Venture Capital 2022 – Up or Down?

By Keith Teare • Issue #295 • View online

This Week @Beezer232 Clarkson leads the way in analyzing 2022 venture capital trends. The public markets remain in a frenzy of volatility. @Bryce, @SamirKaji, and @MylesDanielsen all have opinions. Plus @AleResnik, @HPierreJacques, and @MillicastRTC



The volatility in the public markets is driving much of the conversation among venture capitalists in Silicon Valley this week. How will it impact me is the question on everybody’s lips. We covered some of this in issue #293, A Tale of Two Markets. But with Facebook falling 25% overnight and PayPal also losing significant value, the subject will just not go away.

Luckily we have some wonderful people weighing in this week, not least of which is Beezer (Elizabeth) Clarkson of Sapphire Ventures. Sapphire is an investors investor I would say. It publishes OpenLP, a site devoted to surveying the venture scene and particularly the early-stage investment landscape.

Beezer published a Twitter thread this week that included such nuggets as:

A Tweet from Bryce Roberts:

And one from Myles Danielsen:

To which she responds:

If that feels a bit open-ended and meaningless it is, but not all is lost. In January Beezer published a long thread (below) that is a lot more detailed on the subject. It leads this week’s curated articles:

Highlights include the observation that early-stage funds are allocating capital faster than ever, meaning that some are becoming 2-year funds, that LPs are not drying up and are still allocating, that there is over $900 billion of money on the sidelines.

She explains that this is driven by returns. Looking only at 2019 vintage funds she reports that Cambridge benchmarks show the following:

– 2019 US VC top quartile TVPI is 1.56x, median is 1.26x, and top 5% is 2.12x

– 2018 US VC top quartile TVPI is 1.87x, median is 1.59x and top 5% is 2.50x

(all net to LPs)

And then she acknowledges that:

*particularly* right now (but also always), the competitive landscape for LP $ is fierce.

The bottom line is that in 2021 more than 832 billion dollar companies were minted (unicorns, exited unicorns, and exits over $1 billion). The value creation from seed stage through Series A, B, C, D through to exit is staggering. And the earlier one invests in a winning company the higher the multiples returned. Tiger and its lookalikes are investing earlier for a reason. It produces returns.

So, the public market correction is definitely real. And the multiple of revenue public investors will pay for a stock is shrinking. This will have an impact on later-stage valuations. But for seed investors and those in early-stage venture, it is all systems go. 

Ths is all driven by the scale of the market and the almost free distribution channels to reach people. More than 4 billion people are on smart phones worldwide and accessible through the web and on dev ices through two app stores. Web3 (much more below) is driving that scale even further and faster and making more facets of life available to developers.

Sadly regular folk cannot invest in early-stage venture. So the value growth experienced is not available directly to anybody who is not already wealthy. They cannot even invest via ETFs or indexes as these too are not allowed to hold and make available private company assets.

As venture capital flourishes this will need to change.

More in the video.


Taking the Venture Temperature

We all know the venture market was on ? in 2021, but how is that actually manifesting and what does that mean for how the proverbial table is being set for 2022?

Elizabeth Clarkson@Beezer232 · 10:35 — Jan 04, 2022Best wishes for 2022 everyone! ?As we enter the new year, I wanted to share a bit of LP perspective. We all know the venture market was on ? in 2021, but how is that actually manifesting and what does that mean for how the proverbial table is being set for 2022?

Elizabeth Clarkson @Beezer232 · 10:35 — Jan 04, 2022

Here’s what us LPs are seeing and some of the questions LPs are asking themselves going into 2022.#OpenLP • Share

“Hey GPs — In the last few weeks I’ve had multiple asks about emerging manager benchmarks/what we are seeing for 2019 (and other recent) vintages.

So here’s a quick ? breaking down what we see in the case of 2019 venture funds and the greater LP context…

OpenLP” • Share

Releasing a redacted Lux quarterly letter to LPs. Some strong views of -a catalog of an excess of excesses -what catalysts cause the current market frenzy to end (preview: LP indigestion) -what we are advising our Lux family companies

“1/ Releasing a redacted Lux quarterly letter to LPs.

Some strong views of -a catalog of an excess of excesses -what catalysts cause the current market frenzy to end (preview: LP indigestion) -what we are advising our Lux family companies -much more…” • Share

The $900 Billion Cash Pile Inflating Startup Valuations — WSJ

SPACs and venture capitalists are plowing money into startups at record rates, looking past worries about lofty valuations.

By Amrith Ramkumar and Eliot Brown

Updated Dec. 27, 2021 7:03 am ET

Investors are defying a share-price slump for newly public companies to make hundreds of billions of dollars available to startups, a cash pile that promises to inject a torrent of money into early-stage firms in 2022 and beyond.

Special-purpose acquisition companies, which take startups public through mergers, raised about $12 billion in each of October and November, roughly doubling their clip from each of the previous three months, Dealogic data show. So far in December, three SPACs a day are being created. While that is below the first quarter’s record pace, it brings the total amount held by the hundreds of SPACs seeking private companies to take public in the next two years to roughly $160 billion.

The cash committed to venture-capital firms and private-equity firms focused on rapidly growing companies but not yet spent also is ballooning. So-called dry powder hit about $440 billion for venture capitalists and roughly $310 billion for growth-focused PE firms earlier this month, according to Preqin.

Despite billions of dollars in lost market value for publicly listed startups, the cash hoards represent buoyant demand from investors with interest rates near zero and stock indexes at or near records. They show how SPACs and private markets have been more resilient than many analysts expected, particularly with regulators ratcheting up scrutiny of so-called blank-check companies. Many analysts also expect interest rates to climb in the years ahead, potentially making moonshot bets on early-stage companies less attractive. • Share

The Inevitability of Trusted Third Parties

There’s a common thread running through most — possibly all — of the blockchain-for-good pitches I listen to: the idea that we can replace fallible, untrustworthy people with immutable, decentralized ledgers, and ask them to serve as referees and/or escrow agents in complex transactions between strangers who don’t have any reason to trust one another. I mean, the answer was dressed up some: “We’ll have auditors who’ll certify that the blockchain entries are truthful, and that produce isn’t falsely associated with certificates of ethical production.” • Share

A look at the numbers behind the emerging Web3 economy

Quick Take

  • Verifiable decentralized networks have enabled novel web applications and models whereby creators and communities can monetize and internet-native communities can collaborate
  • Although Web3 is still nascent, it is clear that there is already significant economic activity taking place resulting in new goods and services in an ecosystem comprising DeFi protocols to NFTs and gaming to DAOs and more
  • Here, we take a look at select numbers behind the emerging Web3 economy to try to start quantifying this new economic activity • Share

FTX Reaches $32B Valuation With $400M Fundraise

The investment values the crypto exchange at the same level as Deutsche Boerse and more than Nasdaq or Twitter. • Share

Diem Confirms Shutdown as Silvergate Acquires the Project’s Assets

Facebook (now Meta) is officially winding down the stablecoin project it announced in June 2019. • Share

Meta’s crypto project has been officially sold

Diem, the ambitious crypto project born out of Meta, is officially over.

Silvergate Capital confirmed Monday that it is officially purchasing the technology, IP and assets from the Diem Association for $132 million in stock and $50 million in cash. Diem Networks CEO Stuart Levey said in a press releasethat the association will “begin the process of winding down.”

“In the United States, a senior regulator informed us that Diem was the best-designed stablecoin project the U.S. government had seen,” Levey said in the statement. “Despite giving us positive substantive feedback on the design of the network, it nevertheless became clear from our dialogue with federal regulators that the project could not move ahead.”

Silvergate said in a statement that the Diem has been operating in a “pre-launch phase,” and the assets acquired in the sale include “development, deployment and operations infrastructure and tools” for running it, as well as “critical” proprietary software.

Diem was founded by Meta in 2019 as Libra, with the aim to create stablecoins backed by fiat currencies. Diem was hit hard with regulatory scrutiny right out of the gate, causing some supporters to drop out. The association had planned to partner with Silvergate Bank, a subsidiary of Silvergate Capital, to issue its digital currency.

Meta introduced a crypto wallet using a different stablecoin last year, in a sign of Diem’s fading support. • Share

The Bitcoin Bond — El Salvador’s Volcano Bond is here

Paolo Ardoino is CTO at Bitfinex and Tether. Paolo and the team at Bitfinex Securities have worked with Blockstream and Nayib Bukele, President of El Salvador to create the Bitcoin Bond. This is a key component in El Salvador’s Bitcoin strategy. • Share

Web3: Wallets Needed

I wrote a post recently as to why web3/crypto matter. A logical follow on question is: why aren’t we further along, given that Bitcoin is over ten years old? Part of the answer is that blockchain technology is complex and there is still a lot to figure out. But another part of the answer is that there is a chicken and egg problem to be solved that has echoes of the historic adoption of the web itself.

I remember well discovering the web in a lab at MIT due to the Mosaic web browser showing up on a workstation that I was using for one of my stats classes. But at home people faced a conundrum. They had heard of the web but how could they get on it? For that they needed a web browser and where was that going to come from? Today there isn’t a phone or laptop or desktop that doesn’t ship with one or more browsers pre-installed, so it is easy to forget this initial problem. Most people had never used something like FTP and so asking them to figure out how to do so in order to download a browser was a non-starter.

As it turned out there were two solutions to this problem. The first was AOL mailing CDs to pretty much everyone. That of course was aimed at keeping people inside AOL’s walled garden, but AOL software did include a web browser. The more important solution, however, was Microsoft bundling Internet Explorer with Windows. Yes, this was part of the infamous strategy to “cut off Netscape’s air supply.” And yes, I don’t like monopoly power bundling strategies. But it is indisputable that the widespread availability of Internet Explorer is what allowed the web to take off. Here’s an annotated chart of early web growth that shows this quite clearly:

Web3 very much needs a similar moment today. Apple is notoriously anti crypto because it would make it so much easier to go around their lucrative Appstore business. That’s why it is a bit more surprising that Google hasn’t already made a crypto wallet part of Android (and/or simply included it in Google Pay).

The vast bulk of endusers is no more likely to install a crypto wallet today than they were a web browser back then. That leaves dapps/web3 developers with a huge hurdle, much like early websites: someone without a pre-installed wallet is basically impossible to convert into a user.

So if someone at Google is paying attention: include a multi-currency wallet in Android pronto and watch Apple squirm. • Share

Jack Dorsey’s backing Lightning as a bitcoin payments solution

For crypto to go mainstream, it needs an easy, cheap and fast way to make payments. Why is that still so hard?

It’s especially confounding given how long bitcoin has been around. Buzz around bitcoin for everyday purchases was building by 2013, when you could hunt around and find, say, a Subway restaurant that would exchange 0.04 BTC for a chicken bacon ranch sub. But it didn’t stick. As interest in bitcoin among retailers faded, enthusiasm from speculators grew. Why would you want to part with your bitcoin if you thought it would go up in value? (That Subway sandwich would cost $1,500 today.) Another big reason why bitcoin didn’t supplant Visa and Mastercard: Though the price has come down, the average transaction costs nearly $2, which is prohibitive for a lot of purchases. Settlement times are lengthy, too.

There’s an answer, some advocates say: Lightning. The newer technology built on top of the underlying bitcoin blockchain bypasses some of those obstacles.

  • Lightning processes payments off-chain, later grouping them together and adding them back to the bitcoin blockchain.
  • This approach is faster and cheaper — and it also reduces energy usage, a major criticism of bitcoin.
  • Now the question is whether the upgrade to Lightning can recapture bitcoin’s potential.

The biggest name backing Lightning is Jack Dorsey. The Block CEO is a big believer in bitcoin, to the point that he dismisses other cryptocurrencies. That means he’s got to make bitcoin work.

  • In 2018, Dorsey made an investment in Lightning Labs, an open-source company working on Lightning.
  • Block’s Cash App recently adopted Lightning, promising to roll it out to all of its users over the coming weeks. That allows for fee-free payments to other Lightning-compatible crypto wallets.
  • Cash App uses the Lightning Development Kit, which was built by Spiral, another crypto unit within Block.

Twitter in September added the ability to pay for tips with Lightning. Lowering bitcoin’s fees is key to enabling small tips; low fees are crucial for micropayments. Dorsey left Twitter in November, but his successor as CEO, Parag Agrawal, has been heavily involved in the company’s crypto efforts. • Share

Coinbase Adds Shopify CEO to Board of Directors — Decrypt

In brief

  • Shopify CEO Tobias Lütke has been a long-time crypto supporter.
  • Shopify provides online shopping tools to millions of merchants.
  • Lütke’s appointment is expected to become official later this month.

Coinbase announced on Monday that Tobias Lütke, who leads the ecommerce giant Shopify, will be joining its board of directors.

In a blog post, Coinbase CEO Brian Armstrong touted Lütke’s early support for cryptocurrency and suggested the Ottawa-based Shopify could play a key strategic role in crypto’s future. • Share

Coinbase Says Web3 Projects Led Record Venture-Arm Investments — Bloomberg

By Olga Kharif

January 27, 2022, 11:00 AM PST, @olgakharif

Coinbase Global Inc. said its venture-capital arm dramatically increased its investments last year, pouring money into nearly 150 deals that focused in large part on supporting Web3 projects and services.

About 90% of the capital Coinbase Ventures allocated since its inception four year ago was deployed last year, the largest U.S. cryptocurrency exchange said in a blog. The company didn’t give a total amount. Web3 has been described as a decentralized environment built on crypto technology in which swarms of collaborators take back control of the internet from giant tech companies.

The investments revved up right before the crypto economy was beset by a plunge in token prices after they reached record highs in November. Coinbase’s shares are down about 30% so far this year and trading at a record low since the company’s initial public offering in April 2021. • Share

Crypto, Web3 and the Global Unleashing Part Deux

This time — an examination of global demand, bottom up, for stablecoins.

As you know I’ve been unpacking the quiet, but significant rise of crypto use cases in emerging markets. I say “quiet” because crypto is too often dismissed as a tool of wealthy oligarchs moving money from their countries, bad actors hoping to be uncaught, or wild speculators investing on FOMO. Day to day usage just isn’t as good copy.

But as I argued here last week, there is a great deal happening well beyond the hype — and unsurprisingly in emerging markets. I say “unsurprisingly” because if one can only move money through high cost and worlds of constant devaluation, one would certainly seek an alternative.

Then as now, I’m examining this with one of our partners, Falgu Shah — who has an unique lens working in and thinking about Africa.

Framing our most recent catch up were two fascinating reads.

Co-Founder of Carbon (a leading credit-led fintech in Nigeria), Ngozi Dozie writes thoughtfully of the rise in use cases of stablecoins, noting “Individuals will gravitate towards options that give them more flexibility or value. So a currency that is accepted universally and preserves purchasing power will always be chosen over one that is limited to a region and prone to devaluation. Every day, SMEs and individuals are making this choice not because they have strong hands or are HODLers, but because using stablecoins makes their life easier, and opens up opportunities that didn’t exist before. And with increased adoption of cashless globally, there will be greater the adoption of stablecoins.”

And here notes that global remittance provider MoneyGram has actively embraced the cryptocurrency space not only for money transfers and settlement but to reach potential purchasers. CEO, Alex Holmes, notes: “We don’t have to buy, sell and own crypto to offer it to the consumer. We’re enabling cash-in and cash-out of wallets, and the wallets are then linked to the ability to buy/sell crypto.” • Share

The New York Times

Wordle, the game everyone’s obsessed with, gets bought by the New York Times

Wordle, the once-a-day word game that’s been delighting puzzle nerds (and cluttering Twitter feeds) since launching in October of last year, has been purchased by the New York Times… reportsThe New York Times. So long, old buddy.

The game is the brainchild of Josh Wardle and his partner Palak Shah, and once day it gives players six chances to guess a five-letter word. In an interview with the Times earlier this month, Wardle admitted that the project was inspired in part by Spelling Bee, one of the paper’s subscription games which Wordle will likely appear alongside shortly.

In part, the appeal of Worlde was that — unlike much of the internet today — it was in no way ad- or subscription-supported. There was no app (even though some clones attempted to capitalize on that fact.) It was, two years into a global pandemic, a rare, unalloyed good. The Times did not disclose the exact terms of the Wordle acquisition, though it stated in a press releasethat it paid “in the low-seven figures.” • Share

Investing in Africa

TLcom a venture capital firm has secured Ksh. 8 Billion for its Pan-African tech fund — HapaKenya — HapaKenya

TLcom, an Africa-focused venture capital firm, has announced a first close of Ksh. 8 billion (USD 70 million) for its Ksh. 17 billion (USD 150 million) Pan-African tech fund. The secured investment positions the firm to become the largest independent VC investor fully dedicated to Africa.

The first round saw participation from Allianz, a global insurance company, through AfricaGrow, its joint venture with DEG Impact (German Investment Corporation), and various new and returning investors. The new investors include Bertelsmann, King Philanthropies, the TLcom team, FBNQuest from the private sector, and major DFIs such as CDC Group, IFC, Proparco and Swedfund. A second close of the fund is expected later in 2022.

With its new fund, TLcom plans to expand its existing focus on accelerated growth, tech-enabled African startups to Egypt, and strengthen its long-standing presence across East and West Africa. The company also expects to add an additional 20 early-stage startups to its portfolio with an emphasis on Seed and Series A stages and will target entrepreneurs tackling some of Africa’s most complex challenges in sectors including fintech, mobility, agriculture, healthcare, education and ecommerce.

Currently, TLcom’s portfolio companies have raised more than half a billion dollars of capital in addition to funding issued by the TIDE Africa Fund. On average, new investments secured from these startups were priced at 5 times the valuation of the initial investment received from TLcom. • Share

Tiger Global and Greycroft back Nigerian investment app Bamboo in $15M round — TechCrunch

To buy a share in Amazon, you’d have to fork out almost $3,000. It’s a luxury very few can afford and despite the prospects of the trillion-dollar company or returns from its share price, it’ll take some contemplating to pay that full price for those who can afford to.

But with fractional investing, pioneered by Robinhood, access to these securities are democratized and people can own smaller shares in big companies.

There are many Robinhood-esque platforms globally because of a growing need to invest in U.S. stocks in different parts of the world. Bamboo, launched in January 2020, is one such platform in Nigeria. Following two years of significant growth and raising $2.4 million to facilitate it, the investment firm is announcing that it has raised $15 million in a new financing round.

U.S.-based Greycroft and Tiger Global co-led the Series A round (it’s the second Tiger Global-led investment announced this month after Ghanaian fintech Float). Motley Fool Ventures, Saison Capital, Chrysalis Capital and Y Combinator CEO Michael Seibel are some of the other investors in Bamboo’s round, per a statement seen by TechCrunch.

The average Nigerian only has a handful of ways to save and invest. The nation’s currency, the naira, experiences devaluation every other year against the dollar and currently runs on an almost 16% inflation rate. Building a portfolio of stocks, particularly U.S. stocks, is one way they can hedge against inflation and currency devaluation. • Share

Buying Games

Gaming the Smiling Curve

The spate of recent acquisitions in the gaming space — Take-Two and Zynga, Microsoft and Activision, and Sony and Bungie — make sense in the context of the Smiling Curve.

Another week, another gaming acquisition. First Take-Two acquired Zynga, then Microsoft acquired Activision-Blizzard, and now Sony just announced the acquisition of Bungie.

Each of these acquisitions is interesting in its own right, but taken as a set they paint a picture of industry evolution that extends far beyond gaming.

The straightforward explanation for Take-Two’s acquisition of Zynga is the fact that mobile captures more than 50% of gaming industry revenue and it is growing much faster (7% last year) than PC and console gaming (the gaming industry grew 1.4% as a whole); that is a problem for Take-Two given that nearly all of the company’s revenue comes from PC and console series like Grand Theft AutoNBA 2KRed DeadBordlerlands, and more.

Zynga, meanwhile, was among the least prepared of the major mobile gaming companies for the changes wrought by Apple’s App Tracking Transparency (ATT) policy, which was introduced with iOS 14 and rolled out over the first half of 2021. In the pre-ATT world everyone from e-commerce sellers to app developers could effectively offload the collection and analysis of conversion data and subsequent targeting of advertising to Facebook, to the benefit of everyone involved: individual developers and retailers did not need to bear the risk or expense of collecting and analyzing data, and could instead collectively outsource that job to the Facebook data factory, which had the benefit of making Facebook advertising that much more effective, not only to the benefit of Facebook’s bottom line but also to that of those that relied on its advertising platform. • Share

Startup of the Week

Phantom raises $109 million in new funding, launches iOS app

Quick Take

  • Phantom has raised $109 million in Series B funding and is now a unicorn.
  • The Solana wallet is looking to support the Ethereum ecosystem by the end of this year, its CEO Brandon Millman told The Block.

Phantom, a crypto wallet for accessing the Solana ecosystem, has raised $109 million in a Series B funding round and is now valued at $1.2 billion.

Paradigm led Phantom’s funding. Existing investors, including Andreessen Horowitz (a16z), Variant Fund, Jump Capital, DeFi Alliance, and Solana Ventures, also participated in the round.

This was an equity funding round and will help Phantom expand across multiple blockchains, including adding support for Ethereum before the end of this year, its CEO Brandon Millman told The Block. Phantom is also looking to launch its Android app in the first half of this year, said Millman. • Share

Tweet of the Week

Dolby acquires low-latency streaming platform Millicast — TechCrunch

Dolby Laboratories today announced that it has acquired Millicast, a WebRTC-based developer platform for building ultra-low-latency video streaming experiences, as it works to build out its developer platform. The promise of Millicast, which was founded in 2018, is that it can deliver content across the globe in broadcast quality and with sub-second latency. The company […] • Share

%d bloggers like this: