Weekly SaaSology ⚡ 01.30.22
Embedded FinTech, Procurement Tools 🛠️, and Liquidation Preference 💰
After nearly two years of investing in B2B software businesses, I'm thrilled to share that I'm officially moving to consumer investing. Having said that, I will continue to cover B2B SaaS investments alongside consumer tech, media, entertainment, sports, gaming, crypto, and various other sectors!
Top Five Investments 🚀
Domestika, a Berkeley-based learning community for creatives, raised $110 million at a $1.3 billion valuation in Series D funding led by Zeev Ventures. It offers over 2,000 courses curated and produced at its own studios and taught by 1,300 creative professionals, covering topics from illustration and design 🎨 to crafts and digital marketing for more than 8 million members.
CaptivateIQ, a San Francisco-based sales commission platform 🛠️, raised $100 million at a $1.25 billion valuation in Series C funding led by ICONIQ Growth, Sequoia, and Accel. As a no-code platform, it helps hundreds of businesses like Affirm build customized commission plans by automating and improving processes such as designing, processing, and reporting commissions.
PortalOne, a Norway-based immersive gaming company 🎮, raised $60 million in Series A funding led by Tiger Global. Scheduled for its official launch in the first half of 2022, PortalOne aims to deliver a whole new category of interactive entertainment that seamlessly embeds live shows into games, where players, regardless of age, gender, and gaming ability, can compete against guests using their smartphones - now that’s a game changer (sorry not sorry)!
The Vets, a tech-enabled pet healthcare platform, raised $40 million led by Target Global. The platform provides the ability for pet owners and practitioners to discuss medical conditions and preventative care while observing pets 🐶 at their homes. It is currently available in nine US cities for customers to schedule in-home visits that include full diagnostics, wellness exams, vaccinations, microchipping, and other services.
Stonly, a France-based customer onboarding platform, raised $22 million Series A funding led by Northzone. As a knowledge management platform, Stonly provides interactive, step-by-step guides 💻 to over 20,000 businesses like Univision so they can guide their customers and/or employees.
Top Two Trends ☁️
Embedded FinTech 💻
In 2019, Matt Harris of Bain Capital Ventures coined the term embedded fintech. It describes how virtually all software-driven businesses will eventually embed financial services and tools into their applications, from sending and receiving payments to enabling lending and banking services 🏦. With APIs and embedded finance, it’s getting easier for SaaS firms to integrate other products into their offerings. Vertical apps such as Toast for restaurants, Squire for barbershops, and Shopmonkey for car repair shops, may eventually deliver financial services instead of working with traditional financial institutions 💰.
Embedded Procurement 🛠️
Matt’s colleague at Bain Capital Ventures, Merritt Hummer speculates that we’re on the heels of the next trend wave of embedded procurement. She sees this as a sister concept to embedded fintech 💵, where businesses will begin managing inventory and procurement for their customers as well. Several vertical tools are rapidly growing in their respective domains, and the embedded procurement expands these companies’ addressable markets beyond their payments revenue models. Embedded procurement may represent an even larger revenue opportunity as inventory is the largest expense after labor for most SMBs 🏭. There are several reasons for firms to procure their supplies through SaaS: centralization and efficiency of using a single platform, price transparency, customizations as per order history, and access to discounts.
Startup Spotlight ✨
Founded in 2014, Affinity is a San Francisco-based relationship intelligence platform built to expand and evolve the traditional CRM. With over 195 employees and 1,800 customers in 70 countries, Affinity focuses specifically on industries like PE/VC, investment banking, consulting, and real estate, where there aren’t CRMs or networking platforms that cater to the specific needs of long-term relationships 🤝.
Affinity also structures and analyzes data points across emails, calendars, and third-party sources to offer users the tools to automatically manage valuable relationships, prioritize important connections, and discover other untapped opportunities. The platform also uses AI to analyze relationship strength and recommend the best path to warm introductions 📊. It also offers a holistic view of users’ networks in a centralized, automatically updated database without any manual upkeep. It has raised ~$120 million from the likes of Menlo Ventures, Advance Venture Partners, and 8VC.
VC Topic of the Week 📚
In last week’s newsletter, we talked about term sheets 📝 and how they outline economics and control of a deal. In terms of deal economics - since we discussed valuation in a previous issue, let’s break down liquidation preference.
Liquidation preferences represent one of the most imperative yet overlooked terms that can significantly impact an investor’s returns. In fact, most investors deem this to be one the most important aspects of deal terms, second only to a company’s valuation.
A liquidation preference represents an investors’ right to get their money back before the holders of common stock, typically founders and employees 👨💻
Essentially, liquidation preference dictates the amount of money that must be returned to investors before a company’s founders or employees can receive returns in the case of a qualifying liquidation event such as the sale of the company
Liquidation preferences are expressed as a multiple of the initial investment, most commonly set at 1X. This means that investors would need to be paid back the full amount of their investment before any other equity holders. Note that only holders of preferred stock receive liquidation preferences. This is one of the main reasons why most early-stage investors refrain from purchasing common stock.
It usually serves as a form of protection for investors, especially in situations where a company fails to meet expectations and sells or liquidates at a lower valuation than expected 🔒. This is because the liquidation preference guarantees a minimum payment to investors regardless of the valuation at exit, whether a sale or bankruptcy.
Lastly, liquidation preferences are a non-factor if a company exits via an IPO since all preferred shares automatically convert into publicly-traded common stock. Not all liquidation preferences are the same - we’ll dive deeper into this in the next issue.
Tweet of the Week 🐦
Please don’t hesitate to reach out by replying to this email or @dhruvcashpoor!
The information presented within solely reflects my personal opinions and does not reflect those of my employer. None of the information presented herein is intended to be or should be construed to be financial advice. Sources: TechCrunch, Twitter, Giphy, Tenor, SeedInvest, Investopedia, Affinity, Medium, Bain Capital Ventures