Welcome to Issue 010 of the Mangrove Newsletter! We hope you enjoy reading this as much as we enjoyed putting it together for you.

1. Resilience Case Study

This month's case study examines two key aspects: the critical under-support for scaling companies and the role of investors in addressing this gap. To gain deeper insights, we will dissect the failure of promising scaleups, specifically focusing on how operational resilience could have prevented these unfortunate outcomes.

It might not be consistently discussed in the ecosystem beyond failure statistics. However, let's examine some of the data around scaleups, because the data suggests that we are critically under-supporting scaling companies. The statistics are undeniable, and the sentiment from founders and investors reflects this reality:

🤯 Series A and B rounds absorb a staggering 80-90% of venture capital investment.

🤯 A concerning 70% of Series A-funded startups fail to secure Series B funding.

🤯 50% of Series B companies ultimately fail to achieve profitability or a successful exit.

🤯 Even after the significant milestone of an IPO, 80% underperform the market, and long-term survival rates decline to a similar rate as early stage.

Given the grim statistics and the significant losses in venture capital investments, it's surprising that more research isn't dedicated to understanding this crucial segment of the market. The primary reason for this oversight likely lies in the over-reliance on traditional financial audits, which often fail to capture the full spectrum of risks and opportunities within high-growth companies.

For example, Joanna Smith-Griffin is accused of defrauding investors by grossly misrepresenting AllHere's financial performance, customer base, and cash reserves. She allegedly used investor funds for personal expenses, including a down payment on a house and her wedding. To conceal her fraud, Joanna allegedly created a fake email account to impersonate a financial consultant and send fraudulent documents to investors.

FTX, a cryptocurrency exchange founded by Sam Bankman-Fried, was once valued at over $32 billion. It rapidly grew and became one of the most recognised names in the crypto industry. However, in November 2022, FTX’s empire crashed. The unravelling started with a bombshell report from CoinDesk, which unveiled that FTX and its sister company, Alameda Research, heavily consisted of speculative tokens. After the news broke out, customers rushed to withdraw their funds. Effectively, creating something similar to the SVB bank run. The FTX exchange couldn’t meet these demands, leading to its bankruptcy. Sam was arrested and charged with fraud, money laundering, and securities violations. The FTX scandal wiped out billions of dollars in investor and user funds and impacted global confidence in the cryptocurrency market.

How is it that not a single investor picked up on this occurrence?

Transparency is the answer.

Startups, scaleups, and even established businesses often operate as black boxes. We see the final product (“the cake or the bread”), but lack visibility into the underlying recipe. What's needed is a clear and concise framework that reveals the essential ingredients, how they are combined, and the resources required for the process. This includes identifying key personnel, necessary technology, operational costs, and specific skill sets. Such transparency would provide investors with a much clearer understanding of the business and its operations, significantly improving their ability to assess risk and make informed investment decisions.

Once a pioneering force in agricultural technology, Gro Intelligence now finds itself at the centre of an unfortunate narrative of falling short. Gro Intelligence aimed to revolutionise agriculture with a data platform which integrated information from various sources, including government agencies, weather reports, and financial markets. The company, founded by Sara Menker, attracted significant investment and recognition, including a spot on TIME's 100 Most Influential Companies list.

However, Gro Intelligence's operational resilience proved inadequate. The company relied heavily on a few large clients, making it vulnerable to changes in those relationships. Diversification of revenue streams was lacking, and the company struggled to translate its technology into consistent commercial success. Financial mismanagement, including difficulties meeting payroll and leadership changes, further exacerbated the situation. Additionally, Gro Intelligence faced challenges in adapting its product offerings to meet evolving market demands and ineffectively communicated the value proposition of its data platform to potential customers.

The failure of Gro Intelligence highlights several missed opportunities for investors. Firstly, a deeper dive into the company's operational model and client concentration risk could have quickly revealed potential vulnerability. This coupled with the traditional investor diligence model around go-to-market strategy, closer scrutiny of the company's financial health and internal controls could have provided early warning sings.

The failures of companies like Gro Intelligence, FTX, and AllHere underscore a critical gap in the current startup ecosystem: insufficient investor support and a lack of ongoing due diligence. The statistics paint a stark picture around high failure rates not just at early stages but between Series A and B, and significant challenges in achieving profitability or successful exits. This recurring pattern emphasizes the urgent need for a more robust approach to supporting and evaluating scaleups.

So how can we improve these outcomes?

RESILIENCE

An operational resilience framework is a structured approach to identifying, assessing, and mitigating potential disruptions that could significantly impact a startups ability to operate effectively and achieve its objectives. This framework emphasizes knowing your recipe by focusing on:

• Core Identification: Recognising the fundamental products and services that are essential to the business. Those ingredients needed for the recipe mentioned earlier.
• Resource Mapping: Pinpointing the physical, human, and intangible resources needed to deliver those offerings.
• Resilience Assessment: Evaluating the identified resources to understand their business value and effectiveness.
• Prioritisation & Mitigation Strategies: Rank your resources based on their importance to your core offering and have informed conversations about countering risks against them.
• Continuous Improvement: Adopting a mindset of ongoing enhancement to adapt to changing circumstances and remain competitive.

Investors can significantly enhance their decision-making and portfolio performance by adopting an operational resilience framework. Just as startups need a robust internal framework, investors must also deepen their understanding of portfolio companies beyond traditional financial metrics. This framework encourages investors to:

• Focus on Core Offerings: Go beyond financial projections to uncover potential weaknesses and hidden risks within their portfolio companies. By identifying and continuously assessing the core offerings which are vital for the success of the portfolio in dynamic markets.
• Resource Mapping: Rank existing risks against core offerings within the portfolio’s supply chain.
• Resilience Assessment: Evaluate the portfolio's overall vulnerability to disruptions beyond traditional financial risks. This involves identifying systemic risks that could impact multiple portfolio companies and overall fund resilience.
• Prioritisation & Mitigation Strategies: Prioritise and mitigate risks by quickly evaluating the portfolio's vulnerability to disruptions beyond financial risks. This can include utilising key resilience indicators (KRIs) to identify portfolio-wide patterns and trends that may signal systemic risks. Develop and implement strategies to mitigate identified risks, such as working with portfolio companies to improve their operational resilience.
• Drive Value and Confidence: Continuously improve investment approach by creating synergies, driving value, and investing with confidence using a robust framework like the Mangroves 6-step approach.

The crucial final step towards improving ecosystem success lies in equipping entrepreneurs with the knowledge and tools necessary to build operational resilience. Innovation hubs, incubators, accelerators, and educational institutions have a vital role to play in this process. By integrating operational resilience frameworks into their programs, they can empower startups with the knowledge and skills to identify, assess, and mitigate risks proactively.

2. What is Whitespace?

We are getting ready to launch our second pilot program. We already have a few startups in the cohort but are looking to fill a few more spots. Could this be you?

Whitespace is our innovative approach to unlocking a businesses full potential with resilience education.

The Whitespace Pilot Program: Join the Journey

The pilot program is a three-stage journey, kicking off in Jan 25. Here's what you can expect:

• Stage 1: Onboarding to Mangrove Foundation. We'll work with you to build your company's digital twin.
• Stage 2: Includes Mangrove Analytics. We'll enhance your digital twin with powerful analytics and generate even deeper insights.
• Stage 3: Get ready for the Mangrove + (Co-Pilot). This stage leverages the insights from the digital twin and analytics to empower the implementation of necessary changes and business optimisation.

Are you ready to build a more resilient startup? We are!

Applications for the Whitespace pilot program are now active. To apply, please submit a form to register your interest. If selected, we will share the next steps.

Register Now!

3. Work with Us

Global business, SMB, or a Startup? We understand that technology is essential for modern businesses, and we've built replicable processes for businesses that guarantee long-term scalability and sustainability.

Let’s work with you to build better and scale faster. Schedule a Demo below with us. We can’t wait to connect.

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