Christine Hall The Current State and Key Trends in the Venture Capital Industry

29th September, 2021

Episode 17  Show Notes

With startup funding at record levels, many investors are trying to keep updated on key investment themes and funding trends in the market.  We have a timely discussion with Christine Hall, a reporter for TechCrunch, who shares her insight into areas of startup funding that are attracting increased attention from the investment community as well as where to look for future opportunities. 

 Key Points in This Episode

  • Growing areas of e-commerce, including the pet space and restaurants
  • Roll-up strategies in consumer brands
  • What is food tech where to find the innovation, for example: food trends beyond alternative meats, coffee without coffee beans, plant-based products to reduce less waste, baby foods/ infant nutrition
  • Areas within fintech getting increased attention: cross border, payments/digital wallets, Africa in the spotlight, education finance solutions
  • An overview of how VC funding rounds work from an investment perspective
  • Sentiment in the venture capital space

[INTERVIEW]     

{01:06} Andrew   

Hi, this is Andrew from Pitchboard. I spoke with Christine Hall, a reporter covering venture capital at  TechCrunch. She discussed the acceleration in e-commerce the innovations happening in the food and financial sectors in the current state of the venture capital industry; I think you’ll enjoy our conversation with that welcome, Christine. It’s great to have you on the podcast.   

{01:27} Christine   

Thanks for having me.   

{01:28} Andrew   

Your job seems really cool because you’re basically writing about obviously the present, but the future as well, right? You get to see what life might look like 3/5 to ten years from. Now is that—one of the things that have attracted you to covering venture capital. 

{01:49} Christine   

Yes, I like it a lot. I feel like I get to ask venture capitalists. What they seeing in the market and how that is going to play out over the next. You know, a couple of years. Five years of things like that, and so it’s very interesting because sometimes it can lead to an even better story than just covering the funding round is just to get their take on a specific industry and what might be the future for that market.   

{02:13} Andrew   

Right, because I guess venture capital, sort of that definition, is  funding Innovative startups that largely can compete with the existing or the legacy companies.   

{02:25} Christine   

Right, yeah, they’re not in it to invest in a company that’s not going to be there in two years, that’s for sure. They want something that’s going to be in it for the long haul, you know, as one firm pointed out to me yesterday, they’re looking for that Unicorn potential

{02:40} Andrew   

So, can you give our listeners an overview of what you currently cover at TechCrunch? 

{02:45} Christine   

Yes, so I am writing on funding rounds and just kind of startups in general in kind of the areas of enterprise and business to business companies, E-commerce companies, and food tech.   

{02:59} Andrew   

That is quite the wide range of sectors you cover. You become an expert in a bunch that you never expected to.   

{03:07} Christine   

I would say business to business is really a broad category because I think there is a lot of you know. The business of business relates to anything you know could be fintech.  

 It could be education tech. Like it could protect those types of things. I have whittled it down to more realistic the companies that are selling to businesses in terms of data. Or you know SAS or video conferencing things that you might use in an office.   

I do not know if it is like the future of work if that’s like a better description of it. A lot of things are a lot of the things that I write about are really used for people to make their work lives better.

{03:45} Andrew   

Right, what trends right now? In the world of venture capital or catching your eye, are there any particular sectors there’s, are coming to life or any of them? Have been red hot.   

{03:56} Christine   

You know, funding into healthcare doesn’t seem to be stopping, though you know, I think last year a lot of venture capitalists were talking about what was going to happen in 2021, so I don’t know if it’s as much going on. I think I think I did see that there’s still record funding going on into this space, so you know, I. I thought maybe last year was more, but it seems like it really hasn’t stopped. Agriculture and food tech, as I mentioned, are kind of the, you know. They’ve seen a lot of funding. Coming their way. In the past year, E-commerce due to everyone shopping online, it’s just become what everyone’s doing. 

{04:27} Andrew   

But obviously, the pandemic accelerated towards e-commerce. Is that a lasting shift from what you can see?   

{04:33} Christine   

Retailers are kind of lost. Do you know when the pandemic happened? You know retailers lost. They’re linked to their customers, and unfortunately, if their online game wasn’t so good, they had to learn quick to figure that out.  

 I think one of the areas that kind of bubbled up to the surface there was those restaurants because I think a lot of them didn’t have a digital storefront to where they could manage online orders and things like that. It was just as if you came into the restaurant. You know you could; maybe you would call ahead or something if you wanted to do like a carryout or something like that, but they didn’t have the capacity to do online ordering and things like that.   

And so, there were a lot of companies that got funded last year that we’re helping those restaurants and small businesses like bakeries, cafes, those types of things get their digital storefronts going with capabilities to do online orders so that they could continue to do that even if they couldn’t have people physically in their restaurants. You also notice brands that weren’t online before were suddenly like selling their products on Instagram or Facebook. And you know that that still kind of continues a lot. But you know, I think that there were companies also trying to help major brands who never really, you know, they might have had a little bit of an online presence. Still, like we’re talking like Ole like I remembered last year March or April, all of a sudden, my Facebook feed was full of advertisements from Ole saying, you know, buy one, get one half off. I want to get it. All these products that I never even knew existed, so I was like, wow, this is incredible.  

I think there’s also within E-commerce. There are some niche areas that did well last year and continued to do so this year. Like one of them, the pet space where you know you probably remember seeing article after article about people getting pandemic pets and you know? Or we’re home with their pets all day, every day for the first-time and. I did an article that talked about this space, and that was something like this spending on pets just in the United States in 2020 was like $100 billion. You know that that’s not going to stop.   

There was another area. There’s another story that I did on the e-commerce alcohol space. Similar to the restaurants like helping them do digital storefronts, there were startups helping liquor stores and things like that establish an online presence because most of the time, you know you physically go into a store to do that, and when you know, obviously they couldn’t be open. They had to kind of shift to online and figured out how to do that.   

Also, in the e-commerce space.  I heard from several investors and startup founders that the area of returns is still something that many have not tackled. There are a few startups getting funding in that area. You know, with all the things that are being bought, that kind of makes sense a bit when you think about it. Because you’re buying online, and your type of looking at the model or something you know.  

 For clothing, you’re looking at the model going in where I fit into that it you know, I don’t know. But you know, not everything is going to be the perfect fit. Not everything is going to look like what you thought it was going to look like, so you’re taking it back to the store, or you’re trying to put it back in that box that you destroyed trying to get it out, and you know, send it back.  

 I don’t necessarily think that this was a new partnership. Still, you probably saw that like Amazon and Kohl’s struck up a partnership to where you can bring your packages to Kohl’s to return to Amazon, and so and Amazon will give you a percentage off coupon to shop in the store after you brought your package in, so that was smart on their part. There weren’t people in droves going to the back to the post office or trying to figure out how to do UPS or FedEx or whatever with their packages.   

 And kind of just like closing out with e-commerce. You know, I think. I would be remiss if I didn’t mention all of them—the E-commerce aggregators or e-commerce rollup companies that got funding this year. You know, there’s a lot of startups in this space that have come out, you know, and kind of led by Theresa. Oh, that they raised over like $2 billion just this year, and that keeps on growing. I get at least once a week from an e-commerce rollup company that is raising funding, and they’re raising like big dollars.   

It’s like, you know, $100 million and some of it is like. Because, like debt, capital is not equity. You know, to be able to purchase, you know, acquire the companies; what was interesting about that is that I even saw a roll-up of the company on the list for the Summers Y Combinator cohort . 

 So, I thought that was kind of interesting for people who don’t kind of know what roll-up companies are. They’re purchasing top performers on the market. You know, online marketplaces like Amazon or Shopify and then kind of sort of like. You know, enveloping that company into their network and putting their own like inventory and fulfillment and logistics operations to like you know advertising and all that kind of stuff to scale those companies.   

{09:18} Andrew   

So, sort of like a conglomerate of companies as were.   

{09:21} Christine   

Its kind of is.   

Yeah, there’s a lot that they really sort of do. Kind of niche areas like there’s some that you know to do in the beauty space or health and Wellness. Consumer goods, things like that, and there are others that you know. Sports fitness equipment. Those types of things, so it kind of runs the gambit of what they go after.   

{09:39} Andrew   

Such a food tech. You’ve mentioned food what. What exciting things are happening there that you mentioned? So, there’s the home delivery, which is fascinating because, as you know, 20 years ago I remember it started at least in my city. It started to happen, but it never. Or he never really took off.   

{09:55} Christine   

What I like about food tech is that the companies that are making existing foods out of other things, so there’s kind of like a science-y.  

You know, like my health care brain sort of kicks in. It’s kind of a science-y way of making food, which is kind of fun. I’ve had a lot of conversations with companies. Those are making things that you wouldn’t. You wouldn’t think like I; you know there are a lot of things in the news.  

 Like alternative meats and alternative dairy and all that kind of stuff, but you know, there are companies like Voyager Foods and Atomo that are, you know, making coffee without coffee beans, which I thought was really interesting because I said, well, are you allowed to still call it coffee? And apparently, there are no restrictions.   

Against that yet, so I think Tomo It has raised $12 million so far, and I think Voyager is also raising. I did a story last week on appeal, which had raised another $250 million, and they’ve developed like a plant-based covering.  

 If that’s like kind of what you want to call it for, you know. Fruits and vegetables. To keep them, you know, lasting longer, so there’s not as much food waste. So that’s kind of interesting. When I was at Crunchbase, I wrote a number of  funding rounds about, you know, baby food startups.  

 So, like serenity, kids got $7 million earlier this year, and then last year, by heart, which is an infant nutrition company, they raised $70 million of a Series A round. I think I saw imperfect Foods also raised $200 million through them in like a company called simulate.   

It’s they make chicken like Nuggets made from plants, and they raised a $50 million round earlier this year. That was led by 776 the venture capital firm. There’s also eat just has been in the news quite a bit. They raised in total over $400 million and they have a plant-based egg substitute and their chicken product that’s made from chicken but without the chicken, so like cells from chicken.  

The big news for them in the past year was that they were, you know, being served in Singapore, and now they’re bringing their egg substitute product to South Africa.   

So, they’re kind of expanding and moving there.   

{12:06} Andrew   

We’ve talked about some of the taxes I’ll call them already, but I think one of them that probably gets the most media coverage is fintech. Uhm, what sort of innovations are you seeing in that sector? Is that still, that’s prominent.   

{12:22} Christine   

Definitely, You know. I think that there’s a lot you know there’s a saying that’s been out there for a while now that you know every company is going to be a fintech company as they you know as kind of everybody went online.   

There are people I’ve seen Kind of the rebuttal of that that just because somebody has a digital wallet or a debit card doesn’t make them a fintech company, but you know, there’s a lot of companies that are adopting payments for their websites or apps and so that as you can imagine, then the payment space is huge.  

 There are a lot of startups going after cross-border payment and business-to-business payments, so that’s been something that has been difficult for a while.  

That’s kind of the problem that a lot of startups are trying to solve, and it just kind of shows in the way. That there’s a lot of people who you know as the pandemic proved you can really hire someone from anywhere and get productivity out of them, but you know, if you’re employing someone who is not in your same country, you know. There’s it’s not always easy. Depending on the country to be able to actually pay them in their currency.   

We’re not talking dollars to dollars anymore, but we’re talking. You know dollars to pesos, or you know things like that. So, there’s a lot of companies that are trying to make that easier so you’re having to go through two or three intermediaries who all want fees on top of the money that you’re trying to transfer, so they’re trying to make A little bit easier so that it’s just, you know, one straight seamless payment that you know doesn’t have those kinds of fees involved.  

 You know, I think some of my colleagues did a podcast a couple of days ago, reporting on Africa being in the spotlight as a hot fintech market. So that’s kind of interesting, and we’re seeing a lot of investors sinking money into like peer-to-peer lending as well. As well as you know, better lending options than the payday loan. Which you know, kind of it you know, has really gotten a bad rap, and rightly so for charging people. Some sometimes double what they. What they asked for in a loan. You know you’re asking for a loan for $50, and you’re having. To pay $100 in fees.   

There’s a lot companies too that are going after kind of the education finance market, like helping college students fund their schooling. So, in a little bit better of a lending way, embedded finance is also a big thing. And that’s where companies like offer things. That’s kind of what I mentioned earlier, like digital wallets or payments within an app, or you know, even debit cards. Things like that.   

So, I don’t think anything is Going to stop in Fintech?   

{14:52} Andrew   

So, turning a bit to the venture capital industry itself, as opposed to the companies that they’re funding. Can you give us a broad overview of how the different funding rounds go?   

{15:06} Christine   

Yes, so this was an eye and eye-opener for me because I didn’t realize that that there are many levels to the number of funding rounds, so to speak that you could do, you know, I think there’s like Series A all the way to H-I.  

I think when your kind of if you’re thinking seed round is basically like the money that a company raises to basically get their operations going. So, when they’re raising a seed round, they typically might have. It might be like the founding team, and maybe just one or two other kinds of early. You know, employee one. Or something like that in the company, but there’s not that many of them, and so a lot of them are going to use the seed funding for their operations. They’re going to want to hire more people.   

Things like that Series A is kind of sit similar. So, Series A companies are going to also want to be higher even more or accelerated and will look to scale their company more accelerated so they’re looking to be like we want to hit these certain milestones in like 6 to 12 months closer to six and then with a series B you kind of get more into a growth round.   

so, there’s going to be companies that can kind of raise that anytime. Usually, it’s been like, hey, you know, let’s raise, you know one per year, one new round per year. But there are companies that are literally raising they’re on their series B, and they’ve raised their seed like you know 6 to 9 months ahead of time, so they’re just on that trajectory to grow, but once you get into kind of that, B round and up is all sort of like what they consider like growth around.   

So really, it’s your kind of doing what you did in the Series A, but sort of on steroids, and you’re just really growing. You have a product-market fit. You’re going to do more like marketing. In sales like Go-to-market strategy, that’s where it kind of comes in. And you’ve proved to the investors that what you have. You have a good product. Market fit, you’re going to really be. You know you’re in it for the long haul that’s kind of where that is. And so, then everything kind of after that is just built building upon that.   

{17:09} Andrew   

Does the seed round? Does that tend? To be what they Call the Friends and family?.   

{17:14} Christine   

No, not even that. Yeah, this is kind of after like there’s even a. There’s even around before the seed round, which is like the pre-seed round. So that’s kind of like where maybe your friends and family around will fit in there, and so that’s that. Will be like usual, that’s where people make like, you know, raise.   

Maybe like $100,000 or something like that and sort of a pre-seed they can. They can raise more obviously but. You know that’s Kind of where you’ll be talking to the friends and family about that.   

{17:37} Andrew   

But yeah, but when you’re you call your university or college roommate right back up.   

{17:41} Christine   

Exactly, yeah, I’ve seen some things where they’re talking about that the seed is the new Series A and the Series A is the newbie, and so everyone everything is really being kind of accelerated in a bit. You know I’ve seen companies that raise the seed, but then they right they announced the seed.   

And the Series A and one and one announcement versus. Like you know, doing all of that, so I think that we’re kind. Of seeing that as well.   

{18:05} Andrew   

I mean, presumably, the risks should go down as get as you go through different seeds, right?   

{18:11} Christine   

Definitely, yeah, I don’t. I don’t think that you would get to a series B without having really good proof that your company is viable. I don’t think you’re just I don’t think.   

You’re going to get there.   

{18:24} Andrew   

Do different venture capital funds tend to focus in on different Iterations for lack of a better term of rounds that do. Some are willing to take on more risk, and there they’ll be there in the seed round, and others or say we’ll wait for the growth rounds because we want to be a bit more conservative.   

{18:44} Christine   

Yes, definitely and I think that the VC firms that are willing to do the early stage like those seed in Series A, are some of the more fun firms to talk to because they’ve gotten good at looking at founders and really sort of. Getting into what they’re like you know, do you think that this person is going to be good?   

Do they have a good head on their shoulders? Do they have a good understanding of their market?   

Do they is their Mission good is that you know things like that, so they’ve gotten good at it.   

They also are, you know, a lot of times they’re fat. They were founders themselves or might still be founders. And you know, just investors too, but they want to help other founders not make the mistakes that they made. Or, you know, help them. Help them with things that. You know, we’ll help their company accelerate, or, you know, introduce them into a network and things like that. I think there are a lot of helpers and it’s really kind of nice because they. They’re just in it for you know passionate about it.   

{19:41} Andrew   

I guess that’s something that differentiates something like venture capital from, say, public equities, right? Is that there is more of that hands-on mentorship?  There must be. It’s not in the interests of the investors to just completely hand off, right?   

{19:57} Christine   

Right exactly, yeah, they want to be in there. You know, I don’t.  

 There are some people that like to be on the board. There are some people who just kind of want to be on the sidelines and kind of be that mentor that you know.   

Hey, you know if you’re going through this and you’re finding it hard, call me up for this, you know. But yeah, it is. I think that there’s they that kind of Like to be in a sort of different ways, but you know most of the people like to be hands-on really so which you know is good for is you know good for the company.   

{20:27} Andrew   

In your time covering venture capital, what lessons have you drawn about? What makes a successful venture capital firm and what makes a successful investment?   

{20:41} Christine   

It’s kind of the same thing that I just talked about successful funds and managers tend to be.   

Those that are. You know, built on entrepreneurs or serial entrepreneurs who really know what it’s like to be in the shoes of the startup founders. They’ve lived it, they’ve, they’ve eaten, the rice and beans and Raman noodles. They’ve agonized over their pitch decks. And, you know, practice their speeches in the mirror 100 times. And it you know it’s kind of what I said, like What I said. You know any early-stage investor will tell you that when they invest in seed, run us all about the founding team.   

I’ve had investors say that. You know point-blank that they won’t fund anyone. Who hasn’t started the company before? o unfortunately, if you’re a first-time founder so this is not going to, you know you’ll have to work that much extra to get funding. They want someone like I said with a deep understanding of the problem. They want somebody with a novel. Way to solve it. 

{21:33} Andrew   

 And do you have a sense of a typical venture capital fund? But how many investments they might have in their fund at any point in time, are they? Are they very concentrated or do they tend to own a lot of like little slices of a lot of companies or bigger? This is just because it’s early stage and it is risky. These aren’t blue-chip companies, they’re buying, Right?   

{21:54} Christine   

Right, yeah, you know I went to kind of do a little bit of research on that and I found an article from like 2009. You know an investor was saying that you know most VCs at the time, so in 2019 they’re saying this. We’re far too concentrated in like a small number of companies. It is so like they were saying, you know 20 to 40 companies. They said that as the industry would best, this is a quote.   

You know that the industry would best be served by doubling or tripling the average number of investments in a portfolio, particularly for early-stage investments where startup attrition is even greater. So, this was a quote by. Dave McClure, who was with 500 startups and he kind of went on to say like you know if unicorns only happened 1 to 2% of the time It logically follows that portfolio size should include a minimum of 50 to 100 companies to have a reasonable shot at capturing basically the unicorns.  

 So, I thought that was interesting.   

{22:05} Andrew  

So how would you? Describe sentiment right now in venture capital land, is it? Is it cautiously optimistic? Is it exuberant? I mean, I know we have, you know the stock market and all-time high is that reflected in what you see in venture capital or is there? Is there some difference?   

{22:10} Christine  

I mean, I think that when. I was first starting out like, so I joined Crunchbase News last year in April and at the time that I joined we had a conversation about OK deal flow is doing alright right now.  

 What kinds of things are we going to cover if the funding rounds sort of dry up a bit and I’m not even sure that the ink had dried on like you know, like our notetaking for it? It really kind of just took off.   

I’m not seeing any. Slow down at all, so I don’t think that anyone cautiously doing anything. I think that they’re just like, oh, I see a company, and I’m, you know, this looks good. It’s a great space. It’s a good founding team, so you know, let’s put some money into it. Do you know? I mean, I, I think I didn’t initially.   

The venture capital firms were shoring up their portfolio companies at the beginning of the pandemic, and so now you know the. I think that’s I found a couple of notes about that. I think that I like crunch-based news. Some did a Story a little while ago like a week or so ago about, That you know there was record funding invested at every stage in the first half of this year.   

So clearly, it’s you know it hasn’t stopped at all, and in fact, they were saying, like according to their figures, like late-stage funding peaked the most, which in it more than doubled year over year that actually early-stage funding grew more than 60% over the prior 2.   

Half-year timeframes and seed funding gained 40% year over year. You know if you kind of looked at which firms were sort of the kind of leader. So that you know the names will not surprise you at all.   

You know Tiger Global Management and Insight Partners were, you know, according to Crunchbase, they racked up the most portfolio companies for the first half of the year and you know, I think while we even had the conversation like as well, it seems like tigers like in every single deal I’ve done this week. The data. Crunchbase showed that they added 110 new companies to their portfolio.   

So those were like new companies, companies that they hadn’t invested in before and I think 58 of those were like Unicorn companies and then like kind of similar with Insight Partners. They added 71 new portfolio companies and then, so you’ve got and then kind of coming in behind them was like you know your Andreessen Horowitz XL and General Catalyst and I, you know, I thought that was interesting because it just really shows, you know, I. I think a lot of people said. That the pandemic sort of forced a lot of firms to not invest as much, and so that there’s a lot of you know I. I’m not sure if this is the case today, but they said that there was a lot of money left. you know, in coffers and things like that, and so I don’t know if we’re necessarily seeing with kind of those the tiger global figures and things like that.   

I don’t know if we’re necessarily seeing. The result of that, but I’m assuming that in the next kind of year or two, we’re going to see a lot more deals, even though we’re seeing it’s done now, but I think we’re going to keep seeing that I, I think, that you know, the VC firms are, you know, optimistic and you know, especially with the pandemic leading a lot of.  

 People to you know they may have been laid off or something like that. They’ve and they, you know, have that entrepreneurial spirit. They’ve started companies of their own, so you know if they started a company last year, you know, maybe this year or you know, earlier this year, Neil by next year we’re going to see all those companies. Probably you know right? For, you know, venture capital investment if that’s the way that they choose to go. So, I think. We’re going to see a lot, a lot more of what we’ve been seeing.   

{26:34}  Andrew   

So, I’m out of questions. Think I think we’ve covered a huge amount of ground in this conversation, so Christine Hall, thank you very much from TechCrunch. This has been very informative, and I know I’ve learned a lot. I hope our listeners have so thank you for your time and you and your wisdom.   

And thank you very much as always to our listeners. We’ll be back here soon with another episode, take care for now, bye.   

{26:57}  Jenny     

Thanks for joining us on this episode of The Pitch Podcast. Make sure you check us out online at thepitchboard.com If you liked our podcast today, please make sure to subscribe to the Pitch podcast so you don’t miss an episode. 

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