Last week marked our second quarterly update from the Samaipata team, if you'd like to receive these subscribehere. Can you believe we’re nearly through Q4 and almost done with 2022?! Festive season is just around the corner whilst the world cup is in full stride. This quarter was a big one for all of us at Samaipata: after months of hard work and deep introspection, we’re very excited to introduce you to our revamped brand and website. Now, before we jump in here’s our temperature check on the market:
Ready and braced for impact
This quarter saw a continuation of the slowdown that we shared last issue. Inflation is sky high, public tech companies continue to slide. Within the ecosystem, more companies have laid off, frozen hiring and extended runway, while exits have been silent (except for the bad-self-destruct kind). A winter truly seems to be settling in. But when put into context, the positive note would be that we had all expected this and we braced, ready for the impact. In fact, this quarter finally reflected the decline in VC deal activity we were all waiting for, and here it is:
While it may look drastic vs last quarter or even last year, the truth is that last year saw an exceptional surge in liquidity and investment driven by the macro conditions then. When that started running out early 2022, it was inevitable that we would see a reversion to the norm, pre 2021 levels. It’s a painful correction but at least its cyclical origins gives us reassurance that it will likely flatten out rather than drop off entirely. The asset class is still structurally growing, especially in Europe, and the strong angel and seed activity supports that. As long term investors, we are firm believers that value created from technology and entrepreneurship will prevail over this short term turbulence so we expect investment to continue in such times, albeit a little slower for now. In fact, such conditions build resilience in founders and a renewed appreciation for capital efficiency and the ‘basics’, which we believe will distinguish the good from the very best founders. As a Founder, now is the time to focus on your core business and lay the foundations for long-term value - you’ll emerge stronger and ready for explosive growth. We are sure there will be real winners built during this time (just as in previous downturns), after all, diamonds are made under pressure.
TLDR; This will go on for a while so brace and get ready to make the most of it.
… and the elephant in the room - what the FTX?!
FTX’s collapse took everyone by surprise and more of the disaster unravels every day. We won’t add more fuel to this fire (it’s already ablaze) so instead, we’d like to share how we think it impacts web3 technology as a whole. This event captures the weak foundations of a market that has rapidly grown into a multibillion asset class, overrunning sound risk management and regulation. It will be a historical case study. While it will likely cast further doubt on crypto as an asset in the near future, we remain optimistic about the potential of blockchain and as a technology and a platform. Sure, it will take some more time and discipline to adopt and realise it. Yes, tighter oversight and regulation will be a prerequisite before it happens en masse. But the silver lining to this FTX episode is that it could catalyse and accelerate such regulation. Nonetheless, the pain is far from over and the crypto ecosystem will take time to recover but we believe we’re at an inflection point, heading toward a new chapter in this story.
Welcome to our new companies and bravo to our portfolio companies who raised new rounds and hit new milestones this quarter!
€26m Series A round into Fintecture investing alongside Target Global, Eurazeo, RTP Global, Allianz Trade, Société Générale and various business angels for a next-gen B2B payment platform enabling merchants to bypass card ceilings, technical declines and fees, while boosting sales and reducing costs and fraud
€6.5m Series A round into Retraced investing alongside ALSTIN Capital and F-LOG Ventures for a platform building the leading supply chain transparency in the fashion and textile industry
$8.5m Seed round into PropHero investing alongside Fifth Wall, Jelix Ventures and AfterWork Ventures for a platform that helps investors to buy residential property leveraging personalised digital experiences, data and AI plus human expertise
Karmen raised a €50m debt round led by Fasanara Capital to continue their mission to democratise Revenue Based Financing and keep supporting subscription based platforms to generate upfront cash
Generative AI covers all the technology that leverages AI from large language models (LLMs) to create or generate something meaningful - any type of content or medium imaginable. It isn’t brand new - we’ve seen AI in many analytical use cases (i.e. identifying, drawing insights) but the big step here for Generative AI is being able to transform simple natural input, such as a sentence, into a whole new medium, such as an article, image or a song, while still making reasonable sense. More than just the underlying model, Generative AI encompasses all the interfaces built on top that make the AI accessible and user friendly. Previously, leading LLMs such as OpenAI’s GPT3 were too expensive and required too much capacity for early startups to leverage so Generative AI lay a distant dream for budding entrepreneurs. However, new open source LLMs released recently, such as Stable Diffusion, has infinitely widened accessibility not just to users but also developers. This is the big Why Now behind Generative AI, because the metaphorical floodgates for innovating on top of them have finally opened.
At Samaipata, we are most excited about startups building the interfaces and workflows for end-users to leverage Generative AI in particular use cases. Our view is that the underlying LLMs still have room to improve but will eventually converge or commoditise as they all approach a technical asymptote. These are best built by those with the most data and capital to spare - it’s no surprise that Meta launched their own LLM horse Galactica this week in this land-grab race (although sadly, they took it down already). Potentially very lucrative but not the type of business we invest in. On the other hand, we believe there is plenty of value to be captured in the interface layer because it makes the perfect entry point for a platform play. Take Jasper.ai who raised $125m last month for example, it’s built on GPT3 and turns an input sentence and style into blogs, posts or ad copy - you name it. The tool makes the user’s life easier by writing faster and embedding into existing workflows through a chrome extension or web app. As Jasper adds more capability (e.g. images and email as well as ad copy) and workflow tools (e.g. posting directly, integrating with management software), it is incredibly well positioned to become the core OS or platform for writers as they become dependent. There are endless similar applications in other verticals (coding, gaming, selling…), some of which have been tapped into but nearly all remain nascent. Of course, some verticals will make more applicable sense than others, such as those with flexibility for some drafting or imperfection, those with highly skilled users but time-consuming tasks. More difficult verticals may face initial pushback as the watermark is higher. For example, Meta’s Galactica aimed to assist scientists with writing scientific compositions but was taken down after just 3 days when the community dismissed the tool, criticising that making grammatical sense was insufficient since it did not provide any scientific substance nor grounding to its output, thereby creating risks of misleading research. Clearly, we’re not there yet but we are confident that it’s a matter of time that we will be.
You can probably tell that we’re very excited about Generative AI. We are actively looking for businesses tackling the most value-adding use cases and verticals. If you’re a Founder of an early stage Generative AI business, we want to hear from you! Share your business with us here.
At Samaipata, we are always looking for ways to improve. Do not hesitate to send us your thoughts. We strive to partner with early-stage founders and to support them in taking their business to the next level. Check out more ways in which we can help here or for all our other content here.
And as always, if you’re a European digital business founder looking for Seed funding, please send us your deck here or subscribe to our Quarterly updates here.
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