4/7/2023 0 Comments Toast restaurantThere are countless ways they can expand the product offering over time, and with a modern software stack and open API they will continue to improve their product and integrate with partners who can offer great functionality on top of Toast. Second, Toast also did real work to build out transaction processing capability, which lets them subsidize their fees by operating as a transaction processor (they simply match current restaurant rates and almost always win the transaction business without objection.) This allows Toast to price competitively and earn a much higher margin than competitors head-to-head.Despite what we think is an early lead, Toast’s product is still very immature, and every day they roll out new features like online ordering and inventory management (a $75 / mo upsell they introduced in October to 10% immediate adoption.) But beyond just being very good at building good product quickly, the company also made two smart choices that sets them apart from the other players.įirst, while competitors have almost all built on iPads/iOS, Toast’s Android-based architecture allows restaurants to be much more flexible in their hardware choices (iPads are simply not enterprise grade and come in far fewer form factors than Android), has fewer software versioning issues than iOS and the upfront hardware costs are cheaper. First off, the sheer amount of software the team has built in a short span is impressive – feature for feature they are already much more in the class of the >20 year old enterprise systems than the next gen “Bistro” players, and so for restaurants with any level of sophisticated feature requirements they win easily. While there are a handful of “next gen” players attacking this market, we believe that Toast has a significant early advantage. Toast’s Android tablet-based cloud solution is beating out other new systems head to head and more impressively attacking on prem proprietary hardware incumbents Micros and NCR, who together make up 50% of the market. Toast offers a cloud-based system to quick serve (QSRs) and full service restaurants (FSRs), with a modular all-in-one restaurant management platform encompassing POS, payments, operations management, online ordering, self-serve kiosk ordering and checkout, inventory management, loyalty program management, gifting and myriad other restaurant needs (much of this is live today, although there may be a >5 year roadmap with endless product features ahead). Market size: ~1M restaurants and bars (US only) = $6B for Toast at current monetization level with potential for expansion (product modules, international).$5300 ARR / location (November bookings averaging $6200). 150% net retention, including upsell and account expansion.8-month CAC payback on live ARR (although inefficient implementation has stretched the cash on cash payback closer to a year – this is already headed back down in November).75% blended Gross Margins on ARR (subscription + payment processing).$24MM CARR / $17MM ARR forecast exiting 2016 - ~300% YOY growth.Across the board things appear to be humming. November was a record month with $800K of new ARR, a 7% increase in ASP, 0.3% gross churn, and most ramped reps above quota.At the effective pre-money we’re paying 12x CARR / 17x ARR (the company has a ~3 month backlog of booked sites) – this is 3.8X YE2016 forecasted CARR although the company is ahead of that plan at the moment.The company momentum since signing our term sheet has us eager to close ASAP and we hope that an impressive product, a huge market, and potential for continued capital efficient hyper-growth will make up for an admittedly premium price on entry. The benefit of a massive market is that with a little more than 1% market penetration Toast could be a $100M revenue company. Our hope, of course, is that Toast will use what we believe is a meaningful product advantage to grab a large share of the 1M restaurants who will transition to cloud based POS in the coming decade. Our $17.5M will purchase 14.3% FD ownership and will see a 2X return at a $150M exit and a 2.5X return at a $210M exit. We recommend a $17.5M investment in the $24M first institutional round of Toast, a Boston based company selling restaurant point of sale (POS) software.
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