Thinking like a Venture Capitalist
Venture Capital firms, or VC firms, for short, raise capital from limited partners (LPs) with a promise to increase their value of their investment. They take that invested capital and then begin the search for promising startups. When said startup is found, VC firms exchange this capital for equity (usually in the form of minority ownership). Started in the early 1970s, these venture firms first boomed during the Dot-com era, with “companies like Netscape, Amazon, eBay, Paypal, Yahoo, Google, and Salesforce” (Venture Forward 2021) entering the market backed by VC firms. By the end of the boom, the average amount of capital managed by a venture firm increased five-fold. With a new wave of tech entering the states, VC’s began to evolve as firms and started to expand their services past purely a source of capital. Nowadays, firms offer more platform services such as “marketing, recruiting talent, and business development” (Venture Forward 2021).
2022 is primed to be a profitable year for firms worldwide – we are transitioning to a post-covid world (hopefully) as the pandemic shifts to an endemic, and capital has begun to flow more freely. Simultaneously, we are witnessing a world-changing sector of technology, with two large trends already emerging. All VC’s have been poised, waiting for the perfect time to penetrate the market with a major investment. The first trend emerging is Web3: “a decentralized online ecosystem based on the blockchain” (Edelman 2021). The blockchain’s market, the core component of Web3 and thus a general indicator of Web3’s value, is “projected to grow from USD 4.9 billion in 2021 to USD 67.4 billion by 2026 [Compound Annual Growth Rate of 68.4%]” (Markets and Markets 2021). To capitalize off this projected growth, VC firms have been shoveling money towards startups developing the infrastructure as well as the institutional platforms and apps serving as the backbone of this “new internet.” As of recent, “Alchemy, a San Francisco-based Web3 development company, announced this morning [February 22] it has raised $200 million in an extension of its Series C round from Lightspeed Capital and Silver Lake, and all its major previous investors–notching a valuation of $10.2 billion” (Matthews 2022). Moving from a case-example of VC devotion to Web3 to a more institutional example: Hack VC, a prominent San Francisco based firm, has recently announced a new $200 million fund to back Web3 based startups (Sinclair 2022). On every level of funding, from the creation of a fund to processed transactions, startups focusing on developing this new internet are becoming the new unicorns (startups that have a $1 Billion Evaluation). Although there have been numerous backings of Web3 via public figureheads and public fundings, there are some who doubt the realisticness of such an innovative platform.
All new trends of tech are met by those stuck in the past, afraid to let go of tradition and venture into an uncomfortably new space. One of the biggest arguments against Web3 is that it is “fake decentralization.” Skeptics claim cryptocurrencies, a critical part of the blockchain, and thus Web3, are “equivalent to unregulated securities connected to shell companies” (Henshaw 2022) gaining value in a ponzi-scheme fashion that “mars the growth of a functional society” (Henshaw 2022). Opponents of Bitcoin are correct in labeling crypto currency as a facet of “Ponzinomics,” but not in the way they claim. Crypto is not “a fraudulent scheme in which a criminal deceives victims to steal their money,” (Kuhn 2022) but rather “an economic game with built-in investing incentives and risk of implosion” (Kuhn 2022). This second, real definition of Ponzionomics is one encapsulating most new technological trends, and it is rare to make money off a brand new idea that has no risk of implosion. Also, it is impossible to argue against results, as funding of Web3 based companies is consistently increasing as the year continues. The second emerging trend might come as a surprise.
Death tech, defined as innovation made to help navigate death, is sneakily becoming more popular as the year continues. As of 2020, approximately 20% of the nation (54.1 million citizens) was above the age of 65. Startups such as Recompose and PlotBox are capitalizing off this market. Recompose, the first composting human funeral home, recently secured $15 million in Series A funding, planning to build a new funeral home in Colorado by mid 2022. PlotBox, “a cloud based death care management solution that facilitates cemeteries in operation to world class standards (pulls everything from contracts to accounting and puts them into one place)” (Plotbox 2022) has recently secured $7 million dollars over six rounds of funding. While these numbers are comparatively low in relation to Web3 markets, they are a multi-fold increase of the death tech market in 2021 and are positively, linearly growing. On the funding side, there are smaller VC firms looking to capitalize on this hidden trend. Thomas Sperry, Founder and CEO of Rogue Venture Partners, explains the profitability to be made off this re-emerging vertical: “The 75+ population will double over the next 15 years, growing to 25 million people by 2050. These are three important statistics to know:
The dramatically expanding senior population is increasingly comfortable with digital solutions.
Telemedicine services among seniors increased 300% during the COVID-19 pandemic.
The home care market is expected to grow from $100B in 2016 to $225B in 2024, driven by this new generation of seniors who want to and expect to age in place aided by technological advances.
Aging tech and death tech is an undercapitalized market that is ripe for disruption” (Tom Sperry 2022).
RVP focuses on democratizing capital in underrepresented areas, leading them to find startups and trends that are profiting under the cover of a trend like Web3. Unlike Web3, though, death tech has been around for decades upon decades, with precedented success. For this reason, some might say startups like Recompose and BoxPlot are the safer investments to make compared to startups such as Alchemy.
In summation, 2022 should be an incredible year for tech startups and venture capital firms. From world encapsulating trends like Web3 to smaller scale trends like death tech, there is a lot of money to be made. I am looking forward to seeing how both trends play out, as well as following up with Tom Sperry and Rogue Venture Partners!
References
2021. “Blockchain Market Report.” Markets and Markets. https://bit.ly/3wWmfOy.2022. “Plotbox.” Plotbox. https://www.plotbox.io/.
2022. “Venture History 101.” Venture Forward. https://ventureforward.org/education/history-101/.
Edelman, Gilad. 2021. “The Father of Web3 Wants You to Trust Less.” Wired.https://www.wired.com/story/web3-gavin-wood-interview/.
Henshaw, Joe. 2022. “Web3 and Crypto Skepticism.” Coywolf.https://www.coywolf.news/webmaster/web3-crypto-skepticism/
Kuhn, Daniel. 2022. “Is Crypto a Ponzi?” Coindesk.https://www.coindesk.com/layer2/2022/01/18/is-crypto-a-ponzi-define-ponzi/
Matthews, Jessica. 2022. “Venture Capital Firms are Shoveling Cash at Companies Building Web3.” Fortune. https://bit.ly/36XhHwy.
Sinclair, Sebastian. 2022. “Hack VC Debuts 200m Early Stage Fund Targeting Crypto Web3 Startups.” Blockworks. https://bit.ly/3LJCtPj.