Mid-Week INTELLI Insights

Wednesday September 13 | Volume 1 Series 4 - a mid-week look at the VC space, plus an INTELLI report on BYJU, the e-learning company.

A Mid-Week Look at VC & INTELLI on BYJU

INTELLI Spotlight: New or Recent VC Fundings

UIFlow | Automated front-end development

Raise: $15M from Addition

Addition: Lee Fixel made billions in early investments into Peloton and Flipkart at Tiger Global. In 2020 he left to start VC fund, Addition. Addition is a repeat backer in UIFlow after funding the $5.2M seed.

Mysten Labs | Crypto development toolkits

Raise: $300M Series B from FTX

Other participants in the round: A16Z Crypto, Jump Crypto, Binance Labs, Coinbase Ventures

Regal.io | Phone call adverts

Raise: $38.5M from Emergence

Other participants in the round: Homebrew, Inspired Capital, Founder Collective

Bonus Deal (an important one that might have slipped by you that we think will likely go public within a few years or less):

Ex-Uber CEO Travis Kalanick received a massive investment from Microsoft’s venture arm for his company CloudKitchens. They closed an $850 million funding round last November at a ~$15 billion valuation. Microsoft participated in the round, which was a combination of debt and equity. The INTELLI Insight here is that there are massive problems in-house, well disclosed and evident during the diligence process.

Microsoft backed Uber in 2015 with $100M at a $50B valuation. What’s the news here though? Well interestingly enough, Microsoft seems to follow Kalanick around with his ventures. They went through with this latest funding at yet another inflated valuation due to Kalanick’s prior successes.

Four separate former employees have told reporters that the company has the same cultural issues that Uber had, if not worse. A senior-level employee who left CloudKitchen called it “the most toxic place I’ve ever seen or experienced” in an interview with FT some time back. There has been a mass exodus of employees, yet the company continues to grab growth equity dollars at significant valuations.

OPINION

💸 VC Dry Powder $500+ Billion in 2022
 
Take a moment to wake up to this fact here: If we measured by GDP, venture capital would be the 22nd largest country in the world.
 
But why has the industry built up so much capital within?
 
Most of this unallocated cash is sitting in $250M+ or $1B+ giant funds that usually invest in larger, late-stage rounds (and some are continuation funds of the previous funds within the same ‘family’). But many startups are now overvalued. Not only have the fundings of late-stage deals declined 10% from Q1 to Q2, but so have the average deal sizes.
 
How this might be good:
❇️ If the markets recuperate soon, late-stage deals could bounce back in a big way.

❇️ Larger VCs might get the bandwidth to be more creative with deal structures, and deploy some of their capital towards pre-IPO opportunities that might be out of their focus and/or valuation range.
 
How it could be bad:
🔻 Much of the dry powder is not ‘called’ – or not actually in the fund’s account yet, because of the way their investment documents were structured (for those not in the industry, one of the primary reasons for this is that money makes money, so cash sitting in an account for a fund that is deploying it over x number of years is being significantly underutilized.
🔻 Investors might not want to sell liquid assets at a loss / at a tax consequence to transfer to their VC fund commitments when ‘called’
🔻 Large investors might cut underperforming funds from portfolios, and double down on the winners
🔻 VCs could cut the size of their funds proactively, which could jumble the way tried-and-true investment processes return capital
 
All of this to say the dry powder could evaporate. It could be great if the markets rebound, but startups and growth-stage ventures shouldn’t count on it for survival. We can only hope for a market rebound, but the issue remains that we might be getting close to seeing the startup/ VC funding bubble burst if nothing is done to ensure that the valuation of startups is transparent and efficient. A major turnoff for Investors: the overvaluation of startups eventually shows over time in their inability to maintain steady and significant growth.

Have some thoughts or want to challenge this opinion? Leave a comment below!

INTELLI Insight Report & Analysis: BYJU

(Est. ~$22B valuation)

Why BYJU matters right now:
BYJU is an Indian multinational educational technology unicorn, headquartered in Bangalore. It was founded in 2011 by Byju Raveendran and Divya Gokulnath. The company develops personalized training for kids in Kindergarten to Grade 12.

But a key issue here is that the startup said it generated a gross revenue of $1.258 billion (unaudited) in the financial year that ended in March this year. Between April and July, the startup logged revenue of only $570 million.