It’s no secret that COVID has exacerbated the global loneliness crisis. But what is lesser known is that the lack of social connection severely heightens health risks, with effects similar to smoking 15 cigarettes a day. As the pandemic has continued, older adults have disproportionately reported more loneliness and prolonged isolation. All of this has intensified the need for new services like Papa, built specifically to improve well-being through human companionship.

Papa’s on-demand service helps alleviate social isolation and loneliness by pairing members with Papa Pals for companionship and assistance with everyday tasks. As the company says, “The solution to better health is not an app. It’s a human.” And as this study confirms, empathy-focused programs can improve loneliness, depression, anxiety and general mental health. Papa has hundreds of thousands of members across all 50 states, growing 600% this year, and forging partnerships with multiple large insurance plans, including Aetna, BCBS and Humana.

But why stop there? If the company can help alleviate loneliness, which is often thought of as intractable, what else is possible? Just like Uber’s evolution into food delivery or Amazon’s into healthcare, tremendous expansion is possible when a company can solve a foundational complexity first. That’s Papa’s approach in establishing itself as a trusted partner to improve the way we care for older people. (Much more on that a little later.)

That approach is a big reason why we are excited to double down on our investment in Papa as they announce a $60M Series C financing today led by Tiger Global Management. This round is a testament to the team’s work during the pandemic and progress on its mission to support families throughout the aging journey.

It seems slightly crazy to say now, but when we first invested nearly 18 months ago, we did not expect a global crisis would freeze much of our daily lives and put significant space between us and loved ones. At that point, Papa was 100% in-person, with Papa Pals meeting members in their homes or on their turf.

That changed quickly.

When COVID hit the US, Andrew and the Papa team adapted quickly and built a virtual substitute to work for older adults until it was safe to meet in person again. This virtual companionship service acted as a real intervention for its members, many of whom were more than alone physically, and in many cases, were at risk if they didn’t have anyone available to talk to in their lives.

The speed (read: days) in which this team spun up this service to meet member needs is representative of their ambition to not just dream, but to actually build a better world. Papa also worked with health plans and families to ensure critical member services, such as access to urgent care, medications and food were not an issue. Andrew even used his own credit card to cover groceries for members until a more formal system was implemented to work in conjunction with plans and members.

It’s a prime example of why we at Canaan believe improving the world for the better is not just about building great technology, but also exhibiting exceptional leadership and creativity even under the harshest conditions. It’s exactly why we seek out founders that are not only relentless in their pursuit of a mission, but also just kind people. Andrew is exactly that.

Looking forward, we’re excited about Papa’s ambitions to use its focus on companionship to move into care navigation. This has already started with the introduction of Papa Health, a service that enables members to quickly access virtual primary care, urgent care and chronic care management through its platform. It means that in addition to having a friend for light conversation or a trusted companion to help with light chores and transportation, Papa Pals will be trained to help members facilitate access to telemedicine services and enable greater comfort and flexibility to access the care they need, quickly.

Since first investing in Papa, we’ve seen lots of newcomers (as well as public companies like Oak Street Health) get into what has been dubbed “elder tech” — combining technology and healthcare solutions to create a better life for older adults. We expect Papa to be a leader in this growing category long after social distancing and mask mandates are behind us.

Left to right Dr. Noor Mahjoub DDS, MS; Clinical Director Dr. Tera Poole DDS, MS; Dr. Zhanna Konovalenko DDS, MS

Uniform Teeth is a modern orthodontic experience built around orthodontist-led care with an obsession over quality. We provide a modern hybrid telehealth/clinic experience — wrapped together by a proprietary software stack that enables faster/more affordable care — where your orthodontist is never further away than your pocket.

The startup world has seen the rise of entrepreneurs seeking to reinvent both oral care and orthodontics. Many direct-to-consumer teeth straightening companies have gained popularity but they’re focused on cosmetic cases (which make up only 25 percent of the market). Within that subset, they compete on price — cutting out the most expensive aspect of care (the orthodontist) to cut costs, and requiring tremendous marketing spend to drive growth.

Uniform Teeth is different. We provide the personal touch of an orthodontist — face-to-face care, true clinical expertise — but use technology and design to make it delightful and dramatically more efficient. We offer high-quality care at a fair price.

Orthodontics has been around since the mid-1800’s but braces are still the dominant form of treatment today. How did we get here? Unfortunately, the cost of quality, orthodontist-led care has barely declined (averaging $5–6K) and thus excludes hundreds of millions of consumers. It’s estimated there are >400M consumers globally that would benefit from care if it was more accessible, representing a multi-billion dollar market opportunity.

The rise of clear aligner-led treatment over the last two decades has brought novel approaches to reducing treatment time and offering a more functional product that can meet the aesthetic desires of the modern consumer. However, getting quality orthodontic care is not a one size fits all product or experience — it’s a true healthcare product. There is a spectrum of case complexity ranging from cosmetic and comprehensive to complex (cases that border on oral surgery). Comprehensive and complex cases represent 75% of the market and require in-person clinician intervention (such as IPR and attachments) and failure to do so can result in serious oral and health-related consequences. While many new entrants have brought affordability to the cosmetic portion of the market (predicated on distancing the patient from the clinician), there is a huge whitespace for a more enduring solution that can comprehensively treat the entire market.

We think that solution is Uniform Teeth. It works this way: any consumer (or parents with teenagers) can book a free consultation (currently 2 clinics in SF, expanding to Seattle and Chicago in early 2020) to get scanned and meet with an orthodontist. They spend on avg. 30 minutes with patients vs the industry norm of 2–3 minutes. In 30 minutes you’ll know your treatment plan and process — that includes all-in price and estimated treatment time (which averages 6 months today). Once you decide to move forward, you’ll get clear aligners by mail within 2 weeks and can begin treatment. Using the Uniform Teeth telehealth app, you’ll check in with your clinical team weekly with a simple selfie photo that can be done from the comfort of your couch. Most patients only need to visit the clinic 3 times over the course of treatment (typically beginning, middle and end). We believe delivering amazing care cannot be delivered 100% remotely. Your orthodontist is never further from your pocket — asking a question or scheduling an in-person visit is always easy. Uniform Teeth’s product is priced based on case complexity — since no two mouths are the same — but is on average 70% the cost of incumbent offerings. Prices typically range from $2,000–3,000/case, with attractive financing options available (for those who qualify).

Patients are one side of the experience but clinicians are equally important. The challenge of clinician burnout is often overlooked in the industry. We know that providing great care requires great talent. We think about the experience of orthodontists as much as we think about the patients they serve. That means developing modern, clinician-facing software tools to reduce repetitive/admin tasks, improve treatment plan precision and enhance tech interoperability with other providers, such as your dentist (so they can share notes and x-rays for continuity of care). Side note: if you’re a recent graduate or seasoned clinician interested in helping craft the future of orthodontics, drop us a note!

All of this highlights our overall focus: using technology to improve the provider and patient relationship. We believe this is the key to unlocking value in the market. And we are already seeing the results of this focus at Uniform Teeth: orthodontists are 5–7x more productive than the industry average. However, efficiency at the expense of patient experience is shortsighted. Our approach allowed us to maintain exceptionally high-quality standards. Orthodontists spend on average 10x more time with patients and we see this in the company’s latest NPS score of 85. Meghan and Kjeld have been deliberate and careful in their approach to build the foundation required to succeed in this market, including homegrown technology, world class clinical staff and clinic locations that conveniently fit in the lives of busy consumers. Having grown from 20 to 60 team members over the last year, this round of capital will allow them to scale across the U.S. in 2020 and beyond.

Meghan (CEO) was previously a healthcare operating executive at both OneMedical and Davita, leading large regions in the Pacific Northwest and California, to serve patients across primary care and dialysis. Kjeld (Chief Orthodontist) is a UCSF-trained orthodontist and one of the leading minds in this generation’s class of skilled clinicians, responsible for inventing the Uniform Teeth treatment planning approach that allows for faster and more precise outcomes.

As entrepreneurship has become part of the global cultural fabric, the often quoted adage of “move fast and break things” has become the common expression to represent an approach to rapid iteration in a market where the customer is pulling product out of your hands. That may work for the next social networking app — but do you really want to be treated by a team that thinks it’s okay to “break things” when treating you or your child’s mouth? If not, check out our customer references here and here. If you’re so inclined, book a free consultation and let us earn the right to serve you through exceptional care.

Healthcare — Papa’s focus — is a sector resistant to change. And yet, our healthcare system is massively broken. Many solutions exist that are small steps in the right direction, but that’s not Papa’s approach. Instead, they are using technology to create an entirely new class of caregiver. For older people, it’s companionship and support when they may be struggling with social isolation, loneliness or the general strains of aging gracefully. For a workforce that’s increasingly seeking more flexible and reliable opportunities for growth (our “Papa Pals”), it’s meaningful work that pays significantly better than other gig economy jobs and minimum wage. And for health plans, it’s a service that guides members towards healthier lifestyles, which have long-term impacts on health outcomes and costs. This approach is a big swing at a complex problem, but we’ve passed the point where incremental solutions can move the needle.

Much has been written about the challenges of the $3.3TR U.S. healthcare system, but only in the last few years has the topic of aging, effects of loneliness and how we care for older adults become more prominent, as acute Medicare costs are expected to approach $260BN by 2030. As the baby boomer generation slowly ages out of the workforce, their children (mostly millennials and Generation X) are becoming intimately familiar with the financial, medical and operational challenges required to support their parents through aging. There is a structural deficiency in how we care and shelter them: with a growing shortage of home health aids and with 43% of baby boomers anticipating aging in their primary home, there is an unprecedented need to build products and services to support this radical transition of people living longer in their homes. Less spoken about is the crisis of loneliness and social isolation facing the 50M baby boomers, and the long-term health implications if that loneliness is left untreated. It’s estimated that the lack of social connections is considered as damaging as smoking 15 cigarettes a day, and we have yet to see the compounding effects of this on one of the largest generations ever.

When I met Andrew, Founder and CEO of Papa, he had a simple and profound mission — to reduce loneliness and social isolation among the world’s older adults and to ultimately restructure American culture to support aging in a manner that would make us proud. Papa is a marketplace that connects a new class of vetted caregivers called Papa Pals, with older adults to unlock greater autonomy through mobility, companionship and daily living services. The company’s product is offered as a benefit through health plans and employer sponsored programs, along with being available directly to consumers and their families. This is not a product to support senior citizens — it’s a form of empowerment for a class of people that have slowly been left at the margins of society. By spending time with Andrew and the incredible team, this subtle but critical distinction is clear.

One of the pioneering benefits of the internet and smartphone ubiquity is the ability to more effectively match human capital, goods and assets to solve what was once the improbable. Paired with this concept, technology has caused tectonic shifts in our daily lives and led to the creation of valuable companies, ranging from retail (Amazon) to relationships (Match.com) and transportation (Uber). And we continue to believe that reinventing the offline world is a valuable evolution of the internet economy. Still today, the majority of the nearly $10TN spent on consumer services lacks any digitalization or internet enablement.

Here’s how Papa works: the service matches older adults with Papa Pal’s — usually college students, stay at home moms and young professionals — all looking to earn incremental income while supporting their local community. Papa Pals go through rigorous background and psychographic checks to ensure the highest quality service and empathy, allowing them to provide members with a range of services — from trips to doctor’s appointments and the grocery store, to simply going on walks and being an exceptional conversation partner. With the majority of visits on a recurring basis, members build a trusted and familiar relationship with the same set of Papa Pals. Families benefit by having an extra hand nearby (an important benefit given the growing geographic distance between generations). Similarly, health plans are empowered with an affordable and scalable solution to build a deep relationship with their members. In their feedback, these plans have told us again and again how Papa Pals have driven improvements in long-term health outcomes and costs.

We are happy to announce our partnership with Andrew and his team on Papa’s Series A financing, alongside Initialized Capital, Melinda Gate’s Pivotal Ventures, Y-Combinator and Sound Ventures. We are excited to support them on this journey of reducing loneliness and social isolation, and entering a world where a community’s economic and social systems are more attuned to the needs of an aging society.

Note: 2019–2020 at projections. Source: WSJ, IWSR

That’s just one of the reasons why we were so excited to lead the latest round of funding for Kin Euphorics. Over a year ago, I was fortunate enough to meet Kin’s co-founders Jen Bachelor and Matthew Cauble and hear about their vision of how we can reimagine revelry and how we socialize with a collection of alcohol-free social tonics. They believed the world was missing a product for the growing community of consumers who still want to socialize, have fun and go out, but to do so more consciously, without falling prey to the detox/retox cycle, and without waking up groggy after a night out. I quickly became an early adopter and with a front-row seat to Kin’s early, organic customer love, I knew we had to partner with them and the company they would come to build. I will never forget one of Kin’s first events at Her Name Was Carmen, a bar in Soho, where they invited 200+ early customers to a night of revelry and Kin cocktails. A few hours in, the collective energy of hundreds of strangers coming together, without a drop of alcohol, uniting around a nascent brand and the shared goal of social connection without the hangover, was evidence of Kin’s pioneering role for the sober curious movement.

This past week, Kin launched its second product — Kin Spritz — a pre-mixed, single-serve beverage in a new, portable size. The company has served over half a million servings in just a few months and empowered a community that grows by the second. Building a multi-billion dollar brand is deeply tied to nuanced execution of form factor, distribution, flavor and most importantly uniting millions of consumers around a common purpose — just as Red Bull, Gatorade and Titos Vodka did in their respective eras. We believe Kin has exactly that potential.

We are excited to partner with Jen and Matt on this journey of bringing consumers together to rise into the night and take back our morning afters.

Canaan has a long history of investing in category defining consumer companies, ranging from Match.com and eBates to more recently, Instacart, TheRealReal and Turo. And while the firm’s 30+ year track record speaks for itself, it was truly about the people and culture that made Canaan a unique fit for me. Through our shared investment in Ollie, I was fortunate enough to work with Dan Ciporin and to see firsthand how driven and committed Canaan is as a team in supporting founders for the long run. Perhaps most compelling for me was the internal fabric at Canaan — a culture of open mindedness, appreciation for both debate and respect, and a highly diverse team that represents the best of risk taking where every investor today is a check writer.

As an early employee at Gilt, I’ve seen the early, magical interplay between a talented team and shifts in technology that allow for immensely powerful customer growth and adoption. I’ve also lived the challenges of scaling a business to over $750M in run rate in just a few years and the immense pressure that founders face in keeping up with consumers who truly are, “divinely discontent”. Operating through the ups and downs of a high growth company has enabled me to better support and partner with entrepreneurs through their journey.

There is an exciting new wave of consumer discovery and commerce models on the rise, which I believe will continue to reshape how we shop, learn, entertain and care for ourselves. In particular many high consideration products and services are being reinvented by technology to improve our lives and lower costs. These markets include child care, healthcare services, purpose-built products for baby boomers and new models in education and learning. The next generation of brands being created today are uniquely leveraging the connective tissue of social media but are marrying that digital relationship with a seamless offline experience.

I’m looking forward to partnering closely with founders to build those new products and services and positively impact life for consumers across the demographic spectrum. More to come soon!

One of the most critical factors behind Gilt’s success was its impeccable sense of timing. The company got its start in the early innings of the apparel industry’s shift online, as e-commerce penetration grew from 17% in 2010 to 20% in 2016. Gilt also had the massive advantage of some dramatic changes in the technology cycle, namely the platform shift to mobile and email as a new channel for marketing and engagement. The company used both of these factors to its advantage as it went about building a differentiated shopping experience that leveraged a unique, one-to-one relationship with its customers — something legacy fashion retailers could simply not replicate at the time.

But perhaps most the most important aspect of Gilt’s timing was its emergence just after the financial crisis of 2008. The resulting drop in household wealth drove consumers to seek out more value for discretionary spending and new shopping experiences. Gilt’s uniquely addictive flash sale model played into that consumer psyche, kicking off the next wave of digitally native commerce companies.

Gilt was ultimately sold for $250 million to Hudson’s Bay in 2016, but the revitalized shopping experience it created by managing a direct relationship with its customers made an enormous impact on the next wave of digital commerce companies. That pioneering approach inspired a new generation of founders from the Gilt ranks, including CoEdition, a curated fashion marketplace for women size 10 and up, which launched in March. Building on the success of emerging brands and retailers in the category (Eloquii, Universal Standard, Dia&Co, 11Honore), as well as on the scale of legacy retailers (Lane Bryan, Torrid, FullBeauty) catering to this underserved audience, CoEdition is intent on providing an elevated shopping experience that provides the best selection of contemporary merchandise, while helping consumers find the right size and fit.

CoEdition is the brainchild of former Gilt founders and operators Kevin Ryan, Brooke Cundiff, Kent Helbig and Keith George, the former Chief Merchandising Officer at Gilt and now CEO of CoEdition — all of whom I had the personal benefit of working with during my time at the company. The team brings deep-rooted merchant backgrounds and experience scaling digital commerce companies through hyper-growth. Having learned a thing or two about timing from their Gilt days, CoEdition’s entrance coincides with some major shifts in the plus-size industry.

• Industry imbalance primed for a reboot: The plus-size apparel market in the U.S. represents a $40 billion market opportunity, growing 6% year over year, double that of traditional apparel. And yet retailers in this space have been unable to meet the needs of the community, leaving consumers with subpar offerings that either lack a modern, fashion-forward look, or that are made with substandard materials. Dissatisfied with the options available to them, it’s no wonder that, while 70% of American females are size 12 or above, they contribute just 16% of U.S. apparel spend. To correct this imbalance, CoEdition is taking a fresh approach, offering a curated selection of contemporary clothing from top brands — including Stuart Weitzman, Tahari, Rachel Roy, Cynthia Rowley and others — to give these consumers both the style, selection and service they have long-desired.
• Apparel e-commerce accelerates: Following in the footsteps of books/media (33%) and consumer electronics (32%), apparel e-commerce has been accelerating rapidly, expected to grow from $72 billion in 2016 to $123 billion in 2021, or roughly 28% penetration of the total apparel market (versus 20% today). While Amazon, Walmart and Target will continue to grow their third-party and private-label businesses, several large legacy retailers will fade away, allowing the category to experience both share shift and market expansion. This is certainly not a winner-take-all category. Innovative new entrants will have room to differentiate themselves by offering proprietary merchandise and service offerings that more closely align with audience’s pain points beyond free and fast shipping.
• Instagram scales for visual inspiration: Fashion is an aspirational category, driven largely by what we see others wearing. Historically, this discovery was driven by fashion magazines, runway shows and physical storefronts, but modern consumers are more often now finding inspiration on Instagram and other digital channels. As Instagram’s reach has skyrocketed — now hitting 900 million MAUs — the platform has become an enabler for both emerging brands and influencers to better interact with and inspire traditionally underserved consumers, across size, gender, sexual orientation, race and other consumption dimensions.
• Inclusivity is king: Countless headlines covering discrimination, gender inequality, hate crimes, bullying, workplace harassment and more have given rise to a very positive, inverse reaction, which has seen the rise of movements such as Black Lives Matter, Me Too, pushes for diversity in the tech world, and more. These movements have carried over into the beauty and fashion worlds, where the proportion of minority and plus-size models is on the rise, showcasing a variety of shapes, sizes and colors outside of the previously limited definitions of “beauty”. This has opened the door for new businesses catering to previously overlooked audiences, but it’s also driving consumers to be more discerning about spending money with companies whose mission aligns with their own.

CoEdition is well-positioned to capitalize on these trends as it builds a revitalized shopping platform for the plus-size community. I am extremely excited by CoEdition’s mission, and honored to back a team — alongside our friends at NEA, General Catalyst and BBG Ventures — with the proven know-how and experience to deliver a great customer experience.

One area that’s long overdue for innovation is consumer search. As patients try to take control of their healthcare, they continue to turn to the internet as a source of trusted health content to learn about their symptoms and assess risks before making a costly trip to the doctor. To date, general Google searches and WebMD have been the go-to resources. But WebMD is a deeply flawed player; it’s become a Frankenstein mashup of many healthcare information sites from the late 1990s, but it’s failed to keep up with mobile and social platform shifts over the last decade. In its current form, WebMD operates as an advertising-first platform, housing woefully inadequate information that often leaves readers in a puddle of sweat as their reported (and often innocuous) symptoms lead them to a completely off-base diagnosis of some terrifying terminal illness. Obvious liability issues aside, the ensuing anxiety of using such a platform leaves consumers desperate for more reliable sources of data.

Historically, we’ve seen how network-based businesses have the ability to eliminate waste from large and inefficient markets by aggregating data and user needs to fill a critical information gap. Skype and WhatsApp helped dramatically lower the costs of international phone calls and mobile messaging, for example, displacing billions of dollars in fees once considered standard in the revenue line of large telecom companies. Redfin and Zillow have had a similar impact in the residential real estate market by bringing transparency to home pricing and transactional data, allowing consumers to make more informed decisions while eliminating reliance on real estate agents. More recently, the transportation industry has seen marked efficiencies with the introduction of platforms like Waze, which has taken the collective driving and traffic data from millions of consumers to offer a personalized GPS product that more efficiently takes users from Point A to Point B.

Within the U.S. healthcare industry, there is an estimated $750 billion in annual waste, $55 billion of which can be attributed to preventive failures, defined as poor patient education and outcomes that could have been avoided with preventive medicine. WebMD’s systematic failures have left the door open for a multibillion dollar business to step in and offer a more modern and innovative take on patient education. That business, we believe, is Kang Health, a platform that’s indexing the world’s collective health knowledge into an adaptive, personalized platform that empowers consumers to make more informed healthcare decisions. To be clear, Kang Health is not intended to displace healthcare providers (the team includes two full-time physicians), nor does it aim to provide diagnostic services. What it does aim to alleviate, however, is the massive information void that’s putting undue strain on the our healthcare system in the form of excess cost and poor patient outcomes.

Kang is well-placed in the hands of three-time repeat entrepreneur Allon Bloch, who has a long track record of successfully reinventing outdated and bloated industries. Most recently, Allon served as CEO of Vroom, which reimagined the used car space by allowing individuals to buy, sell and finance used cars online. In less than three years, Bloch led Vroom to become a top-10 used car dealer in North America, with a $1 billion-plus annual GMV run rate. Prior to Vroom, Allon was one of the earliest pioneers of the online grocery vertical, having led global independent grocery shopping and comparison website MySupermarket, and he made huge waves as CEO of Wix, one of the earliest software platforms catering to small to medium businesses. It’s now a $2 billion publicly traded company. Under the leadership of this visionary entrepreneur with a tremendous track record of building disruptive products within huge and varied markets, we believe Kang has the power to reinvent healthcare consumer search and eliminate much of the anxiety and cost associated with today’s inadequate information sources.

We are extremely proud to announce this latest investment, and thrilled to have invested alongside some truly exceptional VC partners, including Mangrove/Bessemer — which also invested early in Wix and wished to continue supporting Allon’s future endeavors — and our local NYC peers Lerer Hippeau Ventures, Comcast Ventures and Max Ventures.

As Reid Hoffman famously stated, network-based businesses do best when they tap into one of the seven deadly sins. Facebook and Instagram tap into Pride, for instance, while LinkedIn is associated with Greed. Within this framework, Kang is situated firmly in Wrath. The intense emotional responses elicited by feelings of physical pain and the frustration of navigating an increasingly complex healthcare landscape are multiplied tenfold when paired with the anxiety of our outdated and unhelpful sources of healthcare information. Given our uncertain political climate and the shaky foundations of our healthcare policy, the time could not be better for a truly consumer-focused platform that both alleviates anxiety around our health and eliminates wasted resources from our already-taxed healthcare system.

Follow me on Twitter @byronling

Announcing our Investment in Kang Health: Applying the Network Effect to Consumer Health was originally published in Primary Venture Partners on Medium, where people are continuing the conversation by highlighting and responding to this story.

The honeymoon may finally be over. The “everything is shiny and new,” with a healthy dose of adrenaline phase has come to an end, and it’s time to hunker down for some good, old-fashioned business-building. The big news from Q2? After 2015’s near-record-breaking VC funding and sky-high valuations, Seed investing in NYC dropped more than 40% for Q2, on both a dollars and deals basis.

We began comprehensively tracking the activity in the NYC seed community last quarter, with the release of our first NYC Seed Deal Report. With this second edition, we’ve witnessed a marked slowdown in activity, suggesting that — despite NYC’s relative hot streak — our market isn’t immune to the cooling effect the startup ecosystem is experiencing on a national scale.

(It should be noted that the Primary NYC Seed Deal Report covers only those Seed deals — which we define as $250K-$3.5MM — that have become public. We know there are deals that have closed but not yet been announced, including some of our own, and those will be added in once they are public. If you know of any deals that have not been included on this report, please contact us at info@primary.vc!)

NYC Seed Deal Trends: Q2 2016

All in all, Q2 was a strong one for enterprise software, with a bit of a slow-down on the NextGen Commerce front. Here are some notable trends that emerged from the Seed deals that closed this quarter.

• Two of Silicon Valley’s hottest areas for investing -messaging and artificial intelligence — are migrating Eastward. Q2 saw local fundings for advanced communication and messaging platforms (Teckst, Bontact) as more enterprises realize the value of messaging platforms to communicate internally and with their customers. And on the AI front, Clarity Money, which claims to be your personal “money guru”, and Troops, a Slack bot for sales teams, may be some early glimmers of NYC developing its own AI ecosystem.
• Q2 saw an uptick in healthcare-related investments touching on various parts of the healthcare ecosystem, with particular attention on startups that improve coordination of care for various populations. CareDox enables public school health programs to run more efficiently, while Healthifyimproves access to social services for low-income communities. Other healthcare-related deals in Q2 centered on companies that simplify a complex and often archaic industry: MedPilot brings efficiency to medical billing and collections departments; ProofPilot simplifies the process of conducting scientifically valid research studies; and Wellth offers financial incentive programs to improve patient adoption and adherence rates.
• Q2 shows continued growth in the areas of subscription services (Skyfitoffers on-demand access to studio-quality fitness classes; Sawyer provides subscription-based access to neighborhood kids’ classes) and the sharing economy, with deals announced for Armarium, an on-demand luxury styling service, and Homemade, a platform that allows cooks to market and sell their food. And while there’s a general feeling in the market that the sharing economy is here to stay, questions have started to emerge about theoversaturation of the subscription space.
• The quarter also saw growth in the number of startups calling Brooklyn home. 14% of Q2 deals came out of the borough, up from just 3% last quarter, and 10% at this time last year. It’s no secret that Brooklyn has been rising in prestige in the tech startup world, having hosted TechCrunch’s Disrupt NY for the first time in May, and with Sunset Park’s Industry Cityearning itself a good bit of media buzz. As the rise of Manhattan real estate rates continues unabated, we can expect to hear more noise out of Brooklyn in the coming quarters.

Click here for the full breakdown of Q2’s completed Seed deals, including company overviews, funding amounts and investors.

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CLOUDY, WITH A CHANCE OF CAUTIOUS OPTIMISM

Following a near-record-breaking year of VC spending, founders and investors put the brakes on in Q2 2016. NYC saw just 42 Seed deals in the quarter, totaling $66.7MM in funding. These figures are down 43% and 41%, respectively, from Q1 2016, and 42% and 30% down, respectively, from this quarter last year.

These downward trends have caused investors (and companies alike — seeWeWork’s recent decision to slim down, among many other recent fat cutting stories) to put more emphasis on monitoring cash flow, valuations to return to more palatable proportions, and the speed around Seed deals to decelerate. Withlater-stage financings dwindling on a national level, Seed investors are spending more time helping their existing companies raise new money, while at the same time working feverishly to rationalize spending and trim burn rates. So we’re left with the double-whammy of increased time spent working with existing portfolios, and a general sense of unease at the thought of adding more companies to a market that’s already too large for the collective appetite of the Series A investor universe. The result? Fewer seeds planted.

LARGER FUNDING ROUNDS LAY THE GROUNDWORK FOR LONG-TERM SUCCESS

For the deals that are getting done, we see a continued trend toward larger rounds. This may be driven by a desire to increase the likelihood of Series A success; by providing more initial runway, companies will have more time to clear the increasingly high bar of Series A investors. Put simply, more Seed capital is a hedge against uncertainty in the funding environment down the road.

In Q2, 60% of seed deals were in the $1.5–3MM range, up from 35% last quarter and 36% in Q2 2015. The most well-funded bucket this quarter — with 24% of deals — was the $1.5–2MM range (compared to 16% last quarter, and 15% in Q2 2015), and we see an even bigger increase in the $2.5–3MM bucket, with more than double the number of deals falling into that range this quarter compared to both Q1 2016 and Q2 2015. At $1.6MM, average deal size this quarter is up over 20% from a year ago.

MACROECONOMIC FORCES THREATEN AN ALREADY-TENUOUS FOUNDATION

An unfortunate blend of macroeconomic factors is adding to the overall feeling of discomfort in the market right now. And while Seed investors boast of being less directly impacted by the public markets and broader economy, a tidal wave of political upheaval certainly won’t bolster investor confidence. Increased global terrorism, Brexit and, of course, our current election telenovela all add to the uncertainty. Election years, particularly those coming off of an eight-year presidential term, have been known to cause consistent public market tumult.

On the flip side, the tech IPO market showed some signs of life in Q2, with the public offerings of SecureWorks, Acacia Communications, NantHealth and, of course, Twilio — the first unicorn company to go public since Square last November. Needless to say, people are keeping a watchful eye on Twilio’s stock, in hopes that its success will signal a genuine reopening of the IPO window.

LOOKING AHEAD TO Q3

As we continue to ride out the storm of uncertainty, we expect to see similar deal flow on both the NextGen Commerce and SaaS ends of the market in Q3. Tinged with the familiar, coconutty scent of summer, the NextGen Commerce universe may see ongoing sluggishness, with continued growth in the healthcare and fintech arenas picking up some of the slack. Or perhaps Q3 may fare better than expected, rebounding on the heels of some tech IPO successes? As macroeconomic forces continue along their precarious course, we’ll be keeping a close eye on the NYC Seed market for signs of change.