Recent Trends in the Startup Landscape

Al Sambar, General Partner, XRC Labs

Al Sambar, General Partner, XRC Labs

Al Sambar leads XRC Labs’ Opportunity fund, an early stage fund investing in disruptive tech and retail capability startups. He also supports XRC’s Brand Capital Fund which invests in fast growing consumer brands. In an interview with Govt CIO Outlook, Sambar explains about the challenges advantages of advanced technologies post covid.

1. In your opinion, how has the startup landscape evolved over the years? What are some of the advantages of the current technological evolution?

Well, I’m in the early-stage VC world and tend to take that lens. I’ve been at it since the aughts, so change is relative - it just seems to keep accelerating. I see current trends taking place in three big areas.

1. Fund availability: There’s a rich environment for an early-stage startup to raise capital. Young startups can now get capital from crowdsource funding, new types of debt funds, and of course from venture funds like XRC Labs.

2. Areas of capital investment: Obviously the ‘hot’ topic areas change over time, influenced by larger tech trends. On the challenge side, this year we’ve seen changes in Apple and other ecosystem players resulting in higher customer acquisition costs (CAC) on digital channels. This means those DTC brand founders have faced some headwinds fundraising. But on the positive side, startups creating new platforms to make marketing easy across many channels or those pursuing darn near anything related to NFT/crypto and metaverse-related technologies…all have had a great tailwind in ‘21. Lastly, we still see many areas that continue to be strong in retail and consumer ventures (supply chain, sustainability, consumerized healthcare, new commerce channels like rental & recommerce, etc.). Seems like anything enabling more channels for commerce has done well in ‘21.

3. Web 2.0 to 3.0 Evolution…not so fast!: There is a lot of discussion and investing around web 3.0 and full DApps (Distributed Applications). But in the retail and consumer venture segment, we are still in a tech renaissance for folks creating businesses using the emergent tools from web 2.0: headless commerce, no[1]code platforms, API no-code backends, AI marketing automation, etc. If you can dream up a business idea today, you can create it without a big dedicated tech team. That really makes it wonderful for investors looking for simple, quick validation of a value proposition and business model; and particularly wonderful for imaginative, creative founders.

2. What according to you are some of the challenges plaguing the startup landscape and how can they be effectively mitigated?

The most obvious challenge would be the CAC inflation I mentioned earlier. For DTC brands, it’s simply a non-starter to buy a customer base these days. You need to either have someone else buy it for you with a strategic partnership or platform business model. Or, you need to have a vehicle for creating significant organic traffic with great retention. We are still willing to invest in direct businesses, but these days we expect the CAC problem to be solved very early in the life of the business.

" We see so many startups trying to solve the same or similar problems, so we’re always looking for founders with a strategic advantage, a secret monopoly, a hidden secret key…magic beans "

The second issue is that venture funds aren’t as eager to invest in direct brands as compared to tech or platform businesses, because exit valuations are so much higher for the latter. The solution for this is probably mixing in debt capital with venture capital to grow great new direct brands.

3. What are a few technological trends influencing startups today? What are some of the best practices businesses should adopt today to steer ahead of competitors?

I see a lot of startups! And there is no one magic tech. I see impressive companies leveraging all manner of new tech and platforms, but the ones I invest in have placed a bet. They’ve figured out where their customers are and how to connect with them on these channels. Most commonly they’re using tech stacks that look VERY adaptable, so headless commerce is common, as is efficient use of AI and no-code tools. These modern tools replace large developer teams and heavy agency spend.

4. Do you have any advice for industry veterans or budding entrepreneurs from the startup space?

Sure, entrepreneurs usually struggle for one of two reasons. Either investors fail to understand or agree with their vision, or investors lack confidence in their ability to execute that vision.

I advise budding entrepreneurs to practice conveying their vision in a succinct way. At XRC we call this an “elevator pitch” which is two to three sentences explaining what your company is and why it’s different from others in the space. This will serve you well when pitching investors.

Finally and most importantly, even if you have a great vision, investors need some ‘magic beans’. We see so many startups trying to solve the same or similar problems, so we’re always looking for founders with a strategic advantage, a secret monopoly, a hidden secret key…magic beans. Please explain to me your magic beans!

For budding entrepreneurs, especially those in underrepresented communities, know that there really are many people out there who love to help founders. I encourage you to sign up for XRC Labs’ office hours which creates an initial connection to the VC world and advisors in the retail tech and consumer goods sectors.

During office hour sessions, we advise and help founders on various topics, including investor decks, fundraising, and growth. Startups that participate in this program are not obligated to join XRC, but we hope the guidance will better equip founders to grow and scale their businesses.