To grow and expand its product offerings, Tanoshi is raising capital through an offering of common equity at a pre-money valuation of $30 million. This would be a reasonable valuation for a hardware company on its own. However, Tanoshi is confined to the niche market space of educational technology and has little in the way of growth despite a significant increase in valuation (less than a year ago, Tanoshi was valued at $6.3 million). Therefore, the startup is overvalued in this raise. Tanoshi’s current revenue multiple sits around 28.7 times, which doesn’t do enough to improve its price rating.

While Tanoshi aims for the decent-size educational technology market on its raise page, its applicable market is the far smaller US educational PC market. Competition is also stiff, with Google’s affordable  Chromebook being the most dominant player. But the market is growing at a respectable CAGR of 13.31%, which is certainly encouraging.

Tanoshi has a team of several strong founders mostly from education backgrounds, though there are some gaps in expertise. CEO Brad Johnston holds a master’s degree in commerce from the University of Sydney Business School. After teaching English as a second language, Johnston migrated to market research and product management for big names in the laptop industry, such as Toshiba and Vizio. He brings valuable experience on the product management side, although he is not a developer.

Chief Marketing Officer Lisa Love has an MBA in marketing from Clark Atlanta University. After getting her start in brand management for big food companies Heinz and Del Monte Foods, she moved into the startup game managing the retail side of Wine.com and co-founded an animated educational app that won gold from Mom’s Choice Awards. After this, she leaned into her marketing skills as a freelancer, work she still continues today. While she obviously has some level of experience with educational materials through developing Bing Note, her strengths appear to lean more towards the marketing side of the business.

Chief Operating Officer Kate Traub holds a Master of Laws degree from Santa Clara University School of Law, among other advanced degrees. After working her way through the requisite legal internships, Traub spent some time in education working as a teacher for Kaplan Test Prep. She moved back into law as a transactional attorney before starting her own legal firm to protect creatives and small businesses.

Other founders appear to have stepped back from their roles with the company or are working part time. While the team does cover multiple areas of expertise, there are noticeable absences of experience in actual product development as well as supply chain management.

Tanoshi faces significant challenges as it attempts to secure its place in the narrow educational PC space. Competition is fierce, as Google, Apple, and Intel fight to be among the first brands students adopt. Margins tend to be quite low, as these massive corporations are happy to offer generous student discounts in exchange for securing lifelong consumers of their other products. Tanoshi isn’t a particularly high-quality offering in comparison to the competition. However, it does narrowly beat competitors in price, barely edging out Google’s Acer Chromebook and establishing thin margins of 29%. Even so, these products are very expensive for the low-income families Tanoshi aims to support, especially as a product for children. Tanoshi holds no patents, leaving it with slim to no defensibility.

Tanoshi has slowly but steadily grown its revenue over time while responsibly managing its finances and increasing margins. In 2020, it took in $1 million in revenue, up from $442,248 the year before. Short-term debt has risen from $390,639 to $722,827, but it still holds no long-term debt and has considerably more cash on hand.

Despite forming no partnerships, Tanoshi has managed to sell 10,000 units through distribution by Amazon and Walmart. It has also generated positive media coverage over time with a somewhat-successful appearance on ABC’s Shark Tank and coverage from Forbes and Mashable. In prior fundraising, Tanoshi took in around $180,000. While still pre-profit, it has two products on the market and has shown consistent growth — if less than might have been expected in a year when most American schools switched to remote learning. This might be due to supply shortages, as the product has sold out several times.

While Tanoshi’s price point is low, the product itself is not significantly differentiated from the competition, nor is it protected by patents. Given that quality is not a selling point in this market and Tanoshi is likely to face more significant supply challenges than its competitors due to its small size, it faces significant risk of competition pricing it out of the market.

Tanoshi’s mission is unquestionably charitable and has the potential to transform the lives of young people, but investors have cause to be concerned about the product. A little-differentiated product is highly vulnerable to being edged out by competition. Big brands are known to take losses in certain markets to secure future consumers and generate positive reception. Tanoshi cannot afford to take losses in its only market. Its growth is slow, and its overvaluation presents poor terms for investors.

Despite being up against massive competitors in a small space, Tanoshi has generated decent traction. Selling 10,000 units is no small feat in this limited market. Additionally, positive media coverage through philanthropic donations and media appearances appear to be doing an apt job of generating consumer goodwill. While other competitors do have an interest in securing brand loyalty at an early age, this market is not vital for them. As Tanoshi lowers its costs of acquisition and product margins, it has sufficient room to emerge as a friendly underdog to support public education.

Tanoshi, named after the Japanese word for “fun,” is narrowing the technology divide for schoolchildren with its affordable educational PCs. It currently offers two products: the 2-in-1 and the Scholar, which both offer online and offline educational activities for students. With the aid of philanthropists, Tanoshi has also donated a significant number of computers to schoolchildren. It received the 2019 Silicon Valley Educational Foundation Innovation Award and appeared on ABC’s Shark Tank, where it secured a $500,000 deal with host Daymond John.

Tanoshi has decent traction in a niche space, taking in increasing revenue over time and generating positive publicity. Its customer acquisition costs are decreasing, and the company has avoided taking on long-term debt. However, it is operating in a very narrow market where price is often the sole concern. The product is not significantly differentiated from more prominent brands, and Tanoshi appears overvalued considering its moderate growth and market position. Therefore, Tanoshi is a Neutral Deal.

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