Finlatics Investment Banking Experience Program Project 2

Social Media Application

1. Based on the information provided, it seems that the social media application
is in the early stage of its life cycle, specifically in the seed stage. The product is
still in development and the product-market fit has not been determined yet.
However, the application has been downloaded 500,000 times since its launch,
which indicates some level of initial traction.

SWOT Analysis:

Strengths:

o Unique product idea

o AI-based technology to offer personalized recommendations
o Real-time updates to sync with news events
o Initial traction and user engagement
o Founder's background in computer science

Weaknesses:

o Lack of established product-market fit

o Monetization strategy is not yet determined
o Potential competition from existing social media platforms
o Dependence on external data sources (news events) for providing caption
recommendations

Opportunities:

o Expanding user base through marketing and promotions

o Developing partnerships with influencers and brands
o Diversifying product offerings to include features beyond caption
recommendations
o Exploring new revenue streams such as premium features or sponsored content
Threats:

o Rapidly changing social media landscape and user preferences

o Potential legal and ethical concerns regarding the use of AI for content creation
o Dependence on external data sources and potential issues with accuracy and
relevance
o Competition from existing and emerging social media platforms

Overall, the social media application has a unique product idea with potential for
growth, but also faces several challenges, particularly around establishing a solid
product-market fit and monetizing the product. It will be important for the company
to focus on developing a clear monetization strategy and addressing potential
weaknesses, while also leveraging opportunities to expand its user base and diversify
its product offerings.

2. The proposal for a social media application that recommends captions based
on AI analysis of uploaded photos faces several challenges that could hinder its
success. These challenges include establishing a product-market fit, developing
a monetization strategy, dealing with competition from established social
media platforms, and addressing potential legal and ethical concerns.

One of the key challenges facing the proposal is establishing a product-market fit.
While the application has been downloaded 500,000 times since its launch, it is unclear
whether users are engaging with the product and finding value in its features. To
address this challenge, the company could conduct market research to better
understand its target audience and their needs. This could involve surveys, focus
groups, or user testing to gather feedback and insights on the application's features
and usability. By better understanding user needs and preferences, the company can
make informed decisions about product development and marketing strategies to
improve user engagement
Another challenge facing the proposal is developing a monetization strategy. While
the application is currently free to use, the company will need to generate revenue to
sustain its operations and grow the business. One potential solution could be to offer
premium features for a fee, such as advanced AI analysis or custom recommendations
based on user data. Another approach could be to develop partnerships with brands
or influencers who could pay for sponsored content or promotions on the platform.
The company could also explore other revenue streams such as in-app purchases or
advertising.

Competition from established social media platforms is another challenge facing the
proposal. Companies like Instagram and Facebook already have a large user base and
established features for photo sharing and captioning. To compete with these
platforms, the company will need to offer unique features and value propositions that
set it apart. For example, the application's AI-based analysis and real-time updates
could differentiate it from competitors and attract users who are looking for more
personalized recommendations. The company could also consider partnerships with
other social media platforms to integrate its features and expand its reach.

Legal and ethical concerns regarding the use of AI for content creation could also pose
a challenge for the proposal. As AI technology continues to evolve, there is increasing
scrutiny around issues like bias and privacy. To address these concerns, the company
will need to prioritize transparency and accountability in its use of AI, and ensure that
its algorithms are fair and unbiased. Additionally, the company could seek guidance
from industry experts and work with organizations like the Partnership on AI to
establish best practices and ethical guidelines for AI-based content creation.

In summary, the proposal for a social media application that recommends captions
based on AI analysis of uploaded photos faces several challenges related to product-
market fit, monetization, competition, and ethical concerns. However, by conducting
market research, developing a clear monetization strategy, offering unique features,
and prioritizing transparency and accountability, the company can overcome these
challenges and build a successful business. Examples of successful companies that
have navigated similar challenges include Spotify, which has developed a successful
freemium model for music streaming, and TikTok, which has differentiated itself with
its unique video editing features and partnerships with influencers.

3. Here are some potential milestones and corresponding conversion rates for
the social media application proposal:

Milestone 1: 100,000 active users

Conversion rate: 20%

When the application reaches 100,000 active users, the investor's notes would
convert to equity at a 20% discount to the valuation at the next funding round. This
milestone would indicate that the application has achieved a significant user base
and is on its way to establishing a strong product-market fit.

Milestone 2: $500,000 in revenue

Conversion rate: 25%

When the application generates $500,000 in revenue, the investor's notes would
convert to equity at a 25% discount to the valuation at the next funding round. This
milestone would indicate that the application has developed a successful
monetization strategy and is generating significant revenue.

Milestone 3: 1 million active users

Conversion rate: 30%

When the application reaches 1 million active users, the investor's notes would
convert to equity at a 30% discount to the valuation at the next funding round. This
milestone would indicate that the application has achieved significant scale and is
well-positioned to compete with established social media platforms.
Milestone 4: Acquisition or IPO

Conversion rate: 2x cap on investment

If the company is acquired or goes public, the investor's notes would convert to
equity at a conversion rate of 2x the cap on the investment. This milestone would
provide a significant return on investment for the investor and would likely only
occur if the application has achieved significant success and market traction.

By establishing these milestones and corresponding conversion rates, the investor

can ensure that their investment is tied to meaningful progress and success for the
business. The conversion rates provide incentives for the company to achieve specific
goals and milestones, while also providing the investor with potential upside if the
company achieves significant success.

4. To conduct a customer lifetime value (CLV) and customer acquisition cost

(CAC) analysis for the social media application proposal, we need to make
some assumptions.

Let's assume that the average revenue per user (ARPU) for the application is Rs. 100
per month and the average customer lifespan is 2 years.

The CLV can be calculated as follows:

CLV = ARPU x Customer lifespan

CLV = Rs. 100 x 24 months

CLV = Rs. 2,400

Now, let's consider the CAC. If the application has been downloaded 500,000 times
and assuming a 10% conversion rate from downloads to active users, the total
number of active users would be 50,000. If the company spent Rs. 10 lakhs on
marketing and acquisition efforts, the CAC can be calculated as follows:
CAC = Marketing and acquisition cost / Number of new customers

CAC = Rs. 10 lakhs / 50,000 customers

CAC = Rs. 20

This means that the cost of acquiring a new customer for the application is Rs. 20.

To determine how many years the business needs to keep the customer loyal so that
the CLV exceeds the CAC, we can calculate the ratio of CLV to CAC:

CLV/CAC = 2,400/20

CLV/CAC = 120

This means that for every Rs. 20 spent on acquiring a new customer, the CLV is Rs.
2,400. To break even on the investment, the customer needs to remain loyal for at
least 6 months (CLV/CAC = 120/20 = 6).

Therefore, if the application is able to retain customers for at least 6 months, the CLV
will exceed the CAC, indicating that the investment in customer acquisition was
profitable. The challenge for the business would be to ensure that customers remain
engaged and active on the platform for the entire 2-year lifespan to maximize the
CLV and generate significant returns on investment.