, Cortex has recently signed a partnership with Accenture, a Fortune Global 500 company specialized in information technologies. Through this partnership, Cortex hopes to acquire new customers in 2022. The company has already received business from familiar names such as Oreo, Toyota, and Ben & Jerry’s. In 2020, Cortex was also recognized by startup accelerator Techstars Boston. 

It is concerning to see revenue declining in such a young company. However, Cortex’s ability to reduce debt and improve overall financial stability helps to balance this concern. Additionally, there are other signs that the company is still growing in strength and recognition. Its impressive client roster and upcoming partnership also bode well for future success. As Cortex moves to focus on sales and marketing efforts, it looks well-positioned to see strong growth in the coming years.

Overall, an investment in Cortex comes with a limited risk profile. The main area of concern is the company’s financials. Cortex’s revenue decreased in the last two years, and its burn rate increased. In 2019, Cortex was profitable with revenue of $603,232. For 2021, the company is only expecting revenue of $300,000. In the same time, Cortex’s valuation increased from $8 million to $20 million. The increase in valuation doesn’t follow the company’s performance. There is a risk that investors may be buying overpriced shares. 

Cortex’s previous crowdfunding round was designated a Top Deal by the KingsCrowd investment team. The company’s rating was downgraded to a Deal to Watch in this round for several reasons. During its last round, Cortex was expecting $2 million in revenue in 2021. However, revenue decreased from 2019 to 2020, and the revised projection for 2021 revenue is now just $300,000. At the same time, the company’s valuation has more than doubled, going from $8.4 million to $20 million. Additionally, Cortex’s team decreased from 12 employees to seven. These changes appeared while the market has been relatively stable, if only slightly growing, in recent years. Cortex co-founder Brennan White claims that the company’s revenue decrease is a result of focus shifting from sales to product development. He also says that with development now complete, he expects the company to re-prioritize its sales and marketing efforts moving forward. 

Even with a performance lower than expected, Cortex successfully onboarded a few new customers, such as Ben & Jerry’s and Sony. Cortex also improved its product and is now capable of helping TikTok marketers. Additionally, the company recently started a partnership with Accenture to acquire new customers. These are positive signs for Cortex’s continued growth and keep it at a Deal to Watch rating.

Cortex’s revenue decreased in 2020 and 2021. If the team fails to scale, Cortex’s market share could be reduced, and the company may never re-achieve profitability. The company has also increased its valuation since its previous round, which seems unjustified given Cortex’s recent performance. Pattern89, recently acquired by Shutterstock, appears to be a strong competitor. Like Cortex, Pattern89 uses artificial intelligence to help users create social media content. Depending on how Shuttershock utilizes Pattern89, Cortex risks losing valuable clients. Cortex’s performance over the next few years could be make or break for the company.

Cortex’s team is impressive, and a strong founding team is often seen as one of the most important factors for success. The two co-founders previously founded a social media content company together that achieved independent recognition. While the founders do not have engineering skills, they have surrounded themselves with talented artificial intelligence engineers. Furthermore, Cortex was part of Techstar Boston’s 2020 accelerator batch, which shows others acknowledge the company’s value and potential.

Cortex’s customers include large companies such as L’Oréal, Marriott, and Oreo. Working with such recognizable names is a major accomplishment for a startup and could help the company attain new customers. Cortex is positioned in a growing market and only faces one direct competitor. It’s an early-mover in bringing artificial intelligence to marketing, and it has successfully created a differentiated and appealing product. Ultimately, Cortex has demonstrated product-market fit, and its proof of concept is clear.

Cortex has developed a marketing software platform that uses artificial intelligence to provide social media data and content recommendations to marketers. The company helps its clients predict the success of their marketing campaigns, adapt their content, and detect the optimal time to publish to reach high engagement levels. In contrast to most of its competitors, Cortex mainly focuses on visual content.

Cortex’s revenue decreased by half between 2019 and 2021. Its valuation increased in the meantime. Cortex’s sustainability and ability to gain market shares are at risk if the company doesn’t quickly acquire new customers. 

However, social media marketing is a large and rapidly growing market. Cortex recently signed a partnership with Accenture — a Fortune Global 500 company — to reach new customers. It also managed to onboard new and significant customers like Sony and Ben & Jerry’s recently. These signs indicate that Cortex should be able to expand its user base as it pivots from focusing on product development to sales and marketing. The company’s previous focus on development has enabled it to have key differentiators and unique branding that distinguishes it from its main direct competitor. Cortex has also been selected into the Techstars Boston 2020 startup accelerator program, and its founders have significant marketing experience. The two previously founded a marketing content company together, showing that they work well together and that they are familiar with marketing’s pain points. For these reasons, Cortex is a Deal to Watch at this time.

For questions regarding the KingsCrowd analyst report or ratings for this company, please reach out to [email protected].

Analysis written by Léa Bouhelier-Gautreau, November 29, 2021.