Write-Offs and the Effect of Change on Business Models
Some highlights from the latest weeks #44
Good morning and welcome to this week's edition of Notes by Letícia! This newsletter is a personal initiative, in which, every two weeks, I bring discussions and reflections on the Venture Capital market. By subscribing, you will receive the editions directly in your email, and also help me increase the reach of this newsletter, we are approximately 500 people!
These past few weeks have been busier for me, but I managed to read some very interesting content, and today I'm going to share some highlights that made me reflect.
There is a large number of companies that haven't raised a Series B yet
The state of the market is something that has been a topic of attention for many people including myself, as I have written about this here, here and here. So, we all know about the longer time window observed between investment rounds. However, a graph from F-Prime's report, State of Fintech 2024, showed a very interesting visualization.
The data only represents the fintech market, but given the market conditions, I believe it's safe to say that something similar is seen in other verticals. According to the analysis conducted by the team, there are still over 40% of the total startups that have completed a Series A round and have not yet announced their Series B round. This number is very interesting because it truly shows the cost-cutting effect and the consequent increase in startups' runway. Here lies the sign that the market is still not easy for fundraising, and situations such as cuts and write-offs will still be observed.
A different framework may show something we haven’t seen before
Recently, I read an article that brought an interesting comparison between SaaS and Fintech models in contrast to the Dark Kitchens model, aiming to provoke reflection on costs and product development. Bringing a slightly different conclusion from the discourse of many large investors, outsourcing various parts of the product and stacking different solutions instead of focusing on doing one thing very well (10x better) and developing most or all of the customer journey and experience internally. This rationale is based on the combination of several key points:
High competitiveness and concentration of SaaS and Fintech solutions, increasing acquisition costs and differentiation capability.
The reason behind why the Dark Kitchens models became a thing, primarily used by delivery-focused restaurants, aiming to reduce infrastructure costs and increase product (food) quality and available variety (distinct cuisines).
Similarities in the characteristics of these three verticals that may point to changing the go-to-model for the mentioned verticals, focusing on a niche and generating high value, while providing an all-in-one experience with minimized costs.
An interesting point regarding outsourcing is the power that AI will bring in reducing time and costs for product development, so another way to think about outsourcing could actually be in-house development using AI advancements.
It's definitely worth reading the full article, link here, and reflecting on your opinion about this framework.
A different way of seeing data and the future of the search engine business model
The search model has been reigning for some time, led by Google, however, the new way of seeking information tends to disrupt this business model. Moreover, there are already companies selling their data, such as Reddit, as Tomasz Tunguz wrote in one of his recent articles.
I think it's worth bringing an article from The Deload newsletter into the discussion, where Doug presents a very interesting rationale based on the different main formats between Google and Open AI platforms (ChatGPT). He states that when you are not sure exactly what you want, it's more interesting to present ads because it's usually a broader topic, so you end up asking a question to Google that may bring multiple different answers. This is when those that spent the most have their moment.
If you don’t know exactly what you want or need, advertisers want to pay to influence you. That’s the trillion-dollar reality of search. - The Deload
However, when this doesn't happen, and you go in a conversational format, using ChatGPT, you can make your question more specific with each interaction, and this discovery moment disappears.
Looking at the arguments raised by Tomasz we can think about one important change, that being which route will the money follow and where will you get a greater return, will it be selling data or buying/selling space for ads.
User data remains the currency of the realm, but it’s packaged & sold in a very different way. Cookies, the moribund technology that created the ad world, will be replaced by data-purchasing contracts. One day, we may visit websites that have fewer ads or none at all. The revenue model of the Internet will have changed. Publishers’ sell the data directly to the search companies. - Tomasz Guntuz
I believe that technological changes bring new models, but it doesn't mean that the attention economy is over. It simply means that there may be new use cases where certain practices that have worked well in the past might not have as much strength in the future.
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