Pod Insights Equity Podcast The new alchemy is turning gold to crypto About this episode This week Mary Ann and Natasha and Alex (along with our amazing production team Grace, Chris, and Kell) took on a host of topics from the public and private markets alike. In our wheelhouse this week:
An IPO rush: Sure, IPOs are still not keeping up with unicorn births, but the current pace of public offerings has us nattering. Paytm is coming. Sweetgreen as well. NerdWallet and Backblaze to boot. It's a crowd!
Alchemy raised $250 million for its blockchain-infra work, reminding us that A16z has all of its eggs in the same ol' crypto basket.
Heart to Heart raised $0.75 million for audio-focused dating. And even though we're not the targeted customer base, we were excited about the founder and his big bet on intention.
Built by a student, Tasseled wants to help college students get their lives, and credits, together.
More on the great Sequoia business model shakeup, building from our comments earlier in the week. We dig into exit timings, and other potential impacts of the change.
And we got to riff on the Midwest startup-boom, which is a region near and dear to Alex's heart. And it turns out that Denver is not a Midwest city.
While we're sad about Danny's exit, it's also edifying to have our new crew in place for 2022. Expect nothing less than more Equity than ever.
Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products.
Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript 0:09 Speaker 00 Hello and welcome back to Equity TechCrunch's venture capital focused podcast where we unpack the numbers behind the headlines. My name is Alex. This is our Friday show and we have the full gang here, including Mary Ann. Hello, Mary Ann. I hear Austin is in Texas, which is not in the Midwest.
0:23 Speaker 01 I'm doing great and it's finally cooler here, so I'm happy.
0:26 Speaker 00 The Midwest line there is a bit of foreshadowing. So if you do live in the Midwest or care about that part of the startup world, we will have quite a lot for you today. But we also have Natasha Mosquera, California, also not in the Midwest, it turns out.
0:37 Speaker 02 Also not in the Midwest, but it is spooky season. So things feel different here.
0:42 Speaker 00 Spooky season is a reference to Halloween, I presume?
0:44 Speaker 02 Yeah. Yeah. I feel like SF gets super weird during Halloween, weirder than other cities. So I'm planning on staying inside this entire weekend.
0:51 Speaker 00 We have so much to talk about, guys. We're going to kick off with a public markets update. We have funding rounds from Alchemy, Heart2Heart and Tassled, which is blockchain, dating and ed tech, quite the mix. Then we're going to talk a little bit more about Sequoia and the changing phase of venture capital, riff on the Midwest startup scene. Let's kick off with the public markets. Mary Ann, the biggest news that you and I read about this week involved Brazil. So in two sentences, what's going on?
1:15 Speaker 01 Brazil's New Bank are also new, as it's more formally known, filed to go public this week. It was confidential. We don't really have any numbers yet. It is believed to be one of the world's largest digital banks.
1:25 Speaker 00 Yeah. And don't forget that Berkshire Hathaway put money into New Bank, which we all kind of looked at and were like, huh. And then it turns out they're probably going to make a lot of money off of that. So shout out Warren, who has transitioned to Web 2.0. Well done, Warren. Also from around the world, guys, we have Paytm from India, which is going to go public. Manish reported that it could be valued at around $20 billion when it does go public. And then Natasha, there's been a bevy of American IPOs, including Udemy, which you and I wrote about a little bit ago.
1:51 Speaker 02 Udemy, Chime, which I think for people who didn't know or care about New Bank, Chime filing to go public, similar sort of fintech exit we're going to see. This is Allbirds, Rent the Runway, Sweetgreen is the one that I want to talk about, though, if we're allowed to for two seconds, because I feel like I've seen so many Twitter jokes about the fact that the salad company is heading towards the public markets. What do you guys think about it?
2:14 Speaker 00 Well, the salad company doesn't make a lot of green. So that IPO is fascinating. Mary Ann, what was your take?
2:22 Speaker 01 Well, yeah, I was just curious because I saw, I think, Dan Premack from Axios noted that they've been saying they're profitable for years, but it turns out they're not. Plot twist, startups do that?
2:33 Speaker 00 Well, so yes and no. And so one thing we saw, Mary Ann, in the New Bank IPO setup reporting that we talked about before the show is that they were profitable in their home country. Now, that nuance is super important. Sweet green is often profitable on a per restaurant basis, but that does not mean that the aggregate corporate sweet green is. And so this is like Uber saying, hey, we're profitable in, you know, 70% of our major markets, which means absolutely nothing essentially from a broader corporate perspective. So they can claim they're profitable, but it's bullshit. Elsewhere in the public markets, ladies and gentlemen, we have Braze from New York City. We have the Trump Media and Technology Group, SPAC, that is going to be coming to fruition at some point in time.
3:17 Speaker 00 And finally, but last and not least, Backplace, which does online backup stuff and has done quite a good job scaling to IPO size without spending tons of money. We're going to leave it there, but just suffice it to say that there's going to be quite a lot of global liquidity that we're going to be keeping our eyes on. So expect probably a couple of equity shots, frankly, over the next couple of weeks as we kind of parse all this information. Let's move on from the IPO world and bring it back down to the world of startups. Mary Ann, probably the most important funding round of this week involved Alchemy. And no, we're not talking about witches, wizards and bubbling colons. We're talking about blockchain.
3:49 Speaker 01 Alchemy announced today they raised $250 million at a $3.5 billion valuation. Alchemy wants to do for blockchain and web three what Amazon Web Services did for the internet. They want to be the starting place for developers considering building a product on top of a blockchain or mainstream blockchain applications. Seems to be doing pretty well so far.
4:10 Speaker 00 And I just want to give Mary Anne a shout out because in her piece on Alchemy, she did a great definition of what Web 3 is. And I'm just going to quote you, Mary Anne, if that's okay. Web 3 refers to a set of protocols led by blockchain that intends to reinvent how the internet is wired in the backend. So essentially, Web 3 is kind of like the blockchain infra upon which other people are building cool stuff.
4:32 Speaker 02 And a lot of top companies are already taking advantage of Alchemy. So I was super shocked to see how many platforms are turning to this company because we've talked about all of them. So obviously, OpenSea, Makers Place, SuperRare, and CryptoPunks. Other customers that they have are Dapper Labs, Axie Infinity, and a ton of Fortune 500s that are building on the blockchain.
4:52 Speaker 01 Including Adobe, which just recently signed on.
4:55 Speaker 00 I mean legitimately, I didn't realize how many things that I viewed as key players in the burgeoning crypto or Web 3 space were essentially built on top of Alchemy. And that, to me, makes the valuation accretion understandable. I'm not saying that the price makes sense, but I'm saying that seeing them rapidly gain investor favor is reasonable. If you're bullish on blockchain, why wouldn't you want to put money in the company that's allowing other people to do so well? Because as we've seen with AWS and Twilio and so forth, tons of money to be made in infra. 7X in a few months is extreme, though, Mary Anne.
5:28 Speaker 01 Yeah, and I hear that the round was extremely competitive, lots of VCs trying to get a piece. Andreessen ended up leading. I think it's one of the biggest investments they've made out of their crypto fund. So that's notable.
5:39 Speaker 02 Yeah, you know, I keep thinking about them in relation to crypto, obviously. And now I'm like, they've put all their eggs into very similar baskets. They are in OpenSea, Coinbase, and they're in Alchemy now, which I know we talked about this just a few weeks ago. But what does this do to if Coinbase wants to build the AWS for the blockchain? Or if OpenSea wants to get into trading? I just feel like feels kind of like they're putting their bet into every big crypto company, which is great, but... It's both a competitive advantage, but also something that I would be a little bit worried about as a new entrant into their portfolio.
6:14 Speaker 00 Absolutely. But my question, Mary Ann, is doesn't this happen in fintech to some degree? Because you cover fintech much more closely than I do. And there's so many companies, and they're all going more and more horizontal. So are we seeing kind of a similar like overlap, if you will, in the fintech world?
6:29 Speaker 01 Yeah, I think so. And I think it's just kind of hard to predict, right? Because companies start, they realize one thing as they're doing another, and then they start adding on different things. So it's just kind of hard to predict. In Andreessen's defense, you don't always know when you invest in a company, what direction they're going to end up moving into.
6:46 Speaker 02 I agree. It also is, in some ways, helping them kind of foolproof themselves a bit to have their eggs in so many baskets, because I'm sure it's a great thing to have the AWS for crypto within your portfolio of crypto companies.
6:59 Speaker 00 Well, right. That way you make money twice, right? I mean, like, you make money on the companies that are built on top of it, and you make money from the infra.
7:05 Speaker 02 It manifests.
7:07 Speaker 00 Yeah. I just want to say, though, I'm very proud that we finally got the phrase, "in Andreessen Horowitz's defense" on the show.
7:12 Speaker 02 I was gonna say, well done, Warren, and in Andreessen's defense.
7:18 Speaker 00 It's been a long time coming since we've said that. But in their defense, yes, that is pretty reasonable. And just one last little mote on this. Mary Ann, you said this round was very competitive, right? And everyone wanted to put money into it. That's the valuation difference they're receiving, right? It's not probably all business fundamentals. It's just a lot of demand for very few shares. And so.
7:35 Speaker 01 Yeah, that, that too. And also, they're claiming that they're profitable, too. So that's, that's kind of unusual. But.
7:42 Speaker 02 How profitable?
7:43 Speaker 01 Well, they didn't say, "Give me numbers," but was "very profitable" is what, what they told me.
7:49 Speaker 00 Mary Ann's making scare quotes with, with her hands. You can't see it in the audio, but like, yeah, very profitable. But as we've learned from Sweetgreen, that may mean nothing. So we'll have to see the numbers. And if anyone wants to leak those to us at techlunch.com, naturally, we'd love to see them. Let's talk about something else very close and near and dear to our heart, Natasha, which is romance, but notably not in the tendery, swipey sort of way. What's going on with Heart to Heart?
8:13 Speaker 02 Josh Agundu, who used to work at TikTok as a PM, has started a new company in the audio-first dating app space. It's called Heart to Heart, and its whole goal is to increase intimacy in how we date. We all know that the first wave of dating apps was really focused on swipe right, swipe left. But we've seen through other companies, a lot of innovation from Hinge and even Tinder, to be different than that. It's really triggered a whole new wave of startups that want to make dating a lot more authentic. And that's what Heart to Heart is all about.
8:43 Speaker 00 I think this is brilliant. We really need to bring on one more equity host who's single, so we can have them do all of our dating app reviews for us. But I'll just say this, you know, like, you know, as not the most handsome human alive, and as someone who used to be on dating apps.
8:57 Speaker 01 Alex.
8:58 Speaker 00 Pipe down, pipe down. I own a mirror. It's okay. I'm fine. I'm married. I'm married to someone who's gorgeous. My life is good. But like, not everyone presents the best in one particular medium or another, just like we all learn differently. Some people are visual learners, some people are auditory learners, whatever. I love the idea of letting people present themselves in a manner that is less Instagrammy and perhaps a little more personal. Like, Mary Ann, that to me just seems like a recipe for a better environment.
9:24 Speaker 01 I think their goal is what, to increase intimacy, right? So I can, I can see where it would. That makes sense.
9:29 Speaker 02 And even though, you know, none of us have been on dating apps for a while, we all have been on Clubhouse and Twitter Spaces recently. And we know that people are being comfortable talking online in a not super formal setting. But I think the challenge with a lot of audio first spaces is that they need a reason for people to keep coming back. And dating is a great use case, right? I know so many people who are single who spend their days swiping. And I feel like there is such an incentive to show up on these apps. So why not add audio in there when we've already had so many companies lead the way in showing us that people will, you know, engage and keep engaging?
10:04 Speaker 00 I mean, even more than that, I would just throw out there, like, people are, I think, now more accustomed to just digital conversations writ large, not just because we've been on Zoom for so many years now because of the pandemic, but also think about the growth of Discord. Small communities, people are now accustomed to essentially recording their own voice, or at least talking into a microphone style thing. And so this actually just makes Good sense. And I pulled up a chart, which we'll put into the the show notes. But if you look at how people have met their partners over time, meeting online started to kind of take off in kind of like 94, 95. But by kind of like 2010, roughly a fifth of people met their partners online. And by 2020, it's basically two fifths. So that's the kind of rapid acceleration that we're seeing in meeting people online.
10:46 Speaker 00 And given that it's happening more frequently, we would expect to see more options or more varieties of methods for people to meet each other online. And, you know, what I think we should do next is invent this, but for writing. And you have to look right. And then there's no pictures.
11:00 Speaker 02 Amazing. I'll write poetry for everyone. Heart to Heart has raised their pre-seed round of 750K, led by the one and only precursor Ventures.
11:09 Speaker 00 Also in this round, Bryce Roberts of OATV, which is a Riley Alpha Tech Ventures, I think. And there's also Angelica from the Shade Room, Ray Rocha from Realist Ventures, and a couple of angels. So a lot of people kicked money into this. But it's not a big round. We'll have to see how it takes off. And I will just say, I know the founder from Twitter. I didn't know he was doing this. I just like his tweets. And so I was happy to kind of close those two circles. Shall we move on?
11:30 Speaker 02 Let's do it.
11:31 Speaker 00 All right. So now we're going to talk about ed tech. Natasha, we're going to dig into the world of higher education and a relatively under discussed thing, credit transference. Not everyone listens to the show was recently in college. So can you tell us why this matters? And then how many people it's kind of hitting before we get into the company itself?
11:47 Speaker 02 Sure. So people will join colleges, like community colleges or local colleges for their first few years before transferring to a four year institution, either to save money or for, I mean, a whole plethora of reasons. I recently learned that even though that is really something that helps low income students, about 39.4% of transfer students lose all their credits when they transfer. So the thing that they've worked toward and the way that they've kind of pitched themselves to these four year institutions is no longer valued when they get to campus, which is kind of the whole thesis of Vipul Patel's new startup. He, full disclosure, is a Boston University graduate. I am also a Boston University graduate, but that did not play a role in my writing. But he transferred from FIT to BU. And when he transferred, he realized that he kind of lost half of his credits.
12:33 Speaker 02 And so he appealed to BU by finding something in the equivalency table, which is too complicated to get into here. It just started him on this whole mission to help students figure out the best way to plan for college while also leveraging cheaper alternatives to getting their credits done.
12:47 Speaker 01 Even though I haven't been in college for a while, I have a son who will be in a few years. There's been talk of that. Should we start at the community college level and then transfer? Well, it never occurred to me that there would be an issue of those credits not being transferred. And that's very, like, the fact that that could happen is really disappointing, especially, as you said, for those where economics are a big issue. They didn't want to get too knee-deep into student loans. And then finding out that all this time that they've been working on getting these credits, and then they might not even transfer, that's, that's pretty bad.
13:16 Speaker 00 I think it just goes, kind of goes to show, I don't know how to phrase this, like, the bigotry of four-year institutions against two-year institutions, or, or, or schools that they view of lesser repute. There's, there's kind of a class system in American higher education. If you're, if you're not listening to this in the United States, there's like the Ivies and Friends, which is like, I don't know, 15 to 20 schools at the absolute peak of American higher education. Then there's a plethora of schools kind of in the middle. And then there's the schools that are lower cost and offer a great education, but don't have the same brand equity. And so we're trying to figure out how to bridge the gap between the lower two tiers. Again, I hate this chart that I'm drawing for you, but it's kind of how the reality of the world is. Pausing. Natasha, do we have to disclose when we talk about people who are not, who went to our alma maters? Because if we're gonna start doing that, I'm in trouble.
14:00 Speaker 00 Because like, I can't make fun of David Brooks anymore. Like, there's, there's gonna be some issues.
14:04 Speaker 02 This was a weirdly, like, alumni-esque story. So I, like I said, I'm a BU alum, the co-founder is. And so is the lead investor in the company, Phil Libin, who we had on is the co-founder of Mm-Hmm. And he creates All Turtle Studio, which has incubated Tassled, which is the company we're talking about. So I felt like I had to, but I don't know. I feel like there, it's kind of just like what your heart feels in that moment. I just wanted to be clear that I was never gonna do BU a favor. Alex, I want to like, jump off of one thing you said in your previous kind of chart you were drawing, of like, this separation between like, upper-tier schools and lower-tier schools. This, this company was really born out of the fact that the co-founder noticed
14:46 Speaker 02 that BU was accepting credits from schools that accepted his credits. And so he was like, if A plus B works, then A plus C should work. That was kind of a horrible way to put it, but it's kind of like if you view universities that accept FIT credits as good enough, then shouldn't FIT be good enough?
15:04 Speaker 00 Ah.
15:04 Speaker 02 And I think that contradictory art there told him he was on to something. And I was like, if that is something that was so out in the open, there's so much more that you as a founder probably can uncover.
15:13 Speaker 00 And the company has raised 750K since founding back in 2018. And Natasha, if I recall, your story does not yet have a business model in mind?
15:21 Speaker 02 No, it doesn't yet have a business model. They are working more on acquiring students right now. So they are launching a private beta, kind of taking a page out of the playbook and will hopefully find a way to make it work. But one model that they did tease out was getting a kind of referral fee from community colleges that they help send students to, which would make a ton of sense.
15:40 Speaker 00 As a data point, I think Frank, which was working in the student loan space, had an exit a couple of months ago. And so there is, there's money in this area. So lack of present day business model, not a knock against the company, given that they're playing in a relatively lucrative space.
15:56 Speaker 01 Let's move into something we already talked about one day this week, but we're going to dig a little deeper and look at it from some different angles. Sequoia Capital blew up the VC fund model. Alex, tell us more about that.
16:06 Speaker 00 I like that they blew up the VC fund model, not just for themselves, but I think for everybody, because this kind of change from a firm that's so well-known will certainly have ripple effects out and around the broader world of VC. So briefly, in case you haven't heard our Wednesday episode, Sequoia is going to move to having a one large permanent meta fund that they will put some of their own capital into, of course, and then they'll have closed end sub funds that are focused on individual areas of the market, perhaps geographies, perhaps themes. And so essentially they're going to have a permanent asset base from which to invest. And the idea here is to give them, I would say, more flexibility in return windows. So that way they're not constrained to a certain time horizon for any particular deal.
16:45 Speaker 01 I'd like to point out one thing. This reminds me of the Evergreen funds, and I just wanted to say that they, those actually do exist, right? There's Tom Vest Ventures, Maverick Ventures. So I feel like this in and of itself is not necessarily a new model, but I think what, what makes it new is that it's doing it in combination with a whole lot of other things.
17:06 Speaker 00 And also like we've seen some funds try to have permanent capital bases outside of the United States too. Like there's a couple of VC funds from the UK that are actually public entities and that simply recycle capital back into their own coffers. I think the idea here of a traditional American VC. Going to a permanent asset base with sub funds, becoming a registered investment advisor, and the other things that they're doing do kind of constitute a sufficient change has to be worthy of note. And just don't forget that if you're new to the world of startups, and by new, I mean in the last decade, you've probably been living in an Andreessen world. But Sequoia is the old Andreessen. It used to be the fund that set the tone, that set the narrative, that was the
17:46 Speaker 00 premium in capital. And so to see them make this level of change is a change in the wind. Let's talk about IPO timings and how exits might be changed with a venture capital firm going earlier and later and holding on to shares after companies go public. So Natasha, do you think that this change at Sequoia to a permanent capital pool and sub funds will lead to earlier IPOs, later IPOs? How do you feel about that?
18:10 Speaker 02 I think it will lead to IPO timing not changing materially. Like, I think Sequoia has always done an interesting job with holding their stakes after a company goes public, often much to their own benefit versus their LP's benefit due to payback periods. But this feels like they have enough examples of all the times that they've won post a company's exit that they may be able to convince LPs. We don't need to pressure our companies to change anything. In fact, we can just keep doing what we doing, what we're doing. But now you can join us and hold your stakes longer as well.
18:41 Speaker 00 Yeah. So before the show, we were talking about this. And one of our producers, Chris Gates, asked, hey, you know, like, if they can hold stakes longer now, post IPO, wouldn't that allow companies to go public earlier? Because then Sequoia, you know, doesn't have to say, hey, stay private longer. We can put more private capital into you because that's our period where we can have returns. Then they could go public sooner and then Sequoia can just hold. And there's no kind of disincentive there for IPOs. On the flip side, you know, if you can hold post IPO, what's the rush? It's kind of the other side of this. So to me, I wonder how this is going to net out. And I don't think we really know. But, you know, I think that one thing that private investors have done is grant well performing unicorns more private time because that's where
19:23 Speaker 00 they can put their money to work. And so that's probably led to, you know, later IPOs. And so it'll be fun to see if this model we're seeing now at Sequoia will in fact change the kind of unicorn exit cadence. Because Mary Ann, as you and I have talked about, a lot of unicorns need to get out at some point.
19:39 Speaker 01 To bring up Dan Primack again, because he broke this story. He had mentioned that Sequoia like did this examination or study and realized they'd missed out on like $8 billion in returns with companies exiting too early. I thought that was really interesting, you know, that they recognize that and that they're trying to address it.
19:56 Speaker 00 The $8 billion loss was when they had sold post-IPO shares too early, right? And then if they'd held on to them, they would have seen greater value appreciation.
20:05 Speaker 01 I had to pull up exactly what Dan wrote because I want to make sure that it's clear. In terms of LP, Sequoia believes the traditional fund structure has prompted it to sell shares too early, including in companies like Google. One internal analysis of distributions over the past 15 years shows that had Sequoia held on to shares for just 12 additional months, it would have resulted in over $8 billion in added returns. So that's, that's the way it was worded.
20:29 Speaker 00 And if you're confused about why they could make such a kind of obvious error, it's because some VCs have historically thought that they are not public market investors. And, and one VC told me that if a company that they invest in goes public, they just sell the stock because that's not their game. And that relatively narrow perspective is old school VC thinking. And what we're talking about here is kind of new school VC thinking. It used to be that VCs would be either sector or stage focused, that they would have a defined returns window and then they would just do that. And now we're seeing VCs kind of say, hey, you know what? We're going to be here from seed through IPO and then even then we're not going to let you alone.
21:08 Speaker 01 They don't want limits. They don't want limits anymore.
21:11 Speaker 02 Not to make it about us, but like, does this mean we have to start covering companies post-IPO? Like if Sequoia is starting to invest in them, it becomes part of our world, right? Alex is so happy. God damn it.
21:21 Speaker 00 I'm so happy right now. If VCs become public market investors, then that means that there's no company that's outside of my grip. I literally tell CEOs on IPO day calls, I'm like, I'm going to be watching your first couple of earnings calls and then I'm going to let you go. Cause at some point you're not in the tech wrench bucket anymore. But this is, this is kind of a good commentary, Natasha, because it used to be in the old days that founders would get replaced by professional CEOs and their VCs would And kind of force this. I think it was Google who was told by their investors that you have to get an adult in the room. That was Eric Schmidt. And now we deify founders, you know, and you can be pro and con on that. But the idea is that founders should not only stay in the CEO role, but they should have absolute control of the company for all time.
22:05 Speaker 00 With, you know, dual class or even triple class shares. And so we're really seeing people's roles stretched in a way that's either going to bear out really well or not in terms of returns and success down the road. But this does, I guess, fit into a broader trend narrative or thingy that we've been tracking for a while.
22:23 Speaker 02 Yeah.
22:24 Speaker 00 I hadn't even thought about that way.
22:25 Speaker 02 Damn it. Well, Sequoia employees are contributing, I believe, like 5% of the fund, which I'm guessing is kind of like a way to show their commitment of sorts. Is there anything else that could be going on there, Alex?
22:36 Speaker 00 Well, if you're going to be a partner in a venture capital fund, you have to put capital into it. That's a standard kind of skin in the game practice and how much you put in 1, 2, 5, 20, whatever percentage, it will depend based on how much cash you have and also how the fund is set up. I mean, I think it's benchmark that is now either entirely or nearly entirely self-funding their own investment vehicles with their own returns. And so at that point in time, it's not really a venture capital fund with external LPs. It's kind of internal LPs to a large degree. I don't know if 5% is a lot in this case. It actually feels a little bit modest to me because certainly the partners at Sequoia are not looking in the back of the couch for quarters to put into their fund.
23:17 Speaker 00 And so if they're going to put together this, I don't know, everlasting meta fund in which they can kind of then disperse capital into smaller sub-funds, why just 5%?
23:26 Speaker 02 Moving us to our next theme, you brought us into the Midwest for a check-in on venture capital totals. Walk us through the the top numbers.
23:33 Speaker 00 Yeah, I'm gonna, I'm just gonna go off topic for a minute about this. Did you know everyone listening that Colorado is not in the Midwest?
23:40 Speaker 00 Because I didn't.
23:41 Speaker 01 Southwest, south?
23:43 Speaker 00 Uh, I think it's mountain. I think it's mountain. According to, once again, to our producer, Chris Gates, apparently there's mountains in Colorado, and there's a thing called the Colorado. Oh, it's west. It's in the west.
23:52 Speaker 01 Is it the west?
23:53 Speaker 00 I grew up in the west.
23:54 Speaker 01 I'm in the west. And between southwest and west coast, right? But like even I noted in the document, I was like, I don't think that Denver is considered Midwest.
24:03 Speaker 00 All right, all right. So let me, let me actually do the actual story we're supposed to talk about here versus arguing about the intricacies of American geography. America is much like India in that it's enormous in terms of its geographic footprint. And so you could argue all day about like subcultures and subregions and so forth. Um, all right. So the Midwest, uh, a historically less technology-heavy part of the American economy, certainly a key place where many Fortune 100 companies exist, and a place where there is a lot of agriculture, manufacturing historically. Detroit is in the middle of the country. Chicago is in the middle of the country, that sort of thing. What we have seen is a roughly doubling of the amount of capital flowing into Midwest.
24:43 Speaker 00 This is per M25, a venture capital group that I talk to on a regular basis because they have a Midwest-specific focus. They said in the 12 months ending of June 2021, about $20 billion was invested into Midwest startups, roughly up 100% from $10 billion in the preceding 12 months. So that kind of sets the stage here. But what we're seeing really, to me, is not just a boom in dollars flowing into the Midwest, but critically, a turning of the wheel of time in the startup scene in the area. We're seeing companies go from seed to IPO and seeing that money recycle back in. And this, Marion, is what we're also seeing in early stages in Brazil, for example, with certain exits there, money kind of going back into the system. So IPOs leading to angel investors, which power the next generation of startups.
25:25 Speaker 00 And so I would say, frankly, I think Sprout Socials IPO, a Chicago-based company that went public a couple of years ago, was an indicator of this trend in the Midwest. And we're also seeing companies crush it, like Natasha. There's apparently a bazillion companies in Columbus, Ohio.
25:38 Speaker 02 Yeah, it's kind of like an insuretech hub of sorts. First of all, OSU is based in Columbus, which is great for talent. But a couple of companies that you may know are Beam Dental, Root Insurance, Loop Returns, Branch Insurance, and of course, Drive Capital, which is a VC fund, but we've talked about them a ton, and they're the largest venture firm in the Midwest. Marion, you've been covering like emerging startup scenes. For years, a lot of it was at Crunchbase News. I remember like reading a lot of like your Pittsburgh coverage, Detroit coverage, and obviously Austin too. I mean, how optimistic are you on these scenes continuing to grow versus it being like a moment in the sun for them?
26:15 Speaker 01 I think certain markets really have a lot of potential. I know Pittsburgh, for example, is not considered Midwest, but I think there's a lot happening there. I think North Carolina, which is my home state, is not talked about enough. But specifically here in the Midwest, I think Chicago is getting a lot more attention. And I agree with Alex that like the success begets success. So as more companies in these markets do well, exit, then there'll be more startups emerging and more venture dollars flowing. So I feel like and hope that this is only going to continue over time.
26:46 Speaker 00 Now, a question that we had when we were kind of planning out, talking about the Midwest a little bit was, is the Midwest doing uniquely well? Or is it just doing what every other scene that we're talking about at the kind of country level is doing, which has just seen more and more dollars and often more rounds? And I think the reason why the Midwest stands out to me is because it is doing what Brazil is doing in aggregate, or say, India is doing in aggregate, which is posting a lot of gains. But what matters to me is we're talking about a region of a country where this has historically not been the case. So it's not like we're saying that like the Midwest is doing well, and India is doing well, whatever, it's the same. It's that we're saying like, imagine a region in India that has less economic development and seeing not, I'm going to get in
27:29 Speaker 00 trouble with that one. Let's say there's a region in India that was not as well known for its technology innovation. There you go. Putting up numbers commensurate with the US in terms of growth. That would be the analogy to be made here. So that's why this is exciting. That's why it stands out. Certainly, though, we are in a boom time. So everyone's putting up numbers. I think that's it. Natasha, we are not talking about your RO story this week, yeah?
27:48 Speaker 02 Yeah, not yet. But it kind of fits into our theme because I know M&A is a really exciting thing. Yay, exits, woo. But it's really hard to integrate them. And that is one theme that came up in my RO story that I published this week about some of the struggles this company has had as it has raised this massive valuation, $5 billion most recently. They've acquired three companies within the past year. And as we'll talk about on Wednesday of next week, it is one of the tipping points of why some employees are pretty frustrated with their leadership team.
28:18 Speaker 00 Yep, so stay tuned for some inside deets on what happens when you buy stuff and it doesn't go perfectly well. That reminds me of my favorite quote ever about acquisitions from a tech wrench event back in 2014, which is that being acquired sucks and it always sucks more than you think it's going to. And on that note, ladies and gentlemen, equity is out. We're back Monday morning. Peace.
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