Halloween's Real Spook: Startups Facing Down Rounds in 2023 🎃

Editor’s Note: Aquagga and World Tree Updates 
This week, our Senior Investment Analyst Léa Bouhelier-Gautreau, shares insights from her experience at SOCAP23, San Francisco’s premier impact investing conference. She received updates from two founders in the impact investing space: Nigel Sharp of Aquagga and Cathy Key of World Tree. From remarkable technological strides in eradicating harmful chemicals to sustainable tree farming initiatives promising impressive returns and significant environmental impact, read our latest company updates here.

CHART OF THE WEEK 📈

Happy Halloween! This week, we decided to take a closer look at companies that experienced down rounds in 2023. A down round occurs when a company's valuation is lower than in a previous funding round.:

• In 2023, approximately 20 campaigns have launched with valuations lower than their prior rounds. These valuation discrepancies ranged from $10,000 to a substantial $298.6 million.

• Eight companies experienced a valuation drop of 25% or less compared to their previous round.

• Another eight companies saw their valuation change by 25-50% between rounds.

• Of the 20 companies with decreased valuations, five had a drop of more than 50%, indicating their current valuation is below half of the previous round's valuation.

• The average decrease in valuation round-over-round is $33.3 million for startups that raised in 2023.

• The startups with the largest down rounds this year were Miso Robotics, Hawaiian Bros, and Rentberry.

• Miso Robotics raised this year at a $221.3 million valuation, down from $519.9 million in a round that closed in 2022.

• Hawaiian Bros saw a valuation decline of $144 million, while Rentberry raised at a valuation down $50 million from the previous round.

• Down rounds can serve as indicators of various factors, which can vary on a case-by-case basis. Nevertheless, one consistent aspect is that investors in a down round are acquiring shares at a more favorable price compared to the previous round.

FUND OPPORTUNITY 💰

OPEN is an indexing and fund management company backed by the New York Stock Exchange. They are creating best-in-class private market indices and associated fund products to replicate them.

OPEN’s first fund, the OPEN Unicorn Index Fund (UIF), LP, aims to capture the space's current price dislocation opportunity. The UIF is a secondaries fund that tracks OPEN’s overlying index of the 50 largest venture capital-backed US private companies, including names like SpaceX, Stripe, Fanatics, etc., in a single, diversified basket.

Recent price dislocation in the secondaries market for these unicorns (48.5% on average across the Index) has presented a timely investment opportunity.

More recently, IPOs of previous OPEN Unicorn Index constituents, Instacart and Klaviyo, show early signs of IPO market recovery heading into 2024.

Invest in the future of innovation with the Unicorn Index Fund.

PITCH REVIEW 💸

Brief: Water scarcity is a global concern predicted to affect one in four people by 2050. Although desalination offers a solution, it has environmental drawbacks. Texas-based Enviro Water Minerals Company offers a sustainable desalination method that recovers water and minerals and eliminates brine. This approach provides higher water recovery, is environmentally friendly, and boosts desalination plant returns. Suited for eco-conscious desalination plants, Enviro Water Minerals aims to reshape desalination and address water scarcity. It’s raising $999,900 at a pre-money valuation of $12.6M with a minimum investment of $99.

Key People: Chairman Joseph Haussman and CTO Paul Wallace co-founded Enviro Water Minerals Company. Haussman previously worked in finance and investment banking. He brings business expertise to the team. Wallace is a chemical engineer who started his career working on gasification technology. In 2008, he started working on desalination technologies and co-founded EWM in 2012. He is responsible for driving the development and implementation of innovative water solutions.

Not an Edge Member yet? Unlock the Ratings 🔓📈

Summary

Here's what we like: Enviro Water Minerals Company (EWM) is a water technology company that has the potential to revolutionize the global water industry. Its sustainable desalination process recovers minerals, which makes the process more environmentally friendly and can increase the desalination plant's revenues by 20x for only a 10x higher capital cost. EWM is the only company currently offering this solution. Its technology appeals to private desalination plant owners and public plants from wealthy countries willing to both limit their environmental impact and improve their image.

The company has already generated revenues through consulting services and feasibility studies. Despite not having the means to pay for marketing yet, the company regularly receives inbound requests and has a solid pipeline of potential customers. It could start generating consulting revenues again in the next couple of months. It also established valuable distribution partnerships. Enviro Water Minerals Company also holds patents for its technology, which serves as a significant barrier to entry for potential competitors.

EWM is led by a team of dedicated leaders. At a fair $12 million valuation, the high potential revenues of this moonshot deal could bring high returns to investors, thanks to its licensing business model.

Here's what we don't: Enviro Water Minerals Company (EWM) operates in a large and fast-growing market where established players such as Veolia, Suez, and General Electric Company already dominate the global water desalination equipment industry. These competitors have significant market share, resources, and established customer relationships. They have higher chances to win regular project bids as their project aligns more with current desalination plants’ expectations.

Indeed, even if EWM's technology can considerably increase the desalination plant's revenues, its technology involves higher capital expenditures and requires to educate potential clients. EWM is a moonshot. As it evolves in the infrastructure industry with a licensing business model, it depends entirely on the completion and timing of its potential clients. Securing a deal can take months, and licensing revenues typically take 1-2 years from the start of discussions before being wired. Therefore, funding is critical for the company at this stage.

ON THE POD 🎙️

In this episode, Chris Lustrino sits down with Brian Morin, the founder and CEO of Soteria Battery Innovation Group. Their discussion dives deep into the world of battery safety, intellectual property, and the broader industry landscape.

Listen to the full episode here

TOP-RATED DEALS 🌶️

Life Magnetics

Life Magnetics offers at-home medical testing using a unique carbon-based RNA extraction technique. The company can produce $2 million annually in sales and aims to finalize a sales contract with CentralStar of Michigan and further an oral mRNA delivery platform.

• Pre-Money Valuation: $5.5 million

• Minimum Investment: $100

The Realm Refillery (Debt)

The Realm Refillery, Oregon's first package-free grocery store, advocates for sustainability by promoting less food waste and reducing unnecessary packaging. The store aims to raise between $50,000 to $100,000 to refinance high-interest debt.

• Interest Rate: 13.50%

• Minimum Investment: $100

Webstreet

WebStreet offers a platform for fractional investing in online businesses like Amazon Stores. WebStreet has raised $27 million with world-class portfolio managers, boasting 3-4% quarterly returns.

• Pre-Money Valuation: $53.5 million

• Minimum Investment: $1,000