the Second Round of CityFreighter Inc.

Great Recommendation for CityFreighter

Helping to cross the 50k line, we got this great recommendation from Jason Williams, a former Morgan & Stanley banker:

Deal Dispatch #3 — CityFreighters

You’re going to notice some differences in this Deal Dispatch. Investing is a constantly evolving practice. And we’re constantly evolving with it. So I’ve made some changes to the format of the Deal Dispatches that I hope will make them clearer and provide even more value for you.

We’ve just gotten started and we’re not slowing down anytime soon. I’ve got a lot of new investments lined up over the next few months.

And this one may have more potential for profit than any of the others due to the extremely early nature of the funding round.

Now, let’s get into the details of our next venture investment…

cityfreighter round summary

cityfreighter logo

Headquarters: Santa Barbara, California

Funding Type: Simple Agreement for Future Equity (SAFE)

Target Offering Range: $50,000–$535,000

Open To: All Investors

Portal: Wefunder

CityFreighter is an up-and-coming developer of electric vehicles. Now, this is a hot market with lots of competition, but CityFreighter sets itself apart from the competition in a few ways we’ll discuss further below. The company is seeking funding to complete the construction of the prototype for its serial chassis. This is a very early round and we’ll have the opportunity to invest alongside professional venture investors. And we’ll be getting in long before any institutional investors.

Elevator Pitch

CityFreighter is developing smart, user-focused, fully electric, low-floor Class 3 trucks from scratch for the last-mile delivery industry. The driver's cabin and the cargo area can be customized.

The company is able to accomplish this goal by using existing parts instead of trying to design a new vehicle from scratch as most EV companies do. The company’s unique modular concept should allow it to bring vehicles to market faster and cheaper than even its more established competitors.

Also, because of the unique design of its trucks, CityFreighter is able to attract new customers more easily thanks to a lower total cost of ownership (TCO) and overall operational efficiency.

It’s a very exciting idea and it could revolutionize the EV industry. Many might compare these guys with Henry Ford and his assembly line, but I think they’re more like Eli Whitney and the interchangeable parts he used to make his muskets cheaper and more efficient.

So now that you’ve got an idea of what this company does and what it’s looking for, let’s see how it satisfies our TAB system and makes a good fit for our portfolio.

T — Total Addressable Market

Before we get into this, let me clarify the kinds of electric trucks CityFreighters designs. They’re what’s known as “Class 3” trucks. They’re classified by their weight. And you see them all over the place these days. I’m talking about walk-in vans, box trucks, city delivery vehicles, and heavy-duty pickups.

class 3 truck

And according to data collected in 2018, the average age of these vehicles was nearly 10 years. That means a lot of the fleet is going to need replacement soon. And with many of these vehicles used for last-mile deliveries, electric vehicles make both dollars and sense.

According to Statista, in 2018 alone, over 300,000 Class 3 trucks were sold in the U.S. That’s almost half of the total retail sales for commercial vehicles. And going back as far as the data allowed, that class is almost always the top seller.

class 3 truck sales

Approximately 87% of commercial fleets in the U.S. are made up of light–medium-duty trucks like these. And over 90% of those trucks operate in private fleets. That means snagging just one customer could secure billions of dollars in orders.

Overall, the trucking industry handles over 70% of all freight shipped in the U.S. And the market is just expected to keep growing. Looking ahead, the American Trucking Associations proj­ects that total freight tonnage will grow more than 40% in the next 10 years.

Plus, you’ve got research showing that by 2030 most people will live in cities. And there will likely be increasing environmental regulation on vehicle access to these cities. So electric vehicles aren’t going to be a choice. They’re going to be the only option.

cityfreighter market

So I think it’s safe to say CityFreighter has a pretty large addressable market. And it’s got some very big companies in that market with billion-dollar budgets.

A — Accurate but Not Obvious Idea

It is a pretty obvious idea to use electric trucks as a solution for last-mile delivery. But the way CityFreighters is doing it is extremely unique. And I think that proves how well it fits this criterion.

Electric motors and batteries to power them are becoming commodities. There are already existing proven components for building electric vehicles. And CityFreighter isn’t trying to reinvent the wheel like some other companies.

Instead of spending lots of valuable time trying to design a truck from scratch, CityFreighter uses a modular concept where it can assemble its trucks using parts that already exist. And thanks to this concept, the potential variations are practically endless (which opens up an even bigger total addressable market).

cityfreighter variety

Another part of CityFreighter’s business plan that I think makes it so unique is its assembly and distribution concept.

cityfreighter distribution plan

CityFreighter does the research and development and then sources components from a global supply chain. The parts are then shipped to assembly facilities around the world and eventually make it to micro-assembly and distribution facilities in key markets. These final facilities will be operated by either CityFreighter itself or in collaboration with local partners and franchisees.

The company really has a great solution to get electric trucks to market quickly and cheaply. And its plans for future operations are no less unique for its industry.

B — Barriers to Entry

When you think of the automotive industry, you probably figure money has got to be a pretty big barrier to entry. And usually it is. But CityFreighter has already proven it can deliver a product fast and at cost by producing its first operational prototype in just two months and debuting it at the ACT Expo in California in 2019.

cityfreighter truck

Also, CityFreighter doesn’t intend to compete with the mass-market OEMs. It’s targeting a niche market to provide individual solutions to fleet operators. Right now there isn’t much competition in that market. And the three or four companies that are trying to compete are developing their vehicles from scratch and will require much more money and time to get to market.

It is also one of the only companies targeting this niche that is active in both the U.S. and Europe. This gives it global brand recognition and a better understanding of the needs of diverse customers. It also places the company as one of the first movers in what’s sure to become a profitable market.

The company is also actively pursuing partnerships in India and Taiwan to better address the Asian markets.

With a global network of partners and a faster time to market, it will be tough for CityFreighter’s peers to compete.

MSV Bottom Line

CityFreighter is a very early-stage company in a competitive market. But we feel it has what it will take to set itself apart from the competition.

The company delivers a quality vehicle cheaper and faster than its competitors. And its customers experience the lowest possible total cost of ownership.

Because of the competitive nature of the industry, the company has had trouble raising large amounts of cash. It is hoping that the prototype chassis this funding round will pay for will bring bigger investors on board for the win.

There’s a lot of risk going into this one due to the early stage of the company. But that means the potential for reward is all the greater.

So I’m recommending an investment in CityFreighter’s SAFE funding round. Keep in mind that because of the extremely early stage we're investing at, while the potential rewards are elevated, so are the risks.

We’ll get units that will be convertible to preferred stock at the next equity raise involving preferred stock. There will be a $7 million valuation cap and we’ll get a 20% discount to the price of the shares offered in the next round.

The conversion from SAFE units to preferred stock will be calculated in one of the following methods depending on the valuation of the company at the time of the next investment round:

  1. The total value of your investment divided by the price of the preferred stock issued to new investors multiplied by the 80% discount rate.

Total SAFE investment
Preferred price X 80%

  1. Or if the valuation is more than $7 million, the total amount invested in the SAFE round divided by the quotient of the valuation cap divided by the total valuation at that time.

Total SAFE investment
$7 million / current valuation

The round actually has a valuation cap of $7.5 million, but because we're some of the very first investors, we get an extra $500,000 knocked off so we'll get more shares in the event the company's next round is above $7 million but below $7.5 million.

To learn more about Jason, Main Street Ventures, and the other investments like ours that he's uncovered, go here https://www.angelnexus.com/o/web/280199