1 change that can fix the VC funding crisis for women founders

The venture capital industry as we know it is broken. At least for women, that is.

In terms of funding to women founders, 2020 was among the worst years on record. On a global level, only 9% of all funds deployed to technology startups went to founding teams that included at least one woman. Solo woman founders and all-women teams raised just 2% of all VC dollars, Crunchbase data showed.

Shockingly, this number is actually less than it was when we first started counting a decade ago, well before many high-profile diversity initiatives launched with the goal of fixing this very problem.

This funding gap isn’t just a moral crisis — it’s an economic one. The lack of investment into women-founded startups is a missed opportunity worth trillions of dollars. That’s because of overwhelming evidence that startups founded by women outperform startups founded by men: They generate more revenue, earn higher profits and exit faster at higher valuations. And they do all this while raising way less money.

What we’re doing isn’t working. Through research for my next book on women founders and funders, I kept asking myself the same question: When it comes to fixing the funding gap for women founders, what’s the one thing we can do that will make everything else easier or unnecessary?

I now believe that our best bet for long-term change is to focus our efforts on increasing the number of women investing partners who can write large seed checks. Here’s why.

Women investors are up to 3x more likely to fund women founders

Recently, one of the top VCs in the world told me how challenging it is to diversify his senior team. He expressed it as an accepted fact and a widespread belief. This is a common trope in Silicon Valley: Everyone wants gender diversity, but it’s so hard to find all the senior women!

In the venture capital industry, who you hire at the senior level is who you hang out with. And who you hire at the senior level determines who your fund will back.

Since studies now show that women investors are up to three times more likely to invest in women founders, it is clear that the fastest way to fund more women is to hire more women investing partners with check-writing ability. The effect to venture firms? Returns.

“When U.S. VC firms increased the proportion of female partners, they benefited with 9.7% more profitable exits and a 1.5% spike in overall fund returns annually,” explained Lisa Stone of WestRiver Group.

Data from All Raise and PitchBook reinforce the “correlation between hiring female decision-makers at the investment level and outperformance at the fund level,” adding that “69.2% of U.S. VCs that scored a top-quartile fund between 2009 and 2018 had women in decision-making roles.”

It shouldn’t be surprising that women investors are more likely to invest in women founders. That’s because humans have a propensity toward homophily the tendency for like to attract like and for similarity to breed connection.

Homophily is why a vegan VC is more likely to invest in a vegan food tech, a gamer is more likely to hang out with gaming founders, or a parent is more likely to invest in a parent marketplace. People gravitate toward what they know.

Deena Shakir, who happens to be a woman and a mother, recently led Lux Capital’s investment into women’s health unicorn Maven. Shakir had multiple high-risk pregnancies with multiple complications, emergency C-sections, NICU stays and breastfeeding challenges.

“It is no coincidence that I am joined on Maven’s board of directors by four other mothers … and a brand-new father … whose personal journeys have also informed their professional conviction,” Shakir wrote in a Medium post.

Why seed checks have the greatest impact on the ecosystem

I believe that to fix the funding gap for women founders and jump-start the virtuous cycle of venture capital investing into women, we should focus on getting more seed checks into the hands of women founders. That’s because seed investing is a leading indicator of whether we are headed in the right direction in terms of closing the funding gap for women, according to Jenny Lefcourt, a partner at Freestyle and co-founder of All Raise, the leading nonprofit focused on diversifying the VC industry.

This doesn’t discount the importance of investments made into women founders at later stages. When a women founder lands Series D capital, it boosts this year’s numbers into women founders and likely brings that particular founder closer to a liquidity event that will lead her (and her executives) to invest in more women.

That said, the greatest impact on the future ecosystem will come from widening the top of the funnel and giving more women at the seed stage the shot to one day reach a momentous Series D funding like Maven. After all, who we fund now becomes who we fund later.

Why large seed checks matter most

Finally, the size of the check is also important when thinking about how to have the biggest impact on the ecosystem.

I know first-hand that microchecks are critical to building an inclusive ecosystem. When women invest at the seed level — in any amount — they jumpstart a virtuous cycle of women funding women. That’s why when I stepped in to lend a hand at my portfolio company when the solo woman founder took a parental leave, one of my key projects was to develop Jefa House, a way for Jefa’s own executives to easily invest in other women-founded startups.

That said, large party rounds made up entirely of small angel checks are few and far between. Similar challenges face small checks from emerging fund managers. Although the sheer number of emerging managers has increased 9x in seven years, the reality is that most emerging managers simply don’t have much money.

Are women venture capitalists who run their own microfunds more likely to invest in amazing women founders than Tier 1 funds with few or no women investing partners? Yes. Will it take them a long time to compete with those Tier 1 funds in terms of check size? Yes.

This is why it matters so much when leading funds hire or promote women to the partner level. Not only does it give women founders a better shot at funding from high-signal shops, but the moves that top funds make are key signals to others in the ecosystem: In venture capital, women investors don’t have to sit at the kids’ table.

Why we must hire women investing partners

We all know that great returns in early-stage venture capital come from making big bets on great ideas that others aren’t betting on. That is why VC investing is contrarian by definition. Thanks to our increasingly globalized world and clear data showing the importance of diverse teams to make good decisions to get those returns, no one in 2021 truly believes that single white dudes in Palo Alto have a monopoly on billion-dollar ideas.

However, due to the nature of homophily, venture capital remains a highly homogenous industry, and the social and economic interactions and decisions of human beings remain deeply swayed by these principles. No matter how much work we do, birds of a feather really do flock — and fund — together.

This all leads to one place: The clearest path to funding different kinds of founders with different kinds of ideas is to put different kinds of investors on the investing side of the table. To get more funding to women founders, we need more women who can write checks. That’s why prioritizing the hiring of women investing partners who can write large seed checks is key to fixing the funding crisis for women founders and increasing VC returns worldwide.

#column, #deena-shakir, #funding, #jenny-lefcourt, #maven, #opinion, #private-equity, #startup-company, #tc, #venture-capital, #women-in-venture-capital

Extra Crunch roundup: Adtech investing, Intuit buys Mailchimp, ideal customer profiles

Major gains in online advertising have boosted valuations for adtech startups since the pandemic began, but one insider says investors are missing the party.

“Adtech is having a moment,” writes industry veteran Casey Saran.

“And while much of the oxygen has been soaked up by large legacy companies hitting the public market, there have been smaller deals that indicate a hunger for better creative adtech.”

Saran shares five reasons “why VCs should consider ratcheting up their investment into adtech startups building the next generation of creative tools.”


Full Extra Crunch articles are only available to members
Use discount code ECFriday to save 20% off a one- or two-year subscription


On Wednesday, September 22 at 9:05 a.m PT, I’m moderating “The Path for Underrepresented Entrepreneurs,” a panel discussion at Disrupt 2021.

Our conversation will examine some of the unique challenges facing founders from historically marginalized groups, the strategies they used along the way, and the disruptive changes we need to consider if we want to see fundamental change.

I’ll be speaking with:

  • Hana Mohan, founder & CEO, MagicBell
  • Leslie Feinzaig, founder & CEO, Female Founders Alliance
  • Stephen Bailey, co-founder & CEO, ExecOnline

I hope you’ll attend; we’ll take audience questions after our discussion concludes. Thanks very much for reading Extra Crunch this week, and have a great weekend.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

5 things you need to win your first customer

Putting the final building block onto the top of a rising pile signifying success and achievement

Image Credits: AndrewLilley (opens in a new window) / Getty Images

Congratulations on shipping your product, but how much do you know about your target customers?

Companies that haven’t created an ideal customer profile and performed a SWOT analysis are making big bets on guesswork and intuition. Sometimes that works out, but more frequently, it leads to tears.

In a guest post that walks readers through the fundamentals of creating customer personas that map to your company’s goals, Grammarly product marketing lead Bryan Dsouza shares five basic requirements for customer acquisition.

“Understanding and executing on these things can guarantee you that first customer win, provided you do them well and with sincerity,” he says.

“Your investors will also see the fruits of your labor and be comforted knowing their dollars are at good work.”

4 ways to leverage ROAS to triple lead generation

Someone pops the tab on a soda can, releasing a mist/spray

Image Credits: joshblake (opens in a new window) / Getty Images

In school, it’s highly unethical to copy someone else’s work and pass it off as your own. In business, however, it is expected.

Xiaoyun TU, global director of demand generation at Brightpearl, wrote a comprehensive guide for how to use the key metric of return on advertising spend (ROAS) to triple your company’s lead generation.

“A ‘good’ ROAS score is different for each company and campaign,” she says. “If your figure isn’t where you’d like it to be, you can leverage ROAS data to create targeted campaigns and personalized experiences.”

3 strategies to make adopting new HR tech easier for hiring managers

Steps with Check Mark on Chalkboard

Image Credits: porcorex (opens in a new window) / Getty Images

Most of us prefer to trust our instincts instead of letting automated tools help us make decisions, particularly when it comes to hiring. But that’s not smart.

If your startup relies on an ad hoc hiring process, you’re probably not tracking candidates properly, there’s likely little consistency regarding how they’re treated, and bias can play a major role in who gets hired.

It’s fine to be skeptical of automated hiring tools — but not ignorant.

What could stop the startup boom?

In yesterday’s edition of The Exchange, Anna Heim and Alex Wilhelm speculated about the conditions that could combine to cool off a hot startup market currently fueled by low interest rates and a sweeping digital transformation.

“From where we stand, the factors underpinning the startup fundraising boom appear solid and unlikely to unwind overnight. Still, no golden period shines forever, and even today’s luster will eventually tarnish.”

Intuit’s $12B Mailchimp acquisition is about expanding its small business focus

Signage for financial software company Intuit at the company's headquarters in the Silicon Valley town of Mountain View, California, August 24, 2016. (Photo by Smith Collection/Gado/Getty Images).

Image Credits: Smith Collection/Gado / Getty Images

Before news broke this week that Intuit was acquiring Mailchimp for $12 billion, the ’80s-born fintech giant’s biggest buy was spending $7.1 billion last year for Credit Karma.

In the last few years, Mailchimp “has been expanding upon its core email marketing functionality” with offerings like web design and CRM, writes enterprise reporter Ron Miller.

The industry watchers he interviewed said the move signals Intuit’s interest in acquiring and serving more SMB customers with a variety of tools:

  • Laurie McCabe, co-founder and partner, SMB Group
  • Brent Leary, founder and principal analyst, CRM Essentials
  • Holger Mueller, analyst, Constellation Research

Forge’s SPAC deal is a bet on unicorn illiquidity

“One of my favorite long-term issues with the late-stage startup market is that it is far better at creating value than it is at finding an exit point for that accreted value,” Alex Wilhelm writes for The Exchange. “More simply, the startup market is excellent at creating unicorns but somewhat poor at taking them public.”

That’s good news for Forge Global, a technology startup that operates a market for secondary transactions in private companies, with Alex dubbing its plans to go public via a SPAC combination “perfectly reasonable.”

Dear Sophie: Should I apply for citizenship if I have a conviction?

lone figure at entrance to maze hedge that has an American flag at the center

Image Credits: Bryce Durbin/TechCrunch

Dear Sophie,

At Burning Man a few years ago, I was arrested and charged with a misdemeanor for smoking marijuana in public (in my car) and driving under the influence.

I currently have a green card and want to apply for U.S. citizenship next year.

Can I? If so, how should I handle my criminal record?

— Remorseful About the Reefer

Atlanta’s sundry startups join in global VC funding boom

Alex Wilhelm and Anna Heim continued their tour of U.S. cities after hitting up Chicago and Boston in recent weeks.

This time, they dug into Atlanta’s booming startup scene, which is seeing record capital inflows.

“The picture that forms is one of a city enjoying a rising tide of venture activity, boosted by some local dynamics that may have helped some of its earlier-stage companies scale for cheaper than they might have in other markets,” they write.

#adtech, #advertising-tech, #business, #ec-roundup, #entrepreneurship, #extra-crunch-roundup, #finance, #growth-marketing, #intuit, #lawyers, #mailchimp, #private-equity, #sophie-alcorn, #startups, #venture-capital, #verified-experts

The responsibilities of AI-first investors

Investors in AI-first technology companies serving the defense industry, such as Palantir, Primer and Anduril, are doing well. Anduril, for one, reached a valuation of over $4 billion in less than four years. Many other companies that build general-purpose, AI-first technologies — such as image labeling — receive large (undisclosed) portions of their revenue from the defense industry.

Investors in AI-first technology companies that aren’t even intended to serve the defense industry often find that these firms eventually (and sometimes inadvertently) help other powerful institutions, such as police forces, municipal agencies and media companies, prosecute their duties.

Most do a lot of good work, such as DataRobot helping agencies understand the spread of COVID, HASH running simulations of vaccine distribution or Lilt making school communications available to immigrant parents in a U.S. school district.

The first step in taking responsibility is knowing what on earth is going on. It’s easy for startup investors to shrug off the need to know what’s going on inside AI-based models.

However, there are also some less positive examples — technology made by Israeli cyber-intelligence firm NSO was used to hack 37 smartphones belonging to journalists, human-rights activists, business executives and the fiancée of murdered Saudi journalist Jamal Khashoggi, according to a report by The Washington Post and 16 media partners. The report claims the phones were on a list of over 50,000 numbers based in countries that surveil their citizens and are known to have hired the services of the Israeli firm.

Investors in these companies may now be asked challenging questions by other founders, limited partners and governments about whether the technology is too powerful, enables too much or is applied too broadly. These are questions of degree, but are sometimes not even asked upon making an investment.

I’ve had the privilege of talking to a lot of people with lots of perspectives — CEOs of big companies, founders of (currently!) small companies and politicians — since publishing “The AI-First Company” and investing in such firms for the better part of a decade. I’ve been getting one important question over and over again: How do investors ensure that the startups in which they invest responsibly apply AI?

Let’s be frank: It’s easy for startup investors to hand-wave away such an important question by saying something like, “It’s so hard to tell when we invest.” Startups are nascent forms of something to come. However, AI-first startups are working with something powerful from day one: Tools that allow leverage far beyond our physical, intellectual and temporal reach.

AI not only gives people the ability to put their hands around heavier objects (robots) or get their heads around more data (analytics), it also gives them the ability to bend their minds around time (predictions). When people can make predictions and learn as they play out, they can learn fast. When people can learn fast, they can act fast.

Like any tool, one can use these tools for good or for bad. You can use a rock to build a house or you can throw it at someone. You can use gunpowder for beautiful fireworks or firing bullets.

Substantially similar, AI-based computer vision models can be used to figure out the moves of a dance group or a terrorist group. AI-powered drones can aim a camera at us while going off ski jumps, but they can also aim a gun at us.

This article covers the basics, metrics and politics of responsibly investing in AI-first companies.

The basics

Investors in and board members of AI-first companies must take at least partial responsibility for the decisions of the companies in which they invest.

Investors influence founders, whether they intend to or not. Founders constantly ask investors about what products to build, which customers to approach and which deals to execute. They do this to learn and improve their chances of winning. They also do this, in part, to keep investors engaged and informed because they may be a valuable source of capital.

#ai, #artificial-general-intelligence, #artificial-intelligence, #column, #cybernetics, #ec-column, #machine-learning, #nso, #palantir, #private-equity, #startup-company, #startups, #venture-capital

Index Ventures launches web-app to help founders calculate employee stock options

The ability to offer stock options is utterly essential to startups. They convince talented people to join when the startup is unlikely to be capable of matching the high salaries that larger, established tech firms can offer.

However, it’s a complex business developing a competitive stock option plan. Luckily, London-based VC Index Ventures today launches both a handy web app to calculate all this, plus new research into how startups are compensating their key hires across Europe and the US.

OptionPlan Seed, is a web-app for seed-stage founders designing ESOPs (Employee Stock Ownership Plans). 
The web app is based on Index’s analysis of seed-stage option grants, drawing on data from over 1,000 startups.

The web app covers a variety of roles; 6 different levels of allocation benchmarks; calculates potential financial upside for each team member (including tax); and adjusts according to policy frameworks in the US, Canada, Israel, Australia, and 20 European countries.

It also builds on the OptionPlan for Series A companies that Index launched a few years ago.

As part of its research for the new tool, Index said it found that almost all seed-stage employees receive stock options. However, while this reaches 97% of technical hires at seed-stage startups and 80% of junior non-technical hires for startups in the US, in Europe only 75% of technical hires receive options, dropping to 60% for junior non-technical hires.

That said, Index found stock option grant sizes are increasing, particularly among startups “with a lot of technical DNA, and weighted towards the Bay Area”. In less tech-heavy sectors such as e-commerce or content, grant sizes have not shifted much. Meanwhile, grants are still larger overall as seed valuations have grown in the last few years.

Index found the ESOP size is increasing at seed stage, following a faster rate of hiring, and larger grants per employee. Index recommends an ESOP size at seed stage is set at 12.5% or 15%, rather than the more traditional 10% in order to retain and attract staff.

The research also found seed fundraise sizes and valuations have doubled, while valuations have risen by 2.5x, in Europe and the US. 


Additionally, salaries at seed have “risen dramatically” with average salaries rising in excess of 60%. Senior tech roles at seed-stage startups in the US now earn an average $185,000 salary, a 68% increase over 3 years, and can rise to over $220,000. But in Europe, the biggest salary increases have been for junior roles, both technical and non-technical.



That said, Index found that “Europe’s technical talent continues to have a compensation gap” with seed-stage technical employees in Europe still being paid 40-50% less on average than their US counterparts. Indeed, Index found this gap had actually widened since 2018, “despite a narrowing of the gap for non-technical roles”.


Index also found variations in salaries across Europe are “much wider than the US”, reflecting high-cost hubs like London, versus lower-cost cities like Bucharest or Warsaw.

The war for talent is now global, with the compensation gap for technical hires narrowing to 20-25% compared to the US.


Index’s conclusion is that “ambitious seed founders in Europe should raise the bar in terms of who they hire, particularly in technical roles” as well as aiming for more experienced and higher-caliber candidates, larger fundraises to be competitive on salaries.

#australia, #canada, #corporate-finance, #e-commerce, #entrepreneurship, #europe, #finance, #investment, #israel, #london, #money, #private-equity, #startup-company, #stock, #tc, #united-states, #venture-capital, #warsaw, #web-app

As UK Gov reaches out to tech, investors threaten to ‘pull capital’ over M&A regulator over-reach

UK competition regulators are spooking tech investors in the country with an implied threat to clamp down on startup M&A, according to a new survey of the industry.

As the UK’s Chancellor of the Exchequer engaged with the tech industry at a ‘Chatham House’ style event today, the Coalition for a Digital Economy (Coadec) think-tank released a survey of over 50 key investors which found startup investors are prepared to pull capital over the prospect of the Competition and Markets Authority’s (CMA) new Digital Markets Unit (DMU) becoming a “whole-economy regulator by accident”. Investors are concerned after the CMA recommended the DMU be given ‘expanded powers’ regarding its investigations of M&A deals.

Controversy has been stirring up around the DMU, as the prospect of it blocking tech startup acquisitions – especially by US firms, sometimes on the grounds of national security – has gradually risen.

In the Coadec survey, half of investors said they would significantly reduce the amount they invested in UK startups if the ability to exit was restricted, and a further 22.5% said they would stop investing in UK startups completely under a stricter regulatory environment.

Furthermore, 60% of investors surveyed said they felt UK regulators only had a “basic understanding” of the startup market, and 22.2% felt regulators didn’t understand the tech startup market at all.

Coadec said its conservative estimates showed that the UK Government’s DMU proposals could create a £2.2bn drop in venture capital going into the UK, potentially reducing UK economic growth by £770m.

Commenting on the report, Dom Hallas, Executive Director of Coadec, said: “Startups thrive in competitive markets. But nurturing an ecosystem means knowing where to intervene and when not to. The data shows that not only is there a risk that the current proposals could miss some bad behavior in some areas like B2B markets whilst creating unnecessary barriers in others like M&A. Just as crucially, there’s frankly not a lot of faith in the regulators proposing them either.”

The survey results emerged just as Chancellor Rishi Sunak convened the “Treasury Connect” conference in London today which brought together some of the CEOs of the UK’s biggest tech firms and VCs in a ‘listening process’ designed to reach out to the industry.

However, at a press conference after the event, Sunak pushed back on the survey results, citing research by Professor Jason Furman, Chair, of the Digital Competition Expert Panel, which has found that “not a single acquisition” had been blocked by the DMU, and there are “no false positives” in decision making to date. Sunak said the “system looks at this in order to get the balance right.”

In addition, a statement from the Treasury, out today, said more than one-fifth of people in the UK’s biggest cities are now employed in the tech sector, which also saw £11.2 billion invested last year, setting a new investment record, it claimed.

Sunak also said the Future Fund, which backed UK-based tech firms with convertible loans during the pandemic, handed UK taxpayers with stakes in more than 150 high-growth firms.

These include Vaccitech PLC, which co-invented the COVID-19 vaccine with the University of Oxford and is better known as the AstraZeneca vaccine which went to 170 countries worldwide. The Future fund also invested in Century Tech, an EdTEch startup that uses AI to personalize learning for children.

The UK government’s £375 million ‘Future Fund: Breakthrough’ initiative continued from July this year, aiming at high-growth, R&D-intensive companies.

Coadec’s survey also found 70% of investors felt UK regulators “only thought about large incumbent firms” when designing competition rules, rather than startups or future innovation.

However, the survey found London was still rated as highly as California as an attractive destination for startups and investors.

#artificial-intelligence, #astrazeneca, #california, #chair, #coalition-for-a-digital-economy, #competition-and-markets-authority, #corporate-finance, #digital-markets-unit, #economy, #entrepreneurship, #europe, #finance, #jason-furman, #london, #money, #private-equity, #startup-company, #tc, #uk-government, #united-kingdom, #united-states, #venture-capital

What minority founders must consider before entering the venture-backed startup ecosystem

Funding for Black entrepreneurs in the U.S. hit nearly $1.8 billion in the first half of 2021 — a fourfold increase from the previous year. But most venture-backed startups are “still overwhelmingly white, male, Ivy-League-educated and based in Silicon Valley,” according to a study conducted by RateMyInvestor and Diversity VC.

With venture investors committing to funding Black and minority founders, alongside the growing availability of government-backed proposals, such as New Jersey allocating $10 million to a seed fund for Black and Latinx startups, can we expect to see fundamental change? Or will we have to repeat the same conversations about representation failings within VC funds?

Crunchbase examined the access to capital in the venture-backed startup ecosystem and proved that many industry leaders still worry that nothing will drastically shift. As a Black fintech founder, I believe that venture investors are making safe bets and investing in late-stage founders instead of early or even pre-seed stages.

But what about those minority founders who don’t have family, friends or connections to lean on for the first $250,000? Venture funding does remain elusive, but here are some tricks for startup founders to hack the system.

Realize you are up against an outdated system

Getting your foot in the door with new venture capitalist partners is challenging, and it is often easy for minority founders to be naive at first. I thought that reading TechCrunch and analyzing other VC deals I saw in the news would help me land multiple responses and speak the language of those who managed to score million-dollar deals for their startups. However, I didn’t receive a single response while other founders received VC investment for basic ideas.

This is something I had to learn the hard way: What you hear in the media or read on a company blog post often simplifies the process, and sometimes fails to cover the trajectory that minority founders, in particular, must follow to secure funding.

I experienced hundreds of rejections before raising $2 million to start a mobile payment platform, Bleu, using beacon technology to drive simple and secure payments. It is a huge mountain to climb and a full-time job to continuously pitch your vision and yourself to reach the first meeting with a VC fund — and that’s still miles away from a funding discussion.

These discussions then bring further biases to the surface. If you sat in the conference rooms or on those Zoom calls and heard the types of deals proposed to minority founders, you’d see how offensive they can be. Often, these founders are offered all the money they have requested — but don’t be fooled. It is usually not given all at once due to what I consider to be a lack of trust. Essentially, interval funding equates to being babysat.

Therefore, as a minority founder, you have to realize that it will be a long ride, and you will face rejections because you are at a disadvantage before even opening your mouth to pitch your idea. It is all possible, but patience is key.

Think of the worst-case scenario

Once I figured out how complicated the funding process was, my coping mechanism was to figure out how to capitalize on the business ideas I already had in place in case I never received any VC funding.

Think: How could you make money without an institutional investor, friends, family or internal networks? You’ll be surprised by your entrepreneurial thirst for success when you’ve experienced 100 rejections. This is why minority businesses caught in these testing situations can quickly gain the upper hand, whether through ancillary and side businesses or crowdfunding over GoFundMe and Kickstarter.

Although generally considered non-essential, ancillary companies do provide a regular flow of income and services to assist your core business idea. Most importantly, a recurring revenue stream outside your core business demonstrates to investors that you can create valuable products and acquire loyal customers.

Make sure to find a niche market and carry out surveys with potential clients to find out what specific needs they have. Then, build a product with their feedback in mind and launch it to beta clients. When you publicly release the product, find resellers to keep internal headcount low and generate recurring revenue.

Don’t take ancillaries lightly, though; they are not just a side business. There can be payment issues if you get hooked on them for revenue, distractions from clients or partners wanting custom requests, and supply chain problems.

In my case, I built a point-of-sale (POS) software platform to sell to merchants, which gave me a different revenue stream that could integrate with Bleu’s payment technology. These ancillary businesses can help fund your core business until you manage to plan how to launch fully or source further funding.

In 2019, The New York Times published an article headlined “More Start-Ups Have an Unfamiliar Message for Venture Capitalists: Get Lost.” It highlights how more and more entrepreneurs shunned by the VC funding route are turning to alternatives and forming counter-movements. There are always alternatives to look at if the fundraising process is proving to be too arduous.

Make serious headway with accelerators

Accelerators allow ventures to define their products or services, quickly build networks and, most importantly, sit at tables they wouldn’t be able to on their own. Applying to accelerators as a minority founder was the real turning point for me because I met a crucial investor who allowed us to build credibility and open up to new networks, investors and clients.

I would suggest looking out for accelerators explicitly searching for minority founders by using platforms such as F6S. They match you with accelerators and early growth programs committed to innovation in various global industries, like financial technology. That’s how I found the VC FinTech Accelerator in 2016, where one-third of founders were from minority backgrounds.

Then, Bleu earned a spot in the 2020 class of the IBM Hyper Protect Accelerator dedicated to supporting innovative startups in fintech and health tech industries. These types of accelerators offer startups workshops, technical and business mentorship, and access to a network of partners, customers and stakeholders.

You can impress accelerators by creating a pitch deck and a company video less than two minutes long that shows your founder and the product, and engaging with the fintech community to spread the news.

The other alternative to accelerators is government funds, but they have had little success investing in startups for myriad reasons. It tends to be a more hands-off approach as government funds are not under significant pressure from limited partners (LPs, either institutional or individual investors) to perform.

What you need as a minority founder is an investor who is an active partner but, with government-backed funds, there is less demand to return the capital. We have to ask ourselves whether governments are really searching for the best minority-owned startups to help them get sufficient returns.

Tap into foreign markets

There are many unconscious social stigmas, stereotypes and unseen biases that exist in the U.S. And you’ll find those cultural dynamics are radically different in other countries that don’t have the same history of discrimination, especially when looking at a team or assessing founders.

I also noticed that, as well as reduced bias, investors out of Southeast Asia, Nordic countries and Australia seemed far more likely to take risks on new contactless payment technology as cash use decreased across their regions. Take Klarna and Afterpay as examples of fintech success stories.

First, I engaged in market research and pored over annual reports to decide whether I should look abroad for funding, instead of applying to funds closer to home. I looked at Nielsen reports, payment publications, PaymentSource and numerous government documents or white papers to figure out the cash usage globally.

My investigations revealed that fintech in Australia was far ahead of the curve, with four-fifths of the population using contactless payments. The financial services sector is also the largest contributor to the national economy, contributing around $140 billion to GDP a year. Therefore, I spoke to the Australian Department of Foreign Affairs and Trade in the U.S., and they recommended some regulatory payment groups.

I immediately flew to Australia to meet with the banking community, and I was able to find an Australian investor by word of mouth who was surrounded by the demand for mobile payment solutions.

In contrast, an investor in the U.S. still using cash and card had no interest in what I had to say. This highlights the importance of market research and seeking out investors rather than waiting for them to come to you. There is no science to it; leverage your network and reach out to people over LinkedIn, too.

The need to diversify the VC industry internally

VC funding needs to become more inclusive for women and minority groups by tackling the pipeline problem and addressing the level of diversity within VC funds. All of the networks that VCs reach out to first tend to come from university programs at Stanford, MIT and Harvard. These more privileged and wealthy students are able to easily leverage the traditional and outdated networks built to benefit them.

The number of venture dollars flowing to Black and Latinx founders is dismally low partly due to this knowledge gap; many female and minority founders don’t even know that VC funding is an option for them. Therefore, if you do receive seed funding, spread the news about it within your networks to help others.

Inclusion starts at the educational level but, when the percentage of Black and minority students at these elite colleges are still low, you can see why minority representation is needed in the VC ranks. Even if representation rises by a percent, that would be a significant change.

There are increasing numbers of VC funds announcing initiatives and interest in investing in minority businesses, and I would recommend looking at these in-depth. But what about the demographics of the VC firms? How many ethnicities are present in the executive ranks?

To change the venture-backed startup ecosystem, we need to start at the top and diversify those signing the checks. Looking toward the future, it is Black-led funds, like Sequoia, or others that focus on diversity, like Women’s Venture Fund, BackStage Capital and Elevate Capital Inclusive Fund, that are lighting the way to solutions that will reflect the diversity of the U.S.

It’s up to the investor community at large to be intentional about building relationships with, and ultimately providing funding to, more women and minority-led startups.

Despite the barriers and hurdles minority founders face when searching for VC funding, more and more avenues for acquiring funding are appearing as the disparities are brought to the media’s attention.

As the outdated system adjusts, the key is to continue preparing yourself for rejections and searching for appropriate accelerators to build vital networks. Then, if you aren’t having any luck, consider what you could do with your business idea without the VC funding or turn to foreign markets, which may have a different setup and varied opportunities.

#column, #diversity, #entrepreneurship, #financial-technology, #funding, #opinion, #private-equity, #startups, #tc, #venture-capital

Is it so bad to take money from Chinese venture funds?

China is becoming a superpower in the tech industry. According to Straits Times, China is the only place in the world where it takes less than six years for a startup to become a unicorn — it takes seven years in the U.S., eight years in the U.K. and 11 years in Germany. Despite geopolitical tensions and recent amendments in CFIUS, it is hard to ignore China.

When I joined Runa Capital almost a year ago, my task was to help our portfolio companies enter the Chinese market, find the right partners and raise funding from Chinese investors. And almost on every call with our startups, colleagues from Runa or other global VCs, I heard: Is it a good idea to raise from a Chinese VC? Is it OK to co-invest with Chinese investors? I was surprised to learn that there is little research answering such questions, as there is a lack of adequate information in English about Chinese investments.

Access to the Chinese market seems to be an obvious reason to invite Chinese funds aboard, but only about 20% of Western startups with Chinese capital have operations in China.

So as a Mandarin-speaking specialist, I decided to fill this gap by conducting a study based on Chinese VC database ITjuzi (the Chinese version of Crunchbase) with the help of our powerful data science resources developed by Danil Okhlopkov.

Below, I will try to answer the following questions using statistics and a case-based approach:

  • How much do Chinese funds invest abroad?
  • What is the current trend?
  • Can Chinese investors bring any value to Western startups?
  • Who are the most active Chinese investors abroad?
  • In which areas can Chinese funds bring the most value?
  • What value can Chinese investors bring?
  • When is it better to invite a Chinese investor?

Chinese investors are interested in Western startups

After studying data from ITjuzi, we estimated that Chinese funds invested around $250 billion in 2020 (three times higher than the figure in Crunchbase). This figure puts Chinese VC investments only 30% lower than investments by U.S. funds, but three times that of U.K. funds and 12.5 times more than German funds.

Comparison of investment amount from different countries in 2020, $bn. Source: Crunchbase, ITjuzi

Fig. 1 — Comparison of investment from different countries in 2020, $bn. Source: Crunchbase, ITjuzi. Image Credits: Denis Kalinin

However, only 15% of investments in 2020 and 17% of investments in the first half of 2021 were in companies outside China, significantly lower than in 2019. This appears to be because during COVID, China’s economy recovered much faster than other countries’, so many Chinese investors preferred to redirect their capital flows to the domestic market.

On the other hand, there is great potential for overseas investments to rebound as soon as the borders reopen and the global economy starts to recover.

Dynamics of Chinese investments. $bn. Source: Crunchbase, ITjuzi

Fig. 2 — Dynamics of Chinese investments. $bn. Source: Crunchbase, ITjuzi. Image Credits: Denis Kalinin

We can also see that Chinese investors are eyeing European startups favorably, which is related to U.S.-China geopolitical tensions as well as the fact that the European VC market is becoming mature.

#china, #column, #ec-china, #ec-column, #ec-east-asia, #funding, #private-equity, #singapore, #startups, #tc, #unicorn, #venture-capital

Iceland’s Crowberry Capital launches $90M Seed and Early-stage fund aimed at Nordics

Crowberry Capital, operating in Reykjavik and Copenhagen, has launched Crowberry II: a $90 million seed and early-stage fund aimed at startups in the Nordic region. A second close – bringing in an additional $40 million – is planned for July 2022.

The EIF (European Investment Fund) is the lead LP on the fund, after putting in €20 million from the EU’s “InnovFin Equity” program. This is InnovFin Equity’s first VC fund in Iceland.

Other investors include Icelandic Pension funds, several family offices, and angels including David Helgason, founder of Unity Technologies.

Crowberry II, which claims to be the largest VC fund operating out of Iceland, is headed up by three women founders, Hekla Arnardottir, Helga Valfells, and Jenny Ruth Hrafnsdottir.

The Crowberry I fund (a $40m fund launched in 2017), invested in startups in the areas of Gaming, SaaS, Healthtech, and Fintech.

Hekla Arnardottir said: “An incorrect assumption is that because we are women, we are only interested in supporting female founders. As our investment record shows, we support companies because they are game changers, irrespective of the gender of their senior team members. However, we also benefit, as an all-female team, from a circumspection which means that we can see potential in businesses and sectors which are typically overlooked by others in our space.”

She added: “Inclusivity is good for business, and through being open and approachable, your deal-flow multiplies in parallel to your talent pool, and businesses are built with a broader potential user base. It’s crazy that in 2020, female-led startups received just 2.3% of VC Funding, yet Crowberry considers this to be an opportunity: where the Nordics lead in gender equality on a societal level, we want to show that the region can also show the way in terms of inventive venture support.”

Crowberry’s previous fund (Crowberry I) featured 15 companies, of which 33% had female CEOs.

#articles, #copenhagen, #crowberry-capital, #economy, #entrepreneurship, #europe, #european-investment-fund, #european-union, #flo, #founder, #healthtech, #iceland, #private-equity, #startup-company, #tc, #unity-technologies

Investors are doubling down on Southeast Asia’s digital economy

Southeast Asian tech companies are drawing the attention of investors around the world. In 2020, startups in the region raised over $8.2 billion, about four times more than they did in 2015. This trend continued in 2021, with regional M&A hitting a record high of $124.8 billion in the first half of 2021, up 83% from a year earlier.

This begs the question: Who exactly is investing in Southeast Asia?

Let’s explore the three key types of investors pouring money into and driving the growth of Southeast Asia’s tech ecosystem.

Over 229 family offices have been registered in Singapore since 2020, with total assets under management of an estimated $20 billion.

Big tech

Southeast Asia has become an attractive market for U.S. and Chinese tech firms. Internet penetration here stands at 70%, higher than the global average, and digital adoption in the region remains nascent — it wasn’t until the pandemic that adoption of digital services such as e-wallets and online shopping took off.

China’s tech giants Tencent and Alibaba were among the first to support early e-commerce growth in Southeast Asia with investments in Sea Limited and Lazada, and have since expanded their footprint into other internet verticals. Alibaba has backed Akulaku, M-Pay (eMonkey), DANA, Wave Money and Mynt (GCash), while Tencent has invested in Voyager Innovations (PayMaya), SHAREit, iflix, Ookbee and Sanook.

U.S. tech firms have also recently entered the scene. In June 2020, Gojek closed a $3 billion Series F round from Google, Facebook, Tencent and Visa. Google, together with Singapore’s Temasek Holdings, invested some $350 million in Tokopedia in October. Meanwhile, Microsoft invested an undisclosed amount in Grab in 2018 and has invested $100 million in Indonesian e-commerce firm Bukalapak.

Venture capitalists

In Q1 2021, Southeast Asian startups raised $6 billion, according to DealStreetAsia, positioning 2021 as another record year for VC investment in the region.

The region is also rising in prominence as a destination for investment capital relative to the rest of Asia. Regional VC investment grew 5.2 times to $8.2 billion in 2020 from $1.6 billion in 2015, as we can see in the table below.

Venture capital investment by region 2015-2020

Image Credits: Jungle VC

Southeast Asia also has many opportunities for VC investment relative to its market size. From 2015 to 2020, China saw VC investment of nearly $300 per person; for Southeast Asia — despite a recent investment boom — this metric sits at just $47.50 per person, or just a sixth of that in China. This implies a substantial opportunity for investments to develop the region’s digital economy.

The region’s rising population and growth prospects are higher due to China’s population growth challenges, alongside the latter’s higher digital economy market saturation and maturity.

#alibaba, #asia, #asia-pacific, #bridgewater-associates, #china, #column, #e-commerce, #ec-column, #ec-southeast-asia-oceania, #facebook, #ggv-capital, #google, #internet-penetration, #james-dyson, #joseph-phua, #lazada, #lazada-group, #microsoft, #online-shopping, #paul-allen, #private-equity, #ray-dalio, #sergey-brin, #singapore, #southeast-asia, #startups, #temasek-holdings, #tencent, #tokopedia, #united-states, #venture-capital

Allianz backs AV8 Ventures’ second fund focused on AI technologies

AV8 Ventures unveiled its AV8 Ventures II fund with $180 million from Allianz Group, an insurance and asset management giant, aimed at supporting entrepreneurs developing artificial intelligence-driven technologies in the areas of health, mobility, enterprise and deep tech.

Since the Palo Alto venture firm’s launch in 2018, it has invested in 20 seed-stage companies, with another four in the pipeline. Its first fund was also $180 million and backed by Allianz, George Ugras, managing director at AV8, told TechCrunch. The new fund will also invest in seed stage and some Series A and will aim to go into 25 companies.

“The idea is to operate as a financial VC with the support of the world’ largest insurance company and asset manager behind us,” Ugras said.

Some of the technologies the firm is excited about include how chronic diseases are managed. Ugras believes the lack of access to swaths of data and alignment of interest around the table are prohibiting many of the right solutions from bubbling up. In enterprise, AV8 is looking at management around cyberattacks, predicting vulnerabilities and the impact they have on enterprises, so that companies can be proactive in securing their vulnerabilities versus reactive.

Meanwhile, the driver for the second fund was to ensure continuity in deal activity. AV8 “is seeing so many deals right now,” and the competition to get into a VC deal makes it difficult to project how fast a fund will be able to deploy the capital. Even if a firm gets excited and issues terms sheets, there is always uncertainty, he added.

With venture capital being abundant these days, Ugras noted that the velocity is the fastest he has seen in 22 years. The competitiveness in the market is such that if a startup has a decent team, there is no issue raising capital. However, on the investor side, they have to do things better than ever.

“In terms of the key diligence, you need domain expertise to be very clear on how you can add value and key execution milestones going forward,” he added. “Healthcare and insurance more so than others because the business models are complicated. If you have the startups educating you on the front end, it is going to be difficult for the fund.”

 

#allianz, #allianz-group, #artificial-intelligence, #av8-ventures, #entrepreneurship, #funding, #george-ugras, #insurance, #private-equity, #tc, #venture-capital

The Missing Piece in the Push for Boardroom Diversity

Private companies are lagging behind publicly traded firms, but don’t receive the same scrutiny.

#appointments-and-executive-changes, #black-people, #board-diversity-action-alliance, #boards-of-directors, #burns-ursula-m, #discrimination, #minorities, #private-equity, #race-and-ethnicity, #venture-capital

Debt versus equity: When do non-traditional funding strategies make sense?

The U.S. produces more new startups and unicorns each year than any other country in the world, but 90% of startups fail, with cash flow often being a major challenge.

Entrepreneurs trying to raise funding for their new businesses are faced with a maze of options, with most taking the common route of equity rounds. There’s clearly a lot of venture money to be raised — and most tech entrepreneurs happily take it in exchange for equity. This works for some, but too often founders find themselves diluting their equity to unrecoverable portions rather than considering other financing options that allow them to hold on to their company — options like debt capital.

Even if you’re growing quickly, not all founders want to set a valuation for their company. In that case, you can offer investors “convertible debt.”

Despite the VC flurries of 2020 creating an ecosystem of seemingly endless equity, it’s important for entrepreneurs and founders to understand that there is no one-size-fits-all model for raising capital. Debt capital, which refers to capital raised by taking out a loan, is an alternative route that entrepreneurs should consider.

Understanding the real cost of venture debt and when it makes more sense than the traditional equity route relies on an understanding of what you and your company hope to achieve.

Understanding your goals

We mainly see two kinds of startups today: Those that want to try something new, and the ones that focus on making things faster, cheaper or simpler. Facebook, Twitter and Instagram are good examples of the first kind — social media didn’t exist before the internet. Discount airlines, cell phones (not smartphones) and integrated circuits are good examples of the “faster, cheaper, simpler” variety, because they simply displaced familiar incumbents.

Many entrepreneurs are eager to be the next “try something new” success story, and I applaud them for feeling that way. Carving out your own market is a fast-track to entrepreneurial stardom if you’re successful. But unless your main goal is to be famous, it’s often impractical and distracting.

People tend to think that category creation is less risky than incumbent disruption. However, as long as you’re truly faster, cheaper and simpler, patience and strategy can propel you to where you want to be.

 

Just as there are different market approaches, there are a number of funding strategies that work best for your goals. Landing investments from leading VC firms has benefits and is a good avenue to opt for if you’re a young startup carving out a market and in need of validation and experience. These firms bring trusted advisers that are laser-focused on growth and have the resources and experience to navigate the murky waters of category creation.

#column, #ec-column, #ec-how-to, #entrepreneurship, #finance, #funding, #private-equity, #startups, #unicorn, #venture-capital, #venture-debt

Egyptian fintech MNT-Halan lands $120M from Apis Partners, DisrupTech and others

Over 70% of Egypt’s young and fast-growing population of over 100 million is financially underserved despite mobile penetration exceeding 90%.

Traditional banks often overlook this segment because of their spending power or financial status and fintechs have seized the opportunity to cater to their needs.

One such fintech is MNT-Halan, and today, the company which describes itself as “Egypt’s leading fintech ecosystem” is announcing that it has closed a $120 million investment.

The investors backing MNT-Halan include private equity firms Apis Growth Fund II, Development Partners International (DPI), and Lorax Capital Partners; VCs like Venture Partners, Endeavor Catalyst, and DisruptTech.

They join previous local investors like GB Capital, DPI, Algebra Ventures, Wamda, Egypt Ventures, Shaka VC, Nowaisi Capital, Unidelta, Battery Road Digital Holdings that have backed the company in the past. 

In 2017, Mounir Nakhla and Ahmed Mohsen started Halan as a ride-hailing and delivery app offering two and three-wheeler services to customers in Egypt. Since then, it has provided other features including wallets, bill payment services, e-commerce with buy now, pay later (BNPL), micro and consumer loans, all in a bid to become a super app.

Then in June this year, Netherlands-based MNT Investments BV entered a share swap agreement with the Egyptian super app to accelerate the progress of its payments and lending arm, especially in BNPL across Egypt and the MENA region. 

Before the merger, MNT acquired the shares of Raseedy, the first independent and interoperable digital wallet in Egypt licensed by its Central Bank to disburse, collect and transfer money digitally through mobile applications.

As MNT-Halan, it has also obtained the micro, consumer, and nano finance licenses to provide services to both businesses and consumers across Egypt.

This has enabled the company to build a fintech ecosystem that connects consumers, merchants, and micro-enterprises via a digital platform and payment solutions.   

As a business and consumer lender, MNT-Halan offers BNPL services, nano loans, microfinance, SME lending, payroll lending, and light-vehicle finance.

Its digital payments ecosystem provides services around loan disbursement and collection, peer-to-peer transfers, payroll disbursement, remittances, and bill payments. 

Then in mobility, MNT-Halan provides courier, delivery, and ride-hailing services.  

MNT-Halan claims to be Egypt’s largest and fastest-growing lender to the unbanked. Serving over 4 million customers in Egypt, of which 1 million are monthly active users, MNT-Halan has disbursed over $1.7 billion worth of loans to 1.8 million borrowers since inception. The company also claims to process $100 million monthly, growing 20x over the past five years. 

The investment, a mixture of private equity and venture capital money, will help the company improve its technology and product while scaling to customers within and outside Egypt. 

“We are at the forefront of the digital revolution sweeping across Egypt, bringing together the unbanked population with our technology. We are on track to bring financial inclusion to tens of millions of Egyptians. As a result, we will unleash this segment’s earnings potential and drive greater participation in the economy,” said CEO Nakhla.

One of its investors, Apis Growth Fund II, is a London-based private equity fund. It makes quasi-equity investments in the financial sector and related market infrastructure — payment gateways, switches, and payment platforms — in Africa and Asia.

MNT-Halan is its first landmark investment in Egypt but second on the continent after taking part in TymeBank’s $109 million investment in February this year. 

The co-founders and managing partners Matteo Stefanel and Udayan Goyal said this in a statement, “We are thrilled to be investing in MNT-Halan, which is our first investment in Egypt. Our belief is that they will be the leading player digitizing the unbanked and bringing financial services to millions of underserved customers in the country.

“We look forward to partnering with them to extend their impressive growth trajectory and believe Mounir Nakhla’s track record, combined with MNT-Halan’s tech team and operational expertise, provide the ideal opportunity to invest in Egypt’s fintech sector.” 

Prior to this news, Halan as an independent entity had raised $26.4 million, according to Crunchbase. This investment takes it to a combined total of $146.4 million, of which the latest is one of the largest raised in Africa this year and continues to prove the dominance of fintech on the continent.

#africa, #apis-growth-fund-ii, #bnpl, #egypt, #finance, #financial-inclusion, #funding, #halan, #mnt-halan, #online-lending, #payments, #private-equity, #startups, #tc, #tymebank

UK’s Marshmallow raises $85M on a $1.25B valuation for its more inclusive, big-data take on car insurance

Marshmallow — a U.K.-based car insurance provider that has made a name for itself in the market by providing a new approach to car insurance aimed at using a wider set of data points and clever algorithms to net a more diverse set of customers and provide more competitive rates — is announcing a milestone today in its life as a startup, as well as in the bigger U.K. tech world.

The London company — co-founded by identical twins Oliver and Alexander Kent-Braham and David Goaté — has raised $85 million in a new round of funding. The Series B valuation is significant on two counts: it catapults Marshmallow to a “unicorn” valuation above $1 billion — specifically, $1.25 billion; and Marshmallow itself becomes one of a very small group of U.K. startups founded by Black people — Oliver and Alexander — to reach that figure.

(To be clear, Marshmallow describes itself as “the first UK unicorn to be founded by individuals that are Black or have Black heritage”, although I can think of at least one that preceded it: WorldRemit, which last month rebranded to Zepz, is currently valued at $5 billion; co-founder and chairman Ismail Ahmed has been described as the most influential Black Briton.)

Regardless of whether Marshmallow is the first or one of the first, given the dearth of diversity in the UK technology industry, in particular in the upper ranks of it, it’s a notable detail worth pointing out, even as I hope that one day it will be less of a rarity.

Meanwhile, Marshmallow’s novel, big-data approach and successful traction in the market speak for themselves. When we covered the company’s most recent funding round before this — a $30 million raise in November 2020 — the startup was valued at $310 million. Now less than a year later, Marshmallow’s valuation has nearly quadrupled, and it has passed 100,000 policies sold in its home country, growing 100% over the last six months.

The plan now, Oliver told me in an interview, will be to deepen its relationships with customers, in part by providing more engagement to make them better drivers, but also potentially selling more services to them, too.

In this, the startup will be tapping into a new approach that other insurtech startups are taking as they rethink traditional insurance models, much like YuLife is positioning its life insurance products within a bigger wellness and personal improvement business. Currently, the average age of Marshmallow’s customers is 20 to 40, Oliver said — and there are thoughts of potentially new products aimed at even younger users. That means there is long-term value in improving loyalty and keeping those customers for many years to come.

Alongside that, Marshmallow will also use the funding to inch closer to its plan to expand to markets outside of the UK — a strategy that has been in the works for a while. Marshmallow talked up international expansion in its last round but has yet to announce which markets it will seek to tackle first.

Insurance — and in particular insurance startups — are often thought of together with fintech startups, not least because the two industries have a lot in common: they both operate in areas of assessing and mitigating risk and fraud; they are in many cases discretionary investments on the part of the customers; they are both highly regulated and require watertight data protection for their users.

Perhaps because so much of the hard work is the same for both, it’s not uncommon to see services built to serve both sectors (FintechOS and Shift Technology being two examples), for fintech companies to dabble in insurance services, and so on.

But in reality, insurance — and specifically car insurance — has seen a massive impact from Covid-19 unique to that industry. Separate reports from EY and the Association of British Insurers noted that 2020 actually saw a lift for many car insurance companies: lockdowns meant that fewer people were driving, and therefore fewer were getting into accidents and making less claims.

2021, however, has been a different story: new pricing rules being put into place will likely see a number of providers tip into the red for the year. And the Chartered Insurance Institute points out that will also be worth watching to see how the low use of cars in one year will impact use going forward: some car owners, especially in urban areas where keeping a car is expensive, will inevitably start to question whether they need to own and insure a car at all.

All of this, ironically, actually plays into the hand of a company like Marshmallow, which is providing a more flexible approach to customers who might otherwise be rejected by more traditional companies, or might be priced out of offerings from them. Interestingly, while neobanks have definitely spurred more traditional institutions to try to update their products to compete, the same hasn’t really happened in insurance — not yet, at least.

“We started with the idea of the power of data and using a wider range of resources [than incumbents], and using that in our pricing led us to be able to offer better rates to more people,” Oliver said, but that hasn’t led to Marshmallow seeing sharper competition from older incumbents. “They are big companies and stuck in their ways. These companies have been around for decades, some for centuries. Change is not happening quickly.”

That leaves a big opportunity for companies like Marshmallow and other newer players like Lemonade, Hippo and Jerry (not an insurance startup per se but also dabbling in the space), and a big opening for investors to back new ideas in an industry estimated to be worth $5 trillion.

“The traction the team has achieved demonstrates the demand for a new kind of insurance provider, one that focuses more on consumer experience and uses the latest technology and data to give fair prices,” said Eileen Burbidge, a partner at Passion Capital, in a statement. “We’ve been proud to support the team’s ambitions since the start, and now look forward to its next chapter in Europe as it continues its mission to change the industry for the better.”

#articles, #automotive, #car-insurance, #eileen-burbidge, #entrepreneurship, #europe, #finance, #financial-technology, #funding, #hippo, #insurance, #ismail-ahmed, #jerry, #life-insurance, #london, #marshmallow, #money, #oliver, #private-equity, #shift-technology, #startup-company, #tc, #unicorn, #united-kingdom, #worldremit

Biden’s Electric Car Plans Hinge on Having Enough Chargers

The United States has about 100,000 public chargers, far fewer than Europe and China. It needs 10 times as many, auto experts say, to complete the switch from combustion engine vehicles.

#american-jobs-plan-2021, #automobile-service-and-charging-stations, #automobiles, #batteries, #chargepoint-inc, #electric-and-hybrid-vehicles, #electric-light-and-power, #electrify-america-llc, #evbox-bv, #evgo-services-llc, #infrastructure-public-works, #mergers-acquisitions-and-divestitures, #oil-petroleum-and-gasoline, #private-equity, #special-purpose-acquisition-companies-spac, #stocks-and-bonds, #tesla-motors-inc, #tpg-capital, #venture-capital, #volkswagen-ag, #volta-industries-inc

Founders Factory and G-Force launch Seed program for climate-focused startups

UK tech accelerator Founders Factory is joining forces with a European counterpart to launch the Founders Factory Sustainability Seed program. Launched in partnership with G-Force (the G is for Green) based out of Bratislava, Slovakia, the program will look to invest in and accelerate climate-tech startups.

The program will invest in entrepreneurs with startups that can reduce the world’s greenhouse gas emissions, speed up the transition to a circular economy, create sustainable housing and manufacturing solutions, as well as address climate-friendly mobility, food/feed production, and capturing/storing CO2 and methane.

The Program, run with G-Force largely out of Bratislava, Slovakia, will be operated in a “hybrid” manner: mixing remote and in-person support. The idea is that any eco-tech venture in any location in the world can apply and join the program.

Founders Factory’s partner in the Sustainability Seed program, G-Force, is being backed financially by a syndicate of Central and Eastern European investors including Boris Zelený (figure behind AVG, which sold to AVAST for $1.4bn), Marian Gazdik (Startup Grind), and early-stage investors Peter Külloi and Miklós Kóbor.

Startups selected program for the will get a Seed investment of up to €150,000, six months of startup support using Founders Factory’s team, as well as introductions to potential customers, partners, corporates, and investors.

Henry Lane Fox, Chief Executive Officer at Founders Factory, said: “By nurturing the disruption entrepreneurs are so good at creating we can design a better, more sustainable future for all. In partnership with G-Force, Founders Factory Sustainability Seed Program will be a leading pre/seed program committed to building and supporting the ventures that will have a positive impact on the world.”

Marian Gazdik, co-founding partner of G-Force, said: “Our ambition is to make G-Force, in partnership with the Founders Factory Sustainability Seed Program, into a world-class sustainability innovation hub, based in the heart of Europe.”

Expanding on the idea, Lane-Fox told me: “In this particular case, rather than being aligned to one individual corporate partner, which has been our model to date, we’re able to bring together a group of angel investors and make this more of a pure financial investor play. We think that actually suits this specific sector better. We will also be providing a bit more capital to those companies early on to make sure they can benefit from the program to the maximum degree.”

Gazdik added that by being based in the EU rather than the UK, the program will also be able to take advantage of some EU grant programs.

#business-incubators, #chief-executive-officer, #entrepreneurship, #europe, #european-union, #founders-factory, #greenhouse-gas-emissions, #partner, #private-equity, #slovakia, #startup-company, #tc, #united-kingdom

Sphere raises $2M to help employees lobby for Green 401(k) plans

In the United States, a 401(k) plan is an employer-sponsored defined-contribution pension account. However, with legacy institutional investing, most of these have at least some level of fossil fuel involvement and let’s face it, very few of us really know. Now a startup plans to change that.

California-based startup Sphere wants to get employees to ask their employers for investment options that are not invested in fossil fuels. To do that it’s offering financial products that make it easier – it says – for employers to offer fossil-free investment options in their 401(k) plans. This could be quite a big movement. Sphere says there are over $35 trillion in assets in retirement savings in the US as of Q1 2021.

It’s now raised a $2M funding round led by climatetech-focused VC Pale Blue Dot led the investment round. Also participating were climate-focused investors including Sundeep Ahuja of Climate Capital. Sphere is also a registered ‘Public Benefit Corporation’ allowing it to campaign in public about climate change.

Alex Wright-Gladstein, CEO and founder of Sphere said: “We are proud to be partnering with Pale Blue Dot on our mission to reverse climate change by making our money talk. Heidi, Hampus, and Joel have the experience and drive to help us make big changes on the short 7 year time scale that we have to limit warming to 1.5°C.” Wright-Gladstein has also teamed up with sustainable investing veteran Jason Britton of Reflection Asset Management and BITA custom indexes.

Wright-Gladstein said she learned the difficulty of offering fossil-free options in 401(k) plans when running her previous startup, Ayar Labs. She tried to offer a fossil-free option for employees, but found out it took would take three years to get a single fossil-free option in the plan.

Heidi Lindvall, General Partner at Pale Blue Dot said: “We are big believers in Sphere’s unique approach of raising awareness through a social movement while offering a range of low-cost products that address the structural issues in fossil-free 401(k) investing.”

#articles, #ayar-labs, #california, #ceo, #climate-change, #corporate-social-responsibility, #economy, #entrepreneurship, #europe, #general-partner, #heidi-lindvall, #pale-blue-dot, #private-equity, #sphere, #startup-company, #tc, #united-states

Vista Equity to acquire majority stake in SaaS startup Drift, taking it to unicorn status

Private equity firm Vista Equity Partners announced today that it is taking a majority stake in Drift, a company which aims to be the Amazon of businesses, with a “growth investment” that propels the venture-backed startup to unicorn status.

Unfortunately, neither party would disclose the amount of the investment, or Drift’s new valuation. But co-founder and CEO David Cancel did say the SaaS company saw 70% growth in its annual recurring revenue (ARR) in 2020 compared to the year prior and is on target for a similar metric this year. It is not yet profitable, as it is focused on growth, he added.

Prior to this financing, Boston-based Drift had raised $107 million in funding from the likes of Sequoia Capital, CRV and General Catalyst since its 2015 inception.

So just what does the company do exactly? The startup says it is out to ”reimagine the B2B buying experience,” according to Cancel. By using its software, Drift’s 50,000 customers are able to bring together sales and marketing teams on one platform to “deliver personalized conversations” that the company says build trust and accelerate revenue. 

Its customers include ServiceNow, Okta, Grubhub, Mindbody, Adobe, Ellie May and Snowflake, among others. Today 75% of Drift’s customers are mid-market enterprise, according to Cancel. 

Over the past five years, Drift has worked to create and define something it describes as “Conversational Marketing” with the goal of helping marketers “harness the digital experience for lead generation.” Or to put it more simply, Drift subscribers can use chatbots to help turn web visits into sales.

The company says it is out to remove the friction between buyers and sellers so they can not only get more leads, but also close more sales. This led Drift to expand its focus to build a platform that includes conversational sales, which integrates chat, email, video and artificial intelligence to power conversations, not just on a customer’s website, but for the sales team too. 

Cancel said that Vista’s strategic growth investment will help the company move even faster, expand globally and launch a new B2B category called “Conversation Commerce,” an interactive approach to conversations that Drift believes has the potential to “transform the entire B2B revenue function.”

Basically, the company is trying to make the B2B buying/selling experience similar to that of a B2C one. At least 80% of B2B buyers are not only looking for, but expect, a buying experience similar to that of a B2C customer, according to Cancel.

So far in 2021, Drift’s customers generated $5 billion in pipeline value by making the customer side of the buying process easier, he said.

For Cancel, a serial entrepreneur who previously founded and sold four other companies, the notion of owning a company with a unicorn valuation was not something he and co-founder and CTO Elias Torres were overly consumed with.

But what did appeal to the pair was the opportunity to add to the too-short list of U.S.-based unicorns with Latin founders and serve as an inspiration for other entrepreneurs of Latin descent. Cancel’s parents emigrated from Puerto Rico and Cuba while Torres emigrated from Nicaragua in his teens.

“I didn’t really care about that [unicorn] status except for one reason and the reason was that we are both Latino and if we hit this milestone, then we would be part of the less than 1% of Latinos that had ever done that,” Cancel told TechCrunch. “And that was important to us because we believe that we have the responsibility to pay it forward and to help people and to inspire other people who are like us and are often marginalized. We want to show that they can do this too.”

Torres agreed, saying that he and Cancel were “proud to be one of the only Latino-founded companies to ever achieve over $1 billion valuation – a rare, Latino-founded unicorn.”

“We want to see more of us do the same and we will pave the way for other Latino founders and leaders to achieve success,” he added.

By having a majority owner in Vista, which focuses exclusively on backing enterprise software, data and technology-enabled businesses, Cancel believes that Drift can “get more efficient in some areas.” He also thinks that the firm can help it ramp up its acquisitions pace. (So far it has made three.)

The nearly 600-person company still has its sights on going public, according to Cancel, and believes that by working with Vista, it will have a “clearer path” to do so.

“It’s something we think about a lot,” he told TechCrunch. “It’s still in our future.”

Monti Saroya, co-head of the Flagship Fund and senior managing director at Vista, thinks that Drift represents a “compelling” opportunity for Vista.

“Drift is a company that is experiencing hypergrowth at scale, we and we believe the conversational marketing and sales tools it offers will continue to be in high demand as companies race to modernize their B2B commerce strategies,” he told TechCrunch.

Earlier this year, Vista — which has over $77 billion in assets under management — invested $242 million to acquire a minority stake in Vena, a Canadian company focused on the Corporate Performance Management (CPM) software space.

Meanwhile, Vista’s acquisition of Drift is expected to close in the fourth quarter of 2021.

#apps, #boston, #david-cancel, #drift, #elias-torres, #exit, #fundings-exits, #private-equity, #saas, #startups, #tc, #vista-equity-partners

Private Equity Firms All Want the Same Thing: British Companies

Flush with capital, the funds have gone bargain hunting in Britain, snapping up everything from supermarkets to defense companies.

#clayton-dubilierrice, #foreign-investments, #fortress-investment-group, #great-britain, #london-stock-exchange, #mergers-acquisitions-and-divestitures, #morrisons-ltd, #private-equity, #stocks-and-bonds

Foreign investors have a bigger role to play in growing Latin America’s startup ecosystem

There has been significant hype around Latin America’s startup success. For good reason, too: Startups have raised $9.3 billion in just the first half of 2021, almost double the amount in all of 2020, and mega-rounds are a growing trend.

But while the industry hails the rise of the region’s ecosystem and its growing fleet of unicorns, Latin America’s startup story has a far longer past. And it’s one we should keep in mind as entrepreneurs and investors around the world forge the region’s future.

People often ask me: How are consumers different in Brazil? How does the Peruvian market behave compared to the United States? These questions don’t really see each country for its inherent value, but instead gear people up to expect the unexpected from a historically economically disadvantaged region.

In fact, the evolution of business shares far more similarities across countries than we might expect. Latin America’s market has evolved over a very long time — as long as Silicon Valley and any other hub. This region has a global outlook, spectacular universities, a diverse population and an army of entrepreneurs.

It’s important for investors outside of Latin America to get involved in fundraising at earlier stages, when founders need extra support from everyone around.

That’s why the unicorns and megadeals should come as no surprise: They’re the natural evolution of the ecosystem, of more capital generating more success after years of hard work.

As Latin America has grown, competition has grown even more intense in the United States. VCs have more money than ever, and it’s getting increasingly expensive to invest in North America. So they’re looking to diversify their investments with high-potential opportunities abroad. Big funds are now dedicating resources to exclusively targeting Latin America, from SoftBank creating a region-specific fund, to Sequoia saying it will pay more attention to the region.

These incoming investors must bring more than money to ensure that entrepreneurship continues to grow in a healthy manner, rather than set it off balance. Investors should bring a local strategy that makes them an asset to Latin America’s startup ecosystem.

Investors should look for younger markets

Most Latin American companies reaching unicorn status and going public now were started around 2012. This is not very different from the timeline of businesses in other markets such as the United States. For instance, e-commerce giant MercadoLibre launched in Argentina around the time eBay was emerging.

What this tells us is that foreign investors would do well to keep a sharp eye on emerging opportunities beyond heavily covered markets like Brazil and Mexico. There is a huge opportunity to do what local investors did in Brazil and Mexico years ago, and play a significant role in the next chapter of countries with blossoming markets like Colombia, Peru or Uruguay.

U.S. investors remain shy

The amount of VC capital being funneled into Latin American startups has surged since 2017, with angel investment close behind. However, much of this investment comes from local and regional investors. Every top university in Brazil has a pool of angels. Investors in the Andean region cover Peru, Chile and Colombia. If today’s ecosystem is flourishing, it’s largely because native investors are lighting the spark.

Meanwhile, U.S. investor presence at the early stages is still low and risk averse. It’s much harder for a pre-seed or seed startup to get foreign investor interest than when they’ve already reached Series A or B. Investors also tend to come in on an ad hoc basis or as outliers brought about by a mutual contact. Foreign investors are the exception, not the rule.

It’s important for investors outside of Latin America to get involved in fundraising at earlier stages, when founders need extra support from everyone around. Investors should be pursuing a long-term strategy that will bring more consistency to the local ecosystem as a whole.

Money is not enough, investors should bring dedicated resources

Your contribution as an investor is largely about the resources you can offer. That’s especially challenging for a foreigner who has less of an understanding of the local industry and lacks a network and people on the ground.

While investors may say their your regular value offering is enough — network and U.S. customers — in truth, this won’t necessarily be of much use. Your hiring network might not be ideal for a Latin American company, and your thorough understanding of the U.S. market might not reflect developments in Latin America.

Remember that the region has a plethora of VC organizations who have worked with local startups over the course of a decade. Latin America is a very welcoming and open market, and local investors and accelerators will happily work with foreign investors, including in deal-sharing opportunities.

It’s crucial to create incentives within the ecosystem, which — like in the United States — largely means matching founders with unique opportunities. In North America, this often happens organically, because people are on the ground and actively engaged with what’s happening in the region, from networking events, to awards, and grants and partnership opportunities.

To create this in Latin America, foreign investors need to dedicate a team and money to their regional commitments. They will have to understand the local industry and be available to mentor founders with diverse perspectives.

In my experience helping EA, Pinterest and Facebook land in Latin America, we always had someone on the ground or working remotely but fully dedicated to the region. We had people focused on localizing the product, and we had research teams studying similarities and differences in user behavior. That’s how corporations land their products; it’s how VCs should land their money.

Only disrupt when it adds value

The idea is for foreign investors to strike a balance locally while creating disruptions when it helps startups look outward rather than attempting to overhaul steady, positive internal growth. That can mean encouraging companies to incorporate in the United States to make it easier for investors from anywhere to invest or preparing the company to go global. Local investors can help investors new to the region understand the balance of things that should or shouldn’t be disrupted.

Don’t be surprised when Latin America’s apparent “boom” starts happening in other emerging markets like Africa and Asia. This isn’t about a secret hack coming in from the outside. It’s just about creating the right environment for local talent to flourish and ensuring it maintains healthy growth.

#argentina, #brazil, #chile, #colombia, #column, #entrepreneurship, #latin-america, #mexico, #peru, #private-equity, #softbank, #startups, #uruguay, #venture-capital

Future tech exits have a lot to live up to

Inflation may or may not prove transitory when it comes to consumer prices, but startup valuations are definitely rising — and noticeably so — in recent quarters.

That’s the obvious takeaway from a recent PitchBook report digging into valuation data from a host of startup funding events in the United States. While the data covers the U.S. startup market, the general trends included are likely global, given that the same venture rush that has pushed record capital into startups in the U.S. is also occurring in markets like India, Latin America, Europe and Africa.

The rapidly appreciating startup price chart is interesting, and we’ll unpack it. But the data also implies a high bar for future IPOs to not only preserve startup equity valuations at their point of exit, but exceed their private-market prices. A changing regulatory environment regarding antitrust could limit large future deals, leaving a host of startups with rich price tags and only one real path to liquidity.

That situation should be familiar: It’s the unicorn traffic jam that we’ve covered for years, in which the global startup markets create far more startups worth $1 billion and up than the public markets have historically accepted across the transom.

Let’s talk about some big numbers.

Startup valuations: Up, and going upper

To summarize what PitchBook published: Round sizes are going up as valuations go up, and with the latter rising faster than the former, we’re not seeing investors get more ownership despite them having to spend more for deal access.

In the early-stage market, deal sizes are rising as follows:

Image Credits: PitchBook

Prices are going up as well, as the following chart shows:

Image Credits: PitchBook

Which leads to the following decline in equity take rates:

Image Credits: PitchBook

Those charts belie somewhat how quickly venture capital is changing. For example, in 2020, the median early-stage value created between rounds was $16 million (or a relative velocity 54%, if you prefer). In 2021 thus far, it’s $39.4 million (120% relative velocity). And that 2020 figure was a prior record. It just got smashed.

The PitchBook dataset has other superlatives worth noting. Enterprise-focused seed pre-money valuations hit an average of $11 million in the first half of 2021, an all-time high. Early-stage valuations for enterprise-focused startups also hit fresh records — $92.7 million on average, $43.0 million median — this year after rising consistently since 2011.

And late-stage valuations for enterprise tech startups have gone vertical (chart on the right):

#ec-united-states, #fundings-exits, #pitchbook, #private-equity, #startup-valuations, #startups, #tc, #united-states, #venture-capital

A VC shares 5 things no one told you about pitching VCs

The success of a fundraising process is entirely dependent on how well an entrepreneur can manage it. At this stage, it is important for founders to be honest, straightforward and recognize the value meetings with venture capitalists and investors can bring beyond just the monetary aspect.

Here are five pointers that founders should consider while pitching to venture capitalists:

Be honest and accurate

Raising a venture round is, in a way, a sales process, but any claims that could call into question a founder’s trustworthiness can result in a negative outcome rather than an investment.

As VCs, we cannot overemphasize how important it is that founders are transparent and upfront.

Here are a few select cases of such claims:

  • Overstating traction or revenues, which due diligence brought to light.
  • Concealing material attributes of the founding team — such as a co-founder’s commitment to the company, which at best was part time.
  • Speaking of committed investors who were about to wire money to the company, except they were still at the due diligence stage and eventually decided not to invest.

Investing in early-stage companies is often about making bets on people. As VCs, we cannot overemphasize how important it is that founders are transparent and upfront. It is critical to help establish the initial seeds of trust with a capital partner.

Further, most investors understand that things change — if there are any material shifts during the diligence process, communicating them promptly is an additional signal of maturity and uprightness. This will go a long way during the capital raise and beyond.

Know your BATNA

Founders often enter conversations with venture capitalists with a good handle on their product and the business. However, it’s common for entrepreneurs to falter at the negotiation stage, not knowing what their best alternative to a negotiated agreement (BATNA) is.

We have witnessed founders who mistake initial interest in the venture market for real commitment, and unreasonably hike their valuation, which results in them losing serious investors. We have also seen founders fail to ascribe the value serious VCs bring to the table and consequently hesitate to discount their valuation, only to later realize that the existing cap table lacks firepower.

The best way for founders to uncover their BATNA is to run an efficient process. This requires:

#column, #corporate-finance, #ec-column, #ec-how-to, #entrepreneur, #entrepreneurship, #finance, #private-equity, #startups, #venture-capital

What is happening to risk-taking in venture capital?

Sam Lessin’s post in The Information, “The End of Venture Capital as We Know It,” prompted heated debate in Silicon Valley. He argued that the arrival of new players with large amounts of capital is changing the landscape of late-stage investing for venture capitalists and forcing VCs to “enter the bigger pond as a fairly small fish, or go find another small pond.”

But there’s another important trend developing in venture capital that has even more significant consequences than whether VCs are being forced to fight with bigger, deeper pockets for late-stage investment opportunities. And that is the move away from what has always defined venture capital: taking risks on the earliest-stage companies.

The VC industry at large, instead of taking risks at inception and in the early stages, is investing in later-stage companies where the concept is proven and companies have momentum.

The data indicates investing in early-stage companies is decreasing rapidly. According to data from PitchBook and the National Venture Capital Association, as a percentage of total U.S. venture capital dollars invested, angel/seed stage has reduced from 10.6% to 4.9% over the last three years, early-stage has reduced from 36.5% to 26.1% during the same time period, while late-stage has drastically increased from 52.9% to 69%, coming (as Lessin pointed out) from new players such as hedge funds and mutual funds.

This is happening at a time when there has been a record rate of new business creation. According to the U.S. Census Bureau, seasonally adjusted monthly business applications have been around 500,000 per month from the second half of 2020 to June 2021, compared with 300,000 per month in the year preceding the pandemic.

This data should be a red flag. Venture capital is about investing in risk to help the most innovative, transformative ideas get from concept to a flourishing enterprise. But the VC industry at large, instead of taking risks at inception and in the early stages, is investing in later-stage companies where the concept is proven and companies have momentum.

Here, the skill is more about finance to determine how much to invest and at what valuation to hit a certain return threshold rather than having the ability to spot a promising founder with a breakthrough idea. There’s an important role for late-stage investing, but if that’s where too much of the industry’s focus is applied, we’ll stifle innovation and limit the pipeline of companies to invest in Series B and beyond in the future.

The irony is that there’s never been a better time to be an inception investor given lower capital needs of getting from idea to Series A milestones. Startup costs have been driven down with access to cloud, social, mobile and open-source technologies, allowing entrepreneurs to test ideas and build momentum with small pools of capital.

This has spawned a golden age of innovation and many new trends are emerging, creating a large pool of companies that need money and support to take an idea and turn it into a flourishing business.

It’s also ironic that when we are judged for our prowess as VC investors, the only question that has ever mattered is who was the earliest investor, who had the genius to recognize a brilliant idea. It is not who led the last round(s) before an IPO.

This is not some esoteric argument about venture capital; there will be real consequences for our ability to innovate and invest in areas such as the renaissance of silicon, biology as technology, human-centered AI, unleashing the power of data, climate-friendly investing, saving lives, re-humanization of social media, blockchain and quantum computing.

The VC industry cannot forget its roots. In its early days, it served as the catalyst for the success of iconic companies such as Genentech, Apple, Microsoft, Netscape, Google, Salesforce, Amazon and Facebook. Without these companies, we would not have a biotech industry, the internet, the cloud, social media and mobile computing, all of which have dramatically changed how we live, play and work.

We can’t know the future, but with AI, machine learning and a new generation of semiconductors and materials, we certainly know profound change lies ahead. But it won’t happen if venture capital doesn’t play a major role at a company’s inception. We have to step up and do more to change the discouraging statistics above.

And it’s not just about individual firm glory: If we want the U.S. to maintain its leadership as the innovation engine of the world, the venture industry has to do more to support bold ideas at the earliest stages to give them a shot at succeeding. Maybe it’s time, as Lessin suggested, for VCs to “go find another small pond” or rather swim deeper in the one some of us are already in: the one that is full of inception-stage companies looking for investors who will partner with them throughout their journey.

#column, #funding, #national-venture-capital-association, #opinion, #pitchbook-data, #private-equity, #sam-lessin, #startup-company, #startups, #tc, #venture-capital