Hexinika’s current common equity round is offering a valuation of $14 million. With 2020 revenue at $1.4 million, Hexinika’s current round represents a 10x revenue-to-valuation multiple. Industry average revenue multiples for software companies are in the range of 10x-to-15x. Hexanika’s valuation is in line with the industry standard. Additionally, a $14 million valuation is very attractive when compared to other growth stage startups currently raising capital online. Thus, Hexanika’s price score is very strong.

The regulatory technology, or “regtech,” market has been growing tremendously. In 2020, the global regtech market was estimated to be $6.3 billion, with an annual growth rate of 20.3%. North America has the largest market share at 54.3%, or $3.4 billion. This market share is largely due to the US having a very large number of banks and financial institutions — more than 6,000. 

Some analysts also estimate the global regtech market is expected to reach $55.3 billion by 2025. Assuming the market share for North America is still 54.3%, the US regtech market would then reach $30 billion. Given these estimates, it looks likely that the regtech market is a high potential market. 

Hexanika’s plan to provide its compliance and regulatory platform to banks and financial institutions places it directly in line with the way the market is growing. Although regtech is not currently a massive market, its high growth rate means that now is the time for companies to establish themselves and secure their niches. Hexanika is entering a growing market at an excellent time, which results in a high market score.

CEO Yogesh Pandit founded Hexanika in 2014. Before Hexanika, Pandit spent 17 years in banking and financial services. Notable positions he held include serving as senior vice president at Citibank and manager at EY (Ernst & Young). Because of this experience, Pandit understands the intricacies of Hexinika’s primary business-to-business customers. He has also developed high level managerial skills, which will be key in leading Hexanika to success.

CTO Makarand Gadre is a serial entrepreneur who is involved with three startups beyond Hexanika. He spent 20 years working at Microsoft where he helped develop and architect Windows 8, Sharepoint, and Excel. Gadre has ample technical experience, but his focus is not solely on Hexanika.

Chief Product Officer Arun Lyer has more than 21 years at various financial companies where he worked most often as a consultant. His experience has been focused in brokerage firms, particularly in risk management. Lyer does not seem to have strong expertise in product design, but he does have plenty of industry knowledge that is relevant to Hexanika’s platform. 

Hexanika does not have any data scientists or engineers in the team. As a data management software company of seven years, having a strong cohort of engineers who focus on AI-driven data solutions is necessary. Furthermore, Hexanika also did not show any sales and marketing team members on the raise page. 

In sum, Hexanika has strong C-suite officers but is lacking key team members. However, due to the deep experience brought by the founder, the company scores well in the team metric.

Hexanika claims that its platform can reduce reporting time by up to 40% and save costs by up to 60%. The company also makes the reports it produces 100% auditable for regulators. Hexanika’s proprietary and patent pending algorithm is the key to its solution — automation, consolidation, and standardization. The company has seen positive results from early uses of its platform, saving customers significant time and money.  

Hexanika’s direct competitors are regulatory technology (regtech) automation software platforms. The competition is fierce in this category. One notable company is Hummingbird, which just raised an $8.2 million Series A round in 2020 after being founded in 2017. Hummingbird focuses on anti-money laundering compliance technology and drives efficiency gains for banks and financial service companies. It is reported that Hummingbird had a valuation of up to $50 million in 2020. Hummingbird has surpassed Hexanika’s valuation in just three years. In addition, it does not seem that Hexanika has a price advantage. Therefore, Hexanika is facing tough challenges with its competition. 

Because Hexanika has a strong product but tough competition, the company receives a moderate differentiators rating.

Hexanika utilizes a hybrid of licensing and bespoke revenue model. This revenue model provides the best of both worlds — a stable stream of revenue from licensing fees for Hexanika and flexible cost structure based on needs for customers. Customers pay a license rate based on their data processing requirements and then pay an additional fee for each report generated based on complexity. Hexanika fully launched its product at the end of 2019. 

Hexanika generated $1.4 million in sales in 2020 and was profitable. Most software companies take a long time to reach profitability, so it is especially impressive that Hexanika achieved profitability so shortly after launching its product. In addition, Hexanika won the Scalability Award from Citibank, which is one of Hexanika’s customers. Hexanika is also actively partnering with industry leaders, including IBM, RSM, and Amazon AWS. 

Due to Hexanika’s early profitability and impressive traction, the company receives a near perfect performance rating. 

Overall, Hexanika is considered a low-risk investment. However, it is important for investors to note that the company is bearing team risk and timing risk. The seven-year-old company does not seem to have a strong cohort of engineers and software developers. There is also a lack of key team members in the marketing and sales department. In addition, CPO Arun Lyer is a part-time employee working four hours a day, and CTO Makarand Gadre works with three other startups simultaneously. Skills gaps combined with a lack of focus from C-suite team members is concerning for Hexanika’s ability to grow. The company’s timing risk is caused by the long lead time of Hexanika’s potential clients. As a business-to-business focused company, it takes time for Hexanika’s clients to adopt its technology after showing initial interest. This factor could force the company to grow more slowly, which could in turn affect the timeline for investors to see potential returns.    

Hexanika is entering a crowded market, so it needs to prove that its product is significantly better. If it is unable to convince potential customers to switch from their internal methods or pre-existing software, the company could see its growth and revenues stagnate. Additionally, it is concerning that both the CTO and chief product officer are splitting their attention between Hexanika and other companies. Without the addition of more full-time members — particularly in data science and sales and marketing — the company could struggle to maintain and improve its platform.   

Hexanika’s impressive revenue and profitable net income have validated its product-market fit. In addition, Hexanika has secured three financial institution customers this year so far and is on track to achieve its $3 million projected revenue by the end of 2021r. The strategic partnerships that Hexanika has formed also give the company an estimated revenue pipeline of more than $15 million.  

With its current valuation at $14 million, investors are getting a fair deal. The market that Hexanika is operating in has huge potential. As the cost of compliance increases, regulatory technology compliance software may soon be the industry standard for all banks and financial institutions. While the competition in the market is growing, Hexanika may also make a great potential acquisition target because of its proprietary algorithm and solid industry partnerships. In sum, a deal with a fair valuation, a high growth market, and a proprietary product is attractive for many investors.  

Hexanika is a streamlined, AI-driven software solution for data management and regulatory compliance. The company is focused on banks and financial institutions, since these businesses are known to spend significant capital on compliance. After launching its platform at the end of 2019, Hexanika has secured multiple big-name customers — including Citibank and RSM — and achieved profitability. Although the company’s team is sparse, they have succeeded in creating a patent-pending product with proven product-market fit. Hexanika is on track to hit $3 million in 2021 revenue, and its target market gives it plenty of room to expand. The regulatory technology market is also growing at 20% a year, indicating high potential. Most importantly, the company’s common equity investment term has a fair valuation, which makes it an attractive deal. Therefore, Hexanika has been rated a Deal to Watch by the KingsCrowd investment team.  

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

Analysis written by Zee Zhong.