A Very Saucy Card

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 Tuesday, folks.

Considering I was prolly the only person in the country to open my emails yesterday (but if you don’t have a life, either, wassup), I figured that I might as well avoid crushing my deliverability/open metrics and wait to send this out today instead.

On a side note, I hope that you enjoyed the long weekend, and that you ate enough Franks and watermelon to make Uncle Sam proud, and that Taco John doesn’t sue me for today’s gif choice. Also, my thoughts to all of you still recovering from the finale of Succession.

Now onto our regularly scheduled newsletter, New York might not have relevant sports (the knicks loooooool 😈), but at least they have startups going for them?

For the first time ever, New York actually had the most early-stage startup investment rounds in the country over the last year. New York county, that containing Manhattan, saw 543 Seed and Series A rounds in the year ending March 31 of this year. Runner-up (and bazillion time defending champ) San Francisco county saw a mere 486 such deals. Poverty.

Before you East Coasters start claiming Shake Shack > In N Out (just stop), the land of nature hikes and Whole Foods still led in total dollar value with $4.3 billion in investments in these rounds versus $3.6 billion for the Big Apple.

Further bad news for the overzealous bagel snobs among us, these numbers don’t actually include surrounding counties which are often lumped in with discussions around any of these locations. While New York’s numbers are helped when you add in Kings county (Brooklyn) and its 101 deals, SF gets a ginger and turmeric energy shot when you include neighboring San Mateo (280) and Alameda (82) counties in the region’s total numbers.

Though the whole “San Fran is dead” narrative might be a bit… dead, the trend that these numbers are illuminating is legit. Even prior to COVID, there was growing discontent about life in the Bay, though the pandemic certainly accelerated the migration of talent away from the West Coast and to cities like New York, Austin, and Miami. Chasing that talent are VCs who are really coming around on the idea that Tex Mex and dollar slices > $9 kombucha.

If there has been a winner this year outside of Generative AI and video game loving cinephiles, it has been green energy. A couple of major milestones only serve to further complement this narrative.

First, you might have forgotten amidst his Twitter memes and headline-dominating rocket “self-destruction”, but Elon Musk is actually still the CEO of a car company. And if it feels like you’re seeing that Tesla logo even more often, it’s prolly cause the Model Y recently became the first electric vehicle to become the world’s best selling car for Q1.

Through the first quarter of the year, the company managed to sell 267,200 units of the popular SUV, a 69% increase YoY. The company is set to easily surpass last year’s total of 747,500 which had been good for third place in the sales rankings for 2022.

This might not necessarily spell positive news for the other EV startups seeking to capitalize on America’s willingness to go green (apparently, you still have to actually produce the cars???), it does look promising for companies looking to service other subindustries in this growing market, such as charging and batteries.

The runner up was last year’s champ, the Toyota Corolla. The ol’ reliable vehicle sold 256,400 vehicles. If you’re feeling bad for the side hug of automobiles, stop it. Toyota managed to claim 3 out of the top 4 spots.

As for Tesla’s dominance, things could look even more promising for the company over the next few months. To the disdain of shareholders, the EV maker has cut prices multiple times over the last year, making its vehicles more affordable for the average driver, particularly when combined with tax incentives from the Biden administration.

As the effects of these price cuts become more pronounced, and there are still opportunities for further cuts considering Tesla’s margins are almost 6x higher than are those for other car manufacturers, the share of Elon’s babies (as if he didn’t have enough of them) on the road could only continue to grow.

I hope you applied a generous amount of SPF 50 sunscreen, because things are also looking pretty 🌞bright🌞 in the land of solar.

For the first time ever, investment in solar energy is set to surpass that in oil. Solar is projected to attract $380 billion in capital for 2023, a large chunk of the $1.7 trillion expected to be invested in renewables as a whole. Forecasters anticipate total investment in the energy sector topping $2.8 trillion this year.

The dominance of clean energy as a share of total energy value has been increasing over the last few years, with renewables seeing a 25% increase in investment since 2021 versus 15% growth for fossil fuels. For this year, for every $1 invested in coal, oil, and natural gas, $1.70 is being invested in businesses like solar, wind, and Aquaman spinning underwater turbines.

While this is all encouraging, things are still pretty shaky on the outlook for addressing the climate crisis. Even at this lower rate, fossil fuel investment is still double what would be required to reach net-zero emission goals by the target date of 2050. @Elon any chance you’re planning price cuts for those trips to Mars?

My friends say that the 23 productivity apps installed on my phone are unhealthy, and I need professional help. They also say that drinking 12 cups of coffee and a Redbull in the span of 3 hours is also probably not great for my stomach lining or heart health, though, so what do they know?

If you’re interested in unlocking your full productive potential with actionable and research-driven recommendations, check out Psychology of Business, a free newsletter helping you to channel your inner Leslie Knope and dominate in whatever role you work in 👊 

The original Mona Lisa? Best I can do is $5.

For you real Rick Harrison fans out there with the growing pirate coin collections to prove it, you might think pawn shops are just places for drug dealers and treasure hunters to liquidate their morally questionable trinkets to go buy tigers with untraceable cash.

However, something I recently learned is that they actually offer a pretty important service as a lender for the underbanked community. These businesses also offer cash loans against the value of physical assets that borrowers bring in.

For example, I could borrow $100 from my local Gold and Silver and give them my inordinately large collection of silly bands that is worth more and that I’m fairly certain is buried somewhere in my mom’s closet.

For customers taking advantage of this credit option, there are reasons for doing so beyond it potentially being their only option. For example, it is very quick, taking minutes as opposed to the traditional multiday or week long process of accessing a loan. It also often involves a smaller loan size, meaning the process of applying is just much more convenient.

More importantly, there is also no credit profile check. It’s a pretty simple "if you’ve got the collateral, you get a loan.” This can be particularly beneficial for those with iffy or limited histories, and there’s no impact on scores in the case of a default. The pawn shop would simply take possession of and sell the asset. Both of these things might be beneficial for borrowers with more concerning credit profiles.

However, it’s worth noting that the industry isn’t all sunshine and original rainbow-colored Woodstock posters with resale values in the hundreds of dollars, though. Recognizing that many of the borrowers taking advantage of this alternative form of financing have few other alternatives, many pawn shops offer these loans with Woodstock high levels of interest rates, some as high as even 300% annually.

Given the proliferation (& $) of this market, it would make sense that the industry got some innovation. And even better, for you Italian food lovers (little caesar’s anyone? 😋), you’re even well familiar with this startup’s name.

Pesto is riffing on this pawn shop mentality, bringing the collateral offered by physical assets to the credit card industry. More importantly, the company allows for a more inclusive, less predatory financing option for the millions of underserved people with limited credit options, seemingly improving upon the more developed secured card model by allowing more flexibility in the insurance that borrowers offer to back the loans.

Applicants simply send their collateral to Pesto who then provides them a credit card with a limit dependent on the value of the underlying asset. Borrowers are charged no interest if paid off by the end of the month or at competitive rates that are far more manageable than those for pawn borrowing. In the process, they can build up a credit history allowing them to eventually access even more favorable banking and financial service options.

For Pesto, like with pawn shops, the company is protected by taking actual possession of the valuable physical asset, actually holding it until the customer closes their account, or the startup can simply turn around and sell it if the borrower defaults. You think the US can give them the Statue of Liberty and borrow a trillion dollars to get us out of this whole debt ceiling issue?

The company launched in partnership with Mastercard, providing almost as much legitimacy as had they launched with ambassador Master Chief. Now, armed with $11 million in capital from a recent Series A raise and a cap table with the likes of Activant Capital, Soma Capital, and YC, the team is ready to expand to two of the larger pawn shop markets in LA and Atlanta.

Right now, the company only accepts precious metals, jewelry, diamonds, gemstones, and watches. Given how valuable these can be, credit limits can be large, and they’re valuable assets which have historically been underutilized as a financing weapon because they lack liquidity.

The total interest earned through US pawn shop lending was close to $14 billion, and with 6 million underbanked citizens in the country, often restricted to lending options with 100%+ interest rates, this gives Pesto a massive market to attack.

There are not many companies doing exactly what Pesto is doing. However, the market for secured credit is a large one. 6 million lines of credit are open, and another 100 million unsecured lines are open with unfavorable terms which could be improved through a period of credit building with a secured card.

Many major card providers such as Wells Fargo and Capital One offer options for customers to begin to build credit with collateral. However, each requires cash as said collateral, something which might be challenging to come by for the target customer each of these companies is going after.

The company was founded in 2020 by CEO James Savoldelli. He was so committed to the idea of financial inclusion in the credit sector that he even took the time after graduating from Stanford to work at a pawn shop and understand the repeated nature of pawn shop borrowing. No word on whether it was Rick’s Gold & Silver.

The rest of the team is stacked, too. With engineers and advisors from every function, from item valuation to legal functions to just building a slick user experience, Pesto is loaded.

This innovative approach to the problem combined with a clear commitment to solving it no matter the cost positions Pesto to take over as a leader in the secured credit space. Give these guys some pepperoni and a crispy crust, and I can get on board with some Pesto.

TLDR: Pesto is revolutionizing the world of credit, providing a proven means to allow the underbanked community to begin accessing the benefits of financial tools. Using physical assets as commodities, the company is able to expand the options for accessing secured credit for borrowers. The success of this industry in its traditional pawn shop form combined with this much more accessible medium positions Pesto as a riser in the credit market.

We rocking with Pesto? Let me know in the comments!

Cheers to another day,

Trey