Seed money
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Sorbet raises $6M seed led by Viola Ventures to tackle the thorny financials of paid time off
A U.S./Israeli startup, Sorbet — which is tackling what companies do with the financial risks as employees accrue paid time off (PTO) — has raised $6 million in a seed funding round led by Viola Ventures, with participation by Global Founders Capital and Meron Capital.
The economics of paid time off is relatively hidden in the business world, but essentially, Sorbet takes on the burden of this PTO from employers and then allows employees to spend it. This gives the employers far more control over the whole process and the ability to forecast its impact on the business.
Sorbet says that in the U.S., employees use only 72% of PTO balances, even though it’s the most sought-after benefit. But this, effectively, comes out at 768 million unused days off a year, worth around $224 billion. This creates a difficult problem for CFOs and accountants because its creates balance sheet liabilities on the company’s books, says Sorbet. If the employee doesn’t use all of their PTO, the employer can end up owing them a lot of money, which creates a cash flow liability on the company’s books. So Sorbet buys out these PTO liabilities from employees, then loads the cash value of the PTO on prepaid credit cards for the employees.
Speaking to me on a call, CEO and co-founder Veetahl Eilat-Raichel, said: “We researched this whole idea of paid time off and found this huge, massive market failure and inefficiency around the way that PTO is constructed. It’s kind of one of those things where, on the face of it, there’s this boring bureaucratic payroll item that turns into a boring balance sheet item. But under it is a $224 billion problem for U.S. businesses… If you think about it, employers are borrowing money from their employees at the worst terms possible and employees aren’t benefitting either. So everyone’s hurting here.”
She said: “Sorbet assumes the liability on ourselves and so then we can allow the company to control their cash flow and decide when they want to pay us back. They gain a lot of financial value because we are able to be very, very attractive on our funding. So it saves costs, it provides them with complete control of their cash flow and it allows them to give out amazing financial benefits to employees at a time where we can all use some extra cash right now.”
The platform Sorbet has built will, it says, sync with calendars, HR and payroll systems, identify habits and then proactively suggest personalized, pre-approved 3-6 hour “Micro Breaks”, 1-4 day “Micro Vacations” and +1 week Vacations. This, says the startup, increases PTO used by as much as 15%.
Employers can constantly renegotiate the terms of the loan with Sorbet, thus matching future cash flow, insulating themselves against salary raises (wage inflation), and take advantage of other benefits.
The co-founders are Eilat-Raichel, who previously worked at L’Oréal, Lockheed Martin and a fintech entrepreneur; Eliaz Shapira, co-founder and CPO; and Rami Kasterstein, co-founder and board member.
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12 ‘flexible VCs’ who operate where equity meets revenue share
Previously, we introduced the concept of flexible VC: structures that allow founders to access immediate risk capital while preserving exit and ownership optionality. We list here all the active flexible VCs we have identified, broken into these categories:
- Revenue-based
- Compensation-based
- Blended-return streams
Revenue-based flexible VCs
These investors are paid back primarily based on a percentage of revenues.
Capacity Capital
Chattanooga, TN-based Capacity Capital was launched in 2020 with a primary focus on the southeastern U.S. Jonathan Bragdon, its CEO, describes Capacity as “a team of founders-turned-funders making non-dilutive, founder-aligned investments of $50,000-$300,000 in post-startup, post-revenue businesses planning to 2x revenues in 12-24 months. Investments are typically in exchange for a capped, single-digit revenue share and a right to equity under certain circumstances.
If the company sells or raises enough capital, the investment converts into an agreed-upon percentage of equity. If the company grows without raising additional equity funding, founders redeem most of the equity right, based on a pre-agreed return amount. With a portfolio that includes food, tech and services, the fund is industry-agnostic and focused on the overlooked and underrepresented with high-margin business models.”
Jonathan sometimes refers to their investments as “micro-mezzanine” because “mezz is typically structured as a contractual periodic payment, with some equity-like upside, but subordinate to other debt … so most lenders look at it like equity. But, it is typically shorter term with fewer control mechanisms than equity (i.e., not VC). I wanted [a term for] something similar (between debt and equity) but on an extremely small scale.”
In addition to a fund, the overall Capacity organization provides direct mentorship, consulting and connects founders to a broad network of talent, diverse forms of capital and existing resources focused on the post-startup stage of growth. The founders, LPs and venture partners have a long history in local startup ecosystems in the Southeast including LaunchTN, The Company Lab, CO.STARTERS and several other regional funds and resources.
Greater Colorado Venture Fund
Greater Colorado Venture Fund (GCVF) is a $17 million seed fund that invests in high-growth startups in rural Colorado using equity and flexible VC structuring.
A typical GCVF flexible VC investment is $100,000-$250,000 for up to 10% ownership, of which 9% is redeemable, with a sub-10% revenue share and 12-month-plus holiday period. GCVF specializes in providing critical support to founders based in small communities, while connecting them to an unfair network well-beyond their small-town headquarters.
GCVF is pioneering the future of venture capital and high-growth startups for all small communities. With Colorado as an ideal pilot community, the GCVF team (which includes Jamie Finney, a co-author of this article) has helped grow multiple staple initiatives in the rural Colorado startup ecosystem, including West Slope Startup Week, Telluride Venture Accelerator, Startup Colorado, Energize Colorado Gap Fund and the Greater Colorado Pitch Series.
Recognizing the need for creative investment structures in their Colorado market, they co-founded the Alternative Capital Summit, creating the first community of flexible VCs and alternative startup investors.
They share their learnings on flexible VC and pioneering rural startup ecosystems on the GCVF blog.
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Welcome raises $6M to help your company hire and keep employees
Welcome, the HR software that helps organizations make and close offers to new candidates, announced the close of a $6 million seed round today, led by FirstMark Capital. Participating investors include Ludlow Ventures, Nat Turner and Zach Weinberg, and Keenan Rice and Ben Porterfield (which were existing investors), as well as a wide array of angels.
TechCrunch last covered Welcome in August, when it announced a $1.4 million funding round. That the startup was able to raise more as quickly as it has is testament to how hot the early-stage venture capital market is today, and likely an endorsement of Welcome’s economic profile and recent growth.
Past the new capital, Welcome is also launching a new product today called Total Rewards, which helps not just new candidates but also existing employees get a complete, easy-to-understand picture of their compensation, across salary, benefits, equity, etc.
But let’s back up.
Welcome was founded in 2019 by Nick Gavronsky and Rick Pereira, with a mission to help organizations close offers on candidates by providing a much clearer picture of compensation, particularly around equity. Co-founder and CEO Nick Gavronsky explained that many candidates don’t truly understand the value of the equity they’re offered, or how it works.
“A lot of recruiting teams aren’t well-equipped to use it as a selling tool and explain it effectively and showcase the value to candidates to help them think about their ownership at the company,” he added.
Image Credits: Welcome
Welcome allows companies to organize their compensation offers based on level and position, and deliver that information digitally to candidates in a way that makes sense.
The startup integrates with a variety of other software providers, including Slack, Lever, Greenhouse, ADP and Justworks to name a few, simplifying onboarding for Welcome clients and bringing a broad array of information into one place.
Offers sent through Welcome show a description of the role, equity details, total compensation and even include a welcome note and video. This is in stark contrast to the black and white legal PDF often sent to candidates.
Image Credits: Welcome
The next phase for the company comes in the form of the launch of Total Rewards, which is meant to help retain existing employees, helping them understand their compensation value and their potential at the company.
“Painting a better picture becomes a pre-retention tool,” said Gavronsky. “An employee will sometimes leave thousands of dollars on the table because they don’t understand what they’re walking away from. A lot of times companies will wait until that person is going to resign. Let me now bring up all the things that are great about our company and talk through your stock options. But the decision’s already made. So we wanted something that we can kind of put in with performance reviews.”
Welcome also has plans to offer a third product pillar in the form of real-time accurate industry-wide compensation data, helping companies understand where they fit into the larger ecosystem with regards to compensation.
Thus far, Welcome has 40 companies on the platform, including Uncork and Betterment, with hundreds on the waitlist, according to the co-founders. The company plans to use the funding to build out the team and the product.
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Afore Capital raises second pre-seed venture capital fund
As expectations from seed investors intensify, a new stage of investment has established itself earlier in the venture-backed company life cycle.
Known as “pre-seed” investing, one of the first legitimate outfits to double down on the stage has refueled, closing its second fund on $77 million.
Afore Capital’s sophomore fund is likely the largest pool of venture capital yet to focus exclusively on pre-seed companies, or pre-product businesses seeking their first bout of institutional capital. In many cases, a pre-seed startup may even be “pre-idea,” yet to fully incorporate. While some funds are happy to invest that early, Afore seeks slightly more mature companies.
Afore invests between $500,000 and $1 million in nascent startups. As it kicks off its second fund, founding partners Anamitra Banerji and Gaurav Jain tell TechCrunch they plan to lead all of their investments.
We have the opportunity to build a firm that defines a category. – Afore founding partner Anamitra Banerji
Standouts in Afore’s existing portfolio include the no-fee credit card company Petal — which has raised roughly $50 million to date — mobile executive coaching business BetterUp, childcare information platform Winnie and Modern Health, a B2B mental wellness platform.
Afore portfolio companies have raised more than $360 million in follow-on funding, with an aggregate market cap of $1.5 billion, Jain, the founding product manager at Android Nexus and former principal at Founder Collective, tells TechCrunch. “These are high-quality teams with high-quality projects and ideas.”
Jain and Banerji — a founding product manager at Twitter and former partner at Foundation Capital — began raising capital for Afore’s $47 million debut fund in 2016. Since then, the landscape for seed investing has shifted. Early-stage investors have begun funneling larger sums of capital to standout teams at the seed, while billion-dollar venture capital funds set aside capital for serial entrepreneurs working on their next big idea. As a result, deal sizes have swelled and deal count has shrunk simultaneously.
“Pre-seed has replaced seed in the venture ecosystem,” Banerji tells TechCrunch. “We saw this early as a result of both of us having been at funds. We knew that this was going to be a massive category just like seed was before it. Now we think it’s clearly here to stay and we have the opportunity to build a firm that defines a category.”
Since launching the firm, the pair explain they’ve noticed more and more founders explicitly stating that they are in the market for a pre-seed round, a statement you wouldn’t have heard as recently as two years ago.
This is a result of Afore’s efforts to legitimize the stage through investments and programming, including its annual Pre-Seed Summit. Though Afore is certainly not the only VC fund focused on the earliest stage of startup investing — other firms deploying capital at the stage include Hustle Fund, which closed an $11.8 million debut fund last year, plus the $20 million immigrant-focused pre-seed fund Unshackled Ventures and the predominant seed and pre-seed stage firm Precursor Ventures, which announced a $31 million second fund earlier this year.
In the past year alone, more than $200 million has been dedicated to the pre-seed stage, with at least nine new funds launching to nurture early-stage startups.
More and more firms are setting up shop at the pre-seed stage as competition at the seed stage reaches new heights. As we’ve previously reported, monster funds are becoming increasingly active at the seed stage, muscling seed funds out of top deals with less dilutive offers. While the pre-seed stage, for the most part, remains protected from competition at the later stage, these firms still have to compete.
“Nobody wants to lose sight of a deal, so they are willing to toss small amounts of capital very early behind interesting founders,” Jain said. “But frankly, we aren’t sure if it’s good for a company to raise that much capital that early in their life cycle.”
Working with a fund that isn’t passionate about what you are building or familiar with the plights of the stage of your business is terrible for founders, adds Jain. Pairing with a focused fund like Afore, on the other hand, allows for “incentive alignment.”
Afore invests across all industries, preferring to back startups in categories “before they are categories.”
“What we are looking for is deep authenticity and passion around the product they are building,” says Banerji. “Ideas on their own aren’t enough. Founder resumes on their own aren’t enough. While we do care about all of those aspects, we get crazy about their clarity of thought in the short term.”
“We don’t take the point of view of ‘here is some money, it’s OK to lose it,’ ” he adds. “For us to invest, the founder must be all in. And we generally don’t invest in celebrity founders; we are going after the underdog founder.”
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What seed-stage dilution tells us about changing investor expectations
Dale Chang is the Operating Partner at Scale Venture Partners, where he advises portfolio companies on strategies for go-to-market and scaling.
More posts by this contributor
Round sizes are up. Valuations are up. There are more investors than ever hunting unicorns around the globe. But for all the talk about the abundance of venture funding, there is a lot less being said about what it all means for entrepreneurs raising their early funding rounds.
Take for instance Seed-stage dilution. Since 2014, enterprise-focused tech companies have given up significantly more ownership during Seed rounds. What gives?
Scale is an investor in early-in-revenue enterprise technology companies, so we wanted to better understand how this trend in Seed-stage dilution impacts companies raising Series A and Series B rounds.
Using our Scale Studio dataset of performance metrics on nearly 800 cloud and SaaS companies as well as Pitchbook fundraising records covering B2B software startups, we started connecting the dots between trends in valuations, round sizes, and winner-take-all markets.
Bottom line for founders: Don’t let all the capital in venture mislead you. There’s an important connection between higher Seed-stage dilution and increased investor expectations during Series A and Series B rounds.
These days, successful startups are growing up faster than ever.
Founders face an important trade-off decision
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VoiceOps launches to put insights in the hands of managers coaching sales reps
The enterprise voice space grows hotter today as VoiceOps announces its seed round led by Accel with participation from Founders Fund and Lowercase Capital. The YC-backed startup aims to support sales teams by offering managers clear insights into what tactics are being used on the front lines. Founders, Daria Evdokimova, Ethan Barhydt and Nate Becker designed a machine… Read More
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Joy raises $2.5M for its interactive photo frame
Joy, hardware startup and resident positive emotion, today announced the launch of its first product, the Joy Album — an interactive photo frame designed from the ground up. Joy has raised $2.5 million in seed funding from investors including Obvious Ventures, The Chernin Group, BoxGroup, and Maywic Select Investments. At first glance, the tablet-like device seems to have a lot… Read More
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