What is your pre-money valuation?
Unbound's pre-money valuation is £16.4m.
How did you arrive at your valuation?
We have benchmarked our valuation against other crowdfunding platforms and marketplaces and believe it’s competitive in the current fundraising environment. For example, in 2018 Crowdcube raised at a valuation of £74m based on revenues of £6m, in 2017 Crowdfunder raised at a valuation of £17m with forecasted annual revenues of £2.2m and also in 2017, Seedrs raised at a valuation of £44m with a turnover of £2m.
What’s your exit strategy?
We believe we’re an attractive acquisition or merger opportunity for a large trade publisher wishing to use our direct-to-consumer platform to monetise the books/intellectual property they are acquiring at a range of price points beyond the average price paid in a book shop. Another strong incentive for them would be to mitigate the risk/outlay on author advances, something our data science can uniquely provide insight on. Our work developing a new income stream fed by both crowdfunding and IP acquisition might also make us attractive to online/tech companies with global platforms such as Amazon and Google.
What’s your marketing strategy for executing the plans in your deck?
We have and will continue to pursue strategy based on content marketing. Each time we launch a new project, the author/creator brings their own network of fans and supporters. By making sure we find, sign up and fund the most innovative author/creators we add new users to our community who can then discover and support other projects on the Unbound site. We also build loyalty from core fans through our Reading Club, our online magazine, Boundless, and our book recommendation podcast, Backlisted.
How much revenue have we generated to date and what’s the breakdown of that income? How do we see this increasing?
Unbound has generated £8.6M in revenue, from incorporation in 2011 to the end of the financial year in 2018 (30th June). This is predominantly split into three revenue streams: crowdfunding, superfunding and trade sales.
Crowdfunding Revenue (AVG 57% of total revenue, FY16 to FY18)
When a project reaches a 100% of its target it ‘funds’. The financial target of a project is the amount that’s recorded as crowdfunding revenue, in the month it reaches 100% of the target. An average project may have a target in the region of £15-20K.
Superfunding (AVG 14% of total revenue FY16 to FY18)
Once a project has funded it will enter the production stage. Typically, this can last anywhere between six and 18 months prior to publication. During this time the project will continue to receive pledges through our platform.
All pledges received against a project that has already funded (reached 100%) are recorded as Superfunding Revenue in the month that it’s received.
Trade Sales (AVG 14% of total revenue FY16 to FY18)
As we approach publication date Unbound will determine an appropriate print run for each title based on estimated sales targets. All revenue generated through the sale of both physical and digital copies of each book are recorded as trade sales revenue in the month generated.
Books are sold through all traditional UK publishing channels such as Amazon, Waterstones, Bertrams, Gardners, WHSmith and other independent book shops. Trade sales revenue is also generated through export sales, including the US where we have recently set up a distribution arm with Consortium.
As we continually to improve our machine learning algorithm, we are able to target those authors/creators with more valuable online networks. This will cause a shift in the revenue mix; with superfunding increasing as a percentage of total revenue.
Can you provide a breakdown of how you make margins from each book?
Unbound generates profit from projects in three separate ways:
- We charge a 10% platform fee on all pledges received per successful crowdfunded project.
- We charge a fixed overhead fee per successful crowdfunded project.
- Once a projects ‘overfunds’ (receives pledges over 100% of the target), all profits from superfunding are split 50/50 with the author.
Crowdfunding generates a variable gross profit margin (GPM) depending on the financial target of a project. This is illustrated with the following: a book with a £15K target will generate a GPM of 45% and a GPM of 36% on a book with a target of £20K. (GP = Fixed Overhead fee of £5,200 + 10% of the amount raised).
Superfunding generates a consistent GPM of 45%, once we account for:
a) the cost of printing supporter copies of the book
b) the author's 50% share of the remaining profit
Trade sales GPM varies by project, due to different unit print costs and Recommended Retails Prices (RRPs), however our GPM target on physical sales is 28%.
Maximising Superfunding revenue is key to Unbound’s strategy. It has the highest GPM of the three main revenue streams. In addition, the project has already launched and funded at that stage so the associated costs to generate additional revenue are small.
How defensible are you? What’s to stop a big publisher just turning a solution like this on? Or Amazon?
Unbound has no obvious competitor. Our hybrid model combines a direct to consumer crowdfunding platform for our users with the full range of publishing services for author/creators.
Few of the large traditional publishing groups have shown any real intent to build a direct to consumer platform. Their own websites usually default to Amazon, or to other online book retailers. This has helped consolidate Amazon’s market dominance.
Amazon introduced direct sales of physical books via their online platform and publishers did not act. Amazon went direct to consumer for e-books by developing the Kindle and now they dominate direct to consumer in audiobooks via Audible. Again, publishers have not attempted to build any rival technology. This confirms the impression that publishers - even the very largest - do not believe they are equipped to run fulfilment or distribution to individual consumers direct or they would have done it by now. They also do not have appropriate customer service departments or the technical ability to build a complex online consumer platform.
Our machine learning tool is also based on seven years of transaction data, so any publisher would have a lot of catching up to do even if they did attempt to replicate our business model. It would take a long time to build up enough data to build anything remotely like the machine we have built.
Amazon, on the other hand, spend heavily on technology, this preserves their market leadership in logistics, ensuring that inventory across all product areas can be warehoused more efficiently, sold more cheaply and delivered more quickly than by any other marketplace platform. This works very well for standard editions of physical or digital books but even Amazon are not equipped to warehouse and distribute signed books, experiences or events for books that don’t yet exist, which is what Unbound sells.
Will we need to raise any more money to achieve our plans? / Will your investment be further diluted?
We expect this raise to be enough to get us to profitability.
What are your plans for getting more backer/readers on the platform?
Unbound’s business model is inherently viral because our authors bring their superfans via their extensive networks which increases our user numbers. A significant number of these users then pledge for other Unbound projects. 33% of pledges we have taken so far have been by repeat customers (184,373 total, 61523 by a returning customer). Returning customers also spend more, on average, than first-time buyers. The average pledge value between 2016 and 2018 for a first-time purchase was £39. For a second-time purchase, the average value was £45.
The Unbound product portfolio and roadmap contains multiple ventures aimed at rewarding this loyalty and further increasing overall purchases made by existing members, including our Reading Club Scheme, and curated content features within our website, email and social channels.
How will you maintain quality of writing as you scale?
At Unbound we choose which books are featured on our platform. Prospective authors can’t simply load their work on to our site. The quality threshold is essential to attract the best new writers but our criteria for acceptance are much broader than a traditional publisher’s - the problem with their model is not a lack of great books, but a failure to make most of those books economic. This because they rely on intermediaries to sell to their target audience rather than going direct. The approval process for Unbound is approximately 8 weeks from submission to decision.
I'm a potential investor with more questions, who do I ask?
Please send your question in an email to email@example.com and we'll get back to you as soon as possible.
Follow the link below to get involved. Judging by the huge amount of interest we’ve had ahead of our launch, we’re expecting our campaign to close rapidly, so registering is the best way to make sure you don’t miss out.