Business Overview Remodeling your home is an expensive undertaking. Costs run into the tens of thousands and you have a dizzying amount of choices to make – everything from the window trim to the type of siding. Now imagine having a 3D model of your home to play with. You pull up a product library complete with 300 different manufacturers and with one touch – you can visually preview what your house will look like. This makes for a more enjoyable process, along with time and money saved from making the right choices. That’s the power of Renowork’s software. But until now, this software has yet to be properly monetized. That’s because it’s been sold primarily to individual contractors – but these contractors still had to physically visit the home to use the software with the client. Renoworks realized the real money was in streamlining the process so the contractor could visualize and bid on the project remotely. They had the library to do it – thousands of doors, siding, and windows. All they needed was a roofing library. And that’s where Geomni came in. Renoworks FastTrak, powered by Geomni, was then born. Now contractors can get a 3D model of the client’s home, complete with measurements. With only an address, they can design and bid remotely. And on the other side, manufacturers stand to win lucrative business by being on the platform. This service is still in beta, but the potential is high should we see early traction. RW has also seen massive growth from a relatively new business line, design services. Design service revenues are generated from contractors who don’t have the time to prepare a list of project options for their customers. Renoworks has design service professionals that create design reports displaying options for the renovation. These reports sell for $50-$100. By outsourcing most of the labor, this business line is turning into a cash cow that the company is now looking to scale further. With a growing design services business plus blue-sky potential from the Geomni partnership, you can see why we like the risk-reward with this company. What we like - Geomni partnership. It’s not every day you see the subsidiary of a $20 billion US-based company announce a partnership with a Canadian microcap. Big companies like to do business with other big companies. This tells us RW has something unique and valuable – and with Geomni’s sales force on their side, we think growth and profits could accelerate.
- Valuation arbitrage.Back in early 2015, RW had a partnership with a US-based tech company called HOVER. The goal was the same then – to use technology to tackle home visualization. But because HOVER’s platform required the homeowner to take detailed pictures to work, traction was slow, and the partnership dissolved.
Renoworks has figured out home visualization using only the homeowner’s address. Which technology do you think is more likely to succeed? HOVER just raised $US 25 million and has raised US$87 million to date. RW trades at a CDN $12 million valuation… What to watch out for - Technological obsolescence. Disrupting this industry is a race and millions of VC money is being poured into winning it. RW, as a small company with limited funding, will have to stay lean and innovate quickly.
- Unprofitable. Renoworks is currently unprofitable. While we believe investing ahead of revenue is justified given the massive market opportunity, it does present a risk we usually try to avoid with investments.
Bottom Line
Renoworks has a solid, growing software business that alone could be worth more than the current valuation. Add to that a partnership with an industry leader set on disrupting the massive home remodeling industry and this creates a risk-reward scenario too good for us to pass up. Disclosure: Paul, Brandon, and Keith are long RW:TSXV, and intend on participating in this financing. | 
