Weekly Wrap #10: Deals, Dealz, Deal$

Welcome to our Weekly Wrap, where we cut through the noise to bring you our favourite insights from the technology and startup world.


Seeding a trillion dollar company

Last Sunday marked 26 years since Amazon was founded in Bezos’ garage. With three Sun workstations set up on tables made out of doors from Home Depot for less than $60 each, Bezos got to work building the first online book store.

Today the world’s largest online retailer has a market capitalisation of US$1.59 trillion, more than 3,600 times its IPO value of US$438 million. This got us thinking… how did Bezos fund Amazon’s early days?

Bezos owes much to his parents, who invested over US$250k to fund early Amazon:

Start-up capital for Amazon.com came primarily from my parents, and they invested a large fraction of their life savings in what became Amazon.com. And you know, that was a very bold and trusting thing for them to do because they didn’t know. My dad’s first question was, “What’s the Internet?”

In 1995 Bezos says he raised US$1 million from 22 people (approximately $50,000 each) - taking around 60 meetings to close the round. Amazon went on to raise $8 million Series A from Kleiner Perkins Caufield & Byers in 1996. Kleiner Perkins was one of the most sought after tech investors at the time - well known for its internet portfolio with investments in AOL, Netscape and Intuit to name a few.

By May 1997, Amazon was listed on the Nasdaq at US$18 per share. Fast forward a few decades and Bezos is now the wealthiest man in the world thanks to the Amazon empire.

If Amazon were founded today, what might that capital raising path have looked like? This week we take a look at the state of startup funding and exits in a pandemic world.


The New Seed - $2.5M rounds

Tomasz Tunguz (Partner at Redpoint Ventures) released a great post this week that dives into the latest Crunchbase data. A few important findings comparing this quarter to Jan 2019:

  • The number of Seed rounds are down from 1400 to ~400. Series A, B and C have fallen around 30%.

  • The median amount invested per round has increased across all stages. Seed has more than doubled to nearly US$2.5 million. Series A and C have increased by 25%. Series Bs are up 43%.

  • Investments are concentrated in companies that are doing well and that are well known i.e. later stage companies benefiting from the pandemic. This is illustrated with Canva’s AU$87 million raise last month and the creation of several new unicorn companies this year in education - Quizlet, Udemy, ApplyBoard, Course Hero - and collaboration and communication - NotionFigma, and Podium.

Tunguz concludes:

The fundraising market is contracting. The amount of available dollars to invest is high. We venture capitalists have raised record amounts of capital in the last 2-3 years. But the pace of deployment is slowing.

The pandemic is further slowing the speed of deals. Startup Genome’s Global Startup Ecosystem Report 2020 found that of those startups surveyed who had term sheets pre-crisis, 18% had deals cancelled and a further 8% reported their lead investor had become “unresponsive”. Almost half (46%) said their funding process has been slowed down.

All that data isn’t very encouraging if you need funding to get an idea off the ground. But it is great news if you’re:

  1. Past the very early stage of funding (Friends/Family/Fools and Seed);

  2. Already backed by investors with deep pockets; and

  3. Seeing increased customer demand as a result of the pandemic.

funding-phases-startup

Credit: Gabriele Mamoli


State of our startup nation

Sadly for anyone seeking early-stage investment in Australia, we’re seeing the same international investment trends being mirrored here.

Right Click Capital’s Internet DealBook, which tracks angel, VC and private equity investment, reportedly showed that in the second quarter of 2020:

  • 44 funding deals were completed, compared to 99 in the same period of 2019.

  • More dollars were invested into Aussie startups than the same period last year. The average deal size was AU$17.9 million and the median was $6.4 million - compared to $7.6 million and $2.1 million respectively last year.

That aligns to what we’re hearing anecdotally - that alternative sources of capital such as angel investors and family offices have, for the most part, significantly reduced their cheques in 2020 due to the pandemic.

Similarly, there’s little appetite to invest in funds with an early-stage investment thesis. So while money is pouring in to later-stage VCs like Square Peg Capital (which has AU$1+ billion under management), early-stage funds are battling to raise just a few million. We saw M8 Ventures, the Pre-seed venture fund founded by our friends Alan Jones and Emily Rich, go into hibernation earlier this year as it struggled to reach its AU$10 million funding goal (a target required for ESVCLP tax incentives).

That’s a real blow to the startup community because it’s rare to see VCs invest at idea stage or pre-revenue. The main exception is where the founder has significant startup experience, which is perceived to reduce risk. For instance:

  • Square Peg Capital recently announced that it led an AU$6.3 million Seed investment in Zeller - a pre-launch, pre-product fintech co-founded by Ben Pfisterer (ex-Head of Asia Pac at fintech, Square).

  • Blackbird Ventures invested AU$500k into crowdfunded, pre-revenue Raine - an electric vehicle (scooter) startup. One of Raine’s co-founders is Marc Alexander, who was co-founder and CTO of the recently acquired smart lighting company, LIFX (also backed by Blackbird).

  • This week mmhmm (no, that isn’t a typo) raised US$4.5 million led by Sequoia Capital. Founded by Phil Libin, who led Evernote as CEO at its peak (Sequoia also invested in Evernote), mmhmm is a video conferencing tool that’s platform agnostic - it works on top of Zoom, Google Meet, YouTube, and other video streaming services. It’s also a great example of the next generation of collaboration tools that we told you would start to appear! Mmhmmm, that’s right. We digress…

The good news is that there are some excellent free resources to help you if you’re trying to raise early-stage capital:

  1. AirTree’s Australian VC and Angel investor list. Relatedly, John Henderson has started a new blog featuring Australasia’s best angel investors - The Halo Effect.

  2. Stone and Chalk’s guide to capital raising.

  3. Sam Wong’s (Blackbird Ventures) Pitch Deck masterclass.

  4. Alternate sources of investment - VC isn’t your only option.

We hate to say it, but you should also consider looking internationally. This week Aiculus, a cyber startup and CyRise alum, raised an AU$940,000 Seed round led by Cocoon Capital in Singapore.

Fund raising is hard enough, let alone in a pandemic. All we can advise is be prepared to put in extra hard yards. Good luck!


Exit, stage left

A favourable exit is the promised land for most startups. At the moment, the pandemic is fuelling the acquisition of startups by large, public companies as they seek to secure and strengthen their position - resulting in some good exits and some steals.

Within the last two months there have been a host of significant acquisitions announced in the cloud infrastructure, collaboration and remote work space:

  1. DocuSign acquired Liveoak for US$38 million. Liveoak brings together live video, collaboration tooling and identity verification to enable people to get notarized approval as though you were sitting at the desk in front of the notary.

  2. Apple bought Fleetsmith for an undisclosed amount. Fleetsmith automates remote device setup, patching, and security for corporate Apple devices.

  3. Uber acquired Postmates in an all stock $2.65B deal. Postmates is a competitor to Uber Eats (which currently loses a lot of money). This is a bit of an outlier from the other categories, but we included it because an all stock deal is unusual. Food delivery has low margins and too much competition, so the aim of this deal is to pool customers and obtain better pricing power.

  4. ServiceNow acquired Sweagle last month. Sweagle validates, manages and secures configuration data.

  5. VMware acquired Octarine. Octarine is a security and compliance platform for DevOps teams.

  6. NetApp snagged Spot.io (formerly Spotinst) in June. The companies did not disclose the price, but Israeli publication CTECH reported the deal at US$450 million. Spot helps companies find cheap infrastructure and monitor cloud costs.

  7. Atlassian bought Halp in May. Halp turns Slack into an internal help desk solution that works for any team that fields questions via workplace messaging.

  8. Slack acquired Rimeto. Rimeto is a corporate directory startup. While the current Slack people search tool lets you search by name, role or team, Rimeto should give users a much more robust way of searching for people.

Despite economic uncertainty, IPOs are being very well received by the market at the moment as well. On 2 July both Israeli InsureTech, Lemonade and HealthTech, Accolade listed on the NYSE and Nasdaq respectively. Lemonade tripled in value and Accolade’s share price is up 38% since IPO.

Highly controversial data startup Palantir confidentially filed for an IPO this week (controversial because its tools have been used to compromise privacy and enable excessive surveillance). And there are rumours that Asana, BigCommerce and Airbnb may follow suit.

So it looks like 2020 is shaping up to a big year for IPOs now that the WeWork debacle is a distant memory!

EXIT LEFT - Swift Signs

That’s a wrap! We hope you enjoyed it.

Watch Gavin live on AusBiz at 2pm on Mondays, when he opens the Startup Hour of Power.

The team at Ignition Lane

www.ignitionlane.com

p.s. we love feedback - if you have any, please let us know.

p.p.s. please share with your friends and reach out if you want to continue the conversation of any themes in this week’s wrap.