Week Ten: Black Friday Warm-Up

This is all just a lead up to Black Friday.

Housekeeping

Ladies and gentlemen, welcome to the tenth edition of Venture Vantage. Double digits, baby. We’ll be exploring topics related to tech and the venture ecosystem.

Long edition this week to make up for last week. You’re welcome.

As always, please?hit me back?with feedback and comments—I’m constantly seeking ways to make this newsletter a more valuable read.

Diving right in and keeping things brief:

News, Deals, and Pretty Things

The year of defense

Context:

• Defense tech investment is hitting record highs, driven by global conflicts, increased tech integration in defense systems, and anticipated growth in the Department of Defense’s budget.
• Year-to-date, defense tech startups have raised $3 billion across 85 rounds, surpassing 2022’s $2.6 billion total.
• The lines between defense and commercial tech are increasingly blurred, with dual-use applications making the sector more appealing to investors.

Vantage:

• In case anyone forgot, this year was the first year that YC invested in a defense company. The space is clearly losing the negative stigma as both GPs and LPs begin to recognize that the world is becoming increasingly tumultuous and we desperately need defense tech to keep ourselves alive.
• In addition to YC, funds like a16z, Founders Fund, and General Catalyst are leading investments, signaling growing acceptance and appetite for defense startups.
• Defense tech overlaps with commercial sectors, creating dual-use applications and broader market opportunities for startups.

What the hell is Bluesky?

Context:

• Bluesky is a new decentralized social media platform using the AT Protocol that allows users to share short text messages, images, and videos. It is meant to compete with X. It was conceptualized by Jack Dorsey in 2019.
• Since its launch last week, 20 million users have signed up. Over one million users signed up in the first 24 hours. That is INSANE.
• Bluesky differentiates itself with traditional block features, decentralized protocols, and its refusal to use user content for AI training.
• Raised a $15 million Series A round in November 2024 to fund subscription-based premium features like high-quality video uploads and custom domains.

Vantage:

• This could signal a few really interesting things for X: first, that mixed politics are having a hard time merging on X. Given the nature of what people on the platform like to talk about, it creates conflict for some.
• The second thing it could signal about X is that some people value privacy and data control over reach or audience. They would rather their data not feed an AI model like Grok, and prefer to have their data be “decentralized,” even if that only really materializes itself in community notes.

Citi breaks up with Temu

Context:

• Citi stopped handling Temu’s payments in the U.S. after Visa raised concerns about Temu’s lack of compliance in preventing counterfeit goods and ensuring proper merchant oversight.
• Temu has since improved its compliance measures, including hiring financial compliance staff, adhering to Visa’s merchant codes, and implementing anti–money-laundering controls for high-volume merchants.
• Temu replaced Citi with PayPal, Worldpay, and other processors while maintaining Citi’s treasury services for lower-risk operations.

Vantage:

• This precedent could likely threaten the stability of card processors in the long run. They are already threatened with the rise of crypto and their high interchange fees, and “starting beef” with big merchants on their own accord (rather than compliance crackdowns from regulators) would add strain to a delicate relationship.
• This can act as a warning to early-stage companies that compliance is incredibly important to the stability of their business. Not taking it seriously can lead to card processors cutting them off, leading to gaps in service.
• Temu’s rapid rise emphasizes that speed to market without foundational processes can backfire.

Pony AI is planning an IPO

Context:

• Chinese company Pony.ai says it is the “leading global autonomous driving technology company pursuing an ambitious vision for autonomous mobility.” I think Waymo would beg to differ, but okay, chief.
• The company is planning to offer 15M shares on the Nasdaq at between $11-13/share, raising around $195M.
• Chinese company WeRide, another autonomous driving company, went public at the end of October of this year.
• The company is sitting at a $4.48B valuation today, but it was at an $8.5B valuation in 2022. Ouch.
• The company saw an 86% revenue increase in the first three quarters of 2024, taking it to $39.5M for those three quarters.

Vantage:

• The appetite for Chinese autonomous driving companies is clearly growing as US investors begin to realize and understand that China is in dire need of better transportation infrastructure.
• Even with growing revenue, valuations are falling. This is not a good signal for the many funds that deployed capital during the 2020-2022 valuation spike. TVPI is falling, and DPI will become increasingly challenging for many of these funds.

Deals that caught my eye

Here’s the latest and greatest:

• Synthesia, an AI video creation platform, is raising a $150M round led by NEA, setting their valuation at a $2.1B post. 17 months ago, its valuation was sitting at half that. The company is doing about $6M+ in MRR. Unexpected vantage: This could probably hint at the fact that median valuation multiples are cooling, and not everyone is fetching a Sam Altman-like multiple.
• Blackstone is nearing a deal to buy Jersey Mike’s for roughly $8B. The founder, Peter Cancro, has said that he thinks the business can expand to 4,000 locations with $6.5 billion in sales by 2027.
• Citizen Health, an AI-powered centralized EHR, raised a $14.5M seed round led by Transformation Capital,?with participation from?Wavemaker 360.
• Zenflow closed a $24M Series C led by Cook Medical for their medical device that treats urinary obstruction caused by enlarged prostate. The device uses a spring-like coil that gently props open the urethra, restoring its normal function while preserving the natural anatomy.
• Aquaria raised a $112M round from Mistletoe, Ciri Ventures, Soma Capital, and more to build communities and cities supplied with water from the sky. Aquaria is leveraging atmospheric water generators (AWGs) that use patented materials science and heat exchange technology to offer the highest water production.
• Radiant Industries raised $100M in their Series C to to complete its Kaleidos Development Unit, a portable nuclear reactor. The round was led by DCVC, with participation from a16z, USV, Chevron Technology Ventures, Founders Fund, and more.

Rapid Fire

• Context: ChatGPT is now available as a Windows application for all users rather than just paid subscribers. | Vantage:?I’d be curious to see what this does to ChatGPT’s paid user base on Windows. Will this be reason for paid subscribers to downgrade, or will it be a good entrée for new users on Windows to become paid subscribers after trying ChatGPT?

• Context: TSMC is opening three production facilities in Arizona after the Biden administration finalized a $6.6B funding agreement. The total investment into this project is expected to near $65B. | Vantage: As the CHIPS Act goes into effect, the US is trying to de-risk chip manufacturing and access by lessening Chinese threat against it.
• Context: OpenAI launched a free course for K-12 teachers on using ChatGPT for lesson plans and tutorials, sparking both excitement and concerns over ethics, safety, and AI’s role in education. | Vantage: If company-led self-regulation for AI is deemed to be inefficient, the government may have to step in to set broad regulations and limits.

White Hot

Human Health:

• Wearables that leverage electromyography (EMG) to quantify and monitor muscular strain and recovery. Traditional accelerometers and heart rate sensors fall short in providing a comprehensive picture of muscle condition, both during and after a workout.
• Wearable patches that deliver targeted neural stimulation via low-frequency electromagnetic pulses to regulate emotional states. These could be used to manage stress, enhance focus, or improve mood on demand.

Future of Work:

• Tech consolidation platforms that turn multiple UIs for different platforms into one combined UI. For example, rather than dealing with a CRM, an email inbox, a task manager, etc., a tool that simply plugs into each one and ports them into one place.
• An AI tool that makes instant introductions for people in your network. This could totally be a plugin to Clay or Superhuman, but I would love to just tell an AI tool “intro these two people,” and it pulls all the context from your emails/LinkedIn, and makes the intro.
• Automatic task tracker. I would happily give an application access to record/view my screen if it meant that it was “taking notes” on everything I need to do, and then gave me alerts if they weren’t done in 3-5 days.

Infrastructure:

• Existing fire alarm systems suck. Most people don’t take them seriously and chalk up lights and sirens to a false alarm. There has to be a better system that requires less tests and communicates in a non-binary manner, giving nuance and context to the situation at hand.
• Technologies that allow us to capture waste energy. For example, imagine if the paint on your walls acted as solar panels, collecting just a few watts of power from the lights in the room. Given tech today, a solar panel outside can generate about 10W/sqft, but inside they can only generate about 0.1W/sqft. It’s a lofty dream, but when the tech evolves, could be a cool way to re-capture lost energy.

Some cool stuff on my radar

• Waiting for this to not be out of stock, but the Aer Gym Tote looks like the ultimate gym bag. I love my North Face Base Camp, but it lacks the organization and sleekness of this Aer bag.

• I’ve had my eye on the Arc’teryx Covert Half Zip for a while now. Fingers crossed it goes on sale for Black Friday.
• Wahoo is planning something “Epic” on December 3rd. Whatever this new bike computer is, I will be buying it. I am so over my Garmin 840 and its constant issues—time to join team Wahoo.
• It seems like men’s slides are making a comeback; we saw this with the Birkenstock slides. I would love a pair for winter in the office, and these Lusso ones look like the best option.

Continued Reads

This week’s continued read is Lemonade’s Synthetic Agents. A snippet:

“We think Synthetic Agents are something of a game changer for Lemonade. We can henceforth accelerate growth without drawing down our capital reserves or selling more equity; and we can generate a significantly larger business, far sooner, with more cash in the bank, and with a materially higher return on capital. That’s a lot. In fact, thanks to our Synthetic Agents, we estimate the IRR on our CAC spend will jump to ~90%!”

Read it here.

Closing

Thanks for taking time out of your Wednesday to read.

As always, you can find me on?X?and?LinkedIn, and I’d love to hear from you via?email. Whether it’s talking startups or just shooting the shit, I’m always happy to connect.

Onto the next!

//Eli