now THAT is a sh*tty investment!

Welcome to this week’s edition of CROWDSCALE, where we bring Shark Tank to your inbox. In today’s newsletter:

• 🚽 Vying for the Throne: One startup’s quest to make public restroom’s not sh*tty

• 🧻 Roll Call! Numbers, get in line! Diving into the startup’s unit economics

• 🚻 Wipe Away the Noise: So, am I going to invest?

It’s now been 241 years since the founding fathers decided that water at restaurants and public restrooms would be free amenities in America - and bless their hearts for that masterstroke.

No commentary on the free water (keep it up lads!), but let’s talk about public restrooms. You get what you pay for - the free public restrooms are often grimy, dingy spaces.

A Washington D.C. based startup called Throne is looking to change that → they make upscale portable restrooms equipped with sensor technology to ensure the premises remain clean.

Users are required to scan a QR code in order to enter the bathroom - should they mistreat the bathroom, their access to Thrones across the city is revoked.

Inside, users can find porcelain fixtures, premium butt napkins toilet paper, and a running sink. Thrones are self-contained, meaning they don’t need power/water/sewage connections and therefore can be placed anywhere.

The tech inside the bathroom allows Throne to manage its network of toilets from a central location, and they have the option to ‘power down’ Thrones that are in need of a deep clean.

Thrones are free to the public, as the company’s strategy is to sign contracts with municipalities to cover the costs. Some city council members see this as a cost-savings measure, as the cost of building public restrooms has skyrocketed.

New bathroom construction has considerably slowed and has fallen behind demand as a result - Throne claims that in the US there are only 8 public restrooms per 100,000 residents. The situation is sometimes so dire that a popular Tik Tok account dedicated to finding public restrooms in NYC has grown to 139,000+ followers.

Can these bathrooms make me rich? Throne is currently raising funds on Wefunder at a $16M valuation ($12M if you invest by 5/29) Let’s dig in.

I spoke with Fletcher Wilson, the founding flusher of Throne, to get a better understanding of their business.

I mostly wanted to understand the exact unit economics of a potential Throne kingdom, here’s what I learned.  

Throne contracts with cities to receive a flat fee in addition to a ‘per-flush’ rate. I can’t divulge exact figures here, but the company hopes to generate between $3-$5k per throne each month.

On the cost side, Throne mainly needs to cover: Manufacturing, Cleanings, and Sewage Pumping.

I can’t reveal exact figures for everything Fletcher told me, as that would damage Throne’s negotiating leverage with the municipalities, but I’ll try my best to share what I can with you. Apologies for lumping costs together and speaking in generalities as a result of this.

I will caveat that some of my estimates differ from what Throne is estimating. For example I think that they are slightly underestimating cleaning costs (based on my knowledge of cleaning costs as an Airbnb host), and I also believe that 15 Thrones per market is where most cities will land (the company estimates upwards of 50-100 thrones per city).

As you can see, the Throne network can actually be fairly profitable should it achieve a small-ish footprint in 20 markets. The problem is, Throne has a pretty hefty cost structure once you get past the initial unit economics…

Throne is currently testing around the D.C. area and running up $2.6M in annual expenses. $1.3M of this is held up in employee wages. If they were to expand to 20 markets, I could see the sum of their supporting expenses easily reach $5M.

In my projections at a 20-market saturation point (which is ambitious), I have Throne operating at a $6.3M annual revenue rate. Subtract $5M in costs from the equation and we’re left with $1.3M in profit.

Make no mistake, this would be a solid business - but not the returns we’re looking for as startup investors. It would take Throne several years to roll out to 20 markets, and with a profit of $1.3M I don’t think you can justify a valuation past $10M.

As Throne is valuing itself at a $12-$16M today, this valuation does not inspire me to invest.

Now I will say that I underestimated Throne’s pipeline. From talking to Fletcher, it is more real and larger than I imagined. Can’t get into specifics here, but Throne appears to be off to a strong start and will likely make some announcements by the end of summer.

My projections are merely projections, and they could be wrong. But for now I am sticking by them and deciding not to invest. Where do you stand?

Thanks for reading, tap the ❤️ button if you enjoyed this one :)

Please note that this is not financial advice, nor a recommendation to invest in any of the startups mentioned. Readers should conduct their own due diligence and understand that startup investing is a risky asset class.