Issue #149: For the week ended July 12, 2022

It’s go time.
Gil Dibner

The depth of summer. We’re getting deep into July. It’s the peak of summer. The days are long and slightly lazy. The new reality of the market downturn has set in — we seem to be in this for the long run. And with June 30th slipping further away in the rear-view mirror, the data on VC investment trends is starting to come out. As we all expected, it doesn’t look great. According to Crunchbase, for example, while we are still in record territory, the trend — at least for now — is way down. In a few weeks, around August 15th, hedge funds and VC funds will need to report their 2Q numbers to LPs, and — as these reports get leaked to the press — we’re likely see another set of interesting news stories about mark-downs — certainly of public positions and possibly of private positions as well.

A sense of quiet. Most VCs I talk to (both junior and senior, both in the US and over here on this side of the Atlantic) are exuding a certain quiet I have not sensed in a long time — maybe since 2012. There’s not much rush to do anything. A lot of VCs are deep in portfolio triage mode, working hard to save portfolio companies and figure out how to help them raise capital. They are thinking about mark-downs, and — in some cases — wishing they hadn’t marked things up as aggressively. They are worried about LP allocations for their next fund cycle. Everyone says they are open for business. Technically, they are. There is dry powder and a theoretical willingness to use it. But in practice, investment committees are largely locked up. It’s hard to get things done. As much as valuations have come down, people are wondering if they have come down far enough and if there is ever going to be capital for the next round. The oft-repeated wisdom of “ensure 36 months of runway” is just practically impossible for most startups if they are realistic about their costs and the need to build. Most importantly, confidence is shaken. I’ve written about how the venture risk curve was effectively inverted for a long time. Seed risk was effectively non-existent because the Series A was virtually guaranteed. That logic has reverted to its normal form — and risk is back in a big way. VCs trained on (and addicted to) the weird “riskless” environment of the past five years are indeed finding it hard to adapt as suddenly everything seems risky (because it is) and, therefore, frightening (because risk feels new).

Ramping up. I’ve been on the ground in Israel for the past two weeks, and will be here until the end of August. I spend most of every summer here and visit every 5–6 weeks throughout the year. For the past week, I was confined to our Tel Aviv apartment with some sort of non-Covid summer flu — which was just as well, because within one week of arriving here, we put out two term sheets on Israeli companies and are actively pursuing at least one additional opportunity in Europe. One of these checks is the largest first-check I’ve ever written in my career, term sheet finalized as my fever finally subsided. For a few days, the pace of my own activity was disconcerting to me. Maybe I’m just excited to be in Tel Aviv? Maybe I’ve lost my touch and am I just too eager to make investments? I’m pretty sure that’s not the case. We track our dealflow data closely, and 2Q22 was a record quarter for us. We saw 2081 new investment opportunities in the quarter, up from 1404 in 1Q22 (the previous record). With 3400 opportunities over the past six months, it does not seem particularly egregious or irresponsible to be very excited about two of them simultaneously. Our pacing and pricing discipline has been remarkably consistent over the past several years: 1–3 investments per quarter, no more, no less — and at reasonable prices. That discipline is coming into sharper focus right now: and there are just more opportunities in our strike zone than there have been in a while. The massive exits of the 2030s are being founded right now. We know what a truly great pitch looks like, and when we see one — we are going to swing for the fences.

Healthy atmosphere. But the other thing that has changed is the atmosphere. For the first time in a long time, all of our conversations with founders are grounded in reality. Founders are asking for reasonable amounts of capital at reasonable terms to achieve potentially extraordinary things with manageable risk. There is time for conversation, time for questions, time to get to know one another, and time to align. There is a return of mutual appreciation and respect. We tremendously respect founders that are making reasonable asks, driving reasonable burn rates, and taking on risk — and founders, in turn, seem to have a new appreciation for the real risk that investors are taking by believing in them.

Go time. The overwhelming feeling I have today is that Angular Ventures is in an exceedingly good position to play the kind of ball we were built to play: first-checks into technically-differentiated companies led by phenomenal founders. Our existing portfolio is strong, healthy, and reasonably valued. We are not distracted putting out fires. We are early in the Fund II fund cycle and have plenty of fresh powder that we are ready to deploy. Our investment approval process is built to be fast, nimble, and flexible — legacy from our solo GP roots. We’ve been waiting for risk perceptions and investment dynamics to rationalize for a long time — and it feels like a lot of the best founders have been waiting for this as well. It’s happening now. So right now — when so many investors and over-funded companies are struggling to adapt to the new environment — now is exactly the right time for us to double down on what we do — and what we have always done. If anything, I expect our pace on new investments to pick up through the rest of 2022 and into 2023. We are wide open for business — and we are already writing the checks to prove it. Nothing’s really changed in how we assess companies, but relative to a petrified market, we are “risk on.” It’s go time. Let’s go.

EVENTS

Sep 7 / The Evolution of Collibra’s Product Positioning & How They Created a Category
Stan Christiaens, Co-Founder & Chief Data Citizen, Collibra

Sep 21 / A Talk with Jason Green
Jason Green, Founder & General Partner, Emergence Capital

FROM THE BLOG

The Right Stuff
How to build a commercial team.

Mapping the New World of Business Collaboration
Why we invested in Reco.

What do a 2003 BMW and Microsoft Excel have in Common?
Leaving users feeling empowered and energized, rather than managed and disconnected.

Fewer, but Better Than Ever
The Israeli tech eco-system ponders a slowdown in startup creation.

EUROPE & ISRAEL FUNDING NEWS

UK/Insurance. Yulife raised $120M for its gamified employee life insurance.
France/Communications. Front closed $65M for its company inbox for customer relations.
UK/E-commerce. Shop Circle raised $65M for its e-commerce software to enable merchants and brands to achieve sustainable, next-level growth.
UK/Data Tooling. Snowplow raised $40M for its platform that generates, enhances and models with granular behavioral data, ready for use in AI, ML, and Advanced Analytics applications.
UK/Health. Birdie raised $30M for its cloud-based care management software for elderly patients.
France/Financial. Flowdesk raised $30M for its crypto-trading infrastructure platform.
UK/Food. Vita Mojo raised $30M for its end-to-end tech solution for restaurants.
Germany/Electronics. Celus raised $26M for its platform that uses machine learning to reduce laborious, time-consuming engineering and composition times for circuit diagrams, board design and component selection.
Spain/Industrial. 011h raised $25.5M for its platform that enables architects, general contractors, real estate developers and investors to design, build and manage net-zero buildings in a faster, more reliable and cost-efficient way.
Israel/Marketing. Yovantis raised $19M for its AI platform that predicts each user’s future LTV shortly after acquisition, making it easier for growth and marketing teams to make decisions and seamlessly act to optimize LTV/CAC.
Iceland/Financial. Lucinity raised $17M for its AI-enabled & cloud-based AML solutions for financial institutions.
Sweden/Financial. Griffin raised $15.5M for its BAAS platform that allows companies to embed fintech products straight into their offerings.
France/Security Insurance. Stoik raised $11.5M to provide SMEs with both internal and external security and risk monitoring software and an insurance product via a network of cyber insurance broker partners.

WORTH READING

ENTERPRISE/TECH NEWS

AI and the patent system. Science magazine’s Derek Lowe talks about the impending issues of patent and innovation in regards to IP laws. “The authors here call for a comprehensive approach to all this, with a new “AI-IP” framework. This might incorporate all sorts of changes — different patent terms, different definitions of inventorship and patentability, requirements for the inventors of the AI system itself (and/or those who modified it for a specific use) to be listed on the patent, and so on.”

Multilingual language model. Meta has built a vast machine translation model and released it as open source. The model is capable of translating over 200 languages. Making technology accessible to more people. “We’ve built a single AI model called NLLB-200, which translates 200 different languages with results far more accurate than what previous technology could accomplish. When comparing the quality of translations to previous AI research, NLLB-200 scored an average of 44% higher. For some African and Indian-based languages, NLLB-200’s translations were more than 70% more accurate”.

HOW TO STARTUP

Building in this era. Elad Gil, solo GP VC and Twitter and Google alum, has a well-rounded piece on the many different variables that are changing in this new environment. “Companies need to slim back down to match their real revenue base, and many companies raised at a valuation that is high relative to their progress. Nothing fundamental has shifted in terms of the long term view of technology as a transformative force remaking the world. It is still a great time to build.”

Behind the scenes of an acquisition. UK-based pricing and subscription company, Paddle, released a short form documentary called “We Sign Tomorrow?”, which is the story of acquiring Profitwell for $200M. “Two conference friends. The CEOs of Paddle and ProfitWell find themselves in a position where one can acquire the other’s company to work together to change the shape of the market. But they must go to hell and back to sign the deal before a competitor jumps on the opportunity to acquire ProfitWell.”

HOW TO VENTURE

LP fundraising in the new world. Samir Kaji, the Founder and CEO of Allocate and host of the Venture Unlocked podcast, has a great tweet storm on the macro LP market and tries to answer the question ‘So what does a fund manager need to do to raise?’.

Remember kindness. Mark Suster of Upfront Ventures has a thoughtful tweet thread reminding us all the be empathetic during these times. “Starting a company is hard. It’s way more stressful & lonely than most admit. Industry has been a cheerleader for years. But failures will go up exponentially now. I urge temperance in your urge to dunk on founders or funders who struggle. Humiliation + depression is dangerous”

PORTFOLIO NEWS

CruxOCM announced expanded implementation of its advanced control room automation technology at Phillips 66.

Budibase was highlighted by Quild as a future of work minicorn, an early-stage startup with statistically significant signals of becoming a unicorn.

Front raised $65M in a Series D financing round led by Salesforce that values the customer relationship business at $1.7B. “Front is led by founder and CEO Mathilde Collin and operates out of a San Francisco headquarters. Collin joins a list of 10 other women to found and hold the role as chief executive at both public and private SaaS company valued a more than $1 billion dollars.”