Nothing Crowdfunding Round 2021 (mini) due diligence

Recently, the startup "Nothing" launched a crowdfunding round and reached their cap of ~€1.3m in 54 seconds from 481 fast-fingered investors, despite $33m of pledged interest from 25k people.

Let's dive in (Skip to the bottom for the TL;DR):

Sector: Consumer electronics, Internet of Things

Stage: Seed stage (pre-revenue, no product) (Note: this is officially Nothing's series A round, but I use the term "seed" to reflect that they do not have revenue, nor a product as yet - just a founding team, pretty much)

Introduction: Nothing is the new consumer electronics/Internet of things venture by Carl Pei. Their first product will be wireless earbuds released this summer. Rumoured follow-up products include home speakers and more - eventually leading to a suite or 'ecosystem' of smart, connected devices. Carl Pei previously founded Oneplus, the fast-growing smartphone company taking over $1bn in revenue.

Above: A OnePlus phone (believed to be the Oneplus 8, their latest model)


✔️Team: *very* strong team. The founder Carl Pei, previously founded the smartphone company oneplus, which surpassed $1bn in revenue in 2017. Massive kudos for succeeding in hardware. Former Samsung vice precident Manu Sharma will lead Nothing's team in India (Oneplus' highest growth market, i.e. Pei has experience there), suggesting a global launch is imminent - launching in a so-called 'emerging market' comes with its own risks, though. Lastly, veteran industrial design firm "Teenage Engineering" (TE) will be responsible for designing nothing's products. The wider team is equally impressive (ex- Spotify, HTC, etc)

Above, Left: A collection of TE's keyboards and synthesizers

Above, Right: TE's iconic "pocket operator" - a mini-synthesizer of sorts

Both images showcase TE's minimalist-retro design language, serving as a potential glimpse into what nothing's products might look like.

✔️VC Tom Hulme of Google ventures invested in this round at the same valuation, albeit with preference shares (meaning they get "first dibs" on any exit cash) whilst the crowd gets ordinary shares. Although Tom has a great track record ( successes such as Lemonade, Secret Escapes, GoCardless), he's typically invested in biotech and software, so I can't be overly confident in his ability to assess hardware startups such as nothing. VCs are often given much greater access to information than the crowd, so their participation is usually a strong signal in my view.

N.B. Angel investors Steve Huffman (co-founder of Reddit) and Kevin Lin (Co-founder of Twitch) have previously invested in Nothing. Although they are successful entrepreneurs, I have not discovered any notable successes in either of their portfolios - so again, I'm only slightly pleased to see their participation.


❌ No EIS relief

❌ "Hardware is hard" - a cliched tech adage, but true; Hardware is generally far riskier than, say, a software startup - it is a far more capital-intensive industry, and involves supply chain risks, and so on. Google Androids founder Andy Rubin failed to do what Nothing are attempting with his startup "Essential", although this was partially down to a sexual misconduct scandal Rubin was embroiled in.

Above: Jawbone was another promising Internet of things/Consumer electronics startup (their wireless earphones pictured above). Their valuation peaked at $3.2bn and they had raised nearly $1bn before they failed/liquidated. Hardware is hard indeed.


⚖️Transparency - the pitch deck and campaign was beyond sparse, with few metrics to go by. Having said that, this is arguably natural for a seed stage startup. Due to the raise popularity, it was almost impossible to call/email the team, also.

⚖️ Competition: Its difficult to gain a competitive advantage in onsumer tech hardware (note how Nokia, Blackberry, et al's market share has declined despite how promising they once were). Be mindful that they are competing with the likes of Amazon's Alexa, Apple's Iphone, we could go on endlessly. Nevertheless, Nothing has already acquired the intellectual property of "Essential" - a failed internet of things/smartphone startup from Google; It's impressive to have this competitive advantage so early on.

⚖️Valuation: The valuation is ~€77m pre-money. The general rule of thumb is series A valuations must leave room for a 30x return multiple, let's say that Nothing (being seed stage in terms of progress) should return 60x - as reward for the additional risks (e.g. product market fit). Therefore, if you think Nothing can become a ~€4.6bn+ company (60*€77m = €4.6bn), the valuation is fair. This sounds reasonable, as the total addressable market for consumer electronics is far in excess of €4.6bn, but remember their will inevitably be a shit ton of dilution (therefore reducing returns), as this is a very capital intensive industry. As a result, i'm very hesitant to "sign off" this valuation. Still, there's an argument a high calibre founder such as Carl Pei might justify the valuation.


Nothing is a consumer electronics/Internet of things founded by Carl Pei, who also founded Oneplus - the fast-growing $1bn+ revenue smartphone company (he is joined by equally strong talent). Nothing will launch wireless earbuds this summer and further complementary products such as smart speakers. A prevailing concern is that Nothing is a hardware company, which will need lots of capital (leading to dilution/worse returns) and is therefore riskier relatively speaking. Google have participated in this round, but the valuation is somewhat high for a startup with no product, nor revenue. The transparency of the raise was questionable, but again, it is a seed stage company with little to share other than a business plan and team. No EIS relief though, sadly. All in all, a tough nut to crack - an opportunity that needs a ponder.

On a slightly unrelated note: I regret that I could not tell you more about the raise whilst the raise was still live, as it's my usual practice to email/call the team, read the campaign materials, etc before sharing due diligence on big raises such as this.

I'd have loved to at least have shared the campaign date in advance, but reasons outside of the blog have gotten in the way. Fear not, they will raise again I hear. I will do my best to streamline my blogging process going forwards. I will keep blog posts much shorter from now to help in this regard (I think it helps with readability too).

Keep an eye out for any updates on this blog post as news/research findings may emerge in the near term.

Oh, and expect a Crowdfund update soon...!!

Thanks as always for reading

| Not financial or legal advice | All opinions my own | Please do your own

research | Capital at risk |

| Startups are illiquid | Don't pay dividends | Suffer dilution | Usually fail |

| Even tax relief is at risk |

Disclosure: I am a pending shareholder of Nothing. I have yet to decide whether to commit to the investment.

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