Funding videos, the tightening, & 'the yoga of eating'
Sajith Pai's irregular newsletter #13
Here is issue #13 of my rather irregular newsletter:) Comprises thoughts too long for twitter, but too short (and unpolished) for my website.
For newer subscribers, a PSA. Issues have two sections
Writing(s) - a piece of my original writing(s) or a link(s) to one or more
Readings - excerpts from 3-5 articles or books that I enjoyed with my take on it.
Here we go. Feedback in the comments or at email@example.com (on anything re the newsletter). If you want to reach me for a funding request then write in at firstname.lastname@example.org (replies in 3-4 days).
(1) The funding video is the new funding announcement tweet-thread
Two examples aren’t enough to make a trend, but I am going to call it out and say the funding announcement video is increasingly going to become table stakes for buzzy startups to announce their Series As or Bs. Much as the founder’s twitter thread announcing the fundraise and narrating the backstory updated the traditional vanilla press release mailed to media houses, I think creating and distributing a funny, quirky fundraise video will similarly update the founder twitter thread to become table stakes; especially for a certain strain of buzzy, young startups.
This doesn’t mean that the video will replace Twitter threads or Linkedin posts. Not at all. Just as the twitter thread or Linkedin post by the founder announcing funding, followed by the VC’s why we invested post / thread, became an add on to the press release, similarly I believe these kind of videos (or even innovations around that) will become an add on to the twitter threads and press releases.
Here are the two examples that I am referring to.
Rocketlane (a B2B startup) announced their fundraise via a rap video. It is very good; Watch it!
Here is edtech startup GrowthSchool’s fundraise announcement, which is set up a film where the entire company stars.
There are two factors driving this ‘weaponisation’ of funding announcements.
First, there is the fact that just as much as it has never been easier to raise, it has never been harder to hire. (Of course the coming tightening may up end some of this fundraising buoyancy. More on that below). Brand equity and a perception of buzz helps in hiring. All other things being equal, a star engineer or PM would rather work in a better-known cooler startup than a less known, staid one. Having a cool brand not only helps you reach more potential talent, but also helps in convincing them faster. Hopefully it also translates into a delta on the marginally lower salaries the company has to pay.
Secondly, given the number of fundraise announcements happening, it is become harder to get covered in mainstream media. Mainstream media journalists I have spoken to, say that, for meaningful coverage something like a $25m raise is needed; else it will be just a mention. That is because there is some mega announcement happening every other day these days. The Linkedin post + Twitter thread combo was a good hack for founders because it helped them cut out these gatekeepers and go direct. This was in fact better because many of India’s mainstream media in fact has low readership. Even there the readership is not relevant. Founders who have a following of 5k+ on twitter and 10k+ on Linkedin can get their fundraise tweet threads (provided their angel investors and VCs will magnify the reach) to reach as many if not more folks than the mainstream media can.
As every founder does twitter threads and does linkedin posts, now how do you stand out? And this is where these videos or innovative stunts like getting your customers or suppliers involved, help.
So, we have
Expired: Just the press release drop
Tired: Twitter thread / Linkedin post(how we made it!) + press release
Wired: Cool funding announcement video + Twitter thread / LI post + press release
(2) The Tightening
‘The Tightening’ is my preferred term for the slowdown we are likely to see in the private / venture space in the coming months and year. As the FED finally starts turning off the tap, and lights come on in the big party that we have been having over the past few years in the private markets space, we will start seeing calibration in the the quantum and pace of fundraising in the Indian venture market too. The sharp sell-off and deflation in pricing of what were once hot growth stocks in the U.S. is also leading to a recalibration of valuation multiples in general
Here are two tweets that are representative of this tightening theme - both VCs with large multistage funds.
A microVC investor reached out to me for my views on this asking if we are likely to reduction in cheque sizes and valuations going ahead.
My views, lightly edited, from the responses I send him are below.
I don’t think there will be a sharp drop in funding overall. Yes, there will be a lot less buoyancy but at the end of 2022, we will see an increase in funding and related metrics for the Indian venture capital space. For one all of the leading VCs have raised large funds in ’20 and ’21. All of that has got to be deployed somewhere. So fundraising overall is unlikely to come down. Yes, it will slowdown a bit. What closed in 2 weeks will close in 4 weeks. What was a $3m round on $12m pre for a pre-product startup by 2-3 ex-soonicorn operators starting up first time will become a $2m on $6m pre round. And so on. A gentle but steady tightening all around. That said much of the impact of the tightening will come on first time or fresh founders. Second-time or fluent founders will not see as much impact I think.
Fresh / First-time founders can expect more time taken for their fundraising discussions to progress, more rejections (or requests to reconnect at a later date) if they are idea stage startups and so on. Fluent founders will not see as much of a push back. Added to this, the flight to quality that we see in a bear-ish market will mean more money chasing winners. Thus the average round size (mean) will get larger, though the median cheque size may be lower than last year.
(I had written about these two categories of fresh and fluent founders in an old post, but really fluent founders are typically second time founders or CXOs of unicorn / soonicorn startups fluent with the conventions of the venture-backed startup game such as regular fundraising, frequent product iteration, scaling fast, go big or go home attitude etc. Fresh founders are the other category, first-time founders still getting to terms with genre conventions.)
(3) Pick the right customer
PrePMF startups that are in the intermediation / marketplace business need to be careful about picking or defining their customer persona well. To me, the customer is the segment or persona whose problem you are solving. So, they get the biggest benefit (they are the reason your startup exists) and hence they should pay for your product.
One dangerous mistake that I saw in two recent pitches to me, was startups solving a problem for party X but charging Party Y who is selling the product to Party X. This is in my view needs to be avoided. Given that what drives success at early stage is product iteration in conjunction with monetisation, not charging the person whose problem you are solving, slows down product feedback, and impacts learning, and puts a brake on rapid iteration.
Imagine if Uber said, you as the rider don’t need to pay us. Instead you pay the driver, and we will charge the driver X Rs or so per ride or some such thing. That makes the driver their customer, and leads to a driver first product. There will be very little focus on rider safety or turnaround time, unless it eventually impacts driver revenue. Given that Uber came into being because riders couldn’t get rides and not because drivers were sitting idle, it is all the more important to define your customer as the person whose problems, and the need to solve them led to the emergence of your co.
To drive rapid customer feedback inwards, you need to charge the customer ideally (or track engagement metrics that act as a proxy for customer feedback). And ideally charge 1 customer. Charging both users & suppliers means you have 2 personas whose interests aren't necessarily aligned, or induces additional expectations and kinks into their biz model.
I write this because I came across this interesting story (I think in the Morning Context) on Urban Company’s woes.
This is in particular stood out to me
Notice that they are charging a subs fees to their gig workers. This IMHO is at the heart of their woes. The moment you charge someone outside of the transaction they are servicing, then you are treating them as a customer and of course then customers have expectations. Now, a transaction fee or commission on their revenue earned is fine as it is a cut of the rev; it can be structured as customer pays 100; 15 to Urban Co and 85 to worker. But, in this case they are charging ₹3k per month from suppliers. Now when these suppliers are unhappy and they do not get their money’s worth, and their voice is not heard, they will go on a strike.
I hope they drop the subscription fee they are charging the suppliers.
Been directing my reading towards fiction and podcast transcripts (the latter as part of my prework for The Visile - a newsletter that I coauthor with Rohit Kaul (@seekingn0rth) where we curate 8-10 of the best startup podcast episodes of the month, and distill learnings from them. Given this I read much fewer articles than usual.
Here is a list of what i read and found interesting
Becoming a better writer by Gergely Orosz - The Pragmatic Engineer is a newsletter for software engineers. It is one of the two engineering newsletters I subscribe to (free tier) - the other is Justin Gage’s Technically. This piece was written by Gergely for engineers to write better, but is a useful read for anyone. Writing is like salt or pickle, it is a great addition to whatever you do, and is a phenomenal superpower to have (the VC who can write, the techie who can write etc., but on its own it isn’t as remunerative:) Very few writers do well! I think Byrne Hobart said it well - Writing is a good career move but a terrible career.
The Yoga of Eating: Book review by Tiago Forte - I have put on 7 kilos since COVID began thanks to the quarantine and the lockdowns. I haven’t had much success with exercise, and have been trying to rewire my diet. The challenge is that I love food too much:) In that context I have been reading about sustainable dietary practices, and thus this piece stood out. TLDR; food is information. When we crave a certain food our body is telling us something. Be attentive to food and be mindful when you are eating. You will eat better, less and appreciate food more then. Now, our ancestors would be shocked to read all this - they would just say - stop eating less! But their context was different. They didn’t have Zomato and fast food!
Tyler Cowen is the best curator of talent in the world by Tony Kulesa - Interesting read on how Tyler Cowen identifies and backs talent. I find this interesting because I firmly feel one direction early stage investing is going is in the direction of backing talent as opposed to investing in their startup.
I have written and tweeted about this theme of betting on people, previously -
The below came in Nikhil Basu Trivedi’s list of Next Big Things for 2022
And I wrote about a fictionalised startup to illustrate how this could play out
That is it folks, for this issue. Feedback in the comments or at email@example.com (on anything re the newsletter). If you want to reach me for a funding request then write in at firstname.lastname@example.org (replies in 3-5 days please).
thanks for taking time out Sajith. Irregular as you say but informative for sure.
On UC’s subscription charges to partners, with the benefit of hindsight looks like a bad move. do you have any readings on their thought behind it? apart from making UC s revenues predictable. I will search/speak to people to know this too.
I enjoy reading your irregular newsletter. Lot of interesting trend spotting and noise cutting. Thanks!