Welcome to Startups Weekly, a new human look at this week’s startup news and trends. To receive this in your inbox, sign up here.
AngelList’s recently closed early stage venture fund brings back one of my favorite conversations in the fundraising world for early stage startups: to data or not to data. The $25 million fund bases all of its investments on a key metric that AngelList has tracked for years: the ability to hire a startup.
When I spoke to Abraham Othman, head of the investment and data science committee at AngelList Venture, he told me that they win business because they are less adversarial to portfolio companies than other companies. “Our approach? This is our dataset, let’s see if we can put money into it,” he said. No additional due diligence? No problem.
Of course, there are some challenges in relying on such signals to make investments. As history often reminds us, due diligence is important from a human perspective – and examining a founder beyond their ability to attract talent can save companies headaches or legal trouble. Plus, a startup can get a ton of applicants due to pay, location, or even recent coverage on a well-known tech blog – which can bode well for success, but can also be a result of great marketing. In the case of AngelList, they believe that the fluidity of hiring demand increases its importance.
As you can probably tell, I think the future of data-driven investing will bring a double-edged sword to our Zoom rooms (or lack thereof, perhaps). The traditional investment that prioritizes pedigree and culture, or the “art” of a founder, left out a whole class of historically forgotten individuals. But that same process, in which you spend five hours talking to an aspiring entrepreneur, brings a layer of humanity to decision makers before they raise millions to execute a vision.
I don’t want to get into the due diligence conversation again, and investors relying on data to dictate their investment decisions is anything but a new strategy. This is the song of late-stage investors, private equity analysts and your brilliant aunt who loves a good earnings report. Startups and early-stage investors from ClearCo to SignalFire have spent years building algorithmic advice on assumed returns.
However, in a bull market, even for the most optimistic among us, the premise of an unbiased, data-driven verification seems a little more hopeful than before. Money certainly doesn’t solve all problems – the main reason startups fail today is still because inability to raise new capital. Add in the gender fundraising gap and a more automated decision-making process suddenly doesn’t sound romantic, it seems inevitable.
For my full take on this topic, check out my Ploonge+ column: Does Algorithmic VC Investing Support Due Diligence?
For the rest of this newsletter, we’ll talk about a new graduate fund, technology for lawyers, and Plaid’s growing patchwork of startups. As always, you can follow my thoughts on Twitter. @nmasc_ or listen to me on Equity, a podcast about startup businesses, where we unpack the numbers and nuances behind the headlines.
$1 million lasts a million times longer than before
Led by Flybridge founding partner Jeff Bussgang, Harvard Business School faculty created a $7 million fund to invest in recent university graduates. This is the third installment of the Graduates Union, which officially closed this week by SEC filings.
Here’s what to know: The union started a few years ago when business school professors realized that young talent within their classes were looking for activation capital. To limit conflicts of interest such as favoritism or power imbalances, Bussgang said the union only invests in founders after they graduate from school. So far, the union has invested in 60 companies, 41% of which are led or co-led by a founder.
Bussgang on what changed in the pre-seed:
A pre-seeding round, which typically hovers around a million dollars, is happening at a time when you can make a lot of progress with just a million dollars, given the no-code, low-code platforms, the cloud, and the reduction of costs to start things. The biggest trend I’ve seen is that these companies can do so much with so little. [and] because of these no-code platforms… business founders can be builders, they don’t have to be software developers and that’s a big incentive for the HBS community.
Advice and other bits:
And the release of the week is…
Legal trades. When it comes to our newly distributed world of work, flexibility is a key but elusive term. Luckily for Raad Ahmed and Ashish Walia, the co-founders of Lawtrades, defining the term has been a conversation that has been ongoing since 2016. Lawtrades wants to change the way companies use legal resources and give lawyers a chance to work remotely.
Here’s what to know: The startup raised a $6 million Series A round, led by Four Cities Capital, with participation from Draper Associates and 500 Startups. More than $11 million has been earned on the platform to date by the lawyer network and more than 60,000 hours of work have been logged on the platform in 2021, a 200% increase over 2020, reports our own Christine Hall.
Ahmed in the moon photo:
As a business, you’re basically meeting strangers on the Internet and hiring them for hundreds of thousands of dollars and trusting them to do a good job. So there is a solid amount of betting that takes place on the supply side. We leave about 5% to 6% of [lawyers into the platform] – but the really hard part is what does that day look like operationally? Other platforms… there’s not a lot of transparency at work, so that’s what we’re trying to work on.
We have this simple tool, a time tracking app, once you’re hired for an appointment, you’re basically logging in every hour of work. Basically, we’ve made this transparent to customers, so they’ll see what is equivalent to a Facebook news feed, but it’s a work feed. So it updates who’s working on what or for how long, what project and you can react to that, comment on that and we’re coming up with smarter and smarter ways to capture the data with the least amount of work, like our network of lawyers.
In fact, it allows you to get even more transparency and even more detail about someone’s productivity than you would if you were side by side.
Plaid joined Cognito
Fintech giant Plaid acquired verification platform Cognito for around $250 million, TC’s Alex Wilhelm reported this week. Plaid has been actively growing from the mesh that helps fintechs communicate to a patchwork of services built on these key connections.
Here’s what to know: The deal comes months after Plaid’s own acquisition, which would have made it Visa-owned, collapsed and earned it a new high valuation. As we talked about in the last Equity, Plaid has matured to host a growing startup accelerator, acquire companies and clearly expand its strategic ambitions.
throughout the week
Seen on Ploonge
First major tech antitrust bill closes in on reality
A Heavy Rain Is Coming for the UK’s Crypto Boom
How many unicorns are just piñatas filled with expired candy?
Open source developers, who work for free, are discovering that they have the power
Crypto.com CEO Admits Hundreds of Customer Accounts Hacked
Peloton CEO acknowledges corrective actions, denies ‘stopping all production’ of bikes and treadmills
Seen on Ploonge+
Will quantum computing remain the domain of the VC specialist?
Dear Sophie: How do I successfully expand my company to the US?
How to build a product advisory board for your startup
5 areas where VCs can play a massive role in addressing climate change
Until next time,