“Venture capital” is semantically equivalent to “risk money”, which is part of its mystique.
Essentially, VC is a high-stakes extreme sport where top players can amass staggering amounts of wealth and power. And sometimes a huge pile of investor money burns so brightly it’s picked up by satellites.
But where does all this money actually come from, and how do VCs actually make money? Before joining TechCrunch, reporter Hadje Jan Kamps worked at venture capital fund Bolt, where he interacted directly with early-stage founders.
“Once you’re on the VC-powered treadmill, you can’t easily back off,” he wrote. “The bottom line is that I suspect a lot of founders don’t really know how venture capital works.”
In this comprehensive explainerhe deconstructs venture capital to help readers understand how investors think about risk and return, pro-rata rights, and why “VC investing is a hit-and-miss business.”
It should go without saying, but it’s a bad idea to pitch an investor if you don’t have a solid understanding of how they operate.
“As a startup founder, you would never dream of selling a product to a customer you don’t really understand,” Haje writes. “Not understanding why your VC partner might be interested in investing in you is dangerous.”
Thanks so much for reading TC+ this week!
Walter Thompson
Editorial Manager, TechCrunch+
@yourprotagonist
Planning to use your equity as collateral? Luck
Image Credits: Colin Anderson Productions pty ltd (opens in a new window) / Getty Images
Employee incentives are one of the oldest brain hacks. Offer the right person enough capital and tasty snacks and they’ll be happy to work 60+ hour weeks or participate in weekend dev sprints.
But workers interested in accessing liquidity have only two options: wait for an auction from their employer or find a private buyer in the secondary markets.
“You could argue that the system is broken. I happen to agree,” says Max Brenner, part of the founding team at Compound.
Why do startup valuations fall when interest rates rise?
Image Credits: Andriy Onufrienko (opens in a new window) / Getty Images
The US Federal Reserve has raised interest rates to curb inflation, just one of several factors driving down startup valuations these days.
But why?
Higher inflation directly affects access to capital, the ability of your customers to pay and not incidentally the services you will receive from suppliers (which includes your own employees).
“If your customers benefit from inflation, then there’s a good chance your company will too,” says Equidam founder Daniel Falopa.
“However, in most cases, when your customers benefit, your service providers suffer.”
Pitch Deck Teardown: Mi Terro’s $1.5M Seed Deck
Image Credits: Mi Tero (opens in a new window)
In March, Mi Terro raised a seed round of $1.5 million to boost efforts to turn agricultural waste into proteins that can be used to replace obsolete plastics that have polluted the environment.
The company’s founders shared a 15-slide pitch deck with TC+ that describes their plans to use spent grain to create material for everything from contact lenses to detergent capsules.
Or, as the closing slide says, “Drink more beer, reduce more microplastics.”
Dear Sophie: How can I get an O-1 visa to freelance on web3 projects?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
I’m a UX/UI designer in Europe and I work for a web3 company in the United States.
I would like to resign from my current position and move to the US to pursue work that allows me to have more autonomy, flexibility and the ability to take on different projects with different clients in the US
How can I do this? Thank you for your help!
—Worldly web3 Wonder
Choose Your Angel: Learn how they invest and what motivates them
The “choose your fighter” meme can be traced back to the Mortal Kombat video game, but it’s also relevant to early-stage founders looking for an investor.
Making money is top of mind for any angel, but according to Mac Kolarich, vice president of Assure Analytics, most of them also “have a second or third motivator that drives them to invest in startups.”
In a guest post on TC+, he lays out several factors entrepreneurs should consider when shopping investors: Do they support a local ecosystem? Do they write direct checks?
“Armed with this knowledge, you can strategically choose the right partner for your business,” says Kolarich.
5 Investors Explain Why Longevity Tech Is a Long-Term Play
Image Credits: Lucy Lambrix (opens in a new window) / Getty Images
In the United States, life expectancy has fallen for two consecutive years. In 2019, it was 78.86 years, but by 2020, this figure has decreased by 2 years and 3 months.
The decline is due to COVID-19, but reporter Anna Heim interviews five investors who are backing startups developing technology that could allow us to live longer and healthier lives.
Longevity is a nascent vertical today, but “the space is just getting started and will permeate all aspects of our lives over the next five to 10 years,” said one respondent.