The new math in ventureland

To give you the best possible experience, this site uses cookies. If you continue browsing. you accept our use of cookies. You can review our privacy policy to find out more about the cookies we use.
Hello and welcome to Pipeline. This week: how the "bonkers" new VC industry math works, debating politics on Clubhouse and the Plaid/Visa split.
I wrote this week about the scorching heat in the VC market now. TL;DR: Rounds are getting done much faster, deal sizes and valuations are climbing in some sectors, traditional venture firms are investing more than usual and more nontraditional investors are coming in earlier. A few more important things to note:
It's not just hedge funds. "Huge amounts of hedge fund capital [are] coming into venture," said Sunil Dhaliwal of Amplify Partners. "Not to mention mutual funds, insurance companies, sovereign wealth money, pensions, family offices and every other investor class you can think of."
But some sectors are struggling. This frenzy is focused on specific areas, such as enterprise, remote work, DevOps and infrastructure, while some areas of biotech and consumer that were once hot are struggling to find funding. "It's not across the board," said Wesley Chan of Felicis Ventures. "It's heavily nuanced."
Diligence is dropping across the board. It's not just private equity and hedge funds that are throwing down term sheets after one initial "get to know you" meeting or even before a meeting; traditional venture firms are doing it, too. "Traditional firms are throwing down term sheets after a first meeting," Chan said.
And then there's new math: It's not quite a Steve Jobs reality distortion field, but the math of venture funds has shifted, particularly in the past six months or so, some investors say.
So on the front end, some investors are increasing their bets by an order of magnitude.
Is it this easy? Behind this all, venture capital returns are way up.
But how many Snowflakes having IPOs at over $60 billion market caps are there? If you believe that SaaS is eating the world, and Roblox is the first of many EA or Activisions, then there can be some others.
So is this a crazy spike or the new normal? "So f---ing hard to tell," one investor says.
For Raj Hazra, who is senior vice president of corporate strategy and communications at Micron, there has never been a more thrilling time than this golden age of data. In this interview, Hazra describes how "we are now at the doorstep of taking things that we thought were science fiction and making them real, and it's only going to be exponentially faster going forward". Read more from Micron's Raj Hazra.
Chirag Chotalia is a partner at Threshold and invests in vertical software, real estate and marketplace startups. He's on the board of AutoLeap, BentoBox and Loftium and works with Threshold investments in Front, LaunchDarkly and Divvy. Previously at Pritzker Group, he led deals for Casper and Honest Company.
What problem do you want to see a startup solve?
Tech services for broader Americans. Most startups emerge serving the top 10%. Look at companies like Honey: People didn't get why you need a savings app. But eventually they sell to Visa [for] $4 billion. Similarly, for a lot of ecommerce investors with Wish, they didn't get it. They said, why should we wait three [weeks] to get a product? But Wish has done very well. It's a broad category I watch on how to help everyday Americans live life better and cheaper and remove friction for them in things like health care, housing and other big buckets of spend.
What's the craziest thing you've seen in a pitch — and did it work?
Memphis Meats and their cell-based meat. I was extremely skeptical going in. But they nailed everything: the texture, flavor profile, smell. It felt like a 10x product, comparable to Beyond Meat or Impossible. At that point it was maybe $2,000 a pound to produce. It convinced us.
What company, outside of your portfolio, have you been most impressed to watch this year?
Hopin is an amazing product. They're not only reimagining what events look like but also they very smartly built a discovery marketplace on top of events. The second one is SmartRent. It makes dumb apartments smart. If you look at the average apartment, there's no smart devices. With this, you control lights, temperature, locks on your phone. There's water leak detection. They partner with the biggest multifamily building owners. One of the biggest problems in residential real estate is you leave town and then the toilet's leaking.
What's one of the worst predictions you've ever made?
My prediction in 2013 was direct-to-consumer would be successful across every consumer category. While there are categories that are really successful there are also categories where the model just doesn't make sense. For example, oral care. Many players tried direct-to-consumer toothpaste companies. But it's a lot easier to buy from an aggregator like Amazon. Your product needs to be substantial enough or the pain point needs to be such that you're willing to have the friction of having another merchant outside of Amazon.
What's a secret obsession of yours that most people don't know about?
I did diaspora studies and I did economics in college. For my thesis I studied the South Asian diaspora in Trinidad. They were brought there as indentured servants, which is very different from those in the U.S. who migrated for better career opportunities. For founders, I'm fascinated by context and how it shapes them. I typically start meetings with founders asking the "why" before the "what." That contextual understanding motivating them is equally important to what they're actually working on. If I wasn't a VC, I'd be a sociologist or journalist looking at the narrative or story of people.
For Raj Hazra, who is senior vice president of corporate strategy and communications at Micron, there has never been a more thrilling time than this golden age of data. In this interview, Hazra describes how "we are now at the doorstep of taking things that we thought were science fiction and making them real, and it's only going to be exponentially faster going forward". Read more from Micron's Raj Hazra.
Thanks for reading this week's Protocol Pipeline. If you like what you're reading, sign up here to get it in your inbox. Send story tips and newsletter feedback to tgeron@protocol.com.