here - Rockstone Research

August 2016
RewardStream
Inc. REW.TSXV
‘Pioneering the
Referral Marketing
Space’ Inventure Capital Markets
Gurinder Sandhu
RewardStream Investment Opportunity
RewardStream specializes in the tactical execution of referral marketing programs that help brands to acquire,
engage, and retain customers. The company’s platform uses innovative marketing insights and proprietary
technology to turn the existing customer base into a powerful new sales channel for clients. To put this into
perspective, RewardStream has acquired $300M in new business for clients in two years. Given the importance
for companies to acquire new customers in an overly complicated marketing space, RewardStream presents a
proven and innovative way to ‘Rise above the Noise.’
According to Yankelovich Consumer Research:
“We’ve gone from being exposed to about 500 ads a day back in the 1970’s to as many as 5,000 ads today.”
Why Referral Based Marketing?
The main reason for the success behind referrals and RewardStream is:
Recommendations Build Trust + Drive Action
Consumers are 4x more likely to buy when Recommended by a Friend
RewardStream Successes
RewardStream has focused on securing clients in the Telecom, Financial Institution, and E-Commerce industries.
Key customers include AT&T, Telus, Boost Mobile, Rogers, WWE, Envision Financial, and more.
Key Statistic: Boost adds over 20,000 new customers via RewardStream each month.
Drove over 900 Qualified or higher leads in last 6 months
Delivered $300 million in new business to our clients (and counting...)
Over $1.7M in new annual recurring revenue in pipeline
Go-public fundraising proceeds of $2m proceeds could result in a 3 to 4x increase in sales funnel within 2 quarters
On target to close over $1.75M in revenue in Fiscal 2016 with over $1.4M in
recurring revenue and 60% gross margins
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Referral Marketing Industry
A recent survey by RewardStream showed that 71.9% of people surveyed had purchased something which was
recommended to them by a friend – and with 88% of marketers believing that referral schemes help them to acquire
new customers, it’s no surprise that nailing a great referral program will help to underpin many a successful
marketing strategy.
Dropbox, for example, built their user base from 100,000 to 4,000,000 in 15 months, by offering a bonus of extra
storage space to anyone who referred a friend – that’s over 250K new users a month on average. The Dropbox
referral campaign was influenced by Paypal, who led the way by offering a cash reward, and gaining 7-10% daily
growth in the early years of their business.
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Why Referral Marketing - Trust
With a small cost to the marketer and a high potential for reward, referral marketing can deliver one of the highest
returns on investment by leveraging your most loyal customers to become active brand evangelists.
Direct incentives (gift cards, discounts, free prizes, etc.) were the most popular incentives among a survey group,
with more than 60% of respondents saying they would be at least “somewhat more likely” to refer a friend if they
received something tangible or of monetary value in return.
However, when a referral marketing program is
working, it’s found that it has the lowest cost per
customer acquisition of any marketing strategy.
More importantly, referral customers bring
robust value to businesses. A Harvard Business
Review study looked at a German bank to assess
the value of clients attained through their referral
marketing program. The study found that
customers who came from referrals were 18%
more likely to remain with the bank indefinitely
and would generate 16% more in profits than
non-referral clients.
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Perhaps the best part of the referral process is that it can repeat over and over again. If referred customers are more
loyal and valuable than other types of customers, then they are also top candidates for being referrers themselves.
As a result, over time, referral marketing can slowly improve the quality and loyalty of your entire customer base.
RewardStream’s Value Proposition
RewardStream encourages companies to look at their current marketing tactics and the conversion rates of each.
RewardStream then shows how companies can get, on average, 35% more new customers with minimal extra
investment. Also, these customers are expected to be more loyal to the brand, more likely to stick around for years,
more liable to spend money on products and services, and more likely to refer their friends and family members
to the business. Most companies would take the opportunity to apply those numbers and analyze the trends to their
bottom line.
Word of mouth marketing (WOMM) is one of the oldest forms of referral marketing, and optimizing its conversion
rate has been a business priority for centuries.
RewardStream’s referral programs track many different metrics for customers, including:
 how many existing customers were attracted to the program to become advocates
 how many people (advocates) make a referral (and how many referrals they make)
 how many leads are generated (potential new customers who have been referred) and finally …
 how many actual new customers are generated from the program.
Statistics on other forms of Online Marketing:
According to the direct marketing association, the median return on investment for digital marketing methods
ranges from 6% for internet display ads, to 23% for email marketing.
The click-through rates of display ads is reported to be around 0.17%. That means companies’ ads needs to reach
588 people for one to click through. Pretty abysmal conversion.
Average email click through rates are around 3%, meaning companies need to reach about 33 people for one to
click through. And then, those that do click through still need to make a purchase decision, which further dilutes
the conversion rate.
Key RewardStream Referral Program Questions:
1. How many people do I need to attract to my referral program in order to generate one new customer?
o
Snapshot: 4:1 average

This means that across a sampling of clients (across industries), on average they attracted
4 potential advocates in order to generate a new customer.

This is an average conversion rate of 25%
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2. How many people do I need actually making referrals (customers who became advocates) in order to
generate one new customer?
 Snapshot: 2:1 average
 Across that same sampling of clients/industries, they generated an average of one new customer for
every two advocates who made a referral.
 This is an average conversion rate of 50%
Other Key Referral Marketing Metrics:
 92% of consumers around the world say they trust earned media, such as recommendations from friends
and family, above all other forms of advertising.
 84% of global consumers say word of mouth is the most trust worthy source of product
recommendations.
 77% of consumers are more likely to buy a new product when learning about it from friends or family.
Why Referral Marketing Fees are lower than Traditional Methods
A recent study from Demand Metric indicates that 71% of marketing professionals feel that referral marketing
fees are lower than most traditional customer acquisition methods.
We continue to be oversaturated by
traditional and digital marketing methods that
advertisers employ.
The fact is, the more of those messages seen,
the more those messages are irrelevant to you.
The marketers who created the message
aren’t likely people that you know personally;
there are many degrees of separation between
you, the audience, and them. This separation creates a gulf that must be crossed with some form of familiarity.
Hence the performance of these wide-gulf marketing programs is poor, while the costs can be relatively high.
When the marketer is someone you trust, someone you know personally, or perhaps even someone you love,
that marketing message suddenly carries more importance.
This is the heart of referral marketing, and it occurs when the recommendation to buy a product or service comes
from someone who is separated from you by only one degree; someone you know personally. And, perhaps not
surprisingly, referral marketing fees are well below the average cost of other methods of customer acquisition.
Value of Referral Marketing Example:
A company is trying to acquire a customer who will spend $25 per month on a subscription service. Let’s say
that the average client has a lifetime-value of 3 years, or $900 to the business.
Let’s say that the company generated a direct email campaign to reach that customer, and converted
successfully. Market statistics say that it will have cost an incremental $775 in advertising fees to acquire that
one customer.
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However if one of the existing customers, already happy with the service, recommended a friend, and that friend
signed up, the costs would have been significantly lower. In fact, for the cost of the referral marketing program
itself, as well as paying a small reward to the referrer and the new customer, net incremental costs would be
closer to $75 in referral marketing fees, or about 90% less than traditional methods. Referral marketing will also
provide the lowest cost per acquisition that will provide 15x the conversions of email, affiliate, site visits, or
keyword searches.
92% of people trust recommendations from their friends and family over all other forms of advertising.
According to Ken Krogue, the President of InsideSales.com:
A direct referral lead is “36 times more valuable than a lead generated by a cold call, ten times more valuable
than a trade show lead, and four times more valuable than a web lead.”
RewardStream & Financial Institutions
How Does Referral Marketing Fit In?
Rewardstream’s current Financial Institution clients share these traits:
 They are very modern but have a limited proven track record
 They are quite niche
 They target a specific market – one that tends to skew young, is tech savvy and open to risks but tends to
be marginalised by traditional financial services
 The institutions involved are also open to risk-taking behaviour
 Service providers are deliberately going after disenfranchised markets
 Referral marketing has also proven to be a very successful customer acquisition tool within industries that
have a small or specialized customer base.
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RewardStream & Telecom Companies
One of the biggest challenges facing telecommunications services today is churn—the intense competition to
keep customers while also enticing dissatisfied customers away from your competitors.
RewardStream’s referral program makes it easy to motivate customers and employees to refer their friends and
family and, then, to reward everyone for participating.
Testimonial from Boost Mobile:
“A year since launching the Spark referral program, we have seen continued growth in the number of new
customers. The referral program has proven to be a powerful way for our customer base to share Boost’s
attractive deals and pricing with their friends and family members.”
“The referral program has proven to be a powerful way for our customer base to share Boost’s attractive deals
and pricing with their friends and family members.”
Boost’s New Customers growth with RewardStream Platform:
RewardStream’s New Client Acquisition in last Six Months:
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RewardStream’s Growth Engine will mainly be from E-Commerce
Significant growth will come from making the referral platform available as an “app” in existing platforms that
serve millions of businesses which Magento and WooCommerce already in development. There are many online
application plug-ins which quickly achieve around 5,000 E-commerce with no marketing, and in a short period of
time. Given RewardStream knows marketing, it is exciting to track how fast the platform rolls out to the Ecommerce Ecosystem with marketing and a great push from the RewardStream team. This can result in quick scale
and quick revenue increases.
Capital Markets Info (REW.TSXV)
Unrestricted Float: 4,448,603
+ Friends and Family: 4,500,000
+ 1 Yr Voluntary Pool, from Investors: 9,708,818
+ Non-Insider 3 Yr Escrow: 5,016,184
+ Mgmt/Insider 3 Yr Escrow: 5,999,510
+ Private Placement @ $0.25, raising $2,028,500: 8,114,000
= Total Issued POST Closing: 37,787,115
+ Warrants @ $0.50, adding a potential $2,028,500: 4,057,000
+ Historical Options, various prices: 603,925
= Total Fully Diluted: 42,448,040
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Share Price as of August 8th, 2016: $0.38
Market Capitalization: $14.36M
Sales Analysis
2014
Sales
$1.86M
Gros s Margins
2015 FY2016
~$1.66M
43%
$1.75M
57%
60%
FY2017
FY2018
FY2019
$3.0M
$8.5M
$21.2M
63%
65%
70%
Dec 31, 2015 (3Mont hs )
Sales
Gros s Margin
436,309
60%
 2016-19 Sales CAGR: 87%
 Current Recurring Revenue: 85% of Current Sales
 Clear increase in gross margins. For the quarter ended Dec.31, 2015, it is impressive to note 60% margins
with healthy revenues.
 Rob Goehring, CEO, and the other seasoned veterans on the management team (below) took over
RewardStream in 2014. RewardStream used to be a one-time service fee company, however, this team has
transformed the company into a recurring revenue, SaaS based Referral Marketing company. In 2015, the
company flash sold the legacy lines and today we see a 85% recurring revenue company with good
consistent cash flows.
Management Team
Neil Parker: VP Product Management and Marketing
Neil has 20 years experience in Product Management and Marketing at companies such as Glenayre, Infowave,
Sierra Wireless, Contigo Systems and Contractually. He has also spent the last 30 years as a semiprofessional
drummer and plays with a number of acts you’ve never heard of, but it keeps him off the streets at night. Neil
just wants to work every day with amazing people to deliver applications that become stitched into the fabric of
everyday life.
Rob Goehring: Chief Executive Officer
Rob is seasoned technology executive with over 17 years of experience leading early stage, high growth, scalable
companies. As the co-founder of Contigo Systems Inc., Rob lead marketing and product strategy for five
different product launches. Rob was also responsible for establishing the company’s B2B channel partnerships
where he built out channel marketing programs, tools and training for Contigo’s independent VAR channel.
Most recently as the Chief Marketing Officer at TIO Networks, Rob led the B2B teams for Marketing, Sales and
Account Management. He was also responsible for the strategy for TIO Wallet - TIO's cloud based digital wallet
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- that processed millions of transactions per month, totalling over $1 billion per year in bill payments via our
self-serve kiosk, over-the-counter, web and mobile payment solutions.
Charles Abel: Chief Financial Officer
Charles is responsible for managing RewardStream's financial operations. He has held financial positions of
increasing responsibility throughout his professional career, for both public and private companies in the high
tech and biotech industries. In his various roles, Charles has raised over $20 million in equity and debt
financings and managed company budgets in excess of $10 million. Charles holds a CGA-CPA designation and
has an executive M.B.A. from Simon Fraser University. Charles was most recently the VP Finance for Contigo
Systems, where he was also responsible for the integration of acquired companies and assisted in the sale of
Contigo to Vecima Networks.
Buzz Hemphill: Vice President of Sales
As the VP Sales for PayByPhone, Buzz helped grow the start-up company to acquisition by PayPoint plc for
approximately $43 million. In the 9 years at PayByPhone, Buzz oversaw growth from 10,000 to over 2 million
transactions a month and from 8 to 120 clients organization in over a thousand locations including the City of
San Francisco, New York City (pilot) and City of Miami.
Previously as the VP Sales of Class Software Solutions ltd., Buzz helped maintain a 35% growth rate and grew
the company to $18 million in revenue. He expanded Class into multiple vertical markets: recreation, City Hall,
universities and YMCA and grew the sales team to twelve people, increased the average deal size by 30%,
averaged 80 new customers annually.
Devin Redlich: VP of Operations
As a senior Operations executive, Devin has spent the past 18 years managing and tooling technology based
organizations for scalability and growth in IT, Customer Support, Logistics, and Service Delivery. Most recently
as EVP, Operations for TIO Networks, Devin led a complete re-architecting of a multi-datacenter service
delivery environment, oversaw a multi-tiered customer support division including overseas call centers, and
managed the operations and logistics of a nation-wide network of self-serve bill payment terminals.
In addition to the oversight and management of operations, Devin has led the launch of a number of major
strategic projects. Most notably, as Director of Operations for Contigo Systems, Devin led the launch of
Contigo’s first consumer telematics solution in partnership with the largest telematics brand in the automotive
industry. Devin is actively involved in all elements of RewardStream Operations, from strategic initiatives to
hands-on involvement in day to day operations.
Kevin Campbell: Senior Software Architect
Kevin is the lead software architect at RewardStream, having designed and lead development of the Spark
referral platform for the last 5 years. During this time, Kevin has designed, developed, and launched successful
loyalty and referral marketing solutions for clients around the world, and has overseen the design and
implementation of core platform improvements, websites, social media integrations, and API framework. Kevin
is a passionate technologist, with deep interest and understanding of software architecture, modern web
frameworks, mobile devices and tech policy.
Prior to RewardStream, Kevin spent time at CAE and OpenText as a software engineer and holds a bachelor’s
degree in Mathematics and Engineering from Queen’s University.
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Appendix: Demand Metric Benchmark Report (June 2016) Key Figures
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