📶 Why crowdfunding gets a bad rap

This Week in Venture

Substack goes after retail investors 🥴

Last week, Substack set out to raise a $2M equity round from its readers.

They ended up raising over $7.5M instead.

Why it matters: Companies love to make customers feel like they are a part of the journey.

What better way than to have them invest and share some of the upside? Wrong.

Substack does not give up any real control in this round since everybody that participates in the campaign will be on the same line item of the cap table plus no board seats are given up. A bigger red flag is that the company does not have to provide 2022 financial info, and they’re choosing not to. Instead, they’re only sharing 2020 and 2021 numbers, relying on blind trust from their readers (unaccredited investors), and spinning it as a way to “own a piece of Substack”.

This is why crowdfunding gets a bad rap.

Good investors invest with information advantages; not the other way around. If something can’t be answered in the diligence process, it’s a pass.

There are some flaws in the accreditation process and an argument against why only accredited investors get access to certain asset classes, but this is a classic example of why those rules are in place.

To think about it another way:

Why would a company that has already raised $82M from institutional investors all of the sudden switch gears and ask for money from retail investors?

We think it’s because there is no interest left at the institutional level, and the company is looking for an olive branch from investors that will ask less questions and be less involved in their business.

What happens next: Downrounds have become common, and venture capital markets are slow. Expect more companies to open up offerings to the general public if they can’t get the terms they want from private markets.

Republic and Wefunder are the most popular crowdfunding platforms for startups. This isn’t a knock on either of those sites, and there are good businesses that list there. However, the target business for these types of listing sites are businesses without existing capital connections; not venture-backed startups.

If you see a crowdfunding campaign for a company you recognize and like, always do your homework first. The grass is rarely greener, and you should question why they’re coming to you instead of asking for money from people that do this for a living.

The metaverse is a ghost town 👻

Decentraland Metaverse Fashion Week happened last week.

Attendance was down ~75% from last year.

That’s not good.

Remember in 2020 when people would spend tens of thousands of dollars for “land” in the metaverse?

Yeah … turns out that was a bad decision.

Why it matters: VC funds poured money into metaverse projects assuming that retail interest would drive mass adoption. It looks like that’s not happening any time soon, and the spillover is going to get ugly.

Retail investors and “day traders” piled into the metaverse and NFTs at the peak. With layoffs, credit tightening, and markets cooling off, those people have left the stage and likely have bigger things to worry about (mainly making rent).

Luxury brands entered the space, sponsored events, and invested into launching their own projects. When interest dried up at the retail level, so did the value going to these brands.

Funds that played the game of investing (gambling) into the metaverse are looking at a lot of zeroes in their portfolio.

The lesson from all of this?

Before making an investment, always ask yourself, “Is this a good business, or a byproduct of a zero-interest rate environment?”

What happens next: We think (and hope) that metaverse investing is over.

Will there still be gaming projects that take off? Sure, but too much money has already been blown, and too many investors are still underwater.

When an asset class or specific vertical tanks, not all investors stick around.

My first venture job was in a non-target city (shoutout Charlotte), and GPs would talk about how hard it was raising from LPs down there.

The reason?

The LPs had lost money in the tech bubble, and ever since then (a decade and a half later), they chose to park their money elsewhere.

We think LPs and retail investors will have the same feelings toward metaverse investing.

Links We Like

🔎 The State of VC: What’s going on in venture capital according to one of the best fund of funds

👨‍💻 $10M Fund Teck Stack: What tools Hustle Fund uses

🔢 AI Master List: Google Sheet with AI companies to watch

🛠 Build Once, Sell Twice: The best course we’ve taken on productizing yourself and scaling your work on the internet

📺 Classic Ads Swipe File: 201 examples of high-converting ads from 1950-1990

📈 SaaS Metrics Guide: 15 metrics every SaaS founder should track (with calculators)

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What We’re Learning

Programmatic SEO round 2

In the fall, we went down a rabbit hole learning about programmatic SEO and creating valuable web pages at scale. (Shoutout to Nico for coming on the podcast and teaching us about it.)

This process is too long for a short write-up, and we’ll do a deep dive on our learnings soon. If you’re looking to learn more about programmatic SEO, this is a great resource to learn from.

Tools: Google Sheets + Wordpress + Zapier + Placid + ChatGPT

Tweet of the Day

Reality check

Together with Brex

Wait … no more waiting for reimbursements?

Obvious statement alert: managing invoices and team spend is a nightmare.

Chasing down receipts, uploading them into a spreadsheet, sending that spreadsheet to another team to approve, and reimbursing your employees sounds next pay cycle sounds … super fun.

Brex takes this archaic process from the Stone Ages to the modern era by giving finance teams the tools they need to operate. Dashboards, automations, integrations, and financial modeling instead of manual work that makes you want to reconsider jobs.

Give your finance team the tools they need to operate in today’s world.

Thanks for reading this far and giving us a little bit of your attention this week.

Feel free to unsubscribe whenever this stops becoming valuable to you.

- Clay and Tyler