EC1 Capital

From Investment To Exit in 3 years, the story of Lifecake.

Read about the story behind the exit of Lifecake to Canon Europe in May 2015, what we got right and what we got wrong from our initial 2012 investment thesis.
Julian Julian Mon 15th Jun 2015 11:38

Last month EC1 Capital Portfolio company Lifecake was acquired by Canon Europe, 3 years after our first investment.

In this blog post, I hope to reflect on how this investment came about and the journey that Lifecake embarked upon that ultimately ended in a successful outcome for the investors, the team and the buyers.

The First Meeting

I had just started EC1 Capital in the February of 2012, when I first met the CEO of Lifecake, Nick Babaian, at an event called Capital On Stage in May of 2012. This is a novel format where investors pitch to entrepreneurs. Prior to the main event there was an office hours session where founders can meet VC’s, one on one, over two hours.

Nick is a very calm, genuine and thoughtful individual and he succinctly delivered his pitch with conviction and enthusiasm.

As a father of two small boys I immediately identified with the problems that Lifecake was hoping to solve, if I had these problems surely many other families would too. This made Nick’s job far easier to convince me.

The Investment Thesis 2012

Our investment thesis was centred around a few assumptions, some of which proved to be correct, some proved to be correct but the timing was wrong and some of them just proved to be plain wrong:

1. The smartphone would become the dominant camera device. This was already a relatively clear trend in 2012, but it proved to be an even stronger force over the last 3 years as smartphone penetration increased to today’s levels. More and more people started using mobiles as their main camera device, capturing family moments and having an immediate need to store and sort photographs and videos on device.130m children are born every year.

2. Users would care about online privacy, particularly when it comes to family photos. Privacy certainly became a hot topic in recent years, with users concerned about being constantly tracked in their online activities. However it’s becoming clearer than most online users, particularly the new generation, care less about privacy than we initially thought. Instagram and Facebook have proven that younger generations have no problems in sharing their most intimate moments publicly and messaging apps allowing 1-1 communications removed privacy as a concern from the beginning.

3. With the explosion of photos on our smartphones, we believed storage would become a strong pain point and that a vast number of users would be looking for solutions. We had all been in situations where we had lost a film of a family holiday, or in more recent times when a computer hard drive has failed causing all memories to be lost, like a fire has swept through your house and burnt your photo albums to a cinder. We believed Lifecake, with automatic back-ups of photographs in the cloud, had an elegant solution to this problem. This proved to be right, with the growing popularity of services such as Dropbox, Google Drive, iCloud/Photostream etc but also proved to be wrong in relation to monestisation as lately with Google Photos leading the charge you can now store your photographs for free.

4. We believed users would want single purpose cloud storage apps for their photos, in the same way as we used to have physical photo albums instead of keeping photos together with other documents. We thought that users would love a service that automatically stored photos in one place and organised them in albums according to when and where they were taken, as opposed to sitting in folders on dispersed devices and social networks. And we thought that users actually cared about storing photos in full resolution.

This didn’t quite prove to be a correct assumption as generic cloud storage providers (e.g. Dropbox) sucked in a vast majority of our digital content, and most users actually valued having all of their files in one place, without caring too much about resolution. Storage has really become a commodity quickly. The part of that assumption that proved right, albeit we were a bit early with timing, is that differentiation in cloud storage would ultimately come in the form of data processing, presentation and utility rather than syncing, pricing and storage volumes. Services like Dropbox Carousel and more recently Google Photos are clear moves in this direction; Lifecake had great ideas and initial implementation of them, such as algorithmically surfacing the best content, but never fully got to it in the end.

Comparatively, Lifecake has over 350,000 registered users, compare that to Dropbox who has over 300 million users but it's Carousel app has less than 500,000 downloads on Android and it's app languishes at the bottom of the iOS photo app chart, so this puts an interesting comparison between the two in terms of achievements.

5. We thought that, by making it stupid-simple and fast, a large enough % of users would convert to buying physical photo books. This would create a sustainable and significant revenue model for Lifecake. The reality proved that most users were quite happy with digital albums and only a small % converted. With the proliferation of smartphones even amongst the older generations who would once value a physical album, allowing us to always carry all our memories in our pockets, photo books became redundant for most people.

6. Most importantly, we fundamentally believed that Nick and the team he had assembled would execute on the plan: a talented group of experienced executives, who worked together before and with a deep passion for product. This was proved to be right, as the Lifecake team built a beautiful product that hundreds of thousands of users religiously used and loved on a monthly basis and which ultimately achieved a successful exit for them and the investors.

 An early prototype of the Lifecake app for iOS

The Lifecake app today


EC1 Capital invested in Lifecake at the prototype stage, the app had not been released on the app store and this did not happen until July of 2012. I have never invested so early, the only reason I did was the fact I liked the team so much, the energy and belief was very tangible and I was sure they would create a beautifully executed product. Today EC1 looks for investments that show traction in terms of customer adoption or retention and/or early revenues but this was a very early investment that worked out well.

There were challenges along the way but none that were any different from the usual challenges most startups face.

At the end of 2013 Lifecake secured a ‘pre-series A’ investment from Balderton and Techtopia.

The board was then strengthened, including an advisor who worked at Facebook and the charismatic Roberto Bonanzinga as investor director for Balderton. 

The product continued to evolve, the team focusing on the UX and the sharing mechanics in the app. Marketing channels were tested to find the most scalable and cost efficient way of acquiring users.

In the end, as the core thesis of the app was privacy within your family we struggled to create a strong viral coefficient, which meant it cost more to acquire new customers.

Without that growth the monetisation aspect would remain a challenge, further compounded by free storage entrants such as Dropbox and laterly Google Photos.

This is how Dropbox built a successful viral loop

That being said, the retention rate of the app was very high, once users started to upload content they rarely left and this is the result of a great user experience and beautifully designed product.

The Lifecake value proposition is that people will share and relive moments in their lives better if they can enjoy photos in a shared journal, not a private pile of shoeboxes, this value proposition remained core to the founders beliefs and never changed from startup to exit.

The Exit

Lifecake was fundraising in parallel with fielding enquiries from potential acquirers, Canon Europe became the acquirer that saw the best fit for its ambitions and the rest is history.

The early investors, EC1 and angels enjoyed a healthy return, the team found a partner that had the resources to scale and the acquirers paid for a crack product team and an app that has been refined on multiple platforms.

More on the exit reported on TechCrunch

Alberto Spinelli, Director of Digital Services at Canon Europe with Nick Babaian, CEO of Lifecake.

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