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Venture

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

By zebethcontrolPosted on Posted in EC venture capital, fundraising, micro funds, PitchBook Data, Startups, Venture, venture capitalNo Comments on A love letter to micro funds, the backbone and future of venture capital

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.

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Drive Capital’s investors hit a fork in the road • ZebethMedia

By zebethcontrolPosted on Posted in Chris Olsen, Drive Capital, Mark Kvamme, sequoia capital, Venture, venture capitalNo Comments on Drive Capital’s investors hit a fork in the road • ZebethMedia

Drive Capital was founded by two former Sequoia Capital Partners looking to start anew in the Midwest. But investors in the Columbus, Oh.-based firm have had a bumpy ride of late, and according to our sources, they aren’t enjoying it. It’s a dramatic turn for Drive, which announced $1 billion in capital commitments back in June, a healthy amount for a 10-year-old firm whose mission it is to invest nearly everywhere in the U.S. outside of Silicon Valley. In fact, in June, the firm — cofounded by veteran VCs Mark Kvamme and Chris Olsen — seemed to be riding high, with a couple of apparent wins and news funds that brought Drive’s assets under management to more than $2 billion. Yet dating back to September — soon after we talked with Olsen about VC doubling back to California — we heard rumblings about a rift, along with separate plans that Kvamme was making. Then came the announcement last month that the team was splitting up. At first, the story was that Kvamme, who logged more than twice as many years at Sequoia than Olsen, was transitioning to “partner emeritus” because, as he told a Columbus Business First, 10 years and four funding cycles was longer than he originally planned to lead Drive Capital. (This was probably a big surprise to the investors who’d just agreed to let Drive invest their capital.) This week, the other shoe dropped. Columbus Business First reported that Kvamme, who races cars, is not zipping off to semi-retirement but instead talking with potential backers about a new fund, the Ohio Fund, which will apparently invest in multiple asset classes, including other funds, public stocks, private companies in Ohio, and infrastructure. The idea is to  “focus on the future economic vitality of Ohio,” said an unnamed source to the outlet. Olsen now says that he’s surprised by this development. We obtained a letter that Drive sent out to its limited partners tonight that reads: Dear Limited Partner,This week an article was published indicating that our Partner Emeritus Mark Kvamme is launchinga new investment fund. All of us at Drive were surprised by this news, as we are sure you were too.While we will not send you a note each time a new article about Mark is published, we feel that, inthe spirit of being a good partner, it’s appropriate to provide you with a transparent update aboutthis situation and our relationship with Mark.After the article was published we spoke with Mark and learned that the prospect of him raising anew fund was leaked to a journalist from an unknown source. According to Mark, he has not yetdetermined what he is going to do next. Raising a new type of fund is something he is considering,along with other options in public service and personal endeavors.We have a formal separation agreement with Mark that prevents him from starting a competitivefirm or fund to Drive. Please know that this was a heavily negotiated agreement to ensure that itsubstantially protects Drive, our Limited Partners’ interests, and everything we are building towardat Drive.Again, we do not intend to communicate with you each time a new article is written about Mark,but in this instance, we thought it appropriate to provide clarification. Should you have anyquestions, please do not hesitate to reach out [contact information redacted by ZebethMedia]. Sincerely,The Drive Team Olsen declined to comment for this story; we reached out to Kvamme and did not receive a response. But it’s complicated, to say the least. According to our sources, part of the split traces to a relationship between Olsen and Yasmine Lacaillade, who was Drive’s COO for nearly seven years before leaving the firm in April to launch her own investment outfit. Asked about this, a Drive spokesman downplayed any tensions that may have arisen from a romantic relationship between the two, writing: “Yes you heard right in that Chris and Yas are in a relationship. That’s been public knowledge for some time. No comments beyond that.” Like most venture outfits, Drive also finds its portfolio in rougher shape than a year or two ago. One of Drive’s biggest exits to date has been that of Root Insurance, a now seven-year-old, Columbus, Oh.-based insurance company that specializes in automotive coverage and that staged a traditional IPO in November 2020. Though the shares performed initially, they’ve tanked since, currently priced at roughly $7 each after a reverse stock split, down from $486 per share the day the company went public. Olsen stepped off the board in November of last year. The other big star of Drive’s portfolio currently — Olive AI — is trying to overcome its own challenges. The Columbus-based healthcare automation startup, founded in 2012, has long framed its extensive history of pivots (more than 30 to date) as an inspirational story of trying, then trying again. Olive was rewarded by investors for its willingness to shift gears, too. It has raised a staggering $902 million over the years and said last year that it was valued at $4 billion. But the outfit, a robotic process automation company that aimed to take on hospital workers’ most tedious tasks, was never all that it appeared, according to a series of damning Axios pieces; and by September, the wheels began to come off. Most notably, the company’s chief financial officer and chief product officer were abruptly fired, following out the door numerous C-level executives who also left this fall, including its president, a senior director of operations, its EVP of operations and its SVP of payer product strategy. Olive AI has since said it will sell a portion of its products and services to Rotera, a company built out of Olive’s own venture studio. Limited partners aren’t happy about these developments, but as far as we’re aware, they have not talked in earnest about taking action and it seems unlikely that they will. At least, it’s exceedingly rare for limited partners to cancel their capital commitments and only slightly more common for VCs

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TAM takedown, green card layoffs, when to ignore investor advice • ZebethMedia

By zebethcontrolPosted on Posted in EC roundup, Layoffs, Pitch Deck Teardown, Startups, tax laws, Total Addressable Market, Venture, venture capitalNo Comments on TAM takedown, green card layoffs, when to ignore investor advice • ZebethMedia

When the downturn began, many VCs urged founders to slash their marketing spending. On its face, that’s an effective way to extend runway while cutting costs. Several months later, we’ve since learned that cutting marketing budgets doesn’t make early-stage startups healthier, but it is a great way for VCs to reduce burn rates across their entire portfolio. As Rebecca Szkutak reported this week, SaaS startups that ignored this advice outperformed the ones that followed it. If someone offers you free business advice, it’s probably for their own benefit. In business, if someone’s offering you advice, it’s probably for their own benefit. Which is why I take investors at their word when they say most founders cannot properly assess their total addressable market (TAM). Most founders submit a slide with three concentric circles: TAM on the outside, SAM (serviceable addressable market) in the middle, and SOM (serviceable obtainable market) in the center. Full ZebethMedia+ articles are only available to membersUse discount code TCPLUSROUNDUP to save 20% off a one- or two-year subscription “When this slide appears, most investors chuckle (or weep),” writes Bill Reichert, partner and chief evangelist at Pegasus Tech Ventures. Few investors will wire funds based on how many billions you think you’ll make in year 8. Instead, founders must demonstrate that they have a directional plan and a keen understanding of prospective users. “How many customers will you acquire this year? Next year? The year after?” asks Reichert. And just as importantly, “How many can you convert? How will you reach them?” Don’t spend too much time calculating future revenue or reading Gartner studies for factoids that sound authoritative. Instead, build a bottom-up model that focuses on the size of the opportunity, not the market. “Show investors how you are going to build an ever-expanding cadre of delighted customers,” Reichert advises. “Don’t suggest that your focus is on acquiring market share in a large established market.” Have a great weekend, Walter ThompsonEditorial Manager, ZebethMedia+@yourprotagonist How to turn user data into your next pitch deck Investors might enjoy listening to a founder’s well-rehearsed story, but sharing the right customer data “can definitively power up a pitch deck,” says David Smith, VP of data and analytics at TheVentureCity. “Investors need to see that you’re not being blindsided by easy wins that can go up in smoke within weeks, but are using hard data to build a sustainable company that will endure, and thrive, with time.” SaaS startups that ignored VC advice to cut sales and marketing were better off this year Image Credits: Andriy Onufriyenko (opens in a new window) / Getty Images Many VCs advised founders to dial back their sales and marketing outlays to preserve runway this year. And, as it turns out, many VCs have been giving the wrong advice. According to data from Capchase, a fintech that offers startups non-dilutive capital, “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,” reports Rebecca Szkutak. Of the 500 companies surveyed, bootstrapped firms showed the strongest growth, said Miguel Fernandez, Capchase’s co-founder and CEO. “What we have seen in this case, and what is most interesting, is that the best companies have actually cut every other cost except sales and marketing.” Dear Sophie: My co-founder’s a green card applicant who just got laid off. Now what? Image Credits: Bryce Durbin/ZebethMedia Dear Sophie, My co-founder and I were both laid off from Big Tech last week and it’s the kick we needed to go all-in on our startup. We’re first-time founders, but they need immigration sponsorship to maintain status with our startup. Do we look at an O-1A in the 60-day grace period? Thanks! — Newbie in Newark Pitch Deck Teardown: Sateliot’s $11.4M Series A deck Image Credits: Sateliot (opens in a new window) Cell phone coverage is built to serve people, which is why Sateliot is launching nanosatellites to provide IoT connectivity for ocean buoys and autonomous drones. The company shared its €10 million Series A deck with TC+, which includes all 18 slides: Cover Problem: “90% of the world has no cellular coverage” Team Solution: “To connect all NB-IOT devices from space under 5G standard” Value proposition: “Near real-time connectivity” Product: “Standard protocol” Why us: “Sateliot is the #1 satellite operator” Market size Competition  Business model  Traction: “MNOs engaged and technical integrations ongoing”  Go-to-Market: “Early adopters program”  Interstitial slide  Benefit  Progress  NGO program  Slogan  Conclusion How much tax will you owe when you sell your company? Image Credits: PM Images (opens in a new window) / Getty Images Getting a startup off the ground is hard work, so asking founders to prepare for an acquisition may sound just as silly as telling them to practice their Academy Award speech in the bathroom mirror. Still: if you’re ready to launch a startup, you must also be prepared to sell one. In an explainer for TC+, Peyton Carr, managing director of Keystone Global Partners, offers a framework for calculating taxation upon an exit and lays out the differences between short-term capital gains and long-term capital gains rates. “As a founder, you’ll need to plan for your personal tax situation to optimize the opportunity set that is presented to you.”

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VCs dish on why food tech investment was so light in Q3, while SAVRpak bags freshness deal with Jüsto • ZebethMedia

By zebethcontrolPosted on Posted in foodtech, New Fare Partners, Stray Dog Capital, VentureNo Comments on VCs dish on why food tech investment was so light in Q3, while SAVRpak bags freshness deal with Jüsto • ZebethMedia

Like many other venture-backed sectors in recent months, investment in food tech has largely been quiet over the past few months. Sure, there have been some bigger deals in the third quarter, for example Meati Foods grabbing $150 million for its mushroom root-based meat (still the best alternative protein food photo I have seen since I started covering this sector two years ago). Planted also took in $72 million for its whole cuts of vegan chicken, and Oatside, Singapore’s first oat milk product, raised $65 million. However, for the most part, investment has been down, with PitchBook reporting last week that for the third quarter, there was $2.7 billion injected into 269 deals. PitchBook considers “food tech” to include everything from plant-based products to grocery tech, so it’s a pretty broad definition. The data and research company noted that both investment values and count were down 63% and 28.5% quarter-over-quarter, respectively. And, “deal values declined for the fourth straight quarter, falling to a 10-quarter low, and to levels not seen since Q1 2020.” Ouch. The Good Food Institute pulled out alternative protein deals and found that $420 million went into those companies during the third quarter. That’s down from $833 million in the second quarter and $911 million in the first quarter, according to GFI’s analysis of PitchBook’s data. While that might scare away some VCs, others are sticking with it. Elly Truesdell, founder and managing partner at New Fare Partners, said via email that some tech investors in the last decade overlooked some crucial fundamentals like taste, brand and consumer trust when betting on food tech companies. “The next generation of businesses that prioritize this and utilize tech to enable great food, brand experiences and access to both, have a stronger chance of seeing better outcomes,” Truesdell added. Meanwhile, Lisa Feria, partner and CEO at Stray Dog Capital, said via email that “the same macroeconomic and geopolitical factors that are impacting the public markets and the global venture ecosystem are also driving the decline in foodtech venture funding.” She noted that contributing to the sector’s decline over the past few years were factors like crossover investors who entered the space and then fled “due to the turbulence in the markets, leading to an outflow of available capital.” In addition, the food tech industry, like so many others, initially saw double-digit growth that then cooled off in the past year. There were also reports about major industry players that “led some to question whether innovations in plant-based meat alternatives will be able to deliver on the early promise that they could take a significant market share from traditional meat.” Still, Feria has “a very positive outlook” about this sector, despite this investment setback. Part of that is due to what she said was an industry still very much in the “early innings in the development of innovative foods.” “The alternative protein space has a ton of room to grow and we continue to see new products delivering amazing improvements on taste, texture, health and price,” she added. “Ultimately, the sustainability story that drives the need for food innovation is only going to be more important in the world’s fight against climate change, as we cannot reach our greenhouse gas emission reduction goals without transitioning the food system away from animal agriculture, one of the highest polluting and most destructive industries in the world.” Weekly news SAVRpak said it is working with Mexico’s first online supermarket, Jüsto Partners, for it to be the first to market with SAVRpak’s plant-based thermodynamic pouch designed to remove 50% of condensation, which often leads to mold and early spoilage, and keep new condensation from forming, thus extending the shelf-life of produce, like strawberries, by up to three times, Scott Nelson, president of SAVRpak, said via email. The company already works with food distributors, like Sysco, but on the customer retail side. “Jüsto is one of the first retail customers we can discuss publicly, but we will be making more announcements soon as we have various pilots/trials ongoing across over 30 farms, as well as grocers in the U.S. and Canada,” Nelson added. “Consumers will start to see SAVRpak popping up in individual packaging of their favorite berries and greens at select supermarkets starting this spring, and in January, we’ll be announcing our consumer retail product with one of the largest big box retailers in the U.S.” Other big news this week came from Upside Foods, which announced, alongside the U.S. Food and Drug Administration, that its conclusions on if its cultivated chicken product was safe to eat warranted “no further questions.” This represents a milestone for the cultivated meat industry and prompted Upside founder and CEO Uma Valeti to say, “Cultivated meat has never been closer to the U.S. market than it is today. This historic announcement from the FDA is the foundational step in the regulatory process.” From Paul Sawers: “Meatable, a VC-backed Dutch company that recently debuted its first product lineup in the form of synthetic sausages, today announced a partnership with Singaporean food startup Love Handle to create what it touts as ‘the world’s first hybrid meat innovation center.’” Israeli cultivated meat technology company Future Meat Technologies changed its name to Believer Meats, saying that its rebranding represents “a big step in the broader strategic transformation of Future Meat into a technology-rooted food company as Believer prepares for its product launch.” The company’s technology is pending U.S. regulatory approval and expects to break ground on a commercial-scale production facility in the United States by the end of the year. Plant-based meat brand Juicy Marbles, known for making beef products like steak, unveiled The Whole-Cut Loin, a two-pound piece of 100% plant-based meat in what it is calling “the world’s largest piece of plant muscle.” GOOD Worldwide acquired This Saves Lives, a humanitarian snack brand co-founded by actress Kristen Bell, Ryan Devlin, Todd Grinnell and Ravi Patel. Financial details were not disclosed. The FoodTech Challenge, organized by the UAE Ministry of Climate

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Fund of funds Sweetwood Ventures bets big on VC’s smallest funds

By zebethcontrolPosted on Posted in fund of funds, fundraising, Israel, Startups, Sweetwood Ventures, Venture, venture capitalNo Comments on Fund of funds Sweetwood Ventures bets big on VC’s smallest funds

Despite legacy venture capital firms continuing to raise bigger and bigger funds, LPs may have more luck focusing on the small stuff. Amit Kurz, a general partner at Israel-based fund of funds Sweetwood Ventures, thinks so. He told ZebethMedia that last year he started to notice more and more tiny funds he wasn’t familiar with getting on the cap tables of competitive deals. While these “nano” funds wouldn’t fit the thesis for Sweetwood’s $70 million flagship fund, he thought it was worth figuring out a way to back them. “I got really intrigued as to how can we gain exposure to that space,” Kurz relayed to ZebethMedia. “They really generate this access to the most oversubscribed rounds and they invest a small amount, which is a classic win-win situation. You aren’t competing with the main VCs, yet everyone wants you because you are bringing a ton of value.” So, Sweetwood decided to raise a fund dedicated to these investors. Now, the firm is announcing that it raised $20 million for a separate fund to cut checks of up to $2 million into funds that are $15 million in size or smaller, with a focus on funds based in Israel. Sweetwood has backed seven funds thus far. It’s also looking to essentially create nano funds by working with angel investors. For this side of the fund, Sweetwood will work with angels to match their investment into a company while also giving them carry on the money that the firm puts in. While this would mean a hit to the firm’s potential returns compared to just investing directly, they don’t take that type of stake to begin with. They’ve closed on two such deals so far. “It’s a no-brainer for these guys,” Kurz said about approaching angel investors. “[They are] doing these deals anyway and there is this external partner that doesn’t look to be a tech scout but pays them as tech scouts.” The firm started raising the nano-focused fund in the peak of 2021’s craziness and is now looking to deploy into very different market conditions where smaller and less established firms are really struggling to raise. Kurz said that while they were initially apprehensive when the market conditions started to sour, they quickly got over that fear because they realized that the funds they back will now be writing checks to companies at more reasonable valuations and will actually have time to spend on due diligence. Kurz said when evaluating these potential investments the big question they ask, since neither the angel investor nor nano funds are big enough to lead any of the rounds they are in, is, why do startups want to take their money? He said that the firm is looking for funds and individuals that fall under two categories of answers: expertise and access. For some, especially on the angel investor side, access is king. If you are a notable former tech entrepreneur that is well connected, the thinking is that you are just going to hear about more notable deals and be invited to participate over other angels just due to your background. Kurz said this can include angels that were successful or well-known former founders. On the other side, Sweetwood is looking for funds and individuals with expertise and specialization that are going to be sought out by companies to fill out rounds because they bring an outsized value add to the table compared to their check size. “Why are people giving you access? Why are people wanting you on the cap table?” he said. “It’s very much focused about the value add and ability to gain access to the deals more so than your ability to distinguish the deals or do selections on the deal.” While this nano fund is separate from the firm’s flagship series, Kurz anticipated that some of these funds will grow up to be good candidates for the flagship fund down the line. It will also help them get into companies earlier that might end up in the flagship’s fund portfolios as well. “The very small funds tend to outperform,” he said. “The smaller you are the more probable you are to generate outsized returns. I thought, this is really interesting, how do we build something for this?”

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Jack Selby of Thiel Capital is using a new VC fund to invest in Arizona startups • ZebethMedia

By zebethcontrolPosted on Posted in VentureNo Comments on Jack Selby of Thiel Capital is using a new VC fund to invest in Arizona startups • ZebethMedia

Jack Selby, a former PayPal exec the longtime managing director of Thiel Capital who attracted some attention years back for his low-key largesse, has a new, $110 million venture fund that he intends to invest mostly in his adopted state of Arizona, where Selby has lived since 2002. The debut vehicle of the firm, called AZ-VC, is backed by a number of real-estate outfits in Arizona, along with a major local utility company. Notably, however, Thiel is not an investor and neither are any of Thiel Capital’s many institutional backers. We talked earlier today with Selby — who was calling from the Milken Institute summit in Abu Dhabi and planning to attend the last Formula One race of the season afterward — to learn more about why that is. We also talked with Selby about his relationship with Thiel and whether, like a growing number of people in Thiel’s universe, this new fund is an indicator that Selby plans to jump into regional politics at some point. Our conversation has been edited for length and clarity. TC: You’ve been running Peter Thiel’s family office for years, which is in California, but you are in Arizona. How did that happen? JS: My father worked for a “MadMen” era advertising firm called J. Walter Thompson, in a job where you either got fired or promoted every three or four years. My dad [experienced] a bit of both, so we had this almost army brat-type upbringing, moving seven times during my childhood. During my senior year, I refused to move [from our then-home] in suburban Detroit and stayed with a friend and his family until graduation, but my dad moved to Phoenix; my younger brother grew up in Phoenix. And going in the summers in between college, I really kind of fell in love with the place. Later, I was part of the group that started PayPal [as a VP nearly straight out of college] and when we sold the business to eBay in 2002, I knew I wanted to away from the onerous tax regime of California. Arizona was kind of the obvious choice, so I moved in 2002, and I’ve been a happy resident for a lot of years. Do you spend much time in West Hollywood, where Thiel Capital is now based? I pop back and forth between Arizona and California quite often. That’s one of the appeals of Arizona. Contrary to the whole narrative that’s been built up around Austin and certainly Miami, proximity to California matters. If you can get back and forth to California in an hour or so by plane, that’s very convenient, whereas it’s a four-hour flight from Austin. It’s one of the huge advantages I think we have in Arizona. It does seem like a lot of people have headed from California to Scottsdale in particular. Are different cities in Arizona known for different industries? A lot of the big defense contractors like Lockheed Martin have a presence in Arizona. A lot of the chip companies have a presence in Arizona. Phoenix is the fifth [most-populous] city in the United States, which a lot of folks don’t know, so you have pockets of activity throughout greater Phoenix, ranging from Glendale, which is in the far southeast corner, and all points in between. The best analogy I can give you is Los Angeles, but just, say, 50 years earlier. You’ve receiving backing for your fund from Arizona’s real estate industry, and your anchor investor is a utility company that committed to invest $25 million in the fund. Why would a utility company do this? I don’t mean this to compliment myself, but it was a two-year-long courting process to get them across the finish line. With my day job with Peter, and I say this very humbly, but I basically know every LP that allocates venture capital in the world, whether they’re here in Abu Dhabi or Tokyo or New York or wherever it is. They all know who we are, and they would love to curry favor with him by giving money to some new fund that’s connected to Peter’s universe. But I wanted to use the fund as a litmus test to see if the Arizona community wanted to see something like this fund rise up and get off the ground. Honestly, I didn’t know what the result was going to be, but I was very heartened by the fact that people raised their hand and put us in business. Two things. First, I’m still not understanding why a utility company is a natural fit here. Arizona has been very, very real estate oriented, and if you look back across various housing cycles, Arizona has been the poster child for the boom and bust because we don’t have much diversification in terms of industry. The thinking from a utility perspective is [anything that] helps diversify the economy and helps build up the technology sector within Arizona [is a positive] that will help smooth out some of these ups and downs. And you expressly didn’t want or ask for capital from Peter or Thiel Capital’s LPs. Why? My day job with Peter is protecting the nest, so to speak, and the nest is very important. Peter is my golden goose. I’ve been working with him longer than anyone else. He’s a very close friend. He’s a very loyal person. As you might imagine, we get barraged with unsolicited inquiries looking for his backing all day long. So sure, I could have gotten [their collective backing] but I didn’t go to a sovereign wealth fund in Abu Dhabi or go to Peter because they have no connection or ties to Arizona and I want people to be involved. I want people to be advisors. I want them to be deal scouts. I want them to be mentors. And the Abu Dhabi sovereign wealth fund is not going to do that. Playing devil’s advocate here, what if you strike gold in Arizona? Will that be

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‘I’m worried about the overall lack of LP appetite going forward.’ • ZebethMedia

By zebethcontrolPosted on Posted in Crypto, Double Down, Dragonfly Capital, FTX, Magdalena Kala, TechCrunch Sessions: Crypto 2022, Tom Schmidt, VentureNo Comments on ‘I’m worried about the overall lack of LP appetite going forward.’ • ZebethMedia

During an unprecedented bull run, crypto-focused investors raised, and deployed, billions of dollars in capital. But now, not only are VCs operating in a bearish crypto market, they are navigating the fallout of the FTX collapse and the potential impact it will have on their investment strategies moving forward. Double Down founder and general partner Magdalena “Mags” Kala and Dragonfly general partner Tom Schmidt shared their views at ZebethMedia’s crypto conference in Miami on Thursday on what’s next in crypto in the wake of the FTX drama. Luckily, the pair each closed their respective funds this year — Schmidt’s firm closing on an “oversubscribed” $650 million vehicle — and Kala’s Double Down just one week before all the FTX goings-on went down. Both say they had already planned to proceed cautiously in deploying their capital, but now even more so. “I am worried about contagion risk and for the other shoes to drop,” said Schmidt, who counts a number of exchanges in his firm’s portfolio. “We’re still holding our breaths and taking a pause to reevaluate what we will do in the coming year.” “I’m more worried about builders not entering the space, builders leaving the space and the overall lack of LP appetite going forward,” he admitted. Kala said she feels fortunate to be sitting on dry powder in light of the current macro environment. “A lot of those who raised last year don’t want to have to raise again in 2023,” she said. “And so I think we will see a slowdown and higher bar for projects.”  Schmidt said he has been “very slowly” deploying out of his firm’s third fund. “I have a reputation for being critical, and going deep to understand what’s happening,” he said. “Our long-term thesis is to use technology to create a new set of financial services, a financial substrate. And what we’re looking for are companies that fit that idea…at the same level of diligence.” A lack of diligence has been cited with regards to the FTX debacle, with many wondering how the crypto exchange managed to raise so much money despite what Schmidt called “red flags.” “The thing about FTX and Alameda is that it was so unbelievable when you heard it,” he said. “We were never fans. This was supposed to be blue chip and have blue chip investors backing them but the numbers never made sense. If you looked at how much they were making and how much they were spending on stadium sponsorships and donations, nothing really made sense.” In Kala’s view, the whole debacle highlights that “decentralization is actually needed.” But she is not surprised that many investors may have overlooked so-called red flags. “From a diligence standpoint, it can be that you see what you want to see,” Kala said. “In the moment you can be so taken by the narrative.” Schmidt believes that the past few years represented an “anomaly” in diligence and the traditional venture process. He recalls meetings with crossover funds backing a company, in some cases deploying 20x more capital than him, where the investor clearly did not have a fundamental understanding of what the company was doing. Overall, he does believe that regulation played a role in the FTX saga. “Certainly regulation could have helped. It was this certain environment that pushed them offshore,” Schmidt said. “I expect we’ll see more of an attitude adjustment…I’d like to see the U.S. be a leader on this front.” For Mala, “nothing has changed” with regard to the core fundamentals of crypto. She described FTX CEO Sam Bankman-Fried’s efforts when it came to regulation being “more like a dog and pony show.” “The real change is happening with real players,” she said. “But also the other thing that we see with VCs is that slowly we are having this change of guard who are actually knowledgeable [about crypto.]”

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Zulu banks $5M for its LatAm digital wallet amid shaky ground for crypto • ZebethMedia

By zebethcontrolPosted on Posted in Cadenza Ventures, Crypto, Esteban Villegas, Fintech, Venture, zuluNo Comments on Zulu banks $5M for its LatAm digital wallet amid shaky ground for crypto • ZebethMedia

With new information coming to light about the FTX saga every day, it’s certainly an interesting time for cryptocurrency. Just ask our ZebethMedia colleagues at TC Sessions: Crypto today. As we figure out if any of this has damaged trust in the industry and funding for startups, adoption of crypto in Latin America continues to grow — Chainalysis puts the adoption growth number at 40%. In addition, the region represents “a 9.1% share of the global crypto value received in 2022 with remittances and high inflation the highest drivers of adoption.” Even venture capitalists believe Latin America’s thirst for crypto. For example, former Binance executives created a fund earlier this year to pump $100 million into this region and others. VCs even believe this might be one of the regions that could stay red hot despite a crypto winter. That’s a good indication as to why we continue to see investment going into Latin America-focused startups offering a crypto feature. Today, Colombia-based Zulu, a digital wallet for Latin America consumers, is the latest company to bring in new funding. The $5 million seed round was led by Cadenza Ventures, which was joined by Nexo Ventures, Simplex, CMT Digital, Gaingels, and a group of startup founders, including Caterine Castillo of Neivor; Jose Jair Bonilla, Carolina García and Oscar Sarria of Chiper; Andrew Chang, former COO and Advisor of Paxos; and Man Hei Lou of Treinta. Here’s how it works: its platform enables Android and iOS users to save in secure digital dollars and send cross-border payments at no cost. In addition, it protects users from the currency devaluations that often occur in countries like Colombia, Venezuela and Peru, the company said. “Zulu is a decentralized wallet where each user holds their own keys and personally custodies their assets within a great user experience and with tools that are typically provided by centralized exchanges,” Esteban Villegas, co-founder and CEO told ZebethMedia via email. “Blockchain technology needs to be easier for the individual user to navigate and can help leapfrog Latin America to being one of the most financially democratized regions in the world.” Villegas and co-founders Jaime Varela and Julian Delgado started the company in March 2022 after meeting while students at Universidad de Los Andes. Their goal was to bring web3 services to the population of Latin Americans who are traditionally overlooked by banks. The company said it has approximately 500,000 users across Colombia, Venezuela, Peru and Mexico and has plans to expand into other LatAm countries and the U.S. in 2023. Speaking to the ongoing challenges in the cryptocurrency world today and what it might mean for companies in Latin America trying to get funding, Villegas remains optimistic that funding will continue to flow into these kinds of companies that have demonstrated a clear path to success. “Fundraising will be harder within our industry, but this is net-positive,” he added. “Companies and projects that had no clear roadmap or product-market fit will be removed from the scene, and companies with clear use-cases and real impact will be moved to the front of the stage.” Zulu joins companies that have also taken in funding recently, including Ping’s $15 million seed round, a fairly large raise in the current VC environment, to continue developing a digital payment tool that facilitates international payments for remote workers, contractors and freelancers in both their local currency and in fiat and cryptocurrency. And in September, DolarApp announced $5 million in seed funding for its platform for users to open a bank account and move from pesos to dollar dominated stablecoin USD Coin (USDc) and back in seconds. As to whether this could affect crypto regulation in Latin American countries, Villegas said consumers do need to be protected from fraud, but any regulations shouldn’t ultimately “stifle the type of innovation that will eventually level a playing field into the region.” “Crypto regulation is necessary in Latin America to remove bad players, but it should be flexible enough to allow for new players who are working to create a positive impact, but are not heavily financed, to thrive,” he added.

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

By zebethcontrolPosted on Posted in Capchase, EC News Analysis, EC venture capital, Growth, SaaS, Startups, VentureNo Comments on SaaS startups that ignored VC advice to cut sales and marketing better off this year

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.

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