Measuring startups by their efficiency
When I wrote Out-Innovate, I described Camel startups based on their inputs: startups built on a foundation of sustainable unit economics, that manage cash burn and think about the long-term.
Another way to think about Camels is based on their outputs. When they’ve grown, how efficient have they been to scale?
In that vein, loved this analysis of valuation / capital raised as a way to look at camel efficiency.
If you’re not a camel, and depend on venture capital, you are much more susceptible to the vagaries of the market and macroeconomic conditions.
So what is happening in today’s venture environment?
Excellent analysis: “If public comps apply to private companies, then the market should expect a ~70% reduction in private valuations. Venture capitalists have continued to invest at similar prices & similar round sizes in the most sought after companies. But round volumes have fallen by at least 20% & likely much more. $220b in dry powder (dollars VCs have raised but not yet invested) will buoy valuations higher than expected…Publics are down 70%. Private data suggests a steady market but it’s a mirage. I think the market will settle in Q3/Q4 at a 40-60% decline to Q1 2022 & volumes will increase again in early 2023.” Full presentation here.
Many of my readers pinged for more camel-themed videos. So here is another one, taken out of its original context, themed: how non-camels react to volatile time.
The good news: in many emerging ecosystems, camels are cash flow positive (ie. default alive, without venture capital required) much earlier in their journeys. As a result, if and when they do take venture capital, it is to fund much more efficient growth, not as a requirement.
Is better faster and cheaper always in fact better or cheaper in fintech?
After a decade of digital payments adoption, are we seeing a renaissance of… cash? Commenting on cash withdrawals: “Britain’s Post Office, which operates a host of ATM branches in the country, said [it] is up ~8% MoM and ~20% YoY. Digital payments offer many advantages over traditional cash payments – increased speed and convenience at payment sites, offers and discounts from various card providers and ability to pay in different currencies, to name a few…some people have cited the very convenience of swiping a card or tapping a phone to pay as a problem when they are trying to control spending. Plans like the ‘30 day cash challenge’ have as a result emerged to try and help people control spending.” The very advantage of digital payments in this case can also be its drawback.
Fascinating research on the cost of conducting a $100 trade on various digital platforms. Newer ‘free’ platforms were not necessarily cheaper. TD Ameritrade and E*trade both trounced Robinhood in this analysis.
My take: the trend line of fintech digital adoption: more transparency and fairer prices creates an enduring advantage.
So what is the trend line? While Covid was a massive accelerant and in many ways an aberration, things are coming back to the trend line. And its direction remains clear: up and to the right. Exploring U.S. fintech: “downloads and new accounts have declined year over year during recent months. Certain companies may be struggling, but as we look beyond the idiosyncrasies of the last two years, the longer-term sector trend remains favorable. Download growth on a three-year CAGR basis (compounded growth since before the pandemic) remains between 15-20% and appears to have returned to the pre-Covid trend line.”