Hey — It’s Nico.

Q1 2024 was a bad quarter for VC and this has led to many startup’s shutdowns, as I’ve been sharing in these past weeks. This will be today’s main topic.

In this week’s newsletter: Fundid is the most recent startup death. Startups like Perplexity, Rippling and Ramp keep raising. Cybersecurity, AI & CleanTech have no raising problems. Web3 is coming back.

All this, brought to you by Pilot’s Founder Tactics Conference, a free one-day event with tactical advice for startup founders.

Here’s what I got today:

• The story of how interest rates killed startup Fundid 🔥 

• An analysis of the VC state in Q1 2024 📉 

Presented by Pilot

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This Week In Startups

🔗 Resources

The pricing strategy that Airtable is using to get 40% more conversions.

The marketing playbook that got Jam.dev from 20K to 100K users.

Y Combinator’s managing director shares lessons from 1,000+ YC startups.

Rippling’s CEO shares the investment memo that helped them raise $200M.

What video games can teach us about building billion-dollar companies.

📰 News

A16z secures $7.2B for new funds.

AI startup Tome is cutting jobs to refocus on generating revenue. 

Cyber security unicorn Armis acquires Silk Security for $150M.

Webflow acquires Intellimize to add AI-powered webpage personalization

Cloud startup Lacework is negotiating to sell for just $150M to $200M.

💸 Fundraising

Perplexity is raising $250M+ at a $2.5B-$3B valuation for its AI search platform.

HR software startup Rippling raises $200M at a $13.5 billion valuation.

Spend management startup Ramp raises $150M to triple down on innovation and AI.

Fintech startup Pomelo lands $35M for its credit-building remittance app and card.

Langdock raises $3M to help companies avoid getting vendor-locked into one AI platform.

Fail(St)ory

Loans For Everyone

At the beginning of this month, Fundid, the fintech platform that facilitated access to funding for small businesses, announced its closure.

In its four-year lifespan, Fundid managed to raise over $5M and support over 16,000 businesses, predominantly comprising small companies with fewer than 10 employees. 

Unfortunately, the surge in interest rates in 2023 dealt a severe blow to Fundid's business model, making it unsustainable and ultimately leading to its closure.

Helping Small Businesses

Founded in 2021 by Stefanie Sample, Fundid arose from her recognition of the challenges faced by small businesses in accessing funding. Her objective was to streamline the funding process and foster the growth of small businesses.

To achieve this, Fundid did several things:

• Fundid Capital: This service connected small businesses with different funders. The idea was to make the process as simple and quick as possible. After completing a quick 15-minute application, applicants were linked with the Fundid team, who provided guidance, explained funding options, and even negotiated with lenders on their behalf. Within just three days, applicants could have their loan ready to fuel business expansion.

• Business Building Card: Sample dubbed this initiative "the first business building card that extends credit to businesses with fewer than 10 employees." Regrettably, this concept had a short lifespan. In June 2023, a few months after its public release, Fundid was compelled to retract the card due to the breakdown of its business model.

  

• Resources and Guides: Fundid developed a Loan Finder tool that allowed business owners to search and filter various loan options based on factors such as credit score, monthly revenue, and time in business. Additionally, they curated a database of grants for entrepreneurs and provided diverse resources aimed at assisting small business owners in understanding the intricacies of securing investments.

Fundid was quite successful in its first years. By May 2022, it was already working with over 16,000 businesses and had 6,000 people on the business card waitlist.

This shows that there is a need in the market for a company like Fundid. But unfortunately, Fundid’s problem was not a lack of market interest, but rather an unsustainable business model.

Reasons For Failure

• Surge in Interest Rates: Fundid's shutdown can be attributed to the significant increase in interest rates between 2022 and 2023 implemented by the Federal Reserve in response to economic conditions. The fundamental structure of Fundid's business model, which thrived in a low-interest-rate environment, became incompatible with the new market characterized by elevated interest rates. This sudden increase made it too expensive for small businesses to borrow money, which made it hard for Fundid to keep running smoothly.

• Inability to Adapt: Despite its initial success, Fundid struggled to adapt its business model to the changing economic landscape. When interest rates started to rise, Fundid should have tried to pivot its business model. Instead, they chose to launch the business card, which was doomed to fail because of the high-interest rates.

A couple of weeks ago, Sample posted a postmortem note in which she identified other reasons for Fundid failure, such as taking too long to get to market and losing faith in the VC path.

She also reflects on what she could have done differently and talks about the importance of having a technical co-founder when developing a technical product.

Go Deeper

• This TechCrunch article with more details about Fundid’s shutdown.

• This great interview with Fundid’s founder and CEO.

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Trend Radar

Another Bad Quarter

Crunchbase just released an analysis of startup funding in the first quarter of 2024. Although this quarter was slightly better than the last one, VC funding remains very low compared with the levels seen in 2022 and 2021.

This trend has been a recurring topic in our newsletter discussions. Over the past year, I've analyzed numerous failed startups that had successfully raised funding in 2021 but encountered challenges in securing new rounds last year, ultimately leading to their closure.

We have talked about how this decline in VC funding has affected industries like health tech or the autonomous driving sector.

However, there are a couple of bright spots in Crunchbase's analysis:

• Cybersecurity Funding Growth: The growing use of AI technology, along with recent conflicts such as the Russia-Ukraine, has led to an increase in both the frequency and complexity of cyber attacks. This prompted an increase in the funding for Cybersecurity startups.

• Web3 Funding Growth: The past two quarters were tough for Web3 startups. However, this quarter has witnessed a rise in VC-backed Web3 startups, although the total investment amount remains lower than that of 2022.

• Early-Stage Funding Growth: This quarter, more money has been pouring into startups in their early stages than in the last four quarters. Investors seem to be feeling pretty good about supporting these new businesses, which could be a good sign for startups overall.

  

KPMG has also released a report on the state of Venture Capital in Q1 2024. In it, they analyzed the differences in investment between the US, Asia, and Europe and concluded that, although China had led some big raises, the US is still well ahead of any other country when it comes to VC investment. 

In fact, out of the $75.9 billion invested globally, American VCs raised $36.6 billion. This total includes major deals like the $4B investment in Anthropic and the $675 million raised by Figure AI.

Not surprisingly, a significant chunk of VC funding, including these two major deals, is flowing into AI-related startups. According to KPMG, AI has become a key factor driving VC investments, and they hope this trend will continue into the next quarter.

Here is the list of the 10 biggest deals closed this quarter:

The two industries that secured the largest deals are AI and CleanTech. This isn't too surprising, as these two sectors have consistently topped the list in all previous quarters.

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That's all of this edition.

Cheers,

Nico