What Do You Mean There Are No Phillips-Heads?

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 dozens of interested people, you're getting firsthand access to my observations and opinions on the current state of startups and venture. If you'd like to receive these newsletters directly in your email once a week, go ahead and subscribe to never miss an email!

Happy Monday, folks.

Apparently, Saturday night marked the last time that the Sun will set before 5pm in NYC until November. Do I smell the suntan lotion and processed meat sticks already?

Much like a regrettable tattoo, political spending contributions are permanent and the impetus for some lively Thanksgiving discussions. As such, it drew the ire of many when it was revealed that 196 members of Congress, that's roughly a third of them, received funding from FTX, the now-defunct (or it it?) crypto exchange that lost billions of dollars in customer funds a few months ago.

While this news is not entirely shocking given CEO Sam Bankman-Fried's prior promises to donate nearly his entire net worth to political activism and humanitarian causes, it still sheds quite the light on the interconnection between political and business interests.

SBF has also been the primary voice of the crypto industry in DC. It will be interesting to see whether his coziness with the Bidens and Bookers of the world will help him get a generous sentence for his charges of fraud and money laundering. Even more impactful, many are concerned that the embarrassment of being so closely connected to the FTX blowup will cause a wave of anti-web3 sentiment and legislation.

Remember when every company and their dog was launching their own streaming service? Those days are long gone, and some of the earliest to cash in on the trend are now looking to get out.

As was the case this week when Netflix founder and CEO Reed Hastings went the way of Bezos and resigned, instead moving to the position of Executive Chairman of the company.

Netflix is also shifting its priorities and redefining its key metrics. Rather than pouring all of its money into growing the subscriber count like when it spent hundreds of millions on masterpieces (/s) like Red Notice and 6 Underground to attract new customers, the company will shift its focus to revenue.

The realization that there is a finite number of customers willing and able to pay for streaming services has had reverberations across the industry. Execs have been replaced, companies have introduced more expensive tiers and ad features, and studios have been told to stop making their movies suck. What a novel concept.

Two things: One, is Zuck the next of the FAANG founders to step down?👀 Two, what will the name of Hastings' new space company be as that seems to be the next step in these situations?

Finally, some more new VC and startup data. It seems that if you didn't launch your own slime putty company during the pandemic, you might've been the only one. And many seem to enjoy the sparkly stuff enough to keep it going.

5 million new business applications were filed last year, a slight decrease from the 5.4 million the year before. Even with the drop, there was still a 44% increase from 2019-2022. That's a lot of side hustles.

In VC, unlike with crypto which actually experienced a growth in investment, fintech investing had a pretty rough go of it. The industry only brought in $75.2 billion last year, a 46% fall from the year before. However, the total number of deals only fell by 8%. This implies that there really wasn't a massive drop in investor interest, but rather there might have been more penny pinching as VCs invested fewer dollars into each deal, likely a major catalyst behind the drops in valuation from the year before.

Falling deal flow was uniform across markets, as was an even larger decline in overall values. However, not every market experienced this hit, and some emerging markets, namely Africa, actually experienced a growth in investment. The continent was the only one to see a rise in deal numbers with an increase of 25%.

In many ways, this is reflective of the growing penetration of internet access to previously disconnected populations. Excited to see what expanding tool and education access to billions of people will do for the future innovation of humanity.

If you've worked in a startup, chances are, you've had to have your head measured to get custom fitting for all of the different hats you were wearing. It's likely that not every role you held was one of your stronger ones. For me, I realized quickly that I suck at sales. Luckily, my friend Nate at Sales Homie teaches you how to be the next Jordan Belfort every week FOR FREE. Now, sell me this pen...

Another day, another startup demo event.

This time, I was excited to hear about the companies at the Beacon Demo Day, a web3-focused incubator. The program is the brainchild of Polygon founder Sandeep Nailwal and provided participants with advising from experts like Jack Lu, CEO cofounder of Magic Eden.

The competition for being featured was fierce with an acceptance rate of ~1%, a number which the team expects to remain consistent with future iterations of the program. This debut was dubbed Beacon's Cohort 0, and the plan is to have another one in the fall with a stable cadence of 2x per year.

Future cohort graduates will receive $250K in fundraising at $8M post-money valuations, but investing was done on a case-by-case basis in the trial run. Only one member of the batch raised its Series A while the rest raised their Seed stage rounds.

While all were promising (again, highly competitive), in terms of potential growth, I had to single out Arcana, a company building toolkits for developers building in the web3 space. This makes the process of developing decentralized apps (dApps) super simple, allowing builders to bring their ideas to life in an ecosystem which they might not be super familiar with or for more experienced developers to ship more quickly.

Builders can seamlessly embed social and email logins directly into their app, setting up a noncustodial crypto wallet in the process. It removes a massive consumer pain point and allows builders to prioritize the core features of their own products. This can help dApps boosts user retention by up to 90%.

When users create their account (and wallet), a widget is created within the app, and from here, users can easily purchase crypto with services like MoonPay or Wyre. These platforms allow users to transact with debit and credit cards. To add an extra later of security, users can set up MFA like is commonplace across many applications now to prevent the growing threat that is cybercrime.

All of these steps might seem challenging, but in total, the process takes less than 10 minutes, allowing the team to dedicate more time to building the products that their consumers love across many dApp types, including DAOs, Marketplaces, and gaming.

To date, Arcana has been used on more than 40 apps with over 1000 developer kit downloads. It also offers 8 different login providers, including email, Discord, and Github, making it easy to use for the end consumers. In an effort to spread awareness of their product, the team has also even hosted 10 hackathons.

Revenue numbers are hard to come by, but considering their customer numbers and the fact that they've just raised their seed round, you'd like to see more traction and growth from a company which has been around since 2019. Though much of this time was likely spent with a smaller team working on building an MVP, growth trajectory looks more like a skating rink than a hockey stick.

Their customers include Script Network, Fabwelt, and MetaArrow, a diverse group of platforms which highlights Arcana's versatility. These companies' businesses rely on the product that Arcana provides, and this sets them up to compete even with strong competition, a nice position to be in.

Finally, even prior to the Beacon check, the company's investors have been well-respected and have taken on the headaches of investing in a foreign startup (Arcana is based in India) to capitalize on such a unique opportunity. This group consists of DCG, Woodstock, and Republic Crypto.

The pricing is simple and affordable for developers utilizing Arcana's SDK. For the first 2000 monthly active users, the product is completely free, and for users above this threshold, developers are charged $2.50 for each additional 100 users. This allows the company to attract customers unable to initially pay and scale as they do, creating nearly limitless growth potential.

The dApp market is large and is one of the fastest growing in the world with a projected CAGR of 56.1% through 2027. This would put it at $368.25B, though much of this will be driven by just a few markets like the United States. Many of these platforms will want to outsource some of the dirty work to an infra provider like Arcana.

Unfortunately, the team faces plenty of competition, much of which is located in the US and has far greater traction. Largest among this group is Fireblocks, a company which provides similar integrations but solely for financial solutions. The company has raised more than $1B and was only founded a year before Arcana was.

A few other competitors have also raised significant money and appear to have greater traction, and though all of these products and services are slightly differentiated, the differences are not vast. It might be challenging to differentiate and gain traction in markets where other big names already exist.

One possibility for growth in light of this competition is doubling down on emerging developer markets. Becoming the primary infra provider for dApps its the home Indian market could allow the company to dramatically grow and perfect its product. This is a particularly promising approach when the web development market alone in India is projected to more than double in the next five years, and the use of blockchain is expected to grow 46% over the next few years.

Many other developing economies, such as Nigeria and Indonesia, are also rapidly growing their base of educated developers and could prove ripe for introducing Arcana's product. These markets are all often overlooked by the larger companies like Fireblocks which primarily market to the Western world.

As for the team, according to Crunchbase, the company now has ~30 full-time employees. The founding team is still on board and plugging away at making the company great with Head of Growth and Partnerships Aravindh Kumar having years of experience in product management and business development and CEO Mayur Relekar having some experience in both business and in blockchain development.

Though there is little previous startup experience, the rest of the team appears to have plenty of technical and business expertise. Excited to see what they do with it.

TLDR: Arcana is a developer toolkit aiming to help developers integrate crypto wallets into their own dApps quickly and seamlessly. Their product is unique in that it allows developers to customize its use in their own product while also serving as a simple onramp with plenty of security measures for the end users. The biggest threat is the amount of competition in the space, particularly in developed markets. However, if the company doubles down on emerging markets like India and Indonesia, the growth potential is unlimited. WAGMI, Arcana.

Cheers to another day,

Trey

P.S. Interested in the business of college football? Make sure to check out Pigskin Economics, a once-per-week breakdown of the biggest topics going from the sideline to the executive suite.