Accel has invested in more than 200 startups in the region to date, making it one of the more prolific VCs in this market.
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Founders at the early stages of building their startups may have already created a strong solution, identified a gap in the market, or may simply have an inescapable and driving motivation to build their own business. Ideally, they have a good combination of all three. But do they have product-market fit? And what actually is product-market fit, anyway?
The investors at Sequoia, one of the world’s biggest venture capital firms, have come up with a very handy framework to answer those two questions. It distills the landscape into three archetypes.
“Hair on Fire” roughly means that your startup addresses an urgent problem. A security startup, for example, might fit here, especially if it can win initial business on the back of parachuting in to fix a breach or other problem already in progress. Or, think of the wave of companies that offered services to businesses and users when they were suddenly sheltering in place and working from home during the peak of Covid-19.
“Hard Fact” translates as a startup that solves an existing problem better than what’s already out there. Square, which emerged as a new point of sale product in a seemingly old and saturated market, is a good example of this.
Lastly, “Future Vision” relates to deep tech, moonshots, and products out of left field. These would include quantum startups, but also those building flying cars or even autonomous vehicles that would ply our roads (or any of the tech that will be needed to make such vehicles).
Each of these archetypes will have its own customer mindset, competitive market status, opportunity/general product goals, challenges, examples of those who got it right and those that did not, and so on. Sequoia partner Jess Lee, a specialist in early-stage investing, gave a big talk on the concept at TechCrunch’s Early Stage event in Boston in April. Sequoia has written about the framework here, too.
In sum, the theory goes like this: Startups all, more or less, fit into one of these three archetypes, so identifying which archetype a company fits in can help it focus and develop.
Sequoia is confident enough of the structure that it uses the framework in its Arc program to help early-stage founders focus on how they are building. It also helps the firm evaluate potential startup investments. Beyond that, and just as importantly, founders can lean on an archetype to better anticipate and articulate the challenges and opportunities in their space. That can be helpful for decision-making internally, of course, as well as for fundraising or pitching partnerships or customers.
During her presentation on the framework, Lee said that Sequoia does not have a favored category among the three.
“I think you can create great companies in all those categories,” Lee said. Still, she admitted that certain kinds of companies might find it especially challenging to raise money in the current climate.
For deep tech and moonshots — two common kinds of startups found in the “Future Vision” category — fundraising “was easier in a zero-interest-rate period when there was a ton of capital flowing in,” Lee said. “I don’t know if [those companies] would have been able to raise as much [starting out now] as they had to, to be able to get to where they are now.”
Lee was a co-founder at Polyvore, which combined social mechanics and e-commerce — its users contributed fashion and product clips from around the web and used those products to assemble mood boards, with affiliate marketing underpinning it all. Polyvore was eventually acquired by Yahoo, and she parted ways with it. Yet, that e-commerce and consumer focus has stayed with her, she said, adding that she’s still interested in trying to find new winners in that category despite the challenges of trying to break into the space these days.
“It can still be done,” she said. “I feel like many consumer companies fall in the ‘Hard Fact’ category, and I particularly love working with consumer companies. But you have to be good at both marketing your problem as well as marketing your solution and building this. So it takes a lot to get it right.
“It almost feels like alchemy. I can’t tell you how many founders I’ve met who said, ‘Oh, yeah I was working on Snapchat, too. Like, I had my own version.’ And it sounded like it was similar, but just the right number of details allowed Snapchat to be the one that broke away.”
None of this is to say that the third category, “Hair on Fire,” is exactly easy. “You have to ruthlessly execute,” Lee said. “[You need] so much velocity to stay ahead of everyone.”
Her conclusion drives home one of the most critical aspects of building an early-stage business. “I think there’s a little bit of founder-market fit that goes into each of these product-market fit categories.”
Jonathan Strimling faced a dilemma. His company had spent nine years working on chemical processes that could turn old cardboard boxes into high-quality building insulation. The good news was the team had finally cracked it: CleanFiber’s technology pumped out insulation — really good insulation. It had fewer contaminants and produced less dust than other cellulose insulation made from old newspapers. Insulation installers loved the stuff.
Now CleanFiber had to make more of it. A lot more.
Many founders and CEOs might be envious of the problem. But the transition from science project to commercial outfit is one of the hardest to pull off.
“It’s hard to launch your first-of-breed plant,” Strimling, the company’s CEO, told TechCrunch. “It did cost us more than we expected. It took us longer than we expected. And that’s fairly typical.”
Any startup is laced with a certain amount of risk. Early-stage companies are often unsure whether their technology will work or whether their product will find enough customers. But at that point, investors are more willing to stomach the risk. They know fresh startups are a gamble, but the amount required to get one off the ground is relatively small. It’s easier to play the numbers game.
The game changes, though, when startups emerge from their youth, and it becomes especially challenging when the company’s products are made of atoms, not ones and zeros.
“There’s still a lot of hesitancy to do hardware, hard tech, infrastructure,” Matt Rogers, co-founder of Nest and Mill, told TechCrunch. Those awkward middle stages are particularly hard for climate startups, which are dominated by hardware companies.
“You can’t solve climate with SaaS,” Rogers said.
The problem has come to dominate conversations about finance and climate change. There has been an explosion of startups in recent years that seek to electrify homes and buildings, slash pollution in industrial processes, and remove planet-warming carbon from the atmosphere. But as those companies emerge from the lab, they’re finding it hard to raise the kind of money they’ll need to build their first commercial scale project.
“That transition is just a really, really difficult one,” said Lara Pierpoint, managing director of Trellis Climate at Prime Coalition. “It’s not one that VC was designed to navigate, nor is it one that institutional infrastructure investors were designed to take on from a risk perspective.”
Some call this the “first of a kind” problem. Others call it the “missing middle,” describing the yawning gap between early-stage venture dollars and expertise on one end and infrastructure funds on the other. But those terms paper over the severity of the problem. A better term might be what Ashwin Shashindranath, a partner at Energy Impact Partners, calls “the commercial valley of death.”
Sean Sandbach, principal at Spring Lane Capital, puts it more bluntly, calling it “the single greatest threat to climate companies.”
The valley of death isn’t unique to climate tech companies, but it poses a bigger challenge for those that seek to decarbonize industry or buildings, for example. “When you’re making hardware or infrastructure, your capital needs are just very different,” Rogers said.
To see how, consider two hypothetical climate tech companies: one is a SaaS startup with revenue that recently raised a $2 million round and is looking for another $5 million. “That’s a good story for a traditional venture firm,” said Abe Yokell, co-founder and managing partner at Congruent Ventures.
Contrast that with a deep tech company that doesn’t have any revenue and is hoping to raise a $50 million Series B to fund its first-of-a-kind project. “That’s a harder story,” he said.
As a result, “a good portion of our time consistently is spent with our portfolio companies helping them bring on the next stage of capital,” Yokell said. “We are finding people to fill the gap. But it’s not like you go to 20 funds. You go to 100 or 200.”
It’s not just the dollar amounts that make it more challenging to raise money. Part of the problem lies in the way startup financing has evolved over the years. Where decades ago venture capitalists used to tackle hardware challenges, today the majority tend to avoid them.
“We have a capital stack in our economy that was built for digital innovation,” rather than hardware advances, said Saloni Multani, co-head of venture and growth at Galvanize Climate Solutions.
The commercial valley of death has claimed more than a few victims. Over a decade ago, battery manufacturer A123 Systems worked feverishly to build not just its own factories, but also an entire supply chain to provide cells to companies like GM. It ended up being sold for pennies on the dollar to a Chinese auto parts giant.
More recently, Sunfolding, which made actuators to help solar panels track the sun, went belly up in December after it ran into manufacturing challenges. Another startup, electric bus manufacturer Proterra, declared bankruptcy in August in part because it had signed contracts that were unprofitable — making the buses simply cost more than anticipated.
In Proterra’s case, the struggles of mass manufacturing buses were compounded by the fact that the company was also developing two other business lines, one that focused on battery systems for other heavy-duty vehicles and another that specialized in charging infrastructure for them.
Many startups fall into this trap, said Adam Sharkawy, co-founder and managing partner at Material Impact. “As they get some early success, they are looking around themselves and saying, ‘How can we build our ecosystem? How can we pave the path to really scaling? How can we build infrastructure to prepare ourselves to scale?’” he said. “They lose sight of the core value proposition that they’re building, that they need to ensure execution on, before they can start to linearly scale the rest.”
Maintaining focus is one part of the challenge. Recognizing what to focus on and when is another. That can be learned with firsthand experience, something that’s often lacking in early-stage startups.
As a result, many investors are pushing startups to hire people experienced in manufacturing, construction, and project management earlier than they might otherwise do. “We always advocate for the early hiring of roles such as project manager, head of engineering, head of construction,” said Mario Fernandez, head of Breakthrough Energy Catalyst, which invests in large demonstrations and first-of-a-kind projects.
“Team gap is a big thing that we’re trying to address,” said Shashindranath, the EIP partner. “Most companies that we invest in have never built a large project before.”
To be sure, having the right team in place won’t matter if the company runs out of money. For that, investors have to dig deeper into their wallets or look elsewhere for solutions.
Writing more and bigger checks is one solution that many firms pursue. Many investors have opportunity funds or continuity funds reserved for the most successful portfolio companies to ensure they have the resources required to survive the valley of death. Not only does that give startups bigger war chests, but it can also help them access other pools of capital, Shashindranath said. Companies with bigger bank accounts have “additional credibility” with debt financiers, he said. “It’s signaling that helps in a lot of different ways.”
For companies building a factory, asset-backed equipment loans are also an option, said Tom Chi, founding partner at At One Ventures, “where in the worst-case scenario, you’re able to sell back the equipment at 70% of the value and you only have a little bit of debt cap to go repay.”
Yet for companies at the bleeding edge, like a fusion startup, there are limits to how far that playbook can take them. Some projects simply need lots of money before they’ll bring in meaningful revenue, and there aren’t many investors who are well positioned to bridge the gap.
“Early-stage investors, for a whole host of reasons, have struggled to support that middle process largely owing to the scale of their funds, the scale of the checks that they can write, and, to be candid, the realities of the returns that these assets are ultimately able to produce,” said Francis O’Sullivan, managing director at S2G Ventures. “Venture-like returns are exceptionally difficult to achieve once you move into this larger, more capital intensive, more project orientated, commodity-producing world.”
Typical early-stage venture investors aim for tenfold returns on investments, but O’Sullivan argues that perhaps a better mark for hardware-focused climate tech startups would be 2x or 3x. That would make it easier to attract follow-on investment from growth equity funds, which look for similar returns, before handing things off to infrastructure investors, which tend to aim for 50% returns. Problem is, most investors aren’t incentivized to work together, even within large money managers, he said.
On top of that, there aren’t many climate-focused VC firms that have the scale to provide funding in the middle stages, said Abe Yokell. “What we’re really betting on at this point is that there’s enough overlap [in interests] for the traditional venture firms to come in,” he said. “Now the problem, of course, is that over the last couple of years traditional venture has been very beat up.”
Another reason traditional venture firms haven’t stepped up is because they don’t truly understand the risks associated with climate tech investments.
“In hardware, there are things that look like they have technology risk, but actually don’t. I think that’s a massive opportunity,” said Shomik Dutta, co-founder and managing partner of Overture. “Then there are things that look like they have technology risk and still do. And so the question is, how do we bifurcate those pathways?”
One firm, Spring Lane, which recently invested in CleanFiber, has developed a sort of hybrid approach that draws on both venture capital and private equity. The firm performs a large amount of due diligence on its investments — “on par with the large infrastructure funds,” Sandbach said — which helps it gain confidence that the startup has worked through the scientific and technical challenges.
Once it decides to proceed, it often uses a combination of equity and debt. After the deal closes, Spring Lane has a team of experts who help portfolio companies tackle the challenges of scaling up.
Not every firm will be inclined to take that approach, which is why Pierpoint’s firm, Prime Coalition, advocates for more so-called catalytic capital, which includes everything from government grants to philanthropic dollars. The latter can absorb risk that other investors wouldn’t be keen to accept. Over time, the thinking goes, as investors get a deeper appreciation of the risks involved in middle-stage climate tech investing, they’ll be more inclined to place bets on their own, without a philanthropic backstop.
“I’m a big believer that human beings de-risk things through knowledge,” Multani said. “The reason I love seeing generalist firms invest in these companies is because it means they spent a bunch of time understanding the space, and they realize there’s an opportunity.”
However it happens, creating climate solutions through technology is an urgent challenge. The world’s countries have set a goal to eliminate carbon pollution in the next 25 years, which isn’t that long if you consider that it takes several years to build a single factory. To keep warming below 1.5°C, we’ll have to build a lot of factories, many of which have never been built before. And to do that, startups will need lots more money than is available today.
At CleanFiber, Strimling and his team haven’t just completed the company’s first factory, but have also expanded it. It’s now producing enough insulation for 20,000 homes every year. The next few facilities should take less time to build, but the hurdles on the road to opening the first were significant. “When launching the first-of-breed plant, you do run into things you don’t expect,” Strimling said. “We ran into a pandemic.”
Replicating that success across a range of industries won’t be easy or cheap. Still, plenty of investors remain optimistic. “The future will look different from the past,” Multani said. “It must.”
Rubrik’s strong IPO pricing and warm reception by the public markets after its listing add more weight to the perspective that the public markets are not as closed to tech startups as some thought. If Rubrik’s result isn’t enough to break the logjam, well, maybe there’s something else going on.
But there was a lot more that happened this week, which meant that the Equity crew had a pile of news to get through as always, with a little bit of our own mixed in. Happily it was all pretty darn interesting, so Mary Ann and Alex started with Rubrik before pivoting to Pomelo, a startup that has a very interesting twist on the remittances market.
From there it was time to talk about TikTok. What was once an unfathomable result — TikTok being forced to divest from its parent company or face a ban — became reality pretty darn quickly. The United States is not the first company to ban the service, but we noted during the show that the company we are keeping is not the most enticing. Still, here we are; what does it mean for consumers?
And to close, Early Stage. TechCrunch held its annual early-stage focused event this year, and it was a banger. Not to toot our own horn, but it was the second year in a row that our shindig in Boston was packed, useful and lots of fun. The coffee was even good. At a tech conference. Alex had notes.
Equity is back on Monday, thanks for hanging out with us!
Equity is TechCrunch’s flagship podcast and posts every Monday, Wednesday and Friday, and you can subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.
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For the full interview transcript, for those who prefer reading over listening, read on, or check out our full archive of episodes over at Simplecast.
Zypsy, a design firm with a track record of helping early-stage startups, has launched a new and somewhat unique venture investment program.
It will be offering 10 startups up to $100,000 of brand and product design services, spanning 8 to 10 weeks of engagement, for no cash payment. Instead startups will pay by issuing Zypsy 1% equity of their companies via a SAFE (simple agreement for future equity). There is one potential gotcha: If a startup needs more work than outruns that cap, it will need to pay for it. “After the initial 8 to 10 weeks program, we work on a retainer with cash depending on the further project needs,” Kaz Tamai, co-founder and CEO of Zypsy, told TechCrunch.
This type of work-for-equity arrangement isn’t unheard of, particularly in the design world, but Zypsy has particular bona fides. Its founding team hails from global design firms and tech companies, including IDEO, Fantasy, Meta, and Saatchi & Saatchi. The company is profitable, with an annual revenue run rate of $3.2 million and $250,000 in annual net cash flow, the company says.
Zypsy can help startups with brand strategy, logo, websites, product design, app interface and marketing content. The outfit believes that a fledgling startup can scale up and rise from obscurity by combining design expertise and investment support.
The startup plans to work with 10 startups for the upcoming design capital cohort, Tamai said, adding that it mainly works with early-stage startups via selective referrals from founders or venture capitalists. It focuses on industries such as computing infrastructure, machine learning, AI, data analytics, cybersecurity, and the creator economy.
“Fundamentally, all startups are evaluated on four things: market, team, product, and traction; and founders are stretched thin, wearing many hats and seeking capital to drive those four elements,” Tamai said.
Zypsy has already added five startups to the first cohort of the design capital program (listed in alphabetical order):
The six-year-old design company has worked with more than 25 startups. The outfit initially began the design project for web3 founders. Given the interest it generated from the first client, Zypsy extended the program to a broader range of tech companies, Tamai told TechCrunch.
Before launching its official Design Capital Program, its previous clients via pilot tests included Cortex, a startup building an internal developer portal that helps engineering teams build better software at scale; Captions, an AI-powered video editing startup; and Robust Intelligence, an AI startup that helps businesses protect their AI models from security and operational risks; and Anyplace, a hospitality startup.
Zypsy does not own stakes of the clients via pilot projects, Tamai noted. “They are ‘cash-based clients, not an ‘equity-based portfolios’ like five companies we mentioned in the first design capital program,” he said.
At the moment, the company doesn’t have plans to grow into an accelerator or an investment firm, Tamai noted. “Our mission is to partner with exceptional founders and collaborate towards the next $1 billion in delta value, or valuation growth, through creative excellence,” Tamai said.
In 2023, Zypsy raised $3 million to establish Design Capital. Investors included 1kx, Lattice, founders from Japanese e-commerce company Mercari and web3 company Cega, angel investors like CDO at Rakuten, and the head of investment at SoftBank Vision Fund.
Venture capital activity in Africa has shown resilience over the past six months, with major firms backing startups on the continent closing their funds despite the ongoing funding winter.
In the latest development, TLcom Capital, an African VC firm with offices in Lagos and Nairobi and a focus on early-stage startups, has concluded fundraising for its second fund, TIDE Africa Fund II, totaling $154 million. The final close positions the firm as Africa’s largest investor across seed and Series A.
The oversubscribed fund, initially targeted to close at $150 million, attracted participation from over 20 limited partners. Notable investors include the European Investment Bank (EIB), Visa Foundation, Bertelsmann, and AfricaGrow, a joint venture between Allianz and DEG Impact.
This news comes two years and a few months after TLcom Capital announced the first close of the second fund at $70 million, matching the size of its first fund, TIDE Africa Fund I. While the broader slowdown affecting venture capital and startups globally contributed to the prolonged fundraising period, the VC firm can count a few positives, managing partner Maurizio Caio told TechCrunch in an interview.
Notably, TLcom Capital closed the second fund in a shorter timeframe than its preceding fund despite being twice its size. Caio attributes this success to an improved understanding and acceptance of venture capital in Africa among limited partners as a legitimate asset class. Additionally, a portfolio of companies exemplifying the firm’s investment strategy played a pivotal role in garnering investor confidence and support.
Unlike many VC firms that progress from backing startups in pre-seed and seed stages to later-stage investments with subsequent funds, TLcom Capital maintains a consistent strategy. The London-based firm continues to prioritize early-stage opportunities, particularly at the seed and Series A stages, while also considering opportunistic deals at growth and later stages. For example, the investor backed 10 out of the 11 companies from its first fund at seed or Series A. Yet, it has deployed capital in follow-on rounds at later stages across both funds (a Series C investment in Andela, a unicorn provider of global job placement for software developers, and a Series B round in FairMoney, a Nigerian digital bank.)
“We like to start early when the entrepreneur is raising seed or Series A and then to be with the entrepreneur along the journey and continue to invest if we think that the company deserves more capital deployed,” remarked Caio. “The reason is that we build our portfolio such that we back 20 to 25 companies that ‘if everything works out’ can return the fund individually.”
The managing partner emphasizes that when TLcom evaluates early-stage opportunities, it assesses the potential of its portfolio companies to generate 10-20x returns. The approach, he says, is to ensure that successful companies compensate for losses and allow the firm to achieve 3-4x return on an aggregate basis.
One way the firm is bettering its risk in this regard is by backing repeat founders. Sim Shagaya (of uLesson and Konga), Etop Ikpe (Autochek and Cars45), and Grant Brooke (Shara and Twiga) are a few examples. Despite past ventures not achieving desired success, Caio says these founders gained valuable insights to avoid repeating past mistakes in their new ventures. “When things don’t go as planned, it’s important to act swiftly, pivot, and move on to the next venture, knowing that lessons learned will pave the way for future success,” he noted.
Another is by investing earlier in deals, at the pre-seed stage. In 2020, TLcom Capital invested in Autochek and Okra at the pre-seed stage and has since followed up in subsequent rounds. Two years later, the firm launched a pre-seed strategy that involved allocating $5 million to be disbursed in small check sizes and a low-touch approach to create a pipeline to its primary strategy at seed and Series A (Upskilling platform Talstack is its first recipient). A portion of this fund, $2 million, was dedicated to co-investing in female-led startups through FirstCheck Africa, a female-focused pre-seed fund. The firm says its commitment to gender balance is evident in its majority-female partnership and investment committee, where three out of five partners are women.
TLcom Capital, which focuses on traditional sectors like fintech, mobility, agriculture, healthcare, education, and commerce, has already backed six companies from its new fund, making initial investments ranging from $1 million to $3 million. They include SeamlessHR, FairMoney, Zone, and Vendease. Additionally, the firm has expanded its portfolio to include ILLA, a middle-mile logistics platform, and Littlefish, which enable payments and banking products for SMEs, marking its first investments in Egypt and South Africa, respectively.
“For us, the Big Four markets always continue to produce the most valuable companies, so it was important to add Egypt and South Africa as destinations of our capital,” said Caio, noting that TLcom’s portfolio before now has primarily been startups based in Nigeria and Kenya, countries where the firm has since expanded its operational capacity and expertise.
The multi-sector-focused firm and other notable venture capital firms like Norrsken22, Al Mada, Novastar’s Africa People + Planet, and Partech Africa have raised significant funds to back African startups from pre-seed to Series C. However, as these funds are deployed across various stages of startup growth, attention will turn to the exit opportunities they facilitate and the tangible returns they deliver to their LPs, as these outcomes play a crucial role in driving the overall growth of the African tech ecosystem.
“Africa shouldn’t just be about how much money is going in but also about returns,” emphasizes Caio. “We need global capital to look at Africa and think of a place where good investments can be made and technology can generate much value. That’s still to be achieved at scale, so that’s our primary target.”
Climate tech VC Satgana has reached a final close of its first fund, which aims to back up to 30 early-stage startups in Africa and Europe.
The VC firm reached a final close of €8 million ($8.6 million) following commitments from family offices and high-net-worth individuals, including Maurice Lévy of the Publicis Groupe, and Back Market co-founder Thibaud Hug de Larauze.
Satgana founder and general partner, Romain Diaz, told TechCrunch that the firm decided to close the fund early, missing initial targets owing to the difficult fundraising environment, which is worse for first-time fund managers, to focus on investing and supporting portfolio companies.
“We launched the fund mid-2022, and we have raised in the most challenging time since 2015. We have managed to make 13 investments and we know that with the current capital commitments, we can execute upon our strategy of investing in 30 companies in this first fund, including follow-on investments,” said Diaz.
“This also paves the way for a new fund in a few years, and it’s likely that we launch different funds with different strategies, maybe one for Europe and another for Africa — but that will come in later; for now, we are really focused on getting this fund right,” he said.
The VC firm invests up to €300,000 ($325,000) in early-stage startups working on mitigating and building resilience to climate change, with a bias for mobility, food and agriculture, energy, industry, buildings and the circular economy subsectors.
Its investees in Africa include Amini, a startup bridging the environmental data gap in Africa; Mazi Mobility, a Kenyan mobility-as-a-service startup working to develop a network of battery-swapping infrastructure; Kubik, which upcycles plastic and has operations in Ethiopia; and Revivo, a B2B marketplace selling electronic spare parts giving products like phones a new lease on life. In Europe, Satgana has invested in Orbio Earth, Yeasty, Loewi, Arda, Fullsoon and Fermify.
Diaz founded the VC firm after a decade of experience in the venture space in several African countries, including Morocco and South Africa, where he co-founded and ran a venture studio.
“I ran it for like five years, and about six years ago I started to really have the awakening to the extent of climate change. That’s where I decided to channel all the knowledge from my previous experience, but on a bigger scale, while focusing solely on investing in climate tech founders,” he said.
Diaz launched the VC firm upon moving to Europe, where he said there are adequate investment networks, especially those focused on investments targeting founders at the pre-seed stage.
Satgana’s focus on Africa was also driven by the fact that it is the most vulnerable continent despite contributing the least amount of greenhouse gas emissions. They recently appointed Anil Maguru as partner to drive their Africa strategy.
“We are entering the continent to pursue green growth objectives; so deploying renewable energy, low carbon buildings, mobility solutions and so on. But we are also keen on investments driving adaptation to climate change, because unfortunately, the reality is that climate change is upon us, and we require solutions already. This is especially for people on the frontline, who are often vulnerable communities, mainly women, people of color and low-income communities that are more exposed to the effects of climate change,” said Diaz.
“From an impact perspective, it’s important for us to invest in solutions, which [traditionally] receive only a tiny fraction of VC money,” he said.
Satgana is among the new funds that are dedicated to the African climate tech sector. These funds include Africa People + Planet Fund by Novastar Ventures, Equator’s fund and the Catalyst Fund.
By any benchmark, Accel is among the top venture firms in India. With nearly two dozen Indian unicorn startups, including several category leaders, Accel’s track record speaks for itself. Yet the partners leading the firm’s early-stage accelerator program, called Atoms, are uncharacteristically introspective about their learnings and the changes they have been implementing to improve the odds of success.
“One fundamental belief we have is that at some point in time, all VC firms look the same to a founder. It’s just money,” said Prayank Swaroop, a partner at Accel, in an interview.
All VC firms have also grown increasingly focused on making early-stage investments in India in recent years and finding the next Flipkart at the seed stage. The shift is primarily driven by the realization that India is not producing many billion-dollar exits, making it imperative to the VC funds to get in earlier to dramatically improve their returns.
An accelerator program run by a fund that invests in startups at various stages faces unique challenges. If the firm fails to significantly support its accelerator portfolio in subsequent funding rounds, it can send a negative message to the industry. Furthermore, experienced entrepreneurs may not consider an accelerator to be the most suitable partnership option for their ventures.
These are some of the challenges Accel has been mulling over for nearly half a decade. Before launching Atoms, the venture firm explored building a knowledge repository and a community with SeedtoScale, an earlier program launched by Accel.
“We did Demo Days, we were trying to be very similar to a lot of other funds,” Swaroop told TechCrunch.
Just as fast as Accel tried things, it has also walked back some of its steps. It no longer attempts to initiate mingling between Atoms portfolio startups and other investors, for instance. Swaroop recalled a conversation with a founder who informed him how the investor meetup felt like the startup was being put on a treadmill to artificially impress other potential backers.
Other candid feedback from founders revealed that many were not comfortable engaging with peers in the industry who were years ahead of them.
“We are trying to find our own unique path, and what has worked for some of the other firms, we think it’s not working for us,” he said.
So here’s what that path looks like. Atom’s third cohort features just eight startups, which is notably fewer than other well-known accelerators. And all the selected startups operate within two sectors: AI and Industry 5.0 (smart manufacturing).
Accel invests up to $500,000 in each handpicked startup’s pre-seed round, and there is no valuation cap. In addition to helping the startup strategize, Accel also helps them meet industry players that can become potential partners and customers in the future.
Accel handpicked AI and Industry 5.0 as the themes for Atoms because the firm believes the two sectors will look far larger in the next 10 years, said Barath Subramanian, the other partner leading Atoms.
AI has obvious appeal. Meanwhile, Subramanian said Industry 5.0 has emerged as a key theme as the archaic plants in India and elsewhere finally modernize, paving ways for startups that are bringing efficiencies to take a slice of the tens of billions of dollars flowing to consulting firms and others each year. “These factories generate a lot of data, but until now it hadn’t been used,” said Subramanian.
The smart manufacturing sector has also benefited from New Delhi’s incentives to attract foreign firms to expand their manufacturing bases in the country and also the growing “China + 1” shift among global giants.
More than 800 startups applied to be in Atoms 3.0, and between 300 and 400 applicants were AI startups. Swaroop said nearly two-thirds of all pitches focused on AI startups that sought to solve HR and marketing problems. “If there’s too much noise in the market, it’s a signal for us that we should hunt elsewhere,” he said.
Pallavi Chakravorty, co-founder and CEO of Meritic, said in a statement to TechCrunch that being selected by Atoms has been impactful. “Beyond the capital and learning sessions, being part of Atoms has given us a strong founder community and highly collaborative peer group. For instance,” Chakravorty continued, “when Meritic is faced with a challenge, we can turn to any other team at Accel LaunchPad, which is where we currently operate, or to anyone from Accel’s network of over 200 portfolio company founders, to arrive at a solution.”
Below is the third cohort of Atoms:
Spintly
Spintly is an IoT platform that simplifies access control to commercial and residential buildings. Unlike traditional systems, Spintly uses a distributed IoT architecture and edge computing technology, which eliminates the need for heavy back-end infrastructure and enables smartphone-based door access to users. Spintly has eliminated 200k plastic badges and 2k miles for wired infrastructure from the built world and currently serves 300+ customers and 4k+ doors.Asets
Canada-based Asets has launched an AI-powered, first-of-its-kind cloud-based Integrated Design Suite, a multidisciplinary CAD, simulation and engineering design platform that helps Engineering Procurement Construction (EPC) and end-owner companies accelerate their early-stage engineering by 10x. Customers benefit from the rapid deployment of engineering resources, lowering effort time and costs related to engineering projects.Tune AI
Tune AI is a GenAI stack for enterprises with solutions that include Tune Chat, an AI chat app with over 180,000 users and powerful models for text, code generation, and brainstorming, and Tune Studio, a comprehensive solution for fine-tuning, deploying, and managing the GenAI model lifecycle and enabling data security with enterprise-grade compliance.Skoob
Skoob is a generative AI platform which is revolutionizing the way readers interact with books. Instead of navigating through entire volumes, we harness the power of AI to dissect books into topic-centric sections. We are making knowledge consumption intuitive and user-friendly.Arivihan
Arivihan is India’s 1st AI-based 100% Automated Learning Platform providing each unique school student with a personal tutor in their pocket at ₹300 per month, guiding them in planning for their exams, teaching them with video lectures, talking to them, solving their queries instantly, and validating their knowledge by testing and improving them anytime they want, in the speed they require.Meritic
Meritic is a storytelling co-pilot for financial planning and analysis (FP&A) teams to automate reporting and business analytics. Meritic combines the power of knowledge graphs and language models to do highly contextual analysis, collect qualitative insights, generate relevant commentaries and automate financial deck creation.
(Two startups in the cohort remain in stealth for now.)
Welcome back to The Interchange, where we take a look at the hottest fintech news of the previous week. We wish you and your families a very Happy New Year! If you want to receive The Interchange directly in your inbox every Sunday, head here to sign up! And just a heads-up that while the newsletter will continue moving forward, starting next week we’ll have a brand-new name and a different look. Stay tuned!
We started the year with news of a couple new venture funds that will be writing checks into fintech startups. First up, I scooped the news that former Anthemis Group partner Ruth Foxe Blader has started her own firm, Foxe Capital. Joining her in the new venture, which will also be exclusively fintech-focused, are former Anthemis investment associate Kyle Perez and former principal Sophie Winwood.
I had the pleasure of interviewing Ruth at TechCrunch Disrupt 2022 and was impressed with her knowledge and insights around venture capital. So it wasn’t a surprise that she wanted to branch out and invest independently.
What was a bit unusual about the move, though, is that she will still be investing on behalf of Anthemis, at least for the first year, essentially deploying the rest of the capital of the vehicle she was hired to manage in 2017. She’ll be compensated by Anthemis as a sub-adviser. Whether the firm will back her as an LP when she starts making new investments is unclear. While she didn’t say, I suspect she was bound by contractual obligations, so this arrangement worked around those.
London-based Anthemis has had its fair share of upheaval over the past year. Last April, TechCrunch broke the news that Anthemis had completed a restructuring that resulted in its letting go of 16 employees, or about 28% of its staff.
A spokesperson for the company at the time said the move was an effort “to better reflect current market conditions and to set up the business for future growth” against its “strategic priorities.” Sources familiar with internal happenings at the firm told me then that there was plenty of drama going on behind the scenes, including allegations of mismanagement on the part of the firm’s leaders and inflated salaries.
When asked if her departure had anything to do with what was going on internally at Anthemis, Blader told me: “My decision was based on my desire to try my hand at running my own firm, my personal ambition level and my love for working closely with founders.”
I also wrote about Exponent Founders Capital closing on its $75 million second fund. It was a fun story to write considering I’d been familiar with Charley Ma, one of the firm’s co-founders and managing partners, when he worked at Alloy and also while he was an angel investor. He and Mahdi Raza quietly co-founded Exponent in 2021 and invested in about 40 companies out of their first $50 million fund. It’s interesting that the two actually first met “on opposite sides of the negotiating table” while Ma was at Plaid and Raza at Robinhood. Both have experience as operators and angel investors. And like Ruth, Charley just seems like a nice person.
It’s also always interesting when alums from companies go on to start their own things. There’s been talk of a PayPal Mafia for years, but it seems there are a number of other such mafias, albeit on a smaller scale, made up of alums of other later-stage fintech companies becoming investors, too. — Mary Ann
You can hear Alex and Mary Ann talk about it all more on Friday’s episode of Equity.
Senior reporter Romain Dillet lays out some pros and cons of HSBC’s new international payments app Zing and how it compares to Wise and Revolut. Zing is currently limited to those in the United Kingdom. Among them, Romain writes about Zing’s different approach to foreign exchange fees. His overall take? “Migrants and frequent travelers will appreciate that there’s a new contender in the space.” Read more.
We are keeping our eye on the aftermath of the breakup between Synapse, its banking partner Evolve Bank & Trust and startup banking platform Mercury. Back in October, I reported on this after speaking with Synapse, which operates a platform enabling banks and fintech companies to easily develop financial services, and Evolve. This stemmed from allegations that included who was to blame for a deficit of customer funds. The latest is that Mercury is attempting to, among other things, recover some $30 million as part of a lawsuit filed against Synapse, as first reported by Fintech Business Weekly in December. The lawsuit was filed in the Superior Court of California for San Francisco County on December 13. In response, Synapse founder and CEO Sankaet Pathak called Mercury’s claims “meritless” in a lengthy Medium post on December 28. He also says that Mercury would rather “tarnish Synapse’s reputation rather than seek genuine legal recourse.” What’s next? I guess we’ll find out later this month. — Christine
Notably, Deel CEO and co-founder Alex Bouaziz posted on X last week that his company was opening 1,000+ roles this year. Of course, our first thought was, “Did Deel raise more capital?” I reached out to Alex to ask and he told me the company had not raised more funding but that it had been profitable since September 2022, adding: “Just a lot of new product and ambitious goals!” Meanwhile, VC Rex Salisbury posted on X in response, saying he knew “of several late stage cos doing 1k+ headcount expansion.” That’s crazy. — Mary Ann
Meanwhile, Mary Ann looked back at the biggest fintech hits and misses of 2023. Remember when Apple launched its savings account with a competitive rate? It set off a battle, of sorts, for fintechs to outdo the consumer tech giant. We also saw WeChat Pay and Alipay go cashless. And who can forget when Carta CEO Henry Ward called more attention to some bad news. There were also a number of acquisitions. What do you think was the biggest fintech story of the year? Hit us up in the comments or email us!
And Mary Ann joined with editors Brian Heater and Zack Whittaker to remember the startups we lost in 2023. Among the fintech companies were Braid, Daylight and ZestMoney.
Other items we are reading:
Forecast: 15 companies we think may actually, really, finally, maybe go public in 2024. Venture capitalists also anticipate more exits in 2024, as colleague Rebecca Szkutak reported for TechCrunch+. Here’s what they have to say.
Walmart adds Affirm’s buy now, pay later option to self-checkout. Catch up with Christine’s conversation with Affirm head of product Vishal Kapoor, where he discussed a new approach for the company’s continued innovation on buy now, pay later.
Neobanks vs legacy banks: Drawing the battle lines in 2024
Neobank Bunq rolls out customer-facing gen AI tool
Robinhood acquires Chartr as it expands media portfolio
FinTech IPO index soars 55% in 2023 as platforms notch triple-digit gains
As seen on TechCrunch
Peak XV-backed MobiKwik seeks to raise $84M in India IPO
ICYMI: Vestwell raises $125M to help businesses power workplace savings programs
Saudi shopping and BNPL platform Tamara tops $1B valuation in $340M Series C funding
Seen elsewhere
Crew raises $2.5 million pre-seed investment
Visa adds real-time money movement to Fintech Fast Track
Lennar acquires proptech Veev, which bombed after raising $600M. TechCrunch first reported on the company’s struggles here.
Mary Ann recorded a bunch of podcasts in December that you may have missed. Catch up here:
2023’s most compelling fintech stories
The Equity crew predicts we’ll see fewer VCs in 2024
Startup shutdowns and AI showdowns: The 2023 chronicles
SVB, SBF and (more) OpenAI: The 2023 chronicles, pt. 2
And here’s an article about podcasts to listen to overall in 2024.
Founded in 2017, Atoms Lanka Solutions is a provider of IT consulting and software development services. Throughout the company’s history, we have worked with over 160 customers from 5+ countries..
