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What Are the Most Important People-Related Decisions for Startups?
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By Marc Vartabedian, WSJ Pro
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Good day. In his column this week, the WSJ's Steven Rosenbush looks at how successful venture-backed startups achieve their scale. He reports on an Index Ventures research project showing, among other things, how much time these founders spend on internal people-related matters and how it evolves. We want to know what you think: What are the most important people decisions a startup should focus on as it scales? Email responses to vcnews@wsj.com.
Last week, we pointed out that the median seed pre-money valuation jumped to $14 million this year, up 33% from 2021, at the market peak, according to data from Carta. We asked how seed investors justify these high valuations. Here are responses, edited for clarity and length:
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Ben Narasin, founder and general partner at Tenacity Venture Capital: “The issue is that so many historically Series A Tier 1 [investors] have moved downstream to do seed as seed replaced the Series A of old, and these folks are far less sensitive as they can achieve their target ownership for much less than if they waited for the A—a strong reason for founders not to take seed from Series A investors and to wait for the bigger check they won’t get if they already gave up the equity.”
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Jeff Clavier, founder and managing partner at Uncork Capital: “Typical dilution of a seed round is 20-ish percent, so a $5M or $6M round will often hit a $25/30M post number. While it’s meaningfully higher than the $14M number that you mention, we always focus on providing enough runway to companies so they successfully hit Series A milestones (and then some) while achieving our target ownership.”
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Tanay Jaipuria, partner at Wing VC: “One way to look at the math is that companies reaching Series A typically have valuations on a price per share basis that are at least 1.5-2x greater than the price on the seed. If you’re confident in the founder and the market, it can still make sense to invest at seed, even if you could wait until Series A.”
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Paul Drews, managing partner at Salesforce Ventures: “In my view, the surge in seed valuations is largely driven by firms increasingly entering early-stage rounds, treating these investments almost like call options, especially in the AI space. The rapid pace of AI breakthroughs has created major FOMO, drawing in capital that was previously on the sidelines.”
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And now on to the news...
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The postpandemic pullback in online shopping led to weaker sales for some Amazon aggregators. PHOTO: DAMIAN DOVARGANES/ASSOCIATED PRESS
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Amazon brand-buying sprees end in bankruptcy. Companies that buy up and integrate brands sold through Amazon.com are showing signs of distress, seeking bankruptcy protection or restructuring debt, WSJ Pro reports. Many of these so-called aggregators raised roughly $16 billion to make acquisitions and are now struggling to service the debt after an online shopping binge fizzled with the end of the Covid-19 pandemic.
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In September, Swedish company Go North Group, which bought more than 30 Amazon sellers over roughly two years, became the latest aggregator to file for bankruptcy after at least two of its acquired businesses accused it of defaulting on payments. The filing followed the bankruptcies of Thrasio and Benitago, two larger aggregators, since August last year.
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Tech Giants See AI Bets Starting to Pay Off
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Some of the world’s biggest tech companies showed this week how the tens of billions of dollars they have bet on the artificial intelligence boom are starting to pay off. They also warned bigger investments are coming, The Wall Street Journal reports. Revenue from cloud businesses at Amazon, Microsoft and Google reached a total of $62.9 billion last quarter. That figure is up 22.2% from the same period last year and marked at least the fourth straight quarter in which their combined growth rate has increased.
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BC Partners Credit to Buy Runway Growth Capital
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The credit arm of private-equity firm BC Partners agreed to buy venture debt firm Runway Growth Capital, Dow Jones Newswires reports. Closing is expected in the fourth quarter. Runway Growth Capital will remain the investment adviser to funds including the closed-end investment fund Runway Growth Finance, which is regulated as a business development company.
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‘Scaling Through Chaos’: How the World’s Fastest-Growing Startups Get That Way
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While good luck always seems to be present on the deck of the Good Ship Success when startups strike it big, that’s never the whole story. There are many patterns that can be discerned from the experience of top venture-backed companies, according to Index Ventures partner Martin Mignot, who led a research project on 200 standout examples.
“We kept on getting asked the same questions and the main topic was the team. ‘Who do I hire next and at what level and in what role and how do I organize them?,’ ” said Mignot, who joined Index in 2010 and has invested in companies such as fintech upstart Revolut and food delivery company Deliveroo.
Index addressed those questions in a 300-plus page volume of data and anecdotes titled “Scaling Through Chaos: The Founder’s Guide to Building and Leading Teams From 0 to 1,000,” which is meant to be used as a reference guide for startup founders. It can be read online here.
One striking takeaway is how much time the best founders spend on internal people-related matters.
“Regardless of the size of the team—it can be 10 employees or 1,000—founders will spend the same amount of time, just about 50%, on people,” Mignot said.
Read the full column.
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Funds
Tamarack Global closed its Opportunities II fund at $72 million, which is more than twice the amount the firm raised for its first Opportunities fund.
People
Healthcare-focused Sonder Capital appointed Deborah Kilpatrick as venture partner. She was most recently chief executive officer and executive chair of the board at Evidation Health.
Pre-seed investor Bee Partners promoted Austin Grisham to principal, portfolio and firm operations. He joined the San Francisco-based firm in 2022.
Exits
Aerovate Therapeutics agreed to merge with Jade Biosciences, a startup developing therapies for autoimmune diseases, in an all-stock transaction. Jade was launched in August, the fourth company based on assets developed by Paragon Therapeutics, and has secured $300 million in backing for the merger from an investment consortium. After the merger, the company will trade as Jade Biosciences on the Nasdaq Composite under the ticker symbol JBIO.
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DoorLoop, a Miami-based property management software provider, scored $100 million in Series B funding led by JMI Equity.
Pathos AI, a Chicago-based startup focused on re-engineering drug development through artificial intelligence, closed a $62 million Series C round at a $600 million post-money valuation. New Enterprise Associates led the investment.
Sana, a Sweden-based enterprise AI assistant, picked up a $55 million investment led by New Enterprise Associates at a $500 million valuation. The company also acquired workflow automation startup CTRL for an undisclosed amount.
LuxWall, a Ypsilanti, Mich.-based producer of energy-efficient glass products and technology for the built environment, completed a $51 million Series B round led by Climate Investment and Barclays Sustainable Impact Capital.
Zenity, an Israeli startup focusing on securing AI copilots and low-code development environments, snagged $38 million in Series B financing from investors including Third Point Ventures.
Neara, a Sydney-based predictive modeling software platform for critical infrastructure, landed $31 million in Series C funding. EQT led the round, which included participation from Square Peg Capital and others.
Spot AI, a Los Altos, Calif.-based startup whose video AI agents help organizations surface and resolve incidents across safety, security and operations, secured a $31 million investment. New investor Qualcomm Ventures participated in the round, alongside existing backers including Bessemer Venture Partners, Redpoint Ventures and Scale Venture Partners.
Innoventric, an Israel-based transcatheter tricuspid regurgitation treatment startup, collected $28.5 million in Series B funding led by RA Capital Management.
Third Wave Automation, a Union City, Calif.-based maker of autonomous high-reach forklifts, closed a $27 million Series C round. Woven Capital led the round, with Principal Prashant Bothra joining the company’s board.
Tabs, a New York-based provider of revenue automation technology for B2B businesses, raised $25 million in Series A funding led by General Catalyst.
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Here is our weekly roundup of stories from across WSJ Pro that we think you’ll find useful.
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Learning to cope with supply-chain pressure has given some companies a competitive advantage, but that doesn’t come cheap or easy.
Federal grants totaling $3 billion for clean-energy plans at seaports could be rescinded by a new administration if projects aren’t finalized soon.
As private-equity investors acquire more stakes in accounting firms, concerns from regulators and accountants are growing over potential conflicts of interest.
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Engineers work on an assembling pump at the testing and manufacturing campus for Kairos Power in Albuquerque, N.M. PHOTO: ADRIA MALCOLM FOR WSJ
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