Fintech is transforming the world’s oldest asset class: Farmland

Farmland as an asset class has proven itself to be a stable investment decade after decade. Farmland’s negative correlation with the Dow Jones Industrial Average sits at an eye-popping -43% for a three-year hold period, making it an excellent hedge against market volatility.

The asset has also been a steady appreciator since 1987, when institutional investors began incorporating farmland into their portfolios. Equally, investments into sustainably managed farmland have the potential to transform agriculture from one of the largest sources of greenhouse gas emissions to one of the largest carbon sinks.

While farmland investments can provide passive income and a hedge during just about any economic condition, direct investments into the asset have been largely inaccessible to date.

However, while farmland is among the oldest investment classes around, the average investor hasn’t had access to farmland the way that billionaires and institutional investors have.

Revolutions in fintech and a host of startups are changing this.

Why farmland?

COVID-19 affected the world in ways we couldn’t have predicted, and the markets were no exception. The S&P 500 plummeted in mid-March and shed 34% of its pre-COVID peak value. But unlike past crises, the index rebounded just a month later.

This doesn’t mean that financial markets have fully recovered, however. We’ve seen plenty of volatility since, both in the form of rallies and losses. This has caused many investors to move some of their portfolio out of equities.

This is where farmland entered the discussion.

A historically stable asset class

Wild stock market fluctuations existed well before COVID-19. The latest era of volatility began in 2018 and continued even as the economy grew prior to the pandemic. Given the unpredictability of the equities market, investors need to counterbalance what’s in store for stocks and funds.

Gaia Capital Partners in Paris rebrands as Revaia, closes first €250M growth fund

Paris-based VC fund Gaia Capital Partners has change its name to Revaia and announced the final closing of its first growth fund, at €250 million. The firm said it exceeded its initial target of €200 million, and the fund will be ‘ESG focused’.

Revaia is also claiming to be Europe’s largest female-founded VC fund, although TechCrunch has not been able to verify that at the time of publication.

As Gaia Capital Partners, Revaia launched its first fund in late 2019, the portfolio for which currently consists of ten investments, including Aircall, recently achieved a unicorn valuation. Other investments include Epsor (Paris: Epsor designs and distributes employee savings and retirement plans), GetAccept (SF: an all-in-one sales enablement solution that assists B2B sales reps in closing remote deals), gohenry (London: a kids money management application), Planity (Paris: an online booking platform for hair and beauty salons), Welcome to the Jungle (Paris: a multichannel media company), and Yubo (Paris: a social platform for Generation Z).

Alice Albizzati, co-founder of Revaia said in a statement: “When we set up the firm, we were determined to create an investment strategy in line with our convictions – a focus on European companies with high ambitions but with no compromise on sustainability – and with the objective of bridging the gap between private and public markets. Our venture has performed beyond our initial expectations.”

The firm now has an office in Paris and Berlin, as well as a presence in New York and Toronto

The fund’s institutional investors include insurance companies such as Generali, Allianz, and Maif, pension funds, other institutional investors such as Bpifrance, as well as over 50 family offices and Angels.

Elina Berrebi, co-founder of Revaia, said: “We are very grateful to our investors and entrepreneurs who trusted us as we accelerated the build-up of our portfolio. This final closing of our first fund is a huge milestone. It is a solid foundation from which we can support future European technology leaders with their ambitions and sustainability plans, as well as expand and internationalize our team while building a strong value creation platform.”

Revaia said the new fund had already begun investing, and “two new investments should be announced soon”.

The firm says it aims to invest in around 15 companies and expand across Europe.

It’s also partnered with listed market sustainable investor Sycomore Asset Management.

VC Geoff Lewis on moving to Austin and popping Silicon Valley’s ‘self-referential’ bubble

Austin has made headlines over the past year for a number of reasons: It’s home to Oracle’s new headquarters. Tesla is building a massive gigafactory in the Texas capital. People, mostly tech workers, are leaving the Bay Area in droves to settle in the city, driving up home prices in the process.

But, it’s not just tech workers. A number of venture capitalists have set up shop in Austin, including Jim Breyer of Breyer Capital and Palantir co-founder Joe Lonsdale, who said last year he was moving his venture capital firm, 8VC, from Silicon Valley to the city.

‘I don’t believe everyone should move to Austin. I don’t think it’s right for everyone, but I do think it’s right for us.’

The latest VC to call Austin home is Geoff Lewis, founder and managing partner of Bedrock Capital, a 4-year-old early-stage venture capital firm with $1 billion in assets under management. Lewis started his investing career at Founders Fund, where he was a partner for several years. He either serves or has served on the board of companies such as Lyft, Nubank, Vercel and Workrise.

Lewis also led early investments in Wish, Upstart, Tilray, Canva, Rippling, ClearCo, Flock Safety and a number of other unicorns. He’s largely credited with popularizing the phrase “narrative violation” to describe promising companies that are overlooked or underestimated because they are incongruent with popular narratives.

In making the move to Austin, the investor said he had grown disillusioned with Silicon Valley and the region’s continued lack of focus on solving what he described as real-world problems.

In a Medium post, Lewis said he was first introduced to Austin after backing Workrise (formerly called RigUp), a marketplace for skilled trade workers. In fact, he was the company’s first seed investor eight years ago and has gone on to invest in the company eight subsequent times. Today, Workrise is valued at nearly $3 billion.

Lewis said he was drawn to the company not just because it was “going to be huge” but also because it was “much more concerned with real people and real places than today’s Silicon Valley behemoths.”

“Put simply, it is a more humane technology company,” Lewis writes. “And it’s my search for this more humane genre of technological innovation that brought me to Texas. I’ve lived on the coasts and built my career as a Silicon Valley technology entrepreneur and investor, but I’ve never felt of the coasts or as an insider in Silicon Valley — I didn’t go to Stanford nor grow up rich.”

TechCrunch talked with Lewis to get more details around his decision to move his firm to Austin, learn more of his views on why Silicon Valley is too much of “a bubble” (spoiler alert: they may not be popular with many of you!) and how he plans to invest in more of Texas’ nexus of startups.

This interview has been edited for length and clarity.

I understand that you grew up in Canada. How did you first get involved in the tech industry to begin with?

I started off as an entrepreneur myself, building a SaaS company in the travel space [Topguest]. I founded that business in New York City, and in 2009 ended up moving my team to San Francisco. I spent most of my career from 2009 to 2021 bouncing between New York and SF. We ended up selling that company in 2011 and it was a reasonably OK outcome. I joined Founders Fund in 2012, where I just fell in love with investing. I ended up really having a special trajectory there and 2012 was a great time to be a young VC in San Francisco and Silicon Valley. I ended up specializing in marketplaces, both consumer and enterprise, backing companies like Lyft and Canva early. I also did the firm’s first fintech investment in Latin America, backing Nubank, and now that company has a $30 billion valuation.

I grew up with pretty modest means and by 2017, I figured I had done well enough as a VC and I should strike out on trying to get back to what I wanted to do, which was more entrepreneurial. So we founded Bedrock in late 2017. We’re on Fund III now and it’s been consistent with the investment philosophy I pursued — trying to find what we call narrative violations, or these counternarrative companies that are being overlooked or underestimated. We were very early investors in Cameo, which is now obviously a pretty well-known business, for example.

You initially chose to base Bedrock in New York. Why?

When I was at Founders Fund I had a home in both cities (SF and NYC), so I was the kid who grew up in Calgary, Canada and wanted to live on the coasts and be in the center of the action. But we decided to actually headquarter Bedrock in New York in 2017 because we had an inclination that Silicon Valley was becoming a little bit overly self-referential and wanted to be a bit outside of the noise. New York is less of a one-horse town, so we decided to base the firm there, but really invested in, and continue to invest, everywhere across the country and quite honestly around the world. We invested in WordPress in the early days and more recently in Argyle and Lambda School.

‘The tortoise and the hare’ story is playing out right now in VC

The unprecedented liquidity that has entered the venture market in the past year has spurred several trends that require VCs to adapt to a more competitive environment where startup founders have far more leverage than they did in the past.

Structurally, there are only so many startups looking to raise capital, and even though some founders may be opportunistically pursuing deals they wouldn’t have previously, the supply of capital into venture funds has nonetheless outpaced the demand for those dollars.

This means VCs are in an unusual environment of increasing competition to get in on deals with startups, and as they jockey to win spots on cap tables they’re moving faster than ever to close deals.

The best early-stage VCs take the time to find the founders they believe in and who need their expertise, because they’ll be right there working with them for the long haul.

What’s more, newcomers in the VC market like Tiger Global as well as a number of non-VC investment funds like PE firms with much larger pools of capital than the market has seen are aggressively pursuing enormous deals in an effort to drive faster exits and returns on their investments.

With so many investors vying for their attention, many founders are taking the opportunity to raise bigger rounds and coming back for additional funding faster than ever, which is apparent in the constant drumbeat of funding news as well as the 250 unicorns and the record $288 billion invested in startups in the first half of this year.

How can VCs adapt and be competitive?

For some, the answer may be moving faster to get in on deals. Strategies like doing more due diligence in advance of ever meeting startups and leveraging technologies like AI to supplement investors’ ability to evaluate companies can help with this. For others, it may be making larger investments and accepting smaller ownership stakes in startups than they’re accustomed to.

3 lies VCs tell ourselves about startup valuations

I’m frequently asked by journalists whether I think venture capital valuations are too high in the current environment.

Because the average venture capital fund returns only 1.3x committed capital over the course of a decade, according to the last reported data from Cambridge Associates, and 1.5x, according to PitchBook, I believe the answer is a resounding “yes.”

So when entrepreneurs use unicorn aspirations to pump private company valuations, how can investors plan for a decent return?

At the growth stage, we can easily apply traditional financial metrics to venture capital valuations. By definition, everything is fairly predictable, so price-to-revenue and industry multiples make for easy math.

For starters, venture capitalists need to stop engaging in self-delusion about why a valuation that is too high might be OK.

But at the seed and early stages, when forecasting is nearly impossible, what tools can investors apply to make pricing objective, disciplined and fair for both sides?

For starters, venture capitalists need to stop engaging in self-delusion about why a valuation that is too high might be OK. Here are three common lies we tell ourselves as investors to rationalize a potentially undisciplined valuation decision.

Lie 1 : The devil made me do it

If a big-name VC thinks the price is OK, it must be a good deal, right?

Wrong.

While the lead investor who set the price may be experienced, there are many reasons why the price she set may not be justified. The lead may be an “inside” investor already, committing small amounts or  —  believe it or not  —  simply not care.

Insiders are investors who have previously placed capital in the startup. They face a conflict of interest because they are rooting for the success of the startup and generally want the company’s stock price to keep growing to show momentum.

This is one of the reasons why many venture capitalists prefer not to lead subsequent rounds: Pricing decisions can no longer be objective because investors are effectively on both sides of the table at the same time.

Inside-led rounds happen all the time for good reasons  —  including making a funding process fast so that management can focus on building the business  —  but because these decisions are not at arm’s length, they cannot be trusted as an objective indicator of market value. Only a test of the open market or an independent third-party valuation can accomplish this goal.

It’s also the case that a relatively small investment can relax pricing discipline in some firms. If a funding amount represents 1% of the fund size or less, it’s possible that the VC team may view the investment as “putting a marker down” and not worry about whether the price offers an attractive multiple. For this reason, it’s a good idea to check the lead investor’s check size against the overall size of the firm’s latest fund.

There are other reasons why investors may not care about the valuation. Some VCs are “logo hunters” who just want to be able to say they were investors in a particular company. If you outsource valuation discipline to a lead investor who doesn’t value financial results, your own returns may suffer.

Lie 2:  We are getting a deal because the price is flat from the last round

If the last round valuation was $50 million and the current round valuation is about the same, we tell ourselves it’s gotta be a good deal.

Again, this is faulty thinking, because the last round’s price might have been too high.

Stage 2 Capital launches $80M Fund II targeting B2B software startups

Boston go-to-market venture capital firm Stage 2 Capital kicks off its second fund with plans to invest $80 million into B2B software companies.

The firm’s approach combines venture capital expertise with a diverse community of over 250 limited partners and go-to-market experts who work with portfolio companies to accelerate revenue growth.

Firm co-founders Jay Po, a former investor at Bessemer Venture Partners, and Mark Roberge, former chief revenue officer at HubSpot, started Stage 2 Capital in 2018.

While at Bessemer, Po told TechCrunch he met startup founders who were not sure how to scale revenue or build a sustainable sales machine. He saw how big the skills gap was in go-to-market (GtM), so on nights and weekends he took classes on sales development to better understand what was going on.

At the same time, Roberge was on faculty at Harvard Business School and was consulting startups. He, too, saw founders struggle to build out their GtM function, so much so that gathered a bunch of data points and put them all together in a book, “The Sales Acceleration Formula: Using Data, Technology and Inbound Selling to go from $0 to $100 million.”

Stage 2 Capital team. Image Credits: Stage 2 Capital

Po said the firm “was virtual before it was cool,” which is how it has been able to invest in diverse geographies and set its own pace in terms of curating its network and making introductions.

Their goal is to educate startups on the right time to scale. While startups should be growing 100% or 200%, many startups scale prematurely because they see certain companies experience massive growth all at once and assume that is the way to do it, Roberge said.

“We find companies jump into that set of goals prematurely and are not ready for it,” he added. “We help them to understand when and how fast they can go. They are often looking at that prior success, but are not appreciating the context, like who the other company was selling to and the environment at that time.”

Po and Roberge launched their first fund in 2018, raising $15 million, and ended up making 11 investments in late-seed stage to Series A companies and amassed a network of 97 LPs from companies like Gong, Procore, Atlassian, Asana and Drift. The firm wants to assist companies in changing the world, but Roberge said that will take a while, and that peers were impressed with the early signals of the investment thesis.

Investments from the first fund include companies hailing from across the United States, including Sendoso, Ocrolus, Gosite and Reibus.

“Stage 2 Capital stands out from all other VCs because of the expertise and partnership Jay, Mark and the LPs bring,” said Kris Rudeegraap, founder and CEO of Sendoso, in a written statement. “They’ve exceeded expectations on delivering what they promised and we’ve increased our revenue almost 10 times in the short time since they invested.”

The firm’s second fund represents a five-time increase in investment capital, Po said. He expects to be able to invest in another 20 companies with an average check size of $250,000. The pair have already made seven investments so far, including DeepScribe, Arcade, QuotaPath and Sales Impact Academy.

 

Founders must learn how to build and maintain circles of trust with investors

Many VCs tout their mentorship and hands-on approach to founders, especially those who run early-stage startups. But in the recent era of lightning-fast rounds closing at sky-high valuations, the cap tables of early-stage startups are becoming increasingly crowded.

This isn’t to say that the value VCs bring has diminished. If anything, it’s quite the opposite — this new dynamic is forcing founders to be extremely selective about exactly who is sitting around their mentorship table. It’s simply not possible to have numerous deep and meaningful relationships to extract maximum value at the early stage from seasoned investors.

Founders should definitely pursue big rounds at sky-high valuations, but it’s important that they recognize how important it is to manage who they allow into their mentorship circles. Initially, founders should make sure their first layer consists of the real “doers” — usually angels and early venture investors who founders meet with weekly (or more frequently) to help solve some of the most granular problems.

Everything from hiring to operational hurdles all the way to deeper, more personal challenges like balancing family life with a rapidly growing startup.

This circle is where the real mentorship happens, where founders can be open and vulnerable. For obvious reasons, this circle has to be small, and usually consist of two to six people at most. Anything more simply becomes unwieldy and leaves founders spending more time managing these relationships than actually building their company.

How founders manage their VC circles can mean the difference in success or failure for a thousand different reasons.

The second layer should consist of the “quarterly crowd” of investors. These aren’t necessarily people who are uninterested or unwilling to participate in the nitty gritty of running the company, but this circle tends to consist of VCs who make dozens of investments per year. They, like their founders, aren’t capable of managing 50 relationships on a weekly basis, so their touch points on company issues tend to move slower or less frequently.

Venture capital undermines human rights

The future of technology is determined by a handful of venture capitalists. The world’s 10 leading venture capital firms have, together, invested over $150 billion in technology startups. The venture capitalists who run these firms decide which startups today will develop the new platforms and technologies that will shape our lives tomorrow.

There is a startling lack of diversity within the venture capital sector. This means that a small group of men — mostly white men — make decisions that affect all of us. Unsurprisingly, they all too often ignore the broader societal and human rights implications of these investment decisions.

We all live in a world shaped by venture capital. As of 2019, 81% of all venture capital funds worldwide are clustered in just a handful of countries, primarily in the U.S., Europe and China, which in turn are shaping the future of technology. If you spend time on Facebook or Twitter, use Google, travel in an Uber or stay in an Airbnb, then you’ve experienced firsthand the impact of venture capital funding.

Venture capital firms, which provide equity financing for early- and growth-stage startups, play a critical gatekeeper role, deciding which new technologies and technology companies will receive funding.

Venture capital firms need to institute human rights due diligence processes that meet the standards set forth in the UN Guiding Principles on Business and Human Rights.

All businesses — including venture capital — have a responsibility to respect human rights. In order to ensure that their investments are not undermining our human rights, it is therefore critical for venture capital firms to conduct due diligence processes before making investments.

Amnesty International recently surveyed the world’s largest venture capital firms and startup accelerators. Of the world’s 10 largest venture capital firms, not a single one had an adequate human rights due diligence process that met the standards set forth in the UN Guiding Principles on Business and Human Rights.

Unfortunately, this is true of the broader venture capital sector as well. Overall, of the 50 VC firms and three startup accelerators analyzed by Amnesty International, we found that almost all of them lacked adequate human rights due diligence policies and processes.

This failure to carry out adequate due diligence means that a vast majority of VC firms are failing in their responsibility to respect human rights.

This almost complete lack of respect for human rights among the world’s largest venture capital firms has three key impacts. First, and most immediately, it means that venture capital firms invest in companies whose products and services have been implicated in ongoing human rights abuses, such as companies that provide support to the Chinese government’s repression of the Uyghur population in Xinjiang and across China.

Second, it means that venture capital firms continue to fund companies whose business models have a significant negative impact on human rights, including our privacy and labor rights. For instance, leading venture capital firms continue to support companies that rely on app-based or “gig” workers, who often face exploitative or otherwise abusive work conditions, as well as companies whose “surveillance capitalism” business model undermines our right to privacy.

Third, the lack of human rights due diligence by venture capital firms dramatically increases the risk that they fund new and “frontier” technologies without ensuring that adequate human rights safeguards are in place.

For instance, the application of increasingly powerful artificial intelligence/machine learning (AI/ML) tools across a wide variety of sectors risks amplifying existing societal biases and discrimination. Seemingly objective algorithms can be biased by reliance on incomplete or unrepresentative training data, and/or by replicating the unconscious bias of those who developed the algorithms.

This is a critical blind spot, especially as VC-funded startups seek to disrupt such fundamental parts of our lives as education, finance and health.

The negative impacts of the VC firms’ lack of human rights due diligence — especially regarding issues like algorithmic bias — are magnified by these firms’ own lack of gender and racial diversity. For instance, women comprise only 23% of venture capital investment professionals (i.e., those involved in deciding which startups to fund).

The numbers are even worse when it comes to racial diversity — just 4% of investment professionals at VC firms in the U.S. are Latinx, and only 4% are Black. Groups like Blck VC, Diversity VC and digitalundivided have been calling attention to this issue for years, but venture capitalists have been slow to respond so far.

This lack of diversity is mirrored in the gender and racial composition of founders who receive VC funding. In 2018, all-female founding teams received just 2.2% of all U.S.-based venture funding. At the same time, Black and Latinx founders received less than 2.3% of all U.S.-based venture capital funding in 2019.

With power comes responsibility. Venture capital firms need to institute human rights due diligence processes that meet the standards set forth in the UN Guiding Principles on Business and Human Rights.

Further, they should provide support to their portfolio companies to ensure that they comply with human rights standards. Venture capital firms should also publicly commit to hiring more diverse teams, especially in investment-related positions. Finally, they should publicly commit to funding more diverse startup founders as part of their flagship funds.

VC firms have a responsibility to ensure that their investments are not causing harm. A responsibility that they have, to date, largely ignored.

Why Latin American venture capital is breaking records this year

Today we’re wrapping our multi-week exploration of the global venture capital market’s second-quarter performance. We’ve gone around the world, working to better understand the geyser of cash flowing into today’s startups. But we’ve saved the best for last: Latin America.

At a glance, the Latin American venture capital and startup market appears similar to what we’ve seen from other growing ecosystems. Like the U.S., Canadian, European, Indian and African startup hubs, Latin America is seeing venture capital activity set records.


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But inside the big numbers is a surprising picture of a startup market in the process of maturing while outside money hunts for breakout opportunities.

To help us in our exploration of Latin America’s epic second quarter, we collected notes and observations from NXTP’s Gonzalo Costa, Magma Partners’ Nathan Lustig and ALLVP’s Federico Antoni. We also have data from Dealroom, CB Insights, the Global Private Capital Association (GPCA) and ALLVP.

Today we’re digging into the data, yes, but also the human potential behind the startup rush. According to Antoni, the Latin American startup market of today “is a story about talent, not about capital.” Echoing the point in a recent piece about “the Latin American startup opportunity,” U.S. venture capital firm Sequoia wrote that it has “been blown away by the quality of founders in the current wave.” So we’ll have to do more than just read charts.

The union of talent and money is what startup markets need to thrive. But there are other reasons why Latin American startups are so frequently in the news today, including structural factors, such as strong digital penetration and quick e-commerce growth.

Those trends could have long lives. NXTP’s Costa made a bullish argument: The portion of “market capitalization from technology companies in Latin America is only 2.5% today compared to 40%+ in the U.S,” and his firm expects the two numbers to “converge in the long-term.” Our read of that set of data points is that there are a host of future Latin American public tech companies being founded — and funded — today.

Let’s talk about Latin American venture capital data, dig into which countries are rising stars in the region, learn how quickly Latin American startups have to go cross-border, and explore how quickly capital is recycling in the ecosystem – always a key test for startup-market longevity.

A venture capital wave

Latin America is on pace for all-time records in venture capital dollars raised and venture capital rounds in 2021. According to CB Insights data, startups in the region have already raised $9.3 billion in 2021’s first six months from 414 deals. The same data set indicates that in all of 2020, startups in the region raised $5.3 billion across 526 deals. And in case you’re worried that we’re comparing to an unfairly COVID-impacted year, in 2019 the numbers were $5.3 billion (again) from 614 individual deals.

This year is different, and the second quarter of 2021 was simply an outlier event. With some $7.2 billion invested in Latin American startups, Q2 2021’s closest rival in terms of quarterly venture totals was the second quarter of 2017, when $2.6 billion was invested.

What I’ve learned after 5 years of buying common stock in startups

From day one, Pillar VC has offered to buy common stock in startups.

Instead of the standard 10-page venture capital term sheet riddled with terms and conditions, our team believed that a far simpler structure where we owned the same security as the founders would align interests, increase trust, and hopefully, enhance the performance of our investments.

There are many terms and conditions in a preferred term sheet that can misalign investors and founders

Five years since launching Pillar, as we finish investing our second fund and begin deploying our third, we thought it was a good time to reflect on whether buying common stock instead of preferred stock has offered the benefits that we had hoped for.

Preferred stock can misalign incentives between parties

There are many terms and conditions in a preferred term sheet that can misalign investors and founders — for brevity, I’ll highlight just two below. (For more, see the term-sheet grader).

Preference: Preferred stock has a “preference” that gives the investor the right to choose whether they want to get their money back or take their percentage of the total proceeds. In downside scenarios, having an investor take their money back may mean that they are taking a far higher percentage of the proceeds than the founders “thought” they sold.

For example, if an investor buys 25% of a company for $2 million in preferred stock, their break point on this decision will be $8 million, which happens to be the post-money valuation of the round. If the company is sold for less than $8 million, the investor would rather take their $2 million back. If the company is sold for more than that, the investor would choose to take 25% of the total.

The founder thinks that they sold 25% of their company, but that percentage is actually determined by what the company is sold for. Yes, if the company is sold for $8 million or more, they sold 25%, but if the company is sold for, say $4 million, the investors will choose to take their $2 million back, which is 50% of the proceeds. Worse still, if the company is sold for just $2 million, investors will take all of it.

Anti-dilution: This clause means that if an investor buys shares for $10 and the startup raises money in the future at a price point that is lower than $10, the investor’s share price will be recalculated retroactively to a lower price. How is this done? By issuing the investors more shares, which dilutes the rest of the ownership pie, especially the founders and employees. The company is not performing well and the investors are made whole at the expense of the founders. Aligned? Hardly.