Venture Context - May 23

Hello and cheers, dear readers! ??

As we dive into today's edition, let's kick off with an intriguing tidbit: did you know that our beloved Twitter was actually a swan song for a podcast platform named Odeo? ?? That's right! Co-founded by Evan Williams and Biz Stone in 2005, Odeo found itself outmatched by Apple's iTunes in the podcast arena and was struggling. However, it was from these ashes that Twitter, the platform we now use to tweet our daily thoughts, emerged during a creative hackathon. A prime example of 'When one door closes, another opens', don't you think? ??????

As we get ready to unpack more fascinating insights, let me ask: what are you sipping while you scroll? I'm enjoying a refreshing Nimbu Pani (lime juice) here! ??

So, settle in, keep your drink handy, and prepare for some delightful reading. Happy scrolling! ????

Today's Top Startup News ???

?? Anthemis Group Targets $200M Fund - After cancelling SPAC plans, Anthemis Group is aiming to raise $200M for a third fund, with $36.4M secured so far, according to an SEC filing.

?? Chalo Secures $45M to Digitize Bus Commutes - Indian company Chalo raises $45M in a Series D funding round, bringing total funds raised to $119M. The round was led by Avataar Ventures, with participation from Lightrock India, WaterBridge Ventures, and others.

?? Firmbase $12M for Financial Planning - Startup Firmbase, offering a modern financial planning platform for startups, raised a $12M seed round led by S Capital and Meron Capital.

?? FlowX.ai Raises $35M for AI-based Approach - FlowX.ai secured $35M in Series A funding to further develop its product and expand globally. The company unifies legacy and newer software into a single platform to build and run applications and services.

?? Infinite Uptime Gains $18.8M in Tiger Global-backed Round - Industrial IoT startup Infinite Uptime raised $18.85M in a funding round led by Tiger Global for predictive maintenance solutions for machinery.

?? PhonePe Expands Funding to $850M - Indian fintech startup PhonePe increased its ongoing funding round to $850M, with General Atlantic adding $100M. The round values PhonePe at $12 billion.

?? Axelera AI Secures €46.2M for US Expansion - Dutch-based AI chip manufacturer Axelera AI added €46.2M to its Series A round for US expansion, raising the total funds to approximately €46.25M.

?? Swedish Online Grocer Mathem Raises €84.9M - MatHem, an online grocery store in Sweden, raised nearly €84.93M in an oversubscribed round from Kinnevik, Verdane, and others. They have also renegotiated their external credit financing for future financial flexibility.

Capital Catalyst ??

?? The Market Cap Chronicles: Unraveling the Mysteries of Valuation ??

Welcome, founders, to the exciting world of market capitalization! ?? Today, we embark on a thrilling journey through the highs and lows of this financial concept that can make or break a company's fortunes. So grab your favorite caffeinated beverage ?? and let's dive in!

?? Meet Our Fictitious Startup: EmojiLand ????

To make our exploration of market cap more engaging, let's imagine a hypothetical startup called EmojiLand. Picture this: EmojiLand has developed a revolutionary app that allows users to communicate solely through emojis. ????

Now, let's unravel the secrets behind market cap and how it impacts the value of EmojiLand.

?? Crunching the Numbers: Calculating Market Cap

Market cap acts as a magical number that gives us a glimpse into a company's worth. The formula to calculate market cap is simple yet powerful: Market Cap = Total Shares x Value-Per-Share. ??

For EmojiLand, if it has issued 100 million shares, each trading at a price of $5, the market cap would be $500 million. ????

?? Large, Mid, Small... and Nano? Introducing Market Cap Categories

Now that we've grasped the basics, let's uncover the fascinating world of market cap categories. While terms like large-cap, mid-cap, and small-cap are commonly used, there's no standardized definition for each group. Some even go beyond, including nano-cap, micro-cap, and mega-cap. ??

Think of EmojiLand as a mid-cap company, nestled between the big giants and the smaller upstarts. This categorization depends on various factors, including market dynamics, revenue, and growth potential. ????

?? Market Cap vs. Enterprise Value: A Tale of Two Valuations

While market cap is crucial, it doesn't reveal the complete story. Enter enterprise value, another fascinating way to measure a company's worth. The formula for calculating enterprise value is as follows: Enterprise Value = [Market Cap + Cash] – Debt. ??

By adding EmojiLand's market cap to its cash holdings and subtracting any outstanding debt, we arrive at the enterprise value, which provides a more comprehensive picture of the company's true worth. ????

?? The Merger & Acquisition Dance: Market Cap and Premium

Now, let's bring some drama into the mix! Imagine EmojiLand catches the eye of a larger company, Emojoy, that wishes to acquire it. The premium comes into play here. The formula for calculating the premium is: Premium = M&A Price – Enterprise Value. ????

If Emojoy offers a higher price than EmojiLand's enterprise value, the premium becomes the cherry on top, representing the extra value Emojoy sees in acquiring EmojiLand's unique app and customer base. ????

?? Crypto Capers: Market Cap in the World of Digital Assets

Market cap isn't confined to traditional stocks alone; it's a superstar that shines in the crypto realm too! In the land of cryptocurrencies and NFTs, market cap helps determine the total value of a specific asset compared to the total number of coins in circulation. ????

For instance, if EmojiCoin, EmojiLand's very own cryptocurrency, has one million coins in circulation, each valued at $10, the market cap would amount to a whopping $10 million. ????

?? Additional Insights: Private Companies and Fair Market Value

But wait, there's more to the story! Private companies determine their value through other means. One important method is the 409(a) valuation, which helps establish the fair market value (FMV) of common stock and price employee options. ????

A 409(a) valuation takes into account various factors, including financial projections, industry trends, and the company's overall growth potential. It ensures that common stock and employee stock options are priced fairly, providing a benchmark for their value.

So, founders, armed with these formulas and newfound knowledge, you're better equipped to understand the captivating world of market cap and its role in shaping the destiny of startups like EmojiLand. As you embark on your own entrepreneurial journeys, keep these insights close and aim for the stars! ???

Thinking Paradigms

Mental Model: First Principles Thinking ?? ??

First Principles thinking is a mental model ?? often used by successful entrepreneurs and founders. This approach involves breaking down complex problems into their basic, fundamental parts ?? and then reassembling them from the ground up. It’s a way of bypassing analogies, conventions, and historical precedents so as to think from scratch. ??

Elon Musk, the founder of SpaceX and Tesla, is a well-known proponent of first principles thinking. He uses it to make decisions that challenge prevailing norms and bring radical innovation. ????

Example of First Principles Thinking in Decision Making: ??

Let's take an example from SpaceX. When Elon Musk first had the idea to send a rocket to Mars, he began by trying to buy ICBMs (Intercontinental Ballistic Missiles) from Russia because that's how it was conventionally done: by repurposing old military hardware. ???? But he found out that it was too expensive ?? and the deal fell through.

Instead of giving up, Musk applied first principles thinking. He asked himself, "What is a rocket made of? What are the fundamentals of a rocket?" ??

He realized that rockets are made up of aerospace-grade aluminum alloys, plus some titanium, copper, and carbon fiber. Then he asked, "What is the value of those materials on the commodity market?" It turned out it was about 2% of the typical price of a rocket. ???

By applying first principles thinking, Musk decided that he could build his own rockets, directly from the raw materials, and potentially enjoy a 98% reduction in costs. ???? By doing so, he managed to slash the price of reaching space to a fraction of what it was with traditional methods and founded SpaceX, which is now revolutionizing space travel. ???

In this way, First Principles thinking is a powerful mental model that helps founders make decisions not based on what others have done or what is conventionally accepted, but based on the most fundamental truths of a situation. It often leads to innovative and disruptive ideas that could give an edge in the highly competitive entrepreneurial environment. ????

Tuesday Humour ??

A young entrepreneur had a brilliant idea for a startup and was looking for funding. So, he decided to pitch his idea to a venture capitalist. He walked into the VC's office, confident and prepared. He began his presentation, explaining the problem his startup aimed to solve and the innovative solution they had developed.

After listening intently, the venture capitalist interrupted and said, "I really like your idea, but I have one question. How do you plan to make money?"

The entrepreneur paused for a moment, then smiled and replied, "Well, it's simple. We will start by selling our product at a loss, and then make it up in volume!"

In a bustling startup office, a team of developers was working hard to meet a tight deadline. Suddenly, the CEO burst into the room, full of excitement.

"I've just read an amazing article!" the CEO exclaimed. "It says that if you mix Red Bull and coffee, you'll have the energy and focus to work non-stop for days!"

The developers exchanged skeptical glances but decided to give it a try. They mixed Red Bull and coffee, creating the ultimate energy potion, and started working furiously.

Hours passed, and the developers began to feel the effects. They were typing at lightning speed, coming up with innovative ideas, and feeling unstoppable. They were amazed at the superhuman productivity this concoction had given them.

Just when they thought they were invincible, the office suddenly plunged into darkness. The power had gone out.

In the pitch-black office, the CEO's voice echoed, "Don't worry, everyone! We'll just pivot to candle-making. We've got plenty of wax around here!"

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— Joseph Abraham