FabuLingua is raising a Crowd SAFE at a valuation cap of $7.5 million with a discount rate of 10%. This is a reasonable valuation for a software company. FabuLingua’s early traction has been limited. It holds no patents, and revenue last year came in just under $7,500, resulting in a high revenue multiple. Overall, though, FabuLingua’s price is fair.

Online language learning is a moderately sized but rapidly growing market. In 2017, the global market was worth $31.1 billion. It is growing at a compound annual growth rate of 18.7% and is expected to reach $172.7 billion by 2027. English learners make up the largest share of this market, as English is increasingly adopted as a global language. For now, FabuLingua is only targeting English-speaking households learning Spanish. In the near future, it plans to expand to Spanish-speaking households learning English, so it will be able to tap into a larger share.

For now, FabuLingua is limited to the US. It’s also limited to teaching children between ages two and 10 rather than serving both kids and adults. This specialization is actually a potential asset. Language learning is a very crowded space, with language-teaching giant Duolingo claiming half a billion users. The child language learning market is far more fragmented, with most competing apps teaching through use of vocabulary rather than storytelling. Growth in this market should only continue in the long term as the world grows more and more interconnected through the internet and smartphones. Overall, while FabuLingua’s target market is niche, it’s fragmented and growing at a good pace, which gives the company ample opportunity to expand.

FabuLingua was co-founded by an experienced husband and wife team. CEO Mark Begert is a graduate of Harvard University with a BA in government and international relations. Begert got his start right out of Harvard as a vice president of debt capital markets for Merrill Lynch (now Merrill), the investment and wealth management division of Bank of America. After six years with Merrill Lynch, he moved across various leadership roles in Chinese companies, spending seven and a half years as CFO and director at Linktone. The wireless technology company went on to IPO on the Nasdaq. CEO Begert then moved to Texas, where he continued in a CFO role with Meridian Solar. He led Meridian in raising millions in equity and then co-founded FabuLingua in late 2017. Throughout his career, Begert has advised a number of initial product offerings and raised more than $100 million in capital across ventures.

Co-founder Leslie Omaña Begert holds master’s degrees from Oxford and Cambridge. She worked with Goldman Sachs as an investment banking analyst after obtaining her degrees. She later worked in product management for cosmetics giant L’Oréal before directing marketing for the Third Space fitness project. She was then self-employed for more than a decade as a sculptor and property manager. Raised bilingual in Barcelona, her philosophy and experience have been the core of FabuLingua’s language learning pedagogy.

Both founders are graduates of elite universities and have extensive business experience. CEO Begert’s IPO experience is a particularly strong asset for FabuLingua. Leadership has fleshed out the team with a strong group of engineers, developers, and designers. To date, the team has seven full-time members. This powerful and diverse team earns FabuLingua a high team score.

FabuLingua has no lack of competition in the online language learning space. The popular app Duolingo is the most prominent, but more direct competitors include Lingokids, Studycat, and Endless Spanish. But FabuLingua holds a number of advantages over these competitors. It directly targets a child audience. Its patent-pending Magical Translations feature teaches through instant verbal translation, enabling “invisible learning” for children. Rather than learn through rote memorization, children learn through interactive stories. 

Finally, the app is relatively cheap — between $4 and $8 a month. Competitor Lingokids comes in at $15 a month. Other offerings are either comparable to FabuLingua or more expensive. Thus far, users are quite satisfied with their experience. The app has an average rating of 4.8 out of 5 on the Apple app store. Overall, FabuLingua’s product is highly differentiated.

In terms of product-market fit, FabuLingua’s current results aren’t promising after four years of development and outreach. Last year, FabuLingua took in only $7,481 in revenue off of $2,850 in cost of goods sold. In 2019, the company saw only negligible revenue. Given two and a half years of development time, the app hasn’t had an amazing launch. It’s possible that this is a reflection of the app’s limited use case. At present, it only serves English speakers learning Spanish. In the future, it plans to expand to Spanish speakers learning English and then to other languages.

But FabuLingua’s business has really taken off in the last 18 months, with 60 released stories amounting to 55 hours of learning. In that same time, the app has seen 80,000 downloads and 1,000 family subscriptions. Given those numbers, however, last year’s revenue seems quite limited. It seems likely that many of these new users have come on in 2021 — the latter half of the specified period — and the numbers aren’t reflected in audited revenue yet. 

In the meantime, FabuLingua has kept costs moderate, with around $5,1000 in liabilities. Leadership has successfully raised funds to keep driving forward, and FabuLingua has a fully developed product on the market. Overall, FabuLingua has demonstrated an above-average performance.

While FabuLingua’s offering is fairly solid, investors should be aware of some financial concerns. While the startup’s spending isn’t extreme, it holds more than $500,000 in liabilities. That’s not unusual for a startup, but the business’s extremely limited revenue could leave it struggling to pay off those liabilities in the future. A $7.5 million valuation is also somewhat high and rather unfavorable for investors, given the company’s low revenue.

There is also a competition risk. FabuLingua is operating in a yet unconquered space for children’s language learning. However, existing competitors could pivot to fill the role FabuLingua is attempting to play. Given Duolingo’s resources and user base, for example, it might create a more interactive platform to sweep the child learning market as well. Finally, the company is raising on a SAFE, one of the less favorable security types for investors, slightly elevating the investment terms risk. Overall, however, with a product on the market and revenue coming in, risk associated with an investment in FabuLingua is minimal.

In four years, FabuLingua has acquired a limited user base, and its content release timeline has been sluggish. High-quality, interactive content takes time to get right, and FabuLingua’s time is limited. The language learning market is full of apps and programs seeking to corner the market. Competitors are fully capable of seeing and imitating FabuLingua’s philosophy, if not its specific strategy. 

As of yet, FabuLingua doesn’t have strong revenue numbers despite its user traction. In the meantime, it is limited to a specific niche of young English speakers learning Spanish. Given how slow development has been, taking its time expanding into other offerings could limit FabuLingua’s growth potential. English has become one of the most globally spoken languages and is likely to be in high demand. The longer it takes Fabulingua to dip into that market, the harder it will be to corner it.

FabuLingua’s strong team with experienced leadership bodes well for the company. Founder Mark Begert has a successful track record as an entrepreneur with an IPO under his belt. Product defensibility is strong, and the youth language learning market is unconquered. Few solutions are tailored specifically to children. 

Early customer reviews suggest that users are happy with FabuLingua’s product. Once market penetration begins in earnest, it is likely to expand quickly. The cheap early price also gives the company room to increase costs with subsequent content offerings and makes it a more appealing subscription. Depending on how quickly FabuLingua expands into other language offerings and how much traction increases, it could become one of the more prominent language learning methods for children. For reference, Duolingo reported a revenue of $58.8 million in the second quarter of 2021. If FabuLingua could approach even a tenth of that size, investors would see a strong return.

FabuLingua has developed an interactive storytelling app to teach children Spanish. Its patent-pending Magical Translation technology helps children learn new languages through immediate spoken translation. The app is easily accessible at a low cost, comes with fresh and interactive stories and games, and aims to develop fluency efficiently and naturally. 

Despite impressive user traction, FabuLingua’s revenue numbers remain meager. After four years of development, a software company should hopefully be reporting greater fiscal success. A slow start is a dangerous strategy in a competitive space like online language learning. Last year, FabuLingua took in only $7,481 in revenue off of $2,850 in cost of goods sold. In 2019, it saw only negligible revenue. FabuLingua’s co-founders, however, are experienced leaders, with an exit already under their belt, and have assembled a strong team. The app boasts an innovative approach to learning and has received many positive reviews. The market, while limited, is growing quickly. If the company successfully targets a niche age group, it could be very attractive for a large incumbent looking to acquire its technology. Finally, the app has potential to expand beyond its initial offering into other languages. Overall, FabuLingua has been rated a Neutral Deal.

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

Analysis written by Benjamin Potts on October 4, 2021.