06 May 2022 |

What’s Up With Early Stage Investing, From Angellist



What’s Up With Early Stage Investing, From Angellist

Last week I came across a great report from Angellist and Silicon Valley Bank on “The State of Early Stage Venture & Startups,” which featured a ton of interesting data. Here are some notes I took on what I thought was compelling:

  • Markup rate is slowing down: For the past 3 quarters, the rate of markups recorded on the Angellist platform has been slowing down, from an all time peak of 90% in Q2 2021 to 83% last quarter. Despite a few quarters of data, the report says its too early to tell whether this is indicative of a larger trend. That being said, this is still far higher than Angellist’s average markup rate, implying that there’s still an increased frenzy in early stage venture deals. 
  • Most active Q1 on record: According to Angellist, 11.6% of startups on the platform raised a round last quarter—an all time high. While markups are slowing down slightly, they’re still above the historical average. The activity of deals is further evidence that things are slowing down, but just a bit. 
  • Web3 and Fintech: Web3 and fintech accounted for 20% of all funding in Q1, and Web3 was the most-funded sector for the first time too, with 11.5% of deals and 11.6% of capital deployed on Angellist. Fintech accounted for 9% of deals.

Fintech Payroll’s Out Of Control

There was another alarming data point in the Angellist report that I feel warrants its own section: fintech payroll absolutely exploded over the past year. 

Now, my first instinct is to call bullshit: there’s no way fintech companies are spending more than other sectors on talent. Everyone’s spending a ton. 

And then you think about it a bit more: not only are companies within fintech poaching talent from each other, but also seeing talent leave for greener Web3 pastures. And with fintech companies raising more and more money, early stage compensation is bound to skyrocket. In just the last quarter, median quarterly payroll spend jumped 22% for fintech companies; its increased 158% year over year. 

This could result in us seeing more layoffs in fintech—if founders have a tough time raising later rounds over the next few months, yet payroll is inflated compared to other sectors. For founders, the choice could be to take capital at a down round and a lower valuation or reduce burn through layoffs, increase your runway, and stick it out longer.

El Salvador’s Bitcoin Experiment

Remember when El Salvador decided to make bitcoin legal tender there? Well, adoption isn’t going that great, according to a new study. Only 20% of wallets are still being used, the majority of which were downloaded to get a $30 bitcoin bonus from the government. Part of it could be that businesses don’t really accept bitcoin yet either, even though they’re supposed to. Only 20% of businesses do, the other 88% saying they convert it into fiat currency instead of keeping a bitcoin balance. 

Part of the difficulty here could be launching a government-backed consumer facing app. While the $30 bonus is a great incentive, building consumer finance apps that engage users over time—especially when you’re trying to instill a new behavior—is really hard. I wonder if a strategy to help developers and businesses easily accept bitcoin payments could work instead.

A CFTC For Crypto Exchanges

A new regulating body for crypto exchanges? The Digital Commodity Exchange Act hopes to accomplish just that. Introduce by PA Republican Glenn Thompson, and sponsored by Democrats Ro Khanna (CA), Darren Soto  (FL), and Republican Tom Emmer (MN), the bill proposes to have a voluntary central regulatory agency in charge of crypto exchanges that deal with the transfer of digital commodities. Interestingly, this seems optional—The Block says that companies can still operate in the US and not register with the DCEA. 

This bill also strips some oversight away from the SEC, giving the DCEA “exclusive jurisdiction” over digital commodity sales. Thanks to confusing regulation, the SEC has been able to put more and more crypto related initiatives under its purview. While it remains to be seen how likely this is to pass, its a step in the proper direction of regulating specific use cases around crypto versus blanket regulation.