Investment Thesis: Subtle Capital's Strategic Investment in XYZ Company – Pedro Morini

Overview:
XYZ Company stands out in the competitive e-commerce SaaS landscape with impressive
historical financial performance. The company's persistent reduction in Customer Acquisition Cost
(CAC) to $6 and the improvement in both Customer Lifetime Value (CLV) and Contribution Margin
per Order signal a strong market position and efficient operations (See annex). These figures are
indicative of XYZ Company's strategic acumen and potential for sustainable growth.
Advantages:
XYZ Company's consistent increase in key financial ratios over the last six years showcases
effective business strategies. The high LTV/CAC ratio, which reached $209 in 2022 (from $8 in
2016), underscores the company's ability to generate significant revenue from each customer
relative to the cost of acquisition.
The Contribution Margin Per Order's growth to $334 highlights the company's expanding profit
margins per sale, contributing to a robust bottom line.
Strategic Concerns:
The substantial $1 million investment in technology in 2021 does not appear to have dramatically
impacted the growth rate or key financial metrics in 2022. The stability of the Gross Margin at
38.6% and EBITDA margin at 19% between 2022 and 2021 suggests a potential delay in realizing
returns on recent technology investments.
Risk Factors:
Market Saturation: The risk of market saturation necessitates XYZ Company to constantly
innovate to retain and grow its market share.
Technology Integration Risks: The recent heavy investment in technology poses risks of
integration and actualization of ROI. Effective deployment is crucial in the next period.
Operational Scaling: As the company scales, operational efficiency must keep pace to ensure that
customer satisfaction and service quality do not suffer.
Competitive Landscape: Continuous analysis of competitor movements is essential to maintain
XYZ's value proposition.
Investment Condition:
A detailed projection of how technology investments will translate into increased financial
performance. A reallocation of the proposed use of funds, potentially directing a larger portion
toward sales and marketing initiatives to accelerate traffic growth and improve conversion rates.
Investment Recommendation:
Subtle Capital should invest in XYZ Company's $2 million seed round, with a keen eye on the
translation of recent R&D expenses into future financial performance. Monitoring the impact of
technology investment on key metrics in the next fiscal period will be crucial. The investment
offers a balanced risk-reward profile, with potential conditions attached to the fund allocation that
could further optimize growth trajectories.
Annex: Ratios Calculation
2016 2017 2018 2019 2020 2021 2022

1) Customer Aduisition Cost (CAC) 114 37 12 9 7 6 6

Marketing Expenses 2,280,000 1,380,000 690,000 720,000 720,000 750,000 780,000
New Customers 19,920 37,020 56,006 78,444 101,373 121,870 139,642

2) Contribution Margin Per Order: 176 201 230 249 287 317 334
Average Selling Price per Order 192.5 216 244 263 300 330 346
Variable Cost Per Order 17 15 14 14 13 13 12

3) Customer Lifetime Value (LVT) 936 744 782 853 964 1134 1166
Avergage Lifespan of a Customer 4 4 4 4 4 4 4
Gross Contribution per Customer 234 186 195 213 241 284 292

Gross Contribution per Customer: 234 186 195 213 241 284 292
Contribution Margin Per Order 176 201 230 249 287 317 334
Average Number of Order per customer 1.33 0.92 0.85 0.86 0.84 0.90 0.87
Total Number of orders 19,920 25,680 36,240 50,640 63,840 81,840 91,440
Number of Unique Customers 14,940 27,765 42,604 59,133 76,030 91,402 104,732

4) LTV/CAC ratio 8.18 19.95 63.45 92.94 135.72 184.32 208.75

5) Payback (# per order) 0.489 0.001 0.000 0.000 0.000 0.000 0.000
CAC 114 37 12 9 7 6 6
Gross Contribution per Customer: 234 186 195 213 241 284 292