Introduction
| Name | QPay |
| About | Automated AI-powered financial literacy for students |
| Headquarter | Sydney, Australia |
| Raise Description | Series A Crowdfunding |
| Security Type | Fully Paid Ordinary Shares |
| Pre-Money Valuation | $14,994,976 |
| Current Round Size | $1,500,000 |
| Crowdfund Platform | Birchal |
| Existing Investors | Proto Investment Partners aka Sydney Angels Angelcube Startmate Blackbird Ventures Steve Baxter (Sharktank Australia) Other angel investors. See offer document for more details. |
| Key Competitors | TidyHQ Campus Labs Uni One |
| Other Competitors | |
| Related Webinars | Sharktank Pitch in 2018 – $380k for 8.4% at $4.5M valuation |
The Startup Investigator Scorecard
| Characteristics of Good Problems | : | 18 | / 30 | 60.0% |
| Characteristics of Ideal Solution | : | 22 | / 30 | 73.3% |
| Traction to Date | : | 14 | / 20 | 70.0% |
| Business Model Defensibility | : | 14 | / 20 | 70.0% |
| Chracteristics of Founding Team | : | 23 | / 35 | 65.7% |
| Total Overall Score | : | 91 | / 135 | 67.4% |
| Peter Thiel 7 Questions (Product) | : | 23 | / 35 | 65.7% |
| Berkus Method (Risk) | : | 18 | / 25 | 72.0% |
TL;DR
QPay is a student engagement management SaaS provider based in Sydney, Australia. It markets itself as a ” Automated AI-powered financial literacy for students” but at its current state, it mainly creates products / services to support universities in managing student engagements i.e. student unions, clubs / societies and university merchants. It managed to create a transaction / savings account product with Mastercard debit card for students and hence interact with students through the product. This is a relatively intuitive approach to penetrate into the millennial (age 18-25) banking market as the product was pitched as a replacement to traditional loyalty cards typically issued by student unions and clubs / societies for students to access membership benefits. A debit card can solve the same problem (i.e. allowing students to access discounts and cashback deals with participating merchants) and more.
The administrative burden of managing a student union or club / societies in universities has been a problem since the very start. The process of managing student engagement has evolved over-time from very manual to less manual with the creation of the internet and cloud productivity tools. However, there has been a lack of an end-to-end solution and that’s where QPay comes in. The serviceable available market (SAM) for Australia and UK is ~$50M, and ~$10.6B at global scale.1 QPay is expected to achieve a revenue of ~$2M in FY21, hence there are significant more room for growth. The only possible downside to scale now is timing, where many universities in Australia is suffering from lower international admission and hence lower budget to operate. The industry is expected to contract by 6.9% in 2021.2
Is QPay current solution 10x better than existing solution or competition? It’s probably not, but its competitive edge lies in the ecosystem of products / services (i.e. coverage) it boasts in supporting student engagement services. It seems to have achieve product-market fit with presence in over 100 universities across the world and have signed enterprise agreement with 8 universities, which allows all services offered by QPay to be implemented across those campuses. The business model is clear with multiple revenue streams contributing a reported 12% gross margin. Its solution are also scalable as the marginal cost of acquiring additional customers does not proportionally increase cost.
QPay has managed to gather significant traction to date, with revenue growing ~2.3x every year since 20173. They aim is to scale aggressively in the next 18-24 months with the funds raised in this crowdfund. However, there was no clear timeline in terms of how QPay plans to expand and deliver on their plans in the next 18-24 months. The high level GTM strategy is to focus on the commonwealth countries of Australia, New Zealand, UK and Canada with the “Top-Down” approach of acquiring universities instead of individual clubs / societies.
QPay has a business model that can potentially build a strong moat as it scales. Once a university and / or club gets onboarded to the QPay platform, the direct financial cost of switching might be minimal but the logistical cost can be significant as existing club members have to be migrated to a new system. Club members would also have to reconfigure tooling i.e. download / use a new app or re-apply for a different loyalty card / debit card with another provider. These costs are more significant than the cost of ending the contract with QPay. There are two key favorable network effects as QPay scales.
- 2-sided Network Effect where more universities come onboard, more merchants would be willing to come onboard as well because of increased exposure the merchants can get.
- Data Network Effect where more universities come onboard, more user behavior data QPay can collect and study, and the better it can provide services to its universities through ML and AI.
The original founding team consists of three members. Two of the three previously worked together for 4-5 years building Imagine Team, one of the biggest app development agency in Canberra. However, one of the founding member has since “exit” the business? The team has a good mix of technical, financial and operation background which will be crucial for the next phase of growth. The team is supported by industry leading accelerator in Australia i.e. Startmate and Angelcube and prominents angels i.e. Sydney Angels. The team is also backed by Blackbird Venture and won funding through Sharktank Australia. Andrew Chick which is a prominent figure in the fintech space is also a non-executive director for QPay and he will be able to provide the connections and advice on strategic direction for QPay.
Overall, QPay looks like a solid business to invest in with quite a fair valuation. The pre-money valuation of $15M is approximately 8 times revenue multiple (assuming QPay achieve its expected revenue of $2M in CY2021). It’s burn rate is relatively slow which means the current funding round should be able to allow it to implement its growth plan for the next 18-24 months before further funding is required. It is also already gross margin positive which means that as it scales, it will directly contribute to the bottom line assuming fixed cost remains relatively fixed.
1 Based on QPay’s offer document
2 https://www.ibisworld.com/au/industry/university-other-higher-education/600/
3 Except the Covid year
Table of Content
- Detailed Breakdown of Scorecard
- Characteristics of Good Problem
- Characteristics of Ideal Solution
- Traction
- Business Defensibility
- Characteristics of Founding Team
- Peter Thiel 7 Questions for Product Innovation
- Berkus Method for Assessing Risk
- Interview with Experts
- Questions for Startup
- Offer Document
Detailed Breakdown of Scorecard
1. Characteristics of a Good Problem
| Questions | Score | Comments |
|---|---|---|
| Size – Is the problem popular? | 4 | The serviceable available market (SAM) is ~$10.6B across the whole world. The SAM for AU and UK only is ~$50M. The problem is faced by all higher education providers in the world, but end-to-end solution provider in this space is still limited. |
| Growth – Is the problem growing? | 3 | There is no data to back the growth of the market, but according to a report from IBISWorld, the industry revenue in Australia is expected to contract by 6.9% for FY21. This is not a surprise as the Covid-19 lockdown has significantly reduced the admission of foreign students in local universities. There is a risk that the recovery might take some time, which might also limit the growth of the student services market in the next few years. |
| Urgency – Does it need to be fixed ASAP? | 2 | Existing manual processes can be cumbersome but they can still work. QPay provide a platform that will automate and streamline student services management. Hence, it’s a “very nice” to have but not an urgent requirement. |
| Costly – Does it require capital to solve? | 3 | The cost of building the platform may not be too expensive considering QPay has built its current suite of products with just $1.3M of funding. But the time spent to build the right product i.e. to get product-market fit is significant. |
| Mandatory – Can the problem be enforced? | 2 | It is highly unlikely that the government will mandate every university to use a student services management platform. This decision will always be up to the individual university, and their decision-making will mostly depend on the value proposition that QPay provides. |
| Frequency of Occurrence – Is the problem encountered often? | 4 | Yes. Student services management is an everyday problem for every university and their associated clubs / societies. |
2. Characteristics of Ideal Solution
| Questions | Score | Comments |
|---|---|---|
| Is the solution innovative and 10x better than existing competition? | 3 | The QPay platform may not provide a solution that is 10x better than its competition but its competitive edge lies in the fact that it has a vertical of services that can support the “end-to-end” process of managing student services in universities. This can streamline the UX of using the platform and increase stickiness. |
| Is the solution scalable? Increase in revenue does not require proportional increase in cost. | 4 | Yes. Aside from increase in cloud / database cost and transaction-based cost, the platform has very low marginal cost with increased usage. |
| Is there a product-market fit? Are customers willing to pay for the product? | 4 | There are currently 8 universities that have signed the enterprise partnership agreement with QPay and this allows all services offered by QPay to be implemented across the campus. According to the offer document, QPay has presence in over 100 campuses worldwide and 1 in 4 students in Australia uses QPay. |
| Is there a clear value-proposition for the customers? Does the solution improve the unit economics of solving the problem? | 3 | |
| Is there a clear target customers for the solution both immediate and in the future? | 4 | QPay is targeting universities in the commonwealth countries i.e. AU, NZ, UK and Canada in the next 24 months. |
| Is the business model clear and profitable? | 4 | The business model is clear and seems to be quite profitable with reported gross margin of 12%. However, scale is required for the business to be viable in the long term. |
3. Traction to Date
| Questions | Score | Comments |
|---|---|---|
| Does the company have a functional MVP? Are early customers willing to pay for the MVP? Are there any industry recognition or benchmark that shows the MVP is superior? | 4 | The company has launched their MVP 4 years ago and since been focusing on improving the platform through. There has been really good traction in terms of product uptake with ~2.3x revenue growth per year. According to the offer document, 1 in 4 universities students in Australia are using QPay and the brand has a NPS score of +36. Is the NPS score high, average or low? NPS score benchmark is typically relative to industry performance. See link for more details. |
| Is the company quick at iterating on their MVP? Does the company have a good feedback channel? | 3 | There is no clear information on how quick the team iterate on their MVP but they spent 3-4 years building a product that seems to have nailed product-market fit. And the fact that they pivot their GTM strategy from bottom-up to top-down and managed to get a good results showed the ability to adapt and change. |
| Is the company securing sales for their products at a good rate? Is the products getting exposure and demand from potential customers? Is the company securing strategic partnerships to gain exposure or expand market share? | 4 | The company has been doubling their sales every year since launch in 2017. The company is expected to achieve annual sales of $2M in FY21. |
| Does the company have a solid plan / deliverable to progress to the next stage i.e. commercialise the product, expand to other markets etc.? Is the planned use of fund inline with accomplishing the capital raise deliverable? Does the company know what their biggest challenges are for the next stage and has a plan to address them? | 3 | There was no clear timeline in terms of how QPay plans to expand and deliver on their plans in the next 18-24 months. But the goal is to acquire more users and continue to build the product. |
4. Business Defensibility
| Questions | Score | Comments |
|---|---|---|
| Is it easy for competitors to re-create similar / more superior solution? Is the technology developed by the company protected? | 3 | The platform itself may not be too expensive to rebuild i.e. cost to replicate is relatively low but the time spent on iterating the product to satisfy the requirements of its target customers i.e. achieve product-market fit is significant. |
| Is it easy for existing customers to switch to a competitor? | 4 | Once a university and / or club gets onboarded to the QPay platform, the financial cost of switching might be minimal but the logistical cost might be significant as existing club members have to be migrated to a new system, and club members also have to reconfigured tooling i.e. download /use a new app or re-apply for a different loyalty card / debit card with another provider. These costs are more significant than the cost of ending the contract with QPay. |
| Is there a favorable network effect as the customer base scale? | 4 | There are two key favorable network effects as QPay scales. The first one is the 2-sided network effect where the more universities come onboard, the more merchants would be willing to come onboard as well because of increased exposure the merchants can get. The second one is the data network effect. The more universities come onboard, the more user behavior data QPay can collect and study, and the better it can provide services to its universities through ML and AI tech. |
| Is there an element of “hook” in the solution? | 3 | It is hard to revert back to the manual processes once universities are given the luxury of using a tool that help streamline the process. However, if circumstances change that prevent the universities from having such luxury i.e. budget cuts then the universities might have no choice but to revert to the cheaper alternative. |
5. Characteristics of Founding Team
| Questions | Score | Comments |
|---|---|---|
| Does the founding team has a unique experience with the problem? Is the reward structure of the company focused on motivating outcomes? | 3 | The founding team consists of universitiy graduates that were once active members of their faculty. They have been a part of the leadership team for their clubs / societies when they were in uni and understood what is means to run a club. All members of the founding team subscribe to ESOP with a default vesting arrangement of 25% vested after 36 months with the remaining 75% vested the next 3 quarters in equal proportion. |
| Does the team have deep experience in the industry / business segment? | 3 | |
| Does the team work well together? Has the team previously worked together? | 3 | The team has been working together for about 2 years now and there was no indication that things are not working well. Andrew Clapham used to be part of the founding team but has since been “out” of the business. Curious to know what happen. |
| Does the team have the ideal number of founders with varying skillsets? Does the team have a good balance of commercial and tech skillsets depending on the stage the company is at? | 4 | The team has a good mix of technical, finance and operational skillset / experience. The next phase of growth will focus on product improvement and customer acquisition. |
| Does the team has an impressive list of advisers who are leaders in the industry? | 4 | The team is supported by industry leading accelerator in Australia i.e. Startmate and Angelcube and prominents angels i.e. Sydney Angels. The team is also backed by Blackbird Venture and won funding through Sharktank. Andrew Chick which is a prominent figure in the fintech space is also a non-executive director for QPay and he will be able to provide the connections and advice on strategic direction of QPay. |
| Does the team have prior startup experience and successful exits? | 3 | Zakaria previously founded a app development company which he successfully exited, but that’s the only venture under his belt. |
| Does the team have a track record of getting things done? | 3 |
Peter Thiel 7 Questions for Product Innovation
| Questions | Score | Comments |
|---|---|---|
| Engineering Are they creating breakthrough tech instead of incremental improvements? | 3 | They are not creating breakthrough technology but they are building a solution for a decades old problem. Their solution will help streamline the process of managing student services in university and I especially like the idea of using a Mastercard debit card to replace the loyalty card solution in providing deals / benefits to members of socities / clubs. |
| Timing Is now the right time to start the business? | 3 | The business has been launched since 2017 and is currently in the phase of scaling up. Is it the right time to scale now? Maybe not due to the impact of Covid-19 on universities. However, the future outlook is good as restrictions ease with greater vaccination coverage, |
| Monopoly Are they starting with a big share of a small market? | 4 | They are trying to dominate the ANZ market. According to the offer document, it currently service 1 out of 4 students in Australia. |
| People Do they have the right team? | 3 | See detailed commentaries above on “Characteristics of Founding Team”. |
| Distribution Do they have a way to not just create but deliver the product? | 4 | They are currently focusing on the “Top-down” approach as their GTM strategy i.e. acquiring universities instead of individual clubs / societies within the university. The approached has been tested and reportedly managed to acquire clubs signup 3.4x faster than the “Bottom-up” approach. |
| Durability Will their market be defensible 10 years into the future? | 3 | The product has some favorable network effects (see above comments on “Business Defensibility”). The switching cost for universities can also be significant due to the logistical challenge of having to migrate existing members to a new platform. |
| Secret Have they identified a unique opportunity that others don’t see? | 3 |
Berkus Method
| Elements | Score | Score Description |
|---|---|---|
| Valuable Business Model – Base value | 4 | The business model aligns with the company goals, is self-reinforcing and robust. |
| Available Prototype – Reducing technology risks | 4 | The product fits the market need. There is a lot of positive customer feedback as well as an increasing number of sales each month. Churn rate is also low. |
| Abilities of Founding Team – Reducing implementation risks | 3 | The roles in the team are defined and clear. The CEO has previous management experience in a bigger corporate environment. |
| Strategic Relationships – Reducing market risks | 4 | There are several strategic relationships with big corporates. |
| Existing Customers – Reducing production risks | 3 | There are some regular customers. The company is regularly spending money to attract new customers and developing sales / customer acquisition fit. |
Interview with Experts
Questions to Startup
Link to discussion: https://www.birchal.com/company/qpay/discuss
- QPay is essentially a student engagement management services provider. Why does it try to market itself in this crowdfund as “Automated AI-powered financial literacy for students”? Is that the long term vision with the current product suite a stepping stone towards a banking solution for university students i.e. through the Mastercard debit card product?
I think QPay is unique in it’s scope across multiple stakeholders and products. It is our belief that the best companies are multi-faceated and diversified. Case in point- if you look at the most successful companies, it would be quite difficult to describe them in a single sentence. It is precisely their service diversity that allows them to be so successful, since one service line usually reinforces another, in ways that make them competitive and unique in value. I wouldn’t call our goals to help people manage their money a stepping stone, but a service line, that exists and is unique in value due to the other service lines we provide, and our focus on a specific demographic (like all of our other services). - For the club platform fee, does the clubs / societies only get charged when sales is made through the platform? Or do they get charged a fixed fee as well?
Depending on what kind of interaction it is, it can be both, but the majority of interactions by clubs/societies are transactional. - I understand that the current raise is mainly to fund the growth plan and platform enhancement in the next 18-24 months. What is QPay’s key deliverable in the next 18-24 months?
[Pending] - From the Sharktank pitch 3 years ago, the founding team consists of 3 members i.e. Zak, Mo and Andrew. However, Andrew seems to have exit the business he helped found as I could not see him in the org chart. Can you please shed some light on what happened here?
Andrew left for personal reasons. Being in a startup is hard, and it’s a pity that mental health (particularly in men) isn’t something that too many people talk about in startups. From an impact to the business perspective, this occurred more than two years ago, and since, we’ve grown the team by more than 3 times, revenue more than 4x, and the overall burn remained relatively the same.
Offer Document
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