As the venture market tightens, a debt lender sees big opportunities

David Spreng spent more than 20 years in venture capital before dipping his toe into the world of revenue-based financing and realizing there was a growing appetite for alternatives to venture capital. Indeed, since forming debt-lending company Runway Growth Capital in mid-2015, Spreng has been busy writing checks to a variety of mostly later-stage companies on behalf of his institutional investors. (One of these, Oak Tree Capital Management in LA, is a publicly-traded credit firm.)

He expects he’ll be even busier in 2020. The reason — if you haven’t noticed already — is a general slowing down in what has been a very long boom cycle. “We’re in the late innings of a very long game,” said Spreng today, calling from Davos, where he has been attending meetings this week. “I don’t think the cycle is going to end this second. But where we went from a growth-at-all-costs mentality, boards are now saying, ‘let’s find a balance between top line growth and capital efficiency — let’s figure out a path to profitability.’ ”

Why is that good for Spreng and his colleagues? Because when a cycle ends, venture capitalists get stingier with their portfolio companies, writing fewer checks to support startups that aren’t hitting it out of the park, and often taking a bigger bite under more onerous terms when they do reinvest to counter the added risk they’re taking.

Catalyst Fund gets $15M from JP Morgan, UK Aid to back 30 EM fintech startups

The Catalyst Fund has gained $15 million in new support from JP Morgan and UK Aid and will back 30 fintech startups in Africa, Asia, and Latin America over the next three years.

The Boston based accelerator provides mentorship and non-equity funding to early-stage tech ventures focused on driving financial inclusion in emerging and frontier markets.

That means connecting people who may not have access to basic financial services — like a bank account, credit or lending options — to those products.

Catalyst Fund will choose an annual cohort of 10 fintech startups in five designated countries: Kenya, Nigeria, South Africa, India and Mexico. Those selected will gain grant-funds and go through a six-month accelerator program. The details of that and how to apply are found here.

“We’re offering grants of up to $100,000 to early-stage companies, plus venture building support…and really…putting these companies on a path to product market fit,” Catalyst Fund Director Maelis Carraro told TechCrunch.

Program participants gain exposure to the fund’s investor networks and investor advisory committee, that include Accion and 500 Startups. With the $15 million Catalyst Fund will also make some additions to its network of global partners that support the accelerator program. Names will be forthcoming, but Carraro, was able to disclose that India’s Yes Bank and University of Cambridge are among them.

Catalyst fund has already accelerated 25 startups through its program. Companies, such as African payments venture ChipperCash and SokoWatch — an East African B2B e-commerce startup for informal retailers — have gone on to raise seven-figure rounds and expand to new markets.

Those are kinds of business moves Catalyst Fund aims to spur with its program. The accelerator was founded in 2016, backed by JP Morgan and the Bill & Melinda Gates Foundation.

Catalyst Fund is now supported and managed by Rockefeller Philanthropy Advisors and global tech consulting firm BFA.

African fintech startups have dominated the accelerator’s companies, comprising 56% of the portfolio into 2019.

That trend continued with Catalyst Fund’s most recent cohort, where five of six fintech ventures — Pesakit, Kwara, Cowrywise, Meerkat and Spoon — are African and one, agtech credit startup Farmart, operates in India.

The draw to Africa is because the continent demonstrates some of the greatest need for Catalyst Fund’s financial inclusion mission.

By several estimates, Africa is home to the largest share of the world’s unbanked population and has a sizable number of underbanked consumers and SMEs.

Roughly 66% of Sub-Saharan Africa’s 1 billion people don’t have a bank account, according to World Bank data.

Collectively, these numbers have led to the bulk of Africa’s VC funding going to thousands of fintech startups attempting to scale payment solutions on the continent.

Digital finance in Africa has also caught the attention of notable outside names. Twitter/Square CEO Jack Dorsey recently took an interest in Africa’s cryptocurrency potential and Wall Street giant Goldman Sachs has invested in fintech startups on the continent.

This lends to the question of JP Morgan’s interests vis-a-vis Catalyst Fund and Africa’s financial sector.

For now, JP Morgan doesn’t have plans to invest directly in Africa startups and is taking a long-view in its support of the accelerator, according to Colleen Briggs — JP Morgan’s Head of Community Innovation

“We find financial health and financial inclusion is a…cornerstone for inclusive growth…For us if you care about a stable economy, you have to start with financial inclusion,” said Briggs, who also oversees the Catalyst Fund.

This take aligns with JP Morgan’s 2019 announcement of a $125 million, philanthropic, five-year global commitment to improve financial health in the U.S. and globally.

More recently, JP Morgan Chase posted some of the strongest financial results on Wall Street, with Q4 profits of $2.9 billion. It’ll be worth following if the company shifts its income-generating prowess to business and venture funding activities in Catalyst Fund markets such as Nigeria, India and Mexico.

Trucks VC general partner Reilly Brennan is coming to TC Sessions: Mobility

The future of transportation industry is bursting at the seams with startups aiming to bring everything from flying cars and autonomous vehicles to delivery bots and even more efficient freight to roads.

One investor who is right at the center of this is Reilly Brennan, founding general partner of Trucks VC, a seed-stage venture capital fund for entrepreneurs changing the future of transportation.

TechCrunch is excited to announce that Brennan will join us on stage for TC Sessions: Mobility.

In case you missed last year’s event, TC Sessions: Mobility is a one-day conference that brings together the best and brightest engineers, investors, founders and technologists to talk about transportation and what is coming on the horizon. The event will be held May 14, 2020 in the California Theater in San Jose, Calif.

Brennan is known as much for his popular FoT newsletter as his investments, which include May Mobility, Nauto, nuTonomy, Joby Aviation, Skip and Roadster.

Stay tuned to see who we’ll announce next.

And … $250 Early-Bird tickets are now on sale — save $100 on tickets before prices go up on April 9; book today.

Students, you can grab your tickets for just $50 here.

Space Angels’ Chad Anderson on entering a new decade in the ‘entrepreneurial space age’

Space as an investment target is trending upwards in the VC community, but specialist firm Space Angels has been focused on the sector longer than most. The network of angel investors just published its most recent quarterly overview of activity in the space startup industry, revealing that investors put nearly $6 billion in capital into space companies across 2019.

I spoke to Space Angels CEO Chad Anderson about what he’s seen in terms of changes in the industry since Space Angels began publishing this quarterly update in 2017, and about what’s in store for 2020 and beyond as commercial space matures and comes into its own. Informed by data released publicly, SEC filings and investor databases — as well as anonymized and aggregated info from Space Angels’ own due diligence process and portfolio company management — Anderson is among the best-positioned people on either the investment or the operator side to weigh in on the current and future state of the space startup industry.

“2019 was a record year — record number of investments, record number of companies, a record on all these fronts,” Anderson said. “2019 in its own right was a huge year, but then you look at everything that happened over the last decade. We always refer to this last decade as ‘the entrepreneurial space age’ […] and you see everything that’s happened over the last 10 years, you see it all culminating in a record year like this one.”

What we know (and don’t) about Goldman Sachs’ Africa VC investing

Goldman Sachs is investing in African tech companies. The venerable American investment bank and financial services firm has backed startups from Kenya to Nigeria and taken a significant stake in e-commerce venture Jumia, which listed on the NYSE in 2019.

Though Goldman declined to comment on its Africa VC activities for this article, the company has spoken to TechCrunch in the past about specific investments.

Goldman Sachs is one of the most enviable investment banking shops on Wall Street, generating $36 billion in net revenues in 2019, or roughly $1 million per employee. It’s the firm that always seems to come out on top, making money during the financial crisis while its competitors were hemorrhaging. For generations, MBAs from the world’s top business schools have clamored to work there, helping make it a professional incubator of sorts that has spun off alums into leadership positions in politics, VC and industry.

All that cache is why Goldman’s name popping up related to African tech got people’s attention, including mine, several years ago.

Felix Capital closes $300M fund to double down on DTC, break into fintech and make late-stage deals

To kick off 2020, one of Europe’s newer — and more successful — investment firms has closed a fresh, oversubscribed fund, one sign that VC in the region will continue to run strong in the year ahead after startups across Europe raised some $35 billion in 2019. Felix Capital, the London firm founded by Frederic Court that was one of the earlier firms to identify and invest in the trend of direct-to-consumer businesses, has raised $300 million, money that it plans to use to continue investing in creative and consumer startups and platform plays as well as begin to tap into a newer area, fintech — specifically startups that are focused on consumer finance. 

Felix up to now has focused mostly on earlier-stage investments — it now has $600 million under management and 32 companies in its portfolio in eight countries — based across both Europe and the US. Court said in an interview that a portion of this fund will now also go into later, growth rounds, both for companies that Felix has been backing for some time as well as newer faces.

As with the focus of the investments, the make-up of the fund itself has a strong European current: the majority of the LPs are European, Court noted. Although Asia is something it would like to tackle more in the future both as a market for its current portfolio and as an investment opportunity, he added, the firm has yet to invest into the region or substantially raise money from it.

Felix made its debut in 2015, founded by Court after a strong run at Advent Capital where he was involved in a number of big exits. While Court had been a strong player in enterprise software, Felix was a step-change for him into more of a primary focus on consumer startups focused on fashion, lifestyle and creative pursuits.

That has over the years included investing in companies like the breakout high-fashion marketplace Farfetch (which he started to back when still at Advent and is now public), Gwyneth Paltrow’s GOOP, the jewellery startup Mejuri, trend-watching HighSnobiety, and fitness startup Peloton (which has also IPO’d).

It’s not an altogether easygoing, vanilla list of cool stuff. Peloton and GOOP have had been mightily doused in snarky and sharky sentiments; and sometimes it even seems as if the brands themselves own and cultivate that image. As the saying goes, there’s no such thing as bad press, I guess.

Although it wasn’t something especially articulated in startup land at the time of Felix’s launch, what the firm was honing in on was a rising category of direct-to-consumer startups, essentially all in the area of e-commerce and building brands and businesses that were bypassing traditional retailers and retail channels to develop primary relationships with consumers through newer digital channels such as social media, messaging and email (alongside their own DTC websites). 

This is not all that the company has focused on, with investments into a range of platform businesses like corporate travel site TravelPerk, Amazon -backed food delivery juggernaut Deliveroo and Moonbug (a platform for children’s entertainment content), as well as increasingly later stage rounds (for example it was part of a $104 million round at TravelPerk; a $70 million round for marketplace-building service Mirakl; and $23 million for Mejuri.

Court’s track record prior to Felix, and the success of the current firm to date, are two likely reasons why this latest fund was oversubscribed, and why Court says it wants to further spread its wings into a wider range of areas and investment stages.

The interest in consumer finance is not such a large step away from these areas, when you consider that they are just the other side of the coin from e-commerce: saving money versus spending money.

“We see this as our prism of opportunity,” said Court. “Just as we had the intuition that there was a space for investors looking at [DTC]… we now think there is enough evidence that there is demand from consumers for new ways of dealing with money and personal finance.”

The firm has from the start operated with a board of advisors who also invest money through Felix while also holding down day jobs. They include the likes of executives from eBay, Facebook, and more. David Marcus –who Court backed when he built payments company Zong and eventually sold it to eBay before he went on to become a major mover and shaker at Facebook and is now has the possibly Sisyphean task of building Calibra — is on the list, but that has not translated into Felix dabbling in cryptocurrency.

“We are watching cryptocurrency, but if you take a Felix stance on the area, it’s only had one amazing brand so far, bitcoin,” said Court. “The rest, for a consumer, is very difficult to understand and access. It’s still really early, but I’ve got no doubt that there will be some things emerging, particularly around the idea of ‘invisible money.'”

Delta Air Lines’ startup partnerships are fueling innovation

For the first time, this year Delta Air Lines had a large presence at CES. The carrier used much of its space to highlight the “parallel reality” screens developed by Misapplied Sciences and Sarcos Robotics, which brought its latest Guardian exoskeleton. At the show, I sat down with COO Gil West, an industry veteran with years of experience at a number of airlines and airplane manufacturers, to talk about how the company works with these startups.

Like all large companies, Delta has gone through a bit of a digital transformation in recent years by rebuilding a lot of the technical infrastructure that powers its internal and external services (though like all airlines, it also still has plenty of legacy tech that is hard to replace). This work enabled the company to move faster, rethink a lot of its processes and heightened the reality that a lot of this innovation has to come from outside the company.

“If you think about where we are as a world right now, it’s a Renaissance period for transportation,” West said. “Now, fortunately, we’re right in the middle of it, but if you think about the different modes of transportation and autonomous and electrification — and the technologies like AI and ML — everything is converging. There’s truly, I think, a transportation revolution — and we’ll play in it.

Lucky coffee, unicorn stumbles and Sam Altman’s YC wager

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

This week we had TechCrunch’s Alex Wilhelm and Danny Crichton on hand to dig into the news, with Chris Gates on the dials and more news than we could possibly cram into 30 minutes. So we went a bit over; sorry about that.

We kicked off by running through a few short-forms to get things going, including:

  • Alex wanted to talk about his recent story on Lily AI’s $12.5 million Series A. Canaan led the round into the e-commerce-focused recommendation engine that has a cool take on what people care about.
  • Danny talked about the acquisition of Armis Security by Insight for $1.1 billion, the VC round for self-driving forklift startup Vecna and an outside-the-Valley round for Houston-based HighRadius.

Turning to longer cuts, the team dug into the latest from SoftBank, its Vision Fund and the successes and struggles of its enormous startup bets. Leading the news cycle this week were layoffs at Zume, a robotic pizza delivery venture that is no longer pursuing robotic pizza delivery. Now it’s working on sustainable packaging. Cool, but it’s going to be hard for the company to grow into its valuation while pivoting.

Other issues have come up — more here — that paint some cracks onto the Vision Fund’s sunny exterior. Don’t be too beguiled by the bad news, Danny says; venture funds run like J-Curves, and there are still winners in that particular portfolio.

After that, we turned to China, in particular its venture slowdown. The bubble, in Danny’s view, has burst. The story discussed is here, if you want to read it. The short version for the lazy is that not only has China’s venture scene slowed down dramatically, but startups — even those with ample capital raised — are dying by the hundred. But one highly caffeinated Chinese startup continues to find growth in the world’s greatest tea market.

Finally we hit on the Sam Altman wager and the latest from Sisense, which is now a unicorn. All that and we had some fun.

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

How startups fill the gap between revenue and investment

I get tons of inbound from entrepreneurs and founders, from first-timers with an idea to CEOs with millions in annual revenue, and they all ask what basically boils down to the same question:

“I’ve taken my startup this far, how do I get the money to take it to the next level?”

In 20 years of building companies, roughly half of our companies have taken some form of investment to go after a much larger payoff than our existing revenue would allow. It wasn’t something we celebrated, it was something we felt was mandatory. In other words, there was no other way and outside funding became our best hope.

When you have revenue and you chase funding, you should know what you’re getting into and you should exhaust every other avenue before you decide that someone else’s money is a better bet than your customers’ money. 

Remember: the easier the path, the lesser the payoff. 

The easiest path: venture capital funding

I know it’s heresy to talk about how easy it is to raise money. It’s actually not, and I’ll be the first to admit it: your odds are poor, it’s going to take all your time and energy, and you’re going to be beholden to a bunch of people who have a different vision of your idea than you do.

But if you need scale money, this is the only shortcut.

Now, I say “scale money” because you should only be seeking VC money to scale your business, not establish it. The odds of getting funded for an idea with no current revenue and no current growth are infinitesimally slim. 

So let me start with some truth for the earliest of early-stagers. You’re going to have to walk a harder path, so keep reading.

If you do have revenue, the first thing you have to show a VC associate, the gatekeeper of the firm, is how your existing revenue is going to grow 10x to 100x over the next three to five years. This is standard VC math. 

I’ll leave it to others to debate the logic and/or fairness of the process. My point is that you can put any multiplier you want on zero revenue and the result will still be zero. Even if you’ve got $1,000 in monthly revenue, then that’s about $10,000 in annual revenue, and at best, at 100x, the investor is thinking you might be worth $1 million if all the stars align. 

Most VCs won’t touch a valuation that low unless you’ve got a track record. If you don’t, you’re kind of wasting your time putting a deck together. 

Don’t waste your time. Your startup is probably better than that. You just need to prove it.

The not-so-easy-path: find a rich person

Exhibit your startup at TC Sessions: Mobility 2020

Mobility mavericks, get ready to strut your stuff at TC Sessions: Mobility 2020 on May 14. Don’t miss our second annual day-long conference devoted to technologies that move people and parcels around the world in new, exciting ways.

More than 1,000 of the industry’s mightiest minds, makers, innovators and investors will converge in San Jose for a mobile mind meld. That spells opportunity for early-stage mobility startup founders. Buy an Early-Stage Startup Exhibitor Package and plant your company in front of the influencers who can drive your mobility dreams to the next level.

Whether you’re racing to perfect autonomous vehicles or flying cars, developing AI-based applications, focused on improving battery technology — or you want to recruit a few brilliant engineers — exhibiting at TC Sessions: Mobility offers invaluable exposure and opportunity.

Your exhibitor package includes a 30-inch high-boy table, power, linen and signage. Even better — it includes four tickets to the event. That’s four times the networking power. And it gives you time to take in some of the show’s many panel discussions, fireside chats and workshops.

Because, of course, the day will be loaded with top-notch speakers who, along with TC editors, will discuss the opportunities and challenges — social, economic and regulatory — that come from creating new mobile paradigms.

We’re building our slate of speakers for this year’s event, and we’ll be announcing them on a rolling basis in the coming months. Know someone who should be onstage at this event? You can nominate a speaker here. In the meantime, here are just a couple of examples of what went down at last year’s Session.

Alisyn Malek, co-founder and COO of May Mobility, an autonomous transportation startup, talked about making transportation easier and accessible for everyone, and Jesse Levinson, Zoox CTO and co-founder, shared specifics on the company’s autonomous vehicle hardware design.

And here are just a few more of the speakers who graced the TC Sessions: Mobility 2019 stage:

  • Seleta Reynolds, head of the Los Angeles Department of Transportation
  • Caroline Samponaro, Lyft, head of Micromobility Policy
  • Ted Serbinski, Techstars, founder and managing director of The Mobility Program
  • Sarah Smith, Bain Capital Ventures, partner

You get the idea. And you can expect more high-caliber technologists, policy makers and investors to be in the house when TC Sessions: Mobility takes place May 14, 2020.

Plenty of reason to attend — and even more reason to exhibit. But don’t wait. Exhibition space is limited, and so are the number of packages available. Reserve your demo table here, and get ready to move your early-stage mobility startup in a whole new direction.

Is your company interested in sponsoring or exhibiting at TC Sessions: Mobility 2020? Contact our sponsorship sales team by filling out this form.