When the pandemic hit earlier in the year, there was much concern that investing in startups would slow down. But the fears proved to be overblown. There was only a temporary pause. Venture capital firms were able to adapt quickly, such as by putting in place processes and systems to fund unicorn startups, like using technologies from Zoom (NASDAQ:ZM) and DocuSign (NASDAQ:DOCU).
In fact, one of the catalysts for startup investing has been the pandemic. After all, there has been an urgency for companies to use digital technologies to deal with remote working.
But there have been other factors that have propelled the growth. One is that interest rates are at rock-bottom levels. As a result, investors have been scrambling to find ways to boost their returns and find growth opportunities.
Next, there are a myriad of megatrends in technology. They include such things as cloud computing, artificial intelligence, mobile, 5G, edge computing and so on.
So then, as we get near the end of the year, what are some of the best startups to keep an eye on? Well, there are definitely many to choose from. Here are seven ways to invest in startups that stand out:
Invest in Startups: Coursera
A decade again, professors Daphne Koller and Andrew Ng were looking to use the internet to teach students. They wanted to leverage online videos from lectures at top universities.
At first, the platform was not a business. But when the interest started to get intense, Koller and Ng decided to form a company — called Coursera — and raised capital.
Growth has since been strong. But of course, with the Covid-19 pandemic, it has been accelerated. Just about every educational institution has had to invest in developing an online platform.
With Coursera, a student can get a full-on degree at a much cheaper cost than from a traditional university. There is also financial aid available. Additionally, corporate clients like Procter & Gamble (NYSE:PG), Tata Communications and Novartis (NYSE:NVS) have used Coursera to educate their workforces.
In the summer of 2017, the company hired Jeff Maggioncalda as the CEO. Prior to this, he was the founding CEO of Financial Engines, which he took public. Importantly, that company was sold for $3 billion in 2018. In other words, it would not be a surprise to see a public offering for Coursera within the next few years.
The latest funding for the company came during July. Coursera raised $130 million at a valuation of $2.5 billion. The lead investor was NEA and the other investors that participated included Kleiner Perkins, SEEK Group, Learn Capital, SuRo Capital and G Squared.
When it comes to investing in startups, one of the hottest categories is the payments industry. The margins are generally high and the market size is enormous. Moreover, there is a secular trend towards digital payments — and the Covid-19 pandemic has boosted this trend. Why? There is a need for contactless payments.
One of the leading unicorns in the payments category is Stripe. Interestingly enough, calling it a “unicorn” seems to understate its success and size. When the company raised capital last year, the valuation was at a stratospheric $35 billion!
Stripe has made it extremely easy for companies to implement payments within their apps and websites. To accomplish this, the company has developed a rich set of application programming interfaces that handle the complexities of payments.
Another key part of the strategy for Stripe has been its grassroots building of a loyal community of developers. It’s similar to what Twilio (NYSE:TWLO) has down with its own business.
Although, it is not clear when Stripe will have its own IPO. But the current environment is definitely ideal for an offering. Fintech stocks like Square (NYSE:SQ) have soared.
Invest in Startups: Chime
There has been much bearishness with bank stocks lately. But this hasn’t been a problem for those investing in startups of fintech operators.
Just look at Chime. Founded in 2013, the company is a pure digital bank. As a bonus, it also comes with access to more than 38,000 ATMs across the country. Unlike traditional, brick-and-mortar banks, Chime accounts do not have fees for overdrafts or minimum balances.
There are also special programs, such as to get paid up to two days early on direct deposits for payroll. The company has even leveraged this for direct payments that came from the federal government as part of the CARES Act. That is, customers were able to get faster access to their $1,200 checks.
So then how does Chime make money? The main approach is through fees from Visa (NYSE:V) on card transactions.
But going forward, there will likely be moves into other categories to boost monetization. This will likely be by making loans.
Growth has certainly been robust. According to a report from CNBC, Chime is attracting “hundreds of thousands of accounts a month” and is even EBITDA positive.
In September, the company raised $485 million and the valuation was at $14.5 billion — making it one of the world’s most valuable fintech firms. Chime also has indicated it will be ready for an IPO next year.
Robotic process automation (RPA) is not a particularly exciting technology. It’s about streamlining repetitive and tedious processes.
Yet RPA has turned out to be a big business. Why so? A key reason is that the technology has proven to lead to strong return on investment.
A top player in the RPA industry is UiPath. Five years ago, the company pivoted to RPA and transformed the industry. CEO and co-founder Daniel Dines developed a platform that was user-friendly and quite powerful. But he was also smart to pursue an aggressive partnership strategy, such as with consulting firms.
As a result, UiPath has been one of the fastest-growing software companies. It has also been able to raise large amounts of capital from marque investors like Accel, Coatue, Dragoneer, Sequoia Capital and Tiger Global. In the latest round of funding, UiPath fetched a valuation of $10.2 billion. There is also buzz that the company will come public next year or may even be bought out by a tech leader like Microsoft (NASDAQ:MSFT) or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Invest in Startups: Canva
In 2007, Melanie Perkins and Cliff Obrecht founded a company — which was located in Australia — that helped with the process of creating yearbooks. Of course, the platform was based in the cloud.
Through this process, the co-founders realized that the core technology could be used for other purposes, such as for an online system for web design. Thus, in 2012, they pursued this strategy by launching Canva. To help with this venture, they brought on a technical founder, Cameron Adams, who worked at Google.
The vision was to reimagine Adobe’s (NASDAQ:ADBE) Photoshop. But Canva would be much easier to use yet still have powerful design features. From the start, the platform got lots of traction, getting over 750,000 users in the first year. The founders also were smart to hire Guy Kawasaki to be the chief evangelist. Note he had served a similar role at Apple (NASDAQ:AAPL).
Over the years, the company has been run in a lean manner and has not raised a substantial amount of capital. In the latest round during the summer, Canva raised $60 million and the valuation was a hefty $6 billion. But with the infusion, the company plans to expand in the U.S. market and pursue enterprise customers for new business.
Online brokerage firm Robinhood has become a phenomenon. Then again, the company has been disruptive for the industry, having taken a no-commission strategy to boost the customer base. But Robinhood has also developed an app that is easy to use and engaging.
Vladimir Tenev and Baiju Bhatt founded the company back in 2013. Before this, they had earned math degrees at Stanford and then would go on to start a high-frequency trading company and then a software startup for Wall Street firms.
But Robinhood was the breakout venture for them. The irony is that the co-founders saw the Occupy Wall Street protest as inspiration for the company. The vision was to democratize investing.
The valuation of Robinhood has ballooned to $11.2 billion and some of the company’s investors include Sequoia, Andreessen Horowitz and 9Yards Capital. The customer account total is at over 13 million, making the company one of the largest brokers.
Invest in Startups: Airtable
Low-code is turning into one of the hottest technologies. This approach allows for non-technical people to build their own applications. This essentially provides the benefits of both off-the-shelf software and customized solutions.
A top player in the low-code market is Airtable. Think of it as a cross between a web-based database and spreadsheet. For example, you can easily hook data sources and then develop workflows. This could mean building something like a bug tracker, a marketing campaign system or an applicant platform.
Airtable has also recently launched an app store. This will make it even easier to deploy applications.
In September, the company raised $185 million in a Series D round and the investors included Thrive Capital, Benchmark Capital, Coatue, CRV, Caffeinated Capital and D1 Capital Partners. The valuation was about $2.6 billion.
Now the market for low-code is getting intensely competitive. Some of the rivals include Zoho, Quick Base, Appian (NASDAQ:APPN), Mendix, Nintex, OutSystems, Salesforce (NYSE:CRM), Microsoft and Alphabet.
Yet Airtable has proven to be adept at getting new customers — from small businesses to large enterprises. Consider that more than 200,000 organizations use the software.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
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