Partner Letter ~ H1 2022
Updated: Jul 1, 2022
Partners and friends,
I hope you're all gearing up for a nice summer. For the investors and founders among us, good luck with that. According to everyone with a microphone or a Twitter account, winter is here for venture capital and the technology companies we back. If this isn't the dot-com crash, then it's the global financial crisis, and if it's neither of those, then it is surely the 1970s all over again. Whatever it is and wherever we are, it is excessively noisy.
Our job is to tune out that noise and remain focussed on the present. We know our theses, we know our underwriting parameters and if we can finance compelling opportunities on attractive terms, we're going to do so. We are not going to add to the hysteria of the moment. We never felt comfortable doing so on the upswing, and we're not going to do so on the down. It's not our style. Instead, we're doing the contrarian thing in this time of bombast--we're staying calm and going to work. We're proud of our portfolio companies for doing the same.
Portfolio Update
Flossy and Knack completed financings at increased valuations to their last rounds. Congratulations to those teams on landing some well earned runway.
Rimac, an investment we passively manage on behalf of select limited partners, raised capital at a 4x valuation to their last round of financing. Congratulations to our partners on their success to date.
Pawp and Digisure raised bridge rounds on attractive terms to hold them over through this market instability. Kudos to them for being nimble when the grounds began to shift.
Ayenda chose to forgo financing on challenging terms by cutting its burn and extending its runway for an additional twelve months. Strong companies are built by difficult decisions and we fully support this move.
The rest of the portfolio remains well capitalized and continues to grow as projected:
Plum closed their financial year with $14.5M in premium, a 7x increase from last year. India’s demand for health coverage continues to grow exponentially post-covid. With almost a quarter of a million lives served in the past two years, Plum has been a driving force behind this adoption. Plum raised $15M from Tiger Global in May.
Chipper had total revenue of $168.9M in Q1, up 70% from its Q4 revenue of $99M. Q1 2022 revenue exceeded all of 2021 revenue combined. Chipper raised $150M from FTX in November.
Honor hit a run rate of $240M in March at 75% gross margins. This is 2.5x last year's run rate. Honor raised $370M from Baillie Gifford and T. Rowe Price in October.
Carbon Health is on track to double its revenue this year to between $400-500M with clinic EBITDA margins of 35-40%. As our most mature holding, Carbon is also most susceptible to public market volatility. In May, it preemptively reduced headcount by 8%, the majority of which were covid-oriented staff. This decision will enable Carbon to reach profitability sooner than their 2023 expectation and was a practical move as covid retreated from public health crisis to personal concern. In the current market climate, we’d like to see 12-18 months of profitable growth compress Carbon's current multiple from 6-7x sales to 3-4x sales, before going public or taking new financing on a forward multiple. CEO Eren Bali has already navigated one company to IPO with Udemy, and we have full confidence that he will keep the same steady hand at the wheel for Carbon. Carbon raised $350M from Blackstone in July.
Fund Introduction
As our portfolio continues to grow, so do we. Since our first deal together almost ten years ago, Charles and I have expanded from managing our own capital to that of an increasing number of partners. We now have 63 limited partners, we manage $33M in assets and we have generated a return of 5.92x to date, with 25% of our portfolio realized so far via acquisition or IPO.
Thank you to everyone who has entrusted us to invest your money. We are humbled to have your confidence and seek to continually live up to it on each deal that we do. Earning you money is nice, but earning your respect is better. We don't intend to stop doing either.
For over a year, we have been formalizing our first true fund. Serendipitously, as we finish doing so, the market is giving us an incredible opportunity to invest at early stage valuations not seen since we began investing ten years ago. We could not be more excited to seize this moment and support the next decade of promising startups.
Our strategy represents who we are as investors. Over the past decade, we have found success in cultivating a network of sharp and proactive co-investors. Beyond sharing dealflow, we identify and utilize our community’s varied skills to complement our own. We know what we don’t know, and we seek out people who do. Investing into our network has undoubtedly been our best investment to date. The fund’s strategy builds on this approach:
Investing into the funds of promising emerging managers
Maximizing positions in their breakout companies
Making direct investments, vetted through our network of managers and founders
In formalizing our practice, we expect to deepen existing relationships and create new ones, as we work to generate the exceptional results that you expect from us.
As we launch our fund, we also welcome Doug Feirstein on board. Doug has been a long-time limited partner of ours and has played a key role in sharing exciting deals, great co-investors and valuable insights. Doug is a serial entrepreneur, having founded and built two large venture-backed companies and one public company; LiveOps, Hired, and uSell respectively, which have collectively generated over $1B in value for employees and investors. He is a skilled venture investor with more than 50 companies and funds in his portfolio. For over two decades, Doug has provided invaluable mentorship to many notable startups and venture managers. We’re proud to have him on board.
We're calling ourselves Deep Acre and we look forward to welcoming you in.
Alex, Charles & Doug