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As tech stocks take a hit, the big question on my mind is how a dip in market performance impacts early-stage startups. There’s the obvious argument here that startups have been preparing for a re-correction, and that market highs were knowingly unsustainable, but just because expectations exist doesn’t mean that ripple effects float away.
Despite investor’s outward rationalization, the red, or millennial pink, flags are not going unnoticed, with some firms lowering revenue expectations even at the earliest stages. On Equity this week, Alex and I interviewed Bessemer growth partner Mary D’Onofrio, who admitted that her expectations for exit multiples have changed, and that the IPO window is mostly closed. The stocks may be sane, but that’s still kind of sad, right?
D’Onofrio is seeing rounds taking longer, VCs asking more questions and the return of full due diligence (which, for anyone who has been reading this newsletter, is music to my paranoid ears).
My take, after speaking to a handful of venture investors and founders, is that we’re going to see the return of the lean, green startup. In the past, stock market dips may have caused a retraction in venture capital dollars, leaving startups to crumble under lack of capitalization. In today’s market however, there’s never been more capital in the venture world.
A venture-backed early-stage startup has an elusive line to toe, because a decline in valuations isn’t a decline in capital. I expect to see founders with cash in the bank take on a leaner mindset, maybe spending more conservatively or thinking about runway again. Vernacular will change: If becoming the “Amazon of X” isn’t the smartest target, founders could instead focus on building out key capabilities that will help them survive an even bigger slowdown. It may be a while before a founder tells me that their capital is offensive, not defensive.
The return to normalcy feels foreign, but that’s because we’ve been in wonky times for an extended period of time. Going forward, I am paying attention to how startups speak about growth in the coming months. You’re raising money, but is it to hire, develop, acquire or just be able to exist?
For my full take on this topic, check out my latest TC+ column: 3 views: How should founders prepare for a decline in startup valuations and investor interest? I’d also love to know how you’re reacting to the news, so tweet me @nmasc_ and change my mind.
In the rest of this newsletter, we’ll get into education’s emotional pivot, fintech proactiveness and some insidery buzz in the VC and startup world.
Education’s inevitable pivot to emotion
I wrote a TC+ story about edtech’s inevitable pivot to emotion-based learning. In the story, I explore how three venture-backed companies — Wayfinder, Empowerly and Learnfully — are navigating the longstanding challenges of personalized education with fresh takes.
Here’s why it’s important: For education enthusiasts, personalized learning isn’t a new phenomenon, it’s simply a rebranding of adaptive learning. What’s fresh, then, is that newly venture-backed startups are cooking up products that look at students beyond their grades and scores. Edtech entrepreneurs are betting that the future of learning depends on understanding the more subjective traits of learners, which feels hard to argue with. The tension ahead, though, is how to apply a venture-like mindset to something as hard to scale as a sense of belonging.
Deal of the week
Parthean recently raised $1.1 million at $12 million valuation to build a personal finance company that educates users, and helps them track their finances at the same time. The big vision behind it, per co-founder and CEO Arman Hezarkhani, is the idea of pro-active learning.
“Anyone who tells you that people want to learn, largely they are wrong,” he said. “[Founders] want to believe in the best of humanity and that people are going to dedicate time to wanting to learn something, but we always come back to this vitamin versus painkiller problem.” A big area where this exists prominently is in finance, he argues, leaving consumers in a spot where they need a financial platform that helps them when they have a fever (overspend) instead of when they’re feeling ambitious (after their New Year’s resolution).
Here’s why it’s important: By combining edtech and fintech, Parthean has an opportunity to track a metric that traditional education companies are unable to measure: connection rates. Part of Parthean’s progress is measured by whether users, after they complete a crypto course, end up doing the action item that’s tacked onto the end of the lesson, whether it’s setting up a crypto wallet on Coinbase or growing a credit score.
It can only do that because it has your spending information, but that sort of integration could lead to fascinating outcomes. It’s less about consumption, and more about creation.
In the DMs
- Hustle Fund is raising a $50 million third fund, per SEC filings. This would be Hustle Fund’s second swing at an investment fund of this size, with its second fund ultimately missing the mark and closing at $30 million.
- Clubhouse is building out a child safety team, which could work on “establishing new investigation procedures, developing new safety features or researching the latest child safety regulations,” per a job listing. The social audio platform, which has attracted significant investor and user interest, has been scrutinized for its inaction on the moderation front, giving the hiring goals likely more haste than usual.
- Y Combinator wants to invest more in software tooling for its admissions process, both from a platform perspective for applicants and for a triage flow so reviewers can wade through the data set to find signals. That’s good, given Y Combinator’s batch size admissions and the fact that there are only five people on the admissions team.
- Speaking of YC, its favorite competitor On Deck appears to be taking another swing: On Deck Daily, a forum for techies to chat (or, if you really think about it, a Hacker News competitor). It’s also building a Startup School.
Across the week
Equity, the tech news podcast I co-host alongside Alex Wilhelm and Mary Ann Azevedo, is going live! Join us for a virtual, live recording of our show on February 10th — tickets are free, puns will come at the cost of our producers’ sanity.
Seen on TC
Seen on TC+
Until next time,