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Welcome to this week’s edition of Fundraisedd, the newsletter that tells you all you need to know about fundraising and startup finance. A special hello to the new subscribers who have joined the Fundraisedd community over the last 7 days 🙋🏽. You are now over 260, and I’d like to thank you all for your support!
This week, I’d like to try a new format and recommend to you a list of great articles I’ve read recently that I think you should read too!
Why IPOs, Direct Listings, and SPACs Will Flourish in Startupland
By Tomasz Tunguz, Redpoint
In this article, Tunguz discusses the difference in valuation between high-growth public and private companies, based on their EV/Forward ARR multiple.
His conclusion: it is currently cheaper for high-growth companies (50%+) to finance themselves in the public market than it is in the private one. Expect the IPO/SPAC frenzy to continue in the months to come.
Read it in full here, 2-minute read.
Resetting online commerce
By Benedict Evans
A great look at trends underlying e-commerce, media consumption, and the online advertising market.
Evans ponders how the “new normal” that came about in the times of crisis we are going through (and is bound to have a long-lasting impact on our societies) will impact traditional retailers and multi-national B2B conglomerates. The D2C (Direct-to-Customer) business model, WFH (Work from Home), all these will change how, what, and where we consume.
The change is now unavoidable for all brands, as highlighted by this chart:
And this quote:
Physical retail itself has been a ‘boiling frog’ for 20 years. Every year e-commerce gets a little bigger and the problem gets a little worse, but the growth in any given year was never big enough for people to panic, and you could always tell yourself that sure, people would buy that other industry’s product online, but not yours. I think we all now understand that anyone will buy anything online, given the right experience, and if your retail model is based on being an end-point to a logistics chain then you have an existential problem.
Read it in full here, 7-minute read
Doing old things better vs doing brand new things
By Chris Dixon, Partner @ a16z
A short look at the two categories of businesses new technologies give rise to:
1) doing things you could already do but can now do better because they are faster, cheaper, easier, higher quality, etc. 2) doing brand new things that you simply couldn’t do before.
I really enjoyed this specific quote:
Doing old things better tends to get more attention early on because it’s easier to imagine what to build. Early films were shot like plays — they were effectively plays with a better distribution model — until filmmakers realized that movies had their own visual grammar.
We witness this process every day with any new product or service. It starts as a re-imagination of the old world, improving a few things here and there. When it matures, we enter a new world of possibilities.
Google started as a search engine and is now your own virtual assistant. Zapier started as a gimmicky way to connect a few apps together; it is now powering a no-code revolution.
As entrepreneurs and innovators, you all need to realise that you have your own grammar you can play with! Become poets, and push it to the extremes of your creativity.
Read it in full here, 5-minute read
Framework for Decision-Making in a Time of Change
By Alex Rampell @ a16z
An extremely short read that extrapolates an investment-decision framework used by VCs into a decision-making matrix for entrepreneurs. The question it purports to answer is: what kind of change should you bank on with your business?
To quote the author:
[T]he best investments fall into two categories: structurally positive changes or ephemerally negative changes. Structurally positive means that something is 10x better, 1/10th the cost (roughly speaking on improvement and cost scale!), and has finally caught on—there’s no going back to the older, worse, more expensive alternative. For ephemerally negative changes, either sentiment has soured or consumption has been rendered logistically challenging, but there is a lot of latent consumer/business demand and, from an investment lens, durability to the business that ensures that when things resume, it will still soak up that demand.
Read it in full here, 1-minute read.
The Fight For Ownership
By Semil Shah, Partner @ Haystack
In this article, Shah discusses the inherent and unavoidable tension between founders (who are getting diluted) and investors (who purchase equity). The traditional wisdom that investors will want 20% per round at least, has been challenged recently by the founders themselves:
What I’ve realized in 2020 (and I realize it can change with a market correction), is that with each new year, the new crop of founders that enter the world of startups are growing increasingly savvy, alert, and aware of the consequences of selling too much equity in each round of financing. It’s not uncommon to meet a founder at the pre-seed (sorry) stage who begins their discussion with saying that they’re looking for 10% dilution in that small, early round. The total dollars in many cases matters less — it’s the dilution they want to put ropes around. Doing this is smart because it warns the investor, especially ownership-hungry ones, “hey, that ain’t happening here.”
A consequence of this change, for investors is that:
The game now is getting in early, and if and when something works, holding on to it for dear life. This is the new fight for ownership.
Read it in full here, 6-minute read.
In the same vein, talking about early-stage dilution, I recommend this short Twitter thread by Mac Conwell (VC @ Rarebreed Ventures):
Until next time, have a great week!