EC venture capital

A love letter to micro funds, the backbone and future of venture capital

By zebethcontrolPosted on November 19, 2022Posted in EC venture capital, fundraising, micro funds, PitchBook Data, Startups, Venture, venture capitalNo Comments

While the Sequoias and the Andreessen Horowitzes of the world continue to swell in size, their influence on venture capital may be heading in the opposite direction as micro funds increase their impact on the industry. Whether you define micro funds as below $50 million or sub-$25 million, these are truly the funds that power the future of the industry. They help venture hubs take off, bring expertise and specialization to the market, and fill a role in the venture capital ecosystem that larger firms simply can’t. They also can be credited with getting a lot of the large unicorn and public companies we know today off the ground, as many of them received some of their first dollars from a micro fund: Robinhood (Elefund), Coinbase (Initialized Capital, which was investing out of a $7 million fund at the time) and Flexport (Anorak Ventures). I’ve written about the rise of micro funds in the U.S. before, but when Sweetwood Ventures reached out to me a month ago about its new fund-of-funds strategy to back nano — sub-$15 million — funds in Israel, I was intrigued. I hadn’t realized that the explosion of micro funds extended beyond the U.S. market, but Sweetwood general partner Amit Kurz told me it was one he had been tracking for a few years now.

SaaS startups that ignored VC advice to cut sales and marketing better off this year

By zebethcontrolPosted on November 17, 2022Posted in Capchase, EC News Analysis, EC venture capital, Growth, SaaS, Startups, VentureNo Comments

Venture-backed startups have had to make myriad spending cuts this year in an attempt to either live up to a high valuation, minimize their burn rate or both. But new data from fintech Capchase shows that many startups — especially venture-backed ones — seem to be getting the wrong advice concerning where to downsize. Capchase, which lends non-dilutive capital to SaaS startups, looked at how more than 500 SaaS startups fared in a number of areas including revenue, runway and growth between August and December 2021 and between April and August 2022. One big takeaway was that companies that didn’t cut spending on sales and marketing were in a better financial and growth position now than those that did when the market started to dip in 2022. Miguel Fernandez, the co-founder and CEO of Capchase, said he was initially surprised by this finding because that doesn’t line up with the advice many VCs are giving their portfolio companies — at least on Twitter. However, the results do align with the fact that Capchase also found that most bootstrapped software companies were performing better than VC-backed ones this year — but more on that later.

Maybe FTX was the real poster child for 2021’s startup excess • ZebethMedia

By zebethcontrolPosted on November 17, 2022Posted in due diligence, EC Blockchain, EC Cryptocurrency, EC Newsletter, EC venture capital, FTX, Startups, The Exchange, Venture, venture capitalNo Comments

If someone offers you a seat on a rocket, you don’t ask which seat. So goes one of Silicon Valley’s favorite platitudes, one that you can trace back (at a minimum) to former Google CEO Eric Schmidt and former Facebook COO Sheryl Sandberg. The idea is that if you are given a shot at working on something new and big, you just say yes and sort out where you fit in the organization later. The chestnut can apply in other circumstances. For example, if I was building a Very Cool Company that was perhaps set to break out and become the Next Big Thing, you might be more concerned about getting some of your capital into the business (a seat on my business rocket ship) than precisely how the business is run (asking which seat you are buying). The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Making a big bet on the future without knowing all the details can, per the Sandberg example, work out well. It can also … not. As with many business cliches, the rocket-seat philosophy is frequently over-applied. Instead of being reasonable advice to be bold in the face of uncertainty, it can also be used to make witless choices appear reasonable.

October funding plateaus with valuations likely to blame

By zebethcontrolPosted on November 15, 2022Posted in EC News Analysis, EC venture capital, funding, fundraising, Startups, VentureNo Comments

After a particularly slow summer, the mood in venture capital seemed to change with the season come Labor Day. By the end of September, it felt that maybe the worst had already come in terms of this year’s falling venture funding numbers. Investment volume had stopped declining and was starting to make up ground. Investors said that anecdotally it felt like the market was really starting to gain momentum again — especially at the early stages. But October funding data showed that the venture capital market still has a long way to go.

Long live the vibe capitalist! • ZebethMedia

By zebethcontrolPosted on November 14, 2022Posted in Crypto, diversity, EC Cryptocurrency, EC News Analysis, EC venture capital, FTX Bankruptcy, Sam Bankman-Fried, Startups, VentureNo Comments

Last week, many investors were left with egg on their faces after FTX’s valuation went from $32 billion to zero in a New York minute. VCs were left wondering, “What the hell happened?” And they’re still wondering, “Wait — did I do something wrong? Is it me?” Why yes, actually, it is you. People are led to believe that, for the most part, investors are clear-eyed, data-driven people who carefully explore the financial underpinnings of the companies they invest in. There is little room for emotions like jealousy or the fear of missing out (FOMO). Of course not. And these people investing billions of dollars surely have their eye on the ball, right? Well, not exactly. In a surprisingly honest tweet today, former SoftBank COO Marcelo Claure, who stepped down in late January after a reported battle over pay, had this to say about the FTX fiasco: I have been reflecting personally on the whole FTX fiasco and it taught me one more time that we should NEVER invest because of FOMO and we should always 100% understand what we are investing in. I totally failed here on both. — Marcelo Claure (@marceloclaure) November 12, 2022 This is from the same guy whose former firm also invested significant money in WeWork, another spectacular example of poor judgment on the part of investors. Steve Jobs once said, “Everything around you that you call life was made up by people that were no smarter than you.” At the time, Jobs was talking about building products, but evidently, this also applies to the people funding the startup ecosystem. While it’s good that Claure was so open, honest and reflective, perhaps we should all remember that investors are not any smarter than anyone else. They’re human after all, and their classic lack of self-awareness combined with venture enthusiasts’ myopia is perhaps the problem. Most investors and the founders in whom they invest are white men, and you get double points if you went to Stanford, Harvard, or MIT. These folks are handed the mantle of genius in all that they do and touch. The next Warren Buffet is rarely if ever, predicted to be a Black man.

The startup and venture markets are coming back to square one • ZebethMedia

By zebethcontrolPosted on November 14, 2022Posted in EC Newsletter, EC venture capital, Startup Trends, startup valuations, Startups, The Exchange, VentureNo Comments

What goes up must come down” is a cliche that is also a bastardization of Newton’s third law. It’s also a good reminder that when it looks like the business market has changed fundamentally, we’re often really just seeing a temporary aberration. This idiom rings true when we consider the cycle of tech valuations (up and then down), venture capital (up and then down), and the pace at which new unicorns are being minted (also up and then down). These three trends are linked, obviously, but what gave us pause recently was the realization that we haven’t merely seen declines in recent quarters: instead, there’s been a whole-cloth return to pre-COVID norms. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Take tech valuations, for example: It struck us this morning while drafting the weekly kick-off Equity episode that the value of tech stocks — measured through our favorite software-company tracking index — is today trading around the value it had in early 2020, just before and after the massive COVID-induced sell-off hit American stocks: Please excuse our annotation method — it’s Monday. It’s clear that the 2020-2021 boom in software valuations was more of an anomaly than a new-normal. Besides, the fact that the companies in the index grew over the last few years but are worth less today implies that they might have been overvalued even pre-COVID. If today’s prices hold up, they will indict not only the excess of the recent past, but the overvaluations of the 2010s as well.

How the FirstBuild product co-creation studio is changing how new things are made • ZebethMedia

By zebethcontrolPosted on November 13, 2022Posted in consumer electronics, EC Hardware, EC venture capital, firstbuild, Gadgets, HardwareNo Comments

Crowdfunding, crowdsourcing and small-batch production for the win If you are running R&D at a large appliance manufacturer, you have a challenge. You typically make products in enormous quantities at pretty slim margins. In order to recoup your development, tooling and launch marketing costs, you need to create and sell a huge number of products. To ensure that that’s possible, you’d probably end up doing a bunch of user and market research to ascertain that you have the highest chance of success with your products. That makes sense, but the very business model itself means that it’s hard to do something truly risky, which in turn means that mainstream manufacturers rarely come up with anything genuinely innovative. If there was a mushroom fruiting appliance, would a lot more people regularly be growing mushrooms at home? There was only one way to find out: to build one and to try and sell it. That’s where FirstBuild comes in. If you’re a small appliances nerd, you may have seen its Opal nugget ice maker, the studio’s first big breakthrough; the Mella mushroom fruiting chamber; its indoor pizza oven; or the Arden indoor smoker. I spoke with André Zdanow, president at FirstBuild, to figure out where these ideas came from and how the studio is working to try to replicate those successes. “The most famous example is probably the Opal nugget ice maker. At first, it wasn’t actually a product at all — it was a technology being worked on in the refrigeration division of GE Appliances,” Zdanow said, explaining that it turned out to be a head-scratcher. They wanted to put the “nugget ice” into a fridge but weren’t able to figure out exactly what the market size would be for such a thing. “It’s actually really complicated to put the technology into a refrigerator. In other words, it was really a great idea that engineers had been toying around with for years, but in the context of the focus and economics of a multibillion-dollar company, it wasn’t something that they could focus on.” The Opal nugget ice maker was FirstBuild’s first commercial success. Image Credits: FirstBuild In a parallel universe, that tech would never have seen the light of day, but instead, the engineers came to FirstBuild and wondered what would happen if they put the tech in a separate appliance, rather than into a full-size refrigerator. “We see lots of people go to the store and buy this type of ice. They call it Sonic ice or hospital ice. We decided to develop a prototype and see if people want it to be just an ice maker,” Zdanow explained. That was the genesis of the FirstBuild lab’s success. “It started with crude concepts that looked like an ice maker but had nugget ice in it. From there, it progressed through industrial design and ultimately to a $2.7 million crowdfunding campaign on Kickstarter back in 2015.”

Nearly 80% of venture funds raised in just two states as US LPs retreat to the coasts

By zebethcontrolPosted on November 12, 2022Posted in EC News Analysis, EC venture capital, fundraising, limited partners, Venture, venture capitalNo Comments

Venture capital funds in the United States raised more dry powder in the first three quarters of this year than they did in all of 2021, but it’s not equally distributed: The big funds keep getting bigger while fundraising has gotten harder for the majority of other players. And Q3 data shows that where a firm is based appears to be playing an increasing role. Through the third quarter of 2022, U.S. venture firms raised $150.9 billion across 593 funds, according to data compiled by PitchBook. While this represents a boost from the $147.2 billion raised in 2021, it marks a staggering drop from the 1,139 funds closed last year. A lot of these dollars went into legacy or well-established firms, which have the clout to raise mega-funds, though some firms drew in dollars by garnering hype. Consequently, LPs are not as interested in backing firms outside of the established venture hubs this year, marking an unfortunate reversal to the COVID-induced trend of more venture money making its way to emerging ecosystems.

Amid record dry powder, VCs are determined to fund anything but you

By zebethcontrolPosted on November 11, 2022Posted in EC News Analysis, EC venture capital, fundraising, Startups, Venture, venture capitalNo Comments

Seriously, anything If you had to sum up the 2022 venture capital market in one word, that word could be contradictions. Venture funds have record dry powder — deployable capital on hand — and yet funding continues to steadily decline. There is seemingly more talk of backing women and people of color in the industry than ever, and yet the numbers are headed in the opposite direction. VCs said publicly that they were focusing on companies on the path to profitability, but that wasn’t true for even a minute. So while many venture firms said they are largely sitting out investing this year as they wait for valuations to fall, it is, again, largely untrue. What does seem to be true, though, is that some VCs are using this year’s uncertainty as an excuse to avoid doing the work it takes to discuss valuations and assess TAM on potential investments into companies with real customer bases. Because they aren’t backing no one — they’re just backing everyone but you.

As inflation slows, did we just see the bottom for tech stocks? • ZebethMedia

By zebethcontrolPosted on November 10, 2022Posted in EC Newsletter, EC venture capital, Startups, tech valuations, The Exchange, VentureNo Comments

While the world digests the fact that FTX could be heading to zero, Elon Musk continues to make headlines with changes to Twitter policy — at times seemingly on the fly — and results from the U.S. midterm elections still trickling in, there could be some fair winds blowing for tech companies. This morning, the United States released new inflation numbers, with CNBC reporting that the consumer price index, or CPI, was up 0.4% in October and up 7.7% from the same month one year ago. Given expectations of 0.6% and 7.9% expansion, respectively, the report counted as an unexpected bit of positive news. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Why? Because if inflation is cooling, then the pace at which the U.S. Federal Reserve will raise interest rates may slow. Slower rate increases would shift the calculus for investors, making assets like stocks — and tech stocks in particular — more attractive, and more conservative investments less so on a relative basis.