Unicorn Spotting with Palm Drive Capital
With the recent closure of Boom Supersonic’s latest funding round, our portfolio now holds eleven unicorns. With this accomplishment, we would like to present a selection of our unicorns, our reasons for investing in them, and insight into our investment strategy.
Our investment thesis focuses on three categories: sector, stage, and geography. We typically invest in early stage businesses in the software/internet sector all around the world, with roughly 80% of our portfolio held in the US and 20% abroad. While our investment target is a Series A company generating around $1m in revenue, we have seed stage and growth stage investment programs that provide us access to the world’s fastest growing companies. Our early stage program helps us invest in high-potential business models before significant traction, for example we backed Rappi’s seed round back in 2016. Our later stage investment program helps us join best-in-class growth stage companies like Carta, which we invested in at the Series C in 2017.
The seven unicorns we’ve selected for discussion in this post were all manifestations of our convictions on what builds a massively valuable business. Below are our convictions:
- Replicate successful business models
- Timing matters, only invest when the market is ready for the product or service
- Access to capital is critical for executing many startup strategies, so back founders that are good fundraisers
- Back repeat founders with proven track records
- For consumer internet businesses, cost advantages and economies of scale are important
- Distribution / go-to-market strategy is one of the most important elements of an early stage investment
- Invest in large, growing markets
With these points in mind, we will take you through seven of our top unicorns drawing attention to when we invested in them, and why.
Backed at Seed
1. Welab — November 2014
WeLab is a Hong Kong-based fintech company offering virtual banking and consumer financing solutions. WeLab has raised a total of $581M in funding over 8 rounds and is one of the first companies to be granted a digital banking license in Hong Kong. It has been rapidly expanding its services and has shown an unparalleled opportunity for growth.
This is something that we could see when we first discovered WeLab. It was clear that they were on the cusp of transforming the fintech and digital banking scene. Tracking the industry trends, we realized that they would be at the forefront of this particular fintech trend, and as such, an excellent investment opportunity.
2. Boom Supersonic — April 2016
Boom Supersonic aspires to innovate and bring back supersonic passenger flight at an affordable price. Boom has raised $244.1M in funding over eight rounds. Our investment thesis for Boom Supersonic was the following: 1) supersonic travel will come back; 2) composite material technology enables a lighter jet that is more fuel efficient and therefore more cost-effective; 3) advances in software flight simulation enable more rapid iterations during the jet development process, therefore creating a more cost-effective R&D process; and 4) supersonic travel needs to be right-sized for the market demand, meaning smaller jets for business class passengers.
When we met CEO Blake Scholl and his team, we were impressed by many qualities, notably their fundraising ability, technological acuity, and business acumen. In 2016, despite having a jet prototype that was years from realizing commercialization, Blake and his team had already signed LOIs from some of the world’s most premier airlines, including JAL. This gave us the conviction to invest
3. Rappi — April 2016
Rappi is a high-growth on-demand delivery startup looking to be the “everything store” of Latin America. Rappi has raised a total of $1.7B over nine funding rounds, Series F being the latest. The Latin American markets had been largely untapped by US VCs in 2016, and we were intrigued by Rappi as a tech startup replicating the success of delivery titans like DoorDash, UberEats and Grubhub in the US. Furthermore, Latin America’s super dense cities like Mexico City, Bogotá, and Buenos Aires, in conjunction with the low labor prices of the region, combine to create a fertile ground for a delivery app service.
However, there are challenges to building a startup in Latin America that needed to be taken into consideration, such as the difficulty of raising capital, the imperative to expand to countries with different cultures, languages, and currencies at an early stage, and the relatively underdeveloped fintech ecosystem making digital payments more challenging. There are also macroeconomic factors that can influence the performance of an investment abroad, like currency exchange rate. Fortunately, Rappi has tackled the challenges of building a tech business in Latin America with creative strategies and has become a dominant player on a global scale. We have made several new investments in Latin America based on the success of Rappi, including: Merqueo, RobinFood, and LentesPlus. Additionally, we seek to invest in super-apps globally, and have acted on this thesis with our investment in Yassir in North Africa.
4. Rippling — March 2017
Rippling is a human resource management company that manages employees’ payroll, benefits, devices, and apps. Across three funding rounds, Rippling has raised $197M. When looking at Rippling’s services and business model, we understood that employee management, regardless of the size and location of any company, is always time-consuming and costly. Hence, there was a gap in the market for software that aids and facilitates the HR process. Furthermore, with remote work becoming even more prevalent in our society, Rippling has risen to be a key player in that market.
Another element that gave us confidence in the Rippling investment is their chief executive officer, Parker Conrad, who previously built Zenefits, one of the fastest growing software companies in history. We believe in partnering with founders for the long term, so when we had the opportunity to invest in Parker again, we were eager to provide our support.
Backed at Growth Stage
5. Carta — February 2017 Series C
Carta helps companies and investors manage their cap tables, valuations, investments, and equity plans. They are also seeking to promote shareholder liquidity with CartaX, the world’s first vertically integrated market ecosystem for private equity. Carta has raised a total of $627.8M in funding over 11 rounds.
Carta’s mission to break the mould of how capital markets operate, through a commitment to transparency and equality in equity, is a mission that we whole-heartedly support. Another main reason we invested in Carta was their genius distribution strategy: distribute the product to venture capitalists who in turn promote the software to all their portfolio companies. This efficient, stable growth strategy enabled Carta to grow rapidly, and we are excited to see other companies replicate it.
6. Clover Health — May 2017 Series D
Clover Health is reinventing health insurance by integrating technology with the principles of value-based healthcare. Through Clover’s proprietary software and population health algorithms, they drive positive healthcare outcomes while also reducing waste in the healthcare system. They decrease wasteful spend primarily through their unique flavor of preventative care, which they demonstrated can decrease costly hospital visits. Clover has raised a total of $925M over six rounds and is a prime example of advanced technology and analytics being implemented to improve healthcare and quality of life. Because it takes time to generate positive health outcomes in a large patient population, we decided to wait to partner with Clover Health until their growth round in 2017.
7. Jet.com — November 2015 Series D
Jet.com operates an e-commerce platform that allows its members to shop online from various retailers. Jet.com was the fastest company in history to reach a billion dollars in sales, and as a result Walmart bought their business for $3.3 billion, which became the second largest e-commerce exit in history (after Chewy.com). One of the main reasons we were excited to partner with Jet.com was their leader Marc Lore, who sold Quidsi to Amazon for $550 million in 2011. Many investors lined up to back Marc for Jet.com, and we were lucky enough to demonstrate our value and win allocation in their round. As experienced e-commerce investors, we helped Jet.com by introducing them to qualified software engineering candidates and providing guidance on their growth strategy, introducing them to other seasoned e-commerce operators who served as sounding boards for ideas.
So where are the future unicorns?
We have invested in mobility, fintech, e-commerce, health tech, enterprise software, and many other verticals. Currently we are excited about a few investment theses, including: the rise of social commerce, enterprise software that supports remote work, digital healthcare, gaming infrastructure software, and more. To better execute our generalist / thesis-driven investment strategy, we need to collaborate with as many entrepreneurs and investors as reasonably possible.
We just raised our third fund, and aim to scale our investment strategy on a broader scale. We source software and internet startups all around the world and hope to partner with the best global founders. Using our existing investments as a guidepost, we will look to replicate successful business models, invest in those models when the market is ready for them, back concepts that have access to capital, back excellent founders, and invest in large & growing markets. Additionally, we will focus on distribution strategies as a differentiator of early stage investments.
Originally published at https://palmdrive.vc on February 7, 2021.
