Tag: early stage

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Here’s where YC’s latest batch of founders are placing fintech bets

Y Combinator’s latest cohort of founders have opinions on the future of fintech. One-fifth of the accelerator’s Summer 2022 batch, which spans 240 companies, is working on solving issues in the financial space. The pitches range from building the Square for micro-merchants in Latin America to creating a way to angel invest in your favorite athlete.

And while the pitches are diverse, some concentrations show key ways that a group of vetted entrepreneurs are thinking about the landscape’s shift in light of finicky venture markets, a downturn, and some public market meltdowns. The most popular problem area among this batch’s fintech cohort has to do with payments, which is unsurprising. The story really begins with which focus made second place: neobanks.

Thank U, Neobanks

This year’s cohort includes 11 neobanks, a trend we saw start to take off with YC’s W22 cohort that also included 18 such companies. That’s a substantial increase from the 1-2 neobanks per batch that made the cut for YC in both 2020 and 2021, suggesting that the accelerator is doubling down on founders who are aiming to build the next “one-stop-shop” for fintech services.

The neobank founders it has chosen to back this summer tend to have highly specialized knowledge of niche markets, which gives them the potential to capture the entire wallet share of specific populations they know well rather than trying to cultivate a broader but perhaps less deep appeal. Nearly half of the neobanks in this batch are based in the United States, while the remaining are spread across the U.K, Swizerland, India, Nigeria, Senegal and other geographies.

Lagos, Nigeria-based Pivo is focused on freight carriers in Africa, Hostfi is looking to capture the market of short-term rental hosts and Pana says it is targeting the 62 million Latinos living in the U.S., just to name a few examples from the latest batch. The three companies are founded by a Nigerian port operations manager, an Airbnb superhost and a LatAm-focused digital banking exec, respectively, showcasing the deeply focused approach of these founders on more niche segments of the market where they have prior experience.

YC’s concentration of neobanks feels somewhat contrarian to general fintech sentiment these days. There’s been a slew of examples of why neobanks – despite being low-cost, savvy banking solutions – don’t work well: despite mega venture rounds, there are large losses. Strong growth is possible, but often at the cost of more and more operating expenses.

Yet, while some saw sector big losses as the end of neobanks, Chime offers hope. The well-known neobank became EBITDA-positive in late 2020, showing that the cohort can get to a place of economic health and shutting down some critiques. Still, the banking world is an increasingly competitive space, as practically every fintech company fights for consumer wallet share. Neobanks are unlikely to be a winner-takes-all market – rather, more specialized upstarts may be better suited to cater to the specific needs of a given community in a holistic way. And this batch supports that realization.

International fintech remains a key focus

India has always been Y Combinator’s favorite geography to invest in, outside the United States. Last batch, YC’s India founders appeared concentrated mostly within the financial services sector, around 30% when you consider that out of 36 Indian startups, 11 were in the fintech world. Then it was a contrast from prior showings, in which most of India’s YC startups fell into the B2B services category.

While last year showed a bigger focus on fintech, this year the courses slightly reversed. Out of the 21 startups YC backed in India this cohort, about 40%, or 8 startups, are in the fintech category. Fintech is still a big area of focus, but B2B did take the lead for the geography: 47% of YC’s India startups are focused in the enterprise world this year.

The slight shift away from Indian fintechs is not necessarily indicative of YC caring less about fintech startups globally. The accelerator backed eight fintech bets in Latin America, worth 57% of its total wagers in the region this season. The Latin American fascination with financial technology continues, it appears, perhaps supercharged by the success of high-profile Brazilian neobank Nubank, which went public and officially became Latin America’s most valuable listed bank late last year.

African fintech has a similar story, with five of the accelerator’s eight investments working in the fintech space. There’s Anchor, a remote banking-as-a-service platform that has already raised over $1 million for its platform, Bridgecard, a card issuer for Nigeria, and erad, a non-dilutive funding platform for Middle East startups.

The future of friendly investment terms

Despite a bit of a slowdown in fintech funding for private companies this year compared to the ultra-hot 2021 market, the sector remains much hotter than it was in years past, accounting for nearly 21% of total venture deals as of Q2 2022. YC follows the same trend, with pre-seed perhaps getting a boon in enthusiasm from the fact that late-stage businesses like Stripe or publicly-traded fintechs, like Robinhood and Affirm don’t feel exactly stable right now.

Here’s a breakdown of the percentage of fintech companies in the accelerator’s past few batches:

 

As with any sector, we could see competitive tensions within the accelerator itself start to breed depending on where startups go from here. Crypto startups Eco and Pebble, both YC participants, had a feud earlier this year when Eco’s CEO made allegations against the Pebble founders for “copy-and-pasting” significant parts of his company.

The overall fintech space is a bloodbath right now as the market has become saturated with companies that all play in similar areas trying to fight for the same sets of customers. YC’s startups are no exception – only time will tell if their approach of focusing in on international companies operating in niche markets will pay off or if consolidation in the sector has already gone too far for new upstarts to see breakout success.

Here’s where YC’s latest batch of founders are placing fintech bets by Natasha Mascarenhas originally published on TechCrunch

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Let’s talk about party rounds

When it comes to types of venture capital instruments, party rounds are as controversial as they come. A party round is an early-stage financing round, usually occurring between the pre-seed and Series A stages, that includes a laundry list – or “party” – of individual investors. It’s different from a more traditional round, which may look like it’s led by one or two institutional investors with a few participating investors also taking part.

The investment vehicle has been around for over a decade and has been a subject of debate for just as long. The positives are obvious: With more investors on their cap table, startups have more avenues for distribution, introductions and advice throughout their lifecycle.

The cons are more complicated. Is the party-round investment as helpful as capital from fewer, more commitment sources? Are there too many cooks in the kitchen? Is it a negative signal that this startup had to raise from dozens of people instead of one high-conviction partner? During a downturn, is a party round all about the confetti and no allergen-friendly appetizers?

Party rounds are either the dinner party of your dreams or the one where no one shows up

While the argument is nothing new, the current market introduces dynamics that make party rounds a little more complex than just bringing a few of your favorite founders and thought leaders onto your cap table.

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Founders, whales and the sea change in the entrepreneurial energy

Hello and welcome back to Equity, a podcast about the business of startups, where we unpack the numbers and nuance behind the headlines.

This is our Wednesday show, where we niche down to a single topic, think about a question and unpack the rest. This week, Natasha and Alex asked: Despite all the dollars and deals out there, does a drop in activation energy change how many entrepreneurs we’ll see in the early-stage market?

But, we’re not alone! Found co-hosts Jordan Crook and Darrell Etherington hopped on the mics to do a rare cross-over episode with us. They spend every week on Found talking to early-stage founders about everything from origin stories, to pivots, to some of the hardest decisions that leaders need to make these days. Big thanks to the duo for joining us, and without further ado, here’s what we got to:

  • Who is succeeding right now, and what are the types of founders that we’re seeing more often?
  • Is there anything that can be done differently when it comes to activating unlikely founders?
  • How do you square up a need for more business fundamentals with an asset class designed for rocketships?
  • Risk, luck and what the heck do whales and fizzy water have to do with this?

Equity drops every Monday at 7 a.m. PDT and Wednesday and Friday at 6 a.m. PDT, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

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On Deck lays off a third of staff after cutting a quarter just months prior

On Deck, a tech company that connects founders to each other, capital and advice, has conducted another round of layoffs just three months after laying off a quarter of its staff. Sources say that more than 100 people were impacted by the workforce reduction, accounting for half of the entire staff, while the company — which confirmed the layoff to TechCrunch over e-mail — said that 73 full-time employees were laid off.

When asked about the discrepancy in figures, and whether more people were impacted under a different employment status such as contractors, an On Deck spokesperson said that they have no further comments. The company is providing all those leaving the company with eight weeks of severance, three months of accelerated option vesting and three months of healthcare coverage. Those interested in hiring laid off talent can request access to a list of people looking for new roles.

On Deck, not to be confused with small business lender OnDeck, is a company that provides capital and network support for emerging fund managers and founders. Launched in June 2019, the company first announced a Founders Fellowship and has recently grown to offer more niche programs on specific verticals.

It’s that broad focus that led to a need to scale back, based on co-founders David Booth and Erik Torenberg’s characterization of the company. “In the past two years of hyper-growth, On Deck launched communities serving over ten thousand founders and career professionals. Our team worked tirelessly to expand and cover a large surface area,” the duo wrote in a blog post addressing the layoff. “However, this broad focus also caused substantial tensions. What we’ve always projected as a strength — serving multiple user groups and building flywheels between them — also fractured our focus and brand.”

The startup says it sunsetted several communities and the layoff impacted all levels and in all departments; although it did say that no executives were laid off, which contradicts that statement. On Deck is also spinning off its career advancement arm to “focus on growing learning communities for mid-career professionals who want to accelerate their careers.” The operation will be led by a former community director, Mindaugas Petrutis, and serve On Deck’s current Design, Engineering, Data Science, Marketing, Business Development and Sales, Chief of Staff and No Code communities.

“Allowing our founder and career programs to operate under separate entities, led by people who are super passionate about these communities, will enable each team to focus on the needs of their core customers and will ultimately lead to better outcomes,” the company told TechCrunch in a statement.

A spokesperson says that On Deck’s career development business “generates quite a bit of revenue” so it doesn’t need much additional capital — beyond some seed funding that the company has already provided — to start. The new company’s name is still in development.

Put differently, after serving 10,000 founders to date, On Deck is now focused exclusively on helping early-stage founders build to scale. Its other programs, namely those focused on career professionals, will be sunset or spun off into a new company.

It contrasts with the tone that Torenberg and Booth struck during its last layoff. In an email obtained by TechCrunch, the co-founders spoke to challenges around the firm’s recently launched ODX accelerator.

“In 2021, we launched ODX, our accelerator. We saw an opportunity to stand up and try our hand at innovating a stagnant accelerator market. By many accounts, we succeeded in this goal,” the email reads. “Unfortunately, over the same time period, the market began shifting dramatically. A few months in, the capital and accelerator markets were materially different from where they had been when we started. These factors forced us to reflect and consider how On Deck would continue for the future, support our communities and ensure long-term sustainability.”

After the publication of this story, On Deck said that it brought its accelerator program underneath its founder-focused program, ODF. On Deck still backs startups, but at what it says is much more “founder-friendly terms.” Accelerator startups are offered $25,000 for 1% or up to 2.5% of ownership, compared to the prior deal in which startups were offered $125,000 for 7% of the startup.

While the accelerator may have needed to scale back, On Deck did tease a return to its founder-focused roots in May. The company rebooted ODF, which helps founders scale their startups through IRL and virtual programming, as well as On Deck Scale, a program for founders behind high-growth businesses to understand how to become better leaders.

Sources estimated that the first round of layoffs occurred because On Deck only had nine months of runway left. The startup last raised known venture capital funding in March 2021, a $20 million Series A round led by Founders Fund.

The startup did not answer whether or not it plans to raise capital soon, but did say that it is well-capitalized enough to have its runway at over three years.

Mike Butcher contributed reporting to this story. 

When do layoffs matter? Trick question — always

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Tech’s riskiest founders are getting a $650 million bet from Redpoint Ventures

For venture investors, noise is ironically important. Wading through constant streams of capital-seeking founders and startup pitches may be the hardest part of the job, but it’s also imperative to the success of the same job.

So, what happens if energy around entrepreneurship slows? As the downturn looms, are less founders going to take risks? According to Redpoint managing director Annie Kadavy, there will be fewer total companies started in the next year than there were in the last two. And, somewhat counterintuitively, the investor thinks that the looming slowdown is “a great thing.”

“In an environment where it’s really easy to raise a seed round, it’s really easy to get your first product up as long as you can throw more money at the problem you’re trying to solve…that is a different profile of risk,” she said. “Versus it’s really hard to raise money, and I have to build those products because I care so deeply about the problem.”

She added: “I think that the total number of founders we’re going to see will be fewer, but the quality bar is going up.”

Led by Kadavy and managing partner Erica Brescia, Redpoint Ventures’ early-stage team announced today that it has closed a $650 million fund to back startups. The investment vehicle is the firm’s ninth early-stage focused fund closed to date, which it will invest in companies from seed through Series B stages. The check size will range between $2 million to $15 million depending on the company.

Understanding the not-so-fine print of 2022 term sheets

The firm is targeting the majority, around 70%, of its investments from this fund to be in the Series A space, with the remaining 30% dedicated to seed and Series B startups. It’s aiming for Series A ownership stakes of between 15% and 23%.

Brescia, who joined Redpoint last year after getting plucked from her role as Github’s COO, says that the firm hasn’t seen much activity lately from megafunds such as Tiger Global or SoftBank.

“The more players you have in the market, especially [last year] does tend to drive up prices…and now we’re seeing valuations come way back down,” she said. “I think that’s healthier for founders and for investors, and I’m sure that part of that is because we’re seeing fewer players actively pursuing the same company.”

It’s not just valuations that are changing due to a shift in sentiment; the investor said that competition is changing in startupland as well, thanks to the conservatism of megafunds. “One of the things that makes it much more challenging, much more expensive to build an early stage company is the number of well funded early stage competitors that you have to go down,” Kadavy said. “But if that can be two companies or three companies instead of 10 or 12 or 15, the likelihood of success, the ability of those companies to hire and retain great people, the ability for them to continue to fundraise, it all goes up.”

Brescia added that Redpoint’s product and a megafund’s product as a venture service look fairly different, with Redpoint’s biggest differentiation being that its early-stage GP team is all led by former founders. The firm did not share its IRR goal upon request.

The firm’s fresh capital comes after a spate of hiring. Last year, alongside Brescia, Redpoint recruited Github CTO Jason Warner. The team also added Meera Clark and Jordan Segall as investors as well.

VCs flock to TikTok to reach the next generation of founders and investors

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Seedstars launches second fund to invest in 100 startups in emerging markets

Seedstars' portfolio founders

Seedstars’ portfolio founders

Since its launch nine years ago, Seedstars has invested in 81 companies in over 30 emerging countries. Now it’s set a goal of investing in 100 more startups with the launch of its second emerging market seed-stage fund, called Seedstars International Ventures II (SIV), with a first close of $20 million. The fund is expected to total $30 million and its limited partners include the International Finance Corporation (IFC), Visa Foundation, The Rockefeller Foundation and Symbiotics. The firm’s is to invest in pre-seed and seed-stage startups in Asia, Africa, the Middle East and Latin American over the next three years, with follow-on investments up to Series A.

Some examples of Seedstars’ portfolio companies include Pakistan e-commerce startup Dastgyr; Saudi Arabian cloud-based point-of-sale and restaurant management system Foodics; Indonesian workforce marketplace MyRobin; Latin American restaurant CRM OlaClick; and Nigerian B2B marketplace Omnibiz.

Patricia Sosrodjojo, partner at Seedstars, told TechCrunch that the second fund’s investment thesis is similar to its predecessor: to come in at very early stages, in tech ecosystems in emerging markets, and look for startups that have the potential to make a wide impact.

“I think of it as three different levels,” she said. “The first one is the fact that we’re coming in very early, we’re usually one of the first institutional checks after the angels so we can help catalyze capital. The second is the countries we cover, where the ecosystems is still not that developed yet. And the third one is that we look for business models that can scale up quickly, similar to the normal VC model, but that they would be able to affect a lot of people. We align ourselves with a lot of the ESGs.”

One difference between SIV II and the first fund is that it can writer bigger checks. Initial checks will be between $150,000 to $250,000, with potential follow-on investments of $500,000. It will also have a tighter geographical focus. The first fund invested in 30 countries, and the second fund will also have a global outlook, but it will focus on one to three countries in each region.

Specifically, these are Indonesia, Vietnam and the Philippines in Southeast Asia (though Sosrodjojo said SIV II will also look at other countries); Pakistan and Bangladesh in South Asia; Egypt in MENA; and Mexico in Latin America. Its view on Africa will be more distributed; it has already done investments in Kenya, Tanzania and Nigeria.

SIV II plans to follow on 25% of its portfolio.

“We’re really looking to diversify holdings, leveraging learnings from one market to another,” said Sosrodjojo. “For example, if we’ve invested in a B2B supply chain play in one country, we can take the learnings from that and apply it to another geography. We see that different trends can come in at different times in different markets, so it helps us to see the typical trajectory of a certain industry.”

The fund will focus on verticals including finance, commerce, health, work and education. In particular, “financial inclusion is challenging in many of these markets. It’s something we’ll continue focusing on,” said Sosrodjojo.

One of the things that makes SIV II unique is that it has a blended finance structure with facility provided by IFC, one its LPs. As part of the fund’s mandate, it will invest up to 25% of the fund in IDA countries, or low-income countries as defined by the World Bank. This mitigate the risk of these investments, because there is a first loss guarantee. That means if SIV II makes an investment in an IDA country like Senegal and the company doesn’t do well, a portion of the investment will be covered through the structure.

To help them scale up, Seedstar portfolio companies take part in a program called the Value Creation Platform, which has a network of 1,300 mentors and includes a three-month “mentor-led sprint” called the Growth Track. Supported by Seedstars’ entrepreneur-in-residence Jon Attwell, formerly of Naspers and Prosus, with operators who have experience working at high-growth firms like Careem and SkyScanner. During their time in the Value Creation Platform, companies can perform experiments to see what growth strategies are best for them.

“Startups can cover different modules, like if their key is acquisition,” said Sosrodjojo. “They can really look at their acquisition strategy and if it’s not working well. They will work together with their mentor and our entrepreneur-in-residence John, create a strategy, run with that, monitor it and see if it works. Each startup will decide on what experiment they want to do and decide if they want to translate it into their operation or not.”

Gender equality is also important for Seedstars, which points to data that shows just 11% of enterprises that obtain seed funding in emerging markets are led by women. Seedstars’ team has already achieved a 50:50 gender split, and its first fund had 26% female co-founded businesses. Seedstars has set a challenge for it second fund of at least 30% of its portfolio companies having female founders or leadership. Another criteria is to back local founders.

“There are cases where there are expert founders with really good startups, but we do try to cultivate local talent,” Sosrodjojo said.

Africa’s startup market is bucking the global slowdown

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Announcing the startups pitching onstage at TC Sessions: Robotics 2022

TechCrunch is thrilled to announce the four companies pitching in person and onstage at TC Sessions Robotics 2022. These four startups stood out from the crowd with innovative hardware or software robotics solutions. You can tune in for free to watch the pitch-off and other incredible panels and fireside chats, here.

Founders will be pitching on the virtual stage for four minutes followed by a four minute Q&A. The judges are Ayanna Howard, Ohio State University, Ayah Bdeir, littleBits (acquired by Sphero) and Kelly Chen, DCVC. You can read more about their impressive expert backgrounds here.

Now to what you’ve been waiting for…the list of top four pitching startups. Join us on Wednesday, May 18 and Thursday, May 19 to watch these incredible founders take the stage.

Startups pitching on the virtual stage

July 21 at 12:35pm PT

Endiatx – Torrey Smith (Hayward, USA)

“Robot pills for hardcore telemedicine, initially for upper endoscopies.”

Gather AI – Charlie Reverte (Pittsburgh, USA)
“The world’s first autonomous inventory monitoring platform for the supply chain using off-the-shelf drones.”

Touchlab – Dr. Vladimir Ivan (Scotland, UK)

“A compliant “e-skin” sensor technology to give machines a sense of touch. Our latest e-skin, Triaxial, senses normal and shear forces, enabling novel functionalities such as slip detection (with autonomous compensation) and even object identification through touch alone.”

Mobilio – Arjun Tambe (San Francisco, USA)

“A single sensor package that enables safe movement for 400M users of canes, walkers, crutches, and wheelchairs. The device senses the user’s environment to avoid hazards and the user’s movements to ensure proper device use.”

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OK, don’t fear: the long shots are still getting venture funding

Hello and welcome back to Equity, a podcast about the business of startups, where we unpack the numbers and nuance behind the headlines.

This is our Wednesday show, where we niche down to a single topic, think about a question and unpack the rest. This week, Natasha and Alex asked: How do founders hold two ideas in their heads: both that there is an economic downturn, but also that things are looking up for many industries?

After a series of episodes about the tensions within the downturn, this is a “good news, despite” episode.

We had a great time, and hope you like this show. We’re back Friday with our regular news roundup!

Equity drops every Monday at 7 a.m. PDT and Wednesday and Friday at 6 a.m. PDT, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

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So. Many. New. Venture. Funds.

Further proving that venture investors have more dry powder than ever before, this week started with a flurry of venture capital fund close announcements across sectors and stages. It tells that LPs are staying active amid this dissonant moment in tech, and despite some struggles ahead for emerging fund managers, that’s news.

Our team got a good list going:

  • B Capital closed on $250 million in capital commitments for its Ascent Fund II, its first dedicated early-stage fund that will invest in pre-seed through Series A companies globally, but with an emphasis on the U.S. and Asia.
  • Cathay Innovation and AfricInvest announced a final close of €110 million on their Cathay AfricInvest Innovation Fund, a Pan-African fund they began working on together in 2019.
  • AM Ventures closed on a $100 million fund that will target early-stage companies focused on industrial and commercial 3D printing applications.
  • Tribe Capital, which has $1.5 billion in assets under management, grabbed $25 million from investors to launch a cryptocurrency incubator program.
  • Crypto asset manager Valkyrie is planning to raise between $25 million and $30 million for a venture capital fund under its new arm, Valkyrie Ventures, to invest in “the infrastructure layer” between Web 2.0 and web3. The company, better known for launching one of the only U.S. SEC-approved bitcoin futures ETFs, is moving into a new asset class — venture capital.
  • Fundrise, a company that allows anyone to invest in real estate with a minimum investment of just $10, is raising a new $1 billion growth equity fund to invest in late-stage tech startups. The new fund will be evergreen, meaning it will have an indefinite life, a structure similar to that of Homebrew and some of SoftBank’s funds.
  • Finally, and this isn’t a new fund but a new program to get more fund managers out there, VC Include announced its 2022 fellowship focused on BIPOC first-time fund managers. Aspiring investors who are based in the United States and want to raise between $10 million and $100 million for their VC or PE fund are invited to apply.

Everyone is going to launch a fund that backs other funds

Here are plenty of other tasty morsels from earlier this week and last week:

  • The United Arab Emirates secured $800 million in capital commitments for a new fund that will launch into space initiatives.
  • Battery Ventures is charging up its capital deployment after reeling in $3.8 billion in commitments across three new funds that will invest in all stages of startups in areas including business software, fintech, healthcare and data. Battery Ventures XIV and a companion fund take $3.3 billion of it, and the $530 million Battery Ventures Select Fund II, is a vehicle that was created to make additional investments primarily in portfolio companies of the firm’s other funds.
  • Now over to Iter Investments where it closed its debut fund with over $20 million in committed capital to deploy capital into the emerging psychedelic market. As our colleague Anna Heim reported in May, psychedelics is an area that had some early hype and also some early fails, but some investors are digging their heels into what they think is still pretty young. Iter, founded by Dustin Robinson, has a portfolio of 16 companies across the market.
  • Meanwhile, Collaborative Fund announced its new Collab SOS fund with $200 million in commitments to invest in Series A and B companies operating in the sustainable economy across materials, ingredients, energy and supply chains. Limited partners came from some of the largest purchasers of materials, experts in agriculture and industry leaders, according to the firm.
  • London-based auction house Christie’s said this week it will create its own venture capital arm called Christie’s Ventures aimed at investing seed capital into startup technology that would help collectors buy and sell more art, either digitally or another method.
  • Lightspeed raised $500 million for its new India and Southeast Asia fund, TC’s Manish Singh reports, adding to a more than $7 billion tranche aggregated across new funds. As Singh points out, the firm has a team of nine partners in India and Southeast Asia and is nearly doubling the size of its fund’s assets.

Venture capital funding may have slowed, but VC firms have no problems raising new funds