Virtuix Series A 2 - Investment Opportunity or Poor Deal?

1
Virtuix Series A 2
e q u i t y c r o wd f u n d i n g o n S e e d I n v e s t
Investment opportunity or poor deal?

2
Virtuix Series A 2: Investment opportunity or
poor deal?
• Virtuix raises its series A 2 investment round on SeedInvest currently:
https://www.seedinvest.com/virtuix/series.a.2
• The following slides point out a number of key facts of the company’s financials.
• Note:
• These slides focus on the risks and warnings (“red flags”) of this investment. The opportunities are laid out in the
investment website anyways (https://www.seedinvest.com/virtuix/series.a.2).
• Investors shall balance risks and chances on their own. These slides point out relevant financial information and other
key facts.
• This analysis does not evaluate general chances and risks of investing in startups or crowdfunding. Instead, it focuses
on risks of the company Virtuix specifically.
• There is no claim of completeness. The mentioned risks have been identified within a short timeframe of studying the
provided materials and other publicly available information (SEC and other sources). Further risks might exist.
• This analysis has been concluded on Oct. 15th, 2020. Any information published thereafter is not considered.
2

3
Table of Contents
3
• Red Flag #1: Increasing Interest Rate
• Red Flag #2: Western Technology Investment (WTI) writing down Virtuix loans
• Red Flag #3: Proceeds used to repay outstanding debt – not stated transparently
• Red Flag #4: Relevant financial information is not provided
• Red Flag #5: Latest funding round on SeedInvest closed three months ago only
• Red Flag #6: The company failed its first attempt of launching a consumer product in 2016
• Red Flag #7: Virtuix failed in moving towards Series B and thus raises “Series A 2”
• Red Flag #8: Liquidity issues and $ 3.5MM - $ 4MM in debt due in July 2021
• Red Flag #9: Virtuix’s CEO Jan Goetgeluk provides misleading information about the company’s debt
• Red Flag #10: Early adopters contemn Virtuix and the Omni
• Red Flag #11: Revenues not exhibiting stable growth
• Red Flag #12: Broken Cap Table and VCs are not following up on investments
• Red Flag #13: No Exit Strategy
• Summary
• Conclusion

4
Red Flag #1: Increasing Interest Rate
4
The facts
• Virtuix enterted into a loan agreement on Jan, 1st
2017 ($1,500,000) at an interest rate of 10.99%.
• Virtuix entered into another loan agreement (with
the same lender) on Nov, 1st 2018 ($500,000) at
an interest rate of 12.25%.
• From May, 31st 2019 to March 30th, 2020, the
company raised loans (promissory notes totaling
in $2,584,000) at an interest rate of 18%.
• From April, 1st 2020, the company continued to
raise promissory notes ($2,149,635) at an
interest rate of 18%.
• Source:
https://www.sec.gov/Archives/edgar/data/160624
2/000110465920111919/tm2032111d1_partiiandii
i.htm
(Page 57+58; 32)

5
Red Flag #1: Increasing Interest Rate
5
What does that mean?
• Interest reimburses the lender for the risk of loosing
money.
• The higher the lenders assess the risk, the higher the
interest rate.
• An increasing interest rate means, that the lender
(f.ex. investment bank) sees an increasing risk of the
company failing.
• While the 10.99% interest rate can be considered
normal for a startup company, the 18% interest rate is
very high.
• The older and more established a startup company
gets, the lower the interest rate should be.
• An increasing interest rate is a strong sign for the
company being in financial troubles.

6
Red Flag #2: WTI writes down Virtuix loans
6
The facts
• WTI (Western Technology Investment) is
a renowned venture debt financier based
in Silicon Valley.
• WTI has financed Virtuix through their
“VLL” (Venture Lending & Leasing) funds
previously, but did not continue providing
new loans since Nov., 1st 2018.
• In 2020 WTI has reduced the “fair value”
of Virtuix’s loans below the “cost” amount
in both their “Venture Lending & Leasing
VIII” and “Venture Lending & Leasing IX”
funds.
Source: https://www.sec.gov/Archives/edgar/data/1642862/000164286220000015/vll810q63020.htm
(Page 11)
Source: https://www.sec.gov/Archives/edgar/data/1717310/000171731020000012/vll910q063020.htm
(Page 10)

7
Red Flag #2: WTI writes down Virtuix loans
7
• WTI sees a high risk of Virtuix not being able to repay the debt.
• WTI can no longer assume, that Virtuix will fulfil its contractual
obligations.
• Thus, the company does not provide any new financing to Virtuix.
• WTI relies on a professional team of experts. The company manages
hundreds of millions of Dollars. Thus, the analysis of WTI can be
trusted.
• The website of WTI (Western Technology Investment):
https://westerntech.com

8
Red Flag #3: Proceeds used to repay outstanding debt
(Not mentioned on SeedInvest webpage!)
8
From the legal document
(Offering Circular)
From their marketing page
(SeedInvest website)
Source:
https://www.sec.gov/Archives/edgar/data/1606242/000110
465920111919/tm2032111d1_partiiandiii.htm (page 32)
Source:
https://www.seedinvest.com/virtuix/series.a.2/termsheet

9
Red Flag #3: Proceeds used to repay outstanding debt
(Not mentioned on SeedInvest webpage!)
9
The facts What does that mean?
• The company plans to use parts of the
proceeds to repay outstanding debt.
• By August, 21st 2020, Virtuix’s debt totaled in
$5,729,857.
• It is not specified how much of the invested
amount will go into repaying outstanding debt.
• As the company never generated a profit since
inception, there is no earned money to repay
debt.
Thus, debt can only be repaid through equity
funding.
• While Virtuix mentions repaying outstanding
debt in the according legal document, they
don’t mention it on the SeedInvest webpage.
• The use of proceeds to repay outstanding debt
is a classical red flag for professional startup
investors.
• The affected money can not be used for
growing the company or developing the
product.
• Not mentioning the repayment of debt on the
investment website means Virtuix tries to hide
that fact from investors.
• Hiding financial information from investors
destroys trust. It is generally not recommended
to invest in companies hiding information from
investors.

10
Red Flag #4: Recent financial results not provided
(Although COVID-19 has changed the market)
10
• The company provides financial information up until
March, 31st 2020 (FYE 2020), which is legally required.
• The company does not provide more recent financial
statements.
• Since March 2020, the COVID-19 pandemic has
significantly changed the business landscape in the
LBE (Location Based Entertainment) market, which is
Virtuix’s main source of revenues.
• COVID-19 threw the LBE market into a severe crisis.
LBE might recover late or not in the foreseeable future
at all.
• Thus, current revenues of the company are not
represented properly by the provided data.
• It is normal that the offering circular states the
financials up until March, 31st 2020.
• The pandemic has hit the company’s revenues
since then.
• The company should thus provide preliminary
financials indicating the revenues of the
company since April on a monthly basis.
• The company’s failure to provide such relevant
information might indicate disastrous financial
numbers.
• The decision to enter the consumer market
might have been driven by a crash of Virtuix’s
revenues from LBE.

11
Red Flag #5: Latest funding round on SeedInvest
closed 3 months ago
11
The facts
• The company closed a bridge financing round on
SeedInvest 3 months prior to announcing the current
series A 2 round.
• The SeedInvest website states a total funding
amount of $1,796,544 of that bridge round.
• The provided cap-table shows a total funding
amount of $2,559,304 of that bridge round.
• During this campaign the company presented the
Omni One product for home users for the first time
(named “Odyssey” then).
• Source:
https://www.seedinvest.com/virtuix/bridge
https://www.seedinvest.com/virtuix/series.a.2/file/169
066/download

12
Red Flag #5: Latest funding round on SeedInvest
closed 3 month ago
12
• Launching multiple crowdfunding rounds within a few months is very
untypical.
• Constant funding rounds indicate the company is having financial problems.
• Virtuix’s management might be distracted by constant fundraising efforts,
which binds resources and distracts from creating the product and shaping
the company.
• Virtuix does not specifically mention its latest bridge round on their series A 2
SeedInvest website. They do not explain the situation.
• In fact, Virtuix had severe liquidity issues by the time of fiscal year end on
March, 31st 2020. The balance sheet states current assets of $ 1.4MM
(thereof 152k in Cash & cash equivalents) vs. current liabilities of $ 5.3MM.
• Source:
https://www.sec.gov/Archives/edgar/data/1606242/000110465920111919/tm
2032111d1_partiiandiii.htm (Page 46 + 47)

13
Red Flag #6: The company failed to reach the
consumer market before
13
Source:
https://www.kickstarter.com/projects/1944625487/omni-
move-naturally-in-your-favorite-game
Source:
https://www.seedinvest.com/virtuix/series.a.2/discussion
Consumer focus 2013 - 2016 Pivot to commercial market in 2016

14
Red Flag #6: The company failed to reach the
consumer market before
14
• The company initially planned to bring its Omni
product to consumers since inception in 2013.
• In 2016, Virtuix “pivoted to the commercial
market to survive” (Jan Goetgeluk, CEO).
• Virtuix was forced to abandon a few hundred
Omni units, which caused a lot of
disappointment with its early backers.
• The company’s founder states the pivot was
required to survive.
• This means the business of selling the Omni
product to consumers failed.
• It is not clear why a business, that failed four
years ago, should be profitable now.
• The founder states, that the market conditions
(VR consumer market) have changed.
• In fact, the health of the VR industry is
debatable.
• Source/Reference:
https://www.forbes.com/sites/barrycollins/2020/
05/04/vr-headsets-are-dying-a-lonely-death

15
Red Flag #7: Series A 2: Virtuix failed in moving
towards Series B
15
• Since inception, Virtuix has raised a Pre-Seed,
two Seed, a Series A and two bridge rounds
before launching the current Series A 2 round.
• Series A rounds require a developed track
record only.
• Series B rounds require proven product-
market fit and are dedicated to scale the
business.
• Source:
https://www.seedinvest.com/virtuix/series.a.2/c
apitalization
https://www.startups.com/library/expert-
advice/series-funding-a-b-c-d-e
• Virtuix has raised its first Series A round in
2016 (on SeedInvest).
• Four years and two bridge rounds later, it
returns to SeedInvest to raise another Series A
round.
• Not being able to move forwards to Series B
after such a long time represents failure of
achieving product-market fit.
It means the company is not ready to scale.
• Source:
https://www.crowdfundinsider.com/2016/08/88
637-virtuix-closes-7-7-million-seedinvest-reg-
crowdfunding-offer/

16
Red Flag #8: Liquidity issues and July, 31st 2021
16
Source: https://www.sec.gov/Archives/edgar/data/1606242/000110465920111919/tm2032111d1_partiiandiii.htm (page 46 +47)
Source: https://www.sec.gov/Archives/edgar/data/1606242/000110465920111919/tm2032111d1_partiiandiii.htm (page 58 + 32)

17
17
The facts
• The company’s accounts do not show any
material cash reserves.
• In fact “accounts payable” and “accrued
expenses” outpace “cash and cash
equivalents” and “accounts receivable” by the
factor of three.
• On July, 31st 2021 promissory notes of approx.
$ 3.5MM - $ 4MM are due.

18
18
• The company is in a very difficult financial condition. It could fail any
day.
• In case Virtuix is not able to repay the promissory notes due on July,
31st 2021 ($ 3.5MM - $ 4MM), it might end up in bankruptcy.
• Virtuix is dependent on this round of equity investment in order to
continue operations.
• Without sufficient equity funding the company will fail.

19
Red Flag #9: Misleading information regarding
outstanding debt (promissory notes)
19
The facts
• As shown in Red Flag #8, the company issued the following promissory
notes:
• from May, 31st 2019 to March, 31st 2020: $ 2,584,000
• from March 31st 2020 to August, 21st 2020: $ 2,149,635
• it is unknown, if further promissory notes have been issued
since Aug 21st 2020.
• This makes a total of promissory notes issued of $ 4,733,635 (at least).
• According to the company’s financial statement, $ 640,000 (of the
promissory notes issued since March, 31st 2020) is to be repaid by the
issuance of additional convertible notes. This amount does not need to
be repaid in cash. (Source: Page 32 of
https://www.sec.gov/Archives/edgar/data/1606242/000110465920111919/tm2032111d1_partiiandiii.htm )
• In a comment on the SeedInvest website, Virtuix’s CEO Jan Goetgeluk
states, that $ 1.5MM of promissory notes has been converted into
convertible notes in Q3 2020.
• Additionally converted promissory notes of approx. $ 1.5MM seem to fit
the data of Form 1A/A (cutoff date March, 31st 2020) in case the later
conversion of notes has been included retrospectively only. Source:

20
20
Overview of promissory notes issued by Virtuix
issued before FYE 2020 (I) $ 2,584,000 according to offering circular
issued from Apr to Aug 2020 (II) $ 2,149,635 according to offering circular
sum of promissory notes issued $ 4,733,635
converted to convertible notes (II) $ -640,000 according to offering circular
converted to convertible notes (I) $ -1,500,000 according to statement of CEO: approx. number
promissory notes open (end of Q3 2020): principal only $ 2,593,635
interest on promissory notes (until FYE 2020) $ 283,195 according to offering circular
interest on promissory notes (Q2 and Q3 2020) $ 258,915
18% (interest rate) on principal and interest in Q2 and Q3
2020
outstanding promissory notes (end of Q3 2020) $ 3,135,745
interest on promissory notes (Q4 2020 and Q1 2021) $ 258,915
18% (interest rate) on principal and interest in Q4 2020 and
Q1 2010
total amount of promissory notes by FYE 2021 $ 3,394,659
interest on promissory notes (from April 2021 to July 2021) $ 203,680
18% (interest rate) on principal and interest from FYE 2021
until due date
TOTAL AMOUNT TO BE REPAID (by end of July 2021) $ 3,598,339
thereof interest $ 1,004,704
Note: As the exact dates of issue and conversion are unknown, the actual numbers of interest are likely to be insignificantly different.

21
21
• By the end of Q3 2020, the company had outstanding
promissory notes of approx. $ 3.1MM (incl. interest, as
calculated in the previous slide).
• In addition, the company had outstanding loans with WTI
(“Venture Lending & Leasing” funds) and other additional
liabilities. Assuming continued repayment of the loans described
in Red Flag #1, the open amount with WTI is approx. $ 318k by
end of Q3 2020.
• The total outstanding debt (excl. deferred revenue, accrued
expanses and accounts payable) has been around $ 3.4MM by
end of Q3 2020.
• Virtuix’s CEO Jan Goetgeluk falsely stated, that the currently
outstanding debt would be about $ 1.5MM on Oct 14th 2020.
• This is a misrepresentation of approx. $ 2MM!
• Virtuix’s CEO Jan Goetgeluk tells the untruth! Source:

22
22
Is that a mistake or intentional?
• Virtuix’s founder & CEO Jan Goetgeluk is a former investment banker. As such, he definitely has the finance
competence to state his own company’s financials correctly.
• He reduced the amount of outstanding debt at the cutoff date FYE 2020 (March, 31st 2020) retrospectively (the
promissory notes converted to convertible notes in Q3 2020).
• He did not similarly adjust the amount of outstanding debt as new promissory notes had been issued in the
meantime (Q2 & Q3 2020).
• Retrospectively reducing the amount of outstanding debt (converted later) while not similarly increasing the
amount - as new notes had been issued meanwhile - is clearly misleading.
• This “fictional” number for the debt at the cutoff date FYE 2020 is presented as the currently outstanding debt.
The “fictional” number did never exist, as the notes converted after FYE 2020.
• In fact, debt (excl. deferred revenue, accrued expanses and accounts payable) is currently significantly higher
(approx. $ 3.4 MM) than the presented number of approx. $ 1.5MM.
Also, on March 31st 2020 debt has been significantly higher (approx. $ 3 MM) than the presented $ 1.5MM.
• It is very likely that this “mistake” was done intentionally!

23
Red Flag #10: Early adopters contemn Virtuix
and the Omni
23
The facts
• Virtuix plans to win over VR enthusiasts as the early
adopters of Omni One. This is laid out in their investor
presentation.
• VR enthusiasts discuss on online platforms like “Reddit”
and the comment sections of VR specialist magazines
like “RoadtoVR” and “Upload”.
• VR enthusiasts largely contemn VR Treadmills, Virtuix
and the Omni.
• Source/Reference:
https://www.seedinvest.com/6430/file/146318/download
https://www.reddit.com/r/gadgets/comments/j6r4sz/virtui
x_is_developing_a_home_version_of_its_omni/
https://www.roadtovr.com/virtuix-omni-one-vr-treadmill-
investment/
https://uploadvr.com/virtuix-omni-one-vr-treadmill/

24
Red Flag #10: Early adopters contemn Virtuix
and the Omni
24
• Winning over VR enthusiasts as early adopters is part one of Virtuix’s go-to-market
strategy.
• VR enthusiasts and early adopters are important, as they can serve as evangelists for
the product and company.
• A negative community deters other potential customers from purchasing the product.
• Virtuix has already destroyed trust of the VR community due to:
• Alleged bad product quality.
• Alleged bad customer support.
• Previously abandoning the consumer market.
• Due to destroyed trust, they have failed in the first step of their go-to-market strategy
already!

25
Red Flag #11: Revenues are not exhibiting stable
growth
25
Source:
https://www.sec.gov/Archives/edgar/data/1606242/000110465
920111919/tm2032111d1_partiiandiii.htm (page 48) Source: https://www.seedinvest.com/virtuix/series.a.2/discussion

26
growth
26
The facts
• The company’s revenues don’t exhibit steady
growth.
• The revenues bounced up and down throughout the
last four years.
• FYE 2019 the revenues were less than half
compared to the year prior.
• While revenues increased significantly form FYE
2019 to FYE 2020, they remain below 2018’s value.
• The increase in revenue from FYE 2019 to FYE
2020 did not lead to an accordingly increasing gross
profit.
• Net loss kept increasing constantly since the
company’s “best” financial year ending March, 31st
2018.

27
growth
27
• Growth is essential to all “investable” startup companies. A startup without steady growth isn’t considered “fundable” by venture
capitalists.
• The founder and CEO Jan Goetgeluk explains the significant drop in revenues in FYE 2019 with market saturation in their main
market at that time. (Source: https://www.seedinvest.com/virtuix/series.a.2/discussion)
• Virtuix main market being saturated a few months after the product’s launch is extremely strange.
• In fact, revenues bouncing down after initial growth might indicate missing product-market fit.
This means: Customers might have expected the product to be valuable initially, but were disappointed later. That’s exactly what the
comments of early adopters reflect, as indicated in Red Flag #10…
• There wasn’t any severe economic shock at that time (like to COVID-19 pandemic since March 2020), which could explain that drop
in revenues.
• Virtuix does not provide any financial statements other than the legally required annual accounts of FYE 2020. The extremely
relevant data for the prior years (2017 and 2018) have been found in the comment section of the SeedInvest website.
• A severe drop in revenues is a red flag on it’s own.
• Virtuix not addressing that matter transparently on their SeedInvest website, is another red flag.

28
Red Flag #12: Broken Cap-Table and
VCs not following up investing
28
• The company has a very fragmented cap-table.
• Most of the company’s early investors did not continue to
follow-up with their investment later on.
• Virtuix’s earliest investors had been institutional VCs and
professionals.
• The vast majority of their latest investors are private
individuals.
• The company’s sole founder owns a share of 26.91%
(before the conversion of convertible notes issued earlier
this year and before the company’s series A 2 round).
• After the round, the founder will end up at approx. 22% of
the shares.
• Source:
https://www.seedinvest.com/virtuix/series.a.2/file/169066/do
wnload
• Very fragmented cap-table might make it difficult
to align the interests of all shareholders.
• Professional investors & institutional VC firms not
following up with their investment is a sign of lost
trust in Virtuix’s success.
• Private individuals have less resources for
performing an in-depth due-diligence process,
which can unveil financial issues.
• The sole founder owning 22% is exceptionally
low for going into a Series B round.
• This might make future funding with institutional
investors very difficult.
• Reference: https://dri.es/founder-dilution

29
Red Flag #13: No exit strategy
29
The facts
• The provided material does not
describe any exit strategy.
• When being asked about the exit
opportunity, the company’s founder
and CEO provided the answer
displayed.
• His reply does not lay out an exit
strategy.
• Source:
https://www.seedinvest.com/virtuix/seri
es.a.2/discussion

30
Red Flag #13: No exit strategy
30
Why is an exit strategy important to
investors?
• Investors want to multiply the capital invested.
• Virtuix is a private company.
• Once money is invested in private companies,
it is locked in the company and can not be
taken out.
• An exit is the event when the investor can
realize their profits (“cash out the money”).
• Without an exit occurring, investors can not
get out the capital employed.
• If Virtuix doesn’t have a successful exit,
investors will not be able to redeem their
invested capital ever.
• Even in case the company survives and
strives, investors don’t profit directly without an
exit event occurring.
• Providing a reasonable and profitable exit
strategy is key for most serious startup
investors to consider funding a company.

31
Summary
31
A brief investigation of Virtuix and the offered materials has brought over a dozen of material risks (“red flags”) to
light, which have not been shown on the SeedInvest webpage transparently.
The identified risks includ the following warning signs:
• An increasing Interest Rate indicating growing risk.
• At least one Silicon Valley VC writing down Virtuix loans.
• Proceeds will be used to repay outstanding debt. This fact is buried in the fine print.
• No financial information representing the current business environment (COVID pandemic) is provided.
• Latest SeedInvest round closed only three months ago.
• The company failed to launch a consumer product previously.
• Virtuix failed in moving towards Series B.
• The company has liquidity issues and $ 3.5MM - $ 4MM in outstanding debt are due in July 2021.
• Virtuix’s CEO is providing misleading information about the company’s debt.
• VR enthusiasts contemn Virtuix and the Omni.
• Revenues are not growing steadily.
• Virtuix’s cap table is very fragmented, the founder has been diluted strongly and VCs don’t follow up investing.
• The company’s founder did not present a convincing exit strategy.

32
Conclusion
32
Virtuix can not be rated as a good deal or serious investment opportunity. In fact, the investment forecast of
Virtuix is overwhelmingly negative.
Furthermore, the company does not provide information beyond the bare minimum. Relevant information needs
to be requested specifically and individually. Parts of the provided information seem to be misleading
intentionally.
Investing in Virtuix series A 2 is not recommended!
In case an investment is intended, all “Red Flags” discussed should be clarified with Virtuix. All information
provided by Virtuix should be verified and seriously doubted.
Fortunately, thousands of startup companies are currently raising funds. Public platforms such as WeFunder
and SeedInvest feature dozens of promising startups offering serious investment opportunities!

Virtuix Series A 2 - Investment Opportunity or Poor Deal?

Recommandé

Recommandé

Contenu connexe

Similaire à Virtuix Series A 2 - Investment Opportunity or Poor Deal?

Similaire à Virtuix Series A 2 - Investment Opportunity or Poor Deal? (20)

Dernier

Dernier (20)

Virtuix Series A 2 - Investment Opportunity or Poor Deal?