| | | | | The Weekend Pitch | April 25, 2021 ![]() | | Presented by Deloitte | | | | | Another week passes and another batch of private companies joins the vaunted list of billion-dollar startups. Five new ones were added in just the past week alone.
Each of these financial triumphs features premier venture capital firms assigning lofty price tags to companies that they see as the next big thing. When investors decide to make their bet, they're looking heavily at the founder, someone who they hope can make the valuation leap from nothing to 10-figure prize. And all too often, VCs decide based on gut instinct. But what if they could use data to help pick out a winner?
Welcome back to The Weekend Pitch. I'm Alexander Davis, and you can reach me at alec.davis@pitchbook.com. In this edition, we explore some data-driven insights that upend the conventional wisdom about where investors should look when trying to find the next super founder of a unicorn company. What the data shows may surprise many of you. | | | | | |  | | (Image by Ben Krantz) | | It's easy to picture the classic unicorn founder as a stereotypical 25- to 34-year-old out of Stanford or Facebook (or some accelerator like Y Combinator). We often assume top founders will check at least one of those boxes.
But the reality is that most of the star entrepreneurs coming into prominence show none of those kinds of attributes, according to a unique dataset amassed by Ali Tamaseb (pictured), a venture capitalist with the Silicon Valley deep-tech firm DCVC. His findings call into question whether the big VC firms really know what to look for in their quest to find the great company-builders of the future.
"The biggest signal I observed in the data is that a bunch of things don't matter, like age and university and being technical and this kind of stuff," Tamaseb told me. "What matters is having a history of having generated value, even if that value was small."
Tamaseb, a one-time neuroscience researcher and later an entrepreneur, set out four years ago to better understand the difference between ordinary founders and "Super Founders," the title of his book that's due out May 18.
For his book, he collected a trove of proprietary data about companies founded between 2005 and 2018 (partly relying on PitchBook's platform), which would help paint a picture of promising founders using larger, less biased samples and avoid anecdotes or widely held archetypes. Tamaseb says he broke ground by amassing some 30,000 datapoints on the formation of US companies, including number of competitors, market size, and the founder's age, university background and previous training.
"There's a lot of stereotypes about what makes for a successful team, what makes for a successful market idea," Tamaseb said. "A lot of the perception of the general entrepreneur and the ecosystem comes from what they see in the media."
The founders of Honey, a scrappy fintech company based in Los Angeles, turned out to be antiheroes with a great shot at unicorn stardom despite their seeming lack of a dream pedigree. George Ruan and Ryan Hudson bootstrapped Honey, a provider of coupon codes for online shoppers, because they couldn't get VC funding for the first couple years. After eventually getting backers from outside Silicon Valley's venture establishment, Honey took off and in late 2019 it was acquired by PayPal for $4 billion. Ruan and Hudson didn't have great connections or big names on their resumes, but they had produced a few small ventures along with their failures.
"These people are more likely to found billion-dollar companies compared with people who have the perfect pedigrees," Tamaseb said.
But in the hustle-bustle of Silicon Valley, this often goes unnoticed at VC firms, whose bias and penchant for so-called pattern matching when sizing up seed-stage founders results in missed opportunities. And entrepreneurs often shortchange themselves, Tamaseb says, if they measure themselves against the profile of the mythic tech founder.
To be sure, the market at this moment may be skewing deal trends in ways that even Tamaseb can't account for. Highly unusual economic factors—he calls this climate an "anomaly"—suggest that this cycle's newly minted star founders are commanding $1 billion-plus valuations in part because tidal waves of capital are sloshing around the global market.
If it seems to you like a fresh herd of unicorns has recently arrived on the scene, you aren't imagining things.
Indeed, in the past week alone, investors valued five more startups at $1 billion or more, bringing the total this month to 26, PitchBook data shows. What was once a remarkable milestone worthy of special mention has become ever more common.
Among the recent entrants to the billion-dollar ranks were Signifyd, a fraud protection company valued at about $1.34 billion, and Deel, the creator of a remote-hiring platform that drew a $1.25 billion valuation in a new funding round. None of these deals made big waves by themselves. But what's notable is the fact that clusters are happening with such breathtaking frequency, which speaks to how investors today source deals and place their bets.
Having an overabundance of capital waiting to be put to work is unleashing legions of investors with ever-larger war chests that are making more aggressive, competitive bids to fund startups at ever-earlier stages. My colleague Marina Temkin focused on this arms race in a story earlier this week that highlights the way valuations are soaring as hedge funds like Coatue Management and Tiger Global increasingly compete—often against powerful, mainstream VC firms.
"If you're a $1 billion fund, you need a minimum $5 billion exit to move the needle for you," Tamaseb said. "If you're a $100 million fund, you need a $500 million exit. And it turns out we have a lot more funds that are closer to being billion-dollar mega-funds that are funding these companies than there are $50 million funds." | | | | | | | | | | | Since yesterday, the PitchBook Platform added: | | 15 Deals | 119 People | 30 Companies | | | | | | | | | | A Message from Deloitte: Intelligent automation and analytics in private equity | | SPONSORED
For private equity investors (PEIs), intelligent automation and analytics can help performance management teams identify opportunities to boost portfolio companies' value and give PEIs a consolidated view of portfolio performance, providing real-time insight into a wide range of financial metrics. Intelligent automation and analytics offer faster, more accurate transaction processing, and increased transparency into financial performance with improved decision-making and a greater ability to drive value across companies.
During volatile times, PEIs can stand out with strategic use of digital technologies to refine their financial processes, improve operational efficiencies, and become more resilient to external shocks. | | | | | | | | | "I don't think they are going away. I think you'll see some changes maybe in terms of their disclosure, maybe some changes in terms of alignment. But I think we'll see SPACs in the market for some time to come."
—Blackstone president Jonathan Gray speaking on the firm's Q1 investor call about the future of SPACs | | | | | | | Unbroken by Brexit: A look at the number of European PE deals by region shows that the UK still accounts for the lion's share of activity through the first quarter of the year, according to PitchBook's Q1 2021 European PE Breakdown. | | | | | |  | A statue of former Liverpool manager Bill Shankly
(Clive Mason/Getty Images) | | | | Bill Shankly, the legendary manager of UK soccer club Liverpool once said: "Some people think football is a matter of life and death. I don't like that attitude. I can assure them it is much more serious than that." - It's a lesson that should have been heeded by the club's current American owner, John W. Henry, who was forced to post a shame-faced mea culpa on Wednesday for his part in a botched attempt at forming a breakaway Super League.
- Liverpool was one of six English Premier League clubs to be included in the Super League, along with six more top-flight clubs from Italy and Spain. The Super League was to operate like a closed shop, where founding members would call the shots. They would not be relegated, and—most importantly—they would get a bigger chunk of the broadcasting revenue.
- For the soccer establishment, it was a coup, and the Union of European Football Associations moved to ban all the clubs involved from any future competitions. For the fans—the people who made these clubs what they are—it was a pure betrayal. The Super League was not only seen as a money grab, but as a perversion of the sport and of fair play. It was a PR disaster.
- Soccer investments that had been in the works were also under threat. CVC Capital Partners and Advent International's investment in Italy's Serie A league had already been stalled over fears of the Super League, given that the league's more powerful clubs—Juventus, AC Milan and Inter Milan—were pegged to be founding members.
- The outcry, combined with the threat of legal action, saw the Super League fall apart within 48 hours of it being announced. Fans around Europe celebrated, but it was really UEFA's victory. Super League founding members, still weighed down with millions in pandemic debt, have lost an important bargaining chip.
- Until now, the threat of the Super League had been a means for the top clubs to pressure UEFA into giving them more guaranteed spots in the Champions League, and thus more broadcasting revenue. Now that the chip has been spent, UEFA is under less pressure to make concessions.
- For investors in sports, including private equity, the debacle has removed a significant source of uncertainty, but it has also offered a reminder that while sports is a business, to the people that pay for it (the fans), it can be much, much more.
—Andrew Woodman, PitchBook London Bureau Chief | | | | | |  | | (Javier Zayas Photography/Getty Images) | | | | | ... That US grocery stores and markets contribute an estimated $37 million worth of food waste and surplus each year? Read about efforts to tackle food waste and other food industry supply-chain issues in our recent analyst note. | | | | | | Things may be starting to change, but the VC world's quest for diversity and equity is still very much a work in progress. [Fortune]
When the Chernobyl disaster occurred in 1986, many had to abandon their pets as they fled the area. Now the descendants of those dogs are striking up unlikely relationships with those tasked with guarding the site. [BBC]
Dogecoin, Elon Musk, and the latest Reddit mania. [Forbes]
As part of one of the world's oldest experiments, scientists are digging up seeds that were stashed nearly a century and a half ago below a college campus. [The New York Times]
The world's leading suppliers of semiconductors are working to fight a chip shortage that's affecting everything from home appliances to cars. Why is it so hard to overcome? [The Wall Street Journal]
Labor costs, climate change and a growing demand for food have resulted in more and more AI-based robotic machines popping up across the agriculture industry. [The Washington Post] | | | | | | "Biden proposing higher capital gains tax has sent shockwaves across equities and even traditional safe haven assets such as Bitcoin and Dogecoin."
—Tweet from Litquidity Capital, a provider of finance-related memes and satire | | | | | | | | | | | | | | | | | |
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