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As late-stage tech startups face the changing environment in the public markets, their early-stage counterparts are in a different world altogether. The cohort has had access to ample capital in recent quarters, giving them a bubble of venture capital that somewhat protects them from rapid changes in the greater economy.
But while the bubble is not popping, it’s changing shape.
While we may not see early-stage startups go through aggressive rounds of layoffs or experience immediately slashed valuations due to shifting market conditions, there’s a different signal worth tracking: pivots. Pivots — a change in business strategy based on a new insight or market trend — are somewhat inevitable for young companies still chasing product-market fit. I’d argue that pivots are more important to track than a financing round because they give a snapshot of a startup reacting to a new tension in the market. Plus, unlike a funding round, a pivot is a definite signal that something is changing, a tension other than a cadre of investors affirming that a founder is onto something big.
After having conversations with a number of investors and founders, it’s clear that the coming weeks and months will include a lot of subtle shifts in how early-stage startups do business. Some may re-prioritize objectives to reduce risk, while others may pursue new, more near-term business models to finally get some revenue in the door.
For my full take on this topic, check out my TechCrunch+ column: “It’s pivot season for early-stage startups.” In the rest of this newsletter, we’ll talk about an Epic deal, fintech going full stack and why one firm is going self-funded. As always, you can support me by sharing this newsletter, following me on Twitter or subscribing to my personal blog.
Deal of the week
Epic, the gaming creator of Fortnite, bought Bandcamp, a music marketplace where any musician can sell their music and keep 82% of the profits. The acquisition comes amid a broader conversation of the role (and power) of platforms in creators’ lives, making platforms like Bandcamp stand out simply due to alignment of incentives. Now that it is within Epic’s comfortable embrace, there’s a new chapter to analyze.
“When artists see that a platform they use to make a living is being acquired, their usual reaction isn’t, ‘Oh, cool, they will have more funds to produce better features to help me monetize my creative work!’ They think, ‘Oh shit, not again.’
It happened when Google bought YouTube, and when Spotify bought Anchor. Artists recognize that when a platform changes ownership, even the smallest tweaks can impact their livelihoods. Why would artists trust Big Tech companies when Spotify payouts are dismal, OnlyFans temporarily made career-endangering decisions for sex workers, and Patreon flirts with the idea of crypto payments, a move many of its creators are strongly against?”
I wonder, of course, if the buy is in light of community, or just in pursuit of capitalism. We’ll talk about it on Equity next week, so tweet us your suggestions!
Is fintech playing offense or defense today?
On Equity this week, I spoke with Alex and Mary Ann about the state of fintech. It was partially inspired by Ramp’s expansion into travel, and Pipe’s acquisition of an, um, entertainment company (?!).
Here’s why it’s important: Beyond continuing the conversation of fintech going full stack, we worked through our biggest questions on fintech’s maturation at the moment. For example, if all fintechs become the same company over time, how do you differentiate when initially fighting for the same user cohort? The market made the conversation even more relevant, as public market repricings may be one trigger for fintech’s to pursue more proven revenue streams.
So what, SoFi?
10 fintech investors discuss what they’re looking for and how to pitch them in Q1 2022
Nu shares slump on Q4 results, a canary to still-private fintechs
Why Affirm’s stock is getting hit, and what the selloff means for the BNPL startup market
Homebrew goes self-funded
Homebrew has a new cup of tea (or coffee, or beer, or beverage of your choosing). The venture capital firm is leaving its strictly seed-stage roots — and its traditional venture structure — and pursuing a more stage-agnostic evergreen model that is funded solely by Satya Patel and Hunter Walk, Homebrew’s general partners.
Here’s why it’s important: Homebrew’s pivot is happening at a crucial market moment for tech startups. Public tech stocks are being hammered regardless of sector. And while early-stage private startups seemingly remain largely unscathed, owing to an influx of venture capital, later-stage companies are finding themselves in a tougher position right now.
The move is also notable in a market where raising larger and larger (and larger) funds has become routine. Of course, the perennial challenge that comes when raising more capital is that an investor then has more pressure to deliver on those outcomes. You may have been able to provide outcomes at a 5x rate on a $15 million fund, but can you still hit venture-like targets when you ask them to back a $150 million fund? What about $1.5 billion?
Returns on returns:
With capital aplenty, modern corporate investors marry financial and strategic goals
D’Amelio family launches VC fund 444 Capital to invest up to $25M in high-growth startups
Stellation Capital’s Peter Boyce outlines how to get the best investors and terms for your Series A fundraise at TechCrunch Early Stage
Accel announces new $650 million fund to back Indian startups
Across the week
We get to hang out in person! Soon! Techcrunch Early Stage 2022 is April 14, aka right around the corner, and it’s in San Francisco. Join us for a one-day founder summit featuring GV’s Terri Burns, Greylock’s Glen Evans and Felicis’ Aydin Senkut. The TC team has been fiending to get back in person, so don’t be surprised if panels are a little spicier than usual.
Also, follow our newest producer for Equity: Maggie Stamets!
Seen on TechCrunch
Seen on TechCrunch+
Until next time,