And I Thought MY Mother-In-Law Was A...

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.

Perhaps it’s because my couch has imprints of my butt from spending the past two days watching March Madness, but I’m in the mood for a bit of competition. You guys have already been amazing at sharing the newsletter with your friends. Now, I'm looking to do a lil somethin’ somethin’ to return the love.

Starting today, I’m running a one week referral contest. To help you get started, if you refer just 1 (what a deal!) new subscriber, you’ll get yourself an invite to join a Twitter Community to send your dankest of memes and alpha-est of alpha as we collectively short whatever company Jim Cramer has decided to tweet about this week.

Refer 3 readers, and you’ll get exclusive access to a brand spankin’ new Discord channel where you can chat with your fellow startup junkies (and me… please, i’m lonely) about all things baby companies.

Hit 7, and you’ll get an inside look at an actual VC firm’s pitch checklist. Super useful stuff for evaluating companies yourself, and even more helpful as you think about crafting your own pitch to potential investors. Secure that bag, King 👑 

Refer 10 people, and I’ll hit you up with my curated list of favorite resources for sourcing companies and learning about trends. I’ve spent years putting this puppy together, and I honestly feel like I’m underpricing it.

Finally, for whoever gets the most referrals, you get a one hour chat about whatever you want to talk about, whether it’s getting feedback on your idea and pitch or why pink Starbursts are grossly overrated.

Nooooooow go 👀 

February might be the shortest month, but it felt like a Tarantino movie for anyone looking for fundraising.

Last month saw the lowest funding levels since the same month in 2020, right when the world was beginning to realize that that little bug in China wasn’t quite so little.

In total, startups raised $18 billion, the first time in the last three years which a month has even seen less than $20 billion. Year-over-year, this was down 63%, and it was down 43% from January’s levels (though this was skewed by OpenAI’s raise).

The struggle bus was particularly swervy for later stage companies who saw a 73% fall YoY, a far (cupid’s arrow) shot from the easy money of the last couple of years. Investors are having a hard time justifying some of the valuations that these companies are seeking to raise on in this market environment.

An interesting alternative might exist for many of these companies. In this period of low valuations, it becomes much more attractive for larger companies to go Black (almost Good?) Friday shopping for undervalued acquisition targets. I wouldn’t be too surprised to see a few of these later stage startups get scooped up and incorporated into larger companies’ operations.

Regardless, it’s safe to say startups weren’t feeling the love… 💔

There are some updates on the whole SVB mess.

To start with the biggest news, the Fed announced a plan to make depositors whole. This means that for the large number of customers with more money in the bank than the $250K FDIC insurance cutoff (see: 97%…), they immediately have access to their cash, avoiding a potentially catastrophic shock to the entire startup industry.

As predicted, investors and bondholders of the bank didn’t fare so lucky, as they weren’t recipients of the bailout, though this outcome is certainly preferable to any alternative.

This solution didn’t stop contagion fears from impacting other regional, and even much larger, banks.

Signature Bank in New York was also taken over by the government with promises that its own depositors will also be insured. This one was a bit more controversial, and many think that rather than being vulnerable to the same run that hit SVB, Signature may have been made a victim in an effort to deter banks from doing business with crypto, an industry which Signature has been keeping a Snapchat streak with for a while.

Not saying this is true, but if the shoe fits…

The FDIC is currently in the process of auctioning off SVB’s assets, though it might be tough to find buyers. HSBC bought the bank’s British subsidiary for 1 pound, and though this might make it seem like you can go and buy the US branch at Dollar Tree, SVB’s many liabilities make paying anything for the failed company a rip off like that steal of a deal you got on the roadside trader’s magic beans.

The bank’s holding company, SVB Financial, also went ahead and filed for Chapter 11 bankruptcy protection, meaning that it is admitting there’s a problem (always the first step 🙏) but attempting to resume operations free of FDIC control while seeking a buyer.

There will be many other fallouts from the collapse, from rising interest (and prices) in crypto and web3 alternatives to startups and VCs rethinking their financing operations. For startups moving their deposits to bigger banks, it will also mean less friendly terms on loans. However, arguably the biggest immediate impact could be seen in the Fed’s interest rate decision this Wednesday.

Prior to the collapse, the consensus expectation was for a .5% hike due to the sticky nature of the inflation goo. However, the bank’s failure demonstrated just how strongly these hikes are hitting the financial sector, and many are now anticipating a loosening of the reigns as the Fed pivots to balance slowing down inflation with financial stability.

The new expectation is for a smaller .25% rise in rates, though no raise at all isn’t out of the picture. Worth noting is that the European Central Bank (like the Fed, but y’know, European) still raised rates by 50 bp even after the panic and the much more impactful drama with Credit Suisse, a much larger and much more systemically important financial institution even than SVB.

This balancing act is looking like a more extreme version of the high wire circus act, but there’s no net below. Only a pool full of sharks with lasers and electric eels on one side and your dad asking you if you’re ready for the birds and the bees talk on the other.

If you thought ChatGPT was wild, hold onto your Dall-E-generated horses.

OpenAI officially released GPT-4, a bigger and badder version of the internet’s favorite chat toy, an upgrade even bigger than outhouses to bathrooms or cucumbers to pickles.

This version is able to respond more accurately (though it’s still not perfect) and with even more nuance. It’s a marked improvement in performance, and an even bigger sign that damn… we really are all replaceable…

More unique, it’s also able to analyze and respond to images. Thus far, it seems that the biggest use case for this feature is taking pictures of your fridge and getting recipes based on what’s inside. For some reason, not getting many suggestions for my can of spray cheese and the almond milk pudding I mistakenly picked up three years ago.

Eventually, however, visual data interpretation could prove extremely useful in improving existing attempts to use AI in healthcare for things like screening and in aerial imagery in things like crop monitoring.

There are also improvements to the steerability of the model, or how easy it is to get the chatbot to tell you exactly what you want it to. This means it’s more likely to accurately respond to your requests and less likely to provide banned information like how to obtain and mix dangerous chemicals.

The new version is only available to users on the paid subscription plan, including for developers looking to use its API. Companies using this already include Microsoft, Stripe, and everyone’s second favorite owl (behind Hedwig obviously), Duolingo.

Microsoft is also really leaning into its biggest win over Google since… well ever. The company also announced its new Power AI Copilot, a tool meant to help users of the company’s Power low code business automation platform to build apps for workflow processes like expenses and invoices, significantly cutting down the time required to perform these tasks.

It really does seem that OpenAI is pulling ahead in the AI race, both because of its own rapid development but also because of the faceplants of competitors. This week, that would be China’s Baidu, whose Ernie chatbot didn’t exactly have a Jordan Peele-like intro.

The company “demoed” its product with a prerecorded video where the bot responded to prompts for things like writing book sequels or interpreting antiquated sayings. Execs seem to have been a bit wary of the demonstration going awry like when Google’s Bard answered incorrectly while live for the entire world to laugh at.

In an effort to not fall behind, every company is pushing full steam ahead in the AI arms race, even if it means shipping products before they’re ready. At the same time, companies like Microsoft are making sweeping staff cuts in “unnecessary” departments like AI ethics. While this “move fast and break things” mindset might be the optimal strategy in most startup industries, in one with as grave of potential consequences as AI, that’s how we end up in Terminator.

You know what would be really cool? Think of Jorts (jean shorts to some). What if there was a pair of jorts that was long to keep your legs warm when it’s cold?

What The Hype didn’t give me that billion dollar idea, but it can give you plenty of other startup ideas to achieve your goal of putting “Entrepreneur” in your social bios.

It drives me a bit crazy when I see people bringing their pets with them everywhere they go.

It’s not that I’m not a dog person, but the last thing I want to see when I go to the store is your schnauzer shedding all over my half-priced bag of Valentine’s Day candy, and how dare you think you’re entitled to take your pup to the very same park in which I’m trying to enjoy a sunny day?

Perhaps even more upsetting than the hygiene issues with pooches in public is the fact that more and more of them are dressed better than me. I wake up, take a shower, and put on my favorite jean shorts and socks & sandals combo to go out and then can feel the beady little eyes of judgement coming from the Poodle with a real diamond collar.

Putting my pride aside, though, I recognize that the market for consumption on our furry family members is massive, and it’s not slowing down anytime soon. Even beyond the success of larger companies like Chewy who were incredibly successful throughout the pandemic, there has been a rising segment of the population ready to absolutely ball out on the best of the best for their fuzzy friend.

One startup catering to this very group of people is DOG By Dr Lisa.

Even the name screams “my bark sounds like angels singing.”

The Australian company specializes in a range of luxury skincare and lifestyle products for your four-legged Fido, products made with nothing but natural and organic ingredients.

Sticking to the company’s nature-impassioned mission, the products are also eco-friendly. They’re biodegradable, recyclable, vegan, and as one would hope, not tested on animals. Wait maybe these should be tested on animals…

Regardless, they also donate a percentage of all profits to animal causes.

The product variety is exceptional. For your first purchase, you can get one of their prepared sets which range from $50 to $250. The Starter Set, Waterless Wash Set, and the Spa Set (comes with matching robes for you and your dog) are just a few of your options.

There are also individual products like coat conditioner for shinier fur, Omega supplements for joint and digestive health, and a variety of accessories for both you and your pooch. Those are quite the benefits… if you see my hair looking extra glossy, keep it to yourself.

For you cat people that have been gagging throughout the first few paragraphs, the brand is even branching out to fulfill your feline fix with wipes, a brush, and a rake, and it seems likely that the company continues to explore these other markets as they grow. Pumped to accessorize my beta fish soon.

Revenue is estimated to be around $5.8 million, up 126% from 2021, and the team has grown to 14 employees since 2019. They’ve also raised nearly $2.5 million to go with the money that the founding team put in.

These sales numbers are rapidly growing as the company has now branched out from the Land Down Under to the American market just last month through the company’s website, Amazon, and a few select retailers.

To assist with growth and awareness, the company is leaning into an ambassador program. Its social media page is littered with customer-created content showing off the rabid base of obsessed buyers and their pets.

It’s clear that DOG’s dawgs love the products. Even better, it’s clear that the potential pack size is pretty massive, too.

Pet owners in the US spent a whopping $123.6 billion on their animals in 2021, a number growing nearly 20% every year. 70% of Americans have a pet, and that number has skyrocketed since the beginning of the pandemic when 1 in 5 people adopted.

With that market size comes plenty of startups, and the competition is ruff (sorry). Some companies in the space include Smiley Dog, Harry Barker, and Le Pet Luxe. It’s criminal that there isn’t a Live, Laugh, Pug or Waggin’ Wheel out there.

Most of these larger companies have established customer bases, but they tend to focus in the accessories and toys markets. There really aren’t any skin and fur care companies for pets, a large reason for why Dr Lisa decided to start the company in the first place.

This unique offering should allow the company to sell to new pet owners (or even just new pamperers) even if they already have an affinity for one of these other companies. Once these customers buy once, it will be much easier for Dr Lisa to cross sell them and convert some of these customers into buyers of DOG’s own accessories and apparel.

However, despite all of its bullish properties, arguably the biggest draw of the company lies in its celebrity CEO.

The Dr Lisa in the name is founder Lisa Chimes, a vet and avid animal lover with the “Dog Mom” Insta feed to prove it.

In fact, DOG isn’t even the first foray for Dr. Chimes into the world of monetizing her passion and expertise. She is also a TV host where she has starred as herself in Bondi Vet and Dr Lisa to the Rescue. She’s also busted out the keyboard to write two pet-themed children’s books.

To help capitalize on her existing image and fanbase, Bradley Nissen runs things on the ground as Director and COO. Previously, he has served in various managerial roles in successful retail brands. The rest of the team of passionate animal lovers brings all of the ingredients to fuel the next wave of pet care as DOG goes international.

$DOG(E) to the moon?

TLDR: DOG By Dr Lisa is a luxury skincare and lifestyle product brand for pets. The massive customer base of pampering dog owners combined with CEO Dr Lisa Chimes’ expertise and personal connection to the problem have allowed the company to create a unique product which has quickly reached product-market fit and is now expanding to markets across the world.

Before you go, I’m always looking for ways to improve my content. At the end of the day, no matter how much I brag about having 4 people (3 if we’re not counting grandmothers…) that read my work, it’s about you guys. Let me know who you are so I can bring you the most relevant content possible 👍️ 

Cheers to another day,

Trey