VCS and the Global Startup Market: Adapting to Change

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A Weekend Update and Global Expansion

Greetings, and I hope this message finds you in good health. It's the weekend! May your coming days include a bit more indulgence than your physician might recommend. Ultimately, we all face the same fate. And with that thought in mind, let's proceed with our discussion.

TechCrunch’s ongoing reporting on venture capital developments has increasingly adopted a worldwide perspective, mirroring the expansion of the startup landscape across all regions. This is reflected in our expanded coverage of India’s startup environment, as well as our growing attention to companies emerging from the African continent.

Navigating the Global Startup Landscape

The sheer volume of funding being raised by numerous startups can be overwhelming. However, we are not alone in monitoring these innovative technology companies as they adapt to the evolving global startup reality. Venture capitalists are equally focused on these developments.

In recent years, venture capital firms have been adjusting their strategies to better align with a globally interconnected technological innovation environment. This includes larger funds with expanded partner networks to broaden their focus, and the establishment of funds specifically targeting individual countries or regions.

White Star Capital’s Broadening Horizons

White Star is one such firm demonstrating an increasingly expansive outlook. The venture group recently finalized its third fund, totaling $360 million. TechCrunch recently spoke with founder Eric Martineau-Fortin. The conversation centered primarily on geographical strategies, rather than valuation metrics or specific industry sectors.

Martineau-Fortin is based in Guernsey, a small island situated between France and the United Kingdom. This location is symbolic of the investor’s approach, as the firm’s initial fund concentrated on the United States and Europe, allocating investments approximately equally between the two.

Fund Allocation and Regional Focus

White Star’s second fund broadened its geographical scope to include a limited focus on Asia. The group’s latest fund will distribute investments roughly 40% to America, 40% to Europe, and 20% to Asia, according to Martineau-Fortin.

Interestingly, the firm does not actively target the Indian market. This is noteworthy considering the substantial capital influx into the country. However, White Star prioritizes the South Korean and Japanese markets, enabling them to invest in Asia more broadly without prioritizing India.

Emerging Markets and Venture Capital Interest

I discussed other potential markets with Martineau-Fortin. He expressed positive views on Brazil’s startup ecosystem – a predictable sentiment given Nubank’s anticipated IPO – and Mexico. Generally, the Latin American venture capital market is well-regarded, even by investors who do not specialize in the region.

Global Venture Capital Activity: A Regional Breakdown

Despite some leveling, the global venture capital market remains uneven. According to CB Insights data, the United States accounted for $72.3 billion in total VC activity during Q3 2021. Asia collectively saw $50.2 billion. Europe reached $24.2 billion, while Latin America totaled $5.3 billion. This disparity suggests potential opportunities for investors willing to expand their geographical reach.

The Future of Investment: A Tripartite Split?

Looking forward, White Star may divide its investment focus equally among the U.S., Europe, and Asia. It’s worth considering if this will become a standard allocation strategy. Given the internet’s ubiquitous presence – excluding North Korea, China, and a few other regions – it seems logical to invest capital in companies, well, everywhere.

Consumer Investment Trends in the UK

Let's shift our focus to the landscape of consumer investing within the United Kingdom.

This discussion is relevant to broader market dynamics!

Recently, The Exchange connected with Freetrade, a timely conversation following Robinhood's disappointing earnings announcement. As a reminder, Robinhood's stock price decreased after the company reported a significant drop in revenue, a decline in active users, and lower-than-expected funded account totals.

The primary reason for Robinhood’s performance shift from Q2 2021 to Q3 2021 was a substantial decrease in cryptocurrency trading volume on its platform, resulting in weaker revenue. Forecasts predict an even smaller revenue figure for Q4.

It was anticipated that Robinhood’s results would mirror trends observed at Freetrade. However, according to CEO Adam Dodds, this was not the case. The company recently announced reaching one million users, and crucially, securing 110,000 new funded accounts in October alone.

This represents a substantial proportion of the company’s total user base gained within a single month!

With this positive data, Dodds believes the UK market for Freetrade is far from saturated, and the company is planning expansions into Canada, Australia, and other regions in the coming months, including continued offerings in crypto trading.

A key distinction between Robinhood and Freetrade, beyond their current user growth rates, is that Freetrade does not utilize payment for order flow. Instead, Dodds clarified, the company generates revenue through subscriptions, a portion of foreign exchange transactions, and interest earned on user cash balances.

The subscription model is vital to the company’s long-term prospects. This is because consistent software revenue is highly attractive to investors, and Dodds stated that approximately one-quarter of users choose to subscribe to the premium version of the service.

Maintaining this ratio – or even experiencing only slight reductions – could enable Freetrade to establish a significant software business. Considering the potential for increased market penetration both domestically and internationally, substantial profits are possible. Further updates will be provided when Freetrade seeks additional funding.

— Alex