VENTURING WITH
Good morning!
There is no better feeling than getting feedback on the newsletter. It means a lot, and recently the inbox has been overflowing!
Here are a couple replies I received from Newsletter #26:
- “So funny, my friend just asked if I was following your newsletter. You're blowing up!”
- "Just a quick note to say I'm absolutely loving the newsletter - only one I regularly read.”
Showtime.
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THE BIG INTERVIEW
Earlier this week, I caught up with Nick Lombardo, President and Co-founder of Arc Technologies. Arc is a cutting edge company providing non-dilutive funding to high-growth Saas companies.
In the conversation below, Nick and I discuss Acr’s massive $161M raise, if non-dilutive funding is a threat to VCs, and so much more. Enjoy! (This interview is edited for length and clarity.
Pictured: Arc President Nick Lombardo
Alan Soclof: Hey Nick! Great to connect with you today. Why don’t you start off by telling me a little about Arc?
Nick Lombardo: Great to be here, Alan. Arc is about a year old. My co-founder Don [Muir] and I both have backgrounds in underwriting and funding mature companies from earlier in our career. We’ve seen how cumbersome and time-consuming this process is.
Then when we started at Stanford Business School, we saw firsthand how the process is even more complex at the venture level. Accessing non-dilutive capital is difficult for startups and even when you can access the funds, securing them takes a while.
We saw a massive opportunity and wanted to create a solution for this. Simply put, Arc provides non-dilutive funding to fast growing SaaS companies by modeling their ARR and giving them a significant portion of that money upfront. This provides a significant influx of capital to a company without diluting founders or investors.
AS: I love it! How do VCs feel about this model? Do they view you as competition?
NL: First, looking at pre-revenue startups, there is still a huge opportunity for venture capital and that is not our primary focus.
When looking at revenue-generating companies, specifically within the SaaS vertical, we have found that we coexist quite well with VCs and are actually partners with many VC funds. Why? We help provide another financing tool for quality, VC-backed companies in-between VC rounds, providing more liquidity. Additionally, VCs really like us as their ventures can get funding without diluting their own equity stakes in the companies.
YCombinator in particular is one of the bigger ones we've worked with and is a great partner.
AS: How would you say the current macro environment has impacted your business?
NL: Without a doubt the macro environment has been a significant tailwind for Arc. As valuations of publicly-traded companies have compressed, now we are starting to see this impacting the private markets. The ability to raise non-dilutive capital that is revenue-based and valuation agnostic has become extremely attractive for startups.
Actually, earlier this week we announced a new product called Runway by Arc focused on helping startups weather this volatile macro environment. Using our machine-learning capabilities, we are providing founders with insight into net cash burn, cash on hand, and runway, as well as flexible, low-cost capital within 24 hours.
AS: That is amazing and incredibly timely! So, you and the team just raised a pretty significant funding round of $161M. What is your plan with that money as you look at the next steps of Arc’s journey?
NL: $11M of the funding round was equity and is focused on funding our business operations. The other $150M is debt that we are looking to fund premium software companies with.
$150M is a serious amount of money, but we want to make sure that our customers have the types of solutions and capital necessary to fuel their growth. With the quality of our proprietary Arc Score and ML-enriched modeling—represented by the fact that we don't have any missed payments or defaults—we expect to see meaningful growth from this round.
AS: Finally, what would you say the demand for Arc’s overall product and model has looked like? What have you seen?
NL: There's been a lot of demand. We've been fortunate enough to double every month since we launched and turned on revenue in November, which has been great. And the breakdown of our customer base has been split pretty evenly across VC-backed companies and bootstrapped businesses.
AS: Any final thoughts to share before we wrap it up?
NL: The last thing I want to share is that for Arc it really comes down to depth over breadth. We want to create a really awesome funding product and full-service finance platform for a vertical of companies—building the best solution tailor-made for SaaS—rather than create one product that goes very broad across industries like other Fintechs.
Alan’s Angle: I had a great time chatting with Nick. I’m incredibly bullish on non-dilutive funding and Arc in particular. Why?
Because it just makes too much sense.
I can only imagine how tough it is for founders to give up equity in their business, and an alternative like Arc’s (both from a financial and time perspective) is great.
Here are my 3 key takeaways from the call:
- VCs are friends: Going into my conversation with Nick, my first thought was that a company like Arc is a threat to VCs. As you read above, Nick shared that they are actually great partners. Whether it’s serving as a bridge between funding rounds or allowing VCs to avoid dilution or deploy more capital, VCs and Arc are on the same team. Avoiding competition against large and connected VCs is integral.
- Founders’ experience: Both Nick and co-founder Don have experience working on Wall Street for top firms like Credit Suisse and Apollo Global Management. Add Stanford Business School and YCombinator on top, and the two have had an incredible wealth of experiences. Talking to Nick for just a few minutes, it was abundantly clear that their experiences enabled them to understand their customers inside and out.
- Never fail: The key to success for a company like Arc is the quality of their algorithms, machine learning, etc.—and Arc’s is big time. What they call their “Arc Score” is cutting edge, and as Nick mentioned to me, has never seen the failure of a payment. A 100% success rate gives Arc an incredible foundation to build off of.
QUOTE OF THE DAY
Humility.
“The takeaway here? Humility goes a long way in life, and especially in the startup world. Don’t go bragging until you have something to brag about, and even then, let your results speak for themselves."
- Marry Ann Azevedo, Sr. Reporter, TechCrunch
CLOSING THE DOORS
Zero Grocery
***New Section Alert***
In this section, I’ll break down a venture that recently “closed the doors.” My goal is to have investors and founders learn from other companies’ mistakes and implement these lessons in their ventures and investments.
What They Did: Grocery delivery in under 2 hours emphasizing sustainability
Money Raised: $16.5M
Year Founded: 2019
Previous Accomplishments: Since September 2020, the company had doubled the size of their team, doubled the amount of markets they were available in, doubled its customer base, and said that “the payback on any dollar invested in growth in 2022 has tripled over what we averaged in 2021.”
The Rundown: Two weeks ago, Zero Grocery announced that they would be closing the doors to the business just one month after raising an $11.8M seed round. The CEO shared that the company was “chronically undercapitalized.”
Key Takeaways: This is just wild stuff. Closing the doors a month after a ~$12M raise is crazy.
The angle here is simple: Investors should always ask the basic due diligence questions regarding cash burn, run rate, unit economics, etc.
For founders, there is likely no better way to spend a few hours than learning the basics of financing and business modeling to ensure your capital allocation and finances are healthy.
RECENT ROUNDS
Thunkable
What They Do: Create custom apps requiring no code
Amount Raised: $30M Series B
Lead Investors: Owl Ventures
The Rundown: Thunkable has created a platform that allows individuals to create an app with no coding required. The company already has 3M users and 6M apps created on the platform.
Thunkable has quite the interesting history as it was built at MIT and then went through YCombinator.
Learn More: Press Release & Company Website
Terradepth
What They Do: Mapping ocean floor
Amount Raised: $20M funding round
Lead Investors: Giant Ventures & Nimble Ventures
The Rundown: Terradepth is looking to map the ocean floor using submersible drones and data visualization. Only 20% of the ocean floor has been mapped so there is a lot we don’t know.
How will the company make money? By selling the data to governments, organizations, and businesses focused on climate change.
Learn More: Press Release & Company Website
Cottage
What They Do: Platform that unites homeowners and contractors to build ADUs
Amount Raised: $15M Series A
Lead Investors: Fifth Wall
The Rundown: Accessory Dwelling Units (ADU) are secondary housing units built on a single family residential lot.
Cottage makes it as easy as 1-2-3 to build highly customizable ADUs through their platform, and make it simple by connecting homeowners with local, curated contractors. Check out the site! The houses are pretty cool.
Learn More: Press Release & Company Website
Mikuna Foods
What They Do: Superfood manufacturer
Amount Raised: $5.6M seed round
Lead Investors: Professional athletes and key stakeholders
The Rundown: Mikuna looks to make the cleanest protein brand on the market through the launch of the Chocho protein powder with one ingredient: Chocho.
Chocho is a “clean superfood” sourced in the Andes Mountains which contains 20 grams of protein per source.
Learn More: Press Release & Company Website
Glip
What They Do: Creator tool suite from gamers
Amount Raised: $3M pre-Series A
Lead Investors: Prime Venture Partners
The Rundown: Glip is focused on disrupting the video game streaming landscape by launching 3 tools for content creation: recording, streaming, and creating montages.
The company already has 2M users in just 3 months and is looking to reach 10M by the end of the year.
Learn More: Press Release & Company Website
TRIVIA TIME
Q: How many employees has better.com let go since December 1 (so far)?
JOBS
Here are three of my favorite jobs from the startup/VC world today. Click here to post a job on the Just Raised Job Board and get it featured.
Apeel Sciences developed a plant-based technology that extends the shelf life of fresh produce and reduces food waste. Apeel is the giant in this space after raising a $250M round at a $2B valuation, and now they’re looking for a recruiter to help the company find some new employees!
Business Operations Lead, Maven
Maven looks to create the university of tomorrow by creating a platform where world-class creators can teach courses to their audiences. Maven is now looking for a Biz Ops Lead to be a true jack of all trades for the company. With only 20 people at Maven, the person in this gig will get in at the ground floor of a hot company that is also a16z backed!
GitHub is a company disrupting the way the brightest developers in the world work by giving them a platform to collaborate across the organization in an easy-to-use service. GitHub is looking for a Director of Brand to work with designers and engineers to take the company’s brand to the next level. Also, the person in this role will technically be an employee of Microsoft, as they acquired GitHub back in 2018.
GOLDEN NUGGETS
All-In podcast discussing the collapse of Fast and proper governance was flames
Very excited about Spotify Greenroom getting integrated into the main Spotify app. Live podcasts, baby!
Sports are unbelievable. An 8-year-old battling cancer was being interviewed at the Tampa Bay Rays game when her favorite player, OF Brett Phillips, hit a home run. Unreal.
- Loved this tweet by Cut4 after Vlad Guerrero Jr.’s 3 HR performance last night. How cute was he!
FINAL THOUGHT
Thanks for reading! If you have any feedback, please reply back to this email. See you on Tuesday!
— Alan (@alansoclof)
Trivia answer: ~4,000
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