Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.
The three of us were back today — Natasha, Danny and Alex — to dig our way through a host of startup-focused topics. Sure, the world is stuffed full of COVID-19 news — and, to be clear, the topic did come up some — but Equity decided to circle back to its roots and talks startups and accelerators and how many pieces of luggage does an urban-living person really need?
The answer, as far as we can work it out, is either one piece or seven. Regardless, here’s what we got through this week:
After that we had two quick hits, namely Natasha’s look at how tech internships cancellations are impacting our future workforce, and the latest from Slack.
And that wraps up what felt like a refreshing show. We hope you think so too, and thank you for listening. Stay healthy, all.
500 is not the only accelerator that moved its traditional investor pitch event online; Y Combinator made a similar move after efforts to flatten the spread of COVID-19 required changes that made its traditional demo day setup temporarily impossible.
In addition to hosting a few dozen startup pitches today, 500 also explained changes to its own format and provided notes on the current state of the venture market.
Regarding how 500 Startups is shaking up how it handles its accelerator, the group intends to pivot to a rolling-admissions setup that will give participants more flexibility; the group will still hold two demo days each year — TechCrunch has more on the changes here.
Regarding the venture market, 500 Startups said venture capital’s investment pace could slow for several months. This seems likely given how the economy has taken body blows in recent weeks as huge swaths of the world’s economy shut down. What advice did 500 have in the face of the new world? What you’d expect: startups should cut burn and focus on customers.
Got all that? Ok, let’s talk about our favorite companies from the current 500 cohort.
500 Startups is scrapping its cohort model for accelerating companies and moving to a rolling admissions process, the accelerator said during its latest demo day.
One of the progenitors of the accelerator model in the US along with Techstars and Y Combinator, 500 has been a cornerstone of the early-stage company building platform. The move to a rolling admissions mirrors an approach taken by other accelerator programs including MuckerLab, the wildly successful Los Angeles-based early stage program.
“Demo is changing the way it runs its accelerator to be rolling recruitment,” said Aaron Blumenthal, a 500 Startups venture partner. “It will be making investment decisions year round instead of twice a year. Demo Days will still happen twice a year, founders can pick which Demo Day they want to be a part of.”
Given the profusion of accelerator programs globally, the move to a rolling admissions schedule likely makes sense, giving entrepreneurs more flexibility around when and how they join.
The decision from 500 follows other significant changes from Y Combinator, which is moving to a virtual model for its own accelerator program — a decision influenced by the global response to the COVID-19 epidemic which has disrupted economies and threatened lives globally.
Blumenthal explained the switch in a blog post. Writing:
In a business where timing is everything, I realized the current accelerator model was serving an injustice to founders. That’s why shortly after I was put in charge of our flagship accelerator, I knew it was time to do exactly what we tell our founders to do every day—to innovate. So, after shepherding 26 batches of thousands of founders over the past 10 years, 500 is shaking things up.
We’re proud to announce that we’ve designed an entirely new platform that’s flexible and tailored to our founders’ timing and needs—not our own. Our goal is to move away from the one-size-fits-all approach of the past, and towards delivering relevant content, based on each founders’ growth stage and needs, precisely when they’re ready for it.
This new flexible approach reinforces our continued commitment to invest in founders from all over the world. We realize it’s not always feasible for every founder to move to San Francisco for four months at the drop of a hat, and we want to accommodate for that.
You can expect to see our new model in action in the near future. After we wrap up Batch 26’s Demo Day on March 26th, our accelerator applications will open indefinitely. We’ll begin accepting founders to our program on a continuous rolling basis, with more flexibility on start and end dates. That means no more application deadlines, and no more missing out on companies because the timing isn’t right. There will still be two demo days per year and plenty of opportunities to take advantage of the expertise the entire 500 community has to offer — all that changes is our flexibility to invest in companies and founders we believe in and their ability to join our programming when it’s the right time for them.
TechCrunch has covered 500’s current batch of startups here, and will have a post up shortly about our favorites from its demo day.
Lately, the venture community’s relationship with advertising tech has been a rocky one.
Advertising is no longer the venture oasis it was in the past, with the flow of VC dollars in the space dropping dramatically in recent years. According to data from Crunchbase, adtech deal flow has fallen at a roughly 10% compounded annual growth rate over the last five years.
While subsectors like privacy or automation still manage to pull in funding, with an estimated 90%-plus of digital ad spend growth going to incumbent behemoths like Facebook and Google, the amount of high-growth opportunities in the adtech space seems to grow narrower by the week.
Despite these pains, funding for marketing technology has remained much more stable and healthy; over the last five years, deal flow in marketing tech has only dropped at a 3.5% compounded annual growth rate according to Crunchbase, with annual invested capital in the space hovering just under $2 billion.
Given the movement in the adtech and martech sectors, we wanted to try to gauge where opportunity still exists in the verticals and which startups may have the best chance at attracting venture funding today. We asked four leading VCs who work at firms spanning early to growth stages to share what’s exciting them most and where they see opportunity in marketing and advertising:
Several of the firms we spoke to (both included and not included in this survey) stated that they are not actively investing in advertising tech at present.
The Catalyst Fund has gained $15 million in new support from JP Morgan and UK Aid and will back 30 fintech startups in Africa, Asia, and Latin America over the next three years.
The Boston based accelerator provides mentorship and non-equity funding to early-stage tech ventures focused on driving financial inclusion in emerging and frontier markets.
That means connecting people who may not have access to basic financial services — like a bank account, credit or lending options — to those products.
Catalyst Fund will choose an annual cohort of 10 fintech startups in five designated countries: Kenya, Nigeria, South Africa, India and Mexico. Those selected will gain grant-funds and go through a six-month accelerator program. The details of that and how to apply are found here.
“We’re offering grants of up to $100,000 to early-stage companies, plus venture building support…and really…putting these companies on a path to product market fit,” Catalyst Fund Director Maelis Carraro told TechCrunch.
Program participants gain exposure to the fund’s investor networks and investor advisory committee, that include Accion and 500 Startups. With the $15 million Catalyst Fund will also make some additions to its network of global partners that support the accelerator program. Names will be forthcoming, but Carraro, was able to disclose that India’s Yes Bank and University of Cambridge are among them.
Catalyst fund has already accelerated 25 startups through its program. Companies, such as African payments venture ChipperCash and SokoWatch — an East African B2B e-commerce startup for informal retailers — have gone on to raise seven-figure rounds and expand to new markets.
Those are kinds of business moves Catalyst Fund aims to spur with its program. The accelerator was founded in 2016, backed by JP Morgan and the Bill & Melinda Gates Foundation.
Catalyst Fund is now supported and managed by Rockefeller Philanthropy Advisors and global tech consulting firm BFA.
African fintech startups have dominated the accelerator’s startups, comprising 56% of the portfolio into 2019.
That trend continued with Catalyst Fund’s most recent cohort, where five of six fintech ventures — Pesakit, Kwara, Cowrywise, Meerkat and Spoon — are African and one, agtech credit startup Farmart, operates in India.
The draw to Africa is because the continent demonstrates some of the greatest need for Catalyst Fund’s financial inclusion mission.
Roughly 66% of Sub-Saharan Africa’s 1 billion people don’t have a bank account, according to World Bank data.
Collectively, these numbers have led to the bulk of Africa’s VC funding going to thousands of fintech startups attempting to scale finance solutions on the continent.
Digital finance in Africa has also caught the attention of notable outside names. Twitter/Square CEO Jack Dorsey recently took an interest in Africa’s cryptocurrency potential and Wall Street giant Goldman Sachs has invested in fintech related startups on the continent.
This lends to the question of JP Morgan’s interests vis-a-vis Catalyst Fund and Africa’s financial sector.
For now, JP Morgan doesn’t have plans to invest directly in Africa startups and is taking a long-view in its support of the accelerator, according to Colleen Briggs — JP Morgan’s Head of Community Innovation
“We find financial health and financial inclusion is a…cornerstone for inclusive growth…For us if you care about a stable economy, you have to start with financial inclusion,” said Briggs, who also oversees the Catalyst Fund.
This take aligns with JP Morgan’s 2019 announcement of a $125 million, philanthropic, five-year global commitment to improve financial health in the U.S. and globally.
More recently, JP Morgan Chase posted some of the strongest financial results on Wall Street, with Q4 profits of $2.9 billion. It’ll be worth following if the company shifts any of its income-generating prowess to business and venture funding activities in Catalyst Fund markets like Nigeria, India and Mexico.