0:00

This. Episode is presented by Invest

0:02

Porto Rico. If you believe your

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business can go anywhere, Puerto Rico

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is the place. Hello!

0:20

And welcome back to Equity a podcast about

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the business of start ups where we unpack

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the numbers and the new ones behind the

0:26

headlines. My name is Alex and I'm joined

0:29

today by senior techcrunch reporter on the World

0:31

Defentect. It's Marianne. Hey Mary Ann, How are.

0:33

You aren't good. Alex, How's it going?

0:36

Well, winter has returned and my baby's been sick,

0:38

so it's not that bad. it's just you know,

0:40

it's been a long week. It has. It has

0:42

been a long week. I second that. about. The

0:44

it has been a long we've been getting better

0:46

because Becca is back with us on Equity Pekka

0:48

hi how are you. I am good. I

0:50

also feel like and it's been a long week

0:53

long weekend. A good way though because we do

0:55

have some very fun news on the show including

0:57

to updates on the world of five years. But

0:59

before we get into that two things one. Please.

1:01

Don't forget to drop a rate or review

1:04

of the show on your favorite podcast application.

1:06

We do really appreciate it and we will

1:08

read out some of the best of those

1:10

on the show in the coming weeks and

1:12

also back up before jumping you. Recently had

1:14

a very important guest of Wrong Found. Yes,

1:17

We recently had Air Glennon The Coup,

1:19

founder and Ceo of Ramp On the

1:21

Found Podcast. So if you want to

1:23

hear a little bit more about their

1:25

founding journey, what it was like building

1:27

authentic and Twenty fifteen first building authentic

1:29

now. Very good conversation and deftly would

1:32

recommend. Hard. Agree on all things found.

1:34

We love stealing Becker for equity whenever we

1:36

can, but she does have our own shows

1:38

that we can't take her every single week.

1:40

But on the pod today to three of

1:43

us are going to get into deals of

1:45

the week including Onyx Mom Talk, Climate Wonder

1:47

and The Ethos Fund. Then we're discussing an

1:49

influx of possible capital into the world of

1:52

a I from Saudi Arabia and then recent

1:54

I P O news and why late stage

1:56

V sees may be holding back their portfolio

1:59

companies from going. But we're going

2:01

to start with Onyx, Marianne, a

2:03

YC-backed company that appears to not

2:05

be dead. Well, yes. So

2:08

Christine Hall first covered the company last

2:10

May when it raised about $4.1 million

2:13

in seed funding. And at

2:15

the time, I will admit I was a

2:18

little bit skeptical of the model. That

2:20

was because they claimed that

2:22

they were focused as a

2:24

digital bank, focused strictly on

2:26

providing banking and investment services

2:28

for high-earning millennials and Gen-Zers.

2:31

I don't hate that off-top, Marianne. Why did

2:33

that initially strike you as a specious idea?

2:36

I don't know. Maybe that

2:38

high earning somehow rubbed me wrong.

2:40

It just felt a little exclusionary,

2:42

which maybe isn't fair because, you

2:44

know, there are different

2:47

types of financial institutions for different demographics.

2:49

But I don't know. It did just

2:51

strike me as a little different. Anyway,

2:54

they were supposedly doing pretty well. They

2:56

told Christine that, you know, things were

2:59

going well. Revenue was going up every

3:01

month. But then come to find out

3:04

just last week that they sent their

3:06

customers an email saying they were terminating

3:08

bank operations and closing their accounts.

3:11

Yeah, that was a surprise. And so we

3:13

took that along with a note over on

3:15

the YC-bondator website that marked them as inactive

3:18

as indication that Onyx was essentially on its

3:20

way out. Right. I thought,

3:22

oh, OK. Onyx is shutting down.

3:24

Yeah, that was fast. But when

3:26

then I reached out to one

3:28

of the co-founders, he sent me

3:31

straight and said, apparently, what they're

3:33

doing is pivoting. They're pivoting from

3:35

B2C to B2B, which I'll

3:37

tell you his exact words, shifting to a

3:39

B2B white label platform as

3:42

a service model for community banks,

3:44

regional banks and credit unions that

3:46

want to launch digital apps built

3:48

for young affluent consumers. OK, I

3:50

get the B2B shift. It probably

3:52

makes more sense. I will say

3:54

that a source told me behind

3:56

the scenes that regulatory issues may

3:58

have played a role. and it's

4:01

terminating bank operations. I asked the co-founder

4:03

about this. He denied that. He said

4:05

that wasn't the reason. He said that

4:07

this has kind of been in the

4:09

works for a little while, and that

4:11

it was a strategic decision that allowed

4:14

the company to leverage the base of

4:16

existing financial institutions and use the technology

4:18

it had built to quote

4:20

scale in a more capital efficient manner.

4:23

My first thing here, and I know I'm not bearish

4:27

on FinTech as a category. I need to

4:29

say that before what I'm about to say.

4:31

But these sort of like banks aimed at

4:33

different groups and stuff like that, I still have yet to

4:35

meet anyone who uses a non-traditional bank.

4:37

I still have never met anyone. I don't know

4:40

anyone who's friends use them, whatever. But

4:42

I like the concept of them for groups,

4:45

especially those who have been sort of hurt

4:47

or discriminated against in the traditional banking system.

4:49

But in this case, if you're targeting high

4:51

earning millennials and Gen Z, like

4:53

aren't these the kind of people where traditional banking

4:56

models actually are better for them

4:58

than for me? Yeah,

5:00

so that's always my thing. I also am like,

5:03

who my age has any money? I'd love to

5:05

know. I mean, I was thinking

5:07

about it in reverse, which is that we've

5:09

talked about certain neo banks that have stuff

5:11

for less wealthy people, like getting your

5:13

payday a few days early. They'll essentially credit you

5:15

that and then, because they know it's coming in

5:17

and then they can pay you back. And it's

5:19

a way to offer kind of like a flexible

5:22

solution to avoid payday loans for people who might

5:24

need that. So there are innovations that

5:26

are super cool. The thing that I struggle with is kind

5:28

of what Becca said, which is these people are already so

5:30

well served. Trying to figure out

5:32

how to phrase this. My bank loves to send me things

5:34

in the mail that are like, give us more

5:36

of your money and we will give you some

5:38

money because they want me to keep more of

5:40

my money with them versus elsewhere. And

5:43

so they are beating down the door to try

5:45

to engender more business with me. So it feels

5:47

like a reasonably served category

5:49

already. And that's why I think Onyx

5:51

probably struggled because there's just myriad options

5:54

in the market that are already tuned

5:56

towards the affluent, the high earning or

5:58

the Henry's, as they're called. Hold on,

6:00

Reddit, the high earners, not rich

6:02

yet. I think

6:04

you both make excellent points. I

6:06

will say though, in general, that

6:08

we've seen more than one shutdown

6:10

in the space of neobanks that

6:12

were targeting very specific demographics. In

6:14

the past year alone, we saw

6:16

daylight shutdown last year. It was

6:18

focused on the LGBTQ plus community.

6:21

We also saw cheese, which was aimed

6:23

at the Asian American community shut down

6:25

very recently. I

6:28

think in general, this is a tough

6:30

thing to do. We see some neobanks

6:32

doing very well right now, New Bank,

6:34

Dave, for example, Monso just raised a

6:36

bunch of money. I think it's

6:39

a really hard thing to do to target

6:41

very specific demographics because you have

6:43

to be able to differentiate your offerings so

6:45

that a person feels like it's worth their

6:47

while to bank with you as opposed to

6:50

a larger, more traditional bank or even a

6:52

larger syntax bank. Also,

6:56

the more money you have, the more

6:58

probably focused you are on capital preservation

7:00

and account safety. You might have a

7:02

slightly less of an impetus to go

7:04

out there and try something that's a

7:06

bit more niche and new. My

7:09

last point on this is if you go after a

7:11

subset of the market, you are limiting your TAM,

7:14

which is by definition. Anyways,

7:16

tough but good to see Onyx trying something new.

7:18

We will have notes on them as we learn

7:20

more about how their B2B pivot is going. My

7:22

Deal of the Week is about a company that

7:25

we haven't talked about in a while indirectly, which

7:27

is Casper. Do you guys remember

7:29

when Casper was like the D2C

7:31

breakout story, it went public and

7:33

it seemed like we couldn't get

7:35

away from different mattress-based companies? That

7:38

was a whole trend for years,

7:40

Marianne. Right. Yeah, it

7:42

was. It was Casper, Purple. I don't know.

7:45

What happened to Purple? Damn, I haven't heard that in a

7:47

minute. I wonder how they're doing.

7:49

They couldn't acquire? Maybe that's not true. They

7:52

sell them at like sleep numbers. I know that.

7:55

So I don't know if they got acquired by them, but

7:57

they're definitely doing retail too. Well, Casper

7:59

did go public. It did not have a

8:01

great time as a public company, but the

8:03

co-founder of the company, Philip Krim, is back.

8:05

And he's working on a new thing. It's

8:08

an incubator, not an accelerator, called Montauk

8:10

Climate, and it just raised about $8.5

8:13

million. And

8:15

the idea here is something akin to the

8:17

startup studio model. So instead of raising a

8:19

bucket of capital and then doing that out

8:21

to founders for shares in return, they are

8:23

going to work on their own ideas. And

8:26

then once something is kind of going well,

8:28

bring in external people to run those businesses

8:30

and then raise traditional venture capital. This

8:32

is not the first time we've seen this model, but

8:34

it is, I think, in my

8:37

experience, the first time we've seen this applied to

8:39

the realm of climate. Becca, does anything

8:41

else come to mind as an example in that area? No,

8:44

I think you are right, because this definitely isn't

8:46

a particularly new strategy, but I think in the

8:48

climate space, you are right to say that nothing comes

8:50

to mind as far as anyone else doing this in

8:53

that sector. So here's my question,

8:55

because it's perfectly fine to make a lot of

8:57

money in a company and to try something new,

8:59

especially if you have a lot of ideas. Do you

9:01

think you understand how to build companies and how to

9:03

approach the market, given your learnings?

9:05

Why not try to do multiple things at once

9:07

and not just spread your bets, but also just

9:09

have more impact? The flip, though,

9:11

is people love to talk about how

9:14

founder-led businesses are the way to go. And

9:16

if you have a startup incubator model, and

9:19

the people who come up with the ideas and

9:21

do the first incubation aren't the people who run

9:24

the business long-term, it seems to be directly opposed

9:26

to the common trends we see of founder-led

9:29

businesses. And

9:31

so it feels oddly counter, not

9:33

narrative per se, but it goes against what we've been

9:35

told is the right way to do things. And I'm

9:38

struggling to figure out if that's

9:40

why we haven't seen incubators of this

9:42

ilk in different areas become the household

9:44

names we've seen from other venture capital

9:46

traditional firms. Yeah, can you

9:48

think of any companies who are born

9:51

out of incubators and

9:53

are doing really well, you mean? Yeah,

9:56

that's my question. I don't know, because I know there's a

9:58

bunch, and I know some... do better

10:00

than others, but yeah, I can't think of a

10:02

company from one of these off the top of

10:04

my head. I think that just goes to that

10:06

there's probably some success in this model in certain

10:08

areas, but not as much as we have seen

10:10

from other models. I mean, we're going to talk

10:12

about the Reddit IPO later in the show, but

10:15

that I think is not even amongst the first

10:17

dozen IPOs from the YCE cohorts throughout the years.

10:19

So the accelerator model does have a

10:21

track record. You can kind of point to off

10:23

the top of your head, name names. This

10:26

is just a little bit different. So I will

10:28

say, given the scope of the potential climate issues

10:30

that we are seeing, I'm in favor of a

10:33

try everything approach. So I don't want to sound

10:35

overly negative here. I'm more curious as to why

10:37

this was the method that they decided to approach,

10:39

but they built a team, they raised money, they're

10:41

going to go after climate, and I think that's

10:44

very cool. I mean, why not? Why

10:46

not go out there and just try all the things? There's too much

10:48

carbon in the air, y'all. We need help. Yeah.

10:51

And the story, I mean, Tim said that the trio felt

10:53

like they had plenty of ideas themselves. So

10:56

that's why they decided to go this

10:59

route instead of doing a VC fund.

11:01

And also, I thought it was interesting that of the 8.5

11:03

million they raised, about 7 million of

11:07

that came from one person, Shield

11:09

Tile, managing partner at AMPLO. I

11:12

would like to see how this plays out. I

11:14

think their mission is honorable. I do think that

11:16

they're trying to take a different approach. They're

11:18

not focusing on problems that

11:20

require hardware to solve. They

11:23

are looking at creating businesses

11:25

that complement those types of companies.

11:28

The analogy they made is that the bricks

11:30

have already been made. It's all about laying

11:32

them correctly and finding the mortar that goes

11:34

between them to hold them all together. Ergo,

11:36

we've already lowered the cost of solar production

11:39

dramatically and improved the efficiency of it. So

11:42

what can we do with that? Well, probably quite a lot.

11:44

So, the Montauk climate, one to keep an eye on. I

11:46

want to bring up one more small thing from another serial

11:48

founder just keeping that theme alive. That

11:51

is Mark Lor. Now, you might

11:53

remember him from Quidzy, which he

11:55

sold, and then jeff.com, which he

11:57

also sold. The latter deal was

11:59

a multi-billion dollar sale, too. Walmart. Now, Mr. Laura

12:01

is back and you may have heard

12:03

of this company called Wonder. It

12:05

had just raised $700 million, Becca,

12:08

in a safe. And I think

12:10

that they screwed up because safes

12:12

are for single digit million dollar

12:14

transactions, not double digit, let alone

12:17

triple digit million dollar deals. What's

12:19

going on? Yeah, that is

12:21

way, way, way too much money to raise in the

12:23

safe, in my opinion. Safe, especially

12:25

with the whole like hitting milestone

12:28

with that much money. I mean, in

12:30

today's market, especially this

12:32

is in a very, very crowded

12:35

category. So tell us about Wonder, I'm curious

12:37

why you think that. So mainly

12:39

focus on sort of a new way to do

12:41

food delivery. I know they originally were trying to

12:44

launch a food truck network that did not

12:46

really pan out. There's so many food delivery

12:48

like living in a place like I do

12:50

New York City, where it would be

12:52

a perfect market for a food delivery

12:54

company. There are so many. And

12:56

sometimes I pass restaurants still

12:58

with signs outside that say you can get

13:00

us delivered on this app exclusively. And I'm

13:03

like, I have never heard of that app.

13:05

So it's just like if none of

13:07

these companies are doing amazing, like it's

13:09

not like you can be like, well, look

13:11

at Uber Eats, look at DoorDash, they're doing

13:13

crazy numbers, like the market is so big,

13:15

clearly can have more players. That isn't really

13:18

what happens in this category. So I

13:20

mean, the food truck would have been

13:22

a niche that didn't work out. That's

13:24

fine. But otherwise, I'm kind of

13:26

like what's the differentiator here? Yeah,

13:29

and just in general, I mean, $700

13:31

million is a lot of money these

13:33

days. And I too was very surprised

13:35

to see it raised via faith that

13:37

just feels odd. Unsafe.

13:40

Oh, God. Rebecca with the bad jokes. I have

13:42

a solution though. What if we took these two

13:44

stories and did a bit of a remix? So

13:47

I'm going to read these headlines now, but I'm

13:49

going to change the numbers around. Montau

13:51

climate raises $700 million and wonders Mark lore raises

13:55

a point five. There we go. I

13:57

fixed it. More money for climate, less

13:59

money. for whatever wonder becomes.

14:01

Shout out Mark Lord though for being one of

14:04

the best fundraisers in the history of mankind. Gotta

14:06

hand it to the guy. I'm impressed that he

14:08

pulled this off. But let's move on and we're

14:10

going to talk about a new venture capital firm

14:13

called Ethos Fund. Becca, what's going on? Yeah,

14:15

so Ethos Fund just closed its first

14:17

fund, which is going to invest in

14:19

founders bridging the gap between the US

14:21

and Vietnamese tech communities. So the firm's

14:23

about two years old, they raised $12

14:25

million. The fund will invest in companies

14:28

in two different ways. So both invest

14:30

in companies based in Vietnam that are

14:32

really, really early stage pre-product pre-revenue, as

14:34

well as companies in the US, which

14:37

they're calling third culture founders. So

14:39

they've described that direct quote brilliant minds who don't

14:41

just belong to one culture, but have been shaped

14:43

by multiple ones solving problems that they

14:45

care about. I think this

14:47

is interesting for a whole host of

14:49

reasons. One, I love these funds that

14:51

work to bridge gaps between an established

14:54

market like the US and a less established

14:56

market, say like Vietnam. There's another one I

14:58

talk to quite often that is trying to

15:00

do the same thing with startups in Poland.

15:02

It's called Smok Ventures. They have

15:04

some partners based out in Silicon Valley. They

15:07

have partners based in Warsaw and they're trying

15:09

to bridge the gap there. And I think

15:11

that's a really smart strategy to get

15:14

international exposure to these smaller markets and

15:16

kind of give the boost that they

15:18

maybe wouldn't have gotten otherwise just trying

15:20

to home grow their own market. Yeah,

15:22

one thing I've heard about this kind of in

15:25

reverse is people trying to help other founders

15:27

break into the US market. But it's cool to

15:29

see kind of the US and Vietnam to

15:31

be bridged, especially given that Vietnam is emerging as

15:33

a place where people are moving some of

15:35

their operations in light of China becoming a more

15:37

difficult country to do business in. So to

15:39

me, there's kind of a thematic geopolitical

15:42

element to this that makes a lot of sense. But

15:44

I will never ever, ever be unhappy to see very

15:47

early stage founders face more money around the world because

15:49

that's where the cool ideas come from. So I think

15:51

this is great. I think so

15:53

too. I was surprised though to see

15:55

that the founders of this firm are

15:58

actually Korean. I

16:00

mean, not that it's a bad thing, but

16:03

I was just not expecting it. So I

16:05

was like, interesting that they chose Vietnam and

16:07

not Korea to focus their efforts on. Well,

16:10

South Korea has, due to its large companies, a

16:12

lot of, I mean, just to pick one example,

16:14

a lot of corporate venture capital already. And so

16:16

maybe Vietnam is just a market where there was

16:19

more opportunity, and that just means essentially need from

16:21

founders for this type of funding. Makes

16:23

sense. Yeah. And I was going to say too, maybe

16:25

that plays into a whole third culture founder piece of

16:28

this. They're both not from that

16:30

country, but they've lived in a few different

16:32

areas and they're investing there. But

16:34

I just wanted to touch on that a little bit

16:36

too. I love the concept of these, quote unquote,

16:38

third culture founders, because something I've always thought that

16:41

was interesting is, well, there's

16:43

evidence here in the US, there are firms

16:45

that just invest in immigrant founders. There's definitely

16:47

a lot of data you can look at,

16:49

big success stories in the US startup market

16:52

that come from founders with those

16:54

types of backgrounds. But I've always thought

16:56

if you want to scale your company

16:58

out of whatever country you're based in,

17:00

you do kind of want more of

17:02

that global mindset, or you do kind

17:04

of maybe want those experiences that would

17:06

help shape your thinking as you are thinking

17:08

about an expansion. Of course, many examples of

17:10

how you don't absolutely need that, of course,

17:12

not a requirement by any means. But

17:15

I could definitely see how investing in people

17:17

who have that background, have that mindset to

17:19

begin with, might approach

17:21

their company building differently, especially if they do

17:23

plan to expand down the line. And I

17:25

could see the benefits from that, of

17:28

coming with that approach. Yeah, absolutely. And the

17:30

inaugural fund is $12 million. They've

17:33

already made some investments out of that. So

17:35

it's those funds, one to watch. We'll see

17:37

who follows in their footsteps, if anyone, because there's

17:39

more countries out there that we could bridge between.

17:41

Now, when we come back, Saudi Arabia's big AI

17:43

push, but very first, a short break. What's

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at investpr.org/TechCrunch. Now,

18:21

Saudi Arabia is planning an enormous push

18:24

into the world of artificial intelligence using

18:26

its sovereign wealth fund. We're talking about

18:28

$40 billion here, which I would have

18:30

said a few years ago is probably

18:32

too much money, but given how much

18:34

we've seen open AI and anthropic and

18:36

others raise, I almost want to say

18:38

$40 billion. That's it. I know. In

18:40

the sales market, they can make like

18:42

three investments. I'm kidding, but like, I'm

18:44

not kidding as much as I wish

18:46

I was. Yes. I'm not surprised. I

18:48

mean, the Saudi Arabian government has definitely

18:51

proven over the last few years, one, they

18:53

definitely want to get more into venture investing

18:55

and innovation and the like in general, but

18:57

two, they've proven to be pretty smartly reactive

19:00

and kind of following the trends and putting

19:02

their money in certain areas that are kind of

19:04

following broader trends in the innovation ecosystem. You don't

19:06

always see that to people who come in making

19:08

these big pushes. Sometimes it's like, oh, we want to

19:11

stay general over trying to figure it out. So

19:13

it is interesting to see them come in with

19:15

this AI focus. I feel like it's a very,

19:17

if you have that kind of money to spend,

19:19

it's a smart reaction to where the market's headed.

19:22

Yeah. I wonder if there's a national element

19:24

to this because we've talked a lot about, you

19:26

know, like chip production being now, I think that

19:28

every country wants to have inside of its borders

19:30

and so forth. I wonder if AI

19:33

is going to become a thing that at

19:35

least regions want to have local champions for.

19:37

And if some of this money could go

19:39

to fostering, incubating, accelerating something inside

19:42

of Saudi Arabia that would give the Middle

19:44

East something that came to an

19:46

AI model, even though I know this money is also going

19:48

to go into like Andreessen Horowitz. Yeah. You know, somehow

19:51

I doubt that a little bit. I

19:53

feel like all the efforts are going to be

19:56

focused probably more on the country

19:58

itself, not necessarily the region. region as

20:00

a whole, but of course I could be wrong. I

20:02

do think, yeah, $40 billion is a lot

20:04

of money. Agreed, Pekka, that it

20:07

seems like a smart move. But,

20:09

you know, also let's keep in

20:11

mind, probably a lot of investment

20:13

going into AI right now is

20:15

not going to pan out into

20:17

anything tangible. I mean, the

20:19

information reported, I think it was yesterday that

20:21

cohere after raising, oh gosh, I don't remember

20:24

the numbers offhand, but a lot of money

20:26

only had about $13

20:28

million in revenue last year. Yeah,

20:30

they're targeting multi-billion valuation off

20:32

of that. Right. I

20:35

mean, I'll be honest with you, that kind

20:37

of thing just pisses me off. When there

20:39

are companies that are like generating

20:41

hundreds of millions of dollars in

20:43

revenue and struggling to

20:45

raise capital for whatever reason, but just because

20:47

this is more of a flashy space, you

20:50

know, and they only have $13 million in

20:52

revenue, but they can command that sort of

20:54

capital. I guess it's the potential that investors

20:56

are backing, but anyway, it's just a point

20:58

that I had to make. So like $40

21:00

billion, yes, a lot of money, but

21:03

how much of that is going to actually go into

21:05

technologies or companies that pan out to

21:07

do something, you know, meaningful? Well, one way

21:09

to get around to selection risk you're describing

21:11

is to give it to large venture capitalists

21:14

that have a track record. And Andrew Zunhorevitz

21:16

has been in and around Saudi Arabia saying

21:18

kind things about them because they are an

21:20

enormous potential LP. So we at least know

21:23

one firm that would like a chunk of

21:25

this. And to bring

21:27

up the point you mentioned earlier, Alex, about

21:29

maybe countries and regions do kind of want

21:31

their own AI champion. One thing I think

21:33

about that is so prevalent in the AI

21:35

discussion today and somehow could probably be more prevalent than

21:37

it is, is just the

21:40

privacy and security aspects that come

21:42

with training large language models. And if

21:44

you want to use AI applications in

21:46

your government or to automate things like that,

21:48

like you probably would want a local player

21:51

and you probably would want someone who's not working

21:53

with other governments, even though I do know of

21:55

a few AI startups that do automate some government

21:58

processes that do work with multiple different governments. which

22:00

I definitely think is really interesting, but I

22:02

could see certain things people kind

22:04

of would want to keep it close to the best.

22:07

Yeah, and don't think that there

22:09

would be an alarmist. Just look at

22:11

changing data residency rules and how those

22:13

could play into training of LLMs and

22:15

how those could become regionally specific to

22:18

a really material degree. But

22:20

here we have a country that isn't super populous,

22:22

like say India, which is having its own AI

22:24

regulatory discussion, showing up with a lot of capital

22:26

to make a difference. I am

22:29

very curious to see who they invest in

22:32

and then how people react to the Saudi

22:34

Sovereign Wealth Fund being the original source of

22:36

their eventual capital and if that will play

22:38

into founder decisions. But certainly this

22:41

is going to be another big year

22:43

for AI investment. So more money just

22:45

makes sense to me, Becca. Yeah, and

22:47

what you just brought up about who they're going

22:49

to back and stuff like that is a good point

22:51

because I know I was just talking to someone over

22:53

at Stepstone and they were saying that one of the

22:55

big things they've noticed from 2023

22:57

that's rolling into this year that they

22:59

expect will continue to grow throughout 2024

23:01

is that firms are struggling to

23:04

fundraise and firms who have said we

23:06

would never take money from not just

23:09

Saudi Arabia in general, but we won't take Middle

23:11

Eastern money. We just will not

23:13

raise from that region are reversing

23:16

that decision. So if

23:18

this fund goes out to look for managers, there

23:21

are actually probably going to be a lot more managers

23:23

in the US or willing to take the call, willing

23:25

to take the discussion than if say they had launched

23:27

this four years ago. Yes. Yes.

23:31

And there is some history about why four years ago or five years ago is an important

23:33

date to keep in mind. But let's move

23:35

on and talk about late stage venture capitalists

23:37

and why they may be holding back some

23:39

of the companies we all want to see

23:41

SEC filings from going public. Becca, you had

23:43

a great story about this. Yeah. So

23:46

one of the things that I know has been a

23:48

big conversation since the market originally started to

23:50

kind of sour back in 2022 is

23:53

notable people like Hong's ton at GGV Ventures were coming

23:55

out and saying like, oh, raising a John Brown is

23:57

fine. Like it's OK to go at a lower.

24:00

valuation and stuff like that. So with how

24:02

backed up the IPO pipeline was, you started

24:04

to hear people kind of echoing the same

24:06

thing about a public listing, like we

24:08

should start seeing more IPOs, even if they're

24:11

not at the levels of where the

24:13

companies raised their last primary round. But the

24:15

issue with that is that some of those

24:17

companies, even if they want to go public,

24:19

they might not be able to. Chatting

24:21

with some VCs, some secondary folks and a

24:23

lawyer as well discovered that

24:25

a lot of really standard

24:28

deal terminology actually gives their

24:30

most recent round investors a lot

24:32

of power. And that's not saying

24:34

you can put in direct rights

24:36

to give yourself power as an investor

24:38

to completely block an IPO, which the

24:40

lawyer I spoke to was like, you

24:43

used to see that, you don't

24:45

really see that anymore. But standard

24:47

stuff like anti-dilution causes protection and

24:49

stuff like that, like that alone,

24:51

automatically you get diluted if you start

24:53

raising money, you start putting out shares

24:55

for people to buy pre IPO. So

24:58

that gives people that power in a

25:00

way that maybe some startups didn't

25:02

realize at the time, because this is

25:04

such standard terminology. So even if you're

25:06

a company, you're at 70%

25:08

of your last valuation, you can see yourself growing

25:10

strongly in the public market, you want to go public,

25:13

some of those companies may be being told no. Yeah,

25:15

the thing that really blew my mind here is that

25:17

we have criticized founders on this show for being slow

25:20

to go public, but maybe we should have been

25:22

pointing the finger another direction. Yeah, I

25:24

was surprised. Becca, I always learned from you. I

25:26

was a little surprised. I think like you said,

25:28

Alex, we always thought it was the opposite, right?

25:30

That the VCs were pushing companies to go

25:33

public so they could get their exit, and that

25:35

it was the founders holding back. So this was

25:37

really interesting to me. And I wonder

25:39

how often it is the case. I

25:41

also wonder, as a founder, like, is

25:44

that sort of thing not spelled out

25:46

more clearly? Like, I can't imagine like

25:48

you go through this whole process of

25:50

a fundraise and bringing on investors and

25:53

not understanding that this could happen. Yeah,

25:55

no, that is a really good point. And I feel

25:57

like that's why it's important to

25:59

stress. here with this piece, which I

26:01

tried to do a lot in the article

26:03

and definitely want to do now, is just

26:05

how common these terms are. Because

26:08

it's like, we've talked a lot over the last year about

26:10

investors coming in with, say, a 3x

26:12

liquidation preference or a full ratchet clause or

26:14

something like that. That's like a very predatory

26:17

term. Whereas a lot of these aren't.

26:21

These are just things where it's like, if you signed that deal in 2021, you

26:23

don't know the market's turning in 2022. You

26:26

expect to go public before that happens. These

26:28

are things you would not think about. I mean, of course,

26:30

people should plan for every scenario

26:33

when they take new rounds, take

26:35

on new funding. Of course, people should

26:37

do that. That's basic business 101, but

26:39

a lot of people don't. And a lot of people have proven,

26:41

especially in the past few years in the

26:43

startup market, that they maybe weren't really thinking

26:46

about the potential downside. Because how could you?

26:48

After eight, nine years of up and to

26:50

the right, even though we all know the

26:52

market is a cycle, it never stays going up

26:54

and to the right. But one of the people I spoke

26:56

to to this piece, Alan Vaxen over at

26:58

Launch Bay Capital, made the good point where he was

27:00

saying that, one, more friction around this

27:03

happens even in a good market than people are willing

27:05

to talk about. And two, he was

27:07

saying at the end of the day, VCs have a

27:09

fiduciary responsibility to their LPs. So

27:11

if you're private, Stripe's the perfect example

27:14

here. Stripe last raised a primary round,

27:16

90 billion valuation. Obviously,

27:18

they're not there yet. They raised or

27:20

two rounds ago, 90 billion, their

27:22

last round, 50 billion. They recently had that

27:25

secondary sale, priced them at 65 billion. That

27:27

secondary sale pretty much proves they won't go

27:30

public because that round proves to their investors

27:32

that if they stay private, they can

27:34

continue to build that valuation back up. Maybe

27:37

it won't hit the 90 billion, but if they

27:39

went public today, people who need to cash out

27:41

relatively quickly, early investors, et cetera, they

27:43

are actually leaving money on the table. And

27:45

that's not something VCs want their LPs to think that

27:47

they're doing. Yeah, but you don't

27:49

have to immediately liquidate your holdings when a

27:51

company goes public so you could hold post

27:53

IPO and still enjoy value creation. All

27:56

that's to say is that there's no single simple

27:58

answer to this. Every situation is different. But

28:00

it does show that there is more

28:02

investor control over exit timing than we

28:04

may have anticipated. And I think you're

28:06

right going back in time to people not thinking this through

28:08

because back in the day, you could always raise more money

28:10

at a higher price. So who cares about this set of

28:12

terms when you're already talking about the next one? And now,

28:15

you know, it's kind of, oh, well,

28:17

maybe we should have thought of that. I

28:19

will say though, if you are a VC holding

28:21

back a company going public because you're worried about

28:24

the price, well, there's been some good news, which

28:26

is that we had two IPOs this week, Reddit

28:28

and Astera Labs, and they did incredibly well. In

28:30

fact, Becca, we're recording this Thursday afternoon, which we

28:32

always do. Reddit just began to trade. What's going

28:35

on there? Yeah, so Reddit, I'm

28:37

looking at the numbers updating live at

28:39

this exact second. It looks like it's

28:41

about up 52%. Last one I'm

28:43

going to look at for this exact second is $5183

28:45

for the price for share, which is a lot

28:47

higher than what Reddit went out for. Also a

28:50

lot higher than I think a lot of people

28:52

expected them to be able to go public

28:54

at and did not expect them to go

28:56

well going public at

28:58

this price. I'm doing some math in

29:00

my head. If their fully diluted valuation

29:03

was like $6.4 at

29:06

$34 to share, they're worth

29:08

like $9, $10 billion now,

29:10

which means they're almost back on a fully

29:12

diluted basis to their last private round valuation.

29:14

That was fast. That's what I was supposed

29:17

to say. Yeah, all this is to say that don't

29:19

be so afraid. You know, come on, let's go.

29:21

We just had two IPOs

29:23

from venture-backed tech companies this week

29:25

that both priced at the top

29:27

of the range or above it

29:30

and had great first day debuts. What more

29:32

can people ask for? I can't imagine. Right.

29:35

What more? We need more. More IPOs. Yes, please

29:37

drop this S1 file and they take tons of

29:39

time to go through and to plan around and

29:41

so forth. So yeah, keep us working late. Flood

29:43

us with those IPOs. We'd love to see them.

29:45

At least have a good reason to work late.

29:48

An S1 would fall into that. But yeah, it

29:50

was interesting to see how this goes from here because I know

29:52

even when Reddit had filed and people, especially

29:55

secondaries, investors I spoke to, were pretty

29:57

hopeful that the IPO would go well.

30:00

they didn't think it would go probably as well as

30:02

it is currently, but they were like, no, we have

30:04

good reason to believe that company has a

30:06

lot of revenue, even though it's not profitable. They're

30:08

going out at a multiple that is much more reasonable than they would have

30:10

gone out if they had gone public, say in 2021. But

30:13

I don't know if any of those secondaries

30:16

and investors realized how well these two IPOs

30:18

were going to go, because they were all

30:20

saying even if these do go well, we're

30:22

really not sure that's enough to really open

30:24

the IPO window. But when they said IPO

30:26

is going well, they didn't mean popping 47%. No,

30:29

I don't know. I don't know. You

30:31

wrote a piece not that long ago,

30:33

Becca, going through how secondary markets indicated

30:35

that a $5 billion valuation was pretty

30:37

much where people thought Reddit would be

30:39

worth. And

30:41

it turns out that public markets are going

30:43

to public market and everyone, at least for

30:46

today, looks very conservative in hindsight. Because

30:48

the key with the $5 billion valuation is not only is

30:51

that something people were willing to buy in at, that would

30:53

also be a price that people could realistically

30:55

start to buy into to grow.

30:57

Because they're saying, obviously, if you price too high, people

30:59

aren't sure. They're not going to buy. Price is

31:02

going to drop. Valuation is going to drop. So

31:04

they priced a little bit higher than that $5 billion

31:06

range. And seeing them pop the way

31:08

they are now means maybe we don't know what we're

31:10

talking about when it comes to that. Well,

31:13

I don't think anyone ever knows how to price

31:15

an IPO, because either you nail it and it's boring,

31:17

you are a little bit low, and it pops too

31:19

much, and everyone complains about money left on the

31:21

table, or you price it too high and raise more,

31:23

and then it goes down, and everyone's sad. So

31:26

there's almost like no perfect way. The only way to

31:28

make a margin make sense is to wait six

31:30

months and then look at the price and then try

31:32

to measure how it was priced compared to where it

31:34

actually landed. Early enthusiasm, though, is a

31:37

generally bullish signal. And so we're not going to

31:39

denigrate it. I just am not looking forward to

31:41

the did money get left on the table conversation

31:43

coming back again, because I feel like we do

31:45

that every three years. But at

31:47

least you've had two IPOs this week. It's been a

31:50

lot of fun. And guys, we got to go, but

31:52

equity will be back on Monday. Becca, tell people where

31:54

to find your found podcast. Yeah, definitely.

31:56

You can find us on Twitter. We are just

31:58

at found. You can find us on Twitter. the TechCrunch

32:00

website under the podcast, where maybe you are already

32:02

going to catch up on Equity. We are there

32:04

as well. And yeah, always happy to come on

32:07

the show. Yeah. And we will have

32:09

IPO coverage all over the TechCrunch website. So

32:11

if you listen to this Friday morning, well,

32:13

go read techcrunch.com. We have lots of stuff

32:16

for you. Thank you all very much. Of

32:18

course, we are EquityPod over on X and

32:20

Threads and the TechCrunch podcast network is on

32:22

TikTok under the name TechCrunch Pods. Thank you

32:25

all. Bye. Equity

32:29

is hosted by myself, Alex Wilhelm and

32:31

TechCrunch senior reporter, Mary Ann Azevedo. We

32:33

are produced by Teresa Loconsolo with editing

32:35

by Kel. Bryce Durbin is our illustrator

32:38

and a big thank you to the

32:40

audience development team and Henry Pickavette, who

32:42

manages TechCrunch audio products. Thank you so

32:44

much for listening and we'll talk to

32:46

you next time.