Neal's Deals (Vol. 16)
Hey everyone - It has been a chaotic week for the US economy as the debt ceiling has been reached (since January, actually) and lawmakers were trying to pass legislation by the June 5th deadline to prevent a catastrophic default. Thankfully, however, a bipartisan agreement was reached to suspend the government debt ceiling for two years. If the US government did not find a solution to this situation, there could have been far-reaching implications for every American, the startup community, and the global economy at large.?
Regardless, I recognize this news story can be perceived as confusing, boring, and irrelevant to many folks. For that reason, in this week’s edition of Neal’s Deals, we are going to break down the context and importance of the recent development so everyone is on the same page and can sound well-informed at their next family dinner.?
To start, what is the debt ceiling??
The debt ceiling is a limit set by the government on the amount of national debt that can be incurred. In general, debt is racked up by spending money you don’t have or by continuing to borrow money and not paying it back. In our government’s case, they spend a lot more money than they bring in through taxes and other revenue streams. This government spending includes salaries for government employees, national defense, education, social security, interest on bonds and healthcare. Because of all of these costs, the government has borrowed huge sums of money (mainly in the form of issuing bonds) to pay these bills. Now, the government has reached the deadline in which they need to do something about the fact that they are $31 trillion in debt (which was the debt ceiling set in 2021).
Great so the government spends too much, so what happens now??
Well, if an agreement was not reached to suspend or raise the debt ceiling, the government would have been forced to cut spending on many programs and would have failed to pay bondholders who lent them the money in the first place (i.e., the government would default on their loans).?
Why should I care??
The US dollar is the largest global reserve currency. In other words, it is the currency most held by central banks across the world, and remember, the value of the dollar is tied to the credibility of the US. If the country cannot pay its debts, the currency is going to be perceived as risky, which can destroy its value and tip off a global recession.?
Treasury Secretary and former Federal Reserve Chair Janet Yellen summed it up well by saying, “Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans and global financial stability.”
As it relates to the startup world - as many of you can probably figure out - not reaching an agreement would have been very very bad news. In times of economic uncertainty, borrowing costs will likely be much higher and Venture funds would struggle to raise additional capital given the risky nature of investing in startups. Consequently, the funding environment would somehow be more constrained than it is today.?
So in short…
The US has never gone into default, so no one knows exactly what would have happened if the legislation had not passed. Nevertheless, the country found a way so we can keep funding startups and writing Neal’s Deals!?
**Disclaimer: This piece was originally written before the news came out that the debt ceiling had been suspended. Regardless, the content is still extremely valuable, as the topic will remain a top priority in the upcoming US elections.
Let’s get to it:
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Antimatter, a New York meme-based learning and teaching platform raised $2 million in seed funding led by Version One.
Why this is interesting: Tens of thousands of students and teachers are already using Antimatter to bring memes into the classroom. Why? Well, in many respects, creating memes is one of the highest forms of consciousness about a subject, so if a student really understands a topic, they should be able to make a meme about it. I have spoken with dozens of ed-tech companies that are all creating different iterations of the same learning content. What is particularly exciting about Antimatter is that they are trying to motivate students to find joy in learning in times when educators are struggling to make sure students are actually turning in their own work (cough, cough, chat GPT, cough…). I fear that there may not be a large moat around what Antimatter has built, which may leave room for existing ed-tech companies to copy their product and leverage their existing distribution channels. Regardless, I can see unique value in what they are doing given my background in leveraging subpar memes to better explain content.?
Wellplaece, a San Francisco-based supply purchasing platform for dental professionals raised $3.5 million in seed funding co-led by Eniac Ventures and Bee Partners.
Why this is interesting: There are nearly 186,000 dental practices in the US and most are replenishing supplies from half a dozen suppliers multiple times a month. This is because of the velocity in which dentists go through one-use materials like gloves, tooth paste, bibs, plastic covers and fillings. The Wellplaece founders explain that the least efficient dental practices may be spending upwards of 10% of their overall budget on supplies, whereas the most efficient practices may get it down closer to 4%. The Wellplaece procurement marketplace allows dental practices to reduce their spend by curating a list of supplies from a catalog of over 700k products across suppliers in multiple geographies. The first users of the marketplace saw an average savings of 20%-40% per order, so this vertical-specific platform seems like a winner given they are solving for a market that is clearly plagued with information asymmetry.?
Stepful, a Sacramento startup that has developed an online learning platform for healthcare workers raised a $7.5 million seed round led by Reach Capital.?
Why this is interesting: It is no secret that the healthcare industry is facing an unprecedented workforce crisis. The World Health Organization predicts that there will be a shortage of 15 million healthcare workers worldwide by 2030. This staffing deficit is fueled by an aging US population, where over 20% of the population will be 65+ by 2030. There are also widespread reports of nurses quitting the profession due to burnout, and sadly there is a lack of nurse faculty to teach interested prospects. It is an unfortunate statistic, but nursing colleges turned away 80,407 applicants in 2019-2020 due to a lack of faculty. Insert Stepful. To address the pain point, they have developed an online learning platform that has graduated over a thousand students to date and leverages proprietary content to deliver cost-effective and time-efficient training for new medical assistants. If Stepful can attract students to its platform at a low cost, I can see them being a very successful health-tech <> ed-tech business given their extremely compelling problem statement and strong product-market fit.?
Deals in the Works:?If you want to learn more - feel free to reach out
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Quote of the week:
Do not go where the path may lead, go instead where there is no path and leave a trail.
-Ralph Waldo Emerson?
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Have a great weekend everyone, and happy June!!!!
Attorney and Claims Professional
1 年Good tips and thoughtful insights, Neal.