Volumental

Disclaimer

All research on startup and the whole investment memo has been done for personal use of Akim Arhipov.

General overview

Volumental - Shape a future free from sizes, where every body fits.

Volumental is a Swedish FitTech company that offers shoe recommendations for millions of shoppers by leveraging a combination of 3D foot scans, retail purchase data and AI.

The company has been founded in 2012 and has raised ca. 18m$ up to date. Operating in the US as the primary market.

The company provides two types of solutions to the market:

In store scanning

Capturing 3D foot measurements in just 5 seconds with our in-store scanner. Our AI-driven Fit Engine combines the results with purchase data to produce the world’s most accurate footwear recommendations on the spot.

Online Sizing

Helping shoppers find their fit online by scanning their feet with their smartphone. No app required - our online sizing solution integrates with your existing web store and is both Android and iOS compatible.

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The In Store part of the business is growing ca.30% YoY and is cash positive and the profits are being re-invested to an Online Sizing solution, which is has now been built, validated with pilot customers and scaling.

Last year, company has managed to achieve:

ca.9m$ ARR
>90% gross margin
100+ clients in 57 countries

2900+ scanners in-store
46M+ Feet scanned, (+1M per month)
>6M Fit Profiles, adding +2M per year

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We have an opportunity to purchase secondary shares as founders are looking to sell the fraction of their equity. Motivation is to obtain some liquidity due to very heavy and focused work on the company since 2012. All the selling founders will maintain their current position and continue to grow the company.

Investment Highlights

Problem

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Finding the right fit is messy for shoppers and costly for retailers

Lost revenue due to shopper uncertainty about fit
Returns are a massive margin killer – $900bn of returns in 2022 (2.3% increase YOY)
Low customer satisfaction scores – #1 listed reason for returns (70%)

Solution

Volumental’s unique machine learning-based IP, extensive data pool and algorithms enabling competitive moats:

Volumental has the world’s largest and fastest growing data set of its kind in the world and is trusted by some of the world’s biggest footwear retail brands. Volumental has scanned more than 46M feet and own >6M fit profiles
Volumental delivers simple omnichannel integrations, thus reducing complexity and timelines for current and prospective customers to realize value across our offerings
Volumental are the one-stop-shop for both online and in-store channels. In-store scans and data are leveraged online, creating opportunities for high-quality fit outcomes at every touchpoint along the omnichannel customer journey.

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It is important to highlight that Volumental is owning all of the data of the scans themselves (not clients). This is a huge advantage as not only it allows them to be ahead of the competition but also allow existing users (whose profile is already created) to use the service with new clients.

Positioning

Competitor Crunchbase information can be found below:

Aetrex
Safesize (27m$ raised to date)
True Fit (157m$ raised to date)
OneFID

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Volumental is the most penetrated in segments 1 and 5 which include Fleet Feet, Red Wing and many mom and pop shops. In segment 2 they have 2-3% of the market through New Balance, FILA, etc.

Retail Instore Footwear Recommendations

To give you a simplified version of how the Retail Instore solution works:

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Foot scan - The User (shopper) attends a physical retail store, gets their feet scanned in less than 5 seconds on the Retail Scanner and sees an interactive rendering of their 3D foot scan.

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Data process and delivery - Foot measurements and characteristics are displayed in an intuitive way on a screen (either the clerk’s ipad or fixed screen depending on store setup) together with recommendations for the most suitable footwear for the shopper’s foot. The shopper can also get their scan on their own device by scanning a QR code.

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Footwear Recommendations - Within the interface, the shopper receives the best fitting AI-powered footwear recommendations for their foot scan. The recommendations automatically take into account foot shape, the shopper’s preferences and intended usage and inventory.

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Size, fit & colours - Users can see which of the suggested shoes are available to purchase and get additional product information.

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It is also important to understand that scanning is just one side to it, recommendations integrated with the retailers inventory is another - the In Store solution also provides product and inventory information integrated with the customers database and the product recommendations that match.

In Store solution Metrics:

Average basket size +32%
Conversion rate +21%
Returns -10%

Open rate for post scan e-mail 79%
Clickthrough rate 60%
Average # scan re-engagements (6month per user) 4.9+

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The biggest problem with In Store solution is sales + onboarding cycle as working with big brands takes time to get “yes” from a decision maker. The problem is continuously being addresssed - for example having just launched a “global footwear catalog” making it much easier to get onboard without any onboarding/integrations. They are also providing more and more POS integrations going towards making even the catalog/inventory integration/onboarding step automatic. But the problem of slow sales cycles typical for large b2b customers remains - they adress that by having many simultaneous leads ongoing. The upside of this is that when rolled out the product is very sticky with very low churn.

Use Case example:

Challenge: Reduce in-store returns of footwear due to poor fit

Solution: Volumental 3d foot scanning technology deployed in a pilot across 5 stores within the O&CC group

Results:

-28% lower returns
+350% improvement between pilot and non-pilot stores

Impact:

rollout in 28 stores
“Best use of tech” finalists at Drapers Award

Online Footwear Recommendations

With the Online Footwear Recommendations solution, Volumental is putting the perfect fit in the hands of everyone - users can scan their feet and receive product and size recommendations from anywhere at any time using their Android or Apple phones. The solution works as a simple widget with a simple integration on the customers e-com website. The Volumental web app can be launched from a web browser for a seamless customer journey from scan to checkout.

This line of product can be seen being in a “seed” stage as things stand. Founders are deeming it as the future of the company, showing significant traction already and more focus being put on it.

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Volumental is ahead of the game compared to majority of the available solutions on the market due to huge database obtained via the In Store scans. While many of the similar companies are jumping on the AI hype, Volumental has always had this at the core of their products, and having already collected the world largest database of 3D scans and purchases are uniquely positioned to feed their AI engine also for the online product.

To give you a simplified version of how the Online solution works:

The User (shopper) takes a picture of his feet next to a a white paper of A4 or letter size.
Once done, the data is processed and presented in an intuitive and clear User Interface - displaying accurate foot measurements & characteristics.
The results - measurements and footwear recommendations - are automatically accessed by the customer’s e-com website, that then seamlessly displays the ideal size and fit recommendation next to every footwear product that the shopper is browsing.

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Discrepancy Instore vs Online: The Instore solution is more accurate at the given moment but the Online is already sufficiently accurate to provide significant shopper value. The online solution is already launched but is still in heavy development - continuously improving accuracy while keeping the usage very simple to maximize adoption. But even the current 2mm measurement discrepancy to the Instore solution is not sufficient to have negative impact on the results.

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The biggest problem with the Online business is to proving the product returns data, which is why Volumental is being used in the first place. That means it needs to be integrated and work with past data since collecting returns data is taking longer time online. Despite having great traction, the Online product is still in an early phase.

Business Model and Traction

Highly attractive and sticky SaaS business model with offering towards both physical retail and e-commerce. Volumental has designed a SaaS model for both in-store and online where customers pay a bundled subscription to get the unique software solution and infrastructure needed to do scans in place.

In Store is operating on Subscription plan (license) of 499$ monthly that includes:

In Store Scanner with integration and onboarding
Access to size and product recommendations via In Store Scanner

Online model is operating on action based model:

E-commerce gets access to size recommendation of the e-commerce products
E-commerce client is being charged $1 per profile per year.

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Company is currently burning ca. 300k$ monthly and has about 18 month of runway available.

Team

Alper Aydemir - Co-founder & CEO

Patrik Bråkenhielm - CFO & Deputy CFO

Maria Green Danell - CCO

Brent Hollowell - Chief Marketing Officer

Josef Grahn - CTO

Miroslav Kobetski - Co-founder & CPO

Jon Duvnjak - CLO & COO

Cap Table:

Early lead investors: Moor&Moor 19% Founder.org 12.85%

Smaller investors: ~11.5%

Lead Investor from the recent round: CNI 17.88%

Founders and early employees: ~39%

Sellers Pricing Logic for Sale

The last investment round was in 2021, at a share price of 567.5SEK/share which would correspond to 50.7€/share.

While SaaS multiples have dropped since 2021, the company has grown its ARR significantly since 2021, switched to an all-SaaS model and launched a online product with great traction.

In EUR the current ARR is ~8.2M€. In 2023 Volumental tasked an external valuator (SEB) to establish ARR multiples for comparable companies as an input to valuing a potential acquisition of a competitor. SaaS multiples have improved since 2023, but will still be used as proxy as it is the most recent external valuation.

Based on this valuation, the median ARR multiple for a comparable business was 9.2x (2023). This leads to an EV of ~75M€ and a share price of 60.3€/share.

However - the founders are willing to accept a share price at the same level as the 2021-investment - corresponding to a discount of ~15% from a multiple-based valuation of 60.3€/share.

Round Terms

Transaction: Secondary

Allocation: up to 500k€

Price per share: 50.7€

Minimum ticket: 10 000€ (first come first served)

Fees: 7% one off + 7% carried interest