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| Here's a look at today's Startups briefing. - 🛡️ Defense startups bagged less than 1% of government contracts in 2023.
- ⚠️ Investors are unable to accurately value startups as some founders have stopped sharing financial information.
- 👥 Swiggy announced a second round of layoffs, cutting 7% of its workforce.
Thank you. Karan
p/karan-chafekar | |
| 1 | | The Defense Department awarded contracts worth $4B to VC-backed startups in the U.S., per Govini's data reviewed by WSJ. The value of contracts awarded to defense startups is less than 1% of the total $411B contracts issued by the department in fiscal year 2023. Persuading the Pentagon to buy technology from U.S. defense technology startups has been difficult. More: - Only a handful of U.S. startups have secured defense contracts worth over $25M in the last fiscal year.
- Notable exceptions to the norm were drone startup Skydio and drone swarm defense startup Epirus, which were awarded contracts worth $100M and $66M last year, respectively.
- On the other hand, VCs have kept pumping an average of $30B into the sector for the past three years, bringing the total investment since 2021 to more than $100B.
- Startups need government contracts otherwise, they risk looking like "a failed experiment," says defense software company Govini's CEO Tara Murphy Dougherty.
- Industry insiders believe the culture and bureaucracy of the department are the core reasons for this disparity.
- Per OpenSecrets, VC-backed defense startups have collectively spent about $6M on lobbyists to make inroads with the department.
Zoom out: - The department has taken cognizance of this fact and launched the Replicator initiative, which aims to increase the autonomous system capabilities by next year.
- Additionally, the department has allocated more money to its Defense Innovation Unit, which connects startups with military buyers.
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| 2 | | Investors are unable to determine the accurate value of their portfolio assets as some startups have stopped providing key financial information, including revenue, expenses, and cash flow projections, per Bloomberg. 
What happened: Startups are keeping investors in the dark to avoid a markdown in valuation. Additionally, startup executives are also discouraging investors from selling their stakes in the secondary markets at a discounted price, as they fear that it could spark rumors that the company is worth less than previous estimates, lower employee morale, drive away employees, and force them to take a down round at the next fundraising. Relevance: Chat platform Discord stopped providing investors information about the company a few months before it laid off 17% of its staff members earlier this month. Sustainable agriculture company Indigo stopped issuing updates to investors last January, sources informed Bloomberg. Last July, the company had to accept a down round, which lowered its valuation by 95% from its peak of $3.8B to just $200M. What next: InvestX's CEO Marcus New has urged the SEC to force private startups of a specific size to provide annual financial disclosures, which would help investors determine the accurate value of the company. He believes this move could make it harder for shareholders with access to the company's financial information to take advantage of less-informed investors. | | | |
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| 3 | | British banking tech startup 10x Banking is looking to triple its clientele to about 15 to 20 financial institutions by 2025. The firm is optimistic about reaching its targets, thanks to its upcoming new product that will launch soon. The firm's ambitious growth plans come a month after it raised £35M ($44.5M) in funding led by BlackRock and JP Morgan. More: - The firm was valued at £600M ($763M) during its previous funding round in 2021.
- 10x Banking's notable backers include the Canada Pension Plan, Nationwide, and WestPac.
- The firm's parent company, 10x Technology Holding, posted a loss of £60M ($76.3M) against a revenue of £22M ($27.9M) in the year ending 2022.
- Losses widened by 22% after revenue slumped by 59%.
- 10x Banking's CEO Anthony Jenkins said the losses stemmed from its heavy expenses on building the company's complex technology infrastructure.
- He expects the company to be cash flow positive in 2025.
Zoom out: - Jenkins served as Barclays' CEO for three years until he was ousted in 2015.
- A year later, Jenkins founded 10x Banking, where he currently owns a 40% stake and has invested £1M ($1.3M) of his own money to date.
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| 4 | | Indian food delivery startup Swiggy announced a second round of layoffs, which impacted 400 employees, or 7% of its workforce. The layoffs aim to streamline its operations ahead of its planned IPO listing later this year. While the startups food delivery business has been profitable, the same cannot be said about the entire company. More: - Swiggy was valued at $10.7B at its most recent funding round and has raised about $3.6B in total funding from investors, of which the most notable are Invesco, SoftBank, Prosus Ventures, and DST Global.
- Swiggy and its rival Zomato are dominating the Indian food delivery market, with the latter holding a 56% share of the market.
- Zomato has a broader presence than Swiggy, catering to 750+ cities compared to the latter's 600.
- Swiggy will be closely compared to Zomato and must beat it on several fronts to achieve its desired valuation at the upcoming IPO listing.
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| 5 | | Asian food delivery company Fantuan acquired Chowbus' delivery business line for an undisclosed sum. In addition to the acquisition, the duo inked a partnership to combine Fantuan's rapid food delivery process strength with Chowbus' restaurant management software. With the acquisition, Fantuan hopes to expand its presence in the U.S. to cover 60% of the market, up from the current 10%. More: - Chowbus started in 2016 as a delivery service that provided Asian food from independent stores.
- By 2020, Chowbus expanded its service to 20 cities.
- In 2022, the company pivoted to developing restaurant management and point-of-sale software.
- The firm has raised $108M in total funding to date, including a $33M Series A funding round from 2020.
- 20 employees from Chowbus will move over to Fantuan.
- Founded in 2014, Fantuan provides restaurant delivery, fresh grocery delivery, and dine-in service in 60 cities across Canada, the U.S., Australia, and the U.K.
- It raised a $40M Series C funding round in December 2023.
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| 6 | | Rowing fitness equipment maker WaterRower acquired rival CityRow for an undisclosed amount. WaterRower beat another fitness company, Hydrow, which had also been in talks to acquire CityRow. The acquisition will help WaterRower combine its manufacturing and distribution network with CityRow's tech and content strengths. More: - CityRow's founder and CEO, Helaine Knapp, said, "We're in this phase of recalibration, and that's why now is the time for this deal."
- The firm initially started as an in-person rowing studio in 2014, before pivoting into at-home digital fitness in 2018.
- The startup witnessed a 375% jump in revenue when the pandemic hit.
- CityRow struggled when the pandemic-led demand subsided in the post-COVID environment.
- The firm last raised a $12M Series A funding round led by JW Asset Management, Sol Global Investments, and K2 Global.
Zoom out: - L Catterton-backed Hydrow had raised more than $300M from investors, which helped it stay afloat.
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- Edtech startup Byju's missed payment on a $1.2B loan, forcing lenders to file an insolvency petition with the National Company Law Tribunal in India.
- Chinese fast fashion startup Shein's investors are liquidating their stakes in the secondary market at valuations ranging from $45B to $55B, considerably lower than its $66B valuation from a fundraising round from last May.
- Cloud content management company Box acquired document automation and content services startup Crooze Corp. for an undisclosed sum.
- European automaker Stellantis NV acquired CloudMade's AI / ML technology, intellectual property, and patents to further develop its in-vehicle experience. Financial details of the transaction were not disclosed.
- The European Commission is setting up an AI Factories division to help AI startups develop algorithms, test and validate AI models, and provide access to AI-dedicated supercomputers.
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 | Analyst | | Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot. | | This newsletter was edited by Vibha Chapparike | |
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