They were raising $1 million on an $11 million post-money SAFE. The product was awesome, but I passed. Here’s why…

WorkerIQ is a composite, not a real startup, and the name is made up. But it shows why a great product alone doesn’t get you funded.

The Good

“WorkerIQ” makes it easy to track where industrial workers are and whether they’re safe. Workers wear a bracelet that tracks location and can tell if a worker has fallen.

“WorkerIQ’s” customers are mostly in heavy industry: oil refineries, mines, shipbuilding, etc. These jobs require coordination by big teams. They can also be very dangerous.

The bracelet is comfortable to wear and does a great job of telling you if everyone is where they’re supposed to be. Even more importantly, it can help you find an injured worker ASAP.

The founder, “John,” had a great background in industry, having worked in management at several oil refineries. I knew he’d be able to speak his customers’ language.

Revenue was substantial, at over $1.4 million a year. That put the pre-money valuation of this round at just 7x annual revenue, which is low for a company at this stage.

The Bad

“WorkerIQ” had a lot of revenue, but it wasn’t growing much. Over the last year, the company had grown just 5% month over month (MoM), or 80% year-over-year (YoY).

I like to see a company at this stage at least triple year over year. We need to get to $100 million in revenue to become a unicorn. It’s hard to get there growing only 5% MoM.

What’s more, nearly half that revenue came from hardware. That revenue was non-recurring and had much lower margins.

Decision Time

“John” had developed an awesome product and knew his customers inside and out. But unfortunately, the product wasn’t selling that well.

In a normal business, nearly doubling revenue in a year would be amazing. But in the funhouse mirror world of VC, it wasn’t a top performer.

I was also concerned about the quality of the revenue. Much of it was non-recurring and low margin.

Despite loving the “WorkerIQ” product, I passed.

Wrap-Up

Every year, thousands of startups are founded. Only a few will ever matter.

To have any chance of making money, we have to invest in the strongest performers. And “WorkerIQ” just hadn’t reached that level yet.

But if they can get that growth cooking, I’d be glad to take another look!

Would you have invested in “WorkerIQ”?

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