It’s hard to avoid being impressed by the vision of Worldcoin. Sam Altman wants to create a human-centric coin that can be distributed to every person on earth regularly. It is Universal Basic Income using a new currency. This week, thought leaders in venture capital, Andreessen Horowitz and Khosla Ventures, joined others in investing in Worldcoin and valuing it at $3 billion. That is $0.40c for every person on the planet, the future beneficiaries.
If Worldcoin can execute its vision it will be sending hundreds of dollars a month, or more, to these people. And if merchants start accepting Worldcoin as payment, the company will become the biggest company on earth.
The key to success is validating each human and ensuring that only humans get the coins and that they only get each distribution once. Worldcoin’s site explains how a retina scanner called the Orb will be key to that, as will smartphone ownership.
Eventually, we plan to produce more than fifty thousand devices per year.
This is where Worlcoin’s vision clashes with its execution plan.
Fifty Thousand Orb’s a year will not be enough, or fast enough, to fulfill the exciting and audacious vision of the company. And the $100m raised this week is far from enough to change that. It’s a great start and wouldn’t lead me to that thought were it not for the “eventually” and “50,000 a year”. Those words imply the real plan and the vision are quite far apart.
I may be alone but Sam, please raise several $billion and do this fast and at scale. It can be done. The core has to be merchants globally being happy to take WorldCoin as payment, otherwise owning it will be meaningless. The real value is the value to exchange for tangible needs like food, housing, clothing, education, leisure, and health. As automation accelerates and removes the need for many kinds of human labor, a universal method of delivering needs to people will become a pressing human puzzle. Worldcoin holds a possible solution to the future of humanity. It doesn’t make sense to underplay that hand, because success demands “bigness”.
Applause is the right response to Andreessen and Khosla for backing WorldCoin and to Sam Altman and Alex Blania for having the audacity to think this big. The next few steps will be crucial to the end game.
It was another big week in venture capital. Sequoia Capital announced a startup accelerator program called Arc. Giving $1m to 15 startups, initially in Europe. Teaching them the Sequoia way of how to build a company. A lot to unpack there.
And in this week’s Tweet of the Week Beezer Clarkson from Sapphire Ventures focuses on the issue of pro-rata rights. She spells out the pros and cons of a seed manager retaining some % of their funds for follow-on investing into their portfolio as the companies go on to do B, C, and D rounds of financing.
It is a well-known fact that great fund managers invest in companies that grow faster and bigger than ever. The fund that owns 10% of a startup at the A round, when confronted with a B round valued at $500m and raising $100m, has the opportunity to write a $10m check into the B round.
For most seed stage managers that is too big for their fund, and so they have to raise a new fund, called an SPV, to be able to do it. The SPV will normally be hard to fill in the time required (often only days). And so most pro-rata opportunity is unfulfilled.
According to the data we have at SignalRank, my startup, that may be as much as $13 billion for the B, C, and D rounds of 2021 companies that became unicorns in the year. The current value of that $13 bn would be $76 bn — almost 6x. If you go back a little further, so the unicorns have had time to exit or grow the numbers are even better. The 2017 unicorns had $$2.7 bn of pro-rata available at the B, C, and D rounds. If that cash had been invested it would have a current value of $36 bn or 20x.
So the discussion of pro-rata is about whether seed managers benefit from the growth of the companies they invest in early. The reward for their early risk can be good, but if they did their pro-rata it can be a lot better. If they do not do it then the reward goes to others who invest later.
Clearly, Beezer is a highly relevant viewer of this landscape as she is an LP investor in many of the best seed funds. For a point of view that wants pro-rata to be denied early-stage managers I also link to a TechCrunch article this week.
This will become a very important area for all seed managers. What they really need is:
- A source of capital for their pro-rata to make SPVs easy.
- Partnership with their existing LPs and partners to avoid conflicts
- Economic terms that pay them the same 20% of the profit that they get from their core fund.
- Rapid decision-making and draw-down of the required capital.
More in this week’s video.