- truCrowd equity valued at $3.0 million
- $1.5 million in projected revenue in 2019
- Niche crowdfunding portals poised to accelerate
- Floor offering price of $.35
Digital Asset Monetary Network Inc. (DATI) is a technology accelerator that helps startups attract capital and creates shareholder value using their Public Accelerator Incubator (PAI) model. The company boldly claimed a 15X increase in equity over the course of the past year as the value of the stock dropped a precipitous 80%. Reaction to the news was muted at best. Investors have been slow to grasp the true potential of an accelerator and how its portfolio of companies is marked to market. Unfortunately there is no marked to market evaluation of DATI’s equity portfolio of private companies.
The only measure of value is from company guidance or the private evaluation of different ownership stakes the company has earned an equity interest in. The company only reports the amount of the investment on the balance sheet. This inability to mark to market has created a valuation gap which represents opportunity for the long term investor and a curse for the short term trader. DATI currently trades with a 100% bid ask spread. This currently represents a $2.5 to $5.0 million market capitalization. Based on company guidance and market metrics, DATI is a grossly undervalued asset just on the valuation of truCrowd.
truCrowd – Crown Jewel
A successful incubator primarily needs two things, access to capital and technology companies to fund. DATI’s initial approach was the Angel’s Plus program which offered Angel Investors a quicker path to liquidity without affecting their underlying investment. This strategy has morphed after DATI took a 19.9% equity stake in TrueCrowd and Fundanna, a crowdfunding portal for technology and cannabis companies respectively. CEO Ajene Watson said “Our equity portfolio is comprised of several companies, but the primary increase in value is directly attributed to the significant growth and visibility of truCrowd.” DATI owns stakes in over 10 companies but truCrowd represents their largest stake and perhaps the main thrust of their focus from this point forward. In the latest press release the company said “The equity crowdfunding operator itself [truCrowd] has seen an estimated 3000% increase in enterprise value since becoming part of DigitalAMN’s PAI program’s equity portfolio.” The company invested $129,750 in truCrowd and Fundanna in exchange for approximately 20% which means the starting enterprise valuation was about $650,000. The current company valuation estimated truCrowd is worth $19.5 million. This valuation is very much in line with the market because StartEngine Crowdfunding, Inc. is currently raising money on truCrowd’s portal at a $120 million enterprise valuation. StartEngine also happens to be ranked #1 by VentureBeat in number of campaigns completed last years. The #1 ranked crowdfunding portal is now using the #7 ranked crowdfunding portal to help it raise money. Seems like there may be more to this story in the future. .
TruCrowd has become the focus of the company because of the multiplier effect it gets off of driving incubators through the truCrowd platform. TruCrowd gets a consulting fee off the startup companies and once the funding is raised they are assured payment of their fee. In addition, the portal serves as a lead generation tool exposing its parent company, DATI, to a number of high quality investment prospects. This gives DATI “first dibs’ on some of the next unicorns further enhancing DATI’s portfolio.
Significant Growth Prospects in 2019
According to CEO Watson, DATI “anticipates onboarding roughly 60 companies into its PAI ecosystem in 2019.” The lowest onboarding fee is $25,000 which represents at least $1.5 million in revenue for DATI in 2019. Based on 26.2 million shares outstanding EPS could be close to $.06 in 2019. These revenue estimates don’t even factor in the revenue generated on the crowdfunding portals which are reinvested in the business.
Niche Crowdfunding Portals Find Stride
Fundanna is the only Reg CF portal exclusively for Marijuana. They have a first market mover advantage and have firmly established themselves with a record $1.39 million raised on their first deal. With the passing of the farm bill, CBD and cannabis operations are becoming more mainstream and startups are popping up all over the place making this a target rich environment going forward for Fundanna. DATI also owns an interest in a cryptocurrency crowdfunding portal call CryptoLaunch. As cryptocurrency emerges out of its cold winter this funding platform should also benefit from the increased pace of activity.
Anti Dilution Clause
The company bylaws prohibit the company from raising equity below $.35. The CEO even purchased stock back at $1.00 per share to prevent selling shareholder from liquidating their shares. The capital structure of the company is very strong and prevents any toxic dilution to shareholders. In the long run the price of the stock will be significantly higher than this floor pricing. Since the stock currently trades at prices significantly below this floor there is tremendous upside potential for long term investors.
The true value of a PAI won’t be realized for many years until one of its portfolio companies becomes the next “Uber” and the portfolio of private companies eventually becomes a holding company of publicly traded companies. In the interim investors need to look at the growth prospects of the individual companies. Focusing on the valuation of truCrowd as the marquis company is an excellent way to achieve a ballpark valuation of DATI. One major thing that investors might be missing is that DATI has warrants for the purchase of an additional 20% of truCrowd and by not factoring that into the equation the valuation of DATI is understated by an order of magnitude. This means that on a fully diluted basis truCrowd is worth $7.8 million which is considerably higher than the paltry $2.6 million market capitalization of DATI.
There is also a high barrier to entry into this market and with a top 10 crowdfunding platform and the top marijana platform these platforms seem ripe for acquisition if they continue to gain traction. Investors can also see the value of their investment increase in real time every day by visiting the truCrowd site and looking at the capital being raised on the platform and the acquisition of new users. The company plans to aggressively onboard 60 companies this year which would translate into at least $.06 in earnings. If a majority of the new clients choose the truCrowd platform that would make them about 25% the size of StartEngine putting them at a $30 million valuation by the end of the year. This translates into a 9 month price target of $.46 /share. DATI stock currently trades between $.10 and $.20 despite EPS potential of $.06/ and an estimated value of $.46. Long term investors willing to bid for the stock could see a 2-5X return this year as word spreads of the massive valuation gap.
Disclosure: PSInvestor has not been compensated for the above mentioned article but does have a LONG position in the company in which we may add, sell or continue to hold this position in the near future. For a full disclaimer, please click here.