Moore Equity Partners - Investment Memo (3.2.2023)

1. A+ founder/problem fit
2. Massive TAM and favorable industry tailwinds
3. Encouraging competitive landscape

Key Deal Terms

• Company: Bucephalus, Inc.
• Tagline: Powering brands' supply chains with AI
• Round: Pre-Seed
• Instrument: SAFE Agreement
• Valuation Cap: $8mm (post-money)
• Discount: None
• SPV Facility: Bucephalus Preseed SPV - Allocations Funds LLC
• Manager: Barrett Investment Group (with Moore Equity Partners participating on equal terms)
• SPV Terms: 1%/10%
• Minimum Check Size: $5k (the portal will say $10K, but you can put $5K and I will have it approved)
• Deadline for Commitments: Saturday March 4th
• Diligence Questions: Submit directly via email
• Fundraiser Deck: Allocations.com Investor Portal
• Invest Here: Allocations.com Investor Portal

Let's get into it.

Executive Summary:

Bucephalus, an AI demand-planning software for small and medium-sized retailers, aims to solve the problem of poor inventory-planning, which costs retailers over $1.8T per year. Bucephalus integrates with platforms like Shopify and Amazon to access customers' data and provide actionable recommendations and insights. The founder, Nick DeGiacomo, built Amazon's AI demand-planning software and is rebuilding those tools for smaller retailers. Bucephalus is targeting a $50B market with 7.5 million merchant accounts across the top three ecommerce platforms. Its competitors, including legacy ERP platforms and other startups, have failed to address the needs of smaller retailers. Bucephalus is implementing a SaaS subscription model and is currently focusing on gathering data to train its AI model. The company plans to use the funds to improve the product and prepare for hyper-growth.
 
The Problem

Poor Inventory Planning costs retailers over $1.8 trillion per year. If a retailer orders too little inventory, they miss out on sales. If they order too much inventory, they tie up capital unnecessarily.

Inventory planning disproportionately affects small-and-medium businesses (SMBs), who lack the enterprise-level resources to weather these logistical dilemmas. 
 
The traditional solution for SMB retailers (whether eCommerce or brick-and-mortar) is to hire a demand planner. Dedicated professionals in this space are expensive, require extensive onboarding and data provisioning, and implementation is difficult to evaluate and monitor. 

Solution

Bucephalus provides supply chain solutions to SMBs by providing enterprise-grade AI-powered demand-planning tech, typically reserved for massive retailers like Amazon and Wal-Mart.
 
Bucephalus integrates with platforms like Shopify and Amazon to access its customers' sales, inventory, pricing, procurement, financial, and marketing data. This enables it to form a wholistic picture of its customers' operations. Then it delivers actionable recommendations and insights. See it in action here.
 
Bucephalus's technology improves via machine-learning and its network effect. As the platform acquires more data across more retailers and improves its algorithms, the quality of its forecasts and recommendations improves. Trends for one retailer will often apply to others in adjacent industries.
 
Founder
 
Nick DeGiacomo, the founder of Bucephalus, built Amazon’s AI demand-planning software as an Amazon Data Science Lead and serves as an adjunct professor in Applied Statistics at Columbia – his alma mater..

Nick was tapped to lead a team to develop Amazon's supply-chain response to the COVID-19 crisis, which sparked a simultaneous spike in ecommerce demand alongside a geography-specific shutdown of manufacturers and distributors. Now he’s rebuilding the tools Amazon used to keep its supply chain alive during the crisis for small and medium sized retailers.
 
General off-the-shelf demand-planning solutions aren’t a fit for the highly-specialized world of inventory/supply chain management. The talent pool of engineers with expertise in AI-model building and real-world demand planning is limited, giving Bucephalus a head-start on its competition.

For profiles and bios on the rest of the team & advisors, see the full investment deck on the company's investment portal.
 
Massive TAM and Favorable Industry Tailwinds:
 
Retailers in every sales channel mix require demand-planning expertise to be successful Bucephalus’s initial focus is on Shopify merchants, with immediate plans to expand to Amazon and Woo Commerce. This beachhead would provide exposure to 7.5 million merchant accounts across the top three ecommerce platforms, an estimated $50B market.
 
Morgan Stanley research forecasts a 15% CAGR for ecommerce – growing from $3.3T in 2022 to $5.4T in 2026. Omnichannel retail is table stakes for every brand. Customer data is increasingly scattered across platforms – in order to gain clarity and make informed decisions about their inventory and supply chain, brands need a tool that offers one-click integrations across their sales, ops, and marketing tools.
 
Favorable Competitive Landscape:
  
Legacy ERP platforms like Oracle and SAP have done little to innovate in the SMB space and are too expensive for most retailers. Creating SMB-friendly SaaS products is not their core competency. Historically, these enterprise-grade solution-providers have preferred to adopt a "buy" rather than "build" approach when it comes to consumer or "pro"-sumer level solutions, which may present a promising exit opportunity.

Amazon previously attempted to provide its enterprise-grade tools to SMBs, but ultimately cancelled the program when it failed to gain adoption among its retailers. Retailers ultimately rejected the tools due to a fundamental misalignment of incentives regarding and subsequent distrust in Amazon's ability to provide cost-effective solutions.

Amazon is in the inventory & logistics business. Poor demand-planning benefits Amazon's warehousing margins. Moreover, demand-planning would require merchants to share details about their unit economics and supply chain with Amazon, when they are already being squeezed for every cent of margin.
 
Other startup competitors to Bucephalus remain focused on enterprise-level customers and tailoring expensive solutions for the idiosyncratic and industry-specific needs of large retailers. Invariably, their attempts to scale leave them resembling internal dev shops or consultants for one or two retailers. See the full investment memo on the investment portal for more details regarding the startup competitive landscape.
 
Bucephalus is focused on a scalable solution by achieving velocity by shortening the feedback loop. By quickly implementing their software across a number of small businesses, the AI model can train faster on a more diverse set of data, allowing Bucephalus to figure out how to make their software more intuitive and user-friendly. 
 
Business Model & Traction
 
Bucephalus offers a simple SaaS subscription model. Pricing starts at $100/month for businesses doing $200K - $2M in annual revenue and increases to $1000/month for businesses with $2M - $10M in revenue. For customers with more than $10M in revenue, Bucephalus will negotiate custom pricing.
 
The company is currently focused on growth rather than revenue. To train the model, Bucephalus needs as much data as possible and is processing hundreds of millions of dollars in merchandise from 60+ active users.
 
Use of Funds
 
Bucephalus's capital plan prioritizes hyper-growth:

1. Making their product as self-service as possible; improving integrations to prepare the company to scale rapidly
2. Experimenting with marketing and distribution channels to better understand customer acquisition cost

Bucephalus understands they will likely need to raise again in a few quarters to build out a sales and onboarding team.

Risk Factors

1. Early-stage investment risk: As a seed-stage investor, there is a higher risk of failure or poor performance due to the lack of a proven track record. Startups are particularly susceptible to economic volatility, changes in consumer preferences, and industry disruption. "Never invest more than you can afford to lose."

2. Dependence on key personnel: Bucephalus may be heavily reliant on its founders or other key employees for its success. If these individuals leave the company, it could negatively impact the business, and finding suitable replacements may prove difficult.

3. Market and competitive risks: The company operates in a highly competitive and constantly evolving market. Bucephalus may face stiff competition from existing companies or new entrants, or changes in market trends that could render its product or service less desirable or obsolete.

4. Intellectual property risks: Intellectual property (IP) is often crucial for startups, and Bucephalus may face challenges in protecting its IP from infringement, theft, or other misappropriation by competitors or third parties.

Conclusion

In conclusion, Bucephalus presents a compelling opportunity to invest in a pre-seed AI-powered demand-planning software for small and medium-sized retailers. The company presents a promising, proprietary solution to the problem of poor inventory planning. Bucephalus is user-friendly and has a clear beach-head. The company has a massive total addressable market and favorable industry tailwinds. The founder has a proven track record, having built Amazon's AI demand-planning software, and has build a powerful team of partners and advisors. The company has a head-start on its competition with its specialized expertise in inventory/supply chain management. 

Deal Terms (repeated)

• Company: Bucephalus, Inc.
• Tagline: Powering brands' supply chains with AI
• Round: Pre-Seed
• Facility: SPV (Bucephalus Preseed SPV - Allocations Funds LLC)
• Manager: Barrett Investment Group (Moore Equity Partners Participating)
• Instrument: SAFE Agreement
• Cap: $8mm
• Discount: None
• SPV Terms: 1%/10%
• Minimum Check Size: $5k (the portal will say $10K, but you can put $5K and I will have it approved)
• Deadline for Commitments: Saturday March 4th
• Diligence Questions: Submit directly via email
• Fundraiser Deck: Allocations.com Investor Portal
• Invest Here: Allocations.com Investor Portal