Startups Weekly: The unicorn from down under, an Uber TV show and All Raise’s expansion

Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy news pertaining to startups and venture capital. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about Revel, a recent graduate of Y Combinator that’s raised a small seed round.

Remember, you can send me tips, suggestions and feedback to [email protected] or on Twitter @KateClarkTweets. If you don’t subscribe to Startups Weekly yet, you can do that here.


What happened this week?

Uber the TV show

Is anyone surprised Mike Isaac’s “Super Pumped” is set to become a TV show? Travis Kalanick’s notorious journey to CEO of Uber and subsequent ouster was made for television. This week, news broke that Showtime’s Brian Koppelman and David Levien, the creators and showrunners of “Billions,” would develop the project, with Isaac himself on board to executive produce. I will be watching.

All Raise expansion

All Raise, an 18-month-old nonprofit organization that seeks to amplify the voices of and support women in tech, announced new chapters in Los Angeles and Boston this week. I spoke with leaders of the organization about expansion plans, new hires, product launches and more. “Women are hungry for the support and guidance we provide. I think the movement is just gathering momentum,” All Raise CEO Pam Kostka told me.

VCThe unicorn from down under

You’ve probably heard of Canva by now. The Australian tech company, which has developed a simplified graphic design tool, is worth a whopping $3.2 billion as of this week. Investors in the company include Bond, General Catalyst, Bessemer Venture Partners, Blackbird and Sequoia China. Alongside a fresh $85 million funding, Canva is also making its foray into enterprise with the launch of Canva for Enterprise. Read about that here.


What else?

  1. The Station, TechCrunch’s Kirsten Korosec’s new weekly newsletter, has officially launched. She is going deep each week on all things mobility and transportation. You can read her first one here and subscribe here.
  2. ‘Cloud kitchens’ is an oxymoron, says TechCrunch editor Danny Crichton. He penned an interesting piece this week, arguing cloud kitchens are just adding more competition to one of the most competitive industries in the world, and that isn’t a path to leverage.
  3. NASA made history this week when astronauts Christina H. Koch and Jessica Meir took part in the first-ever spacewalk in the agency’s history featuring only women. No, this isn’t startup-related but it’s pretty damn cool. Watch the video here.

EHJxl5XW4AAu3PN 1

NASA astronauts Christina H. Koch and Jessica Meir


VC deals


Startup spotlight: Petalfox. I discovered the business earlier this week. Basically, it’s a super easy way to order flowers, coffee and others goods via SMS. I’m trying it out. That’s all.


Equity

This week was honestly a treat. We had myself in the studio along with Alex Wilhelm and a special guest, Sarah Guo from Greylock Partners, a venture firm (obviously). Guo has the distinction of having the best-ever fun fact on the show. We kicked off with Grammarly, a company that recently put $90 million into its accounts. Then chatted about Lattice, Tempest, WeWork, SaaS, the future of valuations in Silicon Valley and more if you can believe it. Listen here.

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

Greylock GP Sarah Guo is as bullish on SaaS as ever

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where each week we discuss other people’s money and what sense their investment choices make (or don’t).

This week was honestly a treat. We had Kate Clark in the studio along with Alex Wilhelm and a special guest, Sarah Guo from Greylock Partners, a venture firm (obviously). Guo has the distinction of having the best-ever fun fact on the show.

We kicked off with Grammarly, a company that recently put $90 million into its accounts. We chatted about for whom it was built, and if we use it today. One thing that felt clear was that consumers are more willing than before to pay for their tooling. And that means that companies like Grammarly may prove strong investment candidates.

Next, we hit on two more rounds, namely Tiger Global’s investment into Lattice and Clari’s $60 million Series D. Starting with Lattice, a performance management company founded by none other than Sam Altman’s brother, Jack. The startup raised $25 million from Tiger Global; read more about that here.

Clari led us to a discussion of vertical SaaS, and Guo’s views on the future of SaaS products (she’s bullish). Alex and Guo had a lot to say on this subject.

After talking over a few rounds, the discussion turned to the Q3 venture market. A few things stood out from the data and projections. First, that early-stage fundraising was a little light in the quarter. It could be a single-quarter wobble, but the data was worth chewing on all the same. And, second, that seed deal and dollar volume were hot once again.

And we wrapped with a discussion of Tempest, a new sobriety-focused startup that raised a $10 million round. Honestly, we aren’t sure how we feel about the business model. Please let us know if you have thoughts.

It was a good time. A big thanks to Guo for coming on the show, and a shout-out to the team that makes Equity happen: Chris Gates and Henry Pickavet.

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

Africa e-tailer Jumia’s shares fall 4% day after IPO lockup expiration

Shares of Africa focused e-commerce company Jumia dropped 4% the day after the lockup period expired for its April IPO on the New York Stock Exchange.

The lockup provision prevents major shareholders — namely those who purchased equity pre-public listing — from selling their shares for a specified number of days following the IPO.

Jumia’s stock price began Thursday at $7.54, fell to an all-time low of $6.98 by 2pm, and then closed 35 cents down from opening, at $7.19. Jumia’s trading volume on Thursday moved up 19 percent over the daily average since the company went public.

Jumia Share Price October 10Sites that track SEC Form 4 trades, or sales by insiders, aren’t showing anything (at the moment) for Jumia.

What does this all mean? It appears there wasn’t an immediate big stock sell by Jumia’s early and large shareholders post lockup expiry. There was some speculation these investors could drop the company after several rough and tumble months for Jumia post IPO.

Founded in Lagos in 2012, Jumia currently operates multiple online verticals in 14 African countries — from B2C consumer retail to travel bookings.

For Jumia, going public has been an up and down affair. After becoming the first tech startup operating in Africa to list on a major exchange, the company saw its share price rise 70% after listing on the NYSE in April at $14.50.

Then in May, Jumia’s stock tumbled when it came under assault from a short-seller, Andrew Left, who accused the company of fraud in its SEC filings.

Jumia’s latest earnings reporting — delivered in August — had some downside beyond losses. The  company did post second-quarter revenue growth of 58% (≈$43 million) and increased its customer base to 4.8 million from 3.2 million over the same period a year ago.

But Jumia also posted greater losses for the period, 67.8 million euros, compared to 42.3 million euros in 2018.

On top of that, Jumia opened up about a sales related fraud (that it has reported in its original SEC IPO filing) committed by some of its employees and members of its JForce program “to benefit from differences between commissions charged to sellers and higher commissions paid to JForce agents,” according to a Jumia statement.

“The transactions in question generated approximately 1% of our GMV in each of 2018 and the first quarter of 2019 and had virtually no impact on our 2018 or 2019 financial statements,” the statement continued.

Collectively, this has added up to influence Jumia’s share-price falling some 50% from its opening price of $14.50 and 80% from its high of $46.99 on May 1.

As a public company now, the most direct way for Jumia to revive its share-price would be reducing its losses while maintaining or boosting revenues. Of course, that’s the common prescription for many a tech company.

Jumia believes expanding and generating more revenue through its JumiaPay product (with better margins than B2C e-commerce transactions) could help close the revenue vs. loss gap.

Investors and the market at large will be able to track Jumia’s progress during its next (Q3) earnings call, scheduled for November 12, Jumia confirmed to TechCrunch.

 

 

 

 

 

 

 

Why venture capital firms need culture experts

When Susan Fowler’s 2017 blog post shined a light on Uber’s raucous culture, outlining rampant harassment and sexism, a debate erupted. What role do the deep-pocketed investors behind the company, those who allowed it to scale to monstrous proportions, have in developing and nurturing its culture? Entrepreneurs and venture capitalists themselves wondered aloud, how involved should a venture fund be in early-stage recruiting processes and ensuring a safe environment for employees? If a culture is bad, unsafe, damaging, is it the VC’s fault?

Late-stage venture funds, for the most part, miss the opportunity to deeply impact their portfolio companies’ cultures. When they invest, typically large sums of capital in companies with hundreds of employees and multiple offices, the company’s culture is formed and, as Uber and others have proven, rebuilding culture a decade in is no easy challenge. Early-stage funds, however, the people that write the very first check in startups, have a front-row seat to decisions crucial to defining how a company operates and treats its employees in the long term. These people, if they care to, have the power to help determine key hires and establish company values, norms and behaviors from the get-go.

This week, San Francisco-based early-stage fund True Ventures hired its first-ever vice president of culture, a move that suggests VCs are taking concrete steps toward further involving themselves in the company-building process from a D&I and hiring perspective. Madeline Kolbe Saltzman joins the firm, which raised $635 million across two new funds last year, from Handshake, where she was the VP of people and talent.

“There’s a responsibility to guide the company and the founder to being the best they can be, and that involves paying attention to who you’re hiring and how people are being treated,” Saltzman tells TechCrunch. “If we can come in and establish inclusive norms, my hope is that our companies will scale inclusively as well.”

Most venture capitalists are in regular communication with active investments. Early-stage investors, particularly, are very involved with building businesses, facilitating hires and scaling. But as they seek to decrease cash-burn or find product-market fit, VCs are not often very concerned with issues of diversity and inclusion, something that’s became increasingly important as companies are finally being held accountable for the diversity of their workforces.

Why San Francisco is still the gold mine for tech startups

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where each week we discuss other people’s copious dollars and lacking sense.

This week was special! Kate and Alex at Disrupt where they recorded live in front of an audience. Equity has recorded at Disrupt before. Equity has taped before an audience before. But this was the first time that we taped it at Disrupt and in front of an audience that actually had chairs. Progress!

Charles Hudson of Precursor Ventures joined us as well, making for an excellent show. Astute listeners among us will recall that Hudson is a former guest on the show, having taken part back in mid-2017.

Onto the topics, we discussed the impending Precursor Ventures opportunity fund (more here). We wanted to know why it was of modest size, especially in an era of ever-larger venture capital funds.

Next, we turned to a trio of startup stories, starting with Rhino, a company that is working to shake up the rental deposit market. Hate paying deposits for an apartment? Would you rather pay a small, regular fee? Rhino hopes that you would, and has raised $21 million to build out the idea.

Also on our list of topics was a small upstart by the name of Knowable, our colleague Josh Constine profiled the business here. The company sells educational audio bits, and they want you to know, they are not a podcasting business. We’re still a bit unclear of the difference between educational audio and podcast but VCs seem confident enough in the company’s prospects, funneling $3.75 million in the project.

The last startup we riffed on is called oollee. The company provides people with an unlimited supply of filtered drinking water for a small monthly fee. It’s raised $1 million in pre-seed funding from investors, including Mission Gate Inc. and Columbus Holdings, and, of course, we have thoughts!

After that we touched on the most valuable Y Combinator companies, including Stripe (more here and here), Airbnb and DoorDash. The list of YC’s hits is getting long. And, it provided the perfect segue to Airbnb.

Airbnb intends to go public via a direct listing, according to a whole bunch of recent reports. Every VC in town seems to have opinions about direct listings as the next best path to the public markets, maybe they’re right. Finally, WeWork is selling off a bunch of stuff that it bought recently. Here’s a list of what it bought, but SpaceIQ, Teem, Conductor and more are said to be on the chopping block.

All that and we had fun! Back to normal next week.

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

Africa Roundup: CcHub’s iHub acquisition, Andela’s $50M run-rate and layoffs, Transsion’s IPO

Two of Africa’s powerhouse tech incubators joined forces in September. Nigerian innovation center and seed-fund CcHub acquired Nairobi based iHub.

The purchase amount was undisclosed, but CcHub will finance the deal out of its real-estate project to build a new 10-story HQ in Lagos, CcHub CEO Bosun Tijani told TechCrunch.

Details are emerging on how the two entities will operate together, but Tijani noted some degree of autonomy. The names — CcHub and iHub — will remain the same. Tijani is now co-CEO of both organizations.

Nekesa Were continues as iHub managing director. And iHub’s existing programs will remain, with CcHub extending to Kenya some of its existing activities in education, healthcare and governance.

CcHub will also use the iHub addition to expand the investment scope of its Growth Capital Fund.

The acquisition brings together two of Africa’s most powerful tech hubs by membership networks, volume of programs, startups incubated, and global visibility. CcHub and iHub visitors and partnerships span Zuckerberg, Mayer, Facebook, Google, and several African governments.

There’ll be a lot to cover on how this merger shapes up. At a high level, for now, the CcHub-iHub union creates a direct innovation link between two of Africa’s most active markets for VC and startup formation — Nigeria and Kenya .

Africa-focused tech talent accelerator Andela  announced cuts of 400 junior engineers across Kenya,  Uganda and Nigeria just as the startup released first-time earnings figures indicating it will surpass $50 million in revenues for 2019.

On the disjointed news, Andela CEO told TechCrunch the layoffs were due to a shift in market demand for the startup’s more senior developers.

Andela’s client base is comprised of more than 200 companies around the world that pay for the African developers Andela selects and trains to work on projects.

The Series D tech-venture is one of Africa’s most visible (by press volume) and best funded ― backed by $181 million in VC from investors that include the Chan Zuckerberg Initiative.

Johnson said the layoffs were not due to a lack of demand or financial woes. That’s probably why Andela released first-time figures of a $50 million run-rate for 2019, something of a rarity for a startup to reach in less than five years. That’s even more rare for ventures in Africa. Only one VC-backed digital company has revealed annual revenues between $50 and $100 million. That’s Jumia, the e-commerce startup that listed in an NYSE IPO earlier this year.

The departing Andela software engineers gained severance packages and are receiving placement assistance from partners including incubators CcHub and iHub.

Chinese mobile phone and device maker Transsion listed in an IPO on Shanghai’s new NASDAQ-like STAR Market, a Transsion spokesperson confirmed to TechCrunch.

Headquartered in Shenzhen, Transsion is a top seller of smartphones in Africa under its Tecno brand. The company has also started to support venture funding of African startups.

Transsion issued 80 million A shares at an opening price of 35.15 yuan (≈ $5.00) to raise 2.8 billion yuan (or ≈ $394 million).

Transsion plans to spend 1.6 billion yuan (or $227 million) of its STAR Market raise on building more phone assembly hubs, and around 430 million yuan ($62 million) on research and development, including a mobile phone R&D center in Shanghai.

Transsion has a manufacturing facility in Ethiopia and announced plans to build an R&D facility in India.

There are a couple things to watch with Transsion’s IPO. First, the public listing, and accompanying capital could mean more venture funding for African startups.

Transsion-funded Future Hub already teamed up with Kenya’s Wapi Capital in August to source and fund early-stage African fintech startups.

Transsion’s IPO and growing presence in Africa also accompanies TechCrunch coverage over the last year that signals China’s growing digital influence in Africa (see Extra Crunch analysis).

More Africa-related stories @TechCrunch

African tech around the ‘net

 

 

 

 

 

 

At TechCrunch Disrupt, insights into key trends in venture capital

At TechCrunch Disrupt, the original tech startup conference, venture capitalists remain amongst the premier guests.

VCs are responsible for helping startups — the focus of the three-day event — get off the ground and as such, they are often the most familiar with trends in the startup ecosystem, ready to deliver insights, anecdotes and advice to our audience of entrepreneurs, investors, operators, managers and more.

In the first half of 2019, VCs spent $66 billion purchasing equity in promising upstarts, according to the latest data from PitchBook. At that pace, VC spending could surpass $100 billion for the second year in a row. We plan to welcome a slew of investors to TechCrunch Disrupt to discuss this major feat and the investing trends that have paved the way for recording funding.

Mega-funds and the promise of unicorn initial public offerings continue to drive investment. SoftBank, of course, began raising its second Vision Fund this year, a vehicle expected to exceed $100 billion. Meanwhile, more traditional VC outfits revisited limited partners to stay competitive with the Japanese telecom giant. Andreessen Horowitz, for example, collected $2.75 billion for two new funds earlier this year. We’ll have a16z general partners Chris Dixon, Angela Strange and Andrew Chen at Disrupt for insight into the firm’s latest activity.

At the early-stage, the fight for seed deals continued, with larger funds moving downstream to muscle their way into seed and Series A financings. Pre-seed has risen to prominence, with new funds from Afore Capital and Bee Partners helping to legitimize the stage. Bolstering the early-stage further, Y Combinator admitted more than 400 companies across its two most recent batches,

We’ll welcome pre-seed and seed investor Charles Hudson of Precursor Ventures and Redpoint Ventures general partner Annie Kadavy to give founders tips on how to raise VC. Plus, Y Combinator CEO Michael Seibel and Ali Rowghani, the CEO of YC’s Continuity Fund, which invests in and advises growth-stage startups, will join us on the Disrupt Extra Crunch stage ready with tips on how to get accepted to the respected accelerator.

Moreover, activity in high-growth sectors, particularly enterprise SaaS, has permitted a series of outsized rounds across all stages of financing. Speaking on this trend, we’ll have AppDynamics founder and Unusual Ventures co-founder Jyoti Bansal and Battery Ventures general partner Neeraj Agrawal in conversation with TechCrunch’s enterprise reporter Ron Miller.

We would be remiss not to analyze activity on Wall Street in 2019, too. As top venture funds refueled with new capital, Silicon Valley’s favorite unicorns completed highly-anticipated IPOs, a critical step towards bringing a much needed bout of liquidity to their investors. Uber, Lyft, Pinterest, Zoom, PagerDuty, Slack and several others went public this year and other well-financed companies, including Peloton, Postmates and WeWork have completed paperwork for upcoming public listings. To detail this year’s venture activity and IPO extravaganza, David Krane, CEO and managing partner of Uber and Slack investor GV will be on deck, as will Sequoia general partner Jess Lee, Floodgate’s Ann Miura-Ko and Aspect Ventures’ Theresia Gouw.

There’s more where that came from. In addition to the VCs already named, Disrupt attendees can expect to hear from Bessemer Venture Partners’ Tess Hatch, who will provide her expertise on the growing “space economy.” Forerunner Ventures’ Eurie Kim will give the Extra Crunch Stage audience tips on building a subscription product, Mithril Capital’s Ajay Royan will explore opportunities in the medical robotics field, SOSV’s Arvind Gupta will dive deep into the cutting edge world of health tech and more.

Disrupt SF runs October 2 – 4 at the Moscone Center in the heart of San Francisco. Passes are available here.

The cult of the founder and Silicon Valley’s lack of moral authority

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

This week Kate and Alex were back at TechCrunch’s San Francisco headquarters to chat the news with Kleiner Perkin’s Mamoon Hamid. Hamid is best known as a former member of the Social Capital team, and for driving generational change at Kleiner Perkins, a decades-old venture capital firm.

While we were prepping our notes, Airbnb announced that it is indeed going public next year. The firm’s terse statement launched 1,000 blog posts (here is one, here is another), while instigating a few jokes. After all, the IPO market is hot now. Saying that you are going to try your best to get out next year isn’t incredibly impressive from a firm with as many billions as Airbnb is today. It’s also not at all surprising.

Still, it’s a near-promise. And that means eventually we’ll get to see what the popular home-sharing and accommodations company spends all its gross margin on. Moving along, we discussed the recent WeWork revelations. If you haven’t read the Wall Street Journal’s piece on the matter, you must. It is chock-full of colorful anecdotes with WeWork’s co-founder and CEO Adam Neumann front and center.

Next, we got into the news concerning a split at Aspect Ventures, which TechCrunch covered here. We had heard rumors about the split, first reported by The WSJ, for a few weeks now and were interested to discuss what drives these sort of shake-ups with our guest.

Scooting ahead, we turned to the early-stage market where quite a few of you, our lovely friends, have asked us to spend more time. So, we talked at length about D2C startups, including the new, and we think cool Thingtesting business. You can check out their Instagram, the focal point of their business, here. Despite enjoying Thingtesting, Kate and Mamoon are bearish on the D2C movement.

All that and we had a good time. Sorry about the lack of donut continuity in the video. We’re back next week with more, and we’ll see everyone at Disrupt in two weeks!

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

Afore Capital raises second pre-seed venture capital fund

As expectations from seed investors intensify, a new stage of investment has established itself earlier in the venture-backed company life cycle.

Known as “pre-seed” investing, one of the first legitimate outfits to double down on the stage has refueled, closing its second fund on $77 million.

Afore Capital’s sophomore fund is likely the largest pool of venture capital yet to focus exclusively on pre-seed companies, or pre-product businesses seeking their first bout of institutional capital. In many cases, a pre-seed startup may even be “pre-idea,” yet to fully incorporate.

Afore invests between $500,000 and $1 million in nascent startups. As it kicks off its second fund, founding partners Anamitra Banerji and Gaurav Jain tell TechCrunch they plan to lead all of their investments.

We have the opportunity to build a firm that defines a category. - Afore founding partner Anamitra Banerji

Standouts in Afore’s existing portfolio include the no-fee credit card company Petal — which has raised roughly $50 million to date — mobile executive coaching business BetterUp, childcare information platform Winnie and Modern Health, a B2B mental wellness platform.

Afore portfolio companies have raised more than $360 million in follow-on funding, with an aggregate market cap of $1.5 billion, Jain, the founding product manager at Android Nexus and former principal at Founder Collective, tells TechCrunch. “These are high-quality teams with high-quality projects and ideas.”

Jain and Banerji — a founding product manager at Twitter and former partner at Foundation Capital — began raising capital for Afore’s $47 million debut fund in 2016. Since then, the landscape for seed investing has shifted. Early-stage investors have begun funneling larger sums of capital to standout teams at the seed, while billion-dollar venture capital funds set aside capital for serial entrepreneurs working on their next big idea. As a result, deal sizes have swelled and deal count has shrunk simultaneously.

“Pre-seed has replaced seed in the venture ecosystem,” Banerji tells TechCrunch. “We saw this early as a result of both of us having been at funds. We knew that this was going to be a massive category just like seed was before it. Now we think it’s clearly here to stay and we have the opportunity to build a firm that defines a category.”

Since launching the firm, the pair explain they’ve noticed more and more founders explicitly stating that they are in the market for a pre-seed round, a statement you wouldn’t have heard as recently as two years ago.

This is a result of Afore’s efforts to legitimize the stage through investments and programming, including its annual Pre-Seed Summit. Though Afore is certainly not the only VC fund focused on the earliest stage of startup investing — other firms deploying capital at the stage include Hustle Fund, which closed an $11.8 million debut fund last year, plus the $20 million immigrant-focused pre-seed fund Unshackled Ventures and the predominant seed and pre-seed stage firm Precursor Ventures, which announced a $31 million second fund earlier this year.

In the past year alone, more than $200 million has been dedicated to the pre-seed stage, with at least nine new funds launching to nurture early-stage startups.

More and more firms are setting up shop at the pre-seed stage as competition at the seed stage reaches new heights. As we’ve previously reported, monster funds are becoming increasingly active at the seed stage, muscling seed funds out of top deals with less dilutive offers. While the pre-seed stage, for the most part, remains protected from competition at the later stage, these firms still have to compete.

“Nobody wants to lose sight of a deal, so they are willing to toss small amounts of capital very early behind interesting founders,” Jain said. “But frankly, we aren’t sure if it’s good for a company to raise that much capital that early in their life cycle.”

Working with a fund that isn’t passionate about what you are building or familiar with the plights of the stage of your business is terrible for founders, adds Jain. Pairing with a focused fund like Afore, on the other hand, allows for “incentive alignment.”

Afore invests across all industries, preferring to back startups in categories “before they are categories.”

“What we are looking for is deep authenticity and passion around the product they are building,” says Banerji. “Ideas on their own aren’t enough. Founder resumes on their own aren’t enough. While we do care about all of those aspects, we get crazy about their clarity of thought in the short term.”

“We don’t take the point of view of ‘here is some money, it’s OK to lose it,’ ” he adds. “For us to invest, the founder must be all in. And we generally don’t invest in celebrity founders; we are going after the underdog founder.”

Afore Capital raises second pre-seed venture capital fund

As expectations from seed investors intensify, a new stage of investment has established itself earlier in the venture-backed company life cycle.

Known as “pre-seed” investing, one of the first legitimate outfits to double down on the stage has refueled, closing its second fund on $77 million.

Afore Capital’s sophomore fund is likely the largest pool of venture capital yet to focus exclusively on pre-seed companies, or pre-product businesses seeking their first bout of institutional capital. In many cases, a pre-seed startup may even be “pre-idea,” yet to fully incorporate.

Afore invests between $500,000 and $1 million in nascent startups. As it kicks off its second fund, founding partners Anamitra Banerji and Gaurav Jain tell TechCrunch they plan to lead all of their investments.

We have the opportunity to build a firm that defines a category. - Afore founding partner Anamitra Banerji

Standouts in Afore’s existing portfolio include the no-fee credit card company Petal — which has raised roughly $50 million to date — mobile executive coaching business BetterUp, childcare information platform Winnie and Modern Health, a B2B mental wellness platform.

Afore portfolio companies have raised more than $360 million in follow-on funding, with an aggregate market cap of $1.5 billion, Jain, the founding product manager at Android Nexus and former principal at Founder Collective, tells TechCrunch. “These are high-quality teams with high-quality projects and ideas.”

Jain and Banerji — a founding product manager at Twitter and former partner at Foundation Capital — began raising capital for Afore’s $47 million debut fund in 2016. Since then, the landscape for seed investing has shifted. Early-stage investors have begun funneling larger sums of capital to standout teams at the seed, while billion-dollar venture capital funds set aside capital for serial entrepreneurs working on their next big idea. As a result, deal sizes have swelled and deal count has shrunk simultaneously.

“Pre-seed has replaced seed in the venture ecosystem,” Banerji tells TechCrunch. “We saw this early as a result of both of us having been at funds. We knew that this was going to be a massive category just like seed was before it. Now we think it’s clearly here to stay and we have the opportunity to build a firm that defines a category.”

Since launching the firm, the pair explain they’ve noticed more and more founders explicitly stating that they are in the market for a pre-seed round, a statement you wouldn’t have heard as recently as two years ago.

This is a result of Afore’s efforts to legitimize the stage through investments and programming, including its annual Pre-Seed Summit. Though Afore is certainly not the only VC fund focused on the earliest stage of startup investing — other firms deploying capital at the stage include Hustle Fund, which closed an $11.8 million debut fund last year, plus the $20 million immigrant-focused pre-seed fund Unshackled Ventures and the predominant seed and pre-seed stage firm Precursor Ventures, which announced a $31 million second fund earlier this year.

In the past year alone, more than $200 million has been dedicated to the pre-seed stage, with at least nine new funds launching to nurture early-stage startups.

More and more firms are setting up shop at the pre-seed stage as competition at the seed stage reaches new heights. As we’ve previously reported, monster funds are becoming increasingly active at the seed stage, muscling seed funds out of top deals with less dilutive offers. While the pre-seed stage, for the most part, remains protected from competition at the later stage, these firms still have to compete.

“Nobody wants to lose sight of a deal, so they are willing to toss small amounts of capital very early behind interesting founders,” Jain said. “But frankly, we aren’t sure if it’s good for a company to raise that much capital that early in their life cycle.”

Working with a fund that isn’t passionate about what you are building or familiar with the plights of the stage of your business is terrible for founders, adds Jain. Pairing with a focused fund like Afore, on the other hand, allows for “incentive alignment.”

Afore invests across all industries, preferring to back startups in categories “before they are categories.”

“What we are looking for is deep authenticity and passion around the product they are building,” says Banerji. “Ideas on their own aren’t enough. Founder resumes on their own aren’t enough. While we do care about all of those aspects, we get crazy about their clarity of thought in the short term.”

“We don’t take the point of view of ‘here is some money, it’s OK to lose it,’ ” he adds. “For us to invest, the founder must be all in. And we generally don’t invest in celebrity founders; we are going after the underdog founder.”