Batch brew #17

Hey, the Caffeine Capitalist is here! ☕

We are again experimenting with different publication times. Tuesday it is for issue 17. Time to pour your espresso, so you are less depresso about the current fundraising climate. In this issue we cover intriguing questions of actually becoming profitable instead of raising another round, Andrej covers the split of Sequoia into three independent parts & we have some great Twitter threads in stock for you!

5 minutes and 44 seconds this time.

Welcome to 11 new subscribers from the last Batch! 🙏🏻

Dept. of Tiny Thoughts

As the fundraising climate cools, startups are presented with the challenge of adjusting their strategies. It's not an easy shift, but like transitioning from a robust espresso to a well-balanced latte, the key lies in executing a strategic pivot.

This is what Andrew hints towards, slow-growth startups can be successful businesses when directed towards profitability. Scaling back aggressive spending and refocusing on sustainability can trigger a significant change. If this resonates with your startup, remember that even if VCs don't predict a 10-20x return, they're often open to being bought out, offering an opportunity to reorient towards profitability.

Some questions to consider:

1. If you had to make your company profitable in 1,3,6 months, how would it look?

2. Does that look tempting? Maybe you can explore buyout option if the support of your VCs is cooling off

3. Slower growth but bringing value? Shift Your Perspective, maybe EBITDA could be your best friend soon.

Map 10 people to talk to about this. Seems like this could be right time, as we don’t see any turnaround in funding activity yet.

Dept. of Insights

Sequoia is splitting into 3 independent funds.

Sequoia is probably one of the best known and best performing VC funds in the world and one of the first VC funds ever. 51 years old now, supported the early stages of companies like Apple, Atari, Cisco, Google or Nvidia.

After 50 years of successful operations, it managed 85bn. USD of assets in 2022. To be able to invest its ever increasing fund sizes, Sequoia broadened its geographic focus not covering only on US and Europe but also Israel and more. In 2005 they founded a separate investment arm in India, covering India and Southeast Asia and also a separate arm in China.

These two arms in India and in China are now also changing name from Sequoia to Peak XV Partners in India and HongShan in China, becoming also completely independent.

Quite unusal move, playing also against the overall strong brand of Sequoia created in the past half century. So what is behind this move?

In the letter to its limited partners, which was also published on Sequoia’s website, the management explanied this move be ever increasing complexity of managing international operations with contralized back-office and also investment conflicts within the portfolios of their three geographically focused funds.

The truth lies probably somewhere else.

With the rising geopolitical tensions between US and China and rate of deglobalization in the past years, this was probably an inevitability.

One thing is investing into geopolitcally “harmless” start-ups as marketplaces, b2c apps, fintechs. The other is investing into geopolitically strategic technologies as semiconductor technology or foundational AI models.

One tweet sums this perspective up pretty well. Keith Rabois, Partner of Founders Fund, founded by Peter Thiel.

In the times of rising deglobalization and political tensions, capital seems no longer be without borders.

The split of Sequoia into 3 independent funds under different names was probably because of possible pressure from limited partners and regulators. Biden’s administration is actively working on programs to restrict the flow of capital from US to China into strategic technologies, which creates hard times of US VCs investing in China.

Dept. of Twitter Thread Research:

1/ No Code changing the Dev paradigm? Two points to this, one, just read it, second, yup this is reality that we see at our portfolio company Kiuub.

2/ Real booooooring businesses? A nice thread looking at some examples, which you normaly don’t associate with “profitable, cash generating” companies.

Dept. of Visual Research:

Yup it’s that time of the economic cycle, just do it!

News from our portfolios & where to shake hands:

• AceOn Accelerator Demo Day is happening next week! Acceleration program run by ZAKA.VC and Accace concludes its first batch with a Demo Day, on Thursday 22nd at Campus Coworking in Bratislava.

• Slavo will be spending majority of his summer in Prague, so if you’re there, let's grab a coffee!

• Andrej is visiting London Tech Week until tomorrow. Are you around? Let’s catch up!

Do you enjoy this type of content? Just this week blew through 1500 subscribers, but we want to grow further and the best way you can help us is to share The Caffeine Capitalist in your community using the button below:

Enjoy your coffee fresh, allocate capital, repeat! See you in 2 weeks 👋

The Caffeine Capitalist is a bimonthly newsletter written by Slavo Tuleya, Andrej Petrus & Martin Nemecek. It is written in partnership & in support from ZAKA.VC and Chop Chop Ventures.

What do you think of this issue? We are still collecting feedback on our new layout, suggestions welcome!

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.