What started as an effort over a decade ago to bring together Detroiters through the world's game has grown into a professional team that has consistently redefined what an American soccer club can be. Detroit City FC is more than a soccer team. DCFC is memorable, fun, rabid, community-oriented, winning, authentic, professional, affordable, inspiring . . . and now something you can be a part of as an owner.
Deal Link: https://wefunder.com/DCFC/about
Company Overview: https://www.detcityfc.com/
The investment is to serve two purposes, one to keep the team afloat during Covid, and to upgrade the stadium they are leasing until 2035. Both reasons don’t make me confident that an investor will see a return on their investment and this feels more like goodwill. If they owned the stadium, I might feel different but it still doesn't feel like this raise will be used to grow their revenues exponentially, it feels more like maintenance. Secondly, I feel the team is on shaky ground because they mention this raise will help them last through COVID, and maybe that's a great opportunity for fans to get a piece of the pie if they think the team will be around and grow post Covid... I just don’t get that feeling. The biggest winner of this deal is the city of Hamtramck which will get a renovated stadium that they can lease for money...
Furthermore, there are signs of players wanting to come in to create a top-level team for Detroit, DCFC is currently at the third level and I don’t see them being the team at the top at the end of the day.
I desperately wanted to invest in my home town team, but there are too many signs that say pass for me. I was even going to make this as an ego invest and go against what I found just to say I am an owner of a pro-sports team, but I couldn’t. I hope missed out on a big-time goal here, because it would be great for Detroit!
Total Amount Raised: $1,152,966
Total Round Size: $1,070,000
Raise Description: Seed
Seed Minimum Investment: $125 per investor
Investor Security Type: Common Stock
Valuation Cap: $10,800,000
Offering Type: Equity
The 6 Calacanis Characteristics
A startup that is based in SV?
Note: It’s based in my great home town of Detroit.
Has at least 2 founders?
Note: Has 5 founders
Has the product in the market?
Note: Product has been in the market for 8 years
6 months of continuous user growth or 6 months of revenue?
Note: Promising signs that they have grown every year, with Covid growth rates are down. Outside of 2020, I think they would have hit this.
Note: Iggy Pop invested... but doesn’t really bring anything to the table, just celebrity support for a community-based team
Post-funding, will have 18 months of runway?
Note: In their deck, they specifically mention that they are raising to keep the team afloat for the next 18 months while there is uncertainty around COVID.
The 7 Thiel Questions
The Engineering Question
Analysis: There is no engineering team working on the product.
The Timing Question
Analysis: Raising during Covid can either be great or horrible, I think its bad timing because they are struggling and have lost their main revenue stream and sports viewership has been down during the pandemic. Smaller operations are the first to go.
The Monopoly Question
Analysis: They are in the third tier of professional soccer and the 5th sports team in Detroit. There is even talk of one of Detroit’s billionaires bringing in a team to compete at the Top-Tier of soccer level. Point is, there are other players who can come in and enter the market with relative ease with more financial backing.
The People Question
Analysis: The team has been around for 8 years and they have built the club in a truly grass-roots fashion, kudos to them. However, in sports, it is all about the money, and they seem to be lacking the large institutional backing to really take this team to the upper level.
The Distribution Question
Analysis: While they have a monopoly on Detroit soccer, stadiums are not able have fans and they are streaming their games. They are also overshadowed by bigger leagues. They do have a strong fanbase, where 83% of their friends have brought first-time fans to games. They are extremely dependent on referral marketing, and its been a great channel but they sorely lack in the other distribution channels.
The Durability Question:
Analysis: If things were normal, they’d still have a durability issue where other owners could come in and crowd them out (which there is a lot of speculation already). Furthermore, we are seeing sports are not as durable as previously thought with sports media ratings down. By being a small local team, that depends on in person interaction they can’t compete with the larger teams that are even facing a downturn in the pandemic.
What is the hopeful secret?
The hopeful secret is their fans are very loyal and can help carrier the team and keep speaking the good news of DCFC. They’ve already oversubscribed on the deal, and if they can make it out of Covid they might be able to push the team up to next tier where there is more earning potential, then who knows!
What has to go right for the startup to return money on investment:
- Covid needs to change allowing fans to return to the stadium in the upcoming season. This way the fans can keep bringing more attention to their team.
- The team needs to go on an incredible run, so they can move up to the next tier.
What the Risks Are
- The improvements that are making to the stadium they are leasing don’t improve the experience and therefore don’t drive more fans.
- The team doesn’t exceed expectations and jump to the 2nd Tier of MLS and remains in the 3rd level with capped earnings
- Covid continues to put future seasons at risk and the team fades into obscurity.
This is where I’ll post updates about the company. This way all my notes from offering to post-offering updates will be on one page.
Review these deal memos every time the startup raises a new round
Test if the original thesis still applies
Notice trends in how you think