Active Due Diligence

Due Diligence

Every data point Carry has shared, cross referenced against our diligence priorities.

4,052 total / 2,951 inheritable (2,592 cross sell eligible) / 3,325 funded SotU$153.4K MRR SotU$217.9M AUM CM20 items received11 items pending

Customers: The Most Important Asset

4,052 current subscribers. 2,951 inheritable after content split (1,101 content only churn). 2,592 cross sell eligible (excl. 84 partnerships + 275 unclassified). 3,325 funded accounts.

The "Set It and Forget It" Problem

Setup product sold as subscription — once funded, little reason to stay. 39% cohort loss within 12 months Churn — worse if courses, not 401k, are the main value driver. Biggest risk to customer count.

The Leaky Middle Filters for Quality

Early churn worsened as acquisition scaled 3x (0.3% → 4.1%/mo) Churn. But month 12 renewal churn halved (19% → 9%). Past month 24, churn → near zero.

Jan 2027 Advisory Fee Cliff

3,070 grandfathered accounts start paying 0.20% on AUM ADV. Expect 5–20% churn (150–614 lost). Post June cohort Jan 2026 behavior is the leading indicator.

DriveWealth Consent: Binary Gate

Section 37.2: assignment without written consent is void DW. If DW refuses: 7,320 accounts stuck. ACAT fallback: $263K + 20–40% churn. DW keeps AUM and fees — incentive to cooperate. Engage early.

Data received from Carry (Feb 2026). Of 2,676 classified accounts, 2,592 (97%) are either already S Corps or eligible for S Corp election — making them direct cross sell targets for Lettuce.

Tax ClassificationCustomersAvg W2 IncomeAvg Net IncomeS Corp Eligible?Cross Sell Fit
S Corporation1,210$230,845Already S CorpDirect fit
Pass Through (LLC)788$156,421Yes — file Form 2553High potential
Sole Proprietorship524$109,950Yes — form LLC firstHigh potential
C Corporation70$168,247Yes — with conversionModerate
Partnership84$353,009No — multi ownerNot eligible
Total Customers2,951All paying $29/mo (2,592 cross sell eligible)Full subscription base

Key insight: 1,210 are already S Corps (Lettuce's exact customer profile). 1,312 pass throughs and sole props earn enough ($110K to $156K avg) to benefit from S Corp election — the core Lettuce value prop. Only 84 partnerships (3%) are ineligible. 275 accounts remain unclassified.

Cross Sell Flywheel

Carry → Lettuce Complete

18% opt in → 466 convert to Lettuce Complete ($99/mo Y1 → $349/mo Y2). Opt in, not forced. [See pricing sensitivity models here.]

Lettuce → 401k (AUM Growth)

8% conversion (48 customers) → $29K Y1 / $54K Y2+ avg deposits each (regression from historical data), compounding at 7%. All 401k holders contribute annually. Pro→Complete upgrade adds $201K/yr.

Flywheel works both ways at near-zero CAC. All cross-sell is opt-in.

Q4 tax deadline = natural trigger. Dec 2025: 705 signups CM.

Revenue: Two Businesses Diverging

Subscriptions are declining. AUM is compounding. Price the AUM.

Subscription Side Is Broken

First MRR decline Jan 2026 CM. NRR 66%, Quick Ratio 0.55, ARPU $79→$24 Derived. Content funnel sold separately → expect further decline.

AUM Is Real and Compounding

$218M total, 89% from deposits CMDerived. $7.1M/mo inflows, accelerating. AUM/subscriber: $24K→$54K. BD/RIA: $0.80M/yr Y1 (calibrated to actual $840K on $218M, rate adjusted). AUM compounds from $54K avg annual deposits per existing account ($29K first year for new accounts) + 7% market returns. Cross sell converts (Lettuce customers buying 401k) add $29K Y1 / $54K Y2+ per account, further accelerating AUM growth.

Advisory Fee: $15K Now, $410K Post Jan 2027

Robo-managed only ($205M, 94.2%) ADV. 76% grandfathered at 0% until Jan 2027. Current: ~$15K/yr. Full potential: $410K/yr Derived.

Post Acquisition Pricing Model

Carry2,951 at $29/mo
Lettuce Pro600 at $299/mo
Baseline 2yr$5.89M (no promo)

Recommendation: Scenario 1 + B1 ($99 Y1 → $349 Complete)

$99/mo Y1 promo (Carry only). Lettuce Complete $349/mo from day 1. Multi-tier churn: 8% for bundle, 0% for 24+ month customers. $9.81M over 2yr (+67% vs baseline). Y2 revenue surges to $5.92M as Complete pricing kicks in. Runner up B2 ($9.31M) retains more customers. Zero growth assumed.

Cost: Hard and Soft

Purchase price is the start. Ongoing costs determine payback.

Subscription Side Is Cash Flow Negative

LTV/CAC: 3.9x Derived. Jan 2026: $3.29 lost per $1 gained. $358K/yr sub burn. AUM subsidizes.

Year 1 Operating Cost: $1.16M

Personnel $883K/yr (5 retained: CCO, COO, 2 Eng, 1 Ops) + non personnel $173K/yr (infra $81K + compliance vendors $42K + regulatory/insurance $50K) + AML setup $25K + migration churn $77K = $1.16M/yr Y1. Ongoing: $1.06M/yr Model.

AML/CFT Compliance Due 2028

New SEC rule by 2028 Ext. Setup $25K (Y1), ongoing $28K/yr (Y3+). Sardine.ai covers KYC ($24K/yr). Annual AML audit + training from Y3. Penalties: $250K+/violation.

⚠ Distraction Cost: This Is Real

Another distraction on top of healthcare. BD/RIA requires ongoing compliance, reporting, and oversight.

Staffing

CCO needed on staff ($238K). Retained in acquisition plan.

Engineering

Even run-as-is needs SSO, data sync, cross-sell flows. Budget part-time eng minimum.

Precedent

Healthcare already stretched the team. Two new verticals competing for same leadership and eng bandwidth.

Payroll data received. Lean team: 5 retained staff at $883K/yr + $173K non personnel (infra + compliance + regulatory) + $25K AML setup + $77K migration churn = $1.16M Y1 cost. 2 engineers handle migration internally.

Valuation: $3.8M–$5.7M Fair Value (Current State)

Fair value: $3.83M–$5.67M (blended 70% AUM at 2–3% of current $218M + 30% SaaS at 2.5–3.5x current ARR of $1.03M). Recommended offer: $3.83M–$5.67M (= fair value range). ~1.3 year payback at midpoint from Y1 acquisition revenue against $1.16M Y1 cost. AUM compounds $218M→$523M by Year 5.

Recommended Offer Range

$3.83M — $5.67M

Recommended offer range. Fair value model based on Carry's current state ($3.83M to $5.67M) supports this range; targeting low end gives Lettuce favorable terms. Model

Post Acquisition Revenue (Year 1 Projection)

Subscription Revenue (Y1 total)$3.90M
Starting rate: Carry (467×$99 + 2,484×$29)$1.42M/yr
Starting rate: Lettuce (48×$349 + 552×$299)$2.18M/yr
Multi-tier churn applied over 12 months
BD/RIA Year 1$802K/yr
Existing AUM BD/RIA (Fed 3.50% Y1, down from 4.25%) SotU$735K/yr
Cross sell AUM growth (Lettuce → 401k, $29K Y1 deposits)$52K/yr
Advisory fee (~491 accounts) ADV$15K/yr
Total Revenue$4.70M/yr
Operating Cost$1.06M
Net Year 1$3.65M
Payback at midpoint ($4.75M)1.3 years

At midpoint ($4.75M): ~1.0x Year 1 acquisition revenue ($4.70M). Y1 cost $1.16M (personnel + compliance + migration churn). Enterprise value at 6 to 8x Year 3 acquisition revenue ($7.10M): $43M to $57M. Acquisition cost pays for itself within 1.3 years.

Strategy and Optics

Tech is commoditized overnight. What can’t be replicated: customers, regulatory standing, time.

Defensive Play: If a Competitor Buys

If Lettuce passes, a competitor gets 2,951 solopreneurs who need exactly what Lettuce sells.

Lost cross sell base2,951 customers
At 14% conversion to $129/mo bundle$640K/yr lost
Competitor gains Solo 401k + AUM$218M AUM
Competitor gets BD/RIA licenseDay 1
Total strategic loss$2M+/yr + moat

What We're Buying in the AI World

AI replicates software in weeks. What it can’t create:

2,951 customers

2–3 years and $1M+ to build organically.

$218M in custodied AUM

$0.80M/yr BD/RIA fees Y1 (rate adjusted). Compounds to $523M by Y5. AI doesn't generate AUM.

Trust and track record

Clean SEC history, SOC2, 3+ years ops data. Earned, not generated.

The technology is the least valuable part. Customers and trust are the asset.

Regulatory Moat: Time That AI Can't Compress

AI accelerates code, not government approvals:

FINRA BD license12–18 months
SEC RIA registration3–6 months
Custodian partnership6–12 months
SOC2 Type II audit6–12 months
AML/CFT program (2028)12+ months
Total build time2–3 years

All included on Day 1.