Direct listings gain a Midas List convert | VC Twitter’s meme master | $50M for better lawn care

“The conventional wisdom is basically, if you’re a high-profile consumer company, you can pull off a direct listing. And if you’re a no-name company, you have to go down the traditional IPO path,” says Battery Ventures’ Neeraj Agrawal, a board director at Amplitude. “Amplitude looks a lot like 90% of the companies that are going to go public.”

Agrawal called Amplitude’s direct listing a “watershed moment” on its first day of trading, but he wasn’t a true believer initially. That was, unsurprisingly for VC watchers, Benchmark, the storied firm home to Bill Gurley, the industry’s most outspoken advocate for direct listings as an attractive alternative to a traditional IPO. CEO Spenser Skates attended an event for startup leaders hosted by Gurley in 2019. When Skates and Amplitude’s board debated which route to go, Agrawal was initially in the traditional IPO camp.

The concerns with a direct listing, Agrawal says: a company forgoes the marketing of having Wall Street’s big banks pushing allocation in the offering; the stock, listed against a reference point instead of an initial price, can be subject to more short-term volatility.

But now, Agrawal’s come all the way around. The biggest reason: dilution. When Agrawal started his career, companies were known to offer up 20% of their total shares to public investors, he says; in more recent years, that dropped often to the ballpark of 15%, and in the past year or two, more like 10%. Companies that go the direct listing route, Agrawal notes, don’t issue new shares on their first day of trading; there’s no direct dilution.

Instead, companies pursuing that route often pursue a private round of financing in the months leading up to their listing day; Amplitude raised at a $4 billion valuation in June. The dilution of that round was closer to 4%. “That is a tremendous difference if you look at a five or 10-year arc of what more can happen. All that value creation that used to go to these new shares, and now will be enjoyed by existing shareholders,” Agrawal says.

The quality of investors ends up about the same as six months post traditional IPO, Agrawal now believes, too. But the growth investors in a private funding round pre-direct listing can build larger positions of $100 million or more then, rather than fighting for $20 million or so allocations in the IPO book, he says. Another convenient benefit for VCs stakeholders: there’s no lock-up period, meaning firms can more easily cash in some of their profits.

What direct listings have lacked – and continue to – is much of a sample set of success stories to placate the cautious or uncomfortable. Coinbase, Spotify and others are high-profile consumer businesses; even Asana, a mid-cap enterprise software business, benefited from the profile of CEO Dustin Moskovitz, once the youngest self-made billionaire in the world for his role cofounding Facebook.

Agrawal believes that is set to change as companies of Amplitude’s profile start trading. Over time, he expects the split between traditional IPOs and direct listings to balance out closer to 50% each. But for now, he notes that high growth tech companies will have an easier time pursuing a direct listing than ones with more mature (consistent; slower) growth. He doesn’t see a less bullish market slowing that down, either. “What you’ll need are management teams that accept there could be short-term volatility,” he says. “They’ll need to educate their own employees not to obsess about the daily stock price.”

As for how SPACs fit into this picture? Too complicated, too onerous in fees, dismisses Agrawal – there’s the fad on its way out, he claims. “None of my companies are talking about SPACs anymore.”

Last week, Novak announced his largest investment ever, for online car sales business Vinn based in Canada. You can read our colleague Nina Wolpow’s writeup of the investment, and why Novak and Vinn CEO Caleb Bernabe are so bullish about the category here. Novak stuck around to keep chatting with Nina about his approach as an emerging fund manager in today’s environment, after launching Banana Capital earlier this year. Highlights below.

Ready player one: What makes Novak enjoy venture investing? It’s a lot like a video game, he says. “It’s never ending, the score is just generating returns for your investors.” When retirement funds and day traders are perfectly capable of identifying stocks like Amazon and Netflix on their own, Novak says it’s simply more fun to build a portfolio of non-obvious challengers that could be the next big no-brainer tech stock. The research into a new category or market is part of the game; so is winning the deal, and finding ways to put points on the board for entrepreneurs considering partnering with certain investors.

“I’ve always been the nerd who is on the internet and just love learning about this stuff,” Novak says. “You can make money, get paid from just being up-to-date on everything that’s going on.”

The online hustle: As a Michigan-based investor who went to Grand Valley State University and has worked at companies like Mercantile Bank of Michigan and the local Van Andel Institute endowment, Novak has never carried the typical badges of elite venture capital, be it an Ivy League degree or experience at a buzzy tech startup or high-growth business like Facebook or Stripe. Instead, Novak’s calling card is his online brand; on Twitter, he’s fast approaching 100,000 followers. There he describes himself “twitter gagman, meme investor” (descriptions apparently borrowed from Nina’s story).

Novak’s strategy: as an Internet-first VC, whose business is built online, he’ll appeal to fellow highly-online entrepreneurs, too. “People who are really good at using the Internet to generate demand for a product, they understand the nuances of how another culture works,” Novak says. That means Novak collaborates and frequently checks in with other investors with online audiences who blog, post analysis, or otherwise share their work in public. “For founders, it can be attractive because they want exposure, they want customers, they want to tell the public they’re recruiting.”

That explains all the memes from Novak and a cohort of investors who project an image of spending their workdays joking around and “shitposting” (a popular term for the activity of posting deliberately provocative, ironic or off-topic comments on social media, in order to amuse or goad an audience) instead of doing analysis or portfolio support. While it’s certainly fun for someone like Novak, he notes such online personas are cultivated marketing strategies, too. “I make fun of the VC industry, and a lot of the founders really connect with that. They’re like, ‘I agree this is all ridiculous, I’m glad you get it too.’ You’re almost participating in it like you’re bonded, in a way,” he says.

Much of the most ridiculous, performative behavior from VCs on Twitter and elsewhere, Novak argues, can be explained this way. “They do it because they’re trying to stay top of mind. Being the first person that a founder will think about when they’re raising money, it explains so much of the craziness of the industry and the things that are just so cringeworthy.”

VCs acting out online are also demonstrating they’re in on the joke, Novak says. “You’re showing you’re an insider without actually saying it.”

The serious part: Novak says he does try to “mix it up” with insightful content in his online postings, without taking himself too seriously. Novak’s a generalist who bounces around in his areas of focus. (Perhaps his video game of choice would be an immersive, large-scale world-builder.) But some areas of interest to the investor: ecommerce for low-income consumers now more accessible through mobile phones, and “China for X” – taking models that worked well in the world’s largest domestic market and applying them in new ones in Latin America, Southeast Asia or Africa.

“I think a lot of people overlook just taking one model and training it on different markets,” Novak says. “But I don’t think there’s anything that’s under-invested in, to be totally frank. You’re always super opportunistic and know there’s a lot of capital chasing things, and everyone’s really smart.”

While the organization doesn’t yet have the data to see if there has been a progression or regression in the hiring of Latinx professionals, they hope to make this report annual so they can track numbers and trends. While the report focused on funds with $100 million in AUM, Salamanca says that they are seeing better progress anecdotally with smaller funds that weren’t included in the data. “There is maybe a higher concentration in the emerging manager space,” she says. “Many happen to be more diverse than not, so they are hiring more diverse than not.”

Rami Reyes, a cofounder and managing director at NextEquity Partners and a founding member at LatinxVC, adds that the group also saw a positive correlation between firms with senior-level Latinx professionals having more junior-level ones.

LatinxVC hopes to play a role in boosting these numbers. For Reyes, having the data gives them a good place to start. And with 91% of firms not having a single Latinx partner, there is a long way to go. “We are really excited to release this report because [VC] is a really data-driven industry,” Reyes says. “Having real numbers for the first time on this community will be really eye-opening for folks, and it shows that there are important people in the tech community that really care about solving this problem.” 

Lewis’ first thought was to make more sustainable products and sell them commercially through existing channels. But he realized that wouldn’t fix the majority of the problem. “As we started doing research and really learning about how the average homeowner thinks about their backyard, we found that almost no one knows about lawn care,” he says. “There is an expectation that you should [know], because ‘I’m an adult now’ or ‘a man,’ but the knowledge is really complex.” So he launched what is now known as Sunday, a direct-to-consumer lawn care company that operates as a subscription service that sends consumers the products they need, when they need them, based on their exact lawn conditions. Sunday says it has seen strong growth since it shipped its first box in 2019 and is raising a Series C to keep expanding. 

The round: The Boulder, Colorado-based company raised a $50 million Series C round led by BOND, with participation from existing investors Tusk Ventures, Sequoia and Forerunner Ventures. This brings the startup’s total funding to $78 million. Noah Knauf, a general partner at BOND, tells Midas Touch that Sunday was a good fit for the firm’s strategy of investing in tech-enabled companies looking to disrupt outdated industries. “It’s amazing when you think about the amount people spend [on law care], it’s multiple thousands of dollars per year for the average family. It’s shocking to think of the lack of innovation in that space,” Knauf tells Midas Touch. Knauf adds that as a homeowner himself, he understood the approach, as he didn’t know the composition of his lawn or how to properly take care of it until meeting the Sunday team. 

How it works: To get the right formula, Sunday brought in Dr. Frank Rossi, a professor at Cornell — Lewis’ alma mater — and turfgrass guru to serve as chief science officer. The team did extensive research at a greenhouse at Cornell to test the potential closed loop care system, in addition to a beta trial of 100 people. Now, when people sign up for the service, Sunday purchases aerial images of their home to get a feel for weather and land conditions, and customers have the option to send in a soil sample; more than 90% do, Lewis says. From there, the team analyzes what each lawn needs and sets customers up on a plan that pulls from their more than 45 products with cheeky names like Dandelion Doom and Weed Warrior. Customers can also buy one-off products, but Lewis says the majority utilize the subscription model. 

The grass is greener: Lewis says he hopes customers look at Sunday as more than just a service to buy lawn care. He says the company’s internal mission is to serve the role of a friendly, knowledgeable neighbor, able to continually answer questions as different issues arise. He also hopes Sunday will have a meaningful impact on the environment, as traditional lawn care products are big polluters, and many people — who don’t fully know what they are doing — dump nearly 5x as many chemicals onto their lawn as the average commercial farm. Sunday touts that it has already helped reduce lawn pesticide use by 35,000 pounds so far in 2021 and hopes to reduce it by 75,000 over the next year.

Ozy Media has dominated the news cycle this week for obvious reasons as it has been like watching a train crash. Some other interesting tidbits about this wild unraveling include a piece about CEO Carlos Watson lying about who his investors are, actual investors jumping ship and Marc Lasry’s clunky exit from the board. — BS

Another day, another multi-billion dollar valuation for a fintech startup! This deal: Deel. (The Information) — AK

Less than six months (!!) after Katherine Boyle was picked to help lead and bolster General Catalyst’s civic tech portfolio, she has been poached by Andreessen Horowitz to do literally the exact same thing. (Future) — BS

Warby Parker went public — but investors may want to tread carefully with the eyeglasses seller that may, or may not, be a tech company, but certainly hopes to trade at a tech multiple. (CNBC) — AK

While many companies are trying to reduce plastic waste in the household cleaning market, few are making products that are designed to be sold in stores, despite it being where the vast majority of people buy those products. Cleancult claims to be the first. (Forbes) — BS

Andreessen Horowitz, when not hiring popular venture capitalist speakers from Clubhouse, is reportedly also looking to bring on a leader for a gaming-focused fund. (Insider) — AK

The market in Israel is no longer a sea of early-stage companies hoping to open a headquarters in the U.S. one day. Instead, it’s becoming an ecosystem that’s fit for scale. (Forbes) — BS