Quiet quitting, quiet building

The Angle Issue #163: For the week ended November 1, 2022

Author

Angular Ventures
November 01, 2022

Quiet quitting, quiet building
Gil Dibner

First off, some travel updates: If you are at Web Summit in Lisbon this week, make sure you reach out to our colleague Andrew who is representing us there. Also, I’m in Tel Aviv this week and returning in December. So if you are in town and want to connect, please ping me.

I went down a bit of a VC rabbit hole this morning. It started with Natasha Mascarena’s article on dislocations in the venture market in which she predicts that many VC firms are gradually turning into zombies. There, she links to a thread by Roy Bahat at Bloomberg Beta (one of the nicest and wisest people in venture), in which he writes that he is observing VCs “quiet quitting,” that is, essentially stopping work without declaring it. The responses to his thread are, themselves, full of interesting observations and links, including this oldie (but goodie) by Frank Rotman of QED on the “Three Body Problem” in Venture Capital in which he argues that changes in the innovation eco-system (namely, an influx of capital and the demystificatoin of the “zero-to-one” process) has resulted in four new “stable points” in venture capital. These stable points are: (1) scale (A16Z, Index), (2) late-stage generalists (Tiger Global), (3) solo capitalists, and (4) non-consensus alpha-seeking first check VC firms (Angular!).

I’ve never liked the “quiet quitting” phrase. It has always struck me as judgemental in that it implies a sort of conspiratorial behavior. But that said, I think Natasha and Roy are right. There is a sense of disquiet in the VC industry. Here and there, it seems, senior partners are stepping back, hiding out, reevaluating their roles, or re-imagining their platforms. We began to see this last year as some of the greats like Roger Ehrenberg announced their departures from their firms, and we see it rolling forward this year with high-profile departures from storied firms like Tiger Global and Coatue.

At Angular, we are just getting started as a firm and a platform — and we are committed to first-check non-consensus VC. (To our mind, what is the point of being a VC if you are not engaged in first-check non-consensus investments?) But we also recognize that we are executing that strategy in the changing landscape that Rotman describes. Money is readily available for many more ventures than before, our competitive landscape is crowded with firms that are swimming in our lane (however unfamiliar to them it might be), and a lot of the previously mysterious “art of the start” is common knowledge. These are threats and potential pitfalls for any VC. The hardest part of what we do is avoiding investments that are not non-consensus enough (not sufficiently differentiated) or too non-consensus (just plan wrong or too early). Getting that right means saying no to the vast majority of the brilliant founders we meet and the vast majority of the completely logical business plans we review. Dramatically easier SW development and deployment and the ready availability of powerful technologies (generative AI being the example du jour) means that a lot of great businesses are simply a lot less differentiated and a lot more consensus than we might have been led to believe.

Passing on the majority of the thousands of opportunities we encounter every year is — unfortunately — key to how we attempt to create value for our LPs as we attempt to execute on the “non-consensus alpha” strategy Rotman outlines. We may go for long stretches without writing a single check, only to be followed by a burst of activity all at once. That may sometimes seem like quiet quitting — but it’s not. It’s just us quietly building.

If you are quietly building, please reach out.

Gil

EVENTS

Feb 15 / The Evolution of Collibra’s Product Positioning & How They Created a Category
Stan Christiaens, Co-Founder & Chief Data Citizen, Collibra

FROM THE BLOG

It’s Never too Early to Build your Growth Model
What are the specific mechanisms by which one user turns into many, and an initial investment turns into revenue?

How to Think About Revenue Quality as an Early Stage Founder
What does “quality revenue” mean when you don’t have much revenue at all?

It’s Not All About Bottoms-up
Two recent trends indicate that we may finally be past the mistaken belief that bottoms-up is the only “fundable” business model in town.

Don’t be Fooled by the PLG Mullet
How to know if you should be building a PLG Now, PLG Later or PLG Never company.

EUROPE & ISRAEL FUNDING NEWS

Israel/Retail Systems. Trigo raised $100M for its self-checkout and digitized operations for grocery retailers.
France/Logistics. Shippeo closed $40M for its AI-based road freight transportation management platform.
Germany/Industrial. Proemion raised $33M to get help manufacturers to get insightful telematics data from every machine.
UK/Financial. BMLL raised $26M for its data and analytics service across global equity and futures markets.
Israel/Security. Valence Security raised $25M to secure business app infrastructure
Israel/Health. Navina closed $22M to process and summarize medical data for clinicians.
Spain/Health. Seqera Labs closed $22M for its data orchestration and workflow software for life sciences.
Switzerland/ML Tooling. LatticeFlow raised $12M for its platform that spots blind spots in pre-existing computer vision models.
Belgium/HR. MobieTrain raised $9M for its mobile micro-learning platform for frontline workers.
Israel/Productivity. Ask-AI raised $9M for its platform allows managers and employees to receive answers and insights from all internal knowledge and customer communication sources.
France/E-commerce. Evy raised $6.5M for its service that allows retailers to offer product protection insurance.

WORTH READING

ENTERPRISE/TECH NEWS

Cloud revenues down. Cloud revenue growth rates have declined for the fourth straight quarter. Of course, cloud revenue is still growing fast, as Tomas Tunguz points out here. 33% on $50B in quarterly revenue across Azure, AWS and GCP is incredible, and you might even expect growth to slow at that scale. But given that infrastructure spend is correlated with overall software spend, we should expect sales cycles to continue to increase and software spending to continue to decrease.

The Internet rules. The Digital Markets Act, passed by the European Union last year and going into effect next week, is set to force Big Tech to “break open their walled gardens.” From Wired: “The DMA requires dominant platforms to let in smaller competitors, and could also compel Meta’s WhatsApp to receive messages from competing apps like Signal or Telegram, or prevent Amazon, Apple, and Google from preferencing their own apps and services.” Undoubtedly, Big Tech will fight these regulations tooth and nail (not least because the law is technically quite challenging to comply and maintain any sort of end-to-end encryption). The EU has also passed the Digital Services Act, which will require risk assessments of some algorithms and disclosures about automated decision making.

GitHub hits $1B. Microsoft announces that GitHub hit 90M active users (up 3X since the acquisition) and $1B in ARR. Microsoft acquired GitHub for $7.5B back in 2018.

HOW TO STARTUP

The case for consumption. Frank Cirone of Snowflake makes a powerful case for consumption-based pricing. His argument: cloud infrastructure costs, which pretty much every SaaS company pays, are consumption-based. Which means, if you charge your customers on a subscription basis, you might get caught in a situation where you customers use up so much cloud and data services, your margin gets compressed or even goes negative. Consumption-based pricing protects you from this downside, while also aligning incentives with your customers and accelerating your GTM.

Downturn SaaS benchmarks. Dave Kellogg provides an ever-helpful rundown of the 2022 Keybanc SaaS metrics survey results. This survey is of private SaaS companies with benchmarks across metrics such as ARR, ARR growth, expansion ARR, NRR, churn and more. These sorts of benchmarks are useful, especially for earlier stage founders that are looking for goal-setting guidance. The question is how aggressive to be with your goal-setting? Kellogg has some advice: “…people need to pay more attention to matching their benchmarks with their aspirations. If your aspirations are to raise money from top VCs at a good valuation, my guess is you should be thinking 75th percentile of this data set; if they’re to IPO, you should be thinking 90th.”

HOW TO VENTURE

Paper returns. Andreessen Horowitz’s returns look impressive on paper, as leaked to the Wall Street Journal last week. But a16z Crypto’s Fund I, which launched in 2018 and showed paper returns of 10X+, has been marked down by 40% since the beginning of the year. (Even with a 40% markdown, that’s impressive performance.) But, with a new $4.5B fund in hand, the WSJ reports that Chris Dixon, a16z Crypto’s lead partner, is on the hook to convince nervous investors that they didn’t “overplay” their hand and raise too large a fund for the “so-called crypto winter.”

Don’t buy generative AI. Sam Lessin from Slow Ventures encouraged his fellow investors to stay away from generative AI for the next few years. His short post is worth a read, but I found his point on distribution particularly compelling: there’s no leverage in the models, as they’re open source, so the advantage will aggregate to the platforms that already have distribution. Similarly, Will Manidis, CEO of Science.io, calls out VCs for manically chasing generative AI startups without understanding where (and how) enterprise value will be created. Value won’t be created by making “everyone a creator,” Will argues, but by reducing the tedium of menial tasks like data entry form filling and other “basic knowledge worker stuff.”

Down round or zero? Good thread from Rick Zullo over at Equal Ventures on the risk many overvalued companies face right now. Investors may not be interested in investing, even in a down round, because they’d rather invest in a new company that has some momentum. That’s not necessarily fair, but for new investors trying to make a name for themselves, the incentive to “find the next Figma” and “go big or go home” is strong. Why invest in a struggling company when you can put money behind something new? The result is that there may be many “zombie” startups (and consequently, zombie VCs), sitting on hefty valuations that will inevitably be marked down to zero.

PORTFOLIO NEWS

CruxOCM was selected as the Startup of the Year by Topio Networks for its cutting-edge deployment of edge computing in oil and gas control rooms to automate operations and enhance sustainability.

Levity enables businesses to easily leverage AI by providing a no-code workflow automation platform that allows users to build AI deep learning models based on their data.

Front launched the Front Integration Partner Program to drive greater innovation across its technology ecosystem.

JFrog and other open-source tech leaders announced Pyrsia, an open source software community initiative that utilizes blockchain technology to secure software packages from vulnerabilities and malicious code.

FEATURED PORTFOLIO JOBS

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