Mycroft AI’s current preferred equity round has a valuation of $38 million — a 90% increase from its 2019 crowdfunding valuation of $19.9 million. Mycroft generated around $52,000 in revenue in 2020, which is a 65% decrease from 2019 revenue. Going by its 2020 revenue, Mycroft’s current valuation yields a revenue multiple of 723 times. The steep increase in valuation is not justified by the company’s reported financials. Therefore, Mycroft receives a below-average price score. 

Mycroft AI’s online community has grown to more than 60,000 early adopters and developers in more than 60 countries around the world. Therefore, Mycroft operates on a global scale. The global speech and voice recognition market is $8.3 billion in 2021, growing at a rate of 21.6% annually. At this growth rate, the market will reach $22 billion by 2026. In addition, the global smart speakers market is about $7 billion in 2021, with a compound annual growth rate of 49.8%. The numbers are impressive both in terms of the market size and market growth. Therefore, Mycroft receives a high market score.

Mycroft AI co-founder Joshua Montgomery is a serial entrepreneur with more than 15 years of experience building companies. He pioneered the creation of the gigabit fiber network from the ground up, building one of the fastest and most reliable independent internet service providers. This experience is valuable for building Mycroft’s foundation in the Internet of Things market. Montgomery also served as a major in the Hawaii Air National Guard, bringing leadership experience to the team at Mycroft.

Co-founder and CFO Kris Adair is an entrepreneur with more than 10 years of experience building companies. She successfully led Mycroft’s Kickstarter campaign, bringing in $127,520 — the largest in Kansas at the time. Adair is also responsible for Mycroft’s marketing efforts. Adair and Montgomery worked together on their last project for more than 12 years. 

CEO Michael Lewis joined the team in March 2020. He had previously co-founded and sold a semiconductor company and a developer-focused gaming company, with over $200 million in exits. His experiences in both companies have greatly contributed to Mycroft’s hardware and software development, in addition to its managerial expertise. 

Overall, Mycroft has experienced founders and a competent CEO with multiple exits. Therefore, the company receives an above-average team score.

The leading voice assistants are Amazon’s Alexa, Apple’s Siri, and Google Assistant. Mycroft AI’s main differentiator is its focus on privacy. Mycroft gives its customers full control of its listening devices. Its first generation smart speaker gained some popularity, and its second generation will feature a sleeker design with more robust software. Mycroft has more than 60,000 developers building a full-stack voice solution and database. Mycroft’s smaller competitors cannot easily duplicate the extensive database it’s built over time. Therefore, Mycroft’s solution has a strong defensibility. For those reasons, Mycroft receives a high differentiator score.

Mycroft AI’s revenue dropped from $151,595 in 2019 to $52,565 in 2020. The steep 65% decrease is a result of the lack of new products in 2020, as Mycroft’s second-generation smart speaker and development kits have been under testing and hardware design integration. The second generation device has received more than $1 million in pre-orders. But it is important to note that a decent 10% conversion rate would only project a revenue of $100,000, which is still down from 2019 revenue.  

Mycroft will utilize a subscription model for its premium voice assistant services. Users can still use the freemium version of the software after purchasing Mycroft’s devices. The company is still developing its paid subscription service. It is difficult to determine the demand for Mycroft’s premium service, since major competitors are mostly free. 

Due to the decrease in revenue and the unknown demand for its new service, Mycroft receives a below-average performance rating.

Mycroft AI will likely encounter financial risk. Mycroft’s current StartEngine round has a hefty valuation of $38 million, which is difficult to justify given its negative revenue growth. Its high revenue multiple means that investors will have to pay a hefty premium to be shareholders of the company. The company’s premium price model is also less justified given its negative revenue growth. In addition, Mycroft currently has more than $2 million in long-term debt, which is more than the assets it owns. 

Mycroft is also subject to risk on its business model. The company is developing a subscription model for its second-generation device. But it is uncertain whether that would be the best pricing strategy, as big tech competitors are providing voice assistance features for free with their devices. As such, Mycroft’s business model may hinder the demand for its service. 

Although it has financial and business model risks, Mycroft’s offering seems relatively safe as a whole.

Mycroft AI’s revenue sharply declined from 2019 to 2020 due to a lack of new products, and the second-generation Mycroft smart speaker is still under development. Although it has received many pre-orders, the speaker will not become a source of revenue until it reaches the market. With the current competition, a portion of the voice assistance market share will come from customers’ personal devices, including their phones and TVs. This will eat into Mycroft’s market share. In addition, investors should note that the company’s current valuation seems high, as its revenue multiple is substantially above the industry average. Furthermore, in a liquidation event, Mycroft’s debt holders will receive priority over its investors.

Voice assistance technology is a high-potential market growing at an impressive rate. Although it is still being developed, Mycroft AI’s second-generation device has garnered popularity among its community, with more than $1 million in pre-orders. In addition, more than 60,000 developers are building its software database. Mycroft’s team members are deeply experienced in both hardware design and software development. More importantly, Mycroft’s focus on data privacy makes its products stand out among competitors — especially during a time when consumers are becoming more concerned about big tech companies like Google and Facebook abusing their access to user data. This unique approach could make Mycroft a strong acquisition target, creating exit opportunities for investors.

Mycroft AI is a privacy-focused voice assistant platform that includes on-device software. The company has received support from several accelerators such as Techstars and 500 Startups. Mycroft’s raise comes with a few concerns, including financial troubles such as debt and a decline in revenue between 2019 and 2020. All things considered, Mycroft’s current valuation seems high. 

But Mycroft’s loss of revenue is largely attributed to a lack of products. Its second-generation smart speaker is being developed and has already received more than $1 million in pre-orders, which is a promising signal that its revenue is on track to increase. Mycroft offers a differentiated service in a large and growing market, which gives the company a better chance of success. And Mycroft’s team has strong operational, design, and exit experience to steer the company in the right direction. Therefore, Mycroft AI is 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.