This Week In VC covering vc from a student perspective

September 20 (TWIVC Newsletter #08)

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This is a weekly newsletter covering the top stories in startups, venture capital, and cutting-edge technologies. The newsletter is organized into three sections: a recap of the biggest stories of the week, a long-form deep dive into a specific topic, and a profile of a lesser-known fund.


Weekly Recap

  1. 💵 Chime rings in a new round of funding

    San Francisco-based Chime announced a $485 million Series F round this week, valuing the company at $14.5 billion. The fintech startup primarily focuses on delivering banking services through mobile phones, which is quite a competitive area with several startups known as “challenger banks” directly in competition. With this current round, Chime now has over $1 billion in dry powder that can be deployed for strategic acquisitions in a run-up to a potential IPO late next year. The round had participation from Coatue, Iconic, Tiger Global, Whale Rock Capital, General Atlantic, Access Technology Ventures, Dragoneer, and DST Global.

  2. 🖥 Airtable fills in new capital on its form

    Project management startup Airtable landed $185 million in Series D funding, bringing its total valuation to $2.5 billion. The San Francisco-based startup focuses on increasing productivity by helping teams keep track of timelines and workflows. In conjunction with the new funding, Airtable announced Airtable Apps, a platform for third-party developers to create custom apps. The round was led by Thrive Capital, with participation from Benchmark, Coatue, Caffeinated Capital, and CRV.

  3. 💊 Recursion Pharmaceuticals discovers a pill with funding

    Biotech startup Recursion Pharmaceuticals secured an oversubscribed $239 million Series D round, bringing its total funding to $465 million. The Salt Lake-city based company focuses on drug discovery for rare diseases using machine learning and artificial intelligence. Recursion plans to use the new funding to advance its drug programs through clinical trials, grow the company’s team, build its manufacturing capability, and fulfill an existing partnership with Bayer. The round was led by Leaps by Bayer, with participation from Casdin Capital, Catalio Capital, Laurion Capital, and Samsara BioCapital.

  4. 🏋🏼‍♂️Zwift exercises itself to fresh capital

    Long Beach-based Swift raised $450 million in a Series C round led by KKR this past week. The company operates an online fitness platform that provides indoor riding and running workouts immersed in virtual worlds, an area that is quite hot due to COVID-19. The funding will go towards accelerating the development of the core software platform and bring the company’s proprietary hardware to market.

  5. 📈 Greylock announces its 16th fund

    VC stalwart Greylock announced the establishment of its 16th fund this week, with $1 billion to invest in enterprise and consumer-facing businesses (especially tech). The firm plans to stay focused on seed and Series A investments, but will also be considering growth-stage investments. The last time that Greylock raised a round of this size was 2016.

  6. 💳 Affirm receives a new credit card with tons of cash

    Alternative credit card startup Affirm announced a $500 million Series G round of funding this week, bringing its total funding to $1.3 billion. The company was started by PayPal co-founder Max Levchin in 2012. The round was led by GIC and Durable Capital Partners, with participation from Lightspeed Venture Partners, Wellington Management, Baillie Gifford, Spark Capital, Founders Fund, and Fidelity.

  7. 🧬 Truepill tests positive for a new round of funding

    San Mateo-based Truepill announced a $75 million Series C round of funding this week, just two months after a Series B investment. Truepill focuses on building a B2B model for direct-to-patient experiences that include a telehealth network, pharmacy fulfillment, and a custom-built EMR. The company plans to use the new funding to launch its at-home lab testing network by the end of the year, an especially relevant initiative given the pandemic. The rounds led by Oak HC/FT, with participation from Optum Ventures, TI Platform Fund, Sound Ventures, and Y Combinator.

  8. 💪Tonal gets toned with new capital

    Connected fitness startup Tonal raised $110 million in a Series D round of funding this week. The San Francisco-based company provides a smart home gym designed for strength training, with digital weights that can replicate up to 200 pounds of resistance and AI tech to help users train properly. Tonal plans to use the funding to invest in marketing, brand awareness, and scaling its infrastructure. The round had participation from L Catterton, Delta-v Capital, Mousse Partners, Amazon Alexa Fund, and a slew of athletes including Stephen Curry, Bobby Wagner, Paul George and Michelle Wie.


Longform: Snowflake’s IPO and a broader analysis of the recent IPO mispricings

Cloud-based data-warehousing startup Snowflake went public this week and quickly became the talk of the town as its share price doubled from its IPO price of $120 to its closing price of $245/share. a 111% jump. While early investors and those who got allocations enjoyed stellar profits, several others questioned and railed against the recent mispricings of tech companies that allow for such abnormal jumps. If Snowflake’s IPO was priced as the broader market valued it at the end of the first day of closing, it could have raised an additional $3.8 billion (the largest gap since Visa in 2008). Critics say that gap is capital that could have otherwise been invested in the business, but instead simply served to increase profits.

A major concern I have is the allocation of the IPO stock. Only those closest to the banks and those who have long-standing relationships are able to get into these red-hot IPOs, leaving a majority of investors sitting on the sidelines with their hands in their pockets. The “old-money” crowd is able to get essentially $3.8 billion handed to them for free by simply being best buddies with the banks, and outside investors are forced to twiddle their thumbs even after weeks and weeks of effort to try and get into the IPO allocation. Now, I’m fine with a limited allocation, even if that means that an overwhelming majority of investors can’t get in, but to underprice an IPO so terribly that several billion dollars of wealth are brought out of thin air and given to a select few is quite maddening.

Now, I’m not completely against traditional IPOs. The sudden boost may have also been triggered by the flurry of retail trading activity that has been washing over the markets for the last couple months as a result of increased day-trading. Furthermore, companies like Uber and Lyft in the past have been priced so high at IPO that they saw very minimal if any first day pops and have remained under their IPO price since. A higher valuation may have been a nail in the coffin for Snowflake, as it was already priced 35x 2021 expected revenues, which is mind-boggling high. The higher valuation would have forced them to have higher earnings to impress investors, or they might’ve faced a sudden sell-off come Q3 earnings season. The management team clearly knew that this was the appropriate price, and continue to stick by their word.

However, it’s become clear that the current system of traditional IPOs have slowly become outdated for technology businesses especially, as the financials and valuations are too sky-high and abnormal to compare it to a traditional industrials or healthcare company. A shift towards non-traditional methods of public liquidity like SPACs, direct listings, dutch auctions, etc. has been seen in recent years, and will continue to increase, as some of these methods allow for no money to be left on the table, and greater certainty and stability.

Is it time for traditional IPOs to change?


Addendum

If you have any suggestions, comments, or ideas, please feel free to reach out to me at rohil at upenn dot edu.