Time flies, doesn’t it? We’re nearly through the first month of Q3, which means we can finally start taking note of the trends that will define the rest of the year, or if long-lasting trends are set to continue.
One such long-running trend shows no signs of reversing: Unfortunately for crypto, a former darling of Startup Land, funding to web3 startups continues to decline and will likely do so for the foreseeable future.
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According to the Crunchbase Web3 Tracker, funding to crypto startups around the world is on pace to decline for the seventh straight quarter — with investments in Q3 on track to land quite a bit below the $1.9 billion crypto companies raised in Q2.
In fact, Q2 actually felt kind of stable, since crypto startups raised only slightly less than the $2 billion they did in Q1.
The current quarter is shaping up to be shakier. VC investments in web3 so far have totaled $412.7 million, and if things don’t improve, that will add up to about $1.2 billion or so by the end of September.
As the crypto market continues to deal with depressed prices, many traditional investors are shying away from the sector as they seek safer abodes for their capital. Mega VC firm Sequoia Capital is the latest to do so, with the firm paring down two major venture funds, including its crypto fund, in an effort to downsize.
Sequoia has slashed its crypto fund down by 65.8% to $200 million from $585 million, the Wall Street Journal reported, citing anonymous sources. The firm has also halved its ecosystem fund, which provides capital to other venture funds, to $450 million, the report said.
Sequoia did not immediately respond to a request for comment.
Sequoia launched the two funds in February 2022, months before the crypto market suffered a cascade of industry-crumbling events starting with the Terra/LUNA collapse. Since then, confidence in crypto has generally gone downhill and there’s been a drought of VC investments in the space.
Silicon Valley loves its wunderkinds, but the same cannot be said of Washington, D.C., where the central mandate is not to take risks, but to de-risk.
Or that’s how it’s been until recently. The two American power centers have been solidifying a détente, spurred by the war in Ukraine and the great global competition with China. Investor interest in defense startups has grown, with nearly $8 billion of VC dollars flowing to aerospace and defense startups last year – up from just $1.4 billion in 2018, according to the analytics firm PitchBook.
Concurrently, Pentagon leaders have acknowledged that getting startup tech to the warfighter is a national security imperative, which has led to greater willingness to work with companies outside the small suite of aerospace primes.
Few stories embody this incredible shift more than one that emerged in the middle of June: that of Mach Industries, and its nineteen-year-old founder Ethan Thornton. The company has captured interest from VCs and the DoD, landing Sequoia Capital’s first investment into defense tech and courting interest from the Pentagon. Mach’s seed round, which included participation from Marque VC and Champion Hill Ventures, came to $5.7 million.
Mach is developing hydrogen-powered platforms for the military, including unmanned aerial vehicles (UAVs), munitions, and hydrogen generation systems. The company is betting that techniques like hydrogen combustion, powered by an energy source that can be manufactured in the field, will give the military an advantage in case conflicts with near-peer adversaries arise.
Speaking generally in a recent interview with TechCrunch, Thornton described a solution that’s less expensive, and perhaps less exquisite, than the ultra-costly weapons programs of today. It’s a mindset shift embodied in hardware: instead of thinking in terms of missiles, think in terms of something more like bullets. On LinkedIn Thornton has said that the company is “working to replace gunpowder,” and in our interview he described a less expensive approach to munitions.
“Taking a missile [and turning it into] a bullet, every time you do that, you really, really decrease your costs,” he said. “That’s fundamentally one of the changes Mach wants to see happen: taking more away from the rocket equation – because you have to bring your own propellant, your own sensors, and things get very expensive – and back to actually an older model using more projectile-based systems.”
Thornton’s interest in hardware stretches back to his childhood; the way he tells it, it’s part-nature, part-nurture, with a grandfather who built kit aircraft in his spare time, a high school job as an auto mechanic, and a small business selling handmade kitchen knives, cutting boards and other products.
At some point along the way, he developed what he called an “[obsession] with electrolysis.” Electrolysis is a process by which water is split into its constituent elements – one of which, of course, is hydrogen. The first result of that obsession was a small arms device he made while still in high school. The entire thing cost around $200 – funded by his parents, after he pitched them with a 20-page paper – and consisted of a couple of deer feeder batteries and an electrolyzer, all powering what was essentially a bazooka.
Before his first academic year at MIT even commenced, he started working with MIT Lincoln Laboratory, a national R&D center managed by the school for the DOD. The military has long had an interest in hydrogen, especially as a robust energy supply chain for contested war environments, and the Lab had its own group focused on energy systems.
While Thornton realized that the Lab wasn’t the perfect fit for what he wanted to build, he was able to build his government connections. And then he decided to drop out.
“This was pre-team, pre-revenue, anything,” he said. “I just couldn’t sit through classes anymore.”
Thornton also walked away from Lincoln Lab with two significant hires: Erik Limpaecher, who was a senior technical staff at the Lab’s energy systems group, and who had been with the center for nearly twelve years; and Mark Donahue, a former program manager for control and autonomous systems, who departed the lab after 15 years. Limpaecher is now Mach’s chief innovation officer, while Donahue was installed as VP of engineering.
Thornton did end up finishing his first year at MIT this past spring, but not before putting together a team of undergrads and testing a large, mounted gun under the railroad tracks near Charles River, and joining the newest class of Peter Thiel’s Thiel Fellowship in February.
“I don’t like doing anything halfway, and I felt like I was doing college halfway, and [Mach] halfway. This was far and away the clear, no-brainer decision to make, and I haven’t regretted it.”
The Mach team, which is now about fifteen people full-time, is headquartered in Austin but also maintains offices in Boston. There, the company conducts all the engineering work to build the systems; but Texas, with plentiful open land, is where the company actually puts the hydrogen to work in kinetic or combustible applications. It’s a split that has an almost eerie resonance with historical weapons development programs, with the brightest minds pulled from universities in the northeast and the product testing in the middle of nowhere.
For now, the company will use the seed funding to expand its engineering capabilities: manufacturing, R&D, and also to hire talent. Thornton hopes to be manufacturing thousands of products a year within the next five years, with certain systems in the hands of the end user within 12 months – though some, he said, will take more like 12 years.
Meet the 19-year old MIT drop-out “replacing gunpowder” for the defense industry by Aria Alamalhodaei originally published on TechCrunch
There is an estimated 3 million software engineers in Europe, depending on what report you want to believe, but finding the rights engineers for the job in hand isn’t all that straight forward. London or Paris might well have the highest concentration of software engineers, but knowing what locales offer the best access to specific disciplines is an entirely different ballgame, particularly in such a geographically distributed continent such as Europe.
This is something that venture capital (VC) juggernaut Sequoia is seeking to address with a new online interactive tool called Atlas which, while built primarily with its own portfolio founders in mind, it’s also releasing to the general public today too.
Atlas meshes various qualitative and quantitative data collection methods, including a talent survey of 1,035 participants; a survey of 125 recruiters from European tech companies; 17 “in-depth” interviews with founders and recruiters; and aggregated data from third-party sources such as Dealroom, SeekOut, Remote, Ledgy, and GitHub. At its core, Atlas attempts to present a picture of the current European technical talent landscape, incorporating the 27 members states of the European union plus Iceland, Liechtenstein, and Norway (collectively known as the European Economic Area (EEA)), in addition to Switzerland, Ukraine, and the U.K.
Talent density spikes
London comes out on top both overall (i.e. ‘all disciplines’) and in each individual discipline (e.g. AI, DevOps, security) in terms of volume of engineers. However, Atlas comes at this from the perspective that cities with the highest talent volume aren’t necessarily the best place to go looking for specific skills. As such, Atlas shows the densest per-capita (i.e. per the broader software engineering population) concentration for a given speciality among the local talent pool, highlighting two-dozen cities across Europe and their respective density spikes in 14 specialisation areas.
“So this is cities that are punching above their weight for a certain type of engineering specialism,” Sequoia’s European talent director, Zoe Jervier Hewitt, explained to TechCrunch in an interview.
For example, Atlas data suggests that Dublin’s general talent density across all specialities sits at just 37% in terms of the number of engineers with four- or five-star GitHub ratings. But when filtered down to engineers with an AI specialism, this figure jumps up to 60%. This positions the Irish capital as one of the hottest places for AI talent, along with several other key hubs across Europe, which tallies with separate reports from recent years that positions Dublin as a top AI talent hub.
A curious omission from Atlas is that while it gives a percentage of GitHub users in a city with four- or five-star ratings, it doesn’t do this at a top-level for the overall talent density of skill-specific engineers in the city — regardless of their level of experience, what their GitHub rating is, or whether they even use GitHub at all.
Indeed, while the dotted circles serve as useful visual indicators of the biggest outliers in talent density — the bigger the circle, the bigger the talent density — it’s impossible to know how they actually compare to each other. How much higher is Dublin’s AI talent density than Zurich, or Paris, or Berlin, or Edinburgh? It turns out this was a deliberate design decision, according to a Sequoia spokesperson, who said that percentages wouldn’t do a good enough job of conveying the contrast between the densities, whereas splitting them into broad “notable”, “standout” and “top city” made it easier to easily parse the differences.
Moreover, it’s also worth considering why a higher density of engineers with a particular talent in one location is more useful than another city with a lower density but higher overall number. The Sequoia spokesperson said that the correlation between specialization density and the quality of the engineers, as defined by their GitHub star ratings, is one reason why this matters — evidenced by the jump in four- and five-star GitHub ratings for Dublin when filtered by AI as their specialism.
“We see this pattern repeated across different specialisations,” the spokesperson said. “[Also], outlier talent density in a particular city means a relative abundance of available talent for a specific skillset to recruit from. For instance Amsterdam has the highest density of DevOps engineers, which means on a local basis it has the richest supply of DevOps talent. While London may have more DevOps engineers in total, they are in relatively short supply as a proportion of London’s overall talent pool, which may make recruiting them more difficult, particularly for early-stage startups competing against established tech giants.”
Other notable tidbits to emerge from the research provided in Atlas is that Germany (Stuttgart and Munich, specifically) is a hotbed for engineers focused on robotics, drones and autonomous vehicles, while Gothenburg in Sweden is something of an outlier for systems engineers.
Helsinki, meanwhile, is big for top gaming and graphics engineers.
Of course, if a fledgling startup really is just looking for the high-volume engineering hubs, they can use Atlas to pick out places that might not be instantly obvious, such as Madrid which apparently has the highest numbers of engineers outside of London and Paris across all specialities.
Users can also drill down into specific hubs, and see what the lay of the land is in terms of volume of engineers; primary and secondary skills; percentage of female engineers; number of accelerators; and the “tech ecosystem value.”
While these various data points may prove useful, Atlas perhaps could benefit from proper data-sourcing. For instance, Lithuania’s capital Vilnius apparently has a “tech ecosystem value” of €9.3 billion, but without knowing from where this figure was derived, it’s difficult to know precisely what it means. In this instance, Sequoia did confirm to TechCrunch that this was garnered as part of its integration with tech data provider Dealroom, which defines the “ecosystem value” as the:
…sum of the valuations of all startups in the ecosystem. Using estimated valuations based on most recent VC rounds, public markets and publicly disclosed valuations.
However, it perhaps would be more useful if Atlas showed exactly where its various data points have come from, using little clickable on-screen icons.
While knowing where to find the best robotics or hardware or systems engineers is an important selling point of this tool, it could also be used by remote-first companies looking to set up satellite offices, for instance, or even base their entire HQ.
The founder of one of Sequoia’s portfolio companies Robco, a German robotics startup that recently raised $14 million, apparently moved from Boston back to Munich because of its abundance of robotics talent. And this is the type of scenario that Hewitt reckons that startups, scaleups, or even big-tech recruiters might use Atlas for, which is particularly pertinent at a time when the remote-work trend is showing little sign of easing.
“I think founders can use Atlas as a lens for things like ‘where should we put our HQ‘ or ‘where should we put our main office,'” Hewitt said. “I think the other use-case will be around how founders want to think about and evolve their philosophies around remote and hybrid work. I think it will help founders inform whether they choose to operate a fully remote engineering team or a hybrid. So we hope that it will be useful as many companies are trying to strike that balance of hybrid and in-person.”
A year in the making, Atlas is available for anyone to use today. But all this leaves us with at least one lingering question. According to Hewitt, they detected shifts in attitudes toward remote, hybrid, and office-based working during the course of developing Atlas itself, which leads us to wonder how useful this tool will be, say, a year or two from now as Europe’s diverse and distributed tech workforce continues to evolve.
Put simply, is the plan to make Atlas a living, breathing reflection of the European tech talent ecosystem?
“I think we want to see the response from founders,” Hewitt said. “I mean, we think it’s a really great tool, and I hope it’s going to create value for lots of hiring teams. Whether we will update it every year, I think we’ll wait to see what the initial reception is.”
Sequoia debuts Atlas, an interactive guide to the European tech talent landscape by Paul Sawers originally published on TechCrunch
Bejul Somaia, the founding partner of Lightspeed India, staunchly defended the allure of South Asia’s investment landscape, even in the wake of unsettling movements such as Sequoia’s decision to segregate its Indian venture.
“The startup and venture model is predicated on learning and adapting fast, navigating to high upside and understanding that the few companies that really succeed drive economies and humanity forward and create enormous value,” Somaia wrote in an essay, posted on Twitter.
“And those that don’t succeed contribute to a cycle of creative destruction that is essential to the development of an innovation economy. The potential of India remains incredibly compelling: a sizable market, high quality founders and one-way adoption of technology. The question is not whether there is potential, but how best to navigate this potential.”
Somaia’s remarks come on the heels of an escalating critique from certain industry figures who have been openly skeptical about Sequoia’s decision to cut the India and Southeast Asia arm. The storied venture firm said earlier this month that it intends to separate its Indian and Chinese operations from the U.S. mothership, a move that has instigated heated debate in the industry.
Chamath Palihapitiya, the billionaire founder of Social Capital, said he was puzzled by Sequoia’s decision to split up the India business. “I was surprised why they would allow India to leave,” he said on his podcast All-In last week. “India is a country growing at 6% a year. It literally looks like China in 2008-09. I think you would want to attach them to yourself because it makes the U.S. business look better.”
Palihapitiya said he doesn’t buy the idea — the on-record justification provided by the venture firm — that Sequoia is splitting the business because of portfolio conflict concerns.
“Sequoia China is frankly over the last 15-20 years is as good or probably better than Sequoia U.S. Sequoia India, I don’t think has much to talk about and maybe what Roelof (Botha, Managing Partner at Sequoia Capital) decided was that this team is just not very good, so we might just as well cut it and revisit it later.”
Sequoia India and SEA, the most prolific investor in the region, raised $9.2 billion across 13 funds over the past decade and a half and backed over 400 startups. The firm, now known as Peak XV Partners, has delivered $4.5 billion of realized exits.
Lightspeed India, which also started investing in India over a decade ago, has raised $1.6 billion to date and returned about $1 billion to its limited partners and the value of its current asset holding is $3.4 billion, Somaia said.
“India is not for the faint-hearted. India is tough. But India is worth it,” he wrote.
India has progressively come to the fore as a key overseas market for venture capital and private equity investors, who have been scouring the globe for substantial growth markets, over the past two decades. However, even though Indian startups have raised more than $75 billion in funding over the past 15 years, meaningful exit opportunities for investors have been few and far between.
Tiger Global partner Scott Shleifer echoed similar sentiment earlier this year. India is likely to produce the highest equity returns globally in the future, he said but admitting that the world’s second largest internet market had delivered below average returns for the investor giant historically and the local startup ecosystem was grappling with governance and unit economics challenges.
“Returns on capital in India have sucked historically. If you look at the market-leading internet companies, whether it is Google, Facebook, Alibaba or Tencent, revenue for them got bigger than cost more than a decade ago. You had a great legacy of last 17-18 years of materially profitable internet companies. So returns on equity in the internet got really high and the returns for investors have been really high. But that did not happen in India,” he said.
Lightspeed says India not for the faint-hearted following Sequoia split by Manish Singh originally published on TechCrunch
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It was a hectic week, with little in the way of the traditional Summer Slowdown making itself known. So, here’s the show rundown!
- WWDC in a nutshell: In case you missed it, Apple had a big event this week. On tap were the usual run of software updates, and improved computers in both laptop and desktop format. And, you know, that other thing.
- Affirm partners with Amazon (again): This is not Affirm’s first tie-up with Amazon, but investors are pretty excited that the pair of companies are once again linking arms. As we continue to wait for mega-unicorn Klarna’s IPO — more notes here — we are keeping our ears close the BNPL ground.
- Cava’s IPO continues to delight Alex: What has an IPO coming up and has this little podcast in a tizzy? Yep, it’s Cava, the fast-casual chain that, thanks to a dollop or two of venture capital money, we get to cover!
- All things SEC and Crypto: The SEC broke into its hammer closet so that it could go play whack-a-mole this week with crypto exchanges both foreign and domestic.
- Sequoia does to itself what regulators want to do to Google: What has three parts and is now competing with itself? Sequoia. Think of it like an inverse Google, if you will.
- How real estate will affect the climate crisis: It turns out that construction is not so good for the planet. And with a commercial real estate crisis brewing, can we add one to one and get five?
Next week, Equity is on vacation! We’re taking a breather before launching into another massive run of shows, but we’ll be back before you know it.
For episode transcripts and more, head to Equity’s Simplecast website.
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Sequoia does to itself what the Biden administration wants to do with Google by Jacquelyn Melinek originally published on TechCrunch
PropTech firm Aurum is acquiring NestAway, a once high-flying Indian startup operating in the same space, for up to $10.9 million, in a deal that marks a near complete erosion in value for the startup’s investors.
Eight-year-old NestAway raised $115 million over the years and was valued at $227 million in a funding round in 2019. The startup counts Sequoia Capital India, Tiger Global, Goldman Sachs, Yuri Milner and Chiratae Ventures among its investors.
Aurum, which earlier acquired a unit of NestAway for about $6.8 million, said it will invest $3.6 million to stabilize NestAway’s business. “This capital infusion in NestAway is a testament to Aurum PropTech’s conviction in India’s $20-billion Rental Housing market,” Aurum said in a stock exchange filing.
NestAway’s revenue shrank to $3 million in 2022, down from $9.5 million two years earlier.
The erosion in NestAway’s value can at least be partially attributed to Covid. The home rental platform NestAway features 18,000 properties on its platform, down from 50,000 before the pandemic.
“When we started NestAway, our vision was to revolutionize the way people live in cities by providing them with convenient, affordable and hassle-free housing solutions,” said Jitendra Jagadev, founder of NestAway in a statement. “Over the years, we have grown and expanded, serving thousands of customers, becoming a trusted brand in the PropTech industry.”
NestAway, once valued at over $225 million, sells for $11 million by Manish Singh originally published on TechCrunch
Fidelity, the lead investor in Reddit’s most recent 2021 funding round, has slashed the estimated worth of its equity stake in the popular social media platform by 41% since the investment, the latest high-profile write-down amid a weakening worldwide economy on public markets.
Fidelity Blue Chip Growth Fund’s stake in Reddit was valued at $16.6 million as of April 28, according to the fund’s monthly disclosure released over the weekend. That’s down 41.1% over the $28.2 million the firm spent to acquire the Reddit shares in the Series F funding, according to disclosures the firm has made in its annual and semi-annual reports.
Reddit was valued at $10 billion when the social media giant attracted funds in August 2021. Fidelity — which has marked down its stakes in many startups including Stripe and Reddit in recent quarters — also slashed the value of its Twitter stake, it disclosed in the filing, valuing Elon Musk’s firm at about $15 billion.
Reddit declined to comment.
This devaluation, part of a broader trend that has hit a variety of growth stage startups across the globe in the past year, raises uncertainties about whether Reddit will maintain its initial intent to reportedly go public at a valuation around $15 billion.
Reddit, which has raised over $1 billion to date, counts Sequoia Capital and Andreessen Horowitz among its backers.
The current wave of valuation cutbacks sheds new light on the impact of deteriorating worldwide economic conditions on fledgling startups. Despite the diminished funding activities for startups globally over the past year, valuations of numerous larger startups have stayed constant.
Fidelity has cut Reddit valuation by 41% since 2021 investment by Manish Singh originally published on TechCrunch