Just a quick reminder - every two weeks, I drop by with the freshest insights and discussions on the thriving European tech scene straight into your inbox.

Every entrepreneur and early stage investor understands the complexity of the fundraising process. But understanding the key metrics, timelines, and patterns can ease the challenge. In this edition, we offer insights into the journey from Seed to Series A, in the European landscape.

Let’s get started.

Context about Funding Rounds

Before delving deeper, let’s set the stage with some fundamentals.

In Europe, 80% of Seed rounds raise less than $4 million. Yet, the landscape saw an interesting evolution. From 2016 to 2021, Seed rounds between $4m to $7m have doubled, signaling a robust yearly growth pattern. Progressing to Series A, 72% of startups secure $15 million or less. European Seed-stage startups have valuations around $5 million pre-money, which is a significant 56% lower than US startups, as indicated by Pitchbook data.

Understanding the Conversion from Seed to Series A

Securing Series A funding isn't a walk in the park. Dealroom data reveals only 1 in 4-5 startups successfully transition from Seed to Series A. Another view from Atomico hints that nearly half of startups securing a Seed round will eventually raise Series A. An important facet here is the amount raised before Series A: those raising $2-3m in total pre Series A funding convert better than those raising less, but raising more than $3m does not improve conversion rate

Median Time from Seed to Series A

Timing plays a pivotal role in fundraising. On average, European startups take between 21-24 months to move from Seed to Series A, according to Atomico and Dealroom. Importantly, irrespective of the Seed round's size, 80% of these startups achieve Series A within 36 months. In contrast, US startups race ahead, transitioning in just 16 months on average.

The Role of Equity Story in Series A Success

A startup's early choices shape its equity story, directly affecting its Series A prospects. Those raising a Pre-Seed often have better Series A conversion rates (+6 percentage points) but face a longer journey—21 months versus 17 without a Pre-Seed, based on Dealroom's 2020 data. Moreover, while bridge rounds prolong the process, they don't necessarily improve Series A chances. Interestingly, startups with 2+ Seed round investors tend to fare better, highlighting the importance of not just funds, but also fundraising dynamics.

The Crucial Impact of Investors on Series A Aspirations

Investors are more than just fund providers; they're essential partners. Backing from Seed-focused VC funds can significantly boost Series A conversion rates, with some funds (e.g., Point 9, Local Globe) even exceeding a 50% success rate for their 2016-18 investments.

However, startups need to be wary of 'scouting cheques' from top-tier VC firms. If these firms don't follow on into Series A, it may deter other potential investors, a phenomenon known as the 'signaling effect.' In such scenarios, chances of Series A can plummet, from a good 50% to 27% in the US landscape, as seen in CB Insights.

Just to be clear, the n°1 reason why a top-tier VC firm wouldn’t follow on a scouting cheque is performance. And performance comes from execution. So entrepreneurs hold all the cards 😉

A Comparative Lens: The European vs. US Startup Landscape

Comparing European and US startup scenarios offers intriguing insights. US startups are over 50% more likely to exit after their first funding round, potentially indicating a culture that values swift iterations or "failing faster." In fact, while only 9% of European Seed-stage startups exit, this number climbs to 14% in the US. Beyond Seed and Series A, European startups raise similar median amounts than US startups across all of their funding rounds. However, the US notably outpaces Europe in average funds raised. This implies that a smaller number of companies raise significantly larger amounts that distort the average, suggesting a more aggressive investment strategy toward potential winners.

In Conclusion

Ultimately, performance is key in attracting investments. Yet, the subtle power of signaling and strategic partnerships cannot be overlooked. For startups, the recipe for success includes exceptional performance, astute investor choices, and a compelling equity narrative. For investors, the secret lies in looking deeper, identifying startups that exhibit true potential, resilience and clear paths to profitability in a down market.

That’s all for today’s edition folks. Thanks for tuning in. Stay curious and ready to dive deeper. See you in two weeks with more tech insights!

Take care,

Tim

Just a quick reminder - every two weeks, I drop by with the freshest insights and discussions on the thriving European tech scene straight into your inbox.

In this edition, we break down the insights from Pitchbook’s Q2 2023 European Venture Report. For entrepreneurs and investors alike, this is your essential guide to understanding and leveraging the latest trends from the first half of the year.

👉 For the original report, see here: https://pitchbook.com/news/reports/q2-2023-european-venture-report

Let’s get started.

1. VC Deal Activity in H1 2023: What’s Behind the Dip?

The first half of 2023 witnessed a sharp decline in European venture capital deals value. Pitchbook's data reveals a 60.8% decrease compared to H1 2022, and a 34.2% drop from H2 2022. Echoing this, Atomico's 'State of European Tech Report 2023' projects a year-end total of around $50B, which is a significant 50% fall from 2021. However, this still stands 35-40% ahead of 2019-2020.

What's causing this slowdown? A mixture of macroeconomic challenges is to blame: surging interest rates, high inflation rates, a tougher IPO exit landscape, and difficult fundraising conditions. While public market resurgence could hint at private market rebounds, the ECB and Fed's relentless battle against inflation with rate hikes suggests the recovery journey might stretch beyond 2023

2. Efficiency Takes Center Stage: Rethinking 'Growth at Any Cost'

The unfolding story of H1 2023 suggests VC-backed firms are recalibrating. With dwindling IPO opportunities for unprofitable ventures and fundraising challenges, the previous mantra of 'growth at all costs' seems to be on the wane.

Instead, strategic resilience is the new game in town. Investors and startups are emphasizing internal restructuring and lengthening financial runways. This has, unfortunately, led to a spike in layoffs and hiring freezes in the startup arena. The tech sector, previously synonymous with rapid growth, has likely taken the strongest hit of all sectors. A glaring example is GoCardless, the UK's unicorn payments startup, slashing 15% of its global workforce in June 2023. Efficiency is no longer a buzzword; it's a necessity.

3. Down Rounds in Q2: The New Normal?

The VC terrain is evolving, and down rounds are increasingly becoming a focal point. An eye-opening 26.3% of European VC deals in Q2 were down rounds. For startups with slow growth trajectories and immediate capital needs, this has become a stark reality. Getir's recent fundraising journey, culminating in a valuation dip of a staggering 42.4% in one year (from $9.9m to $5.7m), underscores this. The message is loud and clear: in the current climate, securing funds might come at a steeper price, especially for less efficient startups needing funding to survive.

4. Early vs. Late Stage: Who Bears the Brunt of the Downturn?

As the VC climate shifts from an age of ample capital and minimal interest rates, the data suggests a tilt towards larger deals. These primarily manifest as follow-on VC investments, giving startups a vital lifeline.

Deals in the €10 million to €25 million range saw a 39.1% YoY drop in deal counts. Even more striking, smaller deals, both within the €500,000 to €1 million bracket and those below €500,000, suffered YoY declines in deal counts of 65.9% and 64.0%, respectively.

Yet, Atomico provides a nuanced view in its State of European Tech 2023 - First Look report. Despite the funding slowdown, early-stage funding (or those sub $15M rounds) in Europe has displayed remarkable tenacity. H1 2023 saw just a 21% dip in total early stage deals value from H1 2022's $10.3B, settling at $8.2B.

A concerning trend for entrepreneurs though: angel and seed deals count has seen four straight quarters of dwindling share. Which signals that investors are currently favoring follow-ons over fresh bets.

5. Valuation Adjustments: Europe's Stage-by-Stage Overview

In a VC environment where deal activity is ebbing, median valuations across stages are realigning. Here's a breakdown:

• Angel's Endurance: Angel valuations, impressively, rose by 10.7% from 2022, settling at a median of €3.1 million. This stability, often distant from exit-related pressures, suggests that angels might feel the market recalibration pinch later than their early and late-stage peers.

• Early-Stage Adjustments: Early-stage valuations have decreased by 11.4% YoY, standing at a median of €6.2 million for H1 2023. Yet, Q2 presents a promising 27.5% median valuation surge, ending three consecutive quarters of decline.

• Late-Stage Recalibration: The most significant change was witnessed in late-stage valuations, which saw a dip from €12.4 million in 2022 to €10.8 million in H1 2023 — marking the first decrease in nearly a decade. As these valuations often mirror public benchmarks, the volatile equity market's tremors resonate here, hinting at potential further adjustments in 2023.

6. US Investors in European VC: A Shift in Focus

US participation in European VC deal value has notably decreased in 2023, with a 69.2% YoY and 13.0% QoQ decline in Q2 2023. Several influencing factors can be pinpointed, including greater uncertainty regarding monetary policy between regions, less risk appetite for cross-border deals given the funding requirements of local portfolio companies, and the repercussions of US bank collapses in 2023. The trend suggests that US investors are more inclined to manage and stabilize their existing portfolios than to expand into new regions.

7. Exit Dynamics: Sounding the Caution Bell

The VC arena is ringing warning bells, as exit activities drop to their lowest in a decade. Notable industry giants like Stripe, Klarna, and Snyk are grappling with valuation reductions. In numbers: H1 2023's exit value stands at a mere €3.5 billion, forecasting a year-end that's 82.2% shy of 2022. Q2's exit value? A concerning €0.9 billion, down 64.9% from Q1.

However, amidst the challenges, there's a glimmer of hope: a pivot from speculative investments to those rooted in tangible, intrinsic value. This change may herald more sustainable growth and reduce tech market volatility.

In Conclusion: Navigating Through a Strategic Reset

Our insights highlight a crucial reset in the VC landscape: deal activities are waning, prompting strategic shifts among VC-backed entities. But that's just one side of the coin. Even with the current downturn, the ecosystem remains robust, outperforming 2019 and 2020 figures, illustrating its inherent resilience.

We're possibly witnessing not so much a decline but a recalibration. 2021's peak might be attributed to a market overdrive, where unchecked expansion overshadowed sustainable growth. The present drop may just be a necessary market correction, a return to balance.

Herein lies the positive spin: with recalibrated valuations and public markets favoring foundational metrics, there's a move away from mere speculation. However, the shadows of exit stagnation and liquidity issues cannot be ignored. The VC landscape's charm has traditionally been anchored in the potential for lucrative exits. If these exit opportunities continue to wane, investor enthusiasm might understandably wane with it.

Now, we’ll soon see if the trend confirmed in Q3.

That’s all for today’s edition folks. Thanks for tuning in. Stay curious and ready to dive deeper. See you in two weeks with more tech insights!

Take care,

Tim

Guess who's back? Yep, it's me, diving back into the buzzing world of tech trends after a little break from writing (longer than expected)! 😊

Just a quick reminder - every two weeks, I'll be dropping by with the freshest insights and discussions on the thriving European tech scene straight into your inbox.

Kickstarting this series, we'll be delving into the Cloud 100 Benchmarks 2023 Report by Bessemer. It’s going to be a treasure trove of insights and a great conversation starter for your next tech chat.

Are you ready? Let's dive in!

The Cloud 100 Benchmarks Report, produced annually by Bessemer Venture Partners, is a highly anticipated publication that ranks the top 100 private cloud companies in the world. It highlights industry trends, valuations, and growth trajectories, offering a critical resource for industry stakeholders to understand the trends of the cloud sector.

➡️ Find here the link to the report

2022 marked a significant transitional phase in Cloud computing. For the first time ever, the aggregate Cloud 100 list value actually contracted in value year-over-year.

Despite the contraction due to various macroeconomic challenges and industry maturation, there’s a ray of promise — Artificial Intelligence (AI).

1. The rise of AI-Driven powerhouses in the Cloud

Highlights:

• OpenAI, after a hefty investment from Microsoft, now boasts a $29 billion valuation, catapulting it to the top spot among Cloud companies, surpassing Stripe, and marking its territory alongside Databricks.

• The Design, Collaboration, and Productivity category, rejuvenated by AI infusion, clinches a combined valuation of $110 billion, toppling the Fintech sector.

• The domination of AI is hard to contest, with 70 out of 100 cloud companies report adopting AI or ML strategies.

👉 The cloud market is undergoing a pivotal transformation. Even as traditional Cloud giants such as Stripe or Canva retain their significance, the ascendancy of AI-focused firms shows a significant shift in how Cloud companies are valued and which technologies (AI) are driving future growth and innovation.

2. How Cloud companies capture the value of AI

The report delves into the case studies of Cloudinary, Databricks and Deepl which have taken steps into the AI realm to enhance their product offerings and deliver more value to their customers.

Case Study summaries:

• Cloudinary: Embedding AI Tooling - Cloudinary harnessed AI to enhance its digital media asset management platform, introducing generative AI features to its image and video APIs, such as Generative Fill and Generative Remove and Replace. These innovations drive user productivity and expand Cloudinary’s market reach, spurring customer growth.

• Databricks: Acquisition Strategy - By acquiring MosaicML, Databricks seamlessly bolstered its cloud analytics platform with sophisticated AI and ML analytics. This move not only solidified their value proposition but also provided customers with a unified platform for data management and analysis at scale.

• Deepl: AI-Native Approach - Deepl, with its foundation in AI-driven translation, employs neural machine translation (NMT) and deep learning for near-human translations. Their models capture intricate language patterns, adapting to linguistic nuances. Beyond translation, DeepL's continuous AI product innovations, like Deepl Write, allow them to cater to various markets and use cases, fostering deeper customer engagement.

👉 Companies have different strategies to capture the value of AI: either embedding AI, acquiring AI, or developing AI-native approaches. A deep dive reveals that 65 out of 100 have strategically embedded AI, while 5 are crafted as AI-native entities.

3. How to measure success in Cloud? The Centaur Milestone

Highlights:

• The average Cloud 100 valuation dipped 10% YoY in 2023 (still 27% higher than 2021). This hints at a more conservative valuation approach in the private market.

• Yet, a formidable 95% of the Cloud 100 are on track to either meet or surpass the Centaur milestone by the end of 2023.

• Proud members of the Centaur club now include: Zapier, Canva, Cohesity, or Wiz which has announced reaching $100 million ARR faster than ever.

👉 In a context of oscillating valuations, the cloud market is gravitating towards ARR as a its most reliable metric of success. The $100 million ARR threshold (labeled the Centaur status) emerges as a new, more reflective milestone of performance, instead of valuation.

4. All hail to efficiency!

Highlights:

• While the macroeconomic turmoil has inevitably left its mark, dragging the average growth rate of Cloud 100 companies down by 55%, 23% of them have already crossed the cash flow positivity threshold, while 58% declare they have meaningfully improved their burn rate.

• Peering into the not-so-distant future, nearly two-thirds of the 2023 Cloud 100 will be cash flow breakeven or profitable by the end of 2024.

👉 As valuations and growth rates face headwinds, the focus on operational efficiency becomes paramount. Companies that can grow while maintaining a keen eye on cash flow positivity and profitability are likely to be better positioned for long-term success.

**

The cloud industry's trajectory paints a clear picture: AI-driven innovation is paramount, the Centaur milestone encapsulates genuine success, and operational efficiency is the order of the day.

For entrepreneurs and investors, the message is crystal clear: embrace AI-centric strategies, prioritize ARR milestones over valuation, and focus on operational efficiency to achieve success in the evolving cloud landscape.

That's a wrap on this edition, folks! Thanks for tuning in. Stay curious and ready to dive deeper. See you in two weeks with more tech insights!

Take care,

Tim

We. Are. Back! I thought I was going to take a month off the newsletter to come back with fresh ideas, but a month became three, and here we are. I missed you. I hope you missed me too.

Warm welcome to all new subscribers. I’m thrilled to have you here.

Let’s resume were we left off. Today is the 28th edition of our Weekly journal, and we’ll talk about Climate Tech and why concerns are rising over a potential bubble forming in Europe.

Let’s dive in.

A little bit of history

Climate Tech has its own history with bubbles.

In the 2000s, concerns over rising energy prices tied with rising greenhouse gas emissions created a market opportunity for startups developing clean energy technologies (especially in the US). Clean technologies became appealing to Tech investors who poured billions to fund the development of entrepreneurs’ nascent ideas.

Never mind the fact that green technology had been struggling to achieve critical mass for decades. Venture capitalists expected to blow the doors off with their deep pockets and get sky-high returns.

In 2005, VC investment in clean tech measured in hundreds of millions of dollars in the US. Between 2006 and 2011, a whopping $25 billion of VC money was invested in Clean Tech companies worldwide. Venture capitalists who had been riding the Internet bubble (with mixed success) were drawn to clean tech by the same factors that had led them to the web — the promise of new technologies disrupting a staid, old-fashioned industry.

“Just as the Internet transformed the media landscape and iTunes killed the record store, Silicon Valley electric car factories and solar companies were going to remake the energy sector. That was the theory, anyway” said Wired back in 2012.

Investors confidence was furthered by the US federal government directing roughly $44.5 billion into the sector between late 2009 and late 2011.

A virtuous circle formed with capital moving to clean energy and entrepreneurs moving to clean energy because there was capital.

That later was called the clean tech bubble. And Solyndra was the poster child of it.

Solyndra (former Gronet Technologies) was founded in California in 2005. The company was developing a unique solar panel design that was expected to tackle the soaring cost of polysilicon — a crucial component of solar panels, by replacing it with CIGS. Between 2005 and 2009, Solyndra raised $1.2 billion including over $500 million from the Obama administration. Things were looking pretty good, and the company was closing in on a $6 billion IPO…. which failed. The company filed for bankrupcy 2 years later.

A confluence of factors made things go south for Solyndra and other clean tech companies, which led to the bubble bursting.

👉 A lack of specialist knowledge and impatience

First, Venture Capital investors started to find out that energy companies like Solyndra do not operate within the same timelines as regular Tech companies. They require investment in heavy industry that investors didn’t reckon for at the time. Generalist investors applied the same investment formula as they did with Internet companies and expected Clean Tech companies to generate the x10 returns within 3 to 5 years.

Which simply could not (and did not) happen.

👉 Macro-economic forces

Adding to the lack of specialist knowledge from investors were less foreseeable macro shifts such as:

• The 2008 economic crisis drying up the market for investment at a time when clean tech companies required more funds to grow

• Plunging fossil energy prices. Investment models where built on rising energy prices. They did not account for the 2008 crisis and the advent of new extraction techniques such as fracking which considerably drove the price of fossil energy down and reduced financial incentives for renewables

• China’s manufacturing prowesses. China worked aggressively to develop its domestic solar production capacity which considerably reduced the attractiveness of Western renewables.

And the bubble burst. Of all VC investment verticals, clean tech had the lowest proportion of companies that broke even at the Series A stage at the time of the boom, according to the MIT.  Over 90% of clean tech companies that were funded after 2007 failed to return the investment. And investors were scared away from the sector for a decade.

A European Climate Tech bubble?

Since then, clean tech was replaced by Climate Tech which is much more than energy and efficiency only. It is about any sector which tackles the challenge of decarbonising the global economy. It includes:

"Low-to-negative carbon approaches to cut emissions across energy, built environment, mobility, heavy industry, and food and land use; plus cross-cutting areas, such as carbon capture and storage, or enabling better carbon management, such as through transparency and accounting", PWC says.

Since 2016, Climate Tech emerged as one of the trendiest vertical for investment in Europe. Facts from Dealroom:

• Climate tech is the fastest growing vertical in Europe, with 10x growth since 2017. $11B were invested in Climate Tech in 2021 v. $1.1B in 2017

• Climate Tech was the second larget vertical for investment during the period, behind Fintech.

• In 2021, 13% of all European venture funding went to climate tech startups (v. 5.9% in 2018)

• As of the end of 2021, the European climate tech ecosystem is estimated to be worth $104B, more than doubling in value since 2020.

Despite key evolutions, some of the same conditions that led to the clean tech bubble in the US are now present in the European climate tech market.

It is true that one of the downfalls of the clean tech boom was the influx of non-specialist tech investors into the vertical, with investment rationale that simply did not fit with clean tech companies.

Similar to what happened with clean tech, there is a massive influx of investors into climate tech, from new funds to generalists getting into the space:

• European dedicated climate tech VC funds raised a record $2.6B in 2021, 2x more than 2020 according to Dealroom

• Among European climate tech funds raised in 2021 are: Ligthrock ($900 million), 2150 ($297 million) or Blue Horizon ($201 million)…

• Lines are blurring between generalist VCs and climate specialists as agnostic venture funds invest into European climate tech startups (ex. Balderton capital investing in Infarm, VanMoof, Tibber or EQT ventures investing in Verkor, Einride, TreeCard etc.)

As shown with Solyndra, another factor that contributed to the clean tech bubble was the role of governments in pumping the system with public funding thus creating a general FOMO on the next disruptive market opportunity among private invstors.

There is today a high volume of public pronouncements about big climate change policy shifts (which goes with the urgency), and public funding flowing to the sector (ex. the EU announced investment of €1.8 billion in clean tech projects last July).

The bubble risk

Given these two conditions, there is a risk of discrepancy between the venture capital model as applied by Generalist investors getting into Climate Tech and Climate Tech companies requirements. As seen with the clean tech bubble, investors can’t apply to Climate tech companies the same investment rationale they use for software and expect them to generate x10 returns with 3 to 5 years.

That’s one risk for sure.

But the biggest risk with this massive influx of investors is likely to be the excessive hype around certain sectors and players, resulting in overfunding of sectors without immediate effect impact on Climate change.

Certain markets might already be getting a little frothy by the way.

A lot of money has been pumped into a small number of sectors focused on net zero (e.g., Electric Vehicles, carbon-removal and carbon-market), and some investments have certainly raised eyebrows among close observers of those spaces. In line with their usual VC strategies, Venture capitalists have been focused on these sectors because they are easier to scale. But these have lower impact on climate change today compared to adaptation measures looking to secure food and water supplies, Abrar Chaudhry says.

The biggest risk is that most promising technologies with an immediate impact on Climate Change won’t get the early funding they need to develop into successful businesses.

How to avoid the bubble

[For funds]

Funds looking to invest in Climate Tech should adopt investment models that don’t count on returns as rapidly as they would expect with regular software/tech companies and measure technical risks. Alternatively, they should invest at later stages when technological risk has been addressed or focus on software opportunities that don’t require massive CAPEX yet don’t expect software to solve it all (because it won’t).

[For LPs]

LPs should not hesitate to do their due dilligence and invest on Partners and fund managers with significant Climate Tech knowledge.

We absolutely need more capital going to solve the Climate crisis, but it needs to go to people who understand the space if we want allocation to be efficient and not create a bubble for anything climate related with little “impact”.

[For governments]

With most VCs likely to avoid long-term investments and steer clearer from technical risks, public funding will be needed to fill in some of the critical gaps at early stages. Whether administrations can direct enough money to seed the next generation of startups (and do it efficiently) could be one of the crucial factors determining whether or not the bubble will burst… again.

Hope you enjoyed this edition!

As always, feel free to like or comment. I’d love to get your view on this.

And if you are not a member of Upscalers yet, why not join us?

Join the community

I’ll see you next week

Tim 👋

Welcome to the 27th edition of our weekly insights. Today, we’re exploring the second-home co-ownership model, a year after Pacaso became a unicorn.

As always, feel free to like, comment or share. And if you like this edition and still aren’t a member of Upscalers… you can join us now!

Join the community

Ready? ⬇️

🏡 Second home co-ownership marketplaces

It is no secret that the Covid-19 pandemic has, for some time, completely changed where and how we lived. Workers, as they were suddenly allowed to work from pretty much anywhere, felt an imperative to have a retreat, a safe haven for their family. The pandemic prompted a complete reassessment of property needs, with people rushing for part to quasi full-time relocation to city-distant homes, where they could find some outside space and amenities for long stays.

As a result, the market for second homes exploded (e.g., number of second homes sold in Britain in the first half of 2021 rose up 55 per cent from the first half of 2019), and prices went up as demand did too. In 2020, an impressive 25% of the French population said they were willing to buy a secondary home.

Yet, Europe is now waking up from the pandemic. Offices and schools have reopened, some companies’ remote work policies are tightening up and travel options are widening. With this “return to normal”, enthusiasm for second-home is curbing, with people taking more time to analyse their options and make an advised decision on what to buy.

In the next few years, the trend for second-home ownership is likely not to go away. But considerations such as accessibility, public services offering (education, transport), amenities for remote work and instant availability will be more important for buyers when making a decision. Second homes are becoming more permanent residential options, even primary homes sometimes, not places to be enjoyed for 2 weeks over the year anymore.

In that context, let’s take a look co-ownership models and question whether there’s an opportunity for them to thrive…

The co-ownership model

The concept of sharing vacation properties has been around for quite some time now. You might be familiar with timeshares whereby a large number of parties (up to 52, 1 per week) purchase the right to use a property for a set amount of time (not true property ownership). Most of the time, these refer to stakes in hotels or resort accommodations.

Timeshares have been around since the late 1960s (in the US), and are a $10.5 billion industry (2020), that is showing no sign of slowing down — sales volume +5% annually since 2015. 

What’s new is the rise of real estate marketplaces leveraging tech to bring together small groups of buyers to purchase shares of a single-family home and enjoy ongoing access throughout the year. The way these startups work is the following:

1. They purchase a home either outright or shares in a home (most of the time after securing customers’ intentions to buy up to 50 percent of the shares)

2. They sell shares of the home to buyers through an LLC — from 1/8 of the home per buyer to a greater percentage (up to 1/2). Co-owners, whether friends, families or strangers, own 100% of the LLC as marketplaces don’t retain any shares.

3. They help owners to divide up responsibilities (e.g., operating costs, property management, maintenance, taxes and repairs)

4. They provide “smart” scheduling systems allowing mutliple co-owners to schedule their time in the house.

5. They enable secondary market, as shares of the LLC can be sold by owners to new buyers.

Interesting, isn’t it?

Existing players

Founded in October 2020, Pacaso 🇺🇸 is the leading player in the space. The startup, founded by ex-Zillow executives (inc. CEO & founder) was the fastest one ever to become a unicorn after raising a $75 million round in March 2021 (it has raised another $125 million since then).

At the time of their latest round, the company managed around $200 million in real estate, and its website and mobile app cumulated 1.8 million visits in Q2 2021 (+196% from Q1 2021). Pacaso has a focus on the luxury market (property price per share ranges from $250K to $2.5 million, x8 shares) with listings in the US, Mexico and Europe.

In the wake of Pacaso, a few players popped up in the horizon with similar missions but different positionnings or target markets:

• Kocomo 🇲🇽, total funding amount $56 million (debt+equity). Kocomo’s main difference with Pacaso is its focus “on the cross-border vacation homes which are more like a two- to three-hour flight away from where the owners are located”, rather than a two-hours drive away. Their price point is also lower than Pacaso (from $90k per share to $800k, x8 shares).

• Prello 🇫🇷 ($13 million funding), Lazazu 🇫🇷, Everomes 🇦🇹, Altacasa 🇬🇧 ($2 million funding), all have pretty similar price points to Kocomo, but with a focus on facilitating co-ownership of European villas (in France, Spain, Portugal, Italy mostly) for customers in their respective home markets.

… and another that we’ll keep secret for now 🤫

The challenges

You do understand that the space is already crowded, with one champion leading the way (Pacaso). Pacaso already has a significant edge with funding, which will allow them to move fast to new locations and get market share.

However, I don’t believe the space is a winner takes all as multiple business models and positioning might thrive.

In the wake of Pacaso, other players have targeted the mass market with lower price entry points for more distant properties accross Europe. These players will compete on depth of their listings and capacity to find price-attractive deals which will in turn provide efficient secondary market solutions (with attractive ROIs) to their customers. Most importantly, their success will depend on buyers’ familiarity with co-ownership models, or on their capacity to imprint the model into customers’ buying culture. The one finding the right ICP is likely to be the most successful… and there is still plenty of customer profiles to address 😉

On this, marketplaces’ success will reside in their capacity to ensure that the 1/8 co-ownership model will be valued by customers over time. As mentioned above, the imperative for buying a second home seems to be less urgent than it was during Covid. Buying a second home has got to measure up to the primary residence and became purely transactional with buyers looking for accessibility, availability and convenience first.

However, co-ownership models are inherently tied with frictions in demand for occupancy. I do not think “smart” scheduling options are powerful enough to alleviate them. These frictions might be a deal breaker for prospective buyers, who could be better off turning to rental while keeping their powder dry until they could buy a full second home by themselves.

For sure though, any startup who would manage to strike the right balance between supply of dates per property and demand of its co-owners is likely to thrive. There might be opportunities for example to refine the model by providing pools of customers with ownership exposure to bundles of properties, in less-distant locations with additional services on top (says Yoann 👋). More accessible properties, more flexible booking periods and subsequent increase in supply of available dates could be the right balance for companies in the space.

We’ll probably tell more about this to Upscalers members in the following weeks….

Hope you enjoyed the read.

As always, feel free to share your thoughts and ideas in the comment section below.

I’ll see you next week

Tim 👋

Welcome to the 26th edition of our weekly insights. Today, we’re going on a trip to explore the Travel Tech industry, and reflect upon new trends in searching for, booking and planning a trip.

As always, feel free to like, comment or share. And if you like this edition and still aren’t a member of Upscalers (😱), join us!

Join the community

Ready? ⬇️

✈️ The new travel experience

On Tuesday May 3rd, Airbnb announced a big earnings quarter, confirming that the company was one of the rare success stories from the pandemic in the travel industry. As part of the announcement, the company posted a shareholder letter hinting at ‘the biggest change to Airbnb in a decade’.

🥁 drum roll

On May 11th, the big change was introduced with this video ⬇️

What Brian Chesky essentially tells you in the video is that Airbnb is reshaping its product around three major features:

1. Airbnb categories — a new way to search for a destination

2. Split stays — a new way to organize longer trips

3. AirCover — a comprehensive travel protection

Doesn’t sound that groundbreaking to you? Well… under the looks of a perfectly orchestrated marketing show, this announcement depicts a pretty good picture of where the online travel industry is heading.

Let me elaborate on this.

1. Airbnb categories — the end of the search bar tyranny

With Categories, Airbnb’s plan is to “make it easy for guests to discover millions of unique homes they never knew existed”. In the app, homes are no longer organized based on location only but based on their style, distinctive features, proximity to a travel activity… What Airbnb intends to move away from traditional searching to add a new element of discovery.

Searching for travel online has pretty much worked the same way for the past 25 years. Users were given a one-size-fits-all search box, where they could enter a location and dates for a trip (even if they had no clue where they wanted to go).

With millions of people now being flexible about where they work or live, the ‘tyranny of the search bar’ has never seemed so close to an end. Flexibility has triggered major product developments from online travel giants to improve the browsing and booking experience, with Airbnb leading the way.

In May 2021, the American giant released the “I’m flexible'“ feature as a new way for guests to search for a trip when flexible about location and dates. And it proved to be a good move… the feature has been used more than 2 billion times since its launch. Seeing Airbnb now doubling down on its strategy by introducing Airbnb Categories doesn’t come as a big surprise anymore does it?

As Brian Chesky phrases it himself, “40% of people come to Airbnb and they either have no destination or date range in mind”. In the post-Covid era, people do not come to booking giants to book a trip anymore, but to be inspired.

That sounds like a change of paradigm. In the future of online booking, the depth of supply is not what will matter most. Instead, inspiring guests by offering a dynamic and personalized experience will be the key competitive advantage. Companies able to leverage machine learning, data analytics will win the race, while travel communities, videos and immersive content will fuel guests inspiration and improve conversion.

… looks like there is still much to do, and a new champion of online travel inspiration to build.

If you’re a member of Upscalers, we might have found this champion you could invest in. More on this on Wednesday ⌛

2. Split stays - removing friction in travel

Split stays is Airbnb’s way to allow guest to book multiple accommodations as part of the same trip, with a seamless experience.

People stay on average 2.4x longer in an Airbnb than in a hotel. In Q1 2021, 24% of all nights booked were for trips of 28+ days. In Q1 2022, the company reported that nearly half of nights booked on Airbnb were for trips of a week or more.

People are going for longer trips, while travelling from one location to another is increasingly complex. With Covid, the paperwork and processes around international travel have grown in complexity and confusion. Non-air transportation alternatives are growing in number with sustainability concerns. Price-unbundling makes travel products more difficult to read. Purchase funnels for ancillary services are still fragmented and not well integrated into the customer journey…

Streamlining and managing the entire travel experience for customers will become a key success factor for online travel companies in the future. With their business model focused on aggregating and merchandising travel content, retailers seem to have an edge in putting order into this mess.

With Split Stays, Airbnb is actually taking the first step as they try to remove the friction of planning a trip to multiple locations by offering an integrated accomodation booking journey through a single interface.

First step is accommodation booking, then experiences… all the way to ancillaries, financial services, commuting options or paperwork management? It seems to me that Airbnb is slowly making its way to becoming a new travel Super App…

3. Aircover - blurring the lines between travel and fintech

Aircover is presented by Airbnb as the most comprehensive insurance protection in travel. It includes (for free): booking protection guarantee, check-in guarantee, get-what-you-booked guarantee, 24h safety line.

It doesn’t come as a surprise that Airbnb is adding new insurance products to its core offering. In fact, insurtech/fintech and traveltech are already colliding in pretty exciting ways.

• First, fintech apps are going into travel as a way to increase their customer base stickiness and tap into higher income audiences. Revolut launched its own travel features such as travel insurance, Smart Lounge access and more recently hotel booking with Stays. The BNPL giant Klarna recently expanded into travel by acquiring Inspirock an online trip planner to “bring smooth travel planning to its customers”…

• Second, travel companies are trying out fintech products. Hopper, which raised another $175 million round in August 2021, now claims that 70% of its customers buy add-on fintech products on top of their ticket booking. The UK-based travel payment service Fly now Pay Later recently raised a $75 million round to expand to the US. Airbnb is offering its own insurance product… expect them to leverage data to build financial products into the customer journey next.

Travel and Fintech are blurring the lines, and this is perhaps the most exciting trend in the travel industry right now… I’m excited to see to what extent a new travel Super App will emerge to integrate the full travel experience, thus correcting what Hopper’s founder say is “an anomaly of the West” not to have one already.

I hope you had a great time reading.

I would love to get your thoughts on the trend too, so feel free to comment.

Leave a comment

Otherwise, I’ll see you next week.

Tim 👋

Welcome to the 25th edition of our weekly insights. Today, we’re exploring the Foodtech space, with a specific focus on dark kitchens.

As always, feel free to like, comment or share. And if you like the article and still aren’t a member of Upscalers (😱), why not joining?

Join the community

Ready? ⬇️

🧑‍🍳 Our dark kitchen future

Prior to Covid-19, the ready-to-eat food category had been unlocked by the advent of user-friendly ordering apps and tech-enabled delivery networks, coupled with changing customer expectations. With lockdowns and social-distancing measures enforced during the pandemic, the category received an enormous boost, as delivery platforms allowed the food industry to keep operating in the “no-touch” world.

Now that we’re past this period, the global food delivery market is worth $150B according to latest estimates from McKinsey, more than triple its 2017’s size. Moving forward, it is likely to remain a “permanent fixture in the dining landscape”.

This trend for convenient home delivery has fuelled startup innovations accross the whole food industry, to support on-demand delivery platforms in coping with massive customer demand. Dark kitchens, are part of those businesses which cashed on the trend, despite being not entirely new (there were dark kitchens in NYC back in 2013).

Now that it’s been a few years down the road, let’s take a step back and try to understand where the dark kitchen model is heading.

1. Dark kitchens are still looking for the right business model

Whether you like to call them dark kitchens or ghost kitchens, they’re the same. As the New Yorker says, they’re kind of “the culinary equivalent of a multicolour retractable pen”. But under the banner sits a wide range of business models.

• Kitchen space rental can be seen as the Wework for chefs. They are startups which operate equipped commercial kitchens and storage spaces used by virtual restaurants to prepare food to be delivered to customers. Units are either rented through a classic rental model, or by the hour following a shift model. Services basically include cleaning, waste management, packaging, ingredient marketplace etc. CloudKitchens is THE big global player here.

• Some delivery platforms have been drawn to the dark kitchen space, as the economics of operating a dark kitchen make it less costly to deliver food to customers. Deliveroo has been a pioneer in the space, followed by Glovo. Uber eats by contrast doesn’t own any dark kitchens (ironically, the CEO of CloudKitchens is Travis Kalanick, founder and ex-CEO of… Uber).

• On top of this, delivery-only food brands have flourished, either operating their own dark kitchen or outsourcing production to kitchen owners, and focusing on bringing restaurant-level brand and menu to a delivery-only offering. Brands like Curb, Keatz, Taster, FoodChéri are European leaders in the space.

All business models combined, the dark kitchen sector is expected to be worth $71.4B by 2027, out of a $230B food delivery market. 🚀

2. Why dark kitchens make sense for restaurants

Historically, traditional (offline) restaurants have generated profits against three basic costs: food (28 to 32% of total costs), labor (28 to 32%), and real-estate-related costs (22 to 29%). The traditional profit margin of a restaurant would range somewhere between 7 to 22% — McKinsey says.

With the advent of delivery platforms, offline restaurants willing to build an online offer now support a platform commission fee, which typically ranges from 15 to 30% of the price of a meal. Realistically, as delivery orders become a larger part of a restaurant’s business, it quickly becomes unsustainable for restaurants to cover this commission.

Dealing with online orders is not just setting up a Deliveroo account. It requires more kitchen space, reviewed processes and increased team effort, which, if mishandled, are likely to downgrade the in-house dining experience. Overall, not striking the right balance between online and offline makes the business further dependent on delivery to cover for fixed operating costs, while delivery platforms commissions increase. Slippery slope. 😵‍💫

On top of that, as delivery platforms get bigger and more powerful, commissions are likely to increase (depsite regulatory caps) as these patforms seek path to generate profits at scale. This will make it increasingly difficult for traditional restaurants to cope with a hybrid-model on their own. Here, I see three options for them:

• Raising menu prices for delivery to absorb platform commissions and streamline operations to cover additional costs

• Pull delivery out of restaurants operations to focus on in-house dining experience only, by licensing brands to dark kitchen operators handling online presence. This gives opportunities for restaurants to supplement their primary facilities with remote locations devoted exclusively to delivery, while preserving their core dine-in activity.

• Completely opt out of the delivery business.

To be clear, I don’t believe that dark kitchen space rental is the business model with the most growth potential, since increasing competition for commercial real estate in major European cities (between dark kitchens, dark stores…) and local regulation are likely to make the rent gain less attractive.

With either of the last two options, restaurants leave it up to dark kitchens to compete for delivery volumes, which makes sense, since they are more equipped to face delivery platforms commissions and cope with customer demands.

See why dark kitchen might be the future of delivery here?

2. Why dark kitchens make sense for customers

In the most advanced markets for food delivery, penetration levels of online food ordering (excluding grocery) are fairly low. In the UK for example, only 15% of the adult population orders food online. So there is still huge potential for growth, not only in the food delivery space, but accross all underlying verticals, especially dark kitchens. But there is still a long way to go before we can get people to think that the default path to obtain food is not to cook it but to order it.

To me, there are five boxes you need to check if you intend customers to switch from cooking food to ordering it (in the long run).

• Speed — how fast can I get food delivered to my door?

• Accuracy — am I sure that I will get exactly what I ordered?

• Consistency — can I expect quality to be consistent over time?

• Diversity — can I build a diverse-enough regime out of the offering?

• Price — is it actually a good deal to have food delivered rather than cook it myself?

Unsurprisingly, I believe dark kitchens have the potential to support delivery platforms by making ordering from them cheaper, better, faster, more diverse and as reliable as cooking at home.

In fact, dark kitchens’ business model allows to “produce food at a much lower cost than a traditional restaurant because there’s no front-of-house personnel, rent is lower, insurance is more affordable, etc. Not only you retain all the revenue, but your COGS are significantly cheaper than a traditional restaurant." as Gonz Sanchez says.

Because unit economics are better, the cost reduction can be either absorbed by the business itself, passed along to the delivery platform (which remember, are striving for profitability) or… to the end customer.

On top of that, because of inner-city location, they have the potential to integrate better in the courier’s network of delivery platforms, and reduce the service fee for customers.

See why they would make sense for customers?

3. Challenges ahead

Sounds like dark kitchens are a winning situation no? For restaurants willing to stay in the delivery space, customers, delivery platforms and themselves.

Well, I’m not the first to say it, so the space is crowded already, and that brings on a few challenges.

With increased competition, the fight for real-estate is going to weight heavily on dark kitchen’s P&L. As a lot of online businesses are competing for the same spaces, prices are going up and availability is going done. Plus, local governments are watching the trend with careful eyes, as these kind of businesses deeply transform public space.

As regulation might be enforced and real-estate prices increase, the burden on operations will weight heavier on dark kitchen startups. Here, supply management and operational excellence will be key for startups to survive the fight (it won’t be about cash only). To this point, I believe that it safe to assume that a lot of new innovations in this sector are going to be on the back-end through robotics, automation, software management… I’m sure you know about Deliverect already don’t you?

Adding up to these challenges are the inherent pitfalls of the business model itself, which make it very cash consuming to scale and replicate in different locations (in terms of operating efficiency, quality consistency, brand awareness…).

So well, you get it, despite remaining growth potential, the dark kitchen space is far from being a blue ocean anymore.

Ultimately, considerations such as brand, real estate, operating efficiency and changing consumer habits will determine which companies survive or die, and which investors win or lose as the industry develops.

I hope you had a great time reading.

I would love to get your thoughts on the trend too, so feel free to comment.

Leave a comment

Otherwise, I’ll see you next week.

Tim 👋

Welcome to the 24th edition of our weekly insights. Today, we’ll unpack one of the hottest trends in micromobility. They are eco-friendly, Covid-safe and often faster than mass transit. Let’s talk about e-bikes.

We’re not going down the whole supply chain but will focus on how business models evolved to keep up with the growing traction of e-bikes.

Ready? ⬇️

🚲 The e-bike boom

Before the pandemic, the main appeal of electric bikes (e-bikes) was low-impact physical exercise, or “work-out when you want to and use the motor to go up hills”.

Now, people embrace e-bikes as a way to move around cities avoiding crowds and traffic while reducing carbon emissions. Proof is, direct to consumer sales of e-bikes have never been so high in Europe and North America.

Combined e-bike sales on both continents nearly doubled from 2018, to reach an estimated 6.4M units in 2021. Despite the pandemic, total e-bike sales grew 22% between 2020 and 2021 in Europe. By 2030, the market is expected to grow to 13.5M units if favorable legislation is upheld.

European governments and cities played a major role in accelerating the adoption of e-bikes, as they made major policy and infrastructure changes around cycling (👋 Paris). These made e-bikes an attractive alternative to cars for people living in urban, suburban and even rural areas as they fill the gaps in public transport networks.

With both behavioral and infrastructure changes, few micromobility champions took advantage as VC investors would pour money to help them scale, become more operationally efficient and get their hardware on point.

Now, while these champions fight to grow their territorial footprint, the next generation of micromobility startups strives to find alternative business models, and is going after opportunities in maintenance, AI, data and… software rather than vehicles.

Let’s go through the story.

1. Own your e-bike

Today, the major bottleneck of the e-bikes industry is distribution — or how to get e-bikes into consumers hands.

As it stands, retail distribution of e-bikes runs through fragmented bike shops and big retailers. In Europe, which is the most mature e-bikes market, Decathlon is still the largest light electric vehicles OEM. In recent years though, innovative companies have experimented exciting new distribution strategies.

The first strategy revolves around selling vehicles directly to consumers through brand stores or through a hybrid network of authorized vendors. Such strategies have been adopted by companies such as Vanmoof 🇳🇱 or Cowboy 🇧🇪, which respectively raised a $128M Series C last September, and a $80M Series C last January.

These startups have been particularly attractive for VC investors over the past few months as they are vertically integrated players (manufacturers and distributors) which generate high margins from standalone purchases, and have higher lifetime value per product sold. Their distribution strategy is also a way to collect comprehensive data on customer usage, allowing them to make fast hardware improvements and build tailored additonal services to upsell (e.g., maintenance, insurance, GPS tracking…). Virtual loop 💫

As hardware moves closer to becoming a commodity, these players understood that the heart of e-bikes will become their intelligence. They rethink e-bikes as software and hardware platforms beyond just their mobility utility.

“There is a strong opportunity for an integrated vehicle operating system, something that controls the ride dynamics and can act as an open platform for 3rd party “apps” that further enrich the UX.” — Puneeth Meruva

As it stands though, the price of owning and maintaining an e-bike from Vanmoof or Cowboy is a significant barrier to adoption for the majority of customers. Vanmoof’s S3 model for example costs €1,998 (not counting maintenance). And, at the end of the day, some customers don’t necessarily want to own a micromobility vehicle, but rather want access to one wherever they are.

2. Share one’s e-bike

To make e-bikes a more accessible product, startups have adopted distribution strategies revolving around bike-sharing without docks, through the pay-per-trip shared model.

Before the pandemic, many startups tried to enter this lucrative space: Gobee.bike, Ofo, Obike, Mobike, Jump (by Uber)… Most of them failed massively. I’m sure you’re having images of bikes ending up in dumpsters and rivers popping up in your head.

I won’t discuss the reasons why this first wave of companies failed, but there is one major component to bike-sharing services success — they can’t work without public money and local governments willingness to create the necessary infrastructure for them to take off.

Though European cities have had a liveability problem for a while (caused by cars), they were missing the opportunity to wake up to the fact and accelerate urban-remodeling to favor “soft mobility solutions”. Covid and relatively quiet lockdowns where “the missing piece”. They acted as a catalyst, and major European cities such as Barcelona, London or Paris seized the opportuntiy to expand their network of bike lanes, restrict access to roads, ramp up their own bike-sharing services etc.

That triggered the expansion of micromibility giants (the second wave) such as VOI , Bolt, Dott, Tier… which started in the e-scooter business (partly because a scooter is cheaper than a bike and easier to deploy). Later, these players raised massive amounts of funding to roll out e-bikes and build up hybrid scooter/bike fleets in cities where they operate.

By running a shared distribution model, these giants are able to market their solution and collect operations data on a massive scale. And, as a side benefit, the model incentivizes long-term robust vehicle design since that allows for the vehicles to be shared longer and more frequently, driving costs down for operators. Which is true for scooters and bikes.

There is uncertainty over where this model will go though, as players are trapped in a war of attrition, doing everything to become more cost-efficient and trying to make the business model profitable, while racing (at high price) to get the last remaining city permits. Some have already reviewed their strategies and focus on building the most resilient operating systems as a way to get more control over rider behavior, better compliance with city regulations and utlimately be the most resilient transport alternative.

What is sure is that it isn’t a game for small startups anymore, which are striving to find alternative models to compete and get investors attention.

3. Subscribe to an e-bike service

The latest iteration is the subscription or BaaS (bike as a service) model. With this model, users pay a monthly fee to keep e-bikes at home and get access to extras like maintenance services and replacement vehicles.

Germany's Dance, Bloom now Motto in France or Dutch’s Swapfiets have all raised rounds very recently to roll out this new distribution strategy across Europe.

The bike as a service model is still very nascent and just beggining, but I believe that it has the potential to take over the micromobility market in the near future, for the following reasons:

• First, leasing vehicles could allow startups to maximize both the usage and the lifetime of their products through technologies like GPS, vehicle monitoring…

• Second, operators don’t have to comply with cities heavy regulations over shared mobility services, nor fight for permits and pay for licences (yet?)

• Third, subscription models remove the upfront price of buying an e-bike and the theft burden on customers willing to add e-bikes to their transportation mix

• Fourth, operators can adopt a B2B2C acquisition strategy and partner with companies willing to offer e-bike subscriptions as employee benefits, or with local governments willing to add e-bikes to their public transportation pass (e.g., Paris recently launched Veligo, a subscription based e-bike service).

With this model, competition revolves around the level of services that operators are able to provide as part of customers’ subscription (even so that hardware become commoditized). I’m pretty excited to see how these players will scale their international expansion and manage to provide smilar levels of services in all the cities where they operate. There are some opportunities as well for maintenance companies like Cyclofix to grow here.

Let’s see were it goes.

Thanks for reading, and as always feel free to give me your thoughts in the comment section.

See you next week

Tim 👋

Welcome to the 23rd edition of our weekly insights. Today, we’ll unpack what’s seen as a major trend in e-commerce for years to come — live shopping.

Ready? ⬇️

🛍️ The rise of live shopping

It all started with us (consumers) heading to shopping malls and browsing store after store to find our next purchase. Then, we traded shopping malls with e-commerce websites as we started shopping from the comfort of our homes using our computers. But smartphones changed our lives, and social media emerged as a new e-commerce channel.

Now, we’re seeing old souvenirs coming back at us, as companies in the e-commerce space leverage video to bring the “in-store experience” back to customers as they shop in the digital world. Tomorrow perhaps, we’ll see metaversical experiences taking over. But we’re not quite there yet.

So, what exactly is live shopping and why does it matter?

1. A 40-years-old practice 📺

Live shopping is bascially bringing QVC and the Home Shopping Channel into modern digital times — Deborah Weinswig, CEO at Coresight Research.

In the late ’70s and early to mid-80s, live shopping networks like QVC and the Home Shopping Channel began to appear on TVs, first in the United-States, then worldwide. In France we called it “télé-achat”, and our homemade stars where Pierre Bellemare and Marise (below) or Marie-Ange Nardi.

These channels were basically bringing the shopping experience to your living room through television. They focused on selling home goods, fashion, beauty products and had their own influencial TV figures pitching to customers.

Live shopping is basically the latest iteration of televised home shopping… and it isn’t much different. The key elements of social selling are still the same — live demonstrations from product sellers with a real-time feedback loop for buyers including reviews of products, opportunities to ask questions… Just swap out televisions and hotlines for smartphones and buy now buttons and you get a digital live shopping experience.

2. Why now? 🤔

As mentioned earlier, the rise of e-commerce websites presented customers with the perfect opportunity to buy from anywhere in the world, and have their product delivered to their doorstep. E-commerce platforms proved to be an incredibly efficient alternative to brick and mortar stores for consumers looking for convenience and comfort.

But the downside of e-commerce websites is that they remove the human touch from the in-store shopping experience. They are built around powerful search engines through homogenized product listings, which make sales dependent on SEO rather than products’ story and innovative nature. Not saying this is bad. It goes perfectly well for consumers who shop out of utility and necessity. But it doesn’t get along well with the “discovery” function of shopping, which drives customers joy, self-validation or even stress relief.

Back in 2019 (before the Covid-19 pandemic), a16z was predicting that short video clips would be the future of e-commerce, as it could reconcile the convenience and comfort of e-commerce, with the personalized experience of in-store commerce.

How? Let’s do a bit of history.

There has been three major era in modern video.

• The TV era, of course, with standard 30 to 60 min videos, which production was controlled by a handful of very big budget professionals, with meticulously managed broadcasting agendas

• The Youtube era, which took away time constraints and allowed anyone to publish anytime with basic equipment (what we call user-generated content)

• The TikTok era, where videos have been condensed to one minute or less and all you need to publish is a smartphone.

As a16z outlines, what makes TikTok magical is that “real-time interactivity is baked into the viewing experience, rather than being relegated to the comments”. In other words, the Tiktok-era platforms added the necessary level of interaction that was missing from online videos to create more engaging social experiences between viewers and video-makers.

Applied this to e-commerce and product-sellers can now leverage short-form videos to create interactive in-store like experiences rather than pushing pure video ads. Instagram, Tiktok and others become proper retail platforms as they merge entertainment with the shopping experience.

Some call it “Shopatainment”.

3. China setting path 🇨🇳

Though the Covid-19 pandemic accelerated the adoption of live shopping in North America and Europe, the trend really took off about 6 years ago in China, with the arrival of Alibaba’s Taobao Live. The Chinese retail giant pioneered a powerful new approach to e-commerce by “linking up an online livestream broadcast with an e-commerce store to allow viewers to watch and shop at the same time”, Mckinsey says.

A few years later, the value of the Chinese live-commerce market topped $171B in 2020, and is expected to reach $423B in sales in 2022.

If China’s experience is any guide, live-commerce could account for as much as 10 to 20% of the global commerce market by 2026 (which is expected to total $5.55 trillion this year).

Shopify reports that, between January 1st 2021 and September 30th 2021, the number of Shopify merchants installing apps for live shopping grew by 61% globally compared to 2020. And the rate of adoption is going to increase in 2022: 49% of brands plan to increase their investment in social commerce this year, with 81% planning to either increase or maintain investment in live shopping to drive sales.

Though it is still unclear how this will develop, we’re already talking about a mutli-billion dollar opportunity.

4. How exactly does live commerce create value? 📈

If you followed me correctly, you now understand that live shopping video is not something that we passively watch, it’s something that we do.

Unlike traditional video ads, live shopping creates an environment with consumer choice at its core. Customers make their own decision to join. They are not passively watching video ads forced upon them as they navigate through a website. Live shopping is undoubtedly the closest we’ve get to replicating the in-store shopping experience.

It is a great opportunity for e-commerce sellers to (re)-build a true connection between with the buyer.

On top of that, live shopping has high rates of engagement, especially with younger generations who crave for authenticity and relatability. Some companies report younger audiences grew by 20% after adopting live shopping practices.

Though the verdict is still out as to whether live shopping events truly entice viewers to buy (some say only 1% of viewers would actually buy something), live shopping can only accelerate conversion as it shortens the customer decision journey. Events allow to raise awareness of a product, just as they are selling touchpoints with consumers.

Another well-documented benefit of live shopping is that even if a lower number of customers converts, they are considerably (40%) less likely to return items than other online shoppers.

5. “Shopatainers” and live shopping brands 💫

Behind its alleged benefits, live shopping is a numbers game. It’s about convincing a large number of consumers to buy your product in a limited timeframe, by creating a FOMO sentiment within the audience. The more buyers, the more value perceived from the crowd. It is a completely different playfield, which will undoubtedly empower a new category of sellers (Connie Chan calls them “Shopatainers”) and brands.

Shopatainers are somehow a combination of Tiktok x Instagram influencers, who master the codes of short-form vertical videos, and Youtube x Twitch creators who are “comfortable livestreaming, ad-libbing, and holding the spotlight for a sustained period of time” with more professional setups.

I am particularly excited to see this new category rise, and see how the ecosystem will structure around them. It is likely that there will be armies of supporting businesses fueling the industry, and taking their cut on successful selling sessions (we’re already seeing this in Asia).

It is also likely that live shopping will be more effective for certain brands selling specific categories of products. Live shoppers are not only buying a product. They are buying the story behind it — from supply to confection, up to unpacking.

Brands that will achieve to build unique stories behind their products will most certainly win in the area.

***

I haven’t talked at all about the Metaverse and how virtual reality might create new live shopping experiences. As mentioned above, how exactly this new channel will develop remains to be seen… but I don’t think we’re quite there yet.

Hope you enjoyed the read!

If you’re inspired, why not sharing your thoughts on live shopping in the comments sections? 😀

See you next week,

Tim 👋

Today is April 1st 2022, and it is time to bring you a short selection of the few exciting trends that shaped European Tech this quarter, as part of the 22nd edition of our weekly newsletter.

Feel free to like, comment, react and respond.

Thanks for reading!

Here we go ⬇️

🇪🇺 5 things to remember about European Tech this quarter

1. Funding is up again 📈

2021 has been a record breaking year in terms of VC investments in European Tech companies. And 2022 is keeping up the pace, as European startups have raised a combined $29.2B, up from $26.5B from Q4 2021, and $20.1B from Q1 2021.

Healthtech, B2B SaaS and Fintech are sthe top 3 industries receiving the most funding from VC investments in Q1 2022 still. But they are seeing very different trends:

• VC funding in Healthtech is down to $3.1B, its lowest level since Q4 2020

• VC funding in B2B SaaS is up +47% from Q4 2021, and +55% from Q1 2021

• VC funding in Fintech reached its highest level since Q2 2021, with a total $8.6B.

It is interesting to note that all sectors are noticing a significant drop in their total number of rounds, which shows that average round sizes are increasing.

Total funding amounts are powered up in Fintech and B2B SaaS by a small number of significant rounds (e.g., Checkout.com or Qonto in Fintech).

2. The crazy megaround race was on in France 🔥

The least we can say is that Frenchtech got off to a flying start in 2022, with 5 companies reaching unicorn status in January. The happy few joining the club were:

• Payfit, a payroll and HR SaaS platform for SMEs raised a $289M Series E to reach $2.1B post-money valuation

• Ankorstore, the anti-Amazon wholesale marketplace for independent retailers raised a $283M Series C to reach $2B post-money valuation

• Qonto, the business banking startup raised $552M Series D to reach a $5B post-money valuation (becoming for one day the highest valued French startup ever)

• Exotec, a robotics platform turning regular warehouse into a partially automated logistics platform raised a $335M Series D to reach $2B valuation

• Spendesk, the all-in-one corporate spend management platform raised $114M from Tiger global, to reach a $1.14B valuation

This crazy month deserved a special congrats from the French president don’t you think? 😉

In the wake of these newly acquired unicorn status, some “veterans” — everything’s just moving so fast — carried down the road of success as they competed for “the most valuable French startup” award.

• Backmarket, an e-commerce marketplace focused on refurbished electronics, first took it from Qonto one day after the latter announced their Series D with a $5.7 billion valuation.

• But the e-commerce player was overtaken recently by Doctolib, as it reached $6.4B valuation two weeks ago.

It might be worth taking a look at the recently published Next 40 list which crowns the highest performing French Tech champions each year…

3. The landscape of instant delivery has started changing 🛵

If there is one trend suming up 2021 in European tech, it’s the rise of on-demand grocery delivery apps.

A few weeks ago, in My predictions for European Tech 2022, I was anticipating a wave of consolidations in instant delivery as better funded companies would outcompete the other ones, and fuel their expansion plan through acquisitions.

The assumption proved pretty accurate as we’ve seen some acquisitions from big players across the industry:

• Gorillas 🇩🇪 announced in January that it was planning to acquire Frichti, a French startup delivering both ready-to-eat meals and groceries.

• Delivery Hero 🇩🇪 bought majority stakes in Glovo, taking 83.4% control, as the Spanish company lately reported struggling to make good on its heavy investments into quick commerce and grocery delivery as big players such as Getir and Gorillas got there fast.

Delivery companies have a track record of investing in each other (e.g., Delivery Hero backed Gorillas, Getir bought Weezy, DoorDash invested in Flink, GoPuff acquired Dija and Fancy…) so that wasn’t rocket science.

I was too quick on stating that crazy rounds would slow down though. Companies like Zapp or Getir snapped up crazy funding rounds again this quarter (Getir even reached decacorn status this month).

But the instant delivery landscape is evolving as the “old” players (Gorillas, Flink, Getir, Zapp) are now facing competition from a new generation of recently founded startups including: Oja, Alorfaim, Mixe.Store, Wutzu… This new generation is focused on “catering for specific communities and delivering specialised produce” rather than delivering a wide range of products as old players would do.

So, on top of consolidation, there is a trend towards verticalization as some players expect to insulate from the fierce competition ongoing in the grocery delivery market by focusing on niche segments. There is also a trend towards more horizontal positioning, as startups like Deliverect — which raised $130M this quarter, help restaurants making sense of the market by supporting the adoption of delivery methods in their daily operations.

Exciting… isn’t it?

4. European Fintech could be showing signs of slowdown 💸

For the past two years, Fintech has been the largest contributor (along with B2B SaaS and Fintech) to European Tech funding and the expansion of the ecosystem.

There have been some great Fintech news during this quarter:

• Checkout.com raised a massive $1B Series E round in January, becoming the second most valuable European fintech behind Klarna

• Qonto and Payfit in France raised megarounds which I told you about already

• GoCardless became UK’s 22nd Fintech unicorn in February

• Scalapay became the first Italian unicorn since the dotcom boom with a $497M Series B, allowing them to compete with the likes of Klarna or Alma on the buy-now-pay-later trending segment.

Though the overall picture doesn’t seem to degrade as European fintechs raised $8.6B in Q1 2022, according to Dealroom data — up from the $7B raised in Q4 2021, the reality is less rosy.

Further down the fundraising chain, European fintechs raised their lowest cumulative total ($9.1M) in Pre-seed rounds in Q1 2022 in almost a decade, down almost 60% from Q4 2021. Similar story at Seed stage, as European fintechs raised a total of $11.6M funding — the lowest total at this stage in almost five years

Additionally, the total number of rounds (258) is the lowest since Q3 2016, down from more than 405 in Q1 2021.

There’s always a reporting lag in Venture Capital, which particularly affects early stages but the trend seems to confirm as the macroeconomic situation and dips in valuation multiples at growth stages bring uncertainty for early stage European startups, Sifted reported.

Let’s see how it goes next quarter ⌛

5. European tech companies have shown solidarity with Ukraine ☮️

It was difficult to do a quarterly wrap-up without talking about the number-one thing that shook up the whole continent.

The Russian invasion of Ukraine has triggered a number of initiatives from European Tech companies that are worth mentioning here. I’ve selected only a few, but Techcrunch is holding a more exhaustive list with regular updates that you can find over here. Initiatives fall into five categories:

• Supplies on the ground

Companies like Sennder or Gorillas have collected donations in their home countries and driven them to the Ukrainian border. Uber has published a list of codes allowing people to get a free ride in Poland to deliver goods to Red Cross donations…

• Transporting refugees from Ukraine

Flixbus is offering free tickets to refugees. Uber has been providing free rides between the Poland-Ukrain border. Bolt is incentivizing drivers in Poland and Slovakia to accept rides on the Ukrainian border…

• Housing refugees

Station F is offering Ukrainian entrepeneurs free accommodation. Wunderflats is helping refugees find temporary homes. Jobgether launched a platform (EU4UA) to math refugees with people who can offer shelter…

• Providing tech jobs for Ukrainians

Jobs4Ukraine was launched to help Ukrainians find jobs. Techfugees is working with European VCs to pool some money to help displaced person to work remotely. Google has launched a $5 million fund allocating equity-free cash awards and Google support to Ukraine-based startups…

• Equipping Ukraine with an IT army

Techfugees developed a website to map out current conflict zones and safe areas. Tech to the Rescue, matches tech companies with Ukrainian nonprofits. Google is sending air raid alerts to Android phones in Ukraine…

There’s been a great solidarity movement in European Tech towards Ukraine this month, which deserved to be showcased.

BONUS - Exciting Upscalers-related news 💥

There has been some pretty exciting news in Upscalers’ portoflio this quarter:

• Sosyncd was named one of the top 15 tech startups to watch globally in 2022 by Fast Company 👏

• Trezy was named one of the Top 100 startups to invest in (2022) by Challenges magazine

• Flexa announced they’re raising a new round led by a British VC fund 🚀

• Landscape have launched Landscape Lists, which are the only investor lists on the market powered 💯% by founder feedback

Exciting! 😍

****

There are many other interesting developments and news that haven’t been covered here. Selecting 5 only to make the newsletter digestible was difficult. Among those I dropped:

• European legislators going after Big Tech companies with the Digital Market Act

• Electric-powered vehicles fueling European mobility growth 🛴

• Foreign investors going for European early stage rounds (e.g., Sequoia launching an accelerator program in Europe)

Saving them for the next editions 😉

Thanks again for reading

See you next week

Tim 👋

Time to bring you the 21st edition of our weekly newsletter. This week, we’ll talk about what’s next for Proptech in the age of hybrid work 🏘️.

Feel free to like, comment, react and respond. Thanks for reading! And if you enjoy our content, why not join Upscalers as a member?

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🏘️ What's next for Proptech in the age of hybrid work?

Today, real estate is facing significant challenges — from growing concerns over the environmental impact of the sector, to the housing affordability crisis, to changing behaviors related to how we work and live.

With these, the real estate industry (which has long been considered as one of the last vestiges for innovation) is forced to evolve.

In the few following lines, I will give my thoughts on some of the opportunities arising for technology companies to reshape this centuries-old industry and help it respond to changing times.

More specifically, I will focus on opportunities related to the rise of remote and hybrid work.

Here we go ⬇️

1. Let’s start with the basics

There are many ways to define Proptech. The easiest way I found is to adopt a customer-centric approach, and understand it as a “set of cross-industry technologies, that are changing the way we search, rent or buy and manage property” — Proptech Capital.

As such, startups in Proptech offer services and products accross 3 categories which refer to the different steps in the commercial or residential real estate customer journey, both for real estate professionals and customers. These 3 categories are:

• Search 🔎 — any activity related to searching for real estate (e.g. brokerage services, marketplaces matching buyers and sellers, data and analytics, virtual viewing, etc).

• Supervise 👀 — day-to-day activities of real estate professionals (e.g., space-as-a service, smart buildings etc.)

• Sell 💰 — any activity related to selling real estate (iBuyer solutions, Hybrid agents, Insurance and closing…)

Below is a map of some of the most renowned world startups falling into each category.

As you can see, Proptech overlaps with dozens of other tech subsectors such as: Fintech, Contech (construction tech), Legaltech, Climate Tech…

Proptech is a very short word to cover a very wide area — Steve Barnett

2. Proptech state of funding

The appeal for Proptech is clear:

• On the one hand, property is the world’s biggest asset class, with the global managed real estate investment market worth $10.5Tn in 2020, up from $9.6Tn in 2019.

• On the other hand, real estate suffers from a lack of digitisation to date (still unexplicably relying on spreadsheets and email to do business).

There you get both a huge problem (lack of digitisation) and an opportunity for tech startups to thrive. No wonder why VC investment in Proptech has been experiencing strong and continuous growth from 2014 to 2019.

As we already mentioned, Proptech is a vast category. Within Proptech, construction tech and property management are historically two standount areas of investment.

What’s worth mentioning is that Proptech have not only withstood the pandemic, but been invigorated by it. According to Dealroom, 2021 was a record year in Europe in terms of VC investments in Proptech and 2022 is so far keeping up.

The pancemic has triggered a number of social, cultural and behavioural shifts which are now completely reshaping the Proptech opportunity. One of the most obvious being the normalisation of remote and distributed work accross society, and the subsequent questioning of the office space model.

3. Opportunities in residential

There is little doubt that remote (or hybrid) work solutions will be part of our future as workers in a significant way. There are a number of surveys out there showing that people want hybrid work solutions to be offered on the long run, and that this is becoming critical for companies to retain and attract the best talents. That’s why we invested in Flexa Careers 😉

Before Covid, we produced superstar cities filled with skyscraper offices and residential buildings. But the pandemic created a new world, where people who once thrived in these urban areas are likely to relocate in suburbs, smaller cities and rural areas looking for a better quality of life.

Real estate experts say it is very likely that we will see ongoing high housing demand in the suburbs and small cities, for single-family home sales and rentals, in the coming years.

With the significant increase in demand for suburban-style housing, coupled with evolving buyer profiles (e.g., tech-savvy millennials, and soon gen zers), I believe that we can be extremely postitive about the future of Fintechs and SaaS products that are focused on accelerating the digitization of the home buying, selling and renting processes in suburban areas. What happened in the US, with marketplaces such as Opendoor, Cover and Compass growing into monster valuations and accelerating at lightning speed in recent year is likely to happen also in Europe. The major barrier to this being country specific regulation in Europe, which prevents European players to grow at similar pace to their American counterparts.

The necessity for digitization will also be powered by meaningful growth of people wanting to rent assets rather than own them according to experts. With increasing work flexibility, we are moving into a world where people who could previous afford to aren’t going to live in homes they own for signficant periods of their life, because they can move more easily. This could also fuel the continuous growth of the home sharing model as introduced by Airbnb and accelerated by the pandemic.

With the acceleration of digitization should also come a myriad of opportunities for companies focusing on improving suburban living in such areas as: construction (e.g., modular homebuilding), access (e.g., affordable housing) and lifestyle (e.g., community building, digital amenities).

On top of that, and despite huge blows provoked by the rise of e-commerce and lockdowns, investors are surprisingly optimistic about the revival of neighborhood retail, especially in the form of third-spaces — not home, not a formal office environment, but spaces providing social and physical (Apple-store like) retail experiences.

(I know it has little to do with Tech, but I found the trend worthy of a mention 🙃).

4. The office space dilemma

Despite employees relocation in suburban and distant areas, it seems very unlikely to me that we will see the complete demise of the office model.

More flexible work arrangements are likely to prevail, where companies adopt a “hub-and-spoke” model with a smaller HQ in a major city, and offer more far-flung workplaces to their employees in suburban areas and smaller cities.

With this model, the reduction in office space in big cities is likely to be gradual. But the related question is: what happens to the excess of office space?

I believe there is an opportunity for startups willing to turn offices into residential buildings, especially for remote workers. Future can be bright for startups exploring flexible living solutions (e.g., co-living, microunits), allowing remote workers to spend time across diffferent cities with a fully managed, affordable and safe rental option for short-to-mid term urban living. Co-living or microunits might be attractive conversion options, allowing companies and workers to thrive with new hybrid work models.

Beyond that, with reduced demand for office space, the game is likely to change for office renters. They will no longer be in a position of power, and will have to adopt a more customer centric approach. They will need to shift from simply providing space to companies, to providing a multichannel work exprience. Here, there is an opportunity for startups to build softwares and hardware for managing employees as they travel between various office locations.

***

There are many other trends in the Proptech industry which we didn’t even mention here.

Let’s keep them for another edition 😉

Thanks again for reading guys
See you next week 👋

Tim

Apologies the 20th edition of this newsletter took a little more time to hit your mailbox. This week, we’ll try to figure out whether we’re living the greatest time in history to launch a startup 🚀

Feel free to like, comment, react and respond. Thanks for reading! And if you enjoy our content, why not join Upscalers as a member?

Join the community

🚀 Are we living the greatest time in history to launch a startup?

Recently, I’ve been reading here and there that we might be living the greatest time in human history for startups.

Well… are we?

This question is highly contextual — I will as always, adopt a European approach first in trying to provide elements to answer it.

Here we go ⬇️

1. Regulation makes starting and operating a business easier than ever before

Regulation is key in enabling entrepreneurship. There is no so called “best time in history for startups” if economies don’t provide the context for entrepreneurs to start and run a business.

The World Bank’s Doing Business 2020 report offers a comprehensive view on how easy it is to start a business. It documents changes in regulation in 12 areas of business activity, and measures how efficient regulation is in supporting freedom to do business in 190 economies.

It is true that many countries worldwide have simplified their business start-up rules and adopted friendlier regulations for business operation over recent years (although not all countries and regions have progressed at the same rate). In Europe, the time and cost to start a business has decreased steadily (from an average 24 days and 9% of income per capita in 2009, to 12 days and 3% of income per capita in 2020), which promoted the creation of more companies than ever before.

Despite some evident progress, European founders still say that regulation is the second most important challenge that the European Tech ecosystem is facing right now, just behind Funding (Source - Atomico, State of European Tech 2021). Though the question’s scope is larger (covering all Tech related regulation), Atomico highlights the “ease of doing business” as an area where regulators could remove frictions to spin the European Tech ecosystem’s flywheel.

✅ So yes, regulation has never been so easy on founders willing to start up and operate a business in Europe… but there’s room to do better.

2. The startup founder’s stack makes it easier to launch the business

Beyond favorable regulatory context, founders have access to a larger-than ever stack of tools to launch the business, with low capital and technical knowledge requirements.

In 2011, Marc Andreessen famously observed that “software was eating the world”. Right. Today, any modern company runs on software while only a fraction of the world’s population is an active developer (≈ 30M developers worldwide, 0.4% of the world’s population). No wonder why we’re experiencing a developers shortage.

Today, 50% of European startup founders say developers are the hardest roles to fill. To add up on this, median salaries for developers have been climbing steadily for at least 20 years, topping $95,000 in annual pay for an Engineering Manager position in 2021.

Together with the developer shortage, the pandemic accelerated the urgency for every organization (from startups to large corporates) to create new digital applications and workflows in hours or days — not weeks or months. This powered the rise of no-code tools, and triggered a historic shift in how work gets done and startups are founded.

Today, anyone with a computer and access to the internet is able to build a product on the Internet without being a developer. No-code tools empower anyone to be an entrepreneur and start a business in a matter of days (if not hours). Below is just a snapshot of what you can do with this new founder’s stack of tools:

✅ It has never been easier to launch a business with no technical skills thanks to no-code tools.

3. Remote work paves a new way for team collaboration and hiring

On top of that, no-code tools and the pandemic paved a new way for remote teams collaboration, which makes it even easier to start and operate a business.

• It is no longer necessary to find office space to start a company and buy office hardware (to some extent) to collaborate with your team. So why spend money on rent still?

• Beyond simple capital gains, remote-first companies now have access to a worldwide talent pool and are no longer constrained to their local business operations area in their hiring process.

To illustrate this, Y combinator’s platform Work at a Startup (WaaS), which was launched in 2018, has seen a 6.4x increase in remote-friendly jobs in 2021 v. 2020, with 70% of jobs remote or “could be remote”. In 2019, 15% of small companies were building remote organizations. In 2021, that shifted to 86% of small companies (remote being defined as a company where at least 25% of roles have a remote option).

Whilst the future is uncertain, it seems very likely that remote work is here to stay and will benefit all future generations of tech entrepreneurs.

✅ Remote work removes the need for office space and widens the accessible pool of talents for startup founders.

4. Funding is widely accessible

I’ve stated this many times already in past editions: funding has never been so accessible to European founders. Simple illustration: 2021 was a record year in terms of the amount of capital directed to startups through venture capital investments.

Not only is the amount of funding higher and growing (for how long? it seems that we are heading towards rather uncertain times), but it has never been so accessible through various fundraising sources. Yesterday, founders had to rely on VC funds to raise capital. Not anymore.

Here are some of the trends that widen opportunities for founders to raise funds:

• Ex-entrepreneurs turning into investors 💫

• Angel syndicates and communities popping everywhere (👋 Upscalers, Gen Z VCs…)

• Blockchain-powered communities offering alternative sources of funding (through NFTs, DAOs…) 🔗

• Revenue-based financing actually becoming a thing (remember when I told you about Capchase?) 💰

• Public investment banks fueling ecosystems through grants 🤝

• Accelerator programs increasing their ticket size to preempt the market (see “Why does Y combinator’s new deal mean for early-stage investors and founders?”) 📈

• VC funds going down the ladder by launching their own Pre-seed and Seed funds to invest in early stage entrepreneurs 🔍

• Startups building tools to ease the fundraising process — from platforms connecting founders to investors (Floww.io), to platforms bringing transparency to the fundraising process (Landscape) or apps to automate the fundraising process (e.g., Partyround) 📦

✅ So yes, funding from a variety of sources has never been so accessible

5. But funding is not everything

I know that funding is key. Failure to raise cash is one of the top reasons for startups to fail. But allow me to cast doubt upon the fact that startups raising bigger and bigger rounds is a good thing for the ecosystem as a whole (founders on top).

A few editions back, I commented on this Techcrunch article which argued that VC money was more efficient at killing startups than low customer adoption or team infighting. Today, with larger-than-ever amounts of money flowing down the ecosystem, young startups can find themselves with Millions despite limited traction (see median round size increase below).

I’m not saying that all rounds are disproportionate of course. I’m only wondering whether round sizes are adequate to capital requirements to ramp up a startup. When raising disproportionate amounts of money, startups are forced to hit the gas. The risk is to engage in a dead-end race, pouring unjustified amounts of money in inefficient investments to chase better metrics that would satisfy the demands of investors.

Techcrunch puts it this way: the core problem of VC is that "it incentivizes companies with good vanity metrics to start scaling bad experiments”. More funding flowing down the ecosystem does not mean higher startup success rates. The relationship between funding and success is not linear.

Similarly, it does not mean all founders benefit from better funding opportunities. Let’s remind for example that in 2021, European women founders raised the lowest proportion of total capital since at least 2017…

5. There is a myriad of new opportunities to build something new

There are indeed, a few exciting trends in their premises, creating opportunities to build profitable businesses. My head spins thinking about how many of them there is.

This newsletter has been for me the occasion to write about some of the industries / sectors where I find the most exciting opportunities. Some (rather broad) of them are ⬇️

• Climate Tech 🌎

• The metaverse 👽

• Foodtech 🥗

• The creator economy 📱

• NFTs in the music industry 🎸

• … and more to come!

✅ So yes, the world is changing and there is space to build something new and exciting.

***

I did not seek to give an exhaustive list of criteria enabling startup founding and fueling the ecosystem, but only a snapshot of interesting trends that favor entrepreneurial behaviors, or slow them down.

While I don’t believe there will ever be “a best time for startups”, the current European context is particularly friendly to starting a business (despite some disparities from one country to another).

Anyhow, the key aspects of success are still the same: an opportunity, a vision to address this opportunity and a well-rounded team to execute with hard-work and dedication.

Thanks again for reading guys
See you next week 👋

Tim

It’s now time to bring you the 19th edition of our weekly journal. This week, we’ll talk about the Ukrainian Tech ecosystem 🇺🇦.

Feel free to like, comment, react and respond. Thanks for reading! And if you enjoy our content, why not join Upscalers as a member?

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🇺🇦 Ukrainian Tech in review

Ukraine 🇺🇦 has really been under the spotlight this week… for reasons you’re all well aware of.

These few lines are a way to show support to the country. I don’t want to make this newsletter overly political, but I do believe that past years in Ukrainian Tech hold promises for a bright future. I do understand the gravity of the situation, but I hope these promises won’t vanish away despite this week’s events. The international investors community shouldn’t overlook local founders and startups over there, because they have a lot of potential.

And if you don’t believe me, please read the tribune Lyubov Guk (Ukrainian VC based in London) published on Sifted this week.

➡️ To the tribune

Here we go ⬇️

1. Everything’s “Techable” with Ukraine

The Ukrainian startup ecosystem is truly inspiring. The country has been going through economic difficulties for several years but still manages to create technology that is both scalable and global.

• Ukraine is the 34th Tech ecosystem, says StartupBlink

• Kyiv is the highest ranking city in Ukraine (48th), maintaining its position in the global top 50

• The Tech industry creates between 3-5 percent of the country’s GDP.

Startups

There are more than 1,700 startups and scaleups which were founded in Ukraine. According to Dealroom, these startups have collected $1.47B in venture capital investments between 2015 and 2021, which ranks Ukraine as the 4th largest Eastern European VC market after Estonia, Romania and Poland.

Together with PE investments, Ukrainian startups are said to have raised a total $571M in 2020.

As of today, Ukraine has 5 unicorns: Grammarly, GitLab (which recently IPOed), BitFury, Ring and People.ai (since 2021) which took on average 7 years to reach $1B valuation ⬇️

Some of the companies I see becoming potential future unicorns (💫) are:

• 💫 Airslate, workflow automation platform, which is currently valued between $160M and $240M by Dealroom

• 💫 Creatio, a workflow and CRM automation platform, valued between $272 and $408M

• 💫 Restream, multistreaming platform for video content, valued between $200 and $300M.

Some of the rising stars are: Preply (a global language learning marketplace), PDFfiller (a pdf editor), Ajax Systems (a wireless security system) and Allset (a lunch ordering platform).

However, Ukraine still lags behind most European countries in terms of VC funding per capita (around $35 per capita in 2021).

Talents

Ukraine has around 240К tech talents working in the IT sector. By 2024, this number is expected to top 450K talents. It is is the #1 country in Europe for the number of tech graduates thanks to its 181 tech schools.

It is also one of the most popular countries in the world when it comes to relocating or outsourcing R&D. Many outsourcing companies working with clients abroad are located in UNIT.City which is the largest innovation park in Eastern Europe, home of around 140 businesses.

Funding structures

Ukraine has its own version of a public fund, which is called the Ukrainian startup fund and was created back in 2019.

Its mission is “to promote the creation and growth of technology startups in Ukraine at an early stage of development in order to increase their global competitiveness”.

As of today, the Ukrainian startup fund has funded around 229 startups with a combined $6M of grants (non-equity).

Beyond public investment and innovation structures, here is a list of the most active investment companies and funds in Ukraine by number of deals

2. 2021 - a great year in review

2021 was a booming year for the Ukrainian Tech ecosystem (and for Eastern Europe as a whole). In fact, it was a year of firsts:

• Grammarly (auto-editing tool for writing) became the first Ukrainian decacorn after raising a $200M funding round, putting its post-money valuation at $13B.

• GitLab (open source end-to-end software development platform) took over the Nasdaq with a mega-IPO at a $15B+ valuation (making it the largest Ukrainian IPO ever)

• People.ai (revenue operations and intelligence (ROI) platform) joined the Ukrainian unicorn club after reaching a $1.1B post-money valuation with a $100M funding round in August 2021.

• Vlad Yatsenko (co-founder and CTO @Revolut) reportedly became the first Ukrainian Tech billionaire after Revolut’s $800M Series E round in August.

• Several international giants entered Ukraine, opened an R&D or representative office: Apple, Amazon, Glovo, BlaBlaCar, Lyft, Revolut, Thales, Solarisbank, CognitOps, Nets A/S, Velory, Bringg, AIBY, TangoMe, Roku, JCB (Japan Credit Bureau), Seafai…

• Ukraine held its first ever national pavillon at Web Summit.

3. Living with instability

The war with Russia will undeniably have long-lasting impact on the capacity of Ukrainian startups to hire top talents and raise money to grow their business. Some startup founders already report that “it is nearly impossible to raise capital for pre-seed and seed-stage startups operating out of Ukraine at the moment”.

However, warfare and instability is not new to Ukraine. Prior to the aggression, it was already reporded that Ukraine was losing $2-3bn every month due to war threats. Since 2014, the Russian aggression has cost Ukraine 19.9% ​​of its pre-conflict GDP annually.

The country has been dealing with political and economic instability for years now. The entire Ukrainian Tech ecosystem was structured in this context, and proved its ability to contribute to the global tech ecosystem well beyond its estimated potential.

In fact, lagging geopolitical instability combined with complicated taxes and bureaucracy, have always made it difficult for Ukrainian entrepreneurs to establish a company in the country. As a matter of fact, Ukrainian-born startups are almost forced to have global ambitions from day one. For most, this means relocating their HQ very soon in the process, while keeping R&D offices in Ukraine to leverage access to the local tech talent pool. Though this is something to be witnessed in most Eastern European ecosystems, Ukrainian-born startups (among those >€1M funded) are by far the most likely in Europe to have done so over the course of their business (and that was true before this week).

It is very likely that the war with Russia will accentuate this phenomenon. The government will lack resources to: (1) support the local startup ecosystem, (2) to build adequate infrastructures and (3) to improve quality of life to retain its most talented entrepreneurs. Foreign investors have all the reasons in the world to be scared away from investing in Ukraine-based companies.

But they shouldn’t be scared of investing in Ukranian founders, who’ve proved very successful in exporting their talent and building successful companies abroad. Proof is, the number of (wanabee) unicorns in the country.

Thanks again for reading guys
See you next week 👋

Tim

It’s now time to bring you the 18th edition of our weekly journal. This week, we’ll talk about Music NFTs 🎸

Feel free to like, comment, react and respond. Thanks for reading! And if you enjoy our content, why not join Upscalers as a member?

Join the community

🎸 Why NFTs will rock the music industry

I know this week’s topic will be heavily scrutinized by Jack and Naveen from Anthems. No mistakes allowed here 😊

Here we go ⬇️

1. Why talk about music NFTs now?

2021 is the year that started it all.

➡️ To the Top 21 music NFT moments of 2021

With the pandemic, artists were stripped of their primary source of income: concerts. Not earning much from major streaming platforms like Spotify (we’re talking about a few thousand euros for a song that has a million plays), some started to embrace the use of NFTs. They realized that these allowed them to go directly to their fans, sell unique, tokenized versions of their work and yield substantially higher profits than they did with regular streaming platforms.

The spectrum of these early adopters ranges from independent artists (such as Daniel Allan) to the likes of NAS, Snoop Dogg or Kings of Leon (e.g., Kings of Leon became the first band to release an LP as NFT on March 5th 2021).

With them, a whole ecosystem started moving towards widespead adoption of NFTs as a new way to reward creativity and fandom in the music industry.

• Marketplaces such as Catalog, Sound or Royal were launched to allow musicians to drop their songs and for fans to buy them.

• DAOs were built to buy rare copies of artists’ albums (e.g., PleasrDAO buying the single copy of Wu-Tang Clan’s Once Upon a Time in Shaolin).

• NFT communities threw exclusive festivals, accessible to NFT owners only (e.g., Bored Ape Yacht Club’s Apefest, which was held during four days on October).

• Labels lagged behind, until Snoop Dogg announced this week (on Clubhouse) that he planned to make Death Row Records, his newly acquired label, the first NFT music label, “moving artists into the metaverse”.

There’s a lot going on right now: from pure tokenization of songs to more remote applications of blockchain technologies to the music space. This can make it hard to follow. But it’s the start of something big.

Music NFT is not a whim. The music industry has always been bound to new technologies, and players have always adapted to keep pace (from vynils to streaming services). NFTs are a lasting tech trend which, in its very early days, is already rocking the music world.

We’re witnessing the early stages of an audio movement - driven by scarcity, fandom and access — Cooper Turley (Full time DAOs)

Blockchain tech has the power to change everything and tip the table in favor of the artists and the fans, and we’re going to be right at the front of the pack — Snoop Dogg (talking about Death Row Records)

2. From blockchain to Music NFTs

Now, you might wonder what a music NFT is concretely. Let’s start with the basics to make sure you get the full understanding.

The blockchain

The blockchain is exactly what it sounds to be: a chain of blocks. Each block has a specific “hash” (its ID), contains the hash of the previous block (forming a chain of blocks), and holds data about a transaction. Transactions that are recorded in each block are validated by a peer to peer process, where computers contributing to the system operate together to reach a consensus over whether the recorded transaction is valid or not (meaning that the sequence of hashes is correct). If you try tamper with one block, the hash of the block will change and the verification will catch you. To cheat, you need to hack the whole system. Which is nearly impossible (for now).

Classic blockchains such as the Bitcoin blockchain store data about a cryptocurrency transaction (meaning the sender, receiver and amount). Others (like Ethereum) can store additional data in the form of NFTs, which work differently than cryptocurrencies.

NFTs

Unlike cryptocurrencies, NFTs are tokens that represent ownership of a unique “unit of data”. They are non-fungible. Non-fungible is an economic term to describe things like your furniture, a drawing, or your computer. These things are not interchangeable for other items because they have unique properties (just like a song file).

Music NFTs

To put it simply, a music NFT is an NFT where the data is… a song file. The main characteristic is the audio itself, typically represented as an .mp3 or a .wav. When minting them on a blockchain, artists basically say “this is the original song, and I will release quantity X of them for fans to buy”. Period.

A common mistake is to think that buying a music NFT gives ownership rights over the use of the content. But the vast majority of music NFTs today don’t come with inherent royalties nor licensing rights (though this is changing, see below). To put it simply, music NFTs are extremely scarce copies of a song or an album. Think of it as buying a track or an album on iTunes, except you get a limited copy you can resell to someone else. The value of the copy is worth whatever price other people are ready to pay for it.

That’s it. Anyone can actually save the song file, and listen to it for free. But there is only one owner (which information is recorded on the blockchain), and only the owner can resell it.

3. Why should we care?

As I started to mention above, the Internet has completely transformed the music industry over the past 20 years.

Artist can get discovered through self-publishing on Youtube, SoundCloud and anyone can access all the music in the world, for as low as $9.99 per month.

Yet, for all those advancements, the economics between industry players (labels, distributors, managers), artists and their fans have mostly remained unchanged.

Most successful artists are produced by labels, which dominate the market.

Labels provide artists with cash up front, mentorships, mass distribution and strategies to thrive. But in return, they usually assume creative control and the rights to an artist’s masters, allowing them to use the music in perpetuity — Time

Labels take a large share of revenues through royalties. Distributors and managers take a cut. Streaming platforms charge a fee for their service. Which leaves only a tiny portion of revenue to artists ⬇️

• Data from 2019 and 2020 shows that 90% of streams go to the top 1% of artists.

• Today there are more than 8M musicians on streaming services, yet fewer than 0.2% of them make more than $50K a year. 

So it’s brutally hard for artists to make a living in the streaming era. Especially since the pandemic hit, as they were stripped of their major source of income: concerts. Pre-pandemic, ~80% of income from music was said to come from touring.

With the streaming era, not only have artists been deprived of their sources of revenues, but it’s also getting harder for them to connect with their true fans. They have almost no way of knowing which of their fans were early adopters and helped propelled their career forward, nor opportunities to reward them. Similarly, early adopters see the fan experience degrade as artists they discovered in the early days of their career grow in popularity.

True fandom in music, is not rewarded anymore. While some of the most passionate, dedicated communities have music at their core…

On top of that, the actual feeling of collecting music has been lost in the process. Remember how it felt to buy a vinyl or a CD and to grow your collection with your favorite artist’s latest release? 😍

NFTs have the potential to change all this. 

4. NFTs changing the game

First, NFTs will change the way we consume music.

Forget about the traditional streaming model where users are charged a monthly fee and some percentage of the revenue is eventually distributed to the artists. With Web 3.0 patforms, artists can set customizable streaming rates, meaning that they can choose exactly how much they want to charge for any piece of content. Fans engage directly with the music NFT itself (i.e. listen to it, put it in playlists…). Revenue goes directly back to the NFT and the artist who created it, with no intermediary.

➡️ NFTs offer disintermediated ways of rewarding creativity

Second, NFTs will change the way we value music.

With Web 3.0, the song file which is minted as an NFT now captures the value of the song. The artist creates music on his/her own terms, issuing as many copies as he/she wants, and the value of the song stems from what fans are willing to pay for it. It’s the same concept with crypto art. Of course, anyone can save the song and listen to it. But there is only one owner of the original copy.

➡️ NFTs are giving back to fans the pleasure of owning the copy of a song or album.

Third, NFTs give opportunities to artists to reward early adopters.

They can provide them with access to a community of fans, and hit them with exclusive offers such as priority access to concerts and festivals, exclusive merchandise…

As mentioned above, most music NFTs today do not confer any royalty rights over the content. But, some startups like Royal are building platforms to allow anyone to purchase the right to earn royalties from artist they support since their very early days. With this, fans get access to opportunities that traditionally have only been available to major labels, hedge funds and highly-connected individuals.

➡️ With NFT's, artists can simultaneously empower their fanbase while funding their careers.

***

If you are interested in learning more about Music NFTs:

➡️ Music NFT landscape by Coopahtroopa

➡️ Crypto will fix the music industry, by Bankless

➡️ Music NFTs GMI by BlockchainBrett.eth

➡️ Music NFTs 101: an Artist-to-Artist guide by camoufly.eth

➡️ Investing in Royal, a16z

🌍  State of European funding

Shorter version of this section this week.

Thanks again for reading guys
See you next week 👋

Tim

First, let met tell you that I’m really sorry the newsletter didn’t get through last week.

Anyway, it’s now time to bring you the 16th edition of our weekly journal. This week, we’ll talk about Femtech 👩

As always, I’ll also give you some news about what happened in the European Tech ecosystem this week.

Feel free to like, comment, react and respond. Thanks for reading!

And if you enjoy our content, why not join Upscalers as a member?

Join the community

👩 Femtech 101

Let’s try to give you a brief overview of what Femtech is here.

Here we go ⬇️

1. Understanding Femtech

Femtech can be understood as all software, products and services that use technology as a way to support Women’s health and wellbeing, by addressing conditions that solely, disproportionately, or differently affect them.

Putting Femtech as a subset of health technology makes perfect sense, given that its reason for being is the historical and systemic exclusion of women’s health from healthcare research, development and funding (see below).

The term “Femtech” was first coined by Ida Tin, founder of a mobile fertility tracking app called Clue, back in 2016. At the time, Ida Tin used the term to (1) bring more attention to an industry that lacked funding opportunities, and (2) create space for investors to discuss female-focused products. The birth of Femtech as a investment vertical is a direct consequence of the VC gender gap — most of world’s investors being men, struggling to understand women’s health needs and issues.

As such, Femtech covers four subsegments:

• General health and wellness 💓 — nutrition, fitness, sexual wellness, mental health…

• Healthcare and diagnostics 👩‍⚕️— menstruation, tests, disease management…

• Reproductive health 👶 — menstruation tracking, fertility and birth control…

• Pregnancy and family care 🤰— breastfeeding, nursing tools…

Products in the Femtech space typically fall into one of these categories: medical device, healthcare software, therapeutic drug, consumer product, consumer service or consumer apps.

2. Controversies

Defining Femtech is quite elusive though.

Some include skincare and beauty products in its scope. I believe that it doesn’t align well with the historical roots of Femtech. Plus, skincare and beauty products increasingly target mixed audiences.

Others say the term by itself encourages the Pink Tax phenomenon: which is often attributed as a form of gender-based price discrimination (the name stemming from the observation that most affected products were pink). However, the aim of Femtech is quite the opposite. It is not about rebranding or repositioning existing products to target women, but to create brand new innovative solutions that are designed to meet women’s health and wellbeing challenges.

3. Femtech market potential

Beyond controversies, the market potential for Femtech companies is huge. Let’s drop some figures here:

• There are over 380M women in Europe, 3.9B in the World.

• In 2020, women controlled around $20T in annual consumer spending. This figure is expected to increase by up to 40% by 2025.

• Women control most of households spending worldwide: 70 to 80% of women are responsible for all consumer purchases accounting for themselves, their partners, their children, and other miscellaneous household needs.

• Back in 2018, it was estimated that $500B per year were spent by women on medical expenses. Working-age women spend on average 29% more on healthcare than men each year.

• There is a also high prevalence of chronic diseases among women. Up to 45% of women suffer from specific chronic conditions (e.g., endometriosis, autoimmune diseases, hormonal disorders), and every year they spend $1,000-$3,000 per capita to address the symptoms.

• Despite the gender gap in healthcare spending, it is estimated that only 4% of all healthcare research and development is targeted specifically at women’s issues.

Globally, the women’s health market size is estimated to be $1.186T. This is not the actual Femtech market size, since this does not distinguish the share of the market that is used specifically for tech-enabled products and services. The Femtech market is narrower.

As there is still no standard definition of Femtech, there is no standard way to subcategorize the industry. As an example, Femtech is still not considered a market segment per se by Dealroom… Some reports have valued Femtech at $60B, while others have shown that the menopause market alone (which is a segment of the Femtech market) could top $600B (Crunchbase).

➡️ My guess is that it is massively undervalued, but truth is difficult to tell here.

Despite having some undeniable potential, the FemTech space remains massively underfunded. Using data at our disposal, FemTech would have accounted for only 2.4% of all healthcare funding in 2019 (Source: Dealroom).

But Femtech is growing at a great pace. Despite suffering a huge blow in 2020 due to Covid, 2021 was a record year for Femtech funding accross the globe, with around $2.7B invested (x2 since 2019, x7.5 since 2015).

4. Drivers of growth

A. VC-gender gap

These numbers are even more impressive knowing that over 80% of all Femtech startups have a female founder. If you’re a regular reader of this newsletter, you already know that a paltry proportion of VC funding goes to women-led startups. In Europe, in 2020, 90.8% of capital raised went to men-only teams... 7.5% to mixed teams, 1.7% to woman-only teams.... 

➡️ With (1) increasing representation of women in the venture-backed technology community and on the investors side, and (2) growing acceptance by men of women health issues, Femtech would grow at an even higher pace.

B. Niches outside reproductive health

Recent reports show that 51% of Femtech companies address menstruation, maternal health, fertility or sexual wellness. All these are important topics for sure. But it strikes me that only 1% of Femtech companies are addressing chronic conditions, knowing that 45% of women suffer chronic conditions over their lifetime. Similarly, only 5% of all Femtech startups address menopause, which is a natural (and largely misunderstood) phenomenon any women around 50 yo experiences.

➡️ There is a great opportunity here for startups to grow on niches outside reproductive health.

C. Consolidation and diversification

On top of that, most companies in the Femtech space are single-product companies. The latest report from Femtech Focus states that there will be an upcoming wave of consolidation within the industry through merger and acquisitions between startups.

➡️ There is plenty of room to diversify (by launching or acquiring new products).

D. Censorship

Another aspect (which to be honest, I completely underestimated until now), is censorship. Advertisment for Femtech products on platforms such as social media, television or Google are blocked for being allegedly inappropriate. This does not only affect sexual wellness products but most of women’s health. The resulting consequence for Femtech startups is a higher Cost of Acquisition (CAC).

➡️ Growing acceptance of women's health issues would help Femtech startups to grow even faster

E. Regulatory environment

Finally, there is a more conducive regulatory environment (particularly in Europe as compared to the US), which should also drive growth in the Femtech space.

***

If you are interested in learning more about Femtech, I can only encourage you to read through these two reports:

➡️ Why FemTech is expected to break new grounds, by Pitchbook

➡️ FemTech landscape report by FemTech focus

🌍  All eyes on the EU... and elsewhere

Alright, now is the time to give you a quick overview of what happened in the European Tech ecosystem this week. 

European funding in January 🇪🇺 

Few crazy rounds 🤯

Each week is a new crazy funding week in Europe. The three biggest rounds this week come to us from the UK and France.

Cazoo 🇬🇧, the UK-based online car retailer announced a new influx of $630M. “In less than a year the company has seen a public listing via a SPAC merger, record Q2 numbers, and a seemingly unending round of acquisitions including SMH Fleet Solutions for £70 million and Swipcar for €30 million, and brumbrum for €80 million.”

➡️ To Tech.eu article

GoCardless, the London-based fintech in direct bank payment solution announced it has raised $312M in a Series G round, which makes it the latest European and UK unicorn at a $2.1B valuation.

➡️ To Tech.eu article

Alma, the buy-now-pay-later French startup announced a $130M Series C round, as well as an additional $109M in debt financing. While Klarna is reportedly preparing a new funding round (putting the valuation between $50B to $60B), will they be able to create a new BNPL giant in Europe?

➡️ To TechCrunch article

European Tech Champions initiative 💶

Remember when I told you about the EU turning into an early stage investor? Well it seems that growth stage remains something of high interest…

Earlier this week, few members of the EU (including France, Germany, Italy, Spain and Greece) together with the European Investment Bank, announced a brand new initiative for financing growth funds accross Europe. Under the new initiative, the European Investment Fund will manage a €3.5B budget to fund VC funds with a focus on growth. The goal is to grow the number of European funds that have more than €1B to invest from 2 to 10 or even 20 in the coming years.

Zuckerberg going crazy with Europe 🤪

It’s been quite a while now since the war between the EU and Facebook (sorry “Meta”) over personal data started. The least we can say is that Zuck might not hold the EU in high regard…

On February 3rd, in a report to the SEC, Facebook (sorry “Meta”) announced that if a new transatlantic agreement to allow the transfer of users’ personal data from Europe to the United-States wasn’t signed, Meta would “likely be unable to offer a number of [their] most significant products and services, including Facebook and Instagram, in Europe”.

The war is on…

Anyway, it seems that Facebook’s (sorry “Meta’s”) near future doesn’t look so bright, don’t you think?

Thanks again for reading guys
See you next week 👋

Tim

Time to bring you the 16th edition of our weekly journal. This week, we’ll talk about the Creator Economy 📱

As always, I’ll also give you some news about what happened in the European Tech ecosystem this week.

Feel free to like, comment, react and respond. Thanks for reading!

And if you enjoy our content, why not join Upscalers as a member?

Join the community

📱 Creator economy — Where do we stand? What are the opportunities?

Almost 15 years ago in his 1,000 True Fans’ essay, Kevin Kelly predicted that the Internet would allow people to make a living out of their creation (as artists, entrepreneurs, authors…). Eventually, he believed that creators would be able to bypass traditional gatekeepers and middlemen (e.g., large production and publishing companies) and get paid directly from a bunch of “true fans”, thanks to the Web.

Unfortunately, we took some detour along the way. Centralized social medias became the n°1 way for creators to grow an audience, and they developed an ad-driven business model, ripping off most of creators’ revenues to their own benefit.

Eventually, we are trending back to Kevin Kelly’s vision today. As Li Jin (a16z) says:

“The creator economy in the midst of a decisive shift — from a “bigger is better,” ad-driven revenue model to one of niche communities and direct user-to-creator payment”.

Let’s see how we got there.

Here we go ⬇️

1. Foundational steps to the creator economy

Since the late 2000s, we’ve witnessed the birth and rise of almighty social platforms like Youtube, Instagram, Spotify, Twitter, Instagram and more recently TikTok. These platforms played a decisive role in shaping the creator economy. They allowed creators to build larger than ever audiences for free. Using algorithmic recommendations and content curation, they became the new “matchmakers” between creators and users — or let’s say between users and users as they turned each Internet user into a potential creator.

Distribution problem solved. Creators were given options to augment their audience much more efficiently than they would have through traditional production companies or publishing houses. Cooperation started and went well, as these centralized platforms had all interest in recruiting users and creators to make their service more valuable. Network effects.

With these platforms, the number of creators exploded. 50M people now call themselves content creators worldwide.

Eventually, these platforms also contributed to the rise of content editing tools to help creators polish their content and professionalize. See below.

That was Creator Economy 1.0.

Unfortunately, brands quickly realized the huge investment opportunity in sponsoring creators to harness their audience. Call it influencer marketing. See it in the number of influencer agencies, sponsorship marketplaces or talent representation companies out there.

Creators started monetizing their audience through brand deals, but this all quickly turned into a zero sum game, where they put the trust of their audience at risk for each sponsored post they made. On top of this, creators were deprived a massive share of the revenues they made on-platform by centralized social media companies.

Didn’t this all start to remove intermediaries in the first place?

That was Creator Economy 2.0

2. Where do we stand today?

Having developed large audiences accross platforms, creators are now seeking to move their top fans off of social networks to run independent businesses by themselves, and to generate direct revenue streams beyond ads.

That is Creator Economy 3.0 (today).

Here is how it works. Creators build large audiences on centralized social platforms (for free). Then, they convert some of their followers into regular fans which are likely to buy some content at low price or donate. Creators can then leverage some of those buyers, and turn them into true fans, who are likely to pay a premium for extra content, exclusive access or direct interaction with creators.

Think of it in concentric circles, with true fans at the center, a wider circle of regular fans around them and ordinary followers around them again.

Essentially, creators are now left with two choices…

1. … earning little money off of each follower producing mainstream content for a big audience (which is Creator Economy 2.0 ad-driven model), or…

2. … increasing their earnings per fan by focusing on a subset of their follower base (fans and true fans) and producing niche content for them.

Now, there is a substantial difference between monetizing followers and monetizing fans, as much as there is a difference between monetizing fans and true fans.

Followers don’t pay the creator. Fans pay to benefit the creator out of a desire to support his / her work. True fans are willing to pay more for something that will benefit themselves and help them grow. That is a value-driven model, which no longer relies on the size of the audience, but on the quality and uniqueness of work, the result it can have and the bonds a creator can create with his / her community.

Back to what Kevin Kelly was saying:

To be a successful creator you don’t need millions. You don’t need millions of dollars or millions of customers, millions of clients or millions of fans. To make a living as a craftsperson, photographer, musician, designer, author, animator, app maker, entrepreneur, or inventor you need only thousands of true fans.

A few true fans can bring more money than millions of followers.

3. Where are the opportunities for startups?

In the wake of social media platforms, there was already a first wave of startups that were built, either to help creators to create content (e.g., Descript, Veed.io…), own their audience (e.g., Circle, Discord, Substack…), monetize it (e.g., Memberful, Podia, Kofi, Teachable…) or manage their business.

See below ⬇️

So, where do opportunities lie today?

Creating tailored tools / platforms 🎯

Though this is already a crowded space, I believe there are huge opportunities for startups to build platforms on niche verticals, targeting a specific persona of creators, and looking to go beyond the standard “creator tool”.

Grouping all “creators” together is a convenient shortcut to talk about the creator economy in a 5-min-to-read newsletter. However, this group has its own layers. To produce the most effective outcomes, startups willing to enter the space have to match these layer-specific needs. A hobbyist creator does not have the same pain points as a full-time creator. Similarly, a creator in the Learning space and a creator in Fashion cannot be served the same way, just as an author and a video-maker cannot be using the same tools.

New startups opportunities can simply be unveiled by considering the levels of creators in a more nuanced way.

Don’t believe me on this one, trust Dan Runcie (founder of Trapital).

Connecting creators with web 3 👾

Crypto, especially NFTs, have the potential to accelerate the trend of creators generating direct revenues from their fans. According to Chris Dixon, there are three ways NFTs can offer better economics to creators:

• They remove commission-seeking intermediaries (that’s the very basic principle of blockchain)

• They allow very granular price tiering. As with Web 2.0 content creation platforms (e.g., Substack), NFTs allow creators to offer special items or content to the most passionate fans they have. The difference is that granularity is higher and easily manageable.

• They turn true fans into owners, reinforcing bonds with creators. To the point of eventually blurring the lines between creators and their community?

If you want to go a step further into the topic, I encourage you to read Li Jin’s full thread on the matter.

➡️ To the thread

🌍  All eyes on the EU... and elsewhere

Alright, now is the time to give you a quick overview of what happened in the European Tech ecosystem this week.

European funding in January 🇪🇺 

SoSyncd being named as a Top 15 startup to watch globally 😍

I know we’ve been bragging around a lot with SoSyncd. For those who (still?) don’t know it, SoSyncd is the first investment we made with Upscalers’ community. That was back in March 2021.

A little more than 9 months later, SoSyncd has just been named as a Top 15 Tech startup to watch globally in 2022 by Fast Company

Keep it up!

➡️ To Fast Company’s article

Skipr being named as a Top 10 startup to watch in Belgium 💪

Just wanted to say congrats to @Mathieu and @Jean-François, both members of Upscalers community on putting Skipr on the list of the Top 10 startup to watch in Belgium.

Great job guys!

➡️ To EU-startups' article

Dog-eat-dog going ahead in grocery delivery 🛵

A little while ago when sharing my predictions for European Tech in 2022, I told you that a wave of consolidations in the grocery delivery business could be expected this year.

Latest developments won’t prove me wrong…

On Sunday, Getir announced it had acquired the U.K-based grocery delivery startup Weezy — which only raised a pre-seed (after founding the company in 2019).

➡️ To TechCrunch article

I guess Gorillas was jealous. So the German startup announced on Monday that it was planning on acquiring Frichti, a French startup focused on delivering ready-to-meat meals and groceries.

➡️ To TechCrunch article

Who’s going to be the last man standing in your opinion?

Two new European unicorns 🦄

And there were two more! This time they’re not French (though I must admit that Spain has also been doing really well in the past couple of weeks).

Fever 🇪🇸, the entertainment platform has just raised a €200M round, joining the Spanish Unicorns’ club.

➡️ To EU Startups article

Deliverect 🇧🇪, the Belgian startup which is building a SaaS platform for restaurants to manage delivery services, announced on Monday it had raised a $150M Series D round, putting the value of the company at over $1.4B.

➡️ To Deliverect's press release

Cool times to be a European aren’t they? 🇪🇺

Thanks again for reading guys
See you next week 👋

Tim

Time to bring you the 15th edition of our weekly journal. This week, we’ll try to figure out what Y Combinator’s new deal means for early-stage investors & founders 💸

As always, feel free to like, comment, react and respond. Thanks for reading!

And if you enjoy our content, why not join Upscalers as a member?

Join the community

💸 What does Y Combinator's new deal mean for early-stage investors & founders?

Last week, I told you that Y Combinator had launched a new deal for early-stage founders joining their bi-annual cohorts.

Then, I promised I’d be talking about the deal this week, to assess its wider impact on early-stage founders and investors. As always, I will be adopting a fairly European centric approach to the topic. We’re a European community after all 🇪🇺

Here we go ⬇️

1. What is Y Combinator after all?

I know Y Combinator sounds familiar to most of us, but a little refresh doesn’t hurt.

Y Combinator is a San Francisco based startup accelerator that was created by Paul Graham, Robert Tappan Morris, Trevor Blackwell and Jessica Livingston back in 2005. Since its creation, the company invested / accelerated more than 3,000 companies including some of the most successful startups in the world.

Combined Y Combinator’s portfolio value is $400B+, with 160+ companies valued at more than $150M. Knowing that they invest at the earliest stages of venture funding, that’s pretty impressive.

So what’s behind the numbers? How does it work concretely?

The way YC has been working for years is pretty basic. Each year, they invest a “small” amount of money in a large number of startups through what they call “batches”. They call two batches per year - one from January to March, and the other from June to August.

Startups are allowed to apply through a simple form, and the most promising are offered a meeting with YC’s team before they receive funding… or not. There are approximately 10,000 applicants per batch, with a 1.5% to 2% acceptance rate. So that’s roughly 150-200 startups being funded per batch.

Historically, they invested $125K in each startup that was accepted into the batch program in return of 7% of the company’s shares, on a post-money SAFE. That means that YC invests between $37.5M to $50M per year in early-stage startups. In exchange, startups got experts insights over their ideas and businesses, as well as advices as to how to deal with potential investors and acquirers.

Apart from having funded some of the best tech companies in the world, Y Combinator is widely famous for…

• … introducing the pre-money SAFE (2013) and post-money SAFE (2018) documents. The latter is one of the most used early-stage funding document in the world.

• … its Demo Days, where startups that have been accepted to YC’s batches can present their products and services to a selected audience of investors and press. Those demo days have been widely adopted by other bootcamps and accelerators such as Techstars, StartupBootcamp… and openly laughed at in such movies as Don’t Look Up!

➡️ Apply here to assist to the next Demo Day

➡️ Haven’t read last week’s newsletter on Don’t Look Up? Catch up here

You understand it, Y Combinator is one of the world’s most influential player in early stage venture capital funding. That’s why any investment / announcement or change they make is such a… big deal.

2. What is this “new YC standard deal” all about?

A few lines back, I told you that YC’s standard deal was to invest $125K in each startup that was accepted into its batches. Well, a little more than a week ago, Y Combinator announced a new standard deal in a groundbreaking blog post.

Yes, you read it properly. Y Combinator now invests $500K in every company that is accepted to its batches. The investment is made on two separated SAFEs, which take effect at the same time:

• A post-money safe on which they invest $125K in return for 7% of the company (the $125k traditional SAFE)

• An uncapped SAFE on which they invest $375K with a Most Favored Nation (“MFN”) provision (the “MFN safe”). Simply put, they are giving the money now but at the terms founders and YC will negotiate with other investors later. So the dollar amount will not convert into an automatic percentage stake of the company in question.

Those two investments are not contingent on any milestones. Following the announcement, the number of companies accepted in each batch is not going to be reduced. Quite the opposite actually. YC’s president Geoff Ralston sayd he could see YC fund 1,000 startups per batch in the near future.

So they are doubling-down on their strategy to invest “small amounts of money in a large number of startups” and hope for a few to return. Except that $500K is the new “small” now… and that 1,000 startups per batch will soon become the new “large number of startups”.

You can read more about the new Y Combinator deal below.

➡️ To YC blog post

Now, one could argue that Y Combinator is only reviewing the terms of its initial value proposition to follow recent development in early stage venture capital funding. Provided that there are more and more startups on the market, and that rounds are getting bigger and bigger, they increase the number of startups they invest in and the average ticket they write.

This could make sense. Except we’re talking about YC, which is much more of a market maker than anyone else.

Instead, rewriting the terms of its standard deal seems to be a calculated arbitrage to outdo competition by raising the price of early stage rounds in order to capture more deals with potentially high returns, to the risk of diminishing the value of the “YC stamp”.

Ouch, that was a long sentence. Let me explain 👇

3. Outdoing competition - really?

The competition is heating up at early stages of funding. Raising the price of entry is a way for YC to outpace competition to attract more of the best founders in its nets, and encourage them to raise at higher valuations. Prior to the new standard deal, seed-stage YC startup valuations were typically ~2x higher than their peers. With the new deal, one could expect the gap to become even wider.

Even though some US competitors might match the rising price, this would eventually put more pressure on international investors (European 👋), where Pre-Seed and Seed rounds are typically way smaller, and valuations lower. Having YC writing up a $500K cheque to a European early-stage startup today, is pretty much equivalent to letting them taking the full round. As Matt Clifford - founder of Entrepreneur First, says:

“Their positioning here is ‘skip a round’, which piles pressure less on accelerators and more on conventional pre-seed and seed funds outside the US.”

So basically YC is reviewing its positioning as a global pre-seed fund, to become more attractive to founders other ecosystems. After all, let’s remind that being a YC startup as of today makes is x4.5 more likely to be valued at $100M one day, and x3 more likely to become a unicorn. With the new deal, it wouldn’t be a surprise to see non-US founders rush to get into YC’s batches.

However, as YC increases the size of its batches and the total amount it invests, it inevitably becomes more and more impersonal / industrial. I believe that, as it scales, it is paradoxically giving the opportunity to early-stage investors to compete on being the anti-YC kind of investor.

Investors can add true value beyond money in being curated, small investors with a hands-on and personalized approach. With YC killing the cheques game, I can only see some competitors doubling-down on this approach to stay competitive in the future.

YC’s model is not suited to everyone.

4. Putting YC’s reputation at risk

Of course, increasing cheques and batches size would make a lot of sense for Y Combinator if they are able to keep the quality of founders and the selection criteria at a high level. But it is a complex balance to find:

• On the one hand, they could increase chances for startups to succeed as they get more time to focus on the business rather than fundraising, have a longer runway and higher financial resources to build their product or service. But they also make it likely that their founders will suffer from the ‘marginal dollar problem’.

• On the other hand, they increase their chances of making bad investments. Is there really that many good startups to fund out there?

YC is taking the (calculated) risk of diminishing its success rate in volume, to maximize its ROI. But is it worth the impact on its reputation?

For a while in the startup ecosystem, being a Y Combinator company meant something. People who’d gone through the program spoke very highly of it and getting the YC stamp was a huge breakthrough for their company.

• First, it meant that companies had reached a basic level of competence since they made it through the YC selection process and survived it through the end of the program.

• Second, it gave access to early stage investors and smallers funds that were likely to contribute to successful rounds at Demo Days.

Will it still be the case for larger cohorts of heavily-funded startups?

By raising the price of the initial investment, Y Combinator will only make it harder for local investors and smallers VC funds to participate to Demo Days and fund startups that are being built inside their borders However, we all know that having connections to local investors in your home market is important. So it’s likely to get a bit messy. Having a YC stamp could well become a ‘no go’ sign for local investors, who’d be unwilling to match the pricing and valuation standards that’ve been set by the American firm.

Isn’t this a significant blow to YC’s core value proposition? 🤔

Wise would be the one to know how this will play out.

🌍  All eyes on the EU... and elsewhere

European funding in January 🇪🇺 

+2 French unicorns 🥐

On Monday, Exotec, a warehouse robotics startup, announced it had raised a $335M round at a $2B valuation, thus becoming the 25 French unicorn.

➡️ To Sifted article

That deserved a video from the French president right? 😉

Talk about timing, the video is already outdated since Spendesk announced on Tuesday it had raised a $114M Series C round from Tiger Global, reaching a $1.14B valuation, and making it the 26th French unicorn 🦄

➡️ To Techcrunch article

Now, I can only imagine Spendesk was angry not to make it to the first 25…

Top 10 women to follow in French Tech 🇫🇷

I know this section might sound a bit French. Sorry for that.

But you know how committed Upscalers is a creating a more diverse ecosystem. So I can only share with you the list of the 10 women entrepreneurs to follow this year in French Tech.

There are some amazing entrepreneurs and investors in there, starting from Aude Guo (founder of Innovafeed), Laura Roguet (Principal at Korelya Capital) or Chloé Hermary (co-founder of Ada Tech School).

Who knows, maybe you’ll get an Upscalers W episode with some of them soon ⌛

Upscalers talking about Women in Tech 😀

Speaking of women in Tech, I had the chance to be interviewed by Authority Magazine on what to do to close the VC gender and racial gap.

Here’s a snapshot of ideas I gave to tackle the issue:

• Schools should talk a lot more about entrepreneurship and set up proper career advisory programs where entrepreneurship is revalued as a viable job option for anyone.

• Self-education should also be considered as good education as any university program. The Internet is a much more inclusive learning tool than any school or university.

• We should invest more in women and minorities fund managers since they are more likely to invest in startups with female founders.

• Investors should make diversity a central KPI. Just as they’d look at churn rate or revenue growth!

• We should make investing in startups easier and accessible to everyone.

I had so much fun!

➡️ Read the full article

Thanks again for reading guys
See you next week 👋

Tim

And if you enjoy our content, why not join Upscalers as a member?

Join the community

💡 Thoughts on Don’t Look up and what it means for the Tech industry

Warnings: there might be some spoilers in there.

On December 2021, Don’t Look up - the new Adam McKay movie was released on Netflix. Adam McKay is well know for being the director of The Big Short (2015).

Ever since the release, I keep on reading / hearing very divergent opinions about the movie, and seeing people fighting over whether it is a masterpiece or a complete disaster. You all know how balanced debate can be nowadays...

I am not a movie critic and don’t intend to be. Plus, I fully agree with the movie’s message on climate change. But there is much to say about how the Tech question is dealt with. So I figured I’d give you my thoughts about it.

Here we go ⬇️

1. A necessary critique

For those who didn’t see it yet, Don’t Look up is a critique of the inaction of our leaders and societies on climate change, and of the influence of Big Tech in discrediting scientific narrative.

The movie is the story of Dr. Mindy (Di Caprio) and his student Lawrence Dibiasky (Jennifer Lawrence), respected scientists, trying to convince the world that a huge asteroid is about to wipe out all life on Earth. From there, an acerbic critique of our modern societies starts, where basically everyone is taken a shot at:

• Politicians, represented by US President Orlean (Meryl Streep), who are too concerned about reelection to hear scientific facts and act upon them.

• Big Tech guys, represented by Peter Isherwell (a Jobs x Musk x Page kind of guy), who are only driven by their company’s profit, and who completely discredit scientific discourse to the people.

• The media, which is too concerned about audience and readership to listen to bad scientific news and share them seriously

• People, who are completely diverted by new technologies and the media and defy scientific facts to the point that they can’t think by themselves anymore.

Are they forgetting someone?

I have little to say about the thinly-veiled caricature the movie draws, except that I mostly agree with it. Take the asteroid out and replace it by climate change and you’ve got a pretty accurate picture of what is going on today. But the success of the movie (remaining the top movie on Netflix so far), has triggered a heated debate within the movie-lovers community and resulted in a pretty bizarre narrative.

The general idea is that if critics didn’t like the movie (or part of it), they must hate its message, which is that climate change is a clear and present danger to our planet, or simply don’t understand it ⬇️

Obviously, criticising a movie doesn’t mean you disagree with its message. I repeat: I do agree with the message. But I will below intend to give my thoughts on what the movie truly means for the Tech industry. And I might throw some critics along the way.

So please, dO nOt BeLiEve I bELOnG tO thE rOboT cAtEgOry 😉

2. Grossly opposing Tech and climate action

As mentioned above, the whole Tech industry is represented by Peter Isherwell, an eccentric Tech mogul whose pretended altruism does little to hide his profound desire for company profit. Peter Isherwell manages to convince the US government and the people that technology can deflect the astroid from hitting the Earth, despite scientific warnings that he won’t manage (spoiler altert: he doesn’t).

The main criticism that is thrown at Isherwell by the scientific community is that the technology is not “peer reviewed”, which might sound like a weak counter, but is actually a very profound and powerful one. Though I believe that this is the main takeaway that Tech should get from the movie (I’ll get back to this in a minute), I fear that the message will be misunderstood due to gross caricature. By elevating the Isherwell character as the unique representative of “Tech”, the movie completely fails to grasp the complexity of the ecosystem.

Big Tech is not all Tech. All startups are not GAFAs. There is a lot small startups and tech entrepreneurs can do to contribute to the fight against climate change.

Some time ago, Jean-Marc Jancovici, a famous French climate scientist, published a great tribune, depicting a world with two sciences:

• The first, which leads to great scientific discoveries (including vaccines, transports, payments methods etc.) but which (too) often has a bad impact on the Climate. This is basically what we call “Tech”.

• The second one, which does not aim at creating or improving a technique or a process, but at depecting the world as it is and raising concern where needed.

The first one, according to Jancovici, receives all the political favours and is well-funded. The second one is heavily criticised, its results are unfairly contested and the concerns its raises always come as a late priority.

I agree that not enough is being done to give credit to the scientific discourse (Science 2) on the regulatory scene, in the media and in civil society. But the hierarchy between the two sciences is progressively (not fast enough though) being reversed. We see more and more innovations aiming at “creating or improving” something to help protect the environment. And more funding being granted to them, because it progressively make perfect economic AND environmental sense.

I already talked a lot about Climate Tech, so I can only encourage you to read the past edition of this newsletter on the topic.

➡️ To the past edition on Climate Tech

I feel that Don’t Look Up is too much of a caricature, opposing Climate Action with Tech as whole under the banner of “Big Tech”. Seeing the world with binary lenses won’t lead us anywhere.

3. Useful learnings for the Tech industry

Despite this shortcut, the movie is offering valuable takeaways for the Tech industry in general, which lie in its critic of the process for introducing new innovations in Tech. Namely: the demos.

The movie has three moments that point out exactly what can be wrong about the way we do demos in Tech today.

• The first one is when Isherwell introduces his new smartphone software, which basically reads users emotions and pacify them through content. Anything familiar? 🤔

• The second one is when Isherwell demonstrates, in a very technically impressive way, how he intends to use technology to deflect the asteroid that is coming right at Earth.

• The last one is when Isherwell shows how his tech robots can dismantle the asteroid. Again, the demonstration is super impressive, but not backed up by any real-life performance.

These parts of the movie are actually pretty accurate in depicting what demo days or keynotes can look like today: fabricated scenarii where the actual performance of the technology or startup in question is completely hidden from the audience.

Think of it like this: this is exactly why many investors today pour tremendous amounts of money on nothing more than a pitch deck. They are sold an ideal story to believe in. And they buy it.

Hence the importance of due dilligence and expert review in the process.

***

So, want to watch the movie? 😉

🌍  All eyes on the EU... and elsewhere

European funding in January 🇪🇺 

Crazy, crazy European crazy week 🇪🇺

It has been one of the craziest weeks of European funding we’ve ever lived.

Checkout.com London-based online payment solutions provider announced it had secured a $1B Series D round, that values the company at $40B.

➡️ To Techcrunch article

Bolt (ex Taxify) 🇪🇪 raised a €628M Series F, valuing the company €7.4M. Bolt started as a ride-hailing app and has been rolling out various services since, including car-sharing and micro-mobility options, as well as food delivery services.

➡️ To Tech.eu article

Wolt, the Helsinki-based online ordering and delivery company, announced it has raised $530 million in new funding.

➡️ To Techcrunch article

On Monday, Ankorstore announced it had reached unicorn status (€2B valuation) with a €250M Series C round. 25th French unicorn. Here we go! 🇫🇷

➡️ To Tech.eu article

On Wednesday, Qonto, the Paris-based fintech for SMEs and freelancers, became the most valued company in the French ecosystem (€4.4B), announcing a €486M Series D funding.

➡️ To Linkedin post from the French President

But, only a few hours later, Back Market the French refurbished electronics marketplace announced a new $335M Series E round, reaching a $5.7B valuation and stealing the record from Qonto 😱

➡️ To Techcrunch article

On top of that:

• GoStudent, the first European EdTech unicorn, raised another €300M Series D round.

• TravelPerk 🇪🇸 announced a $115M addition to their $160M Series D round making it to the unicorn club.

• Dublin-based Flipdish raised $100M Series C, reaching unicorn status too.

➡️ To Tech.eu article

Now that makes me wonder… what happened during Christmas holidays for all these rounds to be announced early this year? 😱

Y-combinator announcing a new standard deal 🇺🇸

Okay, YC wants to kill the game. This week, the San Francisco based company announced that they will know invest a total $500,000 for every company that is accepted to the bi-annual YC batch program. How?

They still invest $125,000 for 7% and now also invest an additional $375,000 on an uncapped safe with an MFN.

➡️ To YC article

Crazy isn’t it?

Let’s deep dive into the topic in next week’s newsletter.

Thanks again for reading guys
See you next week 👋

Tim

And if you enjoy our content, why not join Upscalers as a member?

Join the community

💡  Predictions for European Tech in 2022

2021 has been a crazy year for European Tech with Venture Capital funding reaching new all time heights across all stages. As we are entering the new year, I figured it would be interesting to give our predictions for 2022 European Tech.

I’ll try to be brief and give you my top 10 insights on:

📈 What the Europen Tech ecosystem will look like a year from now

🎯 Where funding will go (in other words, what priorities will investors have)

🔥 What the hottest trends will be

There will be some bullish takes in this one, get prepared. Those reflect my vision of the market only.

Here we go ⬇️

1. 2022 European levels of funding will match 2021’s

Despite troubling times caused by the pandemic, venture capital investments in European Tech startups more than doubled from 2020 to 2021.

Our prediction is that European Tech will remain attractive to investors, resulting in similar levels of investment in 2022, compared to 2021. European companies that raised early stage rounds 10 years ago, are now achieving higher levels of maturity, and are likely to raise big rounds in the early 2020s.

2. Alternatives to local VCs will become more popular with founders

Gone will be the days where Pre-seed and Seed rounds were only looked at by local VCs and a handful of local angels’ clubs. We predict that this year more than ever, founders of early stage companies will raise funds from multiple sources including…

🤙 … ex-entrepreneurs turning investors (and communities!)

💸 … revenue financing (remember when I told you about Capchase?)

🏢 … international VCs going down the funding ladder to spot the best deals early on

The rise of new kinds of startup investors will also be powered by…

• … startups facilitating investments either on the primary and secondary market (e.g., Vauban or Equisafe for setting up SPVs, or Caption Market for the secondary market).

• … demands for more investors’ accountability and value beyond money (👋 Landscape)

3. Funding for women founders will remain low… but investment in women-led early stage startups will increase!

In 2021, women founders raised the lowest proportion of total capital since at least 2017. Figures dropped from 2.4% last year (which was a paltry all time high) to 1.1%. Venture capital sucks at backing women founders and promoting diversity in general.

Let’s be realistic. Overall levels of funding for women founders are likely to remain low next year.

Yet, there is hope for a better future. I can feel that there is a growing sense of awareness of the diversity issue in Venture Capital. So let’s be bullish. My bets are that, by the end of 2022…

• … the share of early-stage deals funding (<$10M) captured by women will have increased from 7% in 2021 to at least 20%.

• … the number of women and minorities fund managers will be greater than ever before in Europe.

Step by step.

4. There will be more investment in climate tech companies

2021 was a breakthrough year for Climate Tech. We saw record amount of capital being invested into the space and a greater-than-ever number of companies raising significant rounds. Since the 2016 Paris Agreement, investment in Climate Tech companies grew x4.9, reaching $B32.3 (data from Q3 2021).

On top of that, Europe is now emerging as the fastest growing region for climate tech, with investment growing 7 times since 2016.

My guess is that Climate Tech will continue to be trendy with companies raising larger rounds and more generalist VC funds raising dedicated climate Tech funds in 2022. 2021 already saw a bunch of developments on the investors’ side with Speedinvest raising a €80M climate tech focused fund, or Ecosia launching the World Fund to focus solely on Climate Tech.

I encourage you to have a look at Sifted’s list of fastest growing Climate Tech companies in Europe. There may be some future unicorns in there

➡️ To Sifted article

5. 2022 will be the year of EdTech

3-months ago, I dedicated one of the first editions of this newsletter to EdTech investment. At the time, predictions from Brighteye Ventures (Europe’s biggest edtech VC firm) were that EdTech investment in Europe would hit $1.8B by the end of 2021.

Eventually, $2.2B were invested in EdTech in Europe in 2021, which is more than double the amount of 2020 ⬇️

My assumption is that, with the future of work, not only will people take meetings in the Metaverse, but they will be changing jobs more regularly than ever before (especially Gen Zers). Digital ways to learn and refresh skills will get more and more traction as job turnover increases.

It is also likely that EdTech solutions will integrate further into learning delivery and learning processes and disrupt traditional education as we know it. There is a lot to do in the space, so I can only imagine that well-funded startups will flourish in 2022.

6. Grocery delivery funding madness will come to a halt

2021 has been a crazy year for grocery delivery funding. I mean… really crazy.

My bet is that this nonsense will stop. Funding of grocery delivery startups has been powered by the growing e-commerce demand due to Covid and the utter necessity for startups in the field to maintain high levels of cash to develop the business. But I believe the amounts of money that are being poured at the opportunity are grossly disproportionate to the size of the opportunity.

In the end, grocery delivery is a dog-eat-dog business where companies are left with little option but to compete on price, and where the strongest will win.

My assumption is that we will stop seeing crazy rounds in Europe, and that there will be a wave of consolidations from Big Tech acquirers (👋 Amazon) and failures from the least resilients.

7. European fintech will see at least two IPOs

My bet is that Klarna 🇸🇪 and Revolut 🇬🇧 will both go public this year. Nothing more than a bet. All I can tell you is that I agree with Crunchbase experts on this one.

8. DAOs will be the next big thing

DAO (Decentralized Autonomous organizations) are blockchain-based governance structure without hierarchical management. They have the potential to completely disrupt the way we think about organizational decision-making and distribution of capital.

I already told you about how a handful of crypto-enthusiasts managed to raise $40M from over 17K donors to buy a copy of the US constitution 2 months ago. There are many other applications where DAOs can be used including investment, charity, fundraising, borrowing, buying NFTs…

There are still unclear boundaries as to how to regulate them, but my guess is that we will see an increasing number of companies trying to build the infrastructure to prepare for the mass adoption of DAOs in the near future.

9. NFTs will stop being collectibles and focus on finding real applications

This one comes from the bottom of my heart. There has been a lot of FOMO behind the NFT movement, with investors throwing tremendous amounts of money at NFT and metaverse startups recently.

I truly believe that this bubble will eventually burst and that startups will eventually move away from focusing on collectibles to finding ways to use NFTs that are more valuable to the whole society.

🌍  All eyes on the EU... and elsewhere

European funding in January 🇪🇺 

I experienced a little setback with Dealroom this week. We'll be back with this section next week. Apologies! 🙏

Payfit making it to unicorn status 🇫🇷

Payfit is French payroll and HR SaaS platform for small and medium companies. This week, the company announced it raised a €254M Series E round, reaching a post-money valuation of €1.82B, and becoming the 23rd French unicorn.

➡️ To Techcrunch article

Delivery Hero and Glovo strenghtening their partnership 🤝

On New Year’s Eve, Glovo announced it had reached a new acquisition agreement with Berlin’s startup Delivery Hero that values the startup at €2.3 billion. Delivery Hero which was already a shareholder of Glovo with 44% shares, has now taken on an additional 39.4% – taking 83.4% control of the Spanish company.

That is some sort of delivery giants they are building.

➡️ To EU startups’ article

Report on the French ecosystem

If you are interested in getting the full picture of what the French startup ecosystem looked like in 2021, I encourage you to read the below report by Alexandre Dewez.

Alexandre is a VC a Eurazeo, and he’s been doing a fantastic job picturing the ecosystem.

➡️ To the report

Thanks again for reading guys
See you next week 👋

Tim

Latest trends in FoodTech - investing where we don’t need it the most 💡

As always, feel free to like, comment, react and respond. Thanks for reading!

And if you enjoy our content, why not join Upscalers as a member?

Join the community

💡 Latest trends in FoodTech - investing where we don’t need it the most

Last week, I mentioned that Infarm had raised a $200M Series D making it a unicorn. Then, I promised I'd talk about FoodTech this week. 

So here we go ⬇️

1. What is Foodtech? 🤔

I like to understand Foodtech as a broad category, that covers all innovations affecting the Food supply chain. Not only does this gives a more comprehensive picture, but it also allows to better understand where capital is allocated along the supply chain (and ultimately, what priorities investors have...).
   

   
Foodtech covers: 

• Agritech, which refers to land use and farming practices

• Innovative food, which covers all food production methods commonly using biotech, that often replace carbon intensive animal based products, such as synthetic proteins or insect proteins

• Food logistics and delivery, which is self explanatory

• In-store retail and restaurant tech, which covers payment services, reservation platforms, foodservice management, cloud kitchens and any solution for the food retail industry

• Kitchen and cooking tech.

     
In 2021, Foodtech startups belonging to at least one of these categories accounted for 7.5% of all VC investments in Europe ($9.1B invested).
   

2. Investing where we don't need it the most 🎯

What's staggering is that investment increased x2 from 2020 to 2021. Growth has been powered by the exponential rise of multiple European Food delivery startups (including Gorillas, Flink, Picnic...) which raised crazy rounds over the past 12 months.
   

   
As a result, food delivery remains by far the n°1 most invested in sector in the Food industry.
   

   
I already talked a lot about food delivery, so let's not focus on this.

What's strikes me overall is that it looks like a suboptimal allocation of capital, considering the huge challenges underlying food production.
 

3. Solving the world's biggest problems - GHG emissions 💨

The food system that currently feeds the world's population accounts for approximately 26% (13.6B tons) of global GHG emissions.

Livestock agriculture is the highest contributor. Of the 13.6B tons of GHG emissions, around 31% is attributed to methane release from enteric fermentation (digestion), and 18% to land-use for livestock. Considering that by 2050, global population is expected to grow by 25%, we'll be facing an acute increase in GHG emissions if we do not transform the way we grow food.

There are very significant areas where startups, emerging technologies and farmers can make a huge difference... and where funding can have impact!

First, we urgently need to improve climate efficiency of current farming practices AND find innovative approaches that are less carbon-intensive such as precision farming, vertical farming etc. Notable startups such as Ynsect or Infarm are already heavily funded to become world leaders in the field.

Second, land use and management is relatively outdated, so it is prone to Tech as a disruptor. We'll soon present an opportunity which uses data to optimize soil utilization to the Upscalers community. We're pretty excited about it. More on this in January ⏳

Third, we need to focus on new forms of nutrition which includes alternative proteins. There are four alternative proteins that offer promising opportunities for the future:
 
🌱 Plant protein, such as soy, pea, chickpea, rapeseed, lupin..
🐛 Insects, such as mealworms or black soldier flies
🍄 Mycoprotein, from fungal biomass
🥼 Cultured meat, which is lab-grown animal protein using tissue-culture technology.

Overall, plant proteins are expected to be the largest source of alternative proteins in the future, because they have a limited environmental impact, a good perception by customers AND advantageous economics. Plant proteins avoid the 'feed-to-food' conversion loss which is typical of other proteins.

Last but not least, we will have to look at carbon capture technologies if we want sustainable levels of GHG emissions. I won't be talking about carbon capture technologies here, I might dedicate a whole newsletter to this topic in the near future. 

4. Solving the world's biggest problems - water 💧

There's also another crisis to which Agriculture is a MAJOR contributor: the global water crisis. Water used for irrigation, livestock and acquaculture underpins the world food system. Globally, agricultural water use surpasses any other applications, accounting for around 70% of water withdrawals.
   

   
Agriculture is also a major source of water pollution which is causing public health crises from contamination of groundwater.

There's a lot to do in the field. Startups using data, sensors, aerial imagery technologies or AI can help farmers make the most of every drop while maintaining water quality.

We are currently reviewing an opportunity which is an AI driven B2B SaaS to map, prevent and cope with water pipe leaks. I guess we'd all find ourselves very happy if we could contribute to fund such startups, which try to solve a global problem, and contribute to the Agritech sector recovery. Agritech has been massively underfunded in Europe in 2021 ($785M) compared to 2020 ($1.4B). 

5. Startups to watch

I strongly encourage you to have a look at Sifted’s list of Agritech startups to watch.

On top of this, I can only recommend that you register to join us as members of the community, and have a look at the great deals that we'll select for you in early January. Those are golden tickets 🎟️ 

🌍 All eyes on the EU... and elsewhere

European funding in December 🇪🇺 

VOI becomes a unicorn 🛴

This week, the Swedish micromobility startup announced it has raised a $115M Series D funding round, as it plans to move to new cities in 2022. Congratulations to Carl Vernersson, CCO of the company, and member of the community! Well deserved Carl 👏

➡️ To Techcrunch’s article

Dealroom raises a $6M round 📊

You know how much of a fan of Dealroom I am. Most of the data we use at Upscalers comes from their platform.

So I wanted to share with you that Dealroom has just raised a €6M Series A funding round this week.

➡️ To EU-startups' article

NFT satire of Boris Johnson 🇬🇧 

A new project has just been released on the NFT platform OpenSea, called Non Fungible Tories - The Boris drop ⬇️
    

   
This consists of a series of NFTs based on Boris Johnson's most famous quotes. Pfeffel, the UK-based artist behind the project says it is a satirical tribute to the British PM, whom he consider to be '“a clown, an oaf, a wager of culture war, and a pound-shop Churchill”. Ouch.

The artist has claimed that the charity Crisis at Christmas, which helps the homeless on U.K. streets will benefit from the NTF auction. It's good to see that charities start to benefit from the 'frenzy'.
   

➡️ To Techcrunch’s article


Thanks again for reading guys
See you next year 👋

Tim