Fanbase is offering common shares in the business valued at $4 apiece and subject to a pre-money valuation of $20 million. This valuation is extremely high given the business’s current stage of development and lack of revenue. Thus, Fanbase’s price score is its lowest across all five metrics.

The market that Fanbase operates in is fairly large and growing at a pretty nice rate. According to one source, the subscription-based social media market was worth about $55.7 billion in 2019. This is nearly double the $28 billion size Fanbase pegged their market at. This year, the industry should rise to about $64 billion, and the future for it is looking up from here. With an annualized growth rate of 16.8% for the industry, the market should reach $103.7 billion by 2023. Though this may sound like a strong opportunity, there is a big caveat: the space is highly competitive. There are countless players in the space and growing enough to be relevant will be a significant challenge for Fanbase. As a result, the company’s market score is below average.

There are two major players on the Fanbase team. The first key member is Isaac Hayes III, the founder and CEO. If this name sounds familiar, it’s because he is the son of the late Isaac Hayes Jr., a prominent singer, songwriter, actor, and producer. In addition to running Fanbase, Hayes serves as the President and CEO of Isaac Hayes Enterprises. That firm represents the estate of his father and is tasked with trying to monetize his name in all ways legal and proper. Hayes is also the owner, publisher, and songwriter of the Ike Father Ike Son Music label. His experience there involves writing, producing, and licensing music for television and film. Clearly, his experience managing and participating in the entertainment industry makes him a solid member of the team. But it’s obvious that his emphasis is on the content creation and management side more than the operational side of what he will need to manage. 

The other core member of the team is Ramiro Canovas. At present, he serves as Fanbase’s CTO. He is also actively involved with other firms at this point in time. This includes working as the Founder of ConsultR, a web and mobile development and digital marketing firm. This kind of experience is invaluable when it comes to creating the Fanbase app and finding ways to market it. Canovas is also presently a Partner of MTM Agency, a model and talent management firm. In addition, he also works as a Senior Regional Software Specialist for EMC Corp. There, he provides level 2 and level 3 post-sales solution support for the company’s products and services. 

The Fanbase team also includes a Lead Developer, a Creative Director, and Coordinator. Even taking all of these members together, though, the team does seem light-handed. In particular, it is lacking when it comes to an executive with experience managing social media / networking sites. It also does not have a member overseeing its financial aspects. Because of these shortcomings, Fanbase’s team rating is quite low.

Management has positioned the firm as a subscription-first platform. Though users can utilize its app for free, the appeal is clearly on the subscription side. Early results show that this has proven successful. According to management, 40% of its users pay for a service on the platform. This could very well have legs, especially given the willingness of users to pay a bit for premium content. Having said that, this is where the core differentiation largely ends. YouTube, for instance, is primarily free to use, but it boasts premium services from content creators as well. Twitch is another player in the free-and-premium market, though its emphasis is on the gaming niche. Both of these are competitors that management left out of their discussions. They did, however, talk about Patreon and OnlyFans. Patreon enables content creators to pursue monetization, but it’s not really a social network. OnlyFans, meanwhile, is heavily geared toward adult content. This niche focus separates it clearly from Fanbase and its desire to be a more generalized version of OnlyFans. 

Altogether, Fanbase has succeeded in creating some early distinctions for its service. However, focusing on premium subscriptions in a social media setting could be easily replicated by other competitors. Therefore, Fanbase’s differentiators score — while its strongest across our metrics — is still only slightly above average.

Since launching, Fanbase has seen some pretty decent traction. As of this writing, the company has over 12,700 organic users on its platform. This is up 227% compared to the users it had in its first year operating. There’s no data suggesting how well the app should perform this year, but we do know how the company fared in years past. In 2018, the business generated nothing in the way of revenue or expense. In 2019, revenue totaled $12,616, with both net income and operating cash flow totaling -$37,657. Considering the company’s year-over-year growth rate, revenue should be climbing nicely. If we assume a weighted-average user base for 2020 of 12,700, and apply a 40% subscription rate at $3.99 per month to it, that works out to gross sales of $243,230 for the year. Since management keeps only 20%, sales would be around $48,646 for 2020. That excludes other potential sources of revenue like advertisements. However, these figures are hypothetical, and we are unable to compare them to expenses or debts for 2020. Based on the early and low revenue from 2019, Fanbase’s performance score is middle-of-the-road.

Right now, there are a number of bearish considerations investors should examine. It’s questionable if Fanbase’s current team brings all the necessary skills to make this business successful. Performance has been decent but not excellent, especially when it comes to revenue. Another consideration is that the market is quite crowded and the service easily replicable. Perhaps the biggest negative for the firm, though, is the fact that its valuation is so high. It makes the risk of a down round in the future high. This could lead to painful dilution for investors in the firm at that time. It also means that investors are already only getting a small piece of the overall pie.

Just because there are bearish attributes to this deal does not mean that there aren’t any bullish ones. Though the industry the company operates in is crowded, its size is fairly large and its growth rate is impressive. The company has a founder whose father’s name could be leveraged to some degree to help push the brand higher as well. Though performance has been mixed, the fact that 40% of users are paying for a service on it is impressive and encouraging.

On the whole, Fanbase is an interesting company. If management can prove to enough prospective users that its service is valuable and if it can attract enough content creators to gain critical mass, the upside could be significant. That said, the negatives, particularly the firm’s $20 million pre-money valuation, are significant and help to offset a lot of the positives associated with the deal. Because of this, the KingsCrowd investment team felt compelled to rate this opportunity as a Neutral Deal, with the good and the bad roughly balancing one another out. 

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

Analysis written by Daniel Jones.