First Stage Investor Issue No. 31

First Stage Investor Issue No. 31
By Early Investing
Date February 8, 2019

New Recommendation

A Monthly Subscription Box With a Nontoxic Twist


Startup: Petit Vour
Security type: Future equity (Wefunder SAFE)
Round size: Up to $1 million
Valuation: $6 million
Minimum investment: $100
Investment portal: Wefunder

I’m extremely excited to recommend Petit Vour. This startup is in the beauty and skincare industry. And it has the best traction of any early-stage startup I’ve recommended.

Petit Vour “bootstrapped” its way to $3 million in revenue in 2018. The company is growing quickly. It’s consistently profitable. And the deal is very fairly priced at a $6 million valuation.

In short, this deal is a gem.

The Model

Petit Vour’s business has two sides to it. The first is a “subscription box” service where, for $15 a month, subscribers get a gift box filled with natural vegan (non-animal-based) cosmetics and skincare products. (If you’re not familiar with the subscription box industry, I strongly advise taking a look at Most products in the box come in small sizes. If customers like a product, they can buy full-size versions from Petit Vour’s rapidly expanding online shop.

Petit Vour estimates that the products in its boxes retail for $45 to $60. The subscription box currently provides 55% of overall revenue, while the online shop provides around 45%. A very impressive 90% of customers reorder boxes each month.

One of the really neat things about this model is that products in the beauty boxes are provided by manufacturers to Petit Vour for free or at discounted prices. It’s a win-win for Petit Vour and the companies whose products it features in the box, as those companies benefit from introducing their products to ideal customers.

Petit Vour’s “twist” on the traditional beauty subscription box – that its products are exclusively vegan, cruelty-free and nontoxic – strongly differentiates it from most subscription box startups. The beauty industry’s “vegan and cruelty-free” is the food industry’s “organic.” More and more people are rejecting chemical-laden products in favor of plant-based ones, and I believe that the natural and cruelty-free category will only continue to grow.

Plus, Petit Vour’s customers aren’t limited to the vegan crowd. In fact, only around half of its customers fit that description. So don’t let the vegan aspect of this deal fool you into thinking it’s a niche product. There are so many ways the company can expand this business.

Traction and Progress

Since its founding in 2013, Petit Vour has grown rapidly. And it’s been profitable since day one. The company has raised only a tiny amount of money, and it did approximately $3 million in revenue in 2018.

Petit Vour does an incredible job of screening and selecting products to feature in its box and online shop, and this shows in its numbers. Let’s look at some highlights.

  • $8 million of lifetime revenue
  • 20,000 unique customers in the last 12 months
  • Average shop order value of $81

And take a look at its impressive revenue since the company opened in 2013. Talk about steady growth…

I spoke with co-founder Ryan Miner and was extremely impressed with his knowledge and vision for the company. And I was blown away by all the progress it’s made on just $350,000 of capital (before this round).

This deal has great potential. The company has a model that’s working, but it needs capital to scale up and expand into new revenue opportunities. It’s still in bootstrap mode at $3 million in annual recurring revenue.

Interest From Top VCs

If Petit Vour can get to $5 million or $10 million in annual revenue (and I believe it will), it’s likely the company will be able to have a large Series A funding round with a prominent venture capital (VC) firm leading the way. It’s already been approached by Stripes Group, a top VC that invested early in Grubhub, GoFundMe, Blue Apron and many other successful consumer-facing companies.

Top VCs love bootstrapped startups like Petit Vour. They show that the founders can spend money wisely, keep operations lean and still make money while growing.

This deal reminds me a lot of FabFitFun, a subscription box company I invested in three years ago. FabFitFun also bootstrapped to millions in revenue. And when it finally did a venture capital raise, it was like pouring gas on a fire. FabFitFun’s growth spiked once it used the new cash to expand its marketing efforts. Today FabFitFun is doing more than $200 million in revenue and will likely be one of my better investments. I believe Petit Vour has as much, if not more, potential.

How You Can Help

If you know anyone who would appreciate a subscription to Petit Vour’s beauty box, tell them about it! Vegans and vegetarians are a natural fit, but anyone who likes green beauty products probably is too. You can also gift a subscription (or get one for yourself) for three months, six months or even a full year. It’s a great way to discover new natural, cruelty-free products.

How to Invest

Petit Vour is raising up to $1 million in this round of funding on Wefunder. You’ll need to sign up for an account there if you haven’t yet.

Once you’re signed in to, head over to Now enter the amount you want to invest and click the green “Invest” button on the right-hand side of the screen. The minimum on this deal is $100, so it’s perfect if your startup investment budget is on the small side.


All early-stage investments are risky. While this one has substantial traction and a very reasonable valuation, you can still lose your investment. As always, don’t invest money you can’t afford to lose.

You should expect to hold on to this investment for five or more years. An exit opportunity could come sooner, but don’t go in expecting it. Startup investments are not liquid and typically cannot be sold before an acquisition or IPO.

Tax Break for Investors

Tax-Free Startup Investing

One of my favorite aspects of startup investing is that profits can be exempt from federal taxes (for U.S. investors only, sorry).

Not many people know about this benefit of startup investing, but it’s quite real. I’ve used it multiple times, and it’s helped me avoid costly federal capital gains taxes each time.

How is this possible? When you invest in a company valued at less than $50 million, in many cases the IRS considers it to be “qualified small business stock” (QSBS). This is covered in Section 1202 of the Internal Revenue Code. Technology, e-commerce, retail and manufacturing startups are the primary categories that can qualify as QSBS (right up our alley). Businesses that can’t qualify as QSBS fall under farming, mining, consulting, accounting and similar categories.

QSBS can eliminate 100% of federal taxes on startup profits, up to 10 times your cost basis or $10 million (whichever is greater), as long as…

  1. You hold the investment for at least five years.
  2. The company was worth less than $50 million when you invested in it.
  3. The company is a domestic (U.S.) C corporation (almost all startups are).
  4. You’re the original purchaser (you can’t buy secondhand shares and get the benefit).
  5. You bought the stock after September 27, 2010.

If a startup you invest in is acquired or goes public (IPOs) before the five-year mark, you can still avoid federal taxes on any profits by reinvesting them into another QSBS opportunity within 60 days. You must have held the original investment for at least six months from date of purchase.

I’ve done this a few times now and highly recommend it – as long as you’re investing your gains into a high-quality startup.

QSBS in Action

Let’s say we recommend a fictional startup called XYZ Corp. The company is valued at $5 million when our members invest.

Six years later, the company is acquired for $50 million. Your return of approximately 10X (share dilution would make it less, but let’s keep things simple for the example) is free of federal taxes (because you held it for more than five years and it increased only 10X in value). If the same company were acquired for $100 million, only your gains up to 10X would be exempt.

If XYZ Corp. was instead acquired after just one year for $50 million, your return could still qualify to be exempt from federal taxes. But you’d have to roll the profits into new QSBS investments within 60 days. Only the gains you rolled over into the new QSBS would qualify for tax exemption in this case.

Perfect for Equity Crowdfunding

Before equity crowdfunding came along, there was really no good way for most investors to take advantage of QSBS.

As a result, the primary beneficiaries of the QSBS exemption were venture capitalists and angel investors. After all, they were the only people who had regular access to QSBS investments. A few small-business owners also used it to incentivize employees with shares.

Today it’s a different story. Now everyone can access high-quality startup investments. The vast majority of the startups we recommend in First Stage Investor qualify as QSBS. Most of them are in the $4 million to $15 million valuation range, and they meet the other requirements as well.

QSBS is a little-known benefit of startup investing, but it can have a substantial impact on your portfolio. Anytime you can avoid paying that 28% capital gains tax, you increase your wealth and capital.

QSBS is also a great benefit to the economy, as it incentivizes investment in small businesses and startups, which create 60% to 80% of all jobs in the U.S.

Waiting five years to reap the benefits may seem a little extreme to some, but this is what startup investing is all about. The best investments take time and patience, and in this case patience pays off doubly by giving you the chance to avoid federal capital gains taxes.

QSBS Resources

Note: Please do your own research on QSBS, and consult a tax professional if you’re not sure how to proceed. We cannot answer questions about your individual tax situation.

Challenging Apple

Can Small Startups Harness the Power of a Big Threat?

Apple is my new China. Let me explain…

A couple of decades ago, I began traveling to China on business. I saw firsthand its massive (but underwhelming) factories. A lot of them still used old Soviet technology. And goods coming out of those factories were low-quality and inexpensive. It was the best they could do with super-cheap labor and run-down equipment.

China was a threat at the lower end of the manufactured goods scale. At the higher end, America’s manufacturing might stood unchallenged.

At the time, I was representing American clients offering Chinese companies advanced industrial technology. They were seeking a foothold in China’s lucrative markets. In virtually every discussion I had with prospective customers or partners, I was told interest was high, potential profits were massive and large orders were just around the corner… if I agreed to just one thing: I had to set up manufacturing operations in China – the sooner, the better.

I chafed at those demands. And I generally avoided making hard commitments to shift manufacturing operations to China. I didn’t trust its manufacturing capability, quality control or intellectual property protections. If I brought new technology over there, it was as good as stolen.

I was comfortable with my business decisions back then. But I might have missed the bigger picture. China’s manufacturing capacity and ability improved dramatically – and far quicker than I thought possible.

So when I began investing in American companies in earnest some years later, I thought back to my China experience. One question weighed heavily on my mind… Can China make your product – if not now, then in the future?

I now think about Apple the same way. Because with Apple targeting the medical device industry through its FDA-approved watch that can perform electrocardiograms and detect arrhythmia, no high-tech business is out of Apple’s reach, just like no manufacturing business is out of China’s reach.

Apple Eyes Healthcare

Healthcare is undergoing a fundamental transformation: from reactive to preventive… from external (facilities) to domestic (home)… from emphasizing provider credentials to focusing on customer experience.

Apple has seen the future in healthcare… And it wants to own it.

Apple has the deep pockets, technological firepower, growing user base (60 million users now and 100 million expected by the end of 2020) and long-term commitment needed to succeed. CEO Tim Cook says…

I believe, if you zoom out into the future, and you look back, and you ask the question, “What was Apple’s greatest contribution to mankind?” it will be about health.

Apple has pilfered about a dozen biomedical experts from medical device companies to move things forward. This is a serious Apple initiative. And it’s going to have a huge impact on the medical device ecosystem.

Space for Startups

So where does that leave healthcare-focused startups? How do they defend against Apple?

There’s no playbook here. But I’m following one outfit, AliveCor, whose experience offers clues about the choices available to young companies operating in Apple-adjacent markets.

AliveCor’s KardiaBand records EKGs and detects atrial fibrillations (irregular heartbeats) using a paired iPhone and Apple Watch. It developed its technology in 2015 and gained FDA approval last year. AliveCor’s strategy from the beginning was to piggyback its products on the Apple Watch, taking advantage of Apple’s small but growing Apple Watch user base.

Such a strategy carries the risk of the bigger company coming out with competing products, which is exactly what happened when Apple introduced its new Apple Watch with heart monitoring capabilities late last year. But AliveCor responded by pushing its medical-grade technology forward. And it recently gained the FDA’s “breakthrough device” designation for its bloodless potassium-sensing technology.

So despite the risks involved, startups can compete here. Take DrChrono, a company that produces an electronic medical record (EMR) platform for doctors using Apple (and Android) devices.

Daniel Kivatinos, the co-founder and COO of DrChrono, is an ardent Apple supporter who sees great upside in piggybacking on Apple’s ambitious healthcare agenda. “Apple’s relentless focus on the customer experience has already provided the pathway to wide scale usage in healthcare,” he said.

Kivatinos isn’t naïve. His experience with Apple so far has been very positive. DrChrono is the first mobile and cloud-based ambulatory EMR/EHR to be an Apple Mobility Partner.

His message seems to be this: Jump on board the Apple Watch train and take your chances. If you’re really good at what you do, good things will happen.

As an early investor, I share his optimism. Two years ago, Adam and I recommended Reliant Immune Diagnostics, a company that makes diagnostic at-home test kits that pair with its mobile app. Reliant is still active, and we remain bullish on its growth prospects. We think it can survive in an Apple Watch-dominated market.

Because at the end of the day… China may be the world’s factory, but it doesn’t make everything.And Apple may be the gorilla in the mobile device realm, but it’s going to leave plenty of room for other companies to make an impact.

Free Pot

Don’t Let CBS Censor You

There’s been a lot of gloating recently here at the First Stage Investor office. The New England Patriots beat the Los Angeles Rams 13-3 in the Super Bowl, and Boston native Andy Gordon can’t stop talking about it. Frankly, it’s starting to get annoying.

I’m a HUGE New York Giants fan, so watching the Patriots win (and hearing about it afterward) was bad enough. But watching the Super Bowl commercials was even tougher. The constant stream of beer ads and – let’s be honest – some pretty underwhelming ads from other sectors were a constant reminder that CBS had banned a perfectly legitimate medical marijuana commercial.

There’s a long history of companies submitting Super Bowl ads for the express purpose of getting them banned. Once they’re banned, everyone goes online to view the videos, giving the would-be advertisers tons of exposure.

Racy commercials are the go-to move for advertisers looking to pick up free publicity.

Carl’s Jr., Skechers, GoDaddy and PETA have all had Super Bowl commercials banned for being too sexual in nature. Pornhub and Ashley Madison have also seen Super Bowl commercials blocked. No shocker there.

So when I heard CBS had blocked an Acreage Holdings medical marijuana ad from airing during the Super Bowl, I just assumed it was “too racy” for TV or had people smoking joints on television. Boy, was I wrong.

I watched the ad on YouTube. You should too. Here’s the link for the video.

The commercial is a public service announcement illustrating the health benefits of medical marijuana. It shows how medical marijuana helped three people – a child who was having hundreds of seizures a day, a man with a back injury who was addicted to opioids, and a wounded veteran. And it begs the country to write their congressmen and senators to ask that the entire country be given access to the medicine that saved their lives.

It’s a powerful and humane message. Anyone watching this ad will connect with the people in it on a visceral level. So why did CBS ban the ad? The network decided it was “too political.”

That is ridiculous. Have other politically themed ads been banned before? Sure. The “Jesus hates Obama” ad (also available on YouTube) is the most obvious. But that was much more overtly political.

There is nothing overtly political about this ad except the call to action – writing to Congress asking for a policy change. Since when is writing to Congress too political?

Medical marijuana is NOT a Democrat issue or a Republican issue. It’s a human issue. Utah has legalized medical marijuana. So have Florida, Arizona, Montana, Minnesota, Michigan and Vermont. In total, 33 states and Washington, D.C., have legalized medical marijuana. And 62% of the U.S. favors legalizing marijuana, according to a Pew Research Center survey from last October.

So what exactly is too political about medical marijuana? Nothing. CBS is afraid of the anti-drug crowd sending it a bunch of emails and letters. It’s sheer cowardice. And it needs to stop. So let’s start our own campaign to tell CBS just how wrong it was to ban this medical marijuana ad.

The information to write, call and email CBS is below. The “Tiffany Network” needs to hear that censoring the medical marijuana community is unacceptable and un-American. Our voices need to be heard. Let’s make it happen.

CBS Headquarters
51 W. 52nd Street
New York, NY 10019-6188
Phone: 1.212.975.4321

Don’t Trust Wall Street

The “Nimble Nine” Isn’t on Your Side

“Exchanges play an important role in protecting investors. For retail investors to have confidence in our markets, exchanges must provide accurate information and comply with legal requirements.”

– Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement

We like to think that our exchanges operate in the best interests of everyone, allocating capital efficiently for business and, as the SEC’s Stephanie Avakian says above, protecting investors. That’s what we need. But I very much doubt that’s what Wall Street’s “Nimble Nine” is planning on giving us.

Upset over the rising fees for transactions and data feeds (which give investment houses access to critical market data before other investors!) imposed by the New York Stock Exchange and Nasdaq, nine of Wall Street’s most powerful companies have decided to build a sandlot they can call their own.

The new exchange is dubbed Members Exchange. The power players backing it are Bank of America Merrill Lynch, Charles Schwab, Citadel Securities, E-Trade, Fidelity Investments, Morgan Stanley, TD Ameritrade, UBS and Virtu Financial.

These fine folks say their goal is to “increase competition, improve operational transparency, further reduce fixed costs and simplify the execution of equity trading in the U.S.”

I’m surprised they didn’t throw in “mom and apple pie.” Who could argue against that? Watch me. I smell a rat.

I think their stated goal is pure unadulterated hogwash. Their real motive is less about transparency and simplification than it is about profit.

Now, I don’t think profit is a bad thing. It’s what makes the world go round. But it’s how they make their profit that sticks in my craw.

This new exchange will be 100% attuned to their objective of lowering fees. But it will also, more than ever, tolerate the same old rigged exchange practices – like high-frequency trading (HFT). HFT uses powerful computers and complex algorithms to spot market trends as they’re happening in real time AND execute millions of orders within fractions of a second to take advantage of those trends. It’s a highly unethical practice that gives large trading firms a significant advantage over retail investors and abuses the market to create short-term gains.

Another market practice I despise is forcing short sellers to disclose their positions, which is not about helping investors but about boosting the exchanges’ lucrative listings businesses.

Every now and then the SEC cracks down on these questionable practices. Last year, the SEC imposed a $14 million fine on the NYSE for “erroneously implementing a market-wide regulatory halt,” among other things.

The Nasdaq didn’t have as many problems as the NYSE, but it too created a central order book structure that limited competition by outside trading firms. Could the “Nimble Nine” do better? It could if it wanted to. But that’s the problem… it doesn’t want to.

Not Good Enough

HFT led to the founding of stock exchange company IEX Group in 2012. IEX came up with a system that slowed down trading in an effort to neutralize the effect of HFT. Unfortunately, IEX hasn’t gained much traction. It captures about 3% of U.S. stock trading volume.

Members Exchange, or MEMX, will likely gain more traction that that. After all, it has the backing of Wall Street’s most powerful players – ones that like HFT and any other advantages they can get. They will bring huge client bases to the table when MEMX is approved, which could take a year or longer.

But as far as I’m concerned, the longer the better.

These exchanges didn’t exactly cover themselves with glory when they were membership organizations or when they converted to publicly traded companies beholden to shareholders. I have no doubt that these rigged practices will continue unimpeded on Members Exchange. Everyday investors will see little or no benefit when MEMX goes live.

And that’s simply not good enough. I’m tired of putting up with the crony capitalism practices of proprietary data feeds, special order types, HFT and rebates. They support a financial system that favors deep-pocketed investors over everyday ones. It’s unfair and unconscionable.

(We can thank Michael Lewis and his book Flash Boys for bringing these practices to light. His book led to countless regulatory probes, a series of lawsuits, and Senate hearings on how HFT works and how brokerages like E-Trade – one of the founding members of Members Exchange – are paid to route their trade orders to the – paying – stock exchanges.)

The Change We Need

We can do better. And I think we will. Everyday investors are on the cusp of accessing tokenized assets made available to them on alternative exchanges (known as “alternative trading systems,” or ATS). And it’s all SEC-approved.

The first one, called tZero, went live last month. It provides real transparency and, for the first time, will make assets like malls and skyscrapers available to all investors.

ATS won’t replace the major public exchanges anytime soon, but they offer us a real alternative to the status quo – something Members Exchange fails miserably at.

Bitcoin Halving

Countdown to Bitcoin’s Next Halving

In May of 2020, the supply of new bitcoin will be cut in half. Consequently, the number of bitcoins being mined per day will go from around 1,600 to 800. This will lower bitcoin’s annual inflation rate to approximately 1.3% (it will reach zero once all coins are mined). The halving feature was built into bitcoin to encourage long-term price appreciation and reward holders.

This will be bitcoin’s third halving, and I expect it to be an extremely bullish catalyst for the price. With half as much new bitcoin coming onto the market, the equilibrium between buyers and sellers should tilt back in favor of bulls. The 2012 and 2016 halvings took a while to affect the price, but once they did, the result was dramatic, as you can see in the chart.


Fintech Roundup

This Week in Fintech

TradeLens May Soon Have a Dance Partner

I’ve talked a lot about IBM and Maersk’s blockchain-based supply chain management tool, TradeLens. It’s time you learned a little more about, the first blockchain trade platform for commercial clients and their banks.

Its blockchain technology incorporates smart contracts that automate and guarantee banking transactions.

So let’s say Company X buys 1,000 widgets from Company Y. The two companies use different banks, so settles the transaction. The service is completely traceable and fast.

Just as a friendly reminder, that’s different from what TradeLens does, which is digitizing documentation for the entire supply chain.

While TradeLens has signed up customs agencies, port authorities, carriers, freight forwarders and logistics firms, originally signed up seven European banks as co-owners of the joint venture. It’s now grown to 12 shareholder banks, with two more using under licensee arrangements.

And there’s this difference: While TradeLens has a hundred users, has substantially more through the clients of its 14 banks. This makes one of the few widely adopted enterprise blockchain platforms.’s CEO, Roberto Mancone, isn’t interested in building out more or licensing more stuff at
the moment.

A more rewarding (and easier) path, he says, is collaborating with partners doing complementary things: “We could connect to platforms that have similarities in terms of products because that will save a lot of time and energy.”

So he is courting TradeLens. And, interestingly, TradeLens is courting

“Combining [TradeLens] with would be ‘a game-changer,’” said Mancone.

And Todd Scott, the vice president of blockchain global trade at IBM, says, “TradeLens and both stand to transform their industries, and we believe there is significant potential and value in these platforms collaborating.”

The other company Mancone has his eyes on is Tradeshift. It simplifies payment and procurement for some 1.5 million users on its network. “TradeShift could be one of the potential partners,” he says.

Mancone’s vision rests squarely on a seamless user experience for clients spanning the globe…

TradeLens is the digitization of the entire supply chain and documents. TradeShift is really procurement, while we have the conditional payments and smart contracts – so if you put all these pieces together, it’s a good picture.

It’s what users want… a seamless experience where platforms are integrated behind the scenes and users aren’t even aware of the compatibility issues that needed to be overcome.

Ireland-based is expanding beyond its European core of banks to Asia, India and the United Arab Emirates to make this vision a reality. Its first foray is in Hong Kong, where it’s doing a pilot project with eTradeConnect.

The Problem With Old-Line Credit Bureaus

Data breaches are a massive problem for credit bureaus. Equifax suffered a huge breach affecting more than 148 million people. You’re in Equifax’s data set, as am I. There’s no way that should happen.

Spring Labs feels the same way.

It uses blockchain, cryptography and privacy-enabling technology to allow data to be shared directly between parties, which eliminates the role of the credit bureaus. It’s running a pilot project right now with 16 lenders and fintech firms to test the new tech.

In addition to consumers, banks would welcome this technology.

They give credit bureaus their customer information for free and then have to buy it back in the form of credit reports. Adam Jiwan, CEO of Spring Labs, says lenders hate this system.

Jiwan adds that lenders he’s spoken to are all interested in using a peer-to-peer system that cuts out the middleman – as long as the regulators are on board.

I’d like to think regulators would be receptive to technology that helps reduce fraud.

Spring Labs hopes to have its products out of testing and ready to roll out in the second half of this year.

portfolio update

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