WorldCover raises $6M round for emerging markets climate insurance

WorldCover, a New York and Africa-based climate insurance provider to smallholder farmers, has raised a $6 million Series A round led by MS&AD Ventures.

Y-Combinator, Western Technology Investment, and EchoVC also participated in the round.

WorldCover’s platform uses satellite imagery, on-ground sensors, mobile phones, and data analytics to create insurance options for farmers whose crops yields are affected adversely by weather events—primarily lack of rain.

The startup currently operates in Ghana, Uganda, and Kenya . With the new funding WorldCover aims to expand its insurance offerings to more emerging market countries.

“We’re looking at India, Mexico, Brazil, Indonesia. India could be first on an 18 month timeline for a launch,” WorldCover co-founder and chief executive Chris Sheehan said in an interview.

The company has served over 30,000 farmers across its Africa operations. Smallholder farmers as those earning all or nearly all of their income from agriculture, farming on 10 to 20 acres of land, and earning around $500 to $5000, according to Sheehan.

Farmer’s connect to WorldCover by creating an account on its USSD mobile app. From there they can input their region, crop type, determine how much insurance they would like to buy and use mobile money to purchase a plan. WorldCover works with payments providers such as M-Pesa in Kenya and MTN Mobile Money in Ghana.

The service works on a sliding scale, where a customer can receive anywhere from 5x to 15x the amount of premium they have paid.  If there is an adverse weather event, namely lack of rain, the farmer can file claim via mobile phone. WorldCover then uses its data-analytics metrics to assess it, and if approved, the farmer will receive an insurance payment via mobile-money.

Common crops farmed by WorldCover clients include maize, rice, and peanuts. It looks to add coffee, cocoa, and cashews to its coverage list.

For the moment, WorldCover only insures for events such as rainfall risk, but in the future it will look to include other weather events, such as tropical storms, in its insurance programs and platform data-analytics.

The startup’s founder clarified that WorldCover’s model does not assess or provide insurance payouts specifically for climate change, though it does directly connect to the company’s business.

“We insure for adverse weather events that we believe climate change factors are exacerbating,” Sheehan explained. WorldCover also resells the risk of its policy-holders to global reinsurers, such as Swiss Re and Nephila.

On the potential market size for WordCover’s business, he highlights a 2018 Lloyd’s study that identified $163 billion of assets at risk, including agriculture, in emerging markets from negative, climate change related events.

“That’s what WorldCover wants to go after…These are the kind of micro-systemic risks we think we can model and then create a micro product for a smallholder farmer that they can understand and will give them protection,” he said.

With the round, the startup will look to possibilities to update its platform to offer farming advice to smallholder farmers, in addition to insurance coverage.

WorldCover investor and EchoVC founder Eghosa Omoigui believes the startup’s insurance offerings can actually help farmers improve yield. “Weather-risk drives a lot of decisions with these farmers on what to plant, when to plant, and how much to plant,” he said. “With the crop insurance option, the farmer says, ‘Instead of one hector, I can now plant two or three, because I’m covered.”

Insurance technologyis another sector in Africa’s tech landscape filling up with venture-backed startups. Other insurance startups focusing on agriculture include Accion Venture Lab backed Pula and South Africa based Mobbisurance.

With its new round and plans for global expansion, WorldCover joins a growing list of startups that have developed business models in Africa before raising rounds toward entering new markets abroad.

In 2018, Nigerian payment startup Paga announced plans to move into Asia and Latin America after raising $10 million. In 2019, South African tech-transit startup FlexClub partnered with Uber Mexico after a seed-raise. And Lagos based fintech startup TeamAPT announced in Q1 it was looking to expand globally after a $5 million Series A round.

 

 

Singapore’s SalesWhale raises $5.3M to bring AI to sales and marketing teams

SalesWhale, a Singapore-based startup that uses AI to help marketers and salespeople generate leads, has announced a Series A round worth $5.3 million.

The investment is led by Monk’s Hill Ventures — the Southeast Asia-focused firm that led SalesWhale’s seed round in 2017 — with participation from existing backers GREE Ventures, Wavemaker Partners and Y Combinator. That’s right, SalesWhale is one a select few Southeast Asian startups to have been through YC, it graduated back in summer 2016.

SalesWhale — which calls itself “a conversational email marketing platform” — uses AI-powered “bots” to handle email. In this case, its digital workforce is trained for sales leads. That means both covering the menial parts of arranging meetings and coordination, and the more proactive side of engaging old and new leads.

Back when we last wrote about the startup in 2017, it had just half a dozen staff. Fast-forward two years and that number has grown to 28, CEO Gabriel Lim explained in an interview. The company is going after more growth with this Series A money, and Lim expects headcount to jump past 70; SalesWhale is deliberating opening an office in California. That location would be primarily to encourage new business and increase communication and support for existing clients, most of whom are located in the U.S., according to Lim. Other hires will be tasked with increasing integration with third-party platforms, and particularly sales and enterprise services.

The past two years have also seen SalesWhale switch gears and go from targeting startups as customers, to working with mid-market and enterprise firms. SalesWhale’s “hundreds” of customers include recruiter Randstad, educational company General Assembly and enterprise service business Unit4. As it has added greater complexity to its service, so the income has jumped from an initial $39-$99 per seat all those years ago to more than $1,000 per month for enterprise customers.

SalesWhale’s founding team (left to right): Venus Wong, Ethan Lee and Gabriel Lim

While AI is a (genuine) threat to many human jobs, SalesWhale sits on the opposite side of that problem in that it actually helps human employees get more work done. That’s to say that SalesWhale’s service can get stuck into a pile (or spreadsheet) of leads that human staff don’t have time for, begin reaching out, qualifying leads and sending them on to living and breathing colleagues to take forward.

“A lot of potential leads aren’t touched” by existing human teams, Lim reflected.

But when SalesWhale reps do get involved, they are often not recognized as the bots they are.

“Customers are often so convinced they are chatting with a human — who is sending collateral, PDFs and arranging meetings — that they’ll say things like ‘I’d love to come by and visit someday,’ ” Lim joked in an interview.

“Indeed, a lot of times, sales team refer to [SalesWale-powered] sales assistant like they are a real human colleague,” he added.

500 Startups Japan becomes Coral Capital with a new $45M fund

The 500 Startups Japan crew is going independent. The VC firm announced a $30 million fund in 2015, and now the follow up is a new $45 million fund called Coral Capital.

Helmed by James Riney and Yohei Sawayama, just like 500 Startups Japan, Coral will essentially continue the work the U.S. firm made in Japan, where it made more than 40 investments including Kakehashi, satellite startup Infostellar, SmartHR and Pocket Concierge, which was acquired by American Express.

“Coral provides a foundational role within the marine ecosystem, it’s symbolic about how we want to be in the Japanese startup ecosystem,” Riney told TechCrunch in an interview.

LPs in the fund include 500 Startups backers Mizuho Bank, Mitsubishi Estate, and Taizo Son — the brother of SoftBank CEO Masayoshi Son and founder of Mistletoe — and Shinsei Bank as well as other undisclosed institutional investors, who Riney said account for nearly half of the LPs. Riney said the fund was closed within two and a half months of fundraising and Coral had to turn some prospective investors away due to the overall interest shown.

Riney said that the scandals around 500 Startups — founding partner Dave McClure resigned in 2017 after admitting he’d been a “creep” around women — “wasn’t really a strong consideration” for starting Coral.

“It’s something we’d been wanting to do for a while,” he explained.

Coral Capital founding partners James Riney and Yohei Sawayama previously led 500 Startups Japan

Riney explained that Coral won’t mix in with 500 Startups Japan investments, and the team will continue to manage that portfolio whilst also running the fund.

Thesis-wise, the plan is to continue on from 500 Startups Japan, that means going after early stage deals across the board. Riney said that over the last four years, he’s seen more founders leave stable jobs and start companies which bodes well for Japan’s startup ecosystem.

“Now you’re seeing people more into their careers who see entrepreneurism as a way to fundamentally change their industry,” he said in an interview. “That bucks the trend of risk aversion in Japan which is commonly the perception.”

He sees the arrival of Coral as an opportunity to continue to push startup culture in Japan, a country well known for massive corporations and company jobs with an absence of early stage capital options for founders.

“There’s a lot of work we can do and the impact we can make in Japan is much higher than in somewhere like Silicon Valley,” Riney said.

“Pretty much every corporate has a startup program, but few of them are strong leads within seed or early stage deals, they tend to feel more comfortable in later stage investments. There have been investors investing on behalf of corporations who got the courage to spin out and go alone… but it is still much much fewer than other countries,” he added.

Investors are still failing to back founders from diverse backgrounds

The large majority of venture dollars are invested in companies run by white men with a university degree, according to a new report by RateMyInvestor and Diversity VC.

This new data reveals that despite the lip service investors have paid to backing founders from diverse backgrounds, much, much, more work needs to be done to actually achieve the industry’s stated goals. It also shows the vast gulf that separates the meritocratic myth that Silicon Valley has created for itself from the hard truths of its natural nepotistic state.

In 2017, venture capital investment reached $84.24 billion, a height not seen since the dot-com bubble of the early 2000s. The data from RateMyInvestor and Diversity VC covers a survey of the seed to Series D investments made during that year from what the two organizations selected as the top 135 firms by deal activity. Those firms invested in 4,475 companies, which collectively included 9,874 co-founders, according to the report.

Of those co-founders only 9 percent were women, while 17 percent identified as Asian American, 2.4 percent identified as Middle Eastern, 1.9 percent identified as Latinx and 1 percent identified as black.

“VCs should make more of a deliberate effort to spend quality time with communities of color that are otherwise unfamiliar,” said Suzy Ryoo, a venture partner and vice president of technology at Cross Culture Ventures . “Another tactical suggestion would be to co-host salon dinners community events with the growing group of early-stage venture funds managed by diverse investors, such as Cross Culture Ventures, Backstage Capital, Precursor Ventures, etc.”

The data compiled by Diversity VC and RateMyInvestor contains some other staggering statistics. Ivy League-educated founders captured 27 percent of all the dollars invested in venture capital startups, while all graduates from all other universities across the U.S. represented 50 percent of venture funding. Founders who graduated from international institutions had nearly 16 percent of venture funding. Founders without a university degree accounted for around 6 percent of the total capital invested.

Finally, investors are still wildly reluctant to leave Silicon Valley to look for new deals, according to the survey. This despite skyrocketing prices for real estate and talent and the emergence of big technology ecosystems in cities across the U.S.

“Silicon Valley has done a poor job of fostering diversity of all forms, especially diversity of thought,” said DCM partner Kyle Lui. “VCs and founders tend to back/hire people who are in their existing network who most likely share the same views as them, went to the same school as them, and shared similar life experiences as them.”

Investors are still failing to back founders from diverse backgrounds

The large majority of venture dollars are invested in companies run by white men with a university degree, according to a new report by RateMyInvestor and Diversity VC.

This new data reveals that despite the lip service investors have paid to backing founders from diverse backgrounds, much, much, more work needs to be done to actually achieve the industry’s stated goals. It also shows the vast gulf that separates the meritocratic myth that Silicon Valley has created for itself from the hard truths of its natural nepotistic state.

In 2017, venture capital investment reached $84.24 billion, a height not seen since the dot-com bubble of the early 2000s. The data from RateMyInvestor and Diversity VC covers a survey of the seed to Series D investments made during that year from what the two organizations selected as the top 135 firms by deal activity. Those firms invested in 4,475 companies, which collectively included 9,874 co-founders, according to the report.

Of those co-founders only 9 percent were women, while 17 percent identified as Asian American, 2.4 percent identified as Middle Eastern, 1.9 percent identified as Latinx and 1 percent identified as black.

“VCs should make more of a deliberate effort to spend quality time with communities of color that are otherwise unfamiliar,” said Suzy Ryoo, a venture partner and vice president of technology at Cross Culture Ventures . “Another tactical suggestion would be to co-host salon dinners community events with the growing group of early-stage venture funds managed by diverse investors, such as Cross Culture Ventures, Backstage Capital, Precursor Ventures, etc.”

The data compiled by Diversity VC and RateMyInvestor contains some other staggering statistics. Ivy League-educated founders captured 27 percent of all the dollars invested in venture capital startups, while all graduates from all other universities across the U.S. represented 50 percent of venture funding. Founders who graduated from international institutions had nearly 16 percent of venture funding. Founders without a university degree accounted for around 6 percent of the total capital invested.

Finally, investors are still wildly reluctant to leave Silicon Valley to look for new deals, according to the survey. This despite skyrocketing prices for real estate and talent and the emergence of big technology ecosystems in cities across the U.S.

“Silicon Valley has done a poor job of fostering diversity of all forms, especially diversity of thought,” said DCM partner Kyle Lui. “VCs and founders tend to back/hire people who are in their existing network who most likely share the same views as them, went to the same school as them, and shared similar life experiences as them.”

Why Silicon Valley needs more visas

When I hear protesters shout, “Immigrants are welcome here!” at the San Francisco immigration office near my startup’s headquarters, I think about how simple a phrase that is for a topic that is so nuanced, especially for me as an immigrant entrepreneur.

Growing up in Brazil, I am less familiar with the nuances of the American debate on immigration legislation, but I know that immigrants here add a lot of jobs and stimulate the local economy. As an immigrant entrepreneur, I’ve tried to check all of those boxes, and really prove my value to this country.

My tech startup Brex has achieved a lot in a short period of time, a feat which is underscored by receiving a $1 billion dollar valuation in just one year. But we didn’t achieve that high level of growth in spite of being founded by immigrants, but because of it. The key to our growth and to working towards building a global brand is our international talent pool, without it, we could never have gotten to where we are today.

So beyond Brex, what do the most successful Silicon Valley startups have in common? They’re also run by immigrants. In fact, not only are 57% of the Bay Area’s STEM tech workers immigrants, they also make up 25% of business founders in the US. You can trace the immigrant entrepreneurial streak in Silicon Valley from the founders of SUN Microsystems and Google to the Valley’s most notorious Twitter User, Tesla’s Elon Musk.

Immigrants not only built the first microchips in Silicon Valley, but they built these companies into the tech titans that they are known as today. After all, more than 50% of billion dollar startups are founded by immigrants, and many of those startups were founded by immigrants on H-1B visas.

Photo courtesy of Flickr/jvoves

While it might sound counterintuitive, immigrants create more jobs and make our economy stronger. Research from the National Foundation of American Policy (NFAP) has shown that immigrant-founded billion-dollar companies doubled their number of employees over the past two years. According to the research, “WeWork went from 1,200 to 6,000 employees between 2016 and 2018, Houzz increased from 800 to 1,800 employees the last two years, while Cloudflare went from 225 to 715 employees.”

We’ve seen the same growth at Brex. In just one year we hired 70 employees and invested over $6 million dollars in creating local jobs. Our startup is not alone, as Inc. recently reported, “50 immigrant-founded unicorn startups have a combined value of $248 billion, according to the report [by NFAP], and have created an average of 1,200 jobs each.”

One of the fundamental drivers of our success is our international workforce. Many of our key-hires are from all over Latin America, spanning from Uruguay to Mexico. In fact, 42% of our workforce is made up of immigrants and another 6% are made up of children of immigrants. Plenty of research shows that diverse teams are more productive and work together better, but that’s only part of the reason why you should bet on an international workforce. When you’re working with the best and brightest from every country, it inspires you to bring forth your most creative ideas, collaborate, and push yourself beyond your comfort zone. It motivates you to be your best.

With all of the positive contributions immigrants bring to this country, you’d think we’d have less restrictive immigration policies. However, that’s not the case. One of the biggest challenges that I face is hiring experienced, qualified engineers and designers to continue innovating in a fast-paced, competitive market.

This is a universal challenge in the tech industry. For the past 10 years, software engineers have been the #1 most difficult job to fill in the United States. Business owners are willing to pay 10-20 percent above the market rate for top talent and engineers. Yet, we’re still projected to have a shortage of two million engineering jobs in the US by 2022. How can you lead the charge of innovation if you don’t have the talent to do it?

What makes matters worse is that there are so few opportunities and types of visas for qualified immigrants. This is limiting job growth, knowledge-sharing, and technological breakthroughs in this country. And we risk losing top talent to other nations if we don’t loosen our restrictive visa laws.

H1-B visa applications fell this year, and at the same time, these visas have become harder to obtain and it has become more expensive to acquire international talent. This isn’t the time to abandon the international talent pool, but to invest in highly specialized workers that can give your startup a competitive advantage.

Already, there’s been a dramatic spike in engineering talent moving to Canada, with a 40% uptick in 2017. Toronto, Berlin, and Singapore are fastly becoming burgeoning tech hubs, and many fear (rightfully) that they will soon outpace the US in growth, talent, and developing the latest technologies.

This year, U.S. based tech companies generated $351 billion of revenue in 2018. The U.S. can’t afford to miss out on this huge revenue source. And, according to Harvard Business School Professor William R. Kerr and the author of The Gift of Global Talent: How Migration Shapes Business, Economy & Society, “Today’s knowledge economy dictates that your ability to attract, develop, and integrate smart minds governs how prosperous you will be.”

Immigrants have made Silicon Valley the powerhouse that it is today, and severely limiting highly-skilled immigration benefits no-one. Immigrants have helped the U.S. build one of the best tech hubs in the world— now is the time for startups to invest in international talent so that our technology, economy, and local communities can continue to thrive.

Four ways to bridge the widening valley of death for startups

Many founders believe in the myth that the first steps of starting a business are the hardest: Attracting the first investment, the first hires, proving the technology, launching the first product and landing the first customer. Although those critical first steps are difficult, they are certainly not the most difficult on the arduous path of building an iconic company. As early and late-stage funding becomes more abundant, founders and their early VC backers need to get smarter about how to position their companies for a looming valley of death in-between. As we’ll learn below, it’s only going to get much, much harder before it gets easier.

Money will have the look, and heft, of dumbbells as the economic cycle turns. Expect an abundance of small, seed checks at one end, an abundance of massive checks for clear, breakout companies at the other, and a dearth of capital for expanding companies with early proof points and market traction. Read more on how to best prepare for this inevitable future. (Image courtesy Flickr/CircaSassy)

There will be an abundance of capital at the two ends of the startup spectrum. At one end, hundreds of seed and micro VCs, each armed with dozens of $250,000-$1 million checks to write every year, are on the prowl for visionary founders with pedigrees and resumes. At the other end, behemoths like SoftBank, sovereigns, as well “early-stage” firms raising larger funds are seeking breakout companies ready for checks that are in the mid-tens to hundreds of millions. There will be a dearth of capital to grow companies from a kernel of a business, to becoming the clear market-defining leader. In fact, we’re already seeing deal volume decreasing significantly as dollars increase, likely evidence of larger checks going into fewer companies.

Even as the overall number of deals decrease below 2012 levels, the overall dollars invested into startups continue to soar. The 200+ “seed-stage” funds formed since 2012 will continue to chase nascent companies. Meanwhile, the increasing number of mega-funds will seek breakout companies into which to make $100 million+ investments. Companies with early traction seeking ~$20 million to grow will be abundant and have difficulty accessing capital.

Founders should no longer assume that their all-star seed and Series A syndicates will guarantee a successful follow-on financing. Progress on recruiting and product development, though necessary, are no longer sufficient for B-rounds and beyond. Founders should be mindful that investors that specialize in leading $20-50 million rounds will have a plethora of well-funded, well-mentored, well-staffed startups with slick presentations, big visions and some early market traction from which to choose.

Today, there is far more capital chasing fewer quality companies. Fewer breakout companies and fear of missing out is making it easy to raise growth rounds with revenue growth, which may not be scalable or even reflective of an attractive business. This is creating false realities and prompting founders to raise big rounds at high prices — which is fine when there is an over-abundance of capital, but can cripple them when capital later becomes scarce. For example, not long ago, cleantech companies, armed with very preliminary sales, raised massive financings from VCs eager to back winners toward scaling into what they characterized as infinite demand. The reality is that the capital required to meet target economics was far greater and demand far smaller. As the private markets turned, access to cash became difficult and most faltered or were acquired for pennies on the dollar.

There is a likely future where capital grows scarce, and investors take a harder look at the underpinnings of revenue, growth and (dis)economies of scale.

What should startup leadership teams emphasize in an inevitable future where the $30 million rounds will be orders of magnitude harder than their $5 million rounds?

A business model representative of the big vision

Leadership teams put lots of emphasis on revenue. Unfortunately, revenue that’s not representative of the big vision is probably worse than no revenue at all. Companies are initially seeded with the expectation that the founding team can build and sell something. What needs to be proven is the hypothesis that the company can a) build a special product that b) is inexpensive to convince customers to pay for, and c) that those customers represent a massive market. It should be proven that it is unattractive for customers to switch to the inevitable copycats. It should be clear that over time, customers will pay more for additional features, and the cost of acquiring new customers will go down. Simply selling a product to customers that don’t represent that model is worse than not selling anything at all.

Recruiting talent that’s done it

Early founding teams are cognitively diverse individuals that can convince early investors that they can overcome the incredible odds of building a company that until now, shouldn’t have existed. They build a unique product, leveraging unique tools satisfying an unmet need. The early teams need to demonstrate the big vision, and that they can recruit the people that can make that vision a reality. Unfortunately, more founders struggle when it comes to recruiting people that have real experience reducing a technology to practice, executing on a product that customers want and charting the path to expand their market with improving unit economics. There are always exceptions of people that do the above for the first time at startups; however, most of today’s iconic startups knew what kind of talent they needed to execute and succeeded in bringing them on board. Who’s on your team?

Present metrics that matter

The attractive SaaS valuation multiples behoove all founders to apply its metrics to their businesses even if they aren’t really SaaS businesses. Sophisticated later-stage investors see right past that and dismiss numbers associated with metrics that are not representative. Semiconductors are about winning dedicated sockets in growing markets. Design tools are about winning and upselling seats in an industry that’s going to be hooked on those tools. Develop a clear understanding of how your business will be measured. Don’t inundate your investor with numbers; present a concise hypothesis for your unfair advantage in a growing market with your current traction being evidence to back it.

Find efficiencies by working in massive markets

“Pouring fuel on the fire” is a misleading metaphor that leads some into believing that capital can grow any business. That’s just as true as watering a plant with a fire hose or putting TNT in your Corolla’s gas tank: most business models and markets simply are not native to the much-sought-after venture growth profile. In fact, most later-stage startups that fail after raising large amounts of capital fail for this reason. Most markets are conducive to businesses with DIS-economies of scale, implying dwindling margins with scale, which is why many businesses are small, serving local, fragmented markets that technology alone cannot consolidate. How do your unit economics improve over time? What are the efficiencies generated by economies of scale? Is there a real network effect that drives these economies?

Image courtesy Getty Images

I expect today’s resourceful founders to seek partners, whether it’s employees, advisors or investors, to help them answer these questions. Together, these cognitively diverse teams will work together to accelerate past any metaphoric valley and build the iconic companies taking humanity to its fantastic future.  

Chinese investment into computer vision technology and AR surges as U.S. funding dries up

Last year 30 leading venture investors told us about a fundamental shift from early stage North American VR investment to later stage Chinese computer vision/AR investment — but they didn’t anticipate its ferocity.

Digi-Capital’s AR/VR/XR Analytics Platform showed Chinese investments into computer vision and augmented reality technologies surging to $3.9 billion in the last 12 months, while North American augmented and virtual reality investment fell from nearly $1.5 billion in the fourth quarter of 2017 to less than $120 million in the third quarter of 2018. At the same time, VC sentiment on virtual reality softened significantly.

What a difference a year makes.

Dealflow (dollars)

What VCs said a year ago

When we spoke to venture capitalists least year, they had some pretty strong opinions.

Mobile augmented reality and Computer Vision/Machine Learning (“CV/ML”) are at opposite ends of the spectrum — one delivering new user experiences and user interfaces and the other powering a broad range of new applications (not just mobile augmented reality).

The market for mobile AR is very early stage, and could see $50 to $100 million exits in 2018/2019. Dominant companies will take time to emerge, and it will also take time for developers to learn what works and for consumers and businesses to adopt mobile AR at scale (note: Digi-Capital’s base case is mobile AR revenue won’t really take off until 2019, despite 900 million installed base by Q4 2018). Tech investors are most interested in native mobile AR with critical use cases, not ports from other platforms.

Computer vision and visual machine learning is more advanced than mobile AR, and could see dominant companies in the near-term. Here, investors love  startups with real-world solutions that are challenging established industries and business practices, not research projects. Firms are investing in more than 20 different mobile augmented reality and computer vision and visual machine learning sectors, but there is the potential for overfunding during the earliest stages of the market.

What VCs did in the last 12 months

Perhaps the most crucial observation is the declining deal volumes over the last year.

Deal Volume (number of deals by category)

(Source: Digi-Capital AR/VR/XR Analytics Platform)

Deal volume (the number of deals) declined steadily by 10% per quarter over the last 12 months, and was around two-thirds the level in Q3 2018 that it was in Q4 2017. Most of the decline happened in the US and Europe, where VCs increasingly stayed on the sidelines by looking for short-term traction as a sign of long-term growth. (Note: data normalized excluding HTC ViveX accelerator Q4 2017, which skews the data)

Deal Volume (number of deals by stage)

The biggest casualties of this short-termist approach have been early stage startups raising seed (deal volume down by more than half) and some series A (deal volume down by a quarter) rounds. This trend has been strongest in North America and Europe, but even Asia has not been entirely immune from some early stage deal volume decline.

Deal Value (dollars)

(Source: Digi-Capital AR/VR/XR Analytics Platform)

While deal volume is a great indicator of early-stage investment market trends, deal value (dollars invested) gives a clearer picture of where the big money has been going over the last 12 months. (Note: investment means new VC money into startups, not internal corporate investment – which is a cost). Global investment hit its previous quarterly record over $2 billion in Q4 2017, driven by a few very large deals. It then dropped back to around $1 billion in the first quarter of this year. Since then deal value has steadily climbed quarter-on-quarter, to reach a new record high well over $2 billion in Q3 2018.

Over $4 billion of the total $7.2 billion in the last 12 months was invested in computer vision/AR tech, with well over $1 billion going into smartglasses (the bulk of that into Magic Leap) . The next largest sectors were games around $400 million and advertising/marketing at a quarter of a billion dollars. The remaining 22 industry sectors raised in the low hundreds of millions of dollars down to single digit millions in the last 12 months.

A tale of two markets

Deals by Country and Category (dollars)

American and Chinese investment had an inverse relationship in the last 12 months. American investors increasingly chose to stay on the sidelines, while Chinese investor confidence grew to back up clear vision with long-term investments. The differences in the data couldn’t be more stark.

North American Deals (dollars)

North American investment was almost triple Asian investment in Q4 2017, with a record high of nearly $1.5 billion dollars for the quarter. Despite 2018 being a transitional year for the market (Digi-Capital forecast that market revenue was unlikely to accelerate until 2019), North American quarterly investment fell over 90% to less than $120 million in Q3 2018. American VCs appear to have taken a long-term solution to a short-term problem.

China Deals (dollars)

Meanwhile, Chinese VCs have been focused on the long-term potential of the intersection between computer vision and augmented reality, with later-stage Series C and Series D rounds raising hundreds of millions of dollars a time. This trend increased dramatically in the last 12 months, with SenseTime Group raising over $2 billion in multiple rounds and Megvii close behind at over $1 billion (also multiple rounds).

Smaller investments (by Chinese standards) in the hundreds of millions have gone into companies Westerners might not know, including Beijing Moviebook Technology, Kujiale and more. All this saw Chinese quarterly investment grow 3x in the last 12 months. (Note: some recent Western opinions about market investment trends were based on incomplete data)

Where to from here?

With our team’s investment banking background, experience shows that forecasting venture capital investment is a fool’s errand. Yet it is equally foolish to ignore hard data, and ongoing discussions with leading investors along Sand Hill Road and China indicate some trends to watch.

American tech investors might continue to wait for market traction before providing the fuel needed for that traction (even if that seems counterintuitive). While this could pose an existential threat to some early stage startups in North America, it’s also an opportunity for smart money with longer time horizons.

Conversely, Chinese VCs continue to back domestic companies which could dominate the future of computer vision/augmented reality. The next 6 months will determine if this is a long-term trend, but it is the current mental model.

If mobile AR revenue accelerates in 2019 as critical use cases and apps emerge (as in Digi-Capital’s base case), this could become a catalyst for renewed investment by American VCs. The big unknown is whether Apple enters the smartphone tethered smartglasses market in late 2020 (as Digi-Capital has forecast for the last few years). This could be the tipping point for the market as a whole (not just investment). However, Apple timing is hard to predict (because Apple), with any potential launch date known only to Tim Cook and his immediate circle.

Steve Jobs said, “You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something – your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.”

Chinese investors embraced a Jobsian approach over the last 12 months, with Western VCs increasingly dot-connecting (or not). It will be interesting to see how this plays out for computer vision/AR investment over the next 12 months, so watch this space.

LemonBox brings US vitamins and health products to consumers in China

China is rising in many ways — the economy, consumer spending and technology — but still many of its population looks overseas, and particularly to the West, for cues on lifestyle and health. That’s a theme that’s being seized by LemonBox, a China-U.S. startup that lets Chinese consumers buy U.S. health products at affordable prices.

Indeed, the recent scare around Chinese vaccinations, which saw faulty inoculations given to babies and toddlers in a number of provinces, has only fueled demand for overseas health products which LemonBox founder Derek Weng discovered himself when his father was diagnosed as having high blood sugar levels. Weng, then working in the U.S. for Walmart, was able to look up and buy the right medicine pills for his father and bring them back to China himself. He realized, however, that others are not so fortunate.

After polling friends and family, he set up an experimental WeChat app in 2016 that dispensed health information such as articles and information. Within a year, it had racked up 30,000 subscribers and given him the confidence to jump into the business fully.

Today, LemonBox allows Chinese consumers to buy its own-branded daily vitamin packs from the U.S.. Further down the line, the goal is to expand into more specific verticals, including mother and baby, beauty and daily supplements, according to Weng, who believes that the timing is good.

“For the first time in China, people are taking a major interest in health and are working out, while society is becoming more developed,” he told TechCrunch in an interview. “We estimate that Chinese consumers are investing 30 percent of their income in health.”

The LemonBox daily pack of vitamins.

Since its full launch three weeks ago, LemonBox has pulled in 700 customers with 40 percent purchasing a three-month bundle package and the remainder a monthly order, Weng said. Typical basket size is around 300 RMB, or nearly $45.

To get the business off the ground, Weng needed expert support and his co-founder Hang Xu — who is also LemonBox’s “Chief Nutrition Scientist” — has spent 10 years in the field of nutrition science. Xu holds a Ph.D. from Texas A&M University, is a U.S.-registered dietitian and has published over 10 research papers. The startup’s third co-founder, Eddy Meng (CMO), is a graduate of Chinese app store startup Wandoujia which sold to Alibaba two years ago.

Right now, LemonBox has offices in the U.S. and China and it is squarely focused on e-commerce but Weng said the company is looking to introduce other kinds of health services. That could include consultations with dietary experts and specific offerings for patients leaving a hospital or in other long-term care situations, as well as potentially own-label products.

“We look at Stitch Fix for inspiration,” Weng said. “Right now, it leverages data to develop its own in-house private label products that improve on margin and the accuracy of recommendations. This kind of data and further services will be the next stage for us.”

LemonBox raised a seed round in March, which included participation from Y Combinator, and as part of Y Combinator’s current program, it’ll present to prospective investors at the program’s demo day. Already, though, Weng said there’s been interest from investors which the company is thinking over.

Interestingly, it was forth time lucky entering YC for Weng, who had before applied with previous startups unsuccessfully. This time it was entirely circumstantial. He applied to be in the audience for Y Combinator’s ‘Startup School’ event that took place in Beijing in May.

Unbeknownst to him, YC picked out a handful of attendees whose companies were of interest, and, after an interview that Weng didn’t realize was an audition, LemonBox was selected and fast-tracked into the organization’s latest program. In addition, YC joined the startup’s seed funding round which had initially closed in March.

That anecdotal evidence says much of YC’s effort to grab a larger slice of China’s startup ecosystem.

The organization has aggressively recruited companies from under-represented regions such as India, Southeast Asia and Africa, but China remains a tough spot. According to YC’s own data, fewer than 10 Chinese companies have passed through its corridors. That’s low considering that the organization counts over 1,400 graduates.

With events like the one in May, which helped snare LemonBox, and a new China-centric role for partner Eric Migicovsky, who founded Pebble, YC is trying harder than ever.