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Tag: EC News Analysis

  • Deal Dive: It’s time for VCs to break up with fast fashion

    Deal Dive: It’s time for VCs to break up with fast fashion

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    Fast fashion is an industry ensnared in labor issues and copyright problems, and it has an immense environmental impact due to its wastewater and carbon emissions. It also happens to have the potential to make a lot of money, fast.

    But despite all these issues, VCs won’t stop loving the sector.

    On Wednesday, my colleague Manish Singh wrote a scoop about a potential Accel investment into Newme, a fast-fashion startup based in India. Newme is an app-based retailer that produces 500 new items a week with an average price tag of $10. This news comes just a week after the company closed a seed round.

    Accel and Newme did not respond to requests for comment.

    Newme looks very much like many other VC-backed fast-fashion startups like Shein, which has raised $4 billion, and Cider, an Andreessen Horowitz–backed startup valued at $1 billion. Cider says it’s on-demand inventory makes it a more ethical fast-fashion option. That’s up for debate, though.

    Accel’s potential investment into Newme stood out to me for a few reasons, the largest of which is that I’m just not really sure why VCs back these companies.

    Fast-fashion companies gained rapid popularity and large followings because of their ability to bring clothes from the runway to your local department store in record time. But the fact is that often, they can only churn out clothes so quickly by cutting corners. The only way to make this strategy work is by using cheap materials and cheap — and likely underpaid — labor, and in many cases, by copying designs.

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    Rebecca Szkutak

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  • Here's what to know to raise a Series A right now | TechCrunch

    Here's what to know to raise a Series A right now | TechCrunch

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    There is good news and just “OK” news.

    The good news is that the venture capital market is showing signs of stabilizing. The bad news is that raising a series A will continue to be difficult for founders, especially as venture firms face liquidity problems, higher interest rates, and pressure from their limited partners to be more cautious in their dealmaking.

    In 2020, TechCrunch+ reported that founders should start fundraising when they have at least six months of runway left and that they should budget fundraising to last at least three months, with a one-month prep time to a two-to-six week pitch process with investors.

    Today, Jesse Randall, the founder of the platform Sweater Ventures, said founders should start looking to raise a Series A when they have about 12 to 15 months of cash runway left.

    “Don’t wait any longer than that,” he told TechCrunch+. “The fundraising cycle, once you start it, takes twice as long and requires three times the conversations.”

    Leslie Feinzaig, founder of Graham & Walker, says she primarily invests in pre-seed and seed rounds but tells her founders they should start focusing on their business at least 12 to 18 months before fundraising a Series A. This includes understanding their business model, connecting with the proper investors, and stress testing their readiness. The advice investors gave for a Series A this year shows how little and how much everything has changed in the market: Metrics will always be important, but starting early for this longer journey is key.

    “In this market, you have to prep for an A way in advance,” Feinzaig told TechCrunch+, adding that it could be fruitful to do so right after closing a seed round. “Time goes by fast, and in my experience, this catches a lot of founders unaware. Focus on your metrics immediately.”

    It’s an investor market out there

    This year is set to be much different than last year, Randall said.

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    Dominic-Madori Davis

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  • Countdown Capital winding down is not a bad omen for micro funds

    Countdown Capital winding down is not a bad omen for micro funds

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    Last week, my colleague Aria Alamalhodaei wrote an exclusive on defense and space tech venture firm Countdown Capital’s plan to shut down. Jai Malik, the founder of Countdown, said in a letter to his LPs that due to how competitive the industrial tech sector has become, he is no longer confident about smaller venture firms’ ability to secure the meaningful stakes in startups they’d need to produce worthwhile returns.

    As Aria wrote, the letter reads like a cold glass of water to the face. While winding down the fund is a mature move — GPs have a fiduciary duty to their LPs, after all — the news doesn’t help the growing scuttlebutt in the VC world that most micro funds can’t survive outside of a bull market like 2021’s.

    But Countdown shutting down is likely more of an isolated event than a sign of what’s to come for micro funds this year.

    When I spoke with Malik back in 2022 about the launch of this very fund, he said that Countdown was created to fill a void in the defense sector. His logic was that while larger firms like Andreessen Horowitz and Lux were interested in backing startups at the Series A stage and later, no one wanted to write the first small checks startups need to get going.

    That’s changed today, and it isn’t surprising given the sheer amount of capital it takes to get defense startups off the ground; the costs are incomparable to a category like SaaS.

    This is also why Countdown’s fate doesn’t portend cloudy skies for micro funds in other categories. A micro fund manager in the AI space, for example, told me that despite how active AI has gotten over the last year, the increased interest actually hasn’t made a material difference in pricing at the pre-seed stage where their fund invests. So despite the category heating up, a $500,000 check can still net a firm meaningful ownership at the pre-seed stage, they said.

    In VC, size does matter

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    Rebecca Szkutak

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  • The cloud stock rally could help inch open the IPO window in 2024 | TechCrunch

    The cloud stock rally could help inch open the IPO window in 2024 | TechCrunch

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    As 2023 comes to a close, a critical cohort of tech companies has regained the value it lost after the summer rally, potentially setting the stage for a stronger IPO cycle in early 2024 than some may anticipate. Cloud stocks are back, y’all!

    The Exchange explores startups, markets and money.

    Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

    Let’s do a quick recap to refresh our memories.

    Earlier this year, we saw three companies go public in quick succession: Arm, Instacart and Klaviyo‘s IPOs represented a liquidity peak, but they failed to inspire other tech companies to a rush towards the public market.

    The three companies had pretty good IPOs, too, but they mostly failed to make the sort of splash some had hoped for. Arm’s stock has performed well compared to its IPO price (trading at $71.30 per share today, up from its $51 list price), but Klaviyo and Instacart haven’t fared as well. Klaivyo’s shares are trading 24 cents above its IPO price, while Instacart’s stock is trading at about $5 less than its listing price this morning.

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    Alex Wilhelm

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  • Deal Dive: Making the clean energy transition, well, cleaner

    Deal Dive: Making the clean energy transition, well, cleaner

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    People in many parts of the world are trying to lower their impact on the climate. From companies to countries, a lot of groups have goals to reduce their environmental impact. With innovation in areas like electric vehicles, wastewater treatment and battery recycling, among many others, those goals seem easier to attain than ever before.

    But could it really be that easy?

    While much of this progress sets countries and organizations up for a cleaner future in the long run, the actual transition to cleaner tech isn’t very, well, clean. Many of these cleaner options require batteries, which are composed of rare metals that have to be mined and smelted in carbon-heavy processes. There also isn’t a great solution yet to recycle said batteries en masse.

    Many startups have piled into clean tech in recent years, and while they’re doing the good work of bringing new technologies and cleaner processes to the table, few are fixing the clean tech industry’s carbon-heavy supply chain issues. But Nth Cycle is trying to help.

    Nth Cycle has built technology that lets its customers refine and recycle rare metals on-site. This cuts out the cost and environmental impact of shipping these metals overseas to be refined or recycled, especially since about 85% of rare metal processing currently happens in China, according to the U.S. Department of Commerce. Nth Cycle also doesn’t use carbon-heavy smelting to process the materials.

    The company’s co-founder and CEO, Megan O’Connor, feels speeding up this process and making it cheaper is critical for the transition to clean energy. With the current overseas supply chain, there is no way countries like the U.S. will hit their climate goals in time. The rare metals needed to do so are ample enough, but they aren’t going to be put into use quickly enough. Nth Cycle hopes its ability to cut out a very timely part of the supply chain will help.

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    Rebecca Szkutak

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  • Secondaries investors tell us what's hot heading into 2024 | TechCrunch

    Secondaries investors tell us what's hot heading into 2024 | TechCrunch

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    Since the market corrected in 2022, late-stage funding rounds have been few and far between. It’s been hard to predict what is still attractive to investors in the later stages of the venture market or what any of the existing “unicorns” are worth today. The secondary market therefore gives us some valuable context as to how investors are thinking about valuing companies.

    The secondary market wasn’t immune to market conditions, though. Investment volume in this space has ebbed and flowed since the market correction, albeit less dramatically than on the primary side. If the startup IPO window reopens in 2024, as many are predicting, the secondary market will likely start to return to normalcy.

    But how are investors in the secondary venture market thinking about the market now? To find out, TechCrunch+ surveyed five venture secondaries investors, and they said that there are many aspects of the current venture secondary market worth getting excited about.

    John Zic, the founding partner at EQUIAM, for one, sees extreme discounts even for shares of companies that are maintaining attractive growth and financial trajectories. “We’re seeing attractive opportunities in many sectors, particularly in fintech, cybersecurity and marketing tech,” Zic said. “A number of firms within these sectors have continued to deliver on their financial targets throughout the same period.”

    Other investors also said they are also using this time to bolster their equity positions in existing portfolio companies.

    “We are doing extensive follow-on [investments] in all performing companies in our portfolio,” said Michael Szalontay, the co-founder of Flashpoint. “It’s a great time to buy, especially with a discount [on] a secondary basis. The major driver of our decision is growth, profitability and also the length of runway of each portfolio company.”

    Everyone agreed that prices for these company stakes have come down considerably and that valuations likely haven’t reached the nadir quite yet. There wasn’t a consensus on how close valuations are to the bottom, though: While Szalontay said the positive signaling from the Fed regarding interest rates could be considered to be a sign that we must be close to the bottom, others didn’t necessarily agree.

    Read on to find out what sectors investors think are too hyped in the secondaries market, why some investors aren’t sure primary VCs should rush back into the space if things open up next year, and why LPs aren’t actually as hungry for liquidity as you’d think.

    We spoke with:

    John Zic, founding partner, EQUIAM

    Where do you see attractive opportunities in venture secondaries currently?

    We’re seeing attractive opportunities in many sectors, particularly in fintech, cybersecurity and marketing tech. Amidst the broader tech slowdown since the beginning of 2022, these sectors experienced even more acute valuation downturns. However, a number of firms within these sectors have continued to deliver on their financial targets throughout the same period.

    Have these opportunities changed since the heights of 2021?

    By the end of 2021, almost every sub-sector of the tech market was overvalued (on a historical basis), so I wouldn’t use the word “attractive” to describe any particular pockets of the market.

    From a deal flow perspective, there was significant secondary deal flow in blockchain/cryptocurrency firms as the final act of the crypto bull market played out. As you can imagine, deal flow in these companies has ground to a near total halt over the past 2 years.

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    Rebecca Szkutak

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  • Betting on beauty fads is big business | TechCrunch

    Betting on beauty fads is big business | TechCrunch

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    As a woman in her 20s with an Instagram account, I’ve witnessed the explosive rise and destigmatization of medical spa treatments. From the influencer I ran track with in high school posting promos for lip blushing and fillers, to constantly discussing buying a Groupon for Baby Botox with my friend Emily, these treatments have become a part of regular conversation in a way they haven’t in the past.

    The underlying medical spa industry has grown rapidly alongside its new popularity, too. Medical spas are projected to be a $30 billion business by 2030, according to a report by Grand View Research. And the American Med Spa Association reports that the number of clinics offering these treatments grew 62% from 2018 to 2022.

    Investors are starting to take note of this industry. Most of these medical spas — 81%, according to American Med Spa Association data — are independent clinics or small businesses. Private equity firms are starting to circle like vultures seeking out prime candidates for roll-up strategies. Startups are building tech solutions for these small businesses with VCs seemingly eager to back them.

    So when I saw that RepeatMD, a vertical SaaS company for the medical spa industry, raised a sizable $50 million Series A, I wasn’t surprised. But I did have one question.

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    Rebecca Szkutak

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