Many First Stage Investor members have written in to ask us about Cityzenith closing its business. We recommended Cityzenith as an investment opportunity in September 2020. And like you, we’re disappointed that Cityzenith closed. We were hoping for big things.
I reached out this week to Cityzenith founder and CEO Michael Jansen to see if we could have a quick conversation. I wanted to better understand why Cityzenith closed and see if there were any lessons we could take away as startup investors. We ended up speaking for about 30 minutes on the phone. And some positive news emerged from our conversation.
The good news is that crowdfunding investors like you still have a chance to walk away with some money from your Cityzenith investment.
It won’t be anywhere near the 10x or more returns that we were hoping for in 2020. And it still could be nothing. But at least there’s still a chance. Here’s how it works.
Michael has formed a new company called TwinUp. TwinUp is a Cityzenith spinoff concept — one that Michael believes has a better chance of succeeding than Cityzenith (more on that later). The best way to describe it is part Instagram for architects (the platform supports 3D renderings and drawings) and part metaverse for architects and building developers (utilizing Cityzenith’s technology).
Michael believes that TwinUp has the best chance for success if it starts as a “clean company” without the operating history of Cityzenith. Additionally, he secured a lead investor who has already invested seven figures. That investor also prefers that Michael start with a new company.
And finally, Michael says one of the lessons he learned from crowdfunding is that he spent more time and money dealing with shareholders and trying to find investors than he did running his company. So the company is raising exclusively from accredited investors right now.
Accredited investors in Cityzenith were given a chance to invest in TwinUp. And half of them did.
Because Michael wants to limit TwinUp’s investor base to a small number of strategic investors who can add value and are committed to doing everything they can to make TwinUp succeed, he’s trying to reward Cityzenith’s crowdfunders in a different way.
If you invested in Cityzenith, you’re eligible for a cash bonus. If the company sells for less than $100 million, crowdfunders (as a group) will receive 5% of the sale. If the company sells for more than $100 million, crowdfunders (as a group) will receive 7.5% of the sale.
You should have received information about this in one of the emails sent about Cityzenith’s closure. If you haven’t, please check your spam folder.
The reason Michael created TwinUp is the market for digital twin technology never grew the way any of us expected.
“What we realized looking back over the last one and a half or two years is that we were frustrated that large-scale projects were not really growing,” Michael told me. “We concluded that the market was in too much of an experimentation stage.”
Michael even hired a consultant to do an analysis of what the market for digital twin professional services looked like. The consultant concluded that the market is unformed and that the market for third-party digital twin solutions was nascent. And that any market projections were bloated by in-house projects by GE and Northrop Grumman. In fact, there were only two requests for proposals for large-scale digital twin products in 2021.
Michael concluded the team couldn’t “pursue professional services because it wasn’t going to generate revenue.” So he’s pivoted to something he feels is more achievable.
One of the biggest risks in startup investing — especially when investing in new technologies — is that you’re too early and the market just doesn’t develop quickly enough. It’s something I worry about all the time.
I was an early adopter of personal digital assistants (PDAs). I owned PalmPilots, Visors, and Treos. Most of you probably don’t remember these brands anymore because PDAs never took off. The market wasn’t ready to ditch rolodexes, notebooks, and day planners for digital convenience — no matter how well the devices worked. Eventually, smartphones took over that space. But it took more than 10 years for that to happen.
It looks like Cityzenith was too early. Now Michael is scaling down his ambitions and trying to find product-market fit with something simpler and easier that takes advantage of the technology that’s already been built.
The community portion of TwinUp is in beta right now and is expected to launch later this summer. Hopefully TwinUp sees good results and the pivot works.
Michael shared some other thoughts with me regarding the crowdfunding process, when it makes sense to do a crowdfunding campaign (he hopes to do one if TwinUp gets serious traction), Reg A raises, and more. I’ll either write an article or post a video about that in the future.