SOMOS is raising capital via a Crowd SAFE at a $20 million valuation with no discount rate. The company had revenue of $196,306 in 2021, which implies a 102x revenue-to-valuation multiple. As a result, SOMOS is highly overvalued. Furthermore, the company has also not proven the second side of its business: selling genetic data to drug discovery companies. The company has neither a laboratory nor a physical biobank. Instead, it uses a third-party service for these needs. It only owns the relationship with indigenous tribes, the database, and the matching algorithm. In order to become a biotech company in the future, SOMOS will need to secure its physical presence alongside its data. At this time, neither its assets nor its revenue are enough to justify a $20 million valuation.

SOMOS is operating in the United States DNA testing market, which is worth more than $960 million in 2022. The company does not provide health information related to genetic data yet, though it does intend to offer those services in the future. For now, its home kits can only be used to find the tribal ancestry of customers. SOMOS is also only targeting the 62 million Latino and 6.8 million Native American descendants in the United States, with an emphasis on Mexican Americans. The company mostly has data on Mexican tribes, but it is working to extend its indigenous DNA database to more tribes across Latin America. In the future, the company can try extending to high-income earners of other countries in Latin America. But in the meantime, SOMOS’ target market is small.

Despite a restricted niche, the United States DNA testing market is quickly growing at an annual rate of 12.6%. This market emerged in 2005 when National Geographic and Wells launched the first direct-to-consumer genetic testing kit. Consumers responded more enthusiastically than companies expected, and over the years, the price went down from $2,500 to around $99. One of the reasons for this success is that the American population was built on immigration. Aside from Native Americans, most Americans descend from voluntary or forced immigration to the United States and may not know the details of their extended ancestry. In Latin America, many might be descended from some mixture of indigenous tribes, Europeans, and Sub-Saharan Africans. As a result, Latinos may have difficulties knowing where their ancestors came from. The history of immigration to North and South America drives interest in DNA testing.

AncestryDNA has already collected data from 20 million customers, and 23andMe has been utilized by 12 million customers. This high level of market saturation can limit the possibilities for SOMOS to attract new customers. The company aims to address this difficulty by offering a reanalysis of genetic data provided by competitors. It can use these existing tests to identify the tribal ancestry of Latinos and Native Americans for $39, a discounted price compared to the cost of a complete analysis. Thanks to this service, SOMOS can expand its potential pool of customers.

As of February 2022, SOMOS has collected about 4,700 DNA samples from customers. After collecting more than 50,000 genetic data samples, the company plans to partner with drug developers and extend its revenue stream. SOMOS could then access the global drug discovery informatics market. This market is valued at $2.4 billion and is expected to grow at a healthy rate of 11.3% every year until 2028. While it isn’t a large market, SOMOS hopes to get from $100,000 to $500,000 per deal with drug companies.

SOMOS’ traget markets are relatively small but have a steady growth rate. The company’s partnerships with indigenous tribes give it a unique product that can be used by customers testing their DNA for the first or second time. Therefore, SOMOS has market potential. However, the DNA testing market is crowded. SOMOS will need to spread brand awareness in order to acquire customers – especially those that have already used competing products – and get a good share of the market.

Dr. Frederico W. von Son de Fernex, CEO, and Dr. Christian M. Rodríguez, CTO, co-founded SOMOS. They previously worked on Mi ADN México, a startup that commercialized direct-to-consumer ancestry DNA testing kits in Mexico. However, the DNA data bank that Mi ADN México used for reference mostly contained European DNA. It lacked data to precisely track the origins of Mexicans. The founders received a grant from the Mexican government to build a local DNA database. Ultimately, the team pivoted from the Mexican market to the American market and created SOMOS.

Both founders have experience in the medical field. Dr. von Son de Fernex holds a Master of Science in biomedical medicine and is a medical doctor from the Universidad Autónoma del Estado de Morelos in Mexico. He spent more than a year as CSO at KPND, a medical startup building a smart stethoscope. At SOMOS, he focuses on closing partnerships, running the day-to-day business, and raising funds.

Dr. Rodríguez has a Doctor of Medicine degree in surgery from the Universidad Autónoma del Estado de Morelos. He previously co-founded KPND. He is now working full-time on SOMOS, where he focuses on building the technical resources needed to analyze customers’ DNA and match it with SOMOS’ database. According to Dr. von Son de Fernex, he also analyzes the data collected from marketing campaigns on Facebook, Instagram, and Google.

The team is only made of the two founders, but they are helped by 10 advisors. Among them, Javier Marin is the CEO of DC-based newspaper El Tiempo Latino. He has 15 years of experience in communicating and selling to Latin Americans. According to Dr. von Son de fernex, Marin’s connections in the media will help SOMOS build its marketing plan. 

Karol Estrada is another advisor to SOMOS and vice president of translational genomics at Maze Therapeutics. He has worked to discover drugs through genetic data banks. His experience and connections in the pharmaceutical industry are critical for the company to expand the use of its genetic database to drug discovery.

SOMOS’ team is currently too small for the company to scale, which is understandable for a young startup. After this raise, the founders plan on adding marketing and technical members to their team. In the meantime, the milestones the founders have accomplished demonstrate that they have the skillset to grow this company. They have built a solid network of advisors that will be key to the development of the company.

SOMOS faces strong competition from established and well-known companies in the DNA testing market. AncestryDNA is the market leader, with about 20 million customers since its launch in 2012. The company started its program in the US and before expanding to another 34 countries in Europe, Canada, Australia, and Mexico. AncestryDNA is a branch of Ancestry, the largest genealogy company in the world. It has $1 billion in annual revenue and was acquired by Blackstone for $4.7 billion in 2020. In the United States, AncestryDNA kits are sold at $99 for a test kit and $100 for a test kit combined with a 3-month membership to Ancestry. Customers can also pay $199 for DNA kits and access to personality traits and Ancestry’s military records. 

SOMOS cannot compete with the marketing power of AncestryDNA. SOMOS’ DNA tests also cost more, with prices ranging from $149 and $199. Some insurance companies may cover genetic testing kits if a doctor recommends taking one, but usually, only specific tests are covered. Additionally, competitors such as 23andMe may also allow customers to pay with a flexible spending account or health savings account and save money on taxes. In comparison, some customers might find SOMOS less affordable.

But at the same time, SOMOS is entering the Latino and Native American DNA market with a novel approach. Most competitors find the geographical origin of customers’ ancestors by comparing  genetic data to the company’s own database. They can only determine the geographical location based on what’s already in their databases, and some regions may have more data than others. 

According to SOMOS’ founder Dr. Federico von Son de Fernex, SOMOS uses a different approach. The company partners directly with indigenous communities and collects blood samples from tribe members in exchange for fulfilling some of the communities’ short-term needs. This strategy brings two main differences in the product and the impact of the company. First, the company can have a complete and accurate map of indigenous tribes’ DNA. It can match customers with both indigenous roots and specific regions of Mexico. Second, SOMOS supports community projects for indigenous communities in exchange for collecting the DNA of tribe members. The indigenous partners own the rights on their DNA data through blockchain technology. Therefore, their data will only be used or sold with their agreement, and they will earn a part of the profit. 

One of the limits of genetic testing companies is that customers usually only need to test their DNA once, so they don’t have a reason to keep using the company’s services. But SOMOS has a service to attract Latinos and Native Americans that already used another company’s services. Customers can share their DNA ancestry data from a competitor’s test with SOMOS and obtain their indigenous ancestry breakdown for $39. This product allows SOMOS to attract customers from other services. It will likely be a great source of profit for the company.

Overall, SOMOS has little marketing power compared to well-established companies such as AncestryDNA, and SOMOS’ standard DNA tests are more expensive. But the company’s technique for collecting and protecting data sets it apart from the leaders in the market. It offers accuracy on Latinx and Native American ancestry that cannot be found anywhere else. SOMOS’ differentiation is strong enough to attract customers now and potentially collaborate with pharmaceutical companies later.

SOMOS grew its revenue from $30,890 in 2020 to $196,306 in 2021. The company’s revenue is significantly higher than its cost of goods sold, which is a positive signal. SOMOS had a $14,986 net profit in 2020, but its income became a net loss of $40,956 in 2021. Investors shouldn’t find this too concerning, though. The growth of the company induced higher spending and loss, which is normal for a company at this stage. 

According to Dr. Federico von Son de Fernex, SOMOS won a pitch competition last year at MassChallenge accelerator. Instead of receiving the promised $10,000 prize, the company received $400,000 by mistake. When the financial statements were submitted to the SEC, the amount had not been transferred back to the issuers. Investors looking at the company’s financials should disregard the $400,000 increase in cash and its equivalent short-term debt.

With its small team, SOMOS relies on partnerships to grow its sales, and it has already secured several. One partner is Genomelink, a service that provides a detailed DNA analysis when users upload DNA test results. SOMOS helps inform Genomelink’s customers on their indigenous ancestry, and the company gains direct revenue from this partnership. SOMOS also plans to partner with several Latin American media outlets to target customers through their interest in soccer, music, and entertainment. Finally, it plans to collaborate with Predictiv, a startup providing health counseling based on customers’ DNA. But to integrate Predictiv’s results into SOMOS’ product, SOMOS founders believe they need to grow their development team.

SOMOS has attracted more than 4,700 paid users since its soft launch in 2020 and is growing steadily thanks to the founders’ knowledge of their target audience. With only $100,000 in previous funding, the company’s Republic raise is critical for its growth. SOMOS is at an early stage of development, and while its performance is not impressive, it is sufficient at this point.

SOMOS is generating revenue with a low burn rate, engaging in strong partnerships, and is supported by an experienced team of advisors. At first look, the growth of the company makes it a low-risk investment. But SOMOS is operating in a small and crowded market, and it plans on generating revenue through a pivot in a few years. The company’s uncertain future increases the investment risk.

SOMOS’ main risk is its dependence on funding to scale. The company has a good ratio of revenue and cost of goods sold but a pretty low reserve of cash. The company needs to invest in additional marketing and new hires to scale its business. At this point, funding will determine the speed of SOMOS’ growth. 

For SOMOS to be a success, the company will also need to show the value of its genetic database to drug companies. To achieve this goal, SOMOS needs to reach at least 50,000 customers – a far cry from the company’s current 4,700. The founders are both medical doctors and have advisors connected to the pharmaceutical industry. But still, investors should be aware that the path to reach this goal will take time and funding. The company needs to increase its partnerships with indigenous tribes, which will require the founders to travel and spend money on community projects. Finally, SOMOS also needs to raise awareness of its product by spending more on marketing.

SOMOS has successfully acquired 4,700 paying customers from a soft launch in 2020. But to reach its target of 50,000, the company will need to hire marketers and engineers and grow operations significantly. Only then can SOMOS hope to use its database to partner with pharmaceutical companies and generate revenues of up to $500,000 per deal. This plan will take time to execute and brings an additional amount of risk and uncertainty to an investment in SOMOS.

In the long term, the market of Latino and Native American genetic testing is inherently limited. The pool of Latino customers available in the United States is already being targeted by well-established competitors like AncestryDNA. Even if SOMOS has a competitive advantage to sell to this population, the company is still fairly unknown. Additionally, partnering with more indigenous tribes and expanding its genetic database will likely be a costly endeavor. To do so, SOMOS will need more funding, which could dilute investors’ shares. Therefore, investing in SOMOS is quite risky for investors because of its small target market and its need for funding.

SOMOS’ co-founders have achieved important milestones during the last three years. Their experience building Mi DNA México allowed them to gain entrepreneurial experience and identify an untapped market: Latin American indigenous ancestry. SOMOS’ technique for gathering indigenous genetic data is ethical and unique. In exchange for genetic data, SOMOS supports projects that help indigenous communities. This strategy sets the company apart from most competitors. SOMOS also benefits from requiring a smaller database than competitors to both find customers’ ancestry and provide accurate data to pharmaceutical companies.

Thanks to its solid differentiation, the company is successfully navigating a crowded market. It is growing its revenue and closing key partnerships. The founders gathered a strong network of advisors to access connections that will be critical to the growth of SOMOS. Thus far, SOMOS has skillfully executed its project and communicated a clear mission to investors.

SOMOS provides at-home DNA testing kits for Latino and Native American populations. The company is partnering with indigenous communities to collect unique genetic data and uncover customers’ ancestral roots. By building a Latino and Native American DNA biobank, Familia, SOMOS plans to provide pharmaceutical companies with data to create effective drugs for these populations.

The company is operating in a small and crowded market. The niche that SOMOS targets restricts the company’s customer base to Latinos and Native Americans living in the United States and requires targeted marketing campaigns. The company is only at the beginning of its journey, so it will require significant funding to get the additional 45,000 customers that it needs before partnering with pharmaceutical companies. Down the road, there’s no guarantee that SOMOS will successfully pivot into being a biotech company.

However, SOMOS does offer a unique way for customers to connect with their indigenous ancestors. The company’s system of data collection gives privacy rights to users and ensures that indigenous communities will benefit from the growth of the company. SOMOS grew its revenue in 2021 and concluded multiple key partnerships. The company’s founders have a few years of experience in the industry and have  demonstrated their ability to achieve important milestones. The team identified an important issue and has a clear vision. But the risks associated with its long-term goals make SOMOS 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 Léa Bouhelier-Gautreau, June 30, 2022.