Trillion-Dollar Horses: Funding & The Future of Tech

The TechCrunch Exchange: A Weekly Startup & Market Update

Greetings and welcome to this week’s edition of The TechCrunch Exchange, a newsletter dedicated to the world of startups and market trends. This publication draws inspiration from the daily Exchange column, but is offered freely for your weekend perusal.

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A Busy, Yet Positive Week

Despite being a shorter work week, there’s a substantial amount to discuss. Fortunately, the news is largely positive, allowing for an enjoyable review of recent developments.

Focus on High-Value Ventures

To begin, our attention turns to ventures commanding significant financial investment – specifically, those involving substantial capital outlays.

The Rise of the Unicorns: A Trillion-Dollar Valuation?

This week, The Exchange began an analysis of the venture capital landscape in Q2 2021. Our initial report, aided by Anna, was successfully published. Further insights are forthcoming. However, the statistics surrounding unicorns particularly caught my attention.

Unprecedented Growth in Unicorn Creation

• A record-breaking 136 companies achieved unicorn status during Q2 2021.
• CB Insights highlights this as “almost six times the number of unicorns created in Q2 2020 (23), and exceeding the total for all of 2020 (128).”

This surge in unicorn designations has resulted in a global total of 750 unicorns. Upon seeing this statistic shared by Katie Roof, a former TechCrunch writer, my initial reaction was to estimate their collective value at over $1 trillion.

This initial estimation proved to be significantly understated. Current data from CB Insights indicates a valuation of nearly $2.4 trillion. This represents an extraordinarily large sum. To put this into perspective, the aggregate value of the world’s un-exited unicorns is approximately equal to the current market capitalization of Apple – $2.42 trillion, according to Yahoo Finance.

It’s possible I’m overstating the significance of the substantial amount of unicorn equity currently held within private markets. This is especially true considering the increase in unicorn exits. However, even with these elevated exit rates, will they be sufficient to offset the rapid creation of new unicorns over the long term?

I believe the answer is no. The rate of unicorn creation – approximately 1.5 companies per day, including weekends – in Q2 suggests the unicorn population will continue to expand rapidly.

Funding Activity

This week’s coverage focused on a single funding round – the r2c round, which proved particularly noteworthy. This limited focus was largely due to a substantial workload of other matters requiring attention.

A noticeable deceleration in the number of venture capital round proposals received has also been observed since the announcement of a policy requiring more comprehensive financial details for coverage.

Potential Impact on Pitch Volume

Currently, it remains uncertain whether the decrease in pitch submissions is attributable to the holiday period or a consequence of the new coverage criteria. Monitoring inbound pitch volume, both overall and by sector, is a key indicator of market trends.

Therefore, it is hoped that (1) submissions will continue to be sent and (2) these submissions will include the requested expanded financial information.

Analyzing these trends provides valuable directional insights into the venture capital landscape.

SPACs and the Space Industry

Y Combinator represents a significant force in the startup ecosystem. Among its recent ventures is Albedo, a company focused on developing a network of low Earth orbit satellites. These satellites are designed to capture exceptionally detailed images of the Earth’s surface.

Achieving this objective presents considerable challenges, as highlighted by Natasha. However, advancements in readily available satellite components, in-orbit refueling capabilities, and other emerging technologies may make it feasible.

Albedo and similar companies are a key reason I consistently attend Demo Day each year. It provides a valuable opportunity to observe potential future developments, which is both insightful and engaging.

This year, my attention was drawn to the announcement that two satellite imaging companies would be entering the public market through SPAC (Special Purpose Acquisition Company) mergers. While these companies don’t directly compete with Albedo’s high-resolution imaging goals, they offer lower-resolution imagery.

They are, however, noteworthy for several other reasons.

Illustrative Charts from Satellogic

Satellogic presented a particularly compelling series of charts. Careful attention to the dates displayed within each chart is recommended for full understanding:

Planet’s Economic Outlook

Planet Labs provided a valuable perspective on the economic dynamics of satellite technology. Their analysis indicates a strong bias towards future growth potential:

Gross Margin Considerations

The company projects a long-term gross margin ranging from 80% to 85%, corresponding to a cost of goods sold (COGS) of 15% to 20%, as detailed in their investor deck. However, the timeline for achieving this margin is substantial.

This presents a unique challenge within the venture capital landscape.

Specifically, companies like Albedo will require significant time and financial resources to construct their satellite constellations and reach operational scale. Furthermore, they will likely need to attain the high gross margins commonly associated with software companies, achievable from the initial sale of their products.

This dynamic contributes to the substantial investment flowing into software ventures exhibiting even modest signs of sustained growth. The high-margin, recurring revenue model inherent in software is a powerful driver of value creation, making it a highly attractive investment target.

In contrast, satellite technology, despite its critical importance, generally requires greater capital expenditure and a longer development timeline.

The Question of Capital Allocation

A key question arises: Is the exceptional performance of software investments overshadowing other forms of startup ventures, making it difficult for them to secure comparable levels of funding and attention? Is this trend already evident?

Looking Ahead: The Future Blog

Let's discuss Future, or, more accurately, the trajectory of Future's content. My attention is particularly drawn to the publications from a16z.

Since its inception, I've regularly visited the site, typically several times a week, to observe the output of this venture capital firm’s thought leadership. This interest stems not merely from personal inclination – and yes, I readily admit to being a dedicated enthusiast! – but also from a desire to see what a substantially funded venture group would create, especially considering the frequent claims of media antagonism towards the tech sector, which I find to be unfounded.

Currently, the Future blog seems to be experiencing a pause in its publishing schedule. The latest substantial articles were released almost a month ago, with the most recent post, dated June 25th, simply announcing forthcoming content in July.

This relative inactivity feels somewhat underwhelming, particularly when considering the significant financial resources, the initial expectations, the sophisticated web address, and the considerable number of individuals within a16z who possess valuable insights. Increased content creation would seem logical.

We will observe what developments July holds.

That concludes my thoughts for this week. Best wishes, and I’ll connect with you again on Monday’s podcast.

Sincerely,

— Alex