Hustle Fund wants to help spawn a new generation of angel investors

Kara Penn is the mother of four daughters and owner of Mission Spark, a management and strategy consulting company.

And now, thanks to Hustle Fund, she is also an angel investor.

Hustle Fund is coming out of stealth today with Angel Squad, a new initiative aimed at making angel investing more accessible to more people. To more people like Colorado-based Penn.

We believe that in order to increase diversity in the startup ecosystem, one thing that we must do is increase diversity — whether it be in regard to gender, race or geography — amongst angel investors,” said Hustle Fund co-founder and general partner Elizabeth Yin.

Via Angel Squad, Hustle Fund specifically aims to build an inclusive investor community, make minimum check sizes low and accessible (think as little as $1,000), provide “angel education” and give investors a way to invest alongside Hustle Fund.

“There’s been this misnomer, or at least I had this incorrect assumption that in order to become an angel investor, you have to be super rich and write $25,000 checks,” Yin told TechCrunch. “But the reality is actually in Silicon Valley, there are all these people running around investing $1,000 checks…and that’s something that’s a lot more accessible than then most people might think. And, part of the value of having this group is then we can accumulate a bunch of smaller checks to then write one larger check for a company.”

So far, Penn has invested in five startups across a range of sectors including real estate, food, apparel and finance. 

She describes herself as “a complete novice” in angel investing, and so far, she’s loving the experience.

I love Hustle Fund’s perspective that great hustlers can look like anyone and come from anywhere,” Penn told TechCrunch. “I’ve enjoyed being in a supportive community with differing levels of expertise, but where every question is welcomed.”

The experience is also broadening her exposure to technology and AI, the collection and use of data and the creation of new marketplaces in ways she never would have been exposed to before.

“As someone whose own company focuses exclusively on strategy in social impact organizations, I am also looking for how founders identify and bring to market creative solutions to complex problems, as well as exposure to a network of innovative people looking to solve hard issues in smart ways,” Penn said. “This exposure is helping me begin to think about applications of these approaches to difficult social problems.”

For some context, Hustle Fund is a venture firm founded by Elizabeth Yin and Eric Bahn, two former 500 Startups partners, with the goal of investing in pre-seed software startups. The firm has traditionally operated by investing $25,000 in a company, usually with a minimum-viable product, and then works with the team to help them grow. It does around 50 investments per year, according to its website. 

It recently closed on $33.6 million for a new fund.

“One of the things most important to us is this bigger mission of wanting to change the way the startup ecosystem is,” Yin said. “I noticed both as an entrepreneur and while running an accelerator, if you have a certain resume, went to certain schools, or were a certain race or gender, you have advantages in starting a company and getting funding. For many people, if you don’t tick those boxes, it can be very challenging. That’s why we’re investing in a lot of founders from all walks of life.”

Hustle Fund Venture Partner Brian Nichols had started a syndicate of Lyft alumni on AngelList. After doing a few deals, he opened up the syndicate to people outside of AngelList.

“I found there was a wide range of people looking to diversify into private markets, from all over the world with all types of backgrounds,” he said. “Hustle Fund and I had similar taste in companies I was investing in and I built a relationship with them in co-investments.”

Today, he’s helping run the fund’s Angel Squad initiative. So far, it has had two cohorts with over 150 investors total and true to the fund’s mission, those investors have been more diverse than typical angel syndicates: 46% of the members are female, 9% are underrepresented minorities and 32% are people who work outside of tech with professional roles such as lawyers, doctors and artists. Just one-third are based in Silicon Valley.

Every week, Angel Squad hosts an event which ranges from networking to a peek behind the curtain at opportunities at Hustle Fund is considering investing in to talking through why or why not to take a meeting with a founder.

“Imagine starting from zero, and if you could skip a bunch of steps and have Elizabeth (Yin) tell you how to do this before you lose a bunch of money in the process of evaluating a startup,” Nichols told TechCrunch. “Angel Squad is exactly what I wish had existed three or four years ago when I became interested in investing.”

Silicon Valley, Yin acknowledges, can be intimidating but the reality is that no one is an expert in everything.

“We’re trying to cultivate an environment where people are very kind — we have a no asshole rule, and that is a safe space where people can learn and feel like they can ask questions, and not have to know everything about angel investing. The reality is most people don’t. And we want to bring new people into this system.”

Besides not being an a-hole, other criteria in becoming a Squad Member include being able to add value and being an accredited investor.

“With rounds as competitive as they are today, we are looking for people who want to be actively supportive of the portfolio companies we’re investing in,” Nichols said. “Every person who wants to join the program is interviewed by someone from our team, who asks questions such as ‘What can you help a founder with?’ We are not looking for passive capital. That’s not super helpful at this point in the ecosystem.

This founder raised millions to build Fair, a neobank for immigrants

Fair, a multilingual digital bank and financial services platform, is launching to the public after raising $20 million in 40 days earlier this year.

Founder Khalid Parekh raised the capital primarily from the very demographic that Houston-based Fair aims to serve: from a group consisting of a number of immigrants, many of whom were first-time investors.

“There was not a single check from a VC or bank or from a family office,” Parekh told TechCrunch. “Ninety percent of our investors are minorities or are immigrants like myself that believed in the concept of Fair.”

One could say that it’s also fitting that Fair’s headquarters are in Houston, which at the time of the last census was the most ethnically diverse city in the United States.

Parekh is not your traditional fintech founder. He doesn’t have banking or financial services experience, although he does have experience founding and running a successful company: AMSYS Group, which is valued at nearly $350 million. His mission with Fair is largely personal. Upon arriving in the U.S. from India with just $100 in his pocket 22 years ago, he struggled to not only get a loan but also to open a bank account. 

Image Credits: Founder and CEO Khalid Parekh / Fair

“I was an engineer by background, but was very confused with the American banking system. There is not a lot of help for immigrants who don’t understand it well,” Parekh recalls. “My biggest challenge was sending money back home. There was just a lack of welcome.”

In 2020, he used his own cash to build out the technology behind Fair, which is designed to be an option to those who are new to the country, have no credit or need access to interest-free loans. Fair operates with Coastal Community Bank as its sponsor bank. Parekh’s goal with Fair is to provide “ethical, transparent banking” – to anyone – via a membership model that eliminates all banking fees. Members can pay a one-time membership fee of $99 (paid in full or in installments) to have access to all of Fair’s online banking and financial services.

“Another challenge that I saw is that there were hardly any options for insurance and retirement services for immigrants and low-income people,” Parekh said. “All big institutions catered to people with a lot of money. But we want to create an institution where we are fair to everybody, regardless of religion, race, color, net worth or how much is in their bank account. We want everyone to be treated the same.”

Over the past year, the nation has seen a surge of neobanks emerge aimed at specific demographics, including Greenwood, First Boulevard and Cheese. Welcome Technologies is also aimed at serving the immigrant population. 

Fair aims to differentiate itself, according to Parekh, by offering interest-free lending, as well as the ability to invest, get insurance and plan for retirement in one platform that is available in English, Arabic and Spanish (with more languages to come). Ultimately, his goal in Fair is to help address the “longstanding racial income inequalities and widening wealth disparities in the U.S.” He won’t get a salary for his role as CEO.

Among Fair’s features are free international transfer, early access to paycheck funds, “instant, interest-free” microloans — essentially buy now, pay later at the register — an annual dividend account, debit card accounts for kids and interest-free loans for home, auto and business that are equity-based. Those equity-based loans are Sharia compliant, meaning that it’s not kosher to take interest. They also comply with Jewish law.

Instead, if a member wants to buy a home, they can put 20% down, and Fair will provide 80% via an LLC, of which the member and bank will be co-owners.

“The members will have the option of buying out our shares on whatever schedule they wish,” Parekh said.

In partnership with Avibra, Fair is offering free supplemental life, accident medical and AD&D insurance to all members as part of its banking services.

Fair aims to practice socially responsible investing (SRI), an approach to investing that reduces exposure to companies that are deemed to have a negative social impact. The fintech also practices ESG investing, which measures the sustainability of an investment and its overall impact in three specific categories: environmental, social and corporate governance. And, it’s also working with the United Nations High Commissioner for Refugees and World Relief, and will donate 2.5% of profits to refugee missions globally, as well as racial economic empowerment initiatives.

Among Fair’s advisors are Manolo Sánchez, a director at Fannie Mae and Stewart Information Systems and former chair & CEO of BBVA Compass, and Samuel Golden, managing director at management consulting firm Alvarez & Marsal and founder of A&M’s Financial Industry practice.

Signalling that privacy is coming to DeFi, Sienna Network raises $11.2M for its platform

Last week we saw some major backing of the Secret Network blockchain, as significant blockchain players Arrington Capital and Blocktower Capital invested in the privacy-first smart contract platform. What this is signaling is the rise of privacy-oriented financial blockchain projects, which are crucial if “DeFi” (decentralized finance) is to have any kind of future. We have come to expect privacy in our ’normal’ financial lives, so we will expect it in the blockchain world.

Today there’s a new signal that this privacy movement in DeFi is taking off with the announcement from privacy decentralized finance company Sienna Network that it has raised $11.2 million from institutional investors and its public supporters. Of that raise, the private token sale raised $10 million from investors including NGC, Inclusion Capital, Lotus Capital, FBG, Skyvision Capital and others. It also raised $1.2 million on the DaoMaker and Polkastarter exchanges.

Sienna Network is built on the afore-mentioned Secret Network, and pitches itself as a privacy-first and cross-chain decentralized finance platform allowing asset holders to switch to privacy-oriented tokens.

Sienna is one of an increasing number of blockchain startups tackling the industry-wide problem of ‘front-running’. This – says Sienna – is where bad actors hijack future trades on public DeFi blockchains.

Monty Munford, chief evangelist and core contributor to Sienna Network said: “Sienna helps access to the privacy-preserving blockchain in a user-friendly way due to the blockchain’s inherent privacy design. Sienna saves no login information, no wallet data, no transaction data, or anything else. It does not even track its website or give any information to any Third Party.”

Here’s how a front-running scam works: A transaction on Ethereum can be preempted by someone else simply by them paying a higher transaction fee. It’s the close equivalent in the real world of trumping a trade on the stock market, just because you paid a higher fee to a broker. In other words, it’s a disaster if it continues to happen, and the entire infrastructure of decentralized finance is threatened because of this threat.

Commenting, Tor Bair, CEO Secret Network said: “We believe Sienna will be a key pillar of Secret DeFi and help drive mass adoption of a more secure decentralized financial ecosystem.”

Figure raises $7.5M to help startup employees better understand their compensation

The topic of compensation has historically been a delicate one that has left many people — especially startup employees — wondering just what drives what can feel like random decisions around pay and equity.

Last June, software engineers (and housemates) Miles Hobby and Geoffrey Tisserand set about trying to solve the problem for companies by developing a data-driven platform that aims to help companies structure their compensation plans and transparently communicate them to candidates.

Now today, the startup behind that platform, Figure, announced it has raised $7.5 million in seed funding led by CRV. Bling Capital, Better Tomorrow Ventures and Garage Capital also participated in the financing, along with angel investors such as AngelList co-founder Naval Ravikant, Jason Calacanis, Reddit CEO Steve Huffman and other executives based in Silicon Valley.

The startup has amassed a client list that includes other startups such as fintechs Brex and NerdWallet and AI-powered fitness company Tempo. 

Put simply, Hobby and Tisserand’s mission is to improve workflows and transparency around pay, particularly equity. The pair had both worked at startups themselves (Uber and Instacart, respectively) and ended up leaving money on the table when they left those companies because no one had properly explained to them what their equity, which changed at every valuation, meant.  

Image Credits: Figure co-founders and co-CEOs Miles Hobby and Geoffrey Tisserand. Image Credits: Figure

So, one of their goals was to create a solution that would provide a user-friendly explanation of what a person’s equity stake really means, from tax implications to whether or not they have to buy the stock and/or hold onto it.

“I’ve gone through the job search process many times before and there’s all these complex legal documents to understand why you’re getting 10,000 stock options, but obviously we knew the vast majority of people have no idea how that works,” Tisserand told TechCrunch. “We saw an opportunity there to help companies actually convey the value to their candidates while also making them aware of the potential risks of owning something that’s so illiquid.”

Image Credits: Figure

Another goal of Figure’s is to help create a more fair and balanced process about decisions around pay and equity so that there’s less inequality out there. Pointedly, it aims to remove some of the biases that exist around those decisions by systematizing the process.

“We saw a void in this kind of context around equity…and knew that there had to be a better way for companies to structure, manage and explain their compensation plans,” Hobby said.

To Hobby and Tisserand, Figure is designed to help stop instances of implicit bias.

“Compensation should be based on the work that you’re doing, and not gender or ethnic background,” Tisserand told TechCrunch. “We’re trying to give that context and remove biases. So, we’re trying to help at two different stages –– to surface inequities that already exist and make sure there are no anomalies, and then to help stop them before they can exist.”

Figure also aims to give companies the tools to educate candidates and employees on their total compensation — including equity, salary, benefits and bonuses — in a “straightforward and user-friendly” way. For example, it can create custom offer letters that interactively detail a candidate’s compensation.

“Our goal is for Figure to become an operating system for compensation, where a company can encode their compensation philosophy into our system, and we help them determine their job architecture, compensation bands and offer numbers while monitoring their compensation health to provide adjustment suggestions when needed,” Hobby said.

Post-hire, Figure’s compensation management system “helps keep everything running smoothly.”

Anna Khan, general partner of enterprise software at CRV, is joining Figure’s board as part of the funding. The decision to back the startup was in part personal, she said.

“I’d been investing in software for eight years and was alarmed that no one was building anything around pay equity when it comes to how we’re paid, why we’re paid what we’re paid and on how to build equity long term,” Khan told TechCrunch. “Unfortunately, discussions around compensation and equity still happen behind closed doors and this extends into workflow around compensation — equally broken — with manual leveling, old data and large pay inequities.”

The company plans to use its new capital to expand its product offerings and scale its organization.

Payments, lending and neobanks rule fintechs in emerging markets, report says

Tech investments in emerging markets have been in full swing over the past couple of years and their ecosystems have thrived as a result. Some of these markets like Africa, Latin America, and India, have comprehensive reports by publications and firms on trends and investments in their individual regions. But there’s hardly a report to compare and contrast trends and investments between these regions and rightfully so. Such a task is Herculean.

Well, a report released today by data research organization Briter Bridges and global inclusive tech accelerator Catalyst Fund is punching above its weight to offer a holistic representation to the darling sector of these three markets: fintech.

The report “State of Fintech in Emerging Markets Report” has three objectives — to evaluate the investment, product, and inclusivity trends across emerging markets.

The team surveyed over 177 startups and 33 investors across Africa, Latin America, and India. Though this sample size used is minuscule, the key findings are quite impressive.

Let’s dive in.

Fintechs have raised $23B across the regions since 2017

There’s no stopping emerging markets’ favorite. The sector has continued to receive the largest share of investments year-on-year for the past five years.

More than 300 million unbanked African adults account for 17% of the world’s unbanked population. So it’s not difficult to see why in 2019, the continent witnessed five mega deals in Branch, Tala, World Remit, Interswitch, and OPay that amounted to a total of over $775 million. While this dropped last year to $362 million, companies like Flutterwave, TymeBank, Kuda have raised sizeable rounds during this period.

fintech funding five years emerging markets

Image Credits: Briter Bridges & Catalyst Fund

Latin America is home to a growing base of digital users, enabling regulation and reforms, and vibrant small businesses. And just like Africa, the percentage of unbanked people is high, 70%. Fintechs in the region have taken the opportunity to cater to their needs and have been compensated with mega-rounds, including NuBank, Neon, Konfio, and Clip. Collectively, fintech startups have raised $10 billion in the past five years.

In 2019 alone, Indian fintech startups raised a record of $4.8 billion, per the report. Then last year, the sector brought in $3 billion. Over the past five years, they have totaled $11.6 billion with notable names like CRED, Razorpay, Groww, BharatPe, among others.

Africa’s average seed rounds stand at $1M, India and Latin America average $3M

Per the report, early-stage deals have been increasing over the past five years totaling over $1.6 billion. Their average size, especially for seed rounds, has grown from $750,000 in 2017 to $1 million in 2020. For  Latin America, the average seed deal in the last five years was around $5.7 million while India did approximately $4.6 million. The report says the data for the latter was skewed because of CRED’s $30 million seed round.

Image Credits: Briter Bridges & Catalyst Fund

Latin America is IPO-hungry, India breeds unicorns while Africa is just getting started with M&A

Last year, Stripe’s acquisition of Paystack was the highlight of Africa’s M&As because of its size and the homegrown status of the Nigerian fintech startup. Other larger rounds include the $500 million acquisition of Wave by WorldRemit (which happens to be the largest from the continent) and the DPO Group buyout by Network International for $288 million.

Unlike the African fintech market that has noticed mega acquisition deals and many undisclosed seven-figure deals, the Latin American fintech market is a sucker for IPOs. Per the report, fintechs in the region have several $100 million rounds (Nubank, PagSeguro,  Creditas, BancoInter and Neon) but have sparse M&A activity. Some of the startups to have gone public recently include Arco Educacao, Stone Pagamentos, Mosaico, and Pagseguro

On the other, India has more than 25 billion-dollar companies and keeps adding yearly. Just last month, the country recorded more than eight. These unicorns include established companies like PayTm and new ones like CRED.

Payments, credit, and neobanks lead fintech activity

The report shows that payments companies are the crème de la crème for fintech investment across the three regions. Within that subset, B2B payments reign supreme. The next two funded fintech categories are credit and digital banking.

In Africa, payments startups have seen more investments than credit and neobanks. Flutterwave, Chipper Cash, Wave, Paystack, DPO come to mind.

most funded fintech categories emerging market

Image Credits: Briter Bridges & Catalyst Fund

Latin America most funded fintechs are neobanks. And it is the only region with all three product categories closely funded at $2-3 billion. Some of these companies include NuBank, Creditas, and dLocal.

India’s top-funded fintech startups are in payments. But it has notable representation in credit and neobanks, some of which have raised nine-figure rounds like Niyo, Lendingkart, and InCred.

Investors are enthused about the future of insurance, payments, and digital banks

From the handful of investors surveyed in the report on their view on future trends in fintech products 5 years from now, most of them chose insurance, payments, and digital banking models.

Investment platforms and embedded models are also areas of interest. They were less keen on agriculture and remittances while wealth tech platforms and neobanks were also lower in priority. How is it that digital banking and neo-banking are at two ends of the spectrum of investor choice? I can’t say for sure.

investors appetite in the coming years emerging markets

Image Credits: Briter Bridges & Catalyst Fund

Parts of the report talk about underserved consumers in these regions and how fintech startups are serving them. It also discusses whether these fintech startups promote financial inclusion and what features and products would get them to that point.

In all of this, the glaring fact, which is no news, is that Africa is lagging years behind Latin America and India. Talking with Briter Bridges director Dario Giuliani, he pointed out that he’d lean on five years. He added that what makes India a better market at this stage is because it is a country rather than a continent.

“It is easier to manage one country than 54 countries in Africa and 20 in Latin America,” he said to TechCrunch. “In Africa, we use the label ‘Africa,’ but we’re very much talking about 4-6 countries. Latin America is basically Brazil, Mexico, Argentina and Colombia who are seeing massive companies rise. India is one.”

One key detail the report mentions is that most fintechs across emerging markets are crossing over to different sectors like crop insurance, credit lines for distributors and vendors, KYC, e-commerce payment gateways, medical finance, and insurance. Guiliani says he expects this to continue.

Shift Technology raises $220M at a $1B+ valuation to fight insurance fraud with AI

While insurance providers continue to get disrupted by startups like Lemonade, Alan, Clearcover, Pie and many others applying tech to rethink how to build a business around helping people and companies mitigate against risks with some financial security, one issue that has not disappeared is fraud. Today, a startup out of France is announcing some funding for AI technology that it has built for all insurance providers, old and new, to help them detect and prevent it.

Shift Technology, which provides a set of AI-based SaaS tools to insurance companies to scan and automatically flag fraud scenarios across a range of use cases — they include claims fraud, claims automation, underwriting, subrogation detection and financial crime detection — has raised $220 million, money that it will be using both to expand in the property and casualty insurance market, the area where it is already strong, as well as to expand into health, and to double down on growing its business in the U.S. It also provides fraud detection for the travel insurance sector.

This Series D is being led Advent International, via Advent Tech, with participation from Avenir and others. Accel, Bessemer Venture Partners, General Catalyst, and Iris Capital — who were all part of Shift’s Series C led by Bessemer in 2019 — also participated. With this round, Paris and Boston-based Shift Technology has now raised some $320 million and has confirmed that it is now valued at over $1 billion.

The company currently has around 100 customers across 25 different countries — with customers including Generali France and Mitsui Sumitomo — and says that it has already analyzed nearly two billion claims, data that’s feeding its machine learning algorithms to improve how they work.

The challenge (or I suppose, opportunity) that Shift is tackling, however, is much bigger. The Coalition Against Insurance Fraud, a non-profit in the U.S., estimates that at least $80 billion of fraudulent claims are made annually in the U.S. alone, but the figure is likely significantly higher. One problem has, ironically, been the move to more virtualized processes, which open the door to malicious actors exploiting loopholes in claims filing and fudging information.

Shift is also not alone in tackling this issue: the market for insurance fraud detection globally was estimated to be worth $2.5 billion in 2019 and projected to be worth as much as $8 billion by 2024.

In addition to others in claims management tech such as Brightcore and Guidewire, many of the wave of insuretech startups are building in their own in-house AI-based fraud protection, and it’s very likely that we’ll see a rise of other fraud protection services, built out of fintech to guard against financial crime, making their way to insurance, as the mechanics of how the two work and the compliance issues both face are very closely aligned.

“The entire Shift team has worked tirelessly to build this company and provide insurers with the technology solutions they need to empower employees to best be there for their policyholders. We are thrilled to partner with Advent International, given their considerable sector expertise and global reach and are taking another giant step forward with this latest investment,” stated Jeremy Jawish, CEO and co-founder, Shift Technology, in a statement. “We have only just scratched the surface of what is possible when AI-based decision automation and optimization is applied to the critical processes that drive the insurance policy lifecycle.”

For its backers, one key point with Shift is that it’s helping older providers bring on more tools and services that can help them improve their margins as well as better compete against the technology built by newer players.

“Since its founding in 2014, Shift has made a name for itself in the complex world of insurance,” said Thomas Weisman, an Advent director, in a statement. “Shift’s advanced suite of SaaS products is helping insurers to reshape manual and often time-consuming claims processes in a safer and more automated way. We are proud to be part of this exciting company’s next wave of growth.”

Chime has agreed to stop using the word ‘bank’ after a California regulator pushed back

Chime can apparently call itself the “fastest-growing fintech in the U.S.,” but it has agreed to stop referring to itself as a “bank,” per a new report out of American Banker.

Evidently, the eight-year-old, San Francisco-based outfit was the target of an investigation by the California Department of Financial Protection and Innovation after Chime used “chimebank” in its website address, as well as used “bank” and “banking” elsewhere in its advertisements, according to the agency in a settlement agreement.

As noted by AB, Chime made the decision to settle ahead of a deadline imposed by the regulatory body.

The development shouldn’t surprise anyone familiar with banking laws. No outfit can represent itself as a bank or credit union unless it’s licensed to engage in the business of banking. The commission that pushed back on the startup issues such licenses and regulates state-chartered banks in the state of California through the Department of Financial Protection and Innovation and said in the settlement that “at all relevant times herein, Chime was not licensed to operate as a bank in California or in any other jurisdiction, nor was it exempt from such licensure.”

Chime has at times attempted to draw a distinction between itself and a bank. When the company raised its most recent round of funding — a $485 million Series F round last September that valued the business at $14.5 billion — CEO Chris Britt told CNBC: “We’re more like a consumer software company than a bank . . . It’s more a transaction-based, processing-based business model that is highly predictable, highly recurring and highly profitable.”

Still, Chime, like many newer fintech companies, has seemingly embraced the term “neobank” and “challenger bank,” and perhaps it’s no wonder. It’s certainly easier to convey to consumers what it is selling, which is banking services that include — in this case — debit cards, spending accounts and savings accounts, all offered through users’ mobile phones.

Given the settlement, expect to see more startups like Chime make clearer that in most cases, they do not have a bank charter and instead are being provided services by banks that do. In Chime’s case, for example, it now makes more plain on its website that it is a “financial technology company” and “not a bank” and that its services are being provided by the The Bancorp Bank and Stride Bank, which are both FDIC members.

Beyond the fanfare and SEC warnings, SPACs are here to stay

The number of SPACs in the deep tech sector was skyrocketing, but a combination of increased SEC scrutiny and market forces over the past few weeks has slowed the pace of new SPAC transactions. The correction is an inevitable step on the path to mainstreaming SPACs as an alternative to IPOs, but it won’t cause them to go away. Instead, blank-check vehicles will evolve and will occupy a small and specialized — but important — part of the startup financing landscape.

I believe that SPAC financings can solve a major problem for all capital-intensive technology startups: the need for faster — and potentially cheaper — access to large amounts of capital to fund product development over multiple years.

The tsunami of SPAC financings sparked commentary from all corners of the capital markets community, from equity analysts and securities lawyers to VCs and fund managers — and even central bankers. That’s understandable, as more than $60 billion of SPAC deals have been announced since the beginning of 2020, plus $55 billion in PIPE capital, according to investment bank PJT Partners.

The views debated by finance experts often relate to the reasonableness of SPAC pricing and transaction structures, the alignment of incentives for stakeholders, and post-merger financial and stock price performance. But I’m not going to add another voice to the debate on the risk-reward calculus.

As the co-founder of a quantum computing software startup who worked in financial markets for two decades, I’d like to offer my perspective on two issues that I think my peers care more about: Can SPACs still solve the funding problem for capital-intensive, deep tech startups? And will they become a permanent financing option?

Keeping the lights on at deep tech startups

I believe that SPAC financings can solve a major problem for all capital-intensive technology startups: the need for faster — and potentially cheaper — access to large amounts of capital to fund product development over multiple years.

SPACs have created a limitless well of capital that deep tech startups are diving into. That’s because they are proving to be more attractive than other sources of financing, such as taking investments from later-stage VC funds or growth equity funds with finite fund sizes and specific investment themes.

The supply of growth capital from these vehicles has been astounding. In 2020, SPACs alone raised more than $83 billion via 248 IPOs, which is equal to a third of the total $300 billion raised by the entire global VC community. If the present rate of financings had continued, the annual amount of SPAC financings would have been on par with the total R&D expenditure of the U.S. government —  roughly $130 billion to $150 billion.

This new supply of capital can let startups keep the lights on, helping them address a practical need while they develop products that may take a decade to field. Before SPACs, any startup that wanted to remain independent had to lurch from one round of VC financing to the next. That, as well as the intense IPO process, is a major time sink for management teams and distracts them from focusing on product development.