Many interesting stories this week - played around and changed a bit the regular format of the newsletter, I think it makes for a better read and changes are good and fun.
Hope you enjoy this one as much as I did writing it. Let’s get to it.
The business model of a startup accelerator
Techstars closing its Stockholm program in the middle of it this week was weird. It’s weird because Techstars is an established American enterprise with experience and resources to conduct business professionally. This ain’t it, so what’s up with that?
The media coverage of it doesn't have details of what happened - just founders saying they’re disappointed and local competitors saying that Sweden is a tough country for outsiders. Reading beyond that though, I think that the problem has not as much to do with the local market being competitive (it’s really not) but with how startup accelerators work.
The deal with joining an accelerator is that you get some money in exchange for equity in the company (usually an expensive deal for the startup) and access to a bunch of resources such as mentors and investors matchmaking events. This access is the core accelerator business but is just an expense on their income statement, with no line on the revenue side - there are exceptions to this as some deduct it from the equity money they provide. They’re not upfront about it though because the startup accelerator business has been traditionally conducted more like that of an investor, even though they are not the same thing - for example, they say they invest 100k for 10% of the company but make you pay back 50k for being part of the program. So the deal is really 10% of the company for 50k cash plus resources/network worth 50k, which may or may not be as valuable. They sell two products for the price of one one, but advertise only the one.
Anyways, valuable resources and knowledge access are expensive, and you’re supposed to pay for advice, not to find it on Twitter or media publications. What you pay is what you get - besides, a business model that gives advice for free, or only against equity that should turn into revenue in the income statement in 5-7 years if lucky, well that sounds like a terrible proposition, doesn't it?
The better accelerators raise funds that make a business from a management fee, just like investors do, but there’s not too many of those. Raising funds for an accelerator business is really complicated anyways and a management fee is hardly enough to run it properly. The lack of a viable revenue model is how this business has become a marketing budgets-driven business - that can be PR, marketing, corporate innovation or a straight-out sales distribution deals for the likes of Google or Amazon. The core business is finding those suckers and closing deals in order to finance accelerator operations.
But is selling sponsorships what you have in mind when you go about setting up a startup accelerator? No, it is not, you do it because you know how to find great founders and have valuable resources to support them, which you give away because this is what the business model dictates. Charging straight up for what you do best may be a better idea, you know, pay for the value created kind of thing. Unless you are a big ass investor and can afford to the expenses of running the accelerator from your marketing budget, like Sequoia is doing, for example.
Back to Techstars in Stockholm, I think this is likely it. Most of Techstars programs in Europe are sponsored - ABN Amro in the Netherlands, Audi in Germany, Polygon in the UK, Equinor in Norway and so on. And the Stockholm PM hasn’t been able sell the program to such a local sponsor for 18 months. No product market fit and the markets are tough, it’s March already, Techstars probably wouldn’t agree on the way forward for the year (i.e. the budget) and it plugged the chord. Not waiting for the batch to finish means the burn was not small change, unless there's more to see that meets the eyes. Stockholm is one in 40 other programs, they took the loss and moved on, didn’t even bother to make a public announcement.
10 things you need to know
Euro intel this week
→ 30+ curated early stage deals including:
🇳🇴 1X (deal led by OpenAI!)
🇸🇪 Scaleout Systems
→ GPs jumping ship
→ Euro funds *not* investing anymore
→ tomorrow in the AM in your inbox.
Get it too with a free trial and stay in the loop!
Euro startups pitching at YC next month
My favs: 🇬🇧 Ivy, 🇬🇧 Forfeit, 🇬🇧 Tailfin, 🇭🇺Trigger. Most of the YC batch raising 2M at 20M has investors roll their eyes - of course they do, they wouldn’t do their job otherwise. Somebody smarter than me told me that consensus in this business is not a winning card though, and you gotta do the work. Full list here.
Fast-growing private marketplaces - by a16z
Startups that achieved true product-market fit and still failed - vox populi
Don’t do these mistakes when raising capital - easier said than done
Cash management at startups - VC value add
What to do when investors say no? - carry on
Founders find it shitty to raise but what else is new - and other sentiments
Nordic Demo Day - be there or be square
The founders narrative
We’re in that part of the cycle - life will be hard for founders dependent on VC financing. The play is to keep heads down and build, hard work always pays off.
$1.9 billion in red Alecta, Sweden's biggest pension fund, has sold all its shares in First Republic Bank at a loss of $728 million. That adds to losses of $870 million in the Silicon Valley Bank and $310 million Signature Bank, both of which went bankrupt two weeks ago.
PE business EQT hired Morgan Stanley for finding a buyer for Freepik, which it acquired in 2020 for $250 million at some 5X sales. At that time, Freepik said to have had optionality from 20 suitors and 16 offers on the table, and went with EQT.
The asking price now is €700m to €1 billion. Freepik is said to have produced sales of 51 million in 2021.
Price war for food In Sweden there’s a bit of a price war going on in the retail food market - Lidl lowered its prices with 11%, followed by the Finnish/American Wolt, both likely going after market share. They compete at the edge though since 90% of the market is controlled by three local players - Ica, Coop and Axfood - and they’re unlikely to cut on their margins.
Swedish consumers are nervous these days In February the food prices had the biggest hike since the 1950s, while the inflation was 12% in February, up from 11.7 in January.
Also at the edge The local online grocery provider Mathem, which raised north of $300 million in VC money to be a big fish in a small country like Sweden, acquired local startup Kavall, another local me-too play that couldn’t become a big business. Kavall, backed by VCs with about 25 million, produced sales of 6 million last year and has been in disarray looking for an out for some time now.
It’s not what the media understands, it’s what the business does Amazon continues to grow its business in Sweden, with sales of $180 million last year - a whopping 20% increase yoy versus the local market deflation of 7%.
Fun fact: The local Swedish media totally trashed Amazon at its local launch for a banality - its 150 million product-website was not entirely accurate translated - and predicted its fail because of it. The above numbers seem to indicate otherwise. Alas Swedes don’t like it when foreigners come to do business in their country because of this.
High salary and a safe job Swedish business students’ top preferences for finding a job include Spotify, Google, Avanza, Swedbank and SEB, while the IT students (which I can only assume IT means software) preferences are Google, Spotify, Microsoft, Ericsson and Volvo. Students also say they’re interested in high salaries and job stability upon graduation, who knew - exactly the opposite of what the startup bubble can provide for. Sample size is 20k students.
Is AI a feature or a product? Klarna joins the hype as it implemented ChatGPT into its shopping app. Spotify did similarly last week - they sound like PR moves, all this kind of announcements will net-net increase OpenAI’s value as a platform, see below.
The future is here Ikea says it uses one hundred drones for stock inventory at work during non-operational hours in 16 different locations.
Crypto models Steve Rosenblum, French founder who built an ecommerce operation w/ €900M in sales 12 years ago, launched a consumer crypto investment app that makes money from a subscription whose pricing is calculated based on the users account balance.
Cash to crypto Ledger, the French crypto hardware developer that’s raised half a billion since 2014, says it kicked American (business) ass due to the recent bank runs, as people rushed to put their cash into a Ledger wallet.
Jean is a cool dude Jean de La Rochebrochard, who’s is in charge of Kima Ventures, says he doesn't want to become a commodity, now that Kima is transitioning from being in 95% of the French early stage dealflow to having to fight to stay competitive.
250 unicorns more than the Brits The Paris bourse market cap exceeds London’s by $250 billion - the French drivers include LVMH, L’Oreal, Hermes and Schneider Electric.
No pivot Sono Motors faces bankruptcy as it announced to give up the development of its solar car and instead want to establish itself as a supplier of solar panels. The pivot was made as Sono couldn’t raise more capital for the car business.
A country stuck in the 90s Germany is in the bottom five countries worldwide when it comes to digital infrastructure (48th), such as cashless payment options (51st) and easy access to a fast Internet connection (49th).
Overall, Germany has been ranked bottom in a ranking that looked at how countries make life easy or difficult for newly arriving foreign nationals.
Change is hard Germany led a ‘civil war’ fighting against France-led EU legislation for zero emissions plans that would prohibit new sales of fossil fuel cars from 2035. It’s not black and white, and more complicated than it seems, as the German economy is very dependent on a multitude of spillover effects - a resolution was eventually reached by politics.
Be warned Meanwhile, tomorrow Deutsche Bahn announced a large-scale warning strike for tomorrow and all the long-distance traffic nationwide will be stopped. If you don’t have a car you’re screwed.
And btw, also tomorrow, Frankfurt Airport will be canceling all regular air traffic.
Don’t judge books by the cover and investors by the marketing One way to screw your startup is believing the crap VCs put out all over the media as a signal of their competence. It’s all nonsense, here’s a tiny British example.
Boom days are over Startup raised 15 million at 47 post, did sales of 1 million last year and now put itself for sale in the in the media. Idle wondering if it is an advertorial or earned media.
Outsmarting the VCs Pollen’s owner StreetTeam Software completed a sale in December for $198k (most of it ‘computer software’), after a fundraise of $150m less than a year ago.
What was bad is good now Just Eat Takeaway, the parent company of Grubhub, let go 1,700 drivers in the U.K. and will move toward managing its fleet of drivers with a gig-worker model. The CEO of the company had previously criticized the model, saying it had led to precarious working conditions across Europe.
We were wrong but not entirely The Brits announced narrowing the scope of their investigation into Microsoft's proposed $68.7b takeover of Activision, saying the merger wouldn't impact console competition but still may impact competition of cloud gaming services.
Apple gets more serious about media Apple will make a bid for English Premier League streaming rights in a competing move with Amazon. It will also spend $1 billion a year to release Apple TV+ movies in theaters.
Hey, good news Meanwhile, UK economy’s robust start to the year is on an upward trend as retail sales beat expectations and consumer confidence hit a one-year high.
But, uhm, what about the inflation? In the words of the Governor of the Bank of England, firms raising prices hurts people.
AI eats the world
The platform OpenAI launched plugins for ChatGPT, which extend functionality by granting it access to third-party knowledge sources and databases -- including the web.
The investor Another day, another AI asset valued at $1 billion. Not surprisingly, Andreessen Horowitz led the round - it made so many good bets on this market that it will simply make a shitload of money out of the hottest platform trend we’ve had in the history of tech development.
Name one Euro investor with a similar playbook. I’ll wait.
The money quote “There are some overlaps […between Google’s Bard and new gen AI products], but we're confident Google will never do anything fun. Because we worked there.”
The players A handful of individuals and corporations now control much of the resources and knowledge in generative AI, a phenomenon known as industrial capture.
The struggle Head of AI at a large retail chain: “We have to work with many companies to get to 75% of what Google has internally as their ML platform.”
The ploy AI-generated images of Trump getting arrested were viewed 5 million times on Twitter, raising concerns about the potential for the technology to create confusion in volatile news environments.
Last but not least
🤭 It ain’t getting better FTSE is not feeling well, British, French and German banks led by DB are bleeding.
The officials make public assurances that everything is fine and big players call the market irrational. That’s when you have to worry. The stress test is at higher intensity - some people are pissed and others will make tons of money out of this, next week will be interesting.
Related read: Why I never invest in bank shares.
⚙️ No comment The list of the EU people who spent a week in Silicon Valley to showcase the EU innovation ecosystem to investors in the US. Efforts are being made, it is that clear, but… Maybe other time. :-)
🤔 Do Kwon, the Korean founder of Terraform Labs, the 3 years old crypto startup that lost $45 billion, was arrested in Montenegro, while attempting to fly to Dubai under fake Costa Rican traveling documents, and also had South Korean and (falsified) Belgian travel docs.
He’s been wanted for fraud since last year, and prior to his arrest went to chill in Serbia, which is a well known Euro heaven for criminals.
💲 Twitter Blue relaunched has made $11 million on mobile in its first 3 months.
⚡ More on the SVB situation:
How the last-ditch effort to save Silicon Valley Bank failed.
BlackRock warned the Silicon Valley Bank folks that risk controls were weak.
190 banks are in danger of an SVB-like run, due to a combination of un-realised losses on their investments and a high percentage of deposits that exceed the $250,000 insurance cap, according to this study.
An estimated $550 billion in funds have moved out of smaller banks to big institutions and money market funds from the US in the weeks since SVB and Signature imploded
🇫🇮 A Finnish entrepreneur wants to buy Man United.
🤔 Debunking the myths around Italian food Italians hadn’t heard of pizza until the 1950s, and carbonara is an American recipe. link
🤌 Interesting facts around the making of The Godfather, released 51 years ago.
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