One could probably argue that Floodgate, the Bay Area-based seed-stage venture firm, punches above its weight. The roughly 15-year-old firm has just around $500 million in assets under management — including a $150 million fund that it quietly closed in January — and it makes just a handful of new investments each year. Yet with investments in Okta, Lyft and Starkware, which was valued at $8 billion in May, among others, its concentrated approach appears to be paying off.
Writing so few checks, particular in a booming market, might prove frustrating to some investors. But over the years, it has forced Floodgate’s small team to sort through many thousands of pitches and identify those it thinks have the most potential. Now, co-founding partner Ann Miura-Ko and Tyler Whittle, a senior associate with the firm, have developed a new program to help student teams similarly develop an understanding of what big ideas look like — and why most concepts are not big ideas.
To get more details about the program — and also to hear Miura-Ko’s current perspective on the seed-stage startup scene — we talked with her earlier this week. Excerpts from that chat, edited for length, follow. You can hear our fuller conversation here.
TC: This summer, you invited a lot of students to work on startup ideas with you here in the Bay Area. Were you incubating companies together? How did the whole thing work?
AM: We went to a builders community we’d built the year before, and to [Stanford’s] engineering school [where I teach], and to the CS department at a number of universities and said, ‘Hey, if you’re interested in being a future founder, and you’re a great builder, then we are interested in talking to you.’ The main message there was: ‘We don’t need you to actually have an idea that you’re working on. We just want you to be an amazing builder with an incredible amount of curiosity.’ Partially, [that’s because] you need to be able to build fast and actually throw away product [sometimes] but you also have to be curious about the history of the industry that you’re working in. . .
The aim is to help them identify big ideas. What is your definition of a big idea and how do you know when you see it?
I’ve come to realize that there are two types of businesses that can actually become really big. One is: you have an idea, and most people actually already understand this idea, but you’re just operationally better, and so you out execute everyone else. What I realized is that as a seed investor, we don’t really have an advantage investing into those companies because we don’t see enough of the operations to know who is best at operating that kind of startup. So when founders hear, ‘[You] need a little bit more traction before we make a decision,’ that’s most likely because you are running a business that is more operationally focused, versus the second type, which I believe is insights focused.
An insights-led business is really about identifying what we call an inflection point, which has a few components to it. First, there is some sort of change event that has happened. It could be technical — CRISPR got invented — or a regulatory change event, like telemedicine across state lines is allowed, or it could be societal. The most common one that people point to now is just work from home.
The change event makes a new feature possible, or it makes it possible for a product to be built cheaper or faster, or you could also have a completely different business model that’s made possible. [For example] you license it out versus having to pay for it on a monthly basis, or vice versa. Or the business ecosystem fundamentally changes.
When that happens, if you can tie it [that inflection point and change event to], ‘This is therefore going to create a fundamental pull and adoption of my product in the next two to three years,’ now you have an insight that seed investors should be [funding]. [And] that’s the type of thing that we’re really looking for our students to really figure out.
Are you funding these students?
Yes. We are writing $50,000 checks into all of the companies, and then a bunch of them will just say at the end, ‘We’re not going to do this anymore’ and in that case close up shop. [But] we had two companies that are [going concerns] with investment from from us, and then one that might actually take on additional investment and one that [already] took an outside investment. And so we have four companies that are continuing to operate out of 10.
How much of a stake does that $50,000 buy you?
We’re still revising that for next year, so I don’t want to put a pin in what we’re going to do. But it is a SAFE note. And then for the follow-on financing, it ranges in terms of what the person needs and also [it’s tied to] when we invest into that company, so it ranges in valuation, as well.
Four out of 10 is a pretty good hit rate. Were these students primarily from Stanford?
What’s really wonderful about it is that we did have Stanford students, but we had students from University of Texas, with other students from Yale and Penn and the University of Texas, so it it actually spanned multiple different universities . . . and we’re really excited to try to expand to as many universities as possible. One interesting piece that we learned is that Stanford students are just very well-educated when it comes to startups. The beauty of having Stanford students within this network was that our Stanford students pulled the other students into the networks that the Stanford students are so fortunate to have.
I remember talking to a 19-year-old Stanford student, probably 10 years ago now, who said he felt pressured to become a founder because of the culture at the school. Does that concern you?
Yes. That’s why I really mindfully designed it so you have a way out. I think it’s so important to recognize that not everyone is supposed to be a founder. And in fact, in the relationships that I have with my students, I will tell certain students who I know really well, ‘You have these incredible skill sets that are so unique and not found in many people that you should go to a large company; you will have so much impact there.’ I will actually directly counsel students not to become founders [because] it’s such a specific desire or [requires] such a specific skill set in a specific moment that from my own personal perspective, it shouldn’t be for everyone.
I agree with you. I think there is to some extent a major push for people who are technical [and] for people who have good ideas to head in that direction. But my hope is that really by giving them this kind of exposure, they can figure out if there is a founder within.
Out of curiosity, does Floodgate use scouts?
We do not have a Scout program. I guess our network of friends and family and founders is technically our scouts. But we don’t have a financial program the way many people do. I have this sort of network of ‘unpartners’ who I meet up with on a regular basis — these are angel investors and investors at small funds — and what we do is we will literally share three or four interesting companies that we’ve looked at in the last two weeks. And then we’re sharing with one another how we would diligence it. And if the other people are interested in looking at the company, we invite them in.
Somewhat relatedly, Y Combinator just wrapped up its latest Demo Day. As a seed investor, do you follow YC closely? What do you think of the organization as it exists today?
I think they provide a tremendous service to founders, and I think people who want to get exposure get [it]. I have a lot of respect for the product that they offer, and the community that they offer, and the way in which fundraising is enabled as a result of that.
For me, it’s just a harder platform to engage with. If I’m only making two to five investments a year, being asked to put in a check with a rolling SAFE note that, if I sign tonight, you know, is one valuation and if I sign tomorrow, it’s at another, and [the founders] don’t even really know me, but they’re willing to sign on with me — like, none of that feels quite right. So the ones who I’ve been engaging with are actually founders who I knew even before they got into YC.
But I do see why founders love it and I think that there’s tremendous work that they put into the product and I would not count out YC. I know every year, some people say the classes are too big and everything is too diluted and expensive. But you know that in every group, there’s going to be one or two runaway hits.
Backed by Epic Games, distributed computing startup Hadean nabs $30M to power the metaverse
Hadean, a U.K.-based distributed, spatial computing startup that’s setting out to build the infrastructure for the burgeoning metaverse, has closed a $30 million seres A round of funding from a high-profile cast of investors including Epic Games and Tencent.
Founded out of London in 2015, Hadean started out with a broad mission to put “supercomputer levels of processing power at the disposal of anyone,” TechCrunch wrote back in 2017 when the company was still operating in beta. In the intervening years, Hadean has iterated for different use-cases and has emerged as a major player in the gaming sphere in particular, where it powers major hits such as Minecraft.
At its core, Hadean is all about helping developers scale their codebase to support software that requires significant computing power, something that Minecraft demands particularly when it involves multiplayer engagement across the internet. Hadean’s spatial simulation library integrates with all the major gaming engines, and helps MMO (massively multiplayer online game) and other online game developers avoid having to put player limits in place, or use other forms of technical (but limited) trickery to circumvent the problems created by hundreds or more gamers participating at the same time. It’s all about keeping the dreaded “lag” at bay, while maintaining the depth, complexity, and realism of a single-player offline console game.
This is achieved through the magic of distributed computing, with Hadean’s platform eliminating “excessive middleware, orchestration, and overengineering,” as the company puts it, dynamically provisioning more or fewer resources as a game requires.
But the underlying technology can be used for just about any use-case, from resource-intensive enterprise applications through to web 3.0, blockchain, and the metaverse. Back in July, Hadean was awarded a contract with the British Army to build a simulated training environment for land warfare.
And it’s against that backdrop that Hadean has now secured a slew of illustrious backers eager to get in at an early stage, while the metaverse is still in its fledgling years.
As the Telegraph newspaper first reported last month [paywalled], Hadean initially secured around $18 million in funding from investors including Chinese technology titan Tencent and InQTel, a CIA-backed not-for-profit venture capital firm based in Virginia, U.S. As it transpired, this initial reveal came somewhat prematurely, as Hadean was still in the process of closing the round of funding, which is what it’s announcing today.
The full list of (known) backers include lead investor Molten Ventures (formerly Draper Esprit), Tencent, 2050 Capital, Alumni Ventures, Aster Capital, Entrepreneur First, InQtel, and the mighty Epic Games, which also happens to be a Hadean customer. In fact, Epic Games previously doled out funding to Hadean in the form of a MegaGrant, which are basically grants to support companies working on projects to help support its Unreal Engine.
In an email to TechCrunch, Hadean CEO Craig Beddis said Epic Games arrived late to the series A round and so had to invested via a convertible note, which basically means it’s a short-term debt that will convert into equity.
It’s also worth noting that Epic Games recently raised around $2 billion to build what it’s touting as a kid-friendly metaverse, and this gives a further clue as to why it’s now investing directly in Hadean.
“Hadean’s computing power will provide the infrastructure that’s needed as we work to create a scalable metaverse,” said Marc Petit, who serves as VP of Epic’s Unreal Engine Ecosystem, in a statement. “The company’s technology complements Epic’s Unreal Engine by enabling massive amounts of concurrent users and unlocking new tools for creators and developers.”
Tencent’s involvement is also notable, given current geopolitical tensions between China and the U.S. Beddis explained that Hadean ended up taking less money than what was on offer from Tencent so that it could remain CFIUS (Committee on Foreign Investment in the United States) compliant, and avoid a national security review.
With another $30 million in the bank, in addition to its previously raised seed rounds amounting to around $16.5 million, Hadean is well-financed to double-down on its existing traction across the gaming, government, and enterprise realms, and power all manner of web 3.0 and metaverse applications.
“Hadean’s mission is to bridge physical and virtual worlds — to help us make better decisions and ultimately improve the quality of our lives in the physical world,” Beddis said. “Today’s virtual worlds are a limited experience – small scale, siloed, and insecure. Hence why these are the technical challenges we’re tackling today. But we believe the true success and mass adoption of the metaverse will rely on the ease by which creators will be able to build their own experiences at scale, leveraging open and robust metaverse-as-a-service technologies.”
Interview with Ekke Uustalu, Co-Founder of Planyard
Co-founder of Planyard with a background in B2B software and cyber security. Now tackling profitability forecasting in larger construction companies to make sure they don’t go out of business due to insufficient visibility.
He was born right when Estonia regained its independence from the Soviet Union at the beginning of the 90s. This experience has been invaluable as he saw the rapid development and life quality improvement this new way provided.
When growing up, everything in his life was digitalized – the communication, the school work, government and medical services. This meant that that was since childhood the normal. He couldn’t really expect less than excellent and user-friendliness from any service. This part is probably normal for 99% of Estonians though.
He studied computer systems in his university studies and found entrepreneurship interesting from early on. He worked in various startups during studies and attended various startup events and competitions. Some of these competitions were also where the first attempts (and failures) at personal startups took place.
He also tried Amazon FBA (Fulfilled by Amazon) product selling which failed quite miserably as the product was completely custom designed and was just a one-time thing. The product was also partially a safety device so Amazon deciding to now allowing to sell the product was a good learning point. Never give too much decision power to someone else. Also, don’t make safety products without having great suppliers. 🙂
After a short stint in a cyber security company, he was invited by acquaintances to work on Planyard. This has been the main focus for the past few years.
Where did the idea for Planyard come from?
The idea for Planyard came from our acquaintances working in the construction field. Many of them work as project managers and complained that they don’t have good tools that help them do financial tasks efficiently.
They often need to use multiple unlinked spreadsheets with duplicate data where the processing and data copying takes way too long. So when one of our founders had multiple discussions with these PMs, he was able to identify key issues that we started to work on once the mockups were confirmed.
So now we are providing a cloud-based software tool for construction companies to automate much of the annoying manual work they have to do anyway. This can save up to 5 days for each project manager per month. Additionally, colleagues and managers can also easily see what the status is if the company prefers to share the access inside the company.
What does your typical day look like and how do you make it productive?
Since we are a small bootstrapped team, the day consists of various tasks that have to be done – often some development work, marketing actions if we have some content planned, calls with customers and representatives from tools that we integrate with.
It is important to list and then prioritize all of the things that need to be done in the day to make sure that you can really focus on the important tasks. Depending on the task, we have different Trello boards to track them or for stuff only specific to me, I also use Gmail snoozing to not lose anything.
How do you bring ideas to life?
We often hear about problems that our customers are having. When we hear these brought out, we have to validate that many or most of our customers face similar issues. When we validate that indeed this is a relevant issue for many people, we then start work on solution proposals.
We then make very low-quality mockups that we can validate with all of the parties and often do multiple rounds of these discussions to tweak the solution before we start implementing it.
This means that we can be very sure of the technical solution before we do anything. We might make small adjustments to the design or the process later on, but the fundamental assumptions are correct, thus reducing the amount of rework we have to do.
What’s one trend that excites you?
Young and/or tech-savvy people who are becoming decision makers in (construction) companies. They have grown up with productivity tools and user-friendly tools and expect that when they try to find a solution. Also, a more bottom-up management style is nice since everyone’s’ opinion matters and the boss doesn’t decide alone.
This means that our potential customers are more open to embracing technical solutions that will make their life easier. Additionally, when looking for solutions, they are very selfishly trying to find a great experience. That differs from the “old school“ enterprise sales where the management would just decide for something and the end users would not really benefit from it.
What is one habit of yours that makes you more productive as an entrepreneur?
If you don’t get it 100% clearly, just ask again. I think I need to fully understand the problem and why it is a problem to be able to solve it for the customer.
What advice would you give your younger self?
Ask more questions before rushing to propose solutions. You probably didn’t fully get it yet.
Tell us something that’s true that almost nobody agrees with you on.
Probably not that unpopular, but raising money is not everything. Raising money too soon can hurt or end your business.
As an entrepreneur, what is the one thing you do over and over and recommend everyone else do?
Blocking out time for deep focus time. This is probably more a techy thing to do, but having the freedom of no distractions for some part of your day really lets you achieve a lot.
What is one strategy that has helped you grow your business?
We still need to do a lot of work on our online presence and messaging, but we for sure are already seeing successes from our SEO efforts however limited the time is that we put in there.
In short, it’s better to be where the customers are searching for you instead of cold calling and reaching out to them yourself.
What is one failure you had as an entrepreneur, and how did you overcome it?
A few years ago, I tried doing Amazon FBA (fulfillment by Amazon) as a business. We developed our own product from scratch for just a one-time event.
The production delays and strict Amazon restrictions meant that we actually could almost not sell any products to our customers before the date. We lost a lot of time and money doing this, but I learned to value my own control over the process more. In that case, we did make a lot of mistakes on our own as well. But giving so much power to someone else can be risky as they can just shut you down when they decide to do so.
What is one business idea that you’re willing to give away to our readers?
I recently heard of an idea for an app to order food in the restaurant. So basically Uber Eats to eat in – no waiting for the waiter, no payment struggles, and the possibility for the company to do dynamic pricing.
I’m not sure if it is a great idea, but it’s an idea.
What is one piece of software or a web service that helps you be productive?
Trello. Keeping track of what you need to do, what you did, and to prioritize what needs to be done. Without structure, you just do whatever you want to in the morning and that probably won’t take you too far.
What is the one book that you recommend our community should read and why?
Predictable Revenue by Aaron Ross and Marylou Tyler
The Lean Startup by Eric Ries
What is your favorite quote?
Change in all things is sweet – Aristotle
Berlin’s Visionaries Club VC boosts its funds with €350M worth of fresh capital for B2B investments
It was back in 2019 that we reported on Visionaries Club, a new, Berlin-based, European VC focusing on B2B, founded by Sebastian Pollok and Robert Lacher. At the time, Visionaries Club had launched two new €40M micro funds for seed and growth-stage B2B.
Pollok was previously a VC at e.ventures in San Francisco and also founded Amorelie, which exited to Pro7Sat.1 Media Group. Lacher was previously a founding partner of La Famiglia, an early investor in FreightHub, Coya, Asana Rebel, OnTruck and Personio.
Visionaries Club has now announced a second B2B-focused fund, with a new €150m Seed Fund and €200m ‘Early Growth Fund. It’s so far invested in companies such as Personio, Miro, Choco, Xentral, Truelayer, Vay, Taxdoo, Yokoy, Pigment, Leapsome and Gtmhub, alongside VCs such as Sequoia, Accel, Index, Lightspeed or Bessemer.
In a statement, Lacher said: “We are extremely proud and humbled that more than 20 of our founder LPs are founders we have backed in the past, that now reinvest their private money into our funds such as Hanno Renner (Personio), Jenny Podewills (Leapsome), Daniel Khachab (Choco), Christian Reber (Pitch / Superlist) or the founders of Taxdoo and Insify.”
The fund essentially operates as a micro-VC fund, which means it can lead, and co-lead Seed investment deals, co-investing alongside larger, multistage VC funds in Early Growth stage (Series B) deals.
It’s also launching the Visionaries Club science-driven ‘Tomorrow Fund’ to back science-driven startups at the Pre-Seed and Seed stage.
Additionally, Sahar Meghani and Marton Sarkadi Nagy have been promoted to Partners.
London-based Meghani will take a lead role in managing the new Growth Fund, while Sarkadi Nagy will take a lead on the seed fund activities.
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