The state of seed, the first TWIST500 startups, and the impact of anonymous apps on society | E1963

Jason and Alex kick off the show (00:00:00)

• The Wall Street Journal published an article highlighting the negative impact of anonymous apps on schools.
• The Liquidity Summit hosted by This Week in Startups attracted numerous venture capitalists, angels, and high net worth individuals.
• Venture investing involves making decisions with partial information, similar to poker, and sometimes requires bluffing by overfunding companies despite uncertain prospects.
• The seed investing landscape has seen a surge in new venture funds and managers, leading to a competitive funding environment with up to 30-50 entities involved in the capital table.
• VCs and LPs view startups as one bet in a portfolio, aiming for outlier successes that generate outsized returns.
• Despite the competitive nature of the industry, there was a sense of camaraderie and collaboration among VCs at the event.
• The speaker emphasizes the importance of "pull through" in early-stage investing, where subsequent investors' validation is crucial for an emerging fund's reputation and success.
• The upcoming show will cover topics such as the social media app Fizz, the current state of seed startups, naming conventions for seed rounds, and founders leaving their jobs to start businesses.
• The first cohort of 500 startups and small businesses from the "TWIST500" program will also be discussed.
• Seed rounds are getting bigger.
• The average seed round size in 2022 was $3.1 million, up from $2.1 million in 2021.
• Seed rounds are also taking longer to close.
• The median time to close a seed round in 2022 was 12 weeks, up from 10 weeks in 2021.
• The number of seed rounds is also increasing.
• There were 2,966 seed rounds closed in 2022, up from 2,366 in 2021.
• The TWIST500 is a list of the 500 most promising early-stage startups in the world.
• The list is compiled by a panel of experts from the tech industry.
• The first TWIST500 startups were announced in 2023.
• Some of the notable startups on the list include:
  • Attio: A customer relationship management (CRM) platform that helps businesses organize their customer data and deliver personalized service.
  • Replicate: A data replication platform that helps businesses keep their data in sync across multiple systems.
  • Modal: A no-code development platform that allows businesses to build custom software applications without writing code.
• Anonymous apps allow users to communicate with each other without revealing their identities.
• This can have both positive and negative consequences.
• On the positive side, anonymous apps can provide a safe space for people to express themselves and connect with others who share their interests.
• On the negative side, anonymous apps can be used for cyberbullying, harassment, and the spread of misinformation.
• It is important to be aware of both the positive and negative potential of anonymous apps before using them.

Concerns about the app "Fizz" and the use of anonymity in social media apps (00:12:24)

• Anonymous apps can be beneficial for whistleblowers and individuals seeking advice on sensitive topics, but they can be detrimental to children and teenagers who are more vulnerable to cyberbullying and mental health issues.
• Despite the negative consequences, anonymous apps continue to gain popularity due to their initial success and potential for financial gain.
• The recent rise of Fizz, an anonymous app that has spread to over 240 colleges and 60 high schools, has brought attention to the potential dangers of such apps, as it quickly became toxic and caused harm to students.
• The speaker expresses concern about the potential negative impact of anonymous apps on society, particularly their association with increased risk of suicide and suffering among children.

The impact of anonymous apps on society, parenting concerns, and the responsibility of investors in harmful tech startups (00:19:14)

• The speaker expresses concern about the negative impact of anonymous apps on society, particularly on children.
• The speaker criticizes investors who support such harmful tech startups, despite the potential risks to children's well-being.
• The speaker highlights the importance of considering the ethical implications of technology and the responsibility of investors in preventing harm.
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The case for banning smartphones in schools (00:23:16)

• Smartphones can be highly distracting, especially for young minds, as they provide constant dopamine hits from social media and apps, which can hinder learning and socialization. Some schools now require students to keep their phones in lockers during school hours, and there's a growing movement to ban social media for children under 16.
• When choosing a school, parents should consider the school's smartphone policies.
• Anonymous apps pose potential dangers to society, including the risk of child suicide. Investors should carefully consider the ethical implications of their investments in such apps.
• Founders of anonymous apps should take responsibility for the potential harm caused by their products and consider pivoting away from anonymity or targeting adults instead. They should evaluate their actions by imagining the impact on a close friend who has struggled with mental health issues and consider how they would feel if that friend committed suicide due to the app's negative effects.
• Seed rounds are getting larger.
• The number of seed rounds has increased.
• The competition for seed funding has increased.
• It is more difficult for startups to raise seed funding.
• The first TWIST500 startups have been announced.
• The startups are from a variety of industries.
• The startups are all early-stage and have the potential for growth.
• The startups are based all over the world.
• Anonymous apps can have a positive impact on society.
• Anonymous apps can allow people to express themselves freely.
• Anonymous apps can help people to connect with others who share their interests.
• Anonymous apps can be used for social good.
• Anonymous apps can also have a negative impact on society.
• Anonymous apps can be used for cyberbullying.
• Anonymous apps can be used to spread misinformation.
• Anonymous apps can be used for illegal activities.

The state of seed (00:31:35)

• Shift and pivot to the topic of seed funding.
• Discussion of a recent TechCrunch article by Rebecca Szkutak highlighting the current Y Combinator batch.
• YC companies raising less money, targeting $1.5-2 million post-money valuations, and giving up less equity (around 10%).
• Bow Capital's Lauren St. comments on the difficulty in obtaining double-digit ownership in deals, advising founders to "get lean" and spend less money.
• Analysis of the current funding landscape:
  • Some investors still buying 20% of companies for $6 million.
  • Difficulty in finding lead investors due to cautious capital allocation and smaller fund sizes.
  • Leaner approach from LPs and GPs, with longer deployment periods and smaller funds.
  • Founders opting for smaller funding rounds (e.g., $1.5 million) and focusing on hitting milestones rather than excessive fundraising.
  • Comparison to the post-2008 era, where companies like Uber and Thumbtack raised small amounts efficiently.
  • Discussion of market capitalization per employee, with Nvidia standing out at $100 million per employee, while big tech companies like Alphabet, Apple, Meta, and Microsoft have lower figures.
  • Emphasis on judicious spending, using AI, and outsourcing specific functions to other companies.
  • Boutique-style approach becoming fashionable in the industry.
  • Growth-stage funds may face challenges in hitting ownership targets.

Impact of AI on startup efficiency (00:35:33)

• Founders of startups are resource-constrained, which drives them to use AI tools to increase efficiency.
• AI tools are used for various tasks such as offshore development, customer support, and sales development.
• Startups are the first to adopt the latest AI tools and benefit from them.
• The current fundraising environment is more challenging, but it is better for companies and returns in the long run.

Tech Domains - Apply for the “Jam with JCal” contest today (00:38:17)

• JCal is hosting a "jam session" contest in partnership with Tech Domains.
• Five founders will get a chance to have a mentorship session with JCal.
• The sessions will be published on This Week in Startups.
• To be eligible, startups must have less than $2 million in funding and an awesome .tech domain name.
• Apply for the contest at jamwithjcal.tech.
• The seed market is currently in a state of flux.
• There is a lot of money available, but it is becoming increasingly difficult to raise capital.
• Investors are becoming more selective and are looking for startups with strong teams, clear business models, and large addressable markets.
• The competition for seed funding is fierce, and many startups are struggling to get off the ground.
• The TWIST500 is a list of the top 500 startups in the world.
• The list is based on a variety of factors, including funding, growth, and innovation.
• Some of the notable startups on the list include:
  • OpenAI
  • SpaceX
  • Stripe
  • Airbnb
  • Instacart
• These startups are changing the world in a variety of ways, from developing new technologies to creating new business models.
• Anonymous apps allow users to communicate with each other without revealing their identities.
• This can have a number of positive and negative effects on society.
• On the positive side, anonymous apps can allow people to express themselves freely and connect with others who share their interests.
• On the negative side, anonymous apps can be used for cyberbullying, harassment, and the spread of misinformation.
• It is important to be aware of both the positive and negative effects of anonymous apps before using them.

The variety of seed deals (00:39:45)

• To improve transparency and accuracy, a proposal for "seed numbering" is introduced, where each funding round increment corresponds to an increase in valuation.
• The concept of "Alicorns," companies that skip funding rounds due to exceptional growth and self-funding, is acknowledged.
• Both valuation and company progress should be considered when determining the appropriate funding round designation.
• Adopting seed numbering benefits later-stage funding rounds by providing clearer communication of funding milestones.
• A simplified valuation method is proposed to eliminate unnecessary complications and ease the process for all parties involved.

How to leave and found a rival company legally (00:45:13)

• When leaving a company to start a rival company, avoid taking any documents or confidential information, and consult a lawyer to ensure a clean start.
• Avoid soliciting employees or targeting top customers from your previous company immediately, and be cautious about naming or copying products too closely to the original.
• As a founder, approach the situation professionally and protect company assets by sending legal reminders about non-disparagement, non-disclosure, and IP assignments.
• Talent fluidity in the free market benefits everyone, and employees choose guaranteed salaries over potential equity due to the high risk of startup failures.
• Capitalism offers consumers a wide range of choices and customization options, and it is possible to be a capitalist while advocating for fair treatment of others.
• Anonymous apps can have negative impacts on society, and there is a need for a balance between privacy protection and responsible technology use.

The first TWIST500 startups (00:58:58)

• The TWIST500 project aims to identify the top 500 private startups globally across various sectors and stages.
• Categories for the TWIST500 include fintech, AI, robotics, HR tech, and payments, among others.
• Nominations for the TWIST500 will be gathered from the audience, and experts in each field will validate the lists.
• The TWIST500 will be revealed through dedicated episodes on the This Week in Startups podcast.
• The discussion highlights the significance of startups serving as intermediaries between language models and content.
• Journalists express concerns about AI's potential impact on their profession, fearing devaluation of their work and financial losses due to content scraping.
• Media companies have had negative experiences with tech companies that made grand promises but ultimately left them in a worse position.
• The partnership between Vox and OpenAI raises worries among journalists that their work is being compromised and that they may be left behind.

Impact of AI on journalism and media companies (01:05:48)

• Vox Media's recent deals with Information and The Atlantic have raised concerns among journalists due to their high cost, limited accessibility, and lack of transparency.
• AI-powered content summarization tools like Perplexity threaten the value of original journalism and raise ethical questions about content theft by using human writers to create visually appealing pages while deflecting responsibility for content generation.
• The content industry and writers should unite to address these issues and protect their rights, potentially through legal action against platforms like Perplexity that republish their content without proper consent or citation.
• Substack and other platforms should consider implementing a feature that allows content creators to specify their willingness to be compensated for their material, facilitating transactions with AI companies.
• Creating a successful competitor in the media industry requires long-term dedication and motivation despite challenges such as low margins and high demands.
• Zendesk, acquired by private equity in 2022 for $10.2 billion, exemplifies how simple ideas can be successful.
• More information about the TWIST500 startups will be shared upon the website's launch.
• Future shows will cover Apple announcements and aim to produce news content 2-3 times a week.