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The Valuation vs. Traction Matrix

Early-stage valuations for startups are hard to understand because typically there is very little traction or data to go on in the first year or two of a startup. [ Click to Tweet (can edit before sending): https://ctt.ac/fPF9l ] Startup valuations are not science, but they’re not magic either. It’s a bit of alchemy, combined … Continue reading The Valuation vs. Traction Matrix

The post The Valuation vs. Traction Matrix appeared first on Jason Calacanis.

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Early-stage valuations for startups are hard to understand because typically there is very little traction or data to go on in the first year or two of a startup.

[ Click to Tweet (can edit before sending): https://ctt.ac/fPF9l ]

Startup valuations are not science, but they’re not magic either. It’s a bit of alchemy, combined with bizarre marketplace dynamics like famous founders getting 3x the price for half the traction, or Y Combinator hosting a gigantic demo day in order to create FOMO with novice investors who are explicitly told not to think things through and just cut a big check (literally, that’s their bad advice to investors).

The chart above, a work in progress, is called “The Valuation vs. Traction Matrix” and it pivots on two variables: traction (aka “stage”) vs. valuation.

I started the valuation at the basic valuation we tend to see in technology startups, which is $1-2m and go up to the eye-popping $12m (which is actually not the peak, just the highest end of normal).

When you have just an idea or mockup, you are likely to do a “friends and family” round in the $1m range.

If you have an MVP or unpaid pilots, you might get some angels or seed funds involved.

When you get to paid pilots or revenue, then you are most likely to get seed funds and syndicates involved, after which the VCs start buzzing around. VCs invest, on average, when you have $2-3m in revenue these days (they might engage you in discussions a lot earlier, obviously).

Above the green line tends to be less value and below the line is more value.

As you can see, I try to operate just below the line with two of my investment vehicles, the LAUNCH Accelerator and TheSyndicate.com. We do this by finding startups that are not in Silicon Valley AND that have customers paying them.

The green line in this chart approximates the average startup. I would say that most startups in the United States would go along this trajectory unless one of four things happens:

  1. You have a famous and successful founder, which gets you 3x the valuation for 90% less work.
  2. You create a marketplace where many investors are competing for an allocation, which is the double-edged sword that the demo day FOMO device is designed to create.
  3. Your engagement or product is otherworldly.
  4. You find the dumb money which doesn’t understand that you can invest in two or three startups — with the exact same traction — for the price of one overpriced startup.

We see number four all the time when a founder tells you not to worry about the valuation of $18m because it will all work out when they’re a unicorn, which is true, but this assumes you don’t have better deals you can prioritize.

In our case, we typically have so many opportunities that we can place three $6m bets in startups that are just as good (or better) than the founder demanding $18m.

The Danger for Founders

This is the danger of founders overoptimizing for valuation early, which is, they drive away the smart money and open up the floor for dumb money. The other well-known phenomenon is that a founder who succeeds at getting a massively high-valuation early on might raise too little money in a “party round.”

In this scenario, a founder might raise $1m at a $20m valuation, only diluting 5%. If they are burning $75,000 a month they then have about a year to build a company worth $20m. To be worth $20m for a SaaS or consumer subscription product, that would be around $100-200,000 a month in revenue.

It’s possible for a founder to do this, but it’s not probable. What happens if they don’t get to $150,000 a month in revenue to justify the previous $20m cap? One of three things:

  1. They lower the valuation and do a down round.
  2. They get bridge funding from their existing investors.
  3. They shut down or sell the company.    

If the same founder raised $1m at a $5m valuation, they would only need to hit $25-50k in monthly revenue to get a round done at ~$10m.

Accelerators

When a founder goes to an accelerator like LAUNCH, Techstars or YC they have a ~$2m valuation, which is a function of accelerators getting half their equity for cash ($100-150k) and the other half for running a program. Accelerators are a great deal for investors, but they require massive work. You need to have a large, full-time staff, space and a massive interview process to run an at-scale accelerator, which I think costs most programs ~$25-100k per startup.

If you add the operational cost back, an accelerator is likely investing on a $3-4m valuation. Still a good deal, but it’s 100x the work of a solo angel investor and 50x the work of a seed fund.

I suggest new angel investors and seed funds do their first 25 deals in the space to the right of unpaid pilots, in the area in the green box below. In this box you can pay above or below the line, knowing that you’ve eliminated the founders who can’t get to some basic level of product/market fit because it’s very hard to fake paying customers.

You should absolutely avoid Investing in the red box, where founders are looking for really high valuations for their ideas, mockups or MVPs. If you’re going to take on the risk in the idea and pre-traction phase, the yellow box, you at least want to get three or four swings at bat for the price of startups in the product/market fit phase.

So, if you invested $100k for a $10m startup with $750k in yearly revenue in the green box, I could see you investing $25,000 into four ~$2-3M startups.

Angel University

We will be discussing this important topic and more at the Angel.University tour, which is making the following stops:

  • April 19: Washington, DC (hosted by Riverbend Capital)
  • April 23: Boston, MA
  • April 24: New York City (supported by EquityZen)
  • April 26: Columbus, OH (hosted by WillowWorks)
  • April 29: Miami, FL
  • June 17: Sydney, Australia
  • July 15: San Francisco

The AU course is four hours followed by a dinner. Look forward to seeing you at this highly interactive course, which is worth attending if you’ve done zero or over 100 investments.  

Source: https://calacanis.com/2019/03/30/the-valuation-vs-traction-matrix/

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Private Equity

Ordermark Funded $120M to Expand its Virtual Business

Virtual

Ordermark is based in Los Angeles, CA, one of the leading online ordering management solutions for restaurants and virtual restaurant concepts.

Ordermark was funded $120 million series C round funding. The funding was led by prominent technology investor SoftBank Vision Fund and joined by returning investor Act One Ventures. The grant will use to help more restaurants transition to online ordering during the pandemic and beyond.

The company’s software consolidates incoming orders from multiple platforms and sends them to a single printer. Ordermark also operates a company

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The post Ordermark Funded $120M to Expand its Virtual Business appeared first on Funded.com.

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Virtual

Ordermark is based in Los Angeles, CA, one of the leading online ordering management solutions for restaurants and virtual restaurant concepts.

Ordermark was funded $120 million series C round funding. The funding was led by prominent technology investor SoftBank Vision Fund and joined by returning investor Act One Ventures. The grant will use to help more restaurants transition to online ordering during the pandemic and beyond.

The company’s software consolidates incoming orders from multiple platforms and sends them to a single printer. Ordermark also operates a company called Nextbite, a portfolio of 15 readymade virtual brands such as CraveBurger, Firebelly Wings, and HotBox by Wiz, a collaboration with rapper Wiz Khalifa. Restaurants can offer these delivery-only brands out of existing kitchens, opening up additional revenue streams.

Jeff Housenbold, the Managing Partner at SoftBank Investment Advisers, said. They believe Ordermark is a leading technology platform and innovative virtual restaurant concepts transform the restaurant industry. And they are excited to support their mission to help independent restaurants optimize online ordering and generate incremental revenue from under-utilized kitchens.

The rise of ghost kitchens and virtual restaurants, often referred to as the 3rd wave of food delivery, have paved the way for a broader addressable market for online food delivery.

The statement of Alex Canter, the chief executive officer behind Ordermark 2020, has been a tough year for restaurants. That’s why they are focus on providing products and services to help keep their doors open. This funding allows them to offer more restaurants with innovative ways to reach more consumers.

By: K. Tagura

Author statement:

Funded.com is the leading platform for accredited investors network worldwide. We monitor and provide updates on important funding events. Angel Investors and Venture Funding can be a key growth for a startup or existing business. Whether it is a first, second or third round financing having a strategic alliance with an Angel Investor or Venture Capital financing can propel a business to the next level and give the competitive edge.

Source: https://www.funded.com/blog/2020/10/ordermark-funded-120m-to-expand-its-virtual-business/

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Private Equity

Alternative Investments/ESG: Amundi Launches Sustainable ETF With Exposure To Japanese Stocks

The Amundi Index MSCI Japan SRI UCITS ETF offers exposure to large and mid-cap companies with outstanding Environmental, Social, and Governance (ESG) ratings in the Japanese market. The new ETF is an extension of Amundi’s range of sustainable ETFs.

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Alternative Investments/ESG: Amundi Launches Sustainable ETF With Exposure To Japanese Stocks

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Amundi’s new ESG ETF invests in large and mid-cap Japanese stocks.

The Amundi Index MSCI Japan SRI UCITS ETF offers exposure to large and mid-cap companies with outstanding Environmental, Social, and Governance (ESG) ratings in the Japanese market.

The new ETF is an extension of Amundi’s range of sustainable ETFs. (ETF Stream)

Amundi Index MSCI Japan SRI UCITS ETF

The ETF tracks the performance of the MSCI Japan SRI Filtered ex Fossil Fuels Index, which in turn is an equity index based on the MSCI Japan Index (the parent index). The index is representative of the large and midcap stocks of the Japanese market.

It excludes issuers involved in Nuclear, Tobacco, Thermal Coal, Alcohol, Gambling, Controversial Weapons, Conventional Weapons, Civilian Firearms, Oil & Gas, Fossil Fuels, Genetically Modified Organisms (GMO), and Adult Entertainment.

Its total expense ratio is 0.18%. No performance fees apply.

It is an accumulation fund and will be managed by Amundi Luxembourg SA, an entity that is part of the Amundi group.

The ETF is market-cap weighted and includes a 5% capping on issuer weights. It comprises 68 stocks, compared to 320 names in its parent index.

The fund’s largest holding is Nintendo with 5.6% weighting ahead of Daikin Industries with 5% and Sony with 4.7%.

It is listed on the Deutsche Boerse and Euronext Paris.

ESG ETFs continue record run

European ESG ETFs continued their strong trend and set a record for assets gathered in a month (€3.9 billion), according to the latest Money Monitor report from Lyxor ETF for September.

Related Story:  Amundi Expands ESG Range With Two New ETFs

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Source: https://dailyalts.com/alternative-investments-esg-amundi-launches-sustainable-etf-with-exposure-to-japanese-stocks/

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Private Equity

Artificial Intelligence: Intel First To Deploy AI “On Edge” In Space

Intel (NASDAQ: INTC) has the distinction of launching the first onboard AI processing chip into space. Earlier this month, the European Space Agency and Intel announced the successful deployment in space of PhiSat-1, the first-ever satellite with onboard AI-processing capabilities. Launched from a rocket dispenser on September 2, the PhiSat-1 is positioned about 530 km above our heads, moving at a speed of 27,500 km per hour in a sun-synchronous orbit.

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Artificial Intelligence: Intel First To Deploy AI “On Edge” In Space

https://dailyalts.com/wp-content/uploads/2020/10/Intel-AI-Satellite-4-scaled.jpg

A satellite the size of a cereal box, carrying a camera and an AI chip, is now in orbit.

Intel (NASDAQ: INTC) has the distinction of launching the first onboard AI processing chip into space. Earlier this month, the European Space Agency and Intel announced the successful deployment in space of PhiSat-1, the first-ever satellite with onboard AI-processing capabilities. (Business Insider)

Launched from a rocket dispenser on September 2, the PhiSat-1 is positioned about 530 km above our heads. It is moving at a speed of 27,500 km per hour in a sun-synchronous orbit.

PhiSat-1

The satellite’s objective is to monitor polar ice and soil moisture, as well as to test inter-satellite communication systems.

The satellite carries a hyperspectral-thermal camera and an Intel Movidius™ Myriad™ 2 Vision Processing Unit (VPU). The latter is responsible for the AI heavy lifting operations onboard the spacecraft.

Myriad’s immediate function is to curate the huge mass of data captured by the camera.

AI at the ultimate edge – space

The big problem facing the scientists was the sheer volume of data generated by the hi-fidelity camera onboard the PhiSat-1. The camera unfortunately does not know how to differentiate between a cloudy and clear environment.

It, therefore, takes a large number of photographs that are useless because, at any given time, clouds envelop two-thirds of the earth’s surface.

The junk photos consume precious internet bandwidth to send down to earth. After all that, scientists would likely delete the unclear photos.

The scientists decided to use onboard AI (also known as “on edge” processing) to curate the photos. Myriad-2 would examine the images, trash the useless ones, and send only the good ones to earth.

By discarding the cloudy images at the source, they saved nearly 30% of bandwidth.

“Artificial intelligence at the edge came to rescue us, the cavalry in the Western movie,” says Gianluca Furano, data systems and onboard computing lead at the European Space Agency.

“Space is the ultimate edge,” says Aubrey Dunne, chief technology officer of Ubotica, the Irish startup that built and tested PhiSat-1’s AI technology. “The Myriad was absolutely designed from the ground up to have an impressive compute capability but in a very low power envelope, and that really suits space applications.”

Ubotica worked with cosine, the maker of the camera, in addition to the University of Pisa and Sinergise.

After three weeks of testing, the team could establish that Intel’s Myriad AI onboard the PhiSat-1 was working fine.

ESA then announced “the first-ever hardware-accelerated AI inference of Earth observation images on an in-orbit satellite.”

Satellite-as-a-service!

Scientists can now visualize multiple applications of AI on satellites.

For example, the satellite, during one orbit, could switch from spotting wildfires on land to rogue ships or environmental accidents at sea such as oil spills.

It could measure crops and soil moisture over farms and forests, and assess the ill effect of climate change on melting ice caps.

Related Story:   Satellites and AI Could Together Predict Wildfires Accurately

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Source: https://dailyalts.com/intel-first-to-deploy-ai-on-edge-in-space/

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