I could spend hours discussing early-stage startup operations and community-based marketing, but deal flow is my blind spot.
But when investment banking firm UBS picked up financial robot-advisor Wealthfront for $1.4 billion in an all-cash deal this week, I noticed.
“At those prices, the company’s exit price is a win in that it represents a 2x or greater multiple on its final private valuations,” wrote Alex Wilhelm in The Exchange. “But its exit value is also parsable from a number of alternative perspectives: AUM, customers and revenue,” he added.
Examining each of those factors in turn, Alex found that the deal is more than just a “next-gen push” intended “to reach rich young Americans,” as some headlines suggested.
This exit will help other fintechs set expectations, but it should give a mental boost to anyone who thinks they’re too late to start up in this space.
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Just over 56% of Americans own stock, but that figure is still several points lower than it was before the Great Recession more than a decade ago. With more consumers buying crypto and fractional shares today, I’d say the robo-advisor race is still doing a parade lap.
Alex, who swims through deal flow like a carefree dolphin, agrees with me — to a point:
The recent declines in active users on platforms like Robinhood, and the success of fintechs like M1 in the last few years could point to a market more open to robo-advising, but the question is whether their lower-cost model can prove sufficiently interesting to investors.
Wealthfront, for example, takes a 0.25% cut of consumer funds. Robinhood I think was doing a bit better when we considered its PFOF incomes against lower-value customer accounts that were actively trading.
Can the robos present a financial picture that is similarly strong? If they can, they will likely prove less volatile than Robinhood has to date.
We’re essentially in agreement: it’s never too late for a good idea.
Thanks very much for reading TC+ this week!
Senior Editor, TC+
European and North American edtech startups see funding triple in 2021
Pre-pandemic, VCs were notoriously reluctant to invest in education-related companies. Today, edtech startups are seeing higher average deal sizes, more seed and pre-seed funding from non-VC investors, and an influx of generalists.
According to Rhys Spence, head of research at Brighteye Ventures, funding for edtech startups based in Europe and North America trebled over the last year.
“Exciting companies are spawning across geographies and verticals, and even generalist investors are building conviction that the sector is capable of producing the same kind of outsized returns generated in fintech, healthtech and other sectors,” writes Spence.
Here’s how far VCs have lowered revenue expectations for seed through Series B
Valuations are soaring, but revenue averages for SaaS startups “have seen a recent and rapid decline,” according to a Kruze Consulting report Alex Wilhelm studied yesterday.
The revenue growth goalposts for early-stage startups wanting to fundraise have moved closer in the past couple of years, which means investors are now willing to pour money into companies with slower growth than they were earlier, Alex wrote.
“In all, startups are getting paid better, faster for less work than before. It’s a great time to raise, but a pretty awful time for venture capitalists trained in an era when they got more equity for their dollar.”
Dear Sophie: 3 questions about immigration and naturalization
My F-1 OPT will run out this June. My employer has agreed to register me in the H-1B lottery in March.
What are my options if I’m not selected in the lottery?
I’m in the U.S. with an L-1A visa that will max out later this year. My wife has been with me during the whole period on an L-2. Can my wife apply for H-1B this year?
Would she need to leave the country to activate it?
I have a 10-year green card that will expire later this year. I’ve been married to a U.S. citizen for 11 years, but we are in the process of divorcing.
Can I apply for U.S. citizenship even after my divorce?
—New Year, New Life
IBM shrugs off investor EPS concerns, sells growth story
IBM’s earnings report was received positively, but when CFO Jim Kavanaugh declined to share the company’s earnings per share expectations on a post-earnings conference call, the stock quickly tanked.
The stock recovered the following day, but the blip was newsworthy, since a narrow focus on offloading some assets, expanding growth and free cash flow puts IBM on track for further growth, analysts told Alex Wilhelm and Ron Miller.
“Good to see IBM finding back the growth that has eluded the vendor for longer than any investor would have liked,” said Holger Mueller, an analyst at Constellation Research.
“But a small ship can sail faster, and with Kyndryl and Watson Health assets being offloaded, it will help make IBM sail faster.”
In blow to unicorns, the global IPO market continues to soften
It’s still a great time to be a startup founder. Specifically — an early-stage startup founder.
WeTransfer’s parent, WeRock, delayed its IPO earlier this week, becoming the latest major software firm to shelve its plans to go public after JustWorks.
Before that, a bevy of SPAC IPOs that many hoped would shoot to the moon instead drifted off course after launching.
These signals, taken with several others, suggest that this might not be the best time to go public, wrote Alex Wilhelm and Anna Heim in The Exchange.
“Are the good times ending?”
Edtech startups flock to the promise and potential of personalized learning
Everyone learns differently, but parents, teachers and schools tend to forget that vital fact in the classroom.
The enforced changes brought by the pandemic, however, have led some teachers and parents to realize that personalized learning is key to education, especially in the case of neurodiverse students.
As a result, a new wave of startups have appeared that promise to deliver curricula that adapts to a student’s emotional or educational state, reports Natasha Mascarenhas.
“The pandemic’s extended stay has caused edtech entrepreneurs – and society – to view learning outcomes as broader than job placement and exam scores,” she wrote.
3 views: How should startups prepare for a post-pandemic dip?
If the public markets were a swimming pool, it would still be open for business, but there’d be signs warning newcomers that the water has gotten a bit chilly.
Natasha Mascarenhas, Mary Ann Azevedo and Alex Wilhelm, the trio behind the Equity podcast, shared their predictions about what’s in store for startup funding and due diligence in 2022:
- Natasha Mascarenhas: ‘The Lean Startup’ has aged with an asterisk
- Alex Wilhelm: Money over bulls**t
- Mary Ann Azevedo: Don’t try to be all the things
Crypto pioneer David Chaum says web3 is ‘computing with a conscience’
In 1982, computer scientist David Chaum wrote a dissertation that described a blockchain protocol, along with the code for implementing it.
Since then, his cryptologic research has led to developments like digital cash and anonymous communication networks. This week, he launched xxmessenger, which the company describes as the first “quantum-resistant” messaging app.
When we asked him what has changed in the past few years, Chaum said, “Seems to me that Bitcoin and the like have created something that could no longer be ignored. Now the question is: How can it be brought to the general public in a way that they can readily adopt this next generation of information technology?”