Angel investor's guide to inflation – DeChambeau’s investment – Longevity supplements – Connected pilates – Mapping the body with algorithms – Digital twins
Week 18
Skin In The Game is a weekly newsletter dedicated to sports investing. We curate the startups and investors shaping the future of sports and its adjacent markets.
We also run a regulated startup investment club connecting investors with visionary sports, health, and entertainment startups – a platform for investors and founders to collaborate and co-invest.
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Confessions
The word on everyone’s lips right now is… inflation.
For years, hawkish investors have harped on about the unintended consequences of laissez-faire monetary policy and bleeding-edge innovation (printing money in disguise) from central banks. Mass immigration / cheap labour, systemic offshoring to countries with rock-bottom labour costs, and massive adoption of technological innovation which drives costs lower whilst expanding consumer choice have kept the inflation genie firmly in the lamp.
But as Yeats prophesied, “Things fall apart; the centre cannot hold; mere anarchy is loosed upon the world.” First came COVID. Then the supply chain started to creak. And now the great white whale has slipped the net, and dials around the world point towards meaningful inflation. Even when you strip out volatile items such as food and energy, “core” CPI is ticking up.
This isn’t just media hype – lots of anecdotal data points are validating the newsflow. Members of our village Facebook group here in Wiltshire are getting hot under the collar about the skyrocketing price of everything. The local nursery has raised its fees by a few quid. Fuel is becoming more expensive (if you can find it). The price of beer, coffee, and organic chicken thighs from the already fiendishly expensive farm shop is creeping up, seemingly on a monthly basis.
As a natural skeptic I’m hopelessly drawn to the catastrophising of angry old men, but for me the key question when it comes to inflation (or any disturbance in the force) is not why or how, but when.
It seems the time is now. I’m 36. People of my generation have only read about inflation, we haven’t lived through it like our parents. Now we’re scrambling to figure out what sustained inflation might mean for our incomes, savings, and lifestyles. I am particularly interested in exploring what the i-word means for angel investors, founders and the wider venture-startup ecosystem. What happens if/when inflation really takes off? And how can we position ourselves, not only to weather the looming tornado of spiralling costs, but to actually benefit from it?
Over the past decade or so, rock-bottom rates and various monetary policy miracles have created a tsunami of liquidity and made it relatively straightforward (i.e. really easy) for quality startups and their less attractive cousins to raise capital.
Now inflation threatens to accelerate the credit cycle, ushering in an era of higher rates and difficult fundraising conditions. After well over a decade of historically low rates, we are entering a new economic phase. Let’s call it an “imperfect storm”, or the mother of all hangovers – one caused by the politicisation of central banks and now characterised by excess liquidity and creeping inflation, reflected in skyrocketing company valuations.
Early-stage startups are risky investments; perhaps the riskiest of all. But they also offer the highest returns. This means that the best startups will continue to enjoy access to funding, since the returns on offer for investors who get it right far outstrip more conventional asset classes in an inflationary environment.
When inflation rears its head, the real risk lies in doing nothing – in sitting on cash, clinging to fixed-income (even inflation-hedged), tracking the stock market, or seeking solace in volatile commodities that are vulnerable to geopolitics, regulation, and other exogenous factors.
Investing in (the right) early-stage companies can provide a hedge against inflation. Startups should not – obviously – dominate an investor’s entire portfolio, but a diversified basket of startup investments can provide a useful engine for growth in a portfolio that’s vulnerable to value erosion from inflation.
A basic understanding of asset pricing theory tells us that company valuations are (theoretically) driven by discount rates. When policy rates rise – as they are bound to in order to combat inflation – future cash flows and terminal values are discounted more heavily, leading to lower valuations. So, with all else equal, analysts pumping higher rates into their beloved DCF models end up with lower valuations. Brokers using a more simplistic, back-of-the-envelope multiples are trapped in the same boat, as outputs are derived from the same mathematics.
So, low-growth companies are vulnerable to inflation. But high-growth companies – like tech startups – are comparatively insulated from the negative impact of higher rates on valuations, since their higher growth rates act as a counterweight, and this is factored into the DCF valuation methodology.
There are high-growth companies, and there are high-growth sectors. The confluence of the two is a sweet spot for investors worried about inflation. A casual look at this very newsletter reveals sports companies like Sorare and Dapper Labs that are expanding rapidly in rapidly expanding sectors (the former recently raised $680m in Series B financing at a valuation of $4.3 billion based on $150 million of sales since January 2021). And valuation growth is far outstripping sales growth.
This brilliant essay from Christian A. Schröder at 10x Value Partners explains it far better than I can. Christian points out that the unique, counter-cyclical qualities of high-growth startups might be the reason why public market investors like hedge funds are moving into private markets. Or they are simply moving up the risk curve as returns in their markets are no longer sufficiently attractive. Startups offer superior risk-adjusted returns at a point in the credit cycle when rates are only going in one direction. Seasoned investors know that just as what goes up must come down, what goes down must come up.
That’s the theory. But what about the practicalities of company performance in an inflationary environment? In an inflationary environment, many businesses see their input costs go up – but tech startups are anomalous. Most don’t have high costs. They might pay top dollar for engineering talent, but they don’t have to source raw materials from suppliers and pass on costs to consumers. In fact, the most attractive technology companies have relatively low fixed costs and high operational leverage. In other words, they are scalable. Such companies are well positioned to ride out inflation, even at high levels.
We shouldn’t underplay the war for talent (particularly developer talent) as a risk for startups, but that is par for course and the best founders will (okay, should) have baked this into their models. The best tech startups – with strong, differentiated value propositions – retain pricing power, meaning they can pass on costs that do rise to captive customers with relative ease (you can expect your Netflix subscription to go up in the months ahead). And remember, inflation is supportive of the already well asserted trend towards upscaled funding rounds, shoring up balance sheets at a time when the best form of defence is attack.
There is nothing new under the sun. Just as what goes down must come up (in this case, rates), what goes up must come down. There will be another chapter, some time hence, when we are talking about burst bubbles, pragmatic valuations, venture debt and other eminently sensible things. The point is that angel investors shouldn’t get fixated on inflation or deflation – they should look past cycles and focus on investing in quality people, companies, and sectors. These are timeless and counter-cyclical.
Ultimately good businesses are able to operate despite the vagaries of the economic cycle. And the very best businesses thrive on disruption. Economic history is replete with companies that started up during downturns, with some of the world’s greatest, most iconic brands born in the shadow of crisis and recession – AirBnb, Disney, EA, FedEx, General Electric, HP, and IBM all had “bad timing” but unbelievable engines that were able to power through difficult economic landscapes.
That’s what we’re looking for with Skin In The Game. Engines, moats, anomalies. They call them unicorns for a reason.
Deal flow
🏌️♂️ DeChambeau’s Instagram find leads to advanced workout tech investment – The story of Bryson DeChambeau’s investment in Proteus Motion’s training system started with a $20 Instagram ad buy.
🧘♀️ Frame Fitness Raises $5m Seed Round Led by Fitness Pioneers to Launch First At-Home, Digitally-Connected Pilates Reformer – Frame closed a $5 million seed financing round with substantial oversubscription. Strategic investment was led by Mark Mastrov (founder and former CEO of 24 Hour Fitness), Jim Rowley (CEO of Crunch Fitness Worldwide), Michael Bruno (CEO and chairman of Core Health and Fitness), and Ernie Moody (founder of Action Gaming).
🇸🇦 Newcastle takeover: Winning PR battle just the start as owners worth £700bn seek to emulate Man City success – Saudi Arabia’s Public Investment Fund will take a controlling 80% stake in Newcastle in takeover deal worth £300m
⚾️ La Vida baseball raises $10m fro growing Latino audience – The media company dedicated to producing for and delivering to a US Latino audience closed its $10 million round in late September.
🏉 Saracens set for major investment after agreeing takeover deal – Saracens owner Nigel Wray has agreed to sell a controlling stake in the club to a consortium which plans to invest £32million to establish them as a global force.
🦵 KinoTek, Which Uses Algorithms to Map the Human Body, Closes $2.1 Million Seed Round – KinoTek, a human movement evaluation platform, has closed a $2.1 million seed round. The Lake Nona Fund, which has ties to the leAD Sports & Health Tech Partners accelerator from which KinoTek graduated, led the investment.
🤝 Leaders Group Agrees to Acquire SportTechie – Leaders Group, parent company of Sports Business Journal, has committed to acquiring SportTechie, the leading sports technology content and events company. Upon the completion of the acquisition, the combined entity will be the leading information source for sports industry leaders and innovators.
📱 A new platform wants to help health and wellness TikTokers expand reach and revenue – Ongo raised $3.5 million in seed funding led by investors including Day One Ventures, The House Fund, Emmett Shear (Twitch), Drew Houston (Dropbox), Albert Lee (MyFitnessPal), Kyle Vogt (Twitch, Cruise), John Oringer (Shutterstock) and Kevin Hartz (Eventbrite).
💊 NOVOS Closes $3.15M, Aims to Extend Healthy Human Lifespan With Science-Based Supplements – NOVOS, a leading Longevity supplements brand, announced today on International Longevity Day the close of $3.15 million in pre-seed financing led by Resolute Ventures, with support from Arkitekt Ventures, Longevitytech.fund, Awesome People Ventures and 20 institutional investors and noteworthy entrepreneurs.
🥮 Noops, a plant-based pudding startup, raises another $2m – Just two months after securing $2m in pre-seed funding, plant-based pudding startup Noops is announcing an additional $2m round led by Lerer Hippeau. Joining Lerer Hippeau in the investment are Siddhi Capital, Idea Farm Ventures, Simple Food Ventures, Animal Capital and American Pie executive Alan Mitzner.
🦮 Loyal raises $27m, aims to give dog owners more time with their pets – The company raised $27 million in Series A funding in a round, led by Khosla Ventures and including First Round Capital, Box Group, Collaborative Fund, The Longevity Fund and Lachy Groom, as well as a group of angel investors.
🧴 Veracity Selfcare raises $5.8m in funding – The personalised skincare brand Veracity Selfcare raised $5.8m in funding. Founder and CEO Allie Egan launched Veracity, a new personal self-care experience based on testing key hormones and pH that affect skin’s current condition and, more broadly, overall health and balance.
🇨🇦 Toronto-based DTC Fertility Startup Bird & Be Launches with $1.8m in Funding – Toronto-based DTC Fertility startup Bird & Be has closed a $1.8m financing round led by BAM Ventures, an early-stage consumer fund founded by Brian Lee, co-founder and former CEO of LegalZoom and the Honest Company. Other investors participating in the round are Elliot Cohen, Co-founder of PillPack, Slow Ventures, JJ Wilson , Judy Brooks, HaloHealth, Backbone Angels, and Fitt Ventures.
🥦 Misfits Market Announces $225M Series C-1 – Misfits Market, the leading online grocery platform focused on sustainability, affordability, and accessibility, has closed a $225m Series C-1 round led by SoftBank Vision Fund 2 and with participation from Accel.
👨👩👦 Spring Health Reaches $2bn Valuation and Launches Family Mental Health Solution Globally – Series C Financing Round Led by Kinnevik with continued participation from Tiger Global and Northzone brings in $190m in new funding. Proceeds to expand leading, comprehensive mental health solution to serve global workforces and their families.
🌱 Immi secures $3.8m in seed funding round – Plant-based, better-for-you ramen company Immi has raised $3.8m in seed funding, as it looks to modernise its instant ramen brand. The seed funding round was led by Siddhi Capital, with participation from Palm Tree Crew, Constellation Capital, Animal Capital, Pear Ventures, Collaborative Fund and others.
🥛 Alternative-Milk Company Perfect Day Raises $350 Million, Prepares for IPO – Perfect Day raised $350 million in a late-stage funding round, valuing the non-animal dairy startup at roughly $1.5 billion and setting the stage for an initial public offering. Singapore’s Temasek and Canada Pension Plan Investment Board led the Series D funding round for the California company. Other investors include Walt Disney Co. Executive Chairman Robert Iger.
🦷 Toothfairy’s virtual dentist app raises £3M seed round – UK startup Toothfairy raised a £3 million seed funding round led by impact VC ADA Ventures and Slingshot, with participation from Seedcamp, All Iron, Haatch Ventures, as well as angels from the Atomico Angel Programme, and Angel Investor of the Year Deepali and ex-(Transfer)Wise ex-TransferWise Marketing Head Joe Cross. Current investors already include co-founders of Funding Circle James Meekings and Andrew Mullinger, as well as an angel syndicate from the USA.
🇺🇸 Found comes out of stealth with $32M in funding – Found was incubated at Atomic, a San Francisco-based venture studio in the spring of 2020. Earlier this year, it raised $24 million in a Series A round led by GV (formerly Google Ventures) and Atomic, with participation from Define Ventures. And over the course of the last year, it raised $8 million in previously unannounced seed funding, largely from Atomic in addition to Define Ventures.
🏒 Venture-backed FloSports acquires HockeyTech – FloSports has acquired HockeyTech, a Waterloo, Ontario-based hockey streaming platform and sports data provider to teams, leagues and national organizations.
💰 AlleyCorp Launches $100M Healthcare Venture Fund – AlleyCorp, the NYC firm dedicated to founding, funding, and building transformative companies across industries today announced the launch of the AlleyCorp Healthcare Fund, an early-stage venture capital fund and incubator dedicated to healthcare.
🇨🇭 Longevity Science Foundation Pursuing 120+ Year Human Lifespan Launches In Switzerland – A consortium of biotech founders, clinicians, and leading longevity research institutions announced today the launch of the Longevity Science Foundation. The new Swiss foundation has committed to distributing more than $1 billion over the next ten years to research, institutions and projects advancing healthy human longevity and extending the healthy human lifespan to more than 120 years.
🎲 Sharp Alpha Advisors closes $10m sports betting fund – Sharp Alpha Advisors, a venture capital and advisory firm that specializes in sports betting, has closed its first $10 million fund. Led by managing partner Lloyd Danzig, the group invests primarily into early-stage gambling technology companies. It has made 11 investments to date, including motorsport fantasy operator GridRival, gambling exchange Prophet and free-to-play platform PickUp.
🧫 Japanese healthcare startup Bisu raises $3.2M seed round to launch its lab-on-a-chip product – Bisu, a Tokyo-headquartered healthcare startup that has built a lab-grade testing device that can be used at home for diagnostics that translate into actionable health data, has raised $3.2 million. The latest funding was led by QUAD, with participation from ASICS Ventures Corporation, 15th Rock Ventures, Pacifico Investments and SOSV.
👑 BetterUp, the coaching startup that hired Prince Harry just raised $300M – BetterUp, the mental fitness coaching platform where Prince Harry is Chief Impact Officer, has announced the close of its $300 million Series E fundraise. This brings the unicorn’s valuation to $4.7 billion and total funding to $600 million.
🩸 Twin Health raises $140M to manage diabetes, other chronic conditions – The startup, which says it uses “digital twins” to help people manage their diabetes, recently raised a series C round led by ICONIQ Growth. It uses data from connected devices, blood tests and consultations to come up with personalized recommendations. Perceptive Advisors, Corner Ventures, LTS Investments, Helena, and Sofina also participated in the round.
🇮🇳 Delhi-based mHealth raises seed investment in a round led by India Accelerator – Delhi-based health and wellness startup mHealth raised an undisclosed amount in its seed funding round led by India Accelerator. According to the official statement, HNIs and industry veterans including Govind Rao, Vikram Gupta, Alok Mani among others also participated in the round.
🇺🇸 SportsTech startup Fivestar rasies $3 million – The sports tech startup, based in Annapolis, Maryland, is spearheaded by lead investor Brendan Kelly. Kelly is chairman, founder and CEO of telecom leader Smartlink Group. Kelly previously owned the Chesapeake Bayhawks, a professional field lacrosse team which dominated its league for nearly a decade.
🇦🇪 Leading Dubai-based Automotive Data Platform raises $2 million series funding led by Global Ventures – Auto-tech platform Algodriven, whose dealership clients represent brands including Audi, BMW, Nissan and Volkswagen to use proceeds for global expansion.
⚽️ Zurich-based Coachbetter secures €860K seed funding to digitally revolutionize soccer planning and athlete management – The digital soccer coaching platform coachbetter today announces the close of its seed funding round, totaling €860K. The fresh capital came from the Swiss Founders Fund, TheVentureCity, and former professional soccer player, Remo Staubli.
🩸 Habitual is using digital support plus food replacement to help reverse type 2 diabetes – London-based Habitual, a health tech startup which offers a weight loss program aimed at people with type 2 diabetes (or prediabetes) that combines “evidence-based” food replacement with digital support to help people manage and even reverse the condition (so they can be medication free), has closed a $2.3 million seed round. The round was led by Berlin-based Atlantic Food Labs, with existing investors Seedcamp and MMC also participating. Oxford Seed Fund also participated.
💰 RA Capital kicks off third VC fund as Peter Kolchinsky and Rajeev Shah bank $880M – RA Capital Management, one of the premier healthcare investment managers, is back with another fund to shepherd the next wave of life sciences innovations.
⛓ Dapper Labs Acquires Brud, the Maker of Virtual Influencers – Dapper Labs, the creators of NBA TopShot and the Flow blockchain, has acquired Brud, a Los Angeles-based company that specializes in AI-based storytelling. The transaction enables the launch of Dapper Collectives, a new business unit that will be headed by Brud CEO Trevor McFedries.
💉 UBS clients raise $650 million for biggest yet biotech impact fund – The Oncology Impact Fund 2, run by biotechnology investment firm MPM Capital, has raised a total of $850 million, including the $650 million obtained from UBS clients. It will invest 80% of its capital into privately held start-ups, and the remainder into public companies, developing innovative treatments for cancer and other serious illnesses.
🏃♀️ Teamworks aims to be ‘comprehensive operating system’ for elite athletes – Teamworks has bought Notemeal, the company announced this week, and that means a growing menu of offerings for athletes. Teamworks began as a provider of team communication and scheduling. Now, the company has expanded into what Teamworks founder and CEO Zach Maurides calls “adjacent spaces.”
💲 Dyal Homecourt NBA Fund discloses $200m in assets – Private equity fund Dyal HomeCourt has $200 million in assets under management, according to a recent investor presentation, the first disclosures that specify the size of Dyal’s fund.
🇮🇳 India Accelerator, JSW Sports collaborate to launch first sports tech cohort – India Accelerator, a mentorship-driven accelerator program in India, has recently collaborated with JSW Sports – the sports arm of the JSW Group (a multinational $13 billion conglomerate) to launch an exclusive premier seed and early-stage Sports Tech Cohort.
🎾 Tennis Startup Kourts Acquired By Playtomic – Europe’s largest online booking and management software for racquet sports, announced it has acquired its American counterpart KOURTS, the leading tennis court reservation and club management platform in North America for an undisclosed sum.
Some tweets
Still trying to get my head around Tyson Fury’s win. Considering the mental and physical shape he was in back in 2018, this surely has to be the greatest comebacks in sporting history? A reminder that where the mind wants to go, the body follows.
Cheers,
Ed
—
Edward Rhys
Founder / Skin In The Game
www.skininthegamegroup.com
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Skin In The Game is a startup investment club connecting investors with visionary sports startups. We provide a regulated platform for fans, athletes, entrepreneurs and brands to collaborate and co-invest. By investing in SportsTech we can unleash the full potential of sports, enriching the lives of people everywhere.
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