Grape Expectations

This is The Startup Breakdown, the newsletter where we breakDOWN startUPs (just had to make sure you appreciated the word play). By joining this growing community of hundreds of curious individuals, you're getting firsthand access to my observations and opinions on the current state of the startups and venture scene. If you'd like to receive these newsletters directly in your inbox once a week, go ahead and subscribe to never miss an email!

Happy Monday, folks.

Before we get into this week’s spicy startup updates, plugging the referral program one more time. Decided to extend it a day to make sure everybody gets a chance to get into the Twitter/Discord. Rn it’s just me texting myself dog (not by lisa tho) pics, so I’m begging you rn.

Also, have some new readers, so would really appreciate an answer in this quick poll. No strings attached, it takes 5 seconds, and it’s super helpful. Thanks ❤️ 

Without further adieu…

If your local vintage cutlery store isn’t incorporating AI into its workflow, it’s behind.

The latest company to give the ol’ AI a swirl is PitchBook, every investor’s favorite source for all things funding data, industry players, and fancy schmancy market trend graphs. Related note, but if anybody wants to share their password à la Netflix 2022, holla at me.

PitchBook’s VC Exit Predictor is a tool to score startups on their probability of a successful exit, even breaking outcomes down by acquisition, IPO, self-sustainability, and bust odds. Add them all up, and it’s 100% reason to remember the name.

Picking successful early stage companies is about as accurate as dropping a basketball out of a plane like in Dude Perfect, so to juice its numbers ensure reliability, the tool only works for companies with at least two rounds of fundraising under their belt.

Investing is a hyper-competitive space, and institutions have been exploring tools to gain an edge such as this one for decades. However, many have suffered from shortcomings like those that early reviews of this model have indicated.

Primarily, the model struggles to account for Black Swan events. What if, just being hypothetical here, there was a global pandemic which practically shut down the economy for over a year? Bet you didn’t predict that one, did you, C3PO?

Further, like pretty much every other model, this one has a tendency to perpetuate existing biases that are present in the underlying data on which it was trained. That means that the model underestimates the chances of success for women and minority founders because they have struggled to attract fundraising in the past. These built-in prejudices could lead to these disparities only continuing to exist with future biased decision making.

Regardless, some believe that using these massive datasets and expensive models are going to put analysts (and hobbyist writers) out of jobs. Really gonna have to lean into my charm from here on out…

Eye of the Tiger is a staple in motivational playlists across the globe. If you have the eye of Tiger when it comes to investing, though, get contacts.

The global investment behemoth recently announced that it was writing down the value of its venture investments by 33%, amounting to a $23 billion loss. The losing portfolio consists of many now-massive names such as Stripe, which has suffered a ~50% decline in valuation since its last raise, and ByteDance. Based on the bars spit by Congress last week, the TikTok owner might have some more room to fall…

The losses were most evident for the firm’s most recent funds which lost 9-23% last quarter. This has taken quite the bite out of investors’ IRR with the most recent fund, PIP 12, now reporting a 9% return vs. the 22% reported midway through last year. Other recent funds, PIP 10 and 11, still fell though less with just 39 ➡️ 35% and 23 ➡️ 13% returns respectively.

In other words, the market still 🟰 bad. Whoop-dee-doo.

Y are you the way that you are?

It’s a question many on VC Twitter had for acclaimed startup accelerator Y Combinator while discussing the investor’s new “Standard Deal”, the investment terms that every member of its biannual (plz tell me that’s the right word) batch agrees to as part of getting to put the “YC W23” stamp next to their company name on social media.

The new deal (not FDR’s even if you consider the current landscape to be a startup Great Depression) has made raising money a bit less lucrative for founders. The accelerator still invests $500K into all of its companies, but it is now doing so through 2 separate SAFEs, a type of investment agreement which the company invented then popularized.

The first investment is a $125K infusion in return for 7% of the company. The other (happens at the same time) is a $375K inflow with MFN (Most Favoured Nation) status, meaning that the equity that this check buys is on whatever the most investor-friendly terms of the next round is.

In other words, whatever terms the company agrees to with investors in its next round that value it the lowest, that’s the valuation that the $375K buys equity on.

Other provisions remain the same as they have in the past, such as participation rights for future rounds, but it’s this MFN clause that’s causing the stir. Why?

The life of a founder is hard. While some may point to the freedom and passion and blah blah blah as the payoffs of the gig, the real reward comes when you’re able to cash out later on through an exit. The size of that reward is based on the equity which the founder retains, and with the MFN provision, that $375K can eat a pretty big stake of equity if the company’s valuation isn’t sky high.

The dilution is not only a threat to the founders but to future investors as well. Many have complained that they’re no longer even considering investing in former YC startups because the company is unlikely to accept a moderate valuation but also because of the motivational detriment for the founders that is owning less of their own company, taking much of the skin out of the game.

Unfortunately, being the “Harvard of the startup accelerator world” means that YC gets to pretty much operate unchecked. What the company does ripples through the entire startup ecosystem.

Now, as JT once said…

What’s another name for a long-term investment?

A failed short-term investment.

One short-term investment that’s NOT a failure is the 5 minutes it takes to read Fintech Friday each week. With everything going on with SVB, things have been crazier than Paris over there…

Apologies to all of you sub-21 readers out there. I’m sure you’ve never ever tasted alcohol before because that would be wrong, so you just won’t understand today’s company. Maybe pretend every mention of wine is referring to apple juice?

For you ~adults~ out there, just think about how nice it is to sit down to a nice, home-prepared dinner (or more realistically crashing onto the couch after a long week of work with a box of Oreos) and a calming, overflowing adequately poured glass of your favorite wine.

We all have our preferences. Some prefer a deep red, perhaps a Merlot. Others gravitate towards a lighter Pinot or Sauvignon Blanc. I prefer the $5 lighter fluid bottle from the back of the gas station. It’s the finer things in life.

For those of you who choose the wine that burns your throat as it goes down (my avec gaz folks), not only can you buy your bubbly locally sourced, but you can also drink it knowing that as the name implies, the brand stands for empowering women.

Meet Une Femme Wines.

Une Femme was founded by siblings Jennifer and Zach Pelka. Jennifer’s heavy marketing background made the launch of her own champagne bar in San Fran (down the road from where she graduated from Stanford) called The Riddler uber successful.

The venture capitalized on the demand for a women-centric spin on the community watering hole, prioritizing drinks and distributors owned by women founders and aligning the atmosphere to attract successful women looking for a place they could call home, even opening a second location in NYC.

Zach brings a more traditional background, even selling his first fintech startup at 23… Guess I’ve got a year 😅 

In addition to staying on to manage his newly acquired company post-acquisition, the Wharton grad has also helped to launch multiple startups, including another high-end digital spirits brand.

Each has extensive backgrounds in business, but even more importantly, both are experts in the spirits industry. If there’s one reason to bet on this team to make it big, it’s the founders’ incredible talent and experience.

The two joined forces to service what Jen had recognized from her customers as a massive demand for the drinks themselves to stand for the same empowering values that her bar did, as the women-owned brands she would serve consistently dominated the venue’s sales. So, she hit up her lil bro to go bottoms up.

Not only does the brand offer two high quality California-sourced beverages, a sparkling Brut and a sparkling Rosé available in full, mini, or gift basket varieties, but each purchase also contributes to a good cause, both through supporting a female-founded company with strong values but also through the cut of each purchase that goes to charities like the Breast Cancer Research Foundation or TreeSisters.

The company’s website even has a “Hall of Femme” (come on now that’s really good) highlighting some of the most impactful females in business, whether in the industry or elsewhere. It’s clear that that its mission statement is no gimmick; it’s the foundation for the entire brand. You can get tipsy knowing that you’re doing it for a good cause 😌 

Une Femme is more than a feel good story. The company has since expanded to more than 2 dozen employees since it was founded in 2019. Prolly cheaper than 2 dozen eggs.

The company is emerging as a leader in the DTC wine and spirits market in the United States en route to raising $16.6 million in total, the latest batch secured last June in a $14 million Series A. The money has come from angels such as Natalie Diggins, a long-time tech exec and investor, and xfactor ventures, one of the world’s leading investors in high potential, women-founded early stage companies.

The brand’s growth has been aided by big name partnerships, even outgrowing the once in a lifetime distribution to 500 college kids that Chad from Pi Kapp promised in return for a free year’s worth supply for the house’s parties.

One of Une Femme’s most promising partnerships is with Marriott, who will be expanding its existing deal with the brand to carry the drinks in all of its Ritz-Carlton properties. The hotel’s existing customers seem to be enjoying sipping their bevs in their JWM bath robes at all of the properties where it was already carried.

Another important partnership is with Delta Airlines where it’s the only sparkling wine brand carried on the company’s flights. Apparently, Spirit couldn’t make a bid after spending all of its cash on duct tape to keep the wings attached.

These mass distribution partnerships will remain key in standing out in a very crowded market such as adult beverages. After all, based on the estimated market size, it seems like the people really like their bubbly.

The global market isn’t growing rapidly at just 4.3%. However, it’s already big enough ($41.64 billion globally and $8.2 billion in the US) to support new entrants in the space. Plus, most of this growth is coming from young professionals with rising incomes in urban areas, the very demographic that Une Femme is targeting.

With this customer demographic trend comes a change in distribution preference. As evidence, revenue generated through online sales is steadily growing while the share from offline purchases is actually decreasing. Heck, one quick look at the banking system rn, and I see the appeal of a bottle or six.

F&B is tough, though. It might seem like a sexy industry to get into, but this makes the competition steep (see every celebrity that has slapped his or her name on a tequila or seltzer line). It’s tough to stand out on the endless shelves of options for buyers, and it’s notoriously one of the most difficult industries to get into if you don’t have the existing network and connections to understand the ins and outs of the game.

However, Jen and Zach ain’t rooks. They do have the firm grasp on the industry which will allow them to succeed, despite the competition from Goliaths like wine marketplaces and more well-known wineries.

More importantly, Une Femme has more appeal than traditional sparkling wine brands by being mission-driven, an increasingly important factor in the purchase decision process of younger consumers. They also know their customer and go where they are by offering a digital-native, relatable product.

At the center of everything this talented team does is a commitment to broader societal impact. Une Femme is poised for tremendous growth, but at the center of it all will be its goal to empower women to strive for and achieve everything they set their minds to.

That’s something I can raise a sparkly glass to.

TLDR: Une Femme Wines is a mission-driven, DTC sparkling wine company committed to empowering women across the world. Founded by hustlin’ siblings Jennifer and Zach Pelka, this company has managed to build out its partnership network with names like Marriott and Delta, and its strong value-oriented business model and clear understanding of its customers will help it to stand out in a crowded F&B market.

Had some thoughts on recent proposals to ban CBDCs on the Twit. Quick thread on why it’s a big 🙅 from me:

Trey