TechCrunch+ Roundup: Financing, Web3 & India's Q3 Fundraising

Understanding the Evolving Landscape of Web3

Defining Web3 remains a challenge, as its development is still ongoing.

During TechCrunch Disrupt, Ben Rubin, the founder of Houseparty, highlighted decentralization as the core principle driving Web3.

Currently, within the framework of Web 2.0, users provide financial resources and personal information to network operators in return for access to data and services.

The Potential for Network Ownership

Rubin explained that Web3 introduces the potential – though not a guarantee – for a shift in ownership. “The network itself could own the network,” he stated, offering a concise explanation of this fundamental concept.

He elaborated to reporter Taylor Hatmaker that NFTs demonstrate the potential benefits of Web3 adoption for individuals.

Conversely, Rubin noted that decentralized finance (DeFi) and cryptocurrency trading represent more commercially focused applications.

A more effective alignment of incentives is anticipated with Web3, even if it isn't flawless.

Rubin believes this improved alignment will foster competition among incentive structures, ultimately benefiting users.

Challenges and Ongoing Exploration

The discussion proved insightful, aiding in a deeper comprehension of the subject matter.

However, the concept of public networks operating on the presumption of universal trustworthiness continues to present a conceptual hurdle.

Further recaps from Disrupt will be published in the coming days, so please check back for updates.

On a separate note, my second work anniversary at TechCrunch was yesterday.

I extend my gratitude to the exceptional team I collaborate with for their support and contributions.

Thank you for your readership,

Walter Thompson
Senior Editor, TechCrunch+
@yourprotagonist

India's Startup Scene Demonstrates Robust Growth in Early Q3

As Q4 commences, Alex Wilhelm initiated an early analysis of Q3’s performance metrics.

His examination, featured in Thursday’s Exchange, focused on initial data originating from both India and China.

Wilhelm observed that the emerging patterns are quite evident.

India's Potential to Surpass China in Startup Funding

A continued strong performance from India, coupled with a slight decrease in China, could position India to claim second place globally in startup fundraising.

This would represent a significant shift in the global startup market landscape.

India’s startup ecosystem is experiencing a period of substantial expansion.

• The analysis centers on preliminary Q3 data.
• China is currently ranked highly in global startup fundraising.
• India is poised to potentially overtake China.

The observed trend suggests a dynamic change in the competitive positioning of these two major startup hubs.

Navigating Growth from Series A to C Funding

Obtaining practical, validated guidance for scaling startups presents a significant challenge.

Data from a Dealroom study indicates that a mere 7% of startups securing seed funding ultimately achieve the necessary expansion to qualify for a Series C investment.

To develop a useful model for founders aiming to increase revenue from $1 million to $25 million annually, Arthur Nobel, a principal at Knight Capital, completed 47 interviews with both founders and investors experienced in guiding startups through Series A to C stages.

This isn't simply a summary; it provides actionable strategies for managing the complexities of T2D3 growth – a pattern of triple, triple, double, double, double increases – alongside targeted hiring advice and other key strategic perspectives.

Furthermore, the article features practical steps and visual aids to assist in building a personalized scaling roadmap.

Nobel emphasizes the importance of accurately assessing the current stage of your company and its individual departments, and focusing efforts solely on the requirements of that specific stage.

Key Insights from the Research

The research highlights the difficulties inherent in achieving rapid, sustained growth. Scaling requires a deliberate and phased approach.

Founders must prioritize initiatives aligned with their current stage of development, avoiding premature scaling of functions before they are truly needed.

Effective hiring is crucial, but the types of roles needed evolve significantly as a company progresses through Series A, B, and C funding rounds.

• Series A: Focus on core product development and early sales.
• Series B: Expand sales and marketing, build out key operational functions.
• Series C: Optimize processes, establish strong leadership teams, and prepare for potential exit strategies.

Understanding the T2D3 growth pattern is essential for setting realistic expectations and allocating resources effectively.

Visualizing the scaling roadmap can help founders and their teams stay aligned and track progress towards their goals.

Practical Steps for Founders

Begin by conducting a thorough assessment of your company’s current stage and identifying the key challenges you face.

Develop a detailed scaling roadmap that outlines specific milestones and timelines for each department.

Prioritize hiring based on the needs of your current stage, focusing on individuals with the skills and experience to drive growth.

Regularly monitor your progress and adjust your roadmap as needed, remaining flexible and adaptable to changing market conditions.

Navigating Venture Debt Options for Your Startup

Today’s startup founders benefit from a wider array of fundraising avenues than ever before. This is largely due to increased liquidity in the market. Beyond conventional venture capital, options like crowdfunding, venture banks, and venture debt funds are all readily available.

Understanding the Venture Debt Landscape

Andy Weyer, managing director of technology at Runway Growth Capital, provides a comprehensive analysis of various venture debt strategies. He illustrates three distinct scenarios where utilizing debt financing can prove advantageous for companies seeking to preserve equity for subsequent funding rounds or secure essential working capital.

Weyer explains that the availability of capital exists on a continuum. Venture banks represent the lower end, offering reduced risk alongside lower returns. Venture capital, conversely, embodies the higher end, characterized by elevated risk and the potential for substantial returns. Venture debt funds occupy an intermediate position on this spectrum.

• Venture banks prioritize stability and offer conservative financing.
• Venture capital focuses on high-growth potential, accepting greater risk.
• Venture debt provides a balance between risk and reward.

Key Benefits of Venture Debt

Debt capital can be strategically employed to maintain control and flexibility. It allows startups to avoid excessive equity dilution while still accessing necessary funds. This is particularly useful when preparing for future investment rounds.

Furthermore, venture debt can be a valuable resource for managing day-to-day operations. Access to working capital ensures a company can meet its financial obligations and pursue growth opportunities effectively.

Choosing the Right Approach

Careful consideration of a startup’s specific needs and risk tolerance is crucial when selecting a financing option. Understanding the nuances of each approach – venture banks, venture capital, and venture debt – will enable founders to make informed decisions.

3 Key Questions Startups Need to Address Before Challenging Market Leaders

While a truly equitable landscape doesn't exist within capitalist systems, it’s now significantly more achievable for emerging companies to directly compete with established industry giants.

Companies like Warby Parker have fundamentally altered how consumers perceive and purchase eyewear. Similarly, Poshmark and ThredUp directly challenged eBay’s dominance and the high-end resale sector.

The current business climate, characterized by a heightened focus on value and rapidly evolving plans, provides a unique opportunity for startups with well-defined competitive strategies to succeed, according to Sudheesh Nair, CEO of ThoughtSpot.

Nair explains in a TechCrunch+ article that as startups gain traction, they will invariably attract the notice – and opposition – of larger, more established players.

However, he asserts that being strategically prepared for this confrontation has never been more advantageous.

Essential Considerations for Competitive Strategy

Nair outlines three crucial questions that startups must answer before initiating a challenge against larger competitors.

• What unique value do you offer? This isn’t simply about a slightly lower price. It’s about a fundamentally different approach or benefit.
• Can you build a defensible moat? Consider network effects, proprietary technology, or strong brand loyalty.
• Are you prepared for a prolonged battle? Incumbents have resources; startups need endurance and a clear path to sustainability.

Successfully addressing these questions will significantly increase a startup’s chances of not only surviving but thriving in the face of competition from established market leaders.

Navigating the Shift: Customer Understanding in an Era of Data Privacy

Growing discontent is being expressed by both end-users and regulatory bodies regarding the methods by which technology firms utilize personal data.

Numerous nations and geographical areas are now implementing updated privacy regulations, and individuals are increasingly utilizing privacy-enhancing tools.

These tools are designed to impede tracking for purposes such as targeted advertising and market analysis.

A New Approach to Customer Insights

Ted Schlein, a general partner at Kleiner Perkins specializing in cybersecurity and enterprise software, suggests a transition towards pattern-based analysis.

He posits that organizations should re-evaluate their data strategies in light of evolving privacy concerns.

“The advancements occurring rapidly within artificial intelligence (AI) and machine learning (ML) empower businesses to process and interpret first-party data instantaneously,” Schlein explains.

“This allows for the development of practical, behavioral insights.”

Leveraging Behavioral Intelligence

Real-time data analysis enables companies to discern behavioral patterns.

This understanding reveals how customers interact with products and services, and the motivations behind their actions.

Importantly, this can all be achieved while simultaneously safeguarding individual privacy.

Pattern analysis offers a pathway to maintain valuable customer understanding without relying on intrusive data collection practices.

The Implications of Amplitude’s Direct Listing for IPOs and Startup Strategies

Alex Wilhelm has explicitly stated the intended readership for this installment of The Exchange.

His analysis focuses on the challenges surrounding IPO pricing and the exploration of alternative listing methods by startups. The article concludes with insights gained from a conversation with Amplitude’s CEO, Spenser Skates.

Wilhelm suggests that individuals interested in the valuation of private companies and their pricing mechanisms will find this content particularly relevant. Conversely, those uninterested in these topics are advised to explore other reading material.

Understanding the IPO Pricing Problem

The core issue revolves around the often substantial “pop” experienced by companies during their initial public offering. This refers to the significant increase in stock price immediately following the IPO.

This initial surge indicates that the shares were potentially undervalued during the IPO process, leaving money on the table for the company and early investors.

Amplitude’s Approach: A Direct Listing

Amplitude opted for a direct listing as opposed to a traditional IPO. This method allows existing shareholders to sell shares directly to the public.

Unlike an IPO, a direct listing doesn’t involve the creation of new shares or the use of underwriters to set an initial price. This can potentially mitigate the risk of an undervalued IPO.

Alternative Listing Mechanisms for Startups

Startups are increasingly considering alternative listing strategies to avoid the pitfalls of traditional IPOs. These strategies aim to achieve a more accurate valuation.

Exploring these options is crucial for maximizing value for both the company and its investors. The goal is to capture the full potential of the company’s worth from the outset.

Key Takeaways from the Interview with Spenser Skates

The interview with Amplitude’s CEO provides valuable context regarding the company’s decision to pursue a direct listing. Skates likely shared insights into the reasoning behind this choice.

His perspective sheds light on the benefits and challenges associated with this alternative approach to going public. This information is vital for other startups contemplating similar strategies.

Implications for Private Company Valuation

The discussion surrounding Amplitude’s listing has broader implications for how private companies are valued. It challenges conventional wisdom regarding IPO pricing.

A more nuanced understanding of valuation methods is emerging, driven by the increasing popularity of alternative listing options. This shift could reshape the landscape of startup finance.

• Direct Listing: Allows existing shareholders to sell shares directly to the public.
• Traditional IPO: Involves creating new shares and using underwriters to set an initial price.
• Valuation: Determining the economic worth of a company.

Dapper Labs Founder Discusses the NFT Boom and Ethereum's Usability

Roham Gharegozlou has long anticipated the widespread adoption of NFTs. This year witnessed that prediction materialize.

Gharegozlou, leading his company Dapper Labs, was instrumental in the creation of CryptoKitties, the blockchain world’s initial widely-recognized game, released in 2017.

Subsequently, the launch of NBA Top Shot in late 2020 proved to be a catalyst, rapidly gaining traction and spotlighting the realm of crypto collectibles globally.

At TechCrunch Disrupt 2021, Lucas Matney interviewed the Dapper Labs CEO to explore the hurdles confronting the cryptocurrency sector, the evolving landscape of Ethereum, and the remarkable speed of NFT growth this year.

“While I foresaw significant growth, the expansion of NBA Top Shot from 4,000 to 400,000 users occurred within just weeks,” Gharegozlou explained.

Early Ventures into Blockchain Gaming

The initial success of CryptoKitties provided valuable insights into the potential of blockchain technology for digital collectibles. It demonstrated a clear demand for provably scarce digital assets.

However, the limitations of the Ethereum network at the time presented scalability challenges. These early experiences informed Dapper Labs’ subsequent development efforts.

The Rise of NBA Top Shot

NBA Top Shot capitalized on the popularity of basketball and the appeal of officially licensed digital collectibles. The platform allowed fans to own unique video highlights, known as “Moments.”

The platform’s user-friendly interface and engaging gameplay contributed to its rapid growth. It attracted both seasoned crypto enthusiasts and newcomers to the space.

Challenges Facing the Crypto Space

Gharegozlou highlighted the need for improved user experience within the cryptocurrency ecosystem. He believes that current systems are often too complex for mainstream adoption.

Ethereum, while a foundational blockchain, still lacks the necessary infrastructure to support a large-scale consumer base, according to Gharegozlou.

The Future of NFTs

Despite the challenges, Gharegozlou remains optimistic about the future of NFTs. He envisions a world where digital ownership is commonplace and where NFTs play a crucial role in various industries.

He anticipates further innovation in areas such as gaming, art, and music, driven by the unique capabilities of non-fungible tokens.

Edtech's New Testing Ground: The Workplace

Edtech businesses are actively seeking avenues for valuation growth. Simultaneously, a significant proportion of the workforce expresses discontent with their present employment and desires career transitions.

The Rise of Employee Development Benefits

A growing pressure on employers to maintain their workforce has spurred exploration into more extensive and innovative employee benefits. This trend is highlighted by new programs offered by MasterClass and Outschool, designed to enhance employee skillsets.

These offerings focus on developing crucial soft skills. For example, employees can now access courses like negotiation techniques taught by Chris Voss, a former FBI hostage negotiator.

Upskilling and Complementary Skillsets

Another offering includes lessons on impactful and genuine communication, led by Robin Roberts, the host of ‘Good Morning America’. The core benefit lies in providing supplementary skills that can either refine existing employees or facilitate workforce upskilling.

The emphasis is on skills that complement traditional job requirements, rather than directly replacing them. This approach aims to create a more versatile and adaptable workforce.

Employers are increasingly viewing employee development as a key retention strategy. Investing in these programs demonstrates a commitment to employee growth and well-being.

Warby Parker’s Direct Listing Signals Success for Unicorns

An analysis by Alex Wilhelm focuses on Warby Parker, the direct-to-consumer eyewear brand that recently completed a direct listing.

The company’s listing was notably successful, achieving a price higher than its last private valuation.

Furthermore, its stock value increased significantly throughout its initial trading day.

These outcomes offer a positive counterpoint to the negative perception created by Casper’s unsuccessful IPO in 2020.

Implications for the DTC Market

The performance of Warby Parker’s direct listing helps to dispel concerns surrounding the direct-to-consumer (DTC) business model.

Casper’s previous IPO had cast a shadow over the viability of this approach.

However, Warby Parker’s success demonstrates that DTC companies can achieve favorable outcomes through alternative financing methods.

• The direct listing allowed Warby Parker to bypass traditional underwriting fees.
• It also provided existing shareholders with an immediate opportunity to sell their shares.
• The positive market response validates the company’s business strategy.

This event could encourage other unicorn companies to consider direct listings as a viable exit strategy.

Seeking Media Attention for Your Startup: Guidance for Entrepreneurs

Dear Craving Coverage,

Your pursuit of media coverage is a strategic move, particularly as you prepare documentation for immigration petitions like the EB-1A or O-1A visas. Securing press attention can significantly bolster your application.

Understanding the Challenge

The current media landscape is indeed highly competitive. Gaining visibility requires a focused and persistent approach. Simply sending out press releases is often insufficient to capture the attention of journalists.

Strategies for Effective Media Outreach

Here are several tactics to increase your chances of securing media coverage:

• Targeted Journalism: Identify journalists who specifically cover your industry or niche. Research their previous work to understand their interests.
• Compelling Storytelling: Craft a narrative that goes beyond simply announcing your startup. Focus on the problem you're solving, the impact you're making, and the unique aspects of your solution.
• Personalized Pitches: Avoid generic press releases. Tailor each pitch to the individual journalist, demonstrating that you've taken the time to understand their work.
• Exclusive Angles: Offer journalists exclusive access to information or insights. This could include early access to a product, an interview with a key team member, or exclusive data.
• Build Relationships: Engage with journalists on social media and attend industry events. Building rapport can increase your chances of getting a response.
• Thought Leadership: Position yourself as an expert in your field by contributing articles, participating in webinars, or offering commentary on industry trends.

Leveraging Your Immigration Goals

While not the primary focus of your pitch, subtly highlighting the innovative nature of your startup and its potential impact can indirectly support your EB-1A or O-1A case. Focus on the merits of your company first, and the immigration aspect second.

Remember that consistent effort and a strategic approach are key to achieving media coverage. Don't be discouraged by initial rejections; persistence often pays off.

The Expanding Funding Landscape for Startups: Less Dependence on Venture Capital

In the wake of the recent TechCrunch Disrupt conference, Alex Wilhelm and Anna Heim analyzed the increasing number of funding avenues available to startups, moving beyond traditional venture capital.

Their analysis drew upon insights from a Disrupt panel discussion focused on revenue-based financing, providing a framework for evaluating venture capital investment and identifying scenarios where alternative funding methods might be preferable.

The growing interest in alternative capital sources, exemplified by companies like Pipe attracting skilled personnel and broadening their reach, and Clearbanc’s transformation into Clearco alongside a $100 million funding round, demonstrates a maturing market.

This shift indicates a clear trend: the availability of funding options outside of conventional venture capital is expanding.

Exploring Alternative Funding Models

Startups are no longer solely reliant on venture capital to fuel their growth. Several alternative models are gaining traction.

• Revenue-based financing: Funding is provided in exchange for a percentage of future revenues.
• Debt financing: Securing loans from banks or other financial institutions.
• Bootstrapping: Self-funding through personal savings and early revenue.

Each of these approaches offers distinct advantages and disadvantages, depending on the startup’s specific circumstances and growth stage.

The emergence of these alternatives provides startups with greater control over their funding and equity.

The Maturing Market for Non-Traditional Funds

The increasing sophistication of the alternative funding market is evident in several key developments.

Companies are actively innovating within this space, offering more flexible and tailored financing solutions.

Significant capital is being deployed into these alternative platforms, signaling investor confidence in their potential.

This maturation is empowering startups to make more informed decisions about their funding strategies.