KC Underweight Deal: Not Everything Should Be Uber-ized
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Summary
This week we are going to analyze the market potential and the growth potential of MuleChain. It is a peer-to-peer logistics company that allows the ‘requesters’ to send off goods through ‘bringers’ AKA ‘mules’ to a required destination.
At first glance, the business opportunity looks attractive. It plans to redefine global P2P logistics, and it also offers temporary storage options for the goods. Overall, the company is providing an innovative and efficient way to deliver shipments across cities, states, and even countries.
MuleChain utilizes NEM blockchain technology to decentralize global delivery services. On the face of it, many people are in need of such services. However, it is the ground reality that makes us wary.
MuleChain is a part of the global on-demand market. The very nature of the on-demand market is rife with major winners and major losers. The challenges of managing a two sided marketplace with both supply and demand means the big will win, while the losers will flounder.
While Uber has shined by raising billions to keep up with their massive burn rate, many ride-sharing startups have had to close their doors due to lack of funding in a capital intensive customer acquisition market.
Along with the merits and demerits of the entire business concept, and its ability to survive and sustain, it is also critical to analyze the returns on investment for the crowdfunding investors. Such investors are usually small investors who invest their hard-earned money in hopes of high returns.
A Long Way To Go Technologically
The entire premise of the P2P logistics business rests on technology. The technology needs to be advanced, fail-proof, and fast. MuleChain is using the NEM blockchain technology that seems to be promising.
However, only the prototype of the mobile app has been released yet, and it will be many iterations and development rounds before MuleChain has a viable product on an untested blockchain technology.
The MuleChain Routes mobile app is a work-in-progress, and may or may not turn out to be effective with no proven capability to date. And the MuleChain Tokens are yet to be developed, along with the development of the blockchain. The company states that there is no guarantee that successful development will ever occur.
Wall Street has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has KingsCrowd.
Poor Precedents
There have been numerous cases of failed last mile on-demand startups recently. Most of these businesses look very promising, to begin with. However, they lose their luster sooner than later.
A noteworthy precedent that fell flat is Shyp, an on-demand shipping startup that was founded in 2013 and closed its operations in March 2018. Shyp also hoped to revolutionize shipping by offering on-demand shipping to the individuals and small businesses. It started off, optimistically and received over $60M in venture-capitalist funding.
Unfortunately, in the early days, the business did not have enough focus on sustainability and kept going after expansion. By the time the company started trying to be sustainable, it had reached a point of no return.
It got crushed under the high pressures of expectations and the costly nature of the business, which requires marketing to both the supply and demand side of the market. Ultimately, the cost to grow were too high and the business model yielded poor margins making the business unsustainable.
High Valuation
MuleChain has a post-money valuation of $11 million which is higher than many companies in a similar stage raising via equity crowdfunding. With so many uncertainties looming we think the valuation should reflect that.
With no indicators of product-market fit to date and a product still in need of much further development to be ready for testing, the valuation is too high for the current state of the business.
The Bottom Line
As our recommendation, MuleChain warrants an underweight rating. There are just too many questions. It’s path to becoming the “Uber of Logistics” is a long one.
The technology of the company is still under development, and there are numerous outstanding questions of the business model viability. MuleChain was expected to be developed on the NEO platform, which was later changed to the NEM platform. It also applied for the NEM Community Fund Technical Grant that was suddenly canceled. This was when the company decided to go the crowdfunding route.
Therefore, although the company has certain promising aspects, due to the overall uncertainty involved with the on-demand market and the high resource intensity required for the industry, we would recommend not investing too heavily in this deal if at all and consider the risks before doing so.
If you have any questions regarding the underweight rating of MuleChain, you can reach us at hello@kingscrowd.com.
