Most founders who are raising capital look first to traditional equity VCs. But should they? Or should they look to one of the new wave of revenue-based investors?
Revenue-based investing (“RBI”) is a new form of VC financing, distinct from the preferred equity structure most VCs use. RBI normally requires founders to pay back their investors with a fixed percentage of revenue until they have finished providing the investor with a fixed return on capital, which they agree upon in advance.
This guest post was written by David Teten, Venture Partner, HOF Capital. You can follow him at teten.com and @dteten. This is the 5th part of our series on Revenue-based investing VC that touches on:
Porsche’s venture arm has acquired a minority stake in TriEye, an Israeli startup that’s working on a sensor technology to help vehicle driver-assistance and self-driving systems see better in poor weather conditions like dust, fog and rain.
The strategic investment is part of a Series A financing round that has been expanded to $19 million. The round was initially led by Intel Capital and Israeli venture fund Grove Ventures. Porsche has held shares in Grove Ventures since 2017.
TriEye has raised $22 million to date. Terms of Porsche’s investment were not disclosed.
The additional funding will be used for ongoing product development, operations and hiring talent, according to TriEye.
The advanced driver-assistance systems found in most new vehicles today typically rely on a combination of cameras and radar to “see.” Autonomous vehicle systems, which are being developed and tested by dozens of companies such as Argo AI, Aptiv, Aurora, Cruise and Waymo, have a more robust suite of sensors that include light detection and ranging radar (lidar) along with cameras and ultrasonic sensors.
For either of these systems to function properly, they need to be able to see in all conditions. This pursuit of sensor technology has sparked a boom in startups hoping to tap into demand from automakers and companies working on self-driving car systems.
TriEye is one of them. The premise of TriEye is to solve the low visibility problem created by poor weather conditions. The startup’s co-founders argue that fusing existing sensors such as radar, lidar and standard cameras don’t solve this problem.
TriEye, which was founded in 2017, believes the answer is through short-wave infrared (SWIR) sensors. The startup said it has developed an HD SWIR camera that is a smaller size, higher resolution and cheaper than other technologies. The camera is due to launch in 2020.
The technology is based on advanced nano-photonics research by Uriel Levy, a TriEye co-founder and CTO who is also a professor at the Hebrew University of Jerusalem.
The company says its secret sauce is its “unique” semiconductor design that will make it possible to manufacture SWIR HD cameras at a “fraction of their current cost.”
TriEye’s technology was apparently good enough to get Porsche’s attention.
Michael Steiner, a Porsche AG board member focused on R&D, said the technology was promising, as was the team, which is comprised of people with expertise in deep learning, nano-photonics and semiconductor components.
“We see great potential in this sensor technology that paves the way for the next generation of driver assistance systems and autonomous driving functions,” Steiner said in a statement. “SWIR can be a key element: it offers enhanced safety at a competitive price.”
Nearly 200 startups have just graduated from the prestigious San Francisco startup accelerator Y Combinator . The flock of companies are now free to proceed company-building with a fresh $150,000 check and three-months full of tips and tricks from industry experts.
As usual, we sent several reporters to YC’s latest demo day to take notes on each company and pick our favorites. But there were many updates to the YC structure this time around and new trends we spotted from the ground that we’ve yet to share.
After two days of founders tirelessly pitching, we’ve reached the end of YC’s Summer 2019 Demo Days. TechCrunch witnessed more than 160 on-the-record startup pitches coming out of Y Combinator, spanning healthcare, B2B services, augmented reality and life-extending.
The full list is worth a gander, you can read about the 84 startups from Day 1 and the 82 companies from Day 2 in the linked posts. You can also check out our votes for the best of the best from day 1.
After conferring on the dozens of startups we saw yesterday, here are our favorites from the second day of Y Combinator pitches.
This guest post was written by David Teten, Venture Partner, HOF Capital. You can follow him at teten.com and @dteten. This is part of an ongoing series on Revenue-Based Investing VC that will hit on:
So you’re interested in raising capital from a Revenue-Based Investor VC. Which VCs are comfortable using this approach?
A new wave of Revenue-Based Investors (“RBI”) are emerging. This structure offers some of the benefits of traditional equity VC, without some of the negatives of equity VC.
I’ve been a traditional equity VC for 8 years, and I’m now researching new business models in venture capital.
(For more background, see the accompanying article “Revenue-based investing: A new option for founders who care about control” published on Extra Crunch.
RBI normally requires founders to pay back their investors with a fixed percentage of revenue until they have finished providing the investor with a fixed return on capital, which they agree upon in advance.
I’ve listed below all of the major RBI venture capitalists I’ve identified. In addition, I’ve noted a few multi-product lending firms, e.g., Kapitus and United Capital Source, which provide RBI as one of many structural options to companies seeking capital.
Alternative Capital: “You qualify if you have $5k+ MRR. We have a special program if you are pre-seed and need product development. Since 2017 we’ve managed $3 million in revenue-based financing, which helps cash-strapped technology companies grow. In 2019 we partnered with several revenue-based lending providers, effectively creating a marketplace.”
Bigfoot Capital: According to Brian Parks, “Bigfoot provides RBI, term loans, and lines of credit to SaaS businesses with $500k+ ARR. Our wheelhouse is bootstrapped (or lightly capitalized) SMB SaaS. We make fast, data-driven credit decisions for these types of businesses and show Founders how the math/ROI works. We’re currently evaluating about 20 companies a month and issuing term sheets to 25% of them; those that fit our investment criteria. We’re also regularly following-on for existing portfolio companies.”
Corl: “No need to wait 3-9 months for approval. Find out in 10 minutes. Corl can fund up to 10x your monthly revenue to a maximum of $1,000,000. Payments are equal to 2-10% of your monthly revenue, and stop when the business buys out the contract at 1-2x the investment amount.”
According to Derek Manuge, Corl CEO, “Funds are closed significantly quicker than the industry average at under 24 hours. The majority of businesses that apply for funding with Corl are E-commerce, SaaS, and other digital businesses.”
Manuge continues, “Corl connects to a business’ bank accounts, accounting software, payment processors, and other digital services to collect 10,000+ historical data points that are analyzed in real-time. We collect more data on an individual business than, to our knowledge, any other RBI investor, through our application process, data partners, and various public sources online. We have reviewed the application process of other RBI lenders and have not found one that has more API connections that ours. We have developed a proprietary machine learning algorithm that assesses the risk and return profile of the business and determines whether to invest in the business. Funding decisions can take as little as 10 minutes depending on the amount of data provided by a business.”
In the past 12 months, 500+ companies have applied for funding with Corl. The following information is based on companies funded by us and/or our capital partners:
Decathlon Capital: According to John Borchers, Co-founder, Decathlon is the largest revenue-based financing investor in the US. His description: “We announced a new $500 million fund in Q1 of 2019, in our 10th year. Unlike many RBI investors, a full 50% of our investment activity is in non-tech businesses. Like other RBI firms, Decathlon does not require warrants, governance involvement, or the types of financial covenants that are often associated with other venture debt type solutions. Decathlon typically targets monthly payment percentages in the 1% to 4% range, with total targeted multiples of 1.5x to 3.0x.”
Earnest Capital: Earnest is not technically RBI. Tyler Tringas, General Partner, observes, “Almost all of these new [RBI] forms of financing really only work for more mature companies (say $25-50k MRR and up) and there are still very few new options at the stage where we are investing.” From their website: “We invest via a Shared Earnings Agreement, a new investment model developed transparently with the community, and designed to align us with founders who want to run a profitable business and never be forced to raise follow-on financing or sell their business.” Key elements:
Feenix Venture Partners: Feenix Venture Partners has a unique investment model that couples investment capital with payment processing services. Each of Feenix’s portfolio companies receives an investment in debt or equity and utilizes a subsidiary of Feenix as its credit card payment processor (“Feenix Payment Systems”). The combination of investment capital and credit card processing (CCP) fees creates a “win-win” partnership for investors and portfolio companies. The credit card processing data provides the investor with real-time sales transparency and the CCP fee margin provides the investor high current income, with equity-like upside and significant recovery for downside protection. Additionally, portfolio companies are able to access competitive and often non-dilutive financing by monetizing an unavoidable expense that is being paid to its current processors, thus yielding a mutual benefit for both parties.
Feenix focuses on companies in the consumer space across a number of industry verticals including: multi-unit Food & Beverage operators, hospitality, managed workspace (office or food halls), location-based entertainment venues, and various direct to consumer online companies. Their average check size is between $1-3 million, with multi-year term and competitive interest rates for debt. Additionally, Feenix typically needs fewer financial covenants and can provide quicker turnaround for due diligence with the benefit of transparency they receive by tracking credit card sales activity. 10% of Feenix’s portfolio companies have received VC equity prior to their financing.
Founders First Capital Partners: “Founders First Capital Partners, LLC is building a comprehensive ecosystem to empower underrepresented founders to become leading premium wage job creators within their communities. We provide revenue-based funding and business acceleration support to service-based small businesses located outside of major capital markets such as Silicon Valley and New York City.”
“We focus our support on businesses led by women, ethnic minorities, LGBTQ, and military veterans, especially teams and businesses located in low to moderate income areas. Our proprietary business accelerator programs, learning platform, and growth methodologies transition these underserved service-based businesses into companies with $5 million to $50 million in recurring revenue. They are tech-enabled companies that provide high-yield investments for fund limited partners (LPs) that perform like bonds but generate returns on par with equity investments. Founders First Capital Partners defines these high performing organizations as Zebra Companies .”
“Each year, Founders First Capital Partners works with hundreds of entrepreneurs. Three tracks of pre-funding accelerator programs determine the appropriate level of funding and advisory support needed for each founder to achieve their desired expansion: 1) Fastpath for larger companies with $2 million to $5 million in annual revenue, 2) Founders Growth Bootcamp program for companies with $250,000 to $2 million in annual revenue, and 3) Elevate My Business Challenge for companies with $50,000 to $250,000 in annual revenue.”
“Founders First Capital Partners (FFCP) runs a 5-step process:
According to Kim Folson, Co-Founder, “Founders First Capital Partner (F1stcp) has just secured a $100M credit facility commitment from a major institutional impact investor. This positions F1stcp to be the largest revenue-based investor platform addressing the funding gap for service-based, small businesses led by underserved and underrepresented founders.”
GSD Capital: “ GSD Capital partners with early-stage SaaS founders to fund growth initiatives. We work with founding teams in the Mountain West (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming) who have demonstrated an ability to get sh*t done… We empower founders with a 30-day fundraising process instead of multiple months running a gauntlet. ”
“To best explain the process of RBF funding, let’s use an example. Pied Piper Inc needs funding to accelerate customer acquisition for its SaaS solution. GSD Capital loans $250,000 to Pied Piper taking no ownership or control of the business. The funding agreement outlines the details of how the loan will be repaid, and sets a “cap”, or a point at which the loan has been repaid. On a 3-year term, the cap amounts typically range from 0.4-0.6x the loan amount. Each month Pied Piper reviews its cash receipts and sends the agreed upon percentage to GSD. If the company experiences a rough patch, GSD shares in the downside. Monthly payments stop once the cap is reached and the loan is repaid. In a situation where Pied Piper’s revenue growth exceeds expectations, prepayment discounts are built into the structure, lowering the cost of capital.”
“Requirements for funding consideration:
Indie.VC: Part of the investment firm O’Reilly AlphaTech Ventures. See Indie VC’s Version 3.0 . “On the surface, our v3 terms are a fairly vanilla version of a convertible note with a few key variables to be negotiated between the investor and the founder: investment amount, equity option, and repurchase start date and percentage.”
Kapitus: Offers RBI among many other options. “Because this [RBI] is not a loan, there is no APR or compounded interest associated with this product. Instead, borrowers agree to pay a fixed percentage in addition to the amount provided.”
Lighter Capital: “Since 2012, we’ve provided over $100 million in growth capital to over 250 companies.” Revenue-based financing which “helps tech entrepreneurs get to the next level without giving up equity, board seats, or personal guarantees… At Lighter Capital, we don’t take equity or ask you to make personal guarantees. And we don’t take a seat on your board or make you write a big check if you’re having a down month.”
Novel Growth Partners: ” We invest using Revenue-Based Investing (RBI), also known as Royalty-Based Investing… We provide up to $1 million in growth capital, and the company pays that capital back as a small percentage (between 4% and 8%) of its monthly revenue up to a predetermined return cap of 1.5-2.2x over up to 5 years. We can usually provide capital in an amount up to 30% of your ARR. Our approach allows us to invest without taking equity, without taking board seats, and without requiring personal guarantees. We also provide tailored, tactical sales and marketing assistance to help the companies in our portfolio accelerate their growth.” Keith Harrington, Co-Founder & Managing Director at Novel Growth Partners, observes that he sees two categories of RBI:
He said, “We chose the structure we did because we think it’s easier to understand, for both LPs and entrepreneurs.”
Podfund: Focused on podcast creators. “We agree to provide funding and services to you in exchange for a percentage of total gross revenue (including ads/sponsorship, listener support, and ancillary revenue such as touring, merchandise, or licensing) per quarter. PodREV terms are 7-15% of revenue for 3-5 years, depending on current traction, revenue, and projected growth. At any time you may also opt to pay down the revenue share obligation in full, as follows:
RevUp: “Companies receive $100K-250K in non-dilutive cash… [paid back in a] 36-month return period with revenue royalty ranging from 4-8%, no equity .”
” Investment size : $1 – 5+ million, significant capacity for additional investment.
Return method: Small percentage of monthly revenue. Keeps capital lightweight and aligned to companies’ growth.
Capped return: 1.5 – 2x the investment amount. Company maximizes equity upside from growth.
Investment structure: 5-year horizon. Long-term nature maximizes flexibility of capital.”
Jim Toth writes, “One thing that makes us different is that we live inside of an $8Bn private equity firm. This means that we have a tremendous amount of resources that we can leverage for our companies, and our companies see us as being quite strategic. We also have the ability to continue investing behind our companies across all stages of growth.”
ScaleWorks: “We developed Scaleworks venture finance loans to fill a need we saw for our own B2B SaaS companies. No personal guarantees, board seats, or equity sweeteners. No prepayment penalties. Monthly repayments as a percentage of revenue.”
United Capital Source: Provides a wide structure of loans, including but not limited to RBI. The firm has provided more than $875 million in small business loans in its history, and is currently extending about $10m/month in RBI loans. Jared Weitz, Founder & CEO, said, “[Our] typical RBF client is $120K-$20M in annual revenue, with 4-200 employees. We only look at financials for deals over a certain size.
For smaller deals, we’ll look at bank statements and get a pretty good picture of revenues, expenses and cash flow. After all, since this is a revenue-based business loan, we want to make sure revenues and cash flow are consistent enough for repayment without hurting the business’s daily operations. When we do look at financials to approve those larger deals we are generally seeing a 5 to 30% EBITDA margin on these businesses.” United Capital Source was selected in the 2015 & 2017 Inc. 5000 Fastest Growing Companies List.
Note that none of the lawyers quoted or I are rendering legal advice in this article, and you should not rely on our counsel herein for your own decisions. I am not a lawyer. Thanks to the experts quoted for their thoughtful feedback. Thanks to Jonathan Birnbaum for help in researching this topic.
Does the traditional VC financing model make sense for all companies? Absolutely not. VC Josh Kopelman makes the analogy of jet fuel vs. motorcycle fuel. VCs sell jet fuel which works well for jets; motorcycles are more common but need a different type of fuel.
A new wave of Revenue-Based Investors are emerging who are using creative investing structures with some of the upside of traditional VC, but some of the downside protection of debt. I’ve been a traditional equity VC for 8 years, and I’m now researching new business models in venture capital.
I believe that Revenue-Based Investing (“RBI”) VCs are on the forefront of what will become a major segment of the venture ecosystem. Though RBI will displace some traditional equity VC, its much bigger impact will be to expand the pool of capital available for early-stage entrepreneurs.
This guest post was written by David Teten, Venture Partner, HOF Capital. You can follow him at teten.com and @dteten. This is part of an ongoing series on Revenue-Based Investing VC that will hit on:
RBI structures have been used for many years in natural resource exploration, entertainment, real estate, and pharmaceuticals. However, only recently have early-stage companies started to use this model at any scale.
According to Lighter Capital, “the RBI market has grown rapidly, contrasting sharply with a decrease in the number of early-stage angel and VC fundings”. Lighter Capital is a RBI VC which has provided over $100 million in growth capital to over 250 companies since 2012.
Lighter reports that from 2015 to 2018, the number of VC investments under $5m dropped 23% from 6,709 to 5,139. 2018 also had the fewest number of angel-led financing rounds since before 2010. However, many industry experts question the accuracy of early-stage market data, given many startups are no longer filing their Form Ds.
John Borchers, Co-founder and Managing Partner of Decathlon Capital, claims to be the largest revenue-based financing investor in the US. He said, “We estimate that annual RBI market activity has grown 10x in the last decade, from two dozen deals a year in 2010 to upwards of 200 new company fundings completed in 2018.”
OKRs, or Objectives and Key Results, are a popular planning method in Silicon Valley. Like most of those methods that make you fill in some form once every quarter, I’m pretty sure employees find them rather annoying and a waste of their time. Ally wants to change that and make the process more useful. The company today announced that it has raised an $8 million Series A round led by Access Partners, with participation from Vulcan Capital, Founders Co-op and Lee Fixel. The company, which launched in 2018, previously raised a $3 million seed round.
Ally founder and CEO Vetri Vellore tells me that he learned his management lessons and the value of OKR at his last startup, Chronus. After years of managing large teams at enterprises like Microsoft, he found himself challenged to manage a small team at a startup. “I went and looked for new models of running a business execution. And OKRs were one of those things I stumbled upon. And it worked phenomenally well for us,” Vellore said. That’s where the idea of Ally was born, which Vellore pursued after selling his last startup.
Most companies that adopt this methodology, though, tend to work with spreadsheets and Google Docs. Over time, that simply doesn’t work, especially as companies get larger. Ally, then, is meant to replace these other tools. The service is currently in use at “hundreds” of companies in more than 70 countries, Vellore tells me.
One of its early adopters was Remitly . “We began by using shared documents to align around OKRs at Remitly. When it came time to roll out OKRs to everyone in the company, Ally was by far the best tool we evaluated. OKRs deployed using Ally have helped our teams align around the right goals and have ultimately driven growth,” said Josh Hug, COO of Remitly.
Vellore tells me that he has seen teams go from annual or bi-annual OKRs to more frequently updated goals, too, which is something that’s easier to do when you have a more accessible tool for it. Nobody wants to use yet another tool, though, so Ally features deep integrations into Slack, with other integrations in the works (something Ally will use this new funding for).
Since adopting OKRs isn’t always easy for companies that previously used other methodologies (or nothing at all), Ally also offers training and consulting services with online and on-site coaching.
Pricing for Ally starts at $7 per month per user for a basic plan, but the company also offers a flat $29 per month plan for teams with up to 10 users, as well as an enterprise plan, which includes some more advanced features and single sign-on integrations.
There has long been a stigma associated with therapy and mental health coaching, a stigma that is even more pronounced in the business world, despite considerable evidence of the efficacy of these services. One of the organizations that has set out to change this negative association is Torch, a startup that combines the therapeutic benefits of executive coaching with data-driven analytics to track outcomes.
Yet, as Torch co-founder and CEO Cameron Yarbrough explains in this Breaking Into Startups episode, the startup wasn’t initially a tech-oriented enterprise. At first, Yarbrough drew on his years of experience as a marriage and family counselor as he made the transition into executive coaching, even referring to the early iterations of Torch as little more than “a matchmaking service between coaches and professionals.”
In time, Yarbrough identified a virtually untapped market for executive coaching — one that, by his estimate, could amount to a $15 billion industry. To demonstrate to investors the great potential of this growing market, he first built up a clientele that provided Torch with sufficient recurring revenue and low churn rate.
Only then was Yarbrough able to raise a $2.4 million seed round from Initialized Capital, Y Combinator, and other investors, convincing them that data analytics software could enhance the coaching process — as well as coach recruitment — enough to effectively “productize feedback,” as he puts it.
For Yarbrough and Torch, “productizing feedback” involves certain well-known business strategies that complement traditional coaching methods. For instance, Torch’s coaching procedure includes a “360 review,” a performance review system that incorporates feedback from all angles, including an employee’s manager, peers, and other people within an organization who have knowledge of the employee’s work.
The 360 review is coupled with an OKR platform, which provides HR departments and other interested parties with the metrics and analytics to track employee progress through the program. This combination is designed to promote the development of soft skills, which in turn drive leadership.
Torch has achieved considerable success, landing several influential clients in the tech sector through its B2B approach. But Yarbrough is clear that his goal with the company is to “democratize” access to professional coaching, in hopes of providing the same kind of mental health counseling and support to employees in all levels of an organization.
In this episode, Yarbrough discusses the history and trajectory of Torch, his experience scaling a company many considered unscalable, and the methods he uses to manage his own emotional and mental health as the CEO of an expanding startup. Yarbrough offers insights into the feelings of anxiety and dread common among entrepreneurs and provides a close look at how he has found business and personal success with Torch.
Breaking Into Startups: There’s a difference between a mentor and a coach. Today, I want to talk about that difference and in addition to the intersection between business and psychology, What Cameron Yarbrough, CEO of Torch and Founder of Well Clinic.
If you’re someone that is looking for a mentor or a coach as you break into tech, or if you just want to be surrounded by peers, make sure you download the Career Karma app by going to www.breakingintostartups.com/download.
On today’s episode, you’re going to understand the importance of therapy, mental health and coaches, as well as how historically, it has been inaccessible to people and how Cameron is using his background to democratize this for the world.
If this is your first time listening to the Breaking Startups Podcast, make sure you leave a review on iTunes and tell your friends. Listen to it on Soundcloud and talk about it on Spotify. If you have any feedback for us, positive or negative, please let us know. Without further ado, let’s break-in.
Cameron Yarbrough is the CEO of Torch. He’s one of the best executive coaches in the world. Not only are we going to be talking about coaching and mentoring for executives, but we’ll also be talking about coaching in general for everyone. We’re going to go into how he created his company.
Healthtech is apparently in a golden age. Just a few weeks ago, Livongo and Health Catalyst raised a combined $500 million through IPOs with a joint valuation reaching $3.5 billion. Deals such as these are catalyzing a record-breaking 2019, with digital health deal activity expected to surpass the $8.1 billion invested in 2018.
Amidst such abundance, the digital health ecosystem is thriving: as of 2017, greater than 300,000 mobile applications and 340 consumer wearable devices existed—with 200 new mobile applications added daily. No theme has been more important to this fundraising than artificial intelligence and machine learning (AI/ML), a space which captured more than one-quarter of healthtech funding in 2018.
Yet, how many of these technologies will prove valuable in medical, ethical, or financial terms?
Our research group at Stanford addressed this question by taking a deeper dive into the saying that, in AI/ML, “garbage in equals garbage out.” We did this by distinguishing digital health algorithms leveraging AI/ML from their underlying training data, documenting the numerous consequences to the outputs of these technologies should the inputs resemble, well, “garbage.”
For example, the utility of genetic risk scores provided by companies such as 23andMe and AncestryDNA (which have estimated valuations of $1.75 and $2.6 billion, respectively) may be limited due to diagnostic biases stemming from the underrepresentation of diverse populations.
Responding to such observations, we provide a variety of recommendations to the developers, inventors, and founders spearheading the advancement of digital health—as well as the funders supporting this charge forward—to ensure that their innovations are valuable to the stakeholders they target.
Uncork Capital, the now 15-year-old, early-stage venture firm formerly known as SoftTech VC, has closed up two new pools of committed capital totaling $200 million: $100 million for its sixth early-stage fund, and $100 million for an “opportunity” fund so it can stuff a little more capital into those of its portfolio companies that start to break away from the pack.
The firm had closed its first opportunity fund with $50 million in mid 2016. It closed its fifth early-stage fund at the same time with $100 million.
We talked on Friday with Uncork founder Jeff Clavier about the firm, which is currently writing first checks that range from $750,000 to $2 million. He told us that as with Uncork’s most recent set of funds, the idea is to invest in roughly 35 companies across three years, taking 10 percent ownership on average, and up to 12 percent of a portfolio company when it is the lead investor.
Clavier also said that while fully half of the fund will go into startups that sell cloud software to businesses, Uncork plans to invest roughly 10 percent of the fund in consumer marketplaces; roughly 10 percent in hardware; roughly 20 percent in so-called frontier tech — whether it be augmented reality or virtual reality or space of robotics or blockchain-related deals; and roughly 10 percent in bioinformatics and synthetic biology.
That last area of interest is brand new to Uncork, so we asked if the firm — which counts Stephanie Palmeri and Andy McLoughlin as partners — was perhaps planning to hire a biotech investor. Clavier said that isn’t, that instead it will rely on external resources to help with due diligence and to learn along the way. “In the same way that I looked at 30 investments in space tech and invested in Loft Orbital [a company that’s assembling a constellation to carry payloads for customers who don’t want to operate their own satellites], my expectation is that I’ll look at a bunch of [synthetic bio] deals and we’ll end up with one or two,” he said.
Uncork has enjoyed a steady stream of exits in recent years, including, mostly newly, the sale of ad tech company Vungle for a reported $750 million last month to the private equity firm Blackstone. [Clavier declined to confirm or correct its sale price.]
Uncork is also an early investor in the food delivery company Postmates, which is reportedly on track to go public this year. And Uncork was an early backer in the email service startup SendGrid, which sold to the publicly traded communications platform Twilio earlier this last year for $3 billion in stock.
Some of the firm’s other high-profile bets include Fitbit, which went public in 2015; Brightroll, which was acquired by Yahoo in 2015; and Eventbrite, which went public last fall (though its shares almost immediately fell below their IPO price and have remained below it).
As for its first opportunity fund, the startup that has received the biggest check from Uncork — $5 million — is the fashion resale marketplace Poshmark, which is also reportedly eyeing an IPO in 2019.
Singapore-based budget hotel booking startup RedDoorz is tiny in comparison to fast-growing giant Oyo. But it is holding its ground and winning the trust of an ever growing number of investors.
On Monday, the four-year-old startup announced it has raised $70 million in Series C round, less than five months after it closed its $45 million Series B. The new round, which is ongoing, was led by Asia Partners and saw participation from new investors Rakuten Capital and Mirae Asset-Naver Asia Growth Fund.
The startup, which has raised $140 million to date, was seeing “tremendous interest from investors, so it is decided to do a back-to-back rounds,” said Amit Saberwal, founder and CEO of RedDoorz, in an interview with TechCrunch.
Regardless, the new funds will help RedDoorz fight SoftBank-backed Oyo, which is already aggressively expanding to new markets and making major investments.
RedDoorz operates a marketplace of “two-star, three-star and below” budget hotels, selling access to rooms to people. Currently it has 1,400 hotels on its network, said Saberwal.
The startup operates in 80 cities across Indonesia, Singapore, the Philippines and Vietnam, and plans to use the new capital to expand its network in its existing markets, said Saberwal. At least for the next one year, RedDoorz has no plans to expand beyond the four markets where it currently operates, he said.
“Anything in the accommodation is our playground. We have all kinds of properties. We have three-star hotels, some hostels, so we will continue to go deeper and wider moving forward,” he said.
More to follow shortly…
SoftBank has a plant to loan up to $20 billion to its employees, including CEO Masayoshi Son, for the purposes of having that capital re-invested in SoftBank’s own Vision venture fund, according to a new report from the Wall Street Journal. That’s a highly unusual move that could be risky in terms of how much exposure SoftBank Group has on the whole in terms of its startup bets, but the upside is that it can potentially fill out as much as a fifth of its newly announced second Vision Fund’s total target raise of $108 billion from a highly aligned investor pool.
SoftBank revealed its plans for its second Vision Fund last month, including $38 billion from SoftBank itself, as well as commitments from Apple, Microsoft and more. The company also took a similar approach to its original Vision Fund, WSJ reports, with stakes from employees provided with loans totalling $8 billion of that $100 billion commitment.
The potential pay-off is big, provided the fund has some solid winners that achieve liquidation events that provide big returns that employees can then use to pay off the original loans, walking away with profit. That’s definitely a risk, however, especially in the current global economic client. As WSJ notes, the Uber shares that Vision Fund I acquired are now worth less than what SoftBank originally paid for them according to sources, and SoftBank bet WeWork looks poised to be another company whose IPO might not make that much, if any, money for later stage investors.
Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about the differences between raising cash from angels and traditional venture capitalists. Before that, I summarized DoorDash’s acquisition of Caviar.
It’s Friday morning and I don’t want to dig into another IPO prospectus. The startups don’t care though, they’re in a mad dash to get to the public markets, reporters be damned.
This week, three billion-dollar venture-backed “unicorns” unveiled S-1 filings, the paperwork necessary to complete an IPO. First came WeWork, the $47 billion co-working giant beloved by SoftBank. Then came Cloudflare, a business that provides web security and denial-of-service protection for websites. Then this morning, after we all thought it was time for a breather, “teledentistry” company SmileDirectClub made its filing public.
There’s plenty to read on each of these high-profile IPOs; here’s a quick reading list:
On to other things…
Meet the startups in Y Combinator’s summer batch
As you may know, YC summer demo days are next week. A whopping 176 companies are expected to present and we’ll be there reporting live, as usual. In preparation, we’ve been cherry-picking companies in the latest batch that interest us. Here’s a look at our latest — more to come:
This was a very special week for Equity. We taped two great episodes, one in which we hung out with Axios’ Dan Primack in Boston, the other featuring me recording out of a New York City Blue Bottle Coffee shortly after WeWork dropped its S-1 filing. You can listen to our latest episodes here and here. Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple Podcasts or Spotify.
In our latest installment of EC-1, in which go deep on an up-and-coming startup, TechCrunch’s Eric Peckham tells the founding story of Kobalt, the world’s next music tech unicorn. Here’s a passage from Peckham’s extensive piece: “You may not have heard of Kobalt before, but you probably engage with the music it oversees every day, if not almost every hour. Combining a technology platform to better track ownership rights and royalties of songs with a new approach to representing musicians in their careers, Kobalt has risen from the ashes of the 2000 dot-com bubble to become a major player in the streaming music era. It is the leading alternative to incumbent music publishers (who represent songwriters) and is building a new model record label for the growing ‘middle class’ of musicians around the world who are stars within niche audiences.”
Upfront Ventures, the 23-year-old, LA-based venture capital firm, is gearing up for far more deal-making.
In addition to filing paperwork with the SEC this summer to raise its third growth-stage investment fund (it is also investing a $400 million early-stage fund and probably announcing another soon), the firm just added two new general partners to its line-up of investors.
One of them, Michael Carney, joined Upfront as a principal in 2015, after working as an editor at the news site Pandodaily, and, before that, working as an investor and analyst at a boutique merchant bank called Worldvest.
The firm’s second new general partner is Aditi Maliwal, who has also circled in and out of investing before, including stints as an associate with Crosslink Capital and, more recently, spending several years with Google, where Maliwal worked in corporate development before becoming a project manager.
We talked with both this week to congratulate them, as well as to learn more about where they’ll be shopping — and from where.
For her part, Maliwal, who begins work at Upfront next month, says the idea is for her to eventually open a San Francisco office, though for now, she’ll be operating from the Bay Area out of a space that’s yet to be determined and spending every Monday or every other Monday down in L.A. with the rest of the team.
She got to know Upfront through another general partner, Kara Nortman, who joined Upfront in 2014 and who Maliwal would continue to see at events, as well as on the occasional trip to L.A. to see extended family. Maliwal says she also says she would observe on her trips that the “ecosystem in L.A. has really grown from 2014 to where it is today. I think the Bay Area continues to see how important it is, too.”
As for becoming an investor again, Maliwal says she was always interested in becoming a VC, thanks in part to a class taught at Stanford by renowned venture capitalist Heidi Roizen VC that inspired her. She says spending time with founders in her husband’s business school class at Stanford this past year whet her appetite anew. “There are four or five companies I’m close to and they’re good friends and when I was up at 11 pm working on a company idea with one of them earlier this year, I just realized that this is what gives me a lot of energy and this is a space I want to [get involved in again].”
She says she’ll mostly be focusing on business to business to consumer models, as well as SaaS applications, fintech, and, when the opportunity arises, consumer products. More broadly speaking, says Maliwal, she hopes to serve as a bridge for Bay Area startups looking for a foothold in the L.A. market and vice versa.
Meanwhile, Carney is, and will remain, more focused on later-stage bets that Upfront funded early on and whose success the firm wants to ensure (to the extent that any firm can).
Understandably, he sounds excited — still — about the work.
“In 2012, [when I was at Pandodaily] L.A. was crossing and inflection point, with a number of second- and third-time founders coming out of later-stage marquee companies. When I joined Upfront, it felt similar. It was an incredible platform, it was a year or two after the firm was rebranded [from GRP Ventures] and Kara had been there less than a year and [fellow general partner] Greg [Bettinelli] had been there maybe two years. The team was kind of maturing and I feel lucky to join when I did.”
Carney suggests the opportunities have only grown stronger, in his view of the later-stage world. “We’re definitely seeing [greater bifurcation] between the haves and have nots, with companies that can break out as clear leaders tending to have access to larger amounts of capital than in past years. For the best of the best, the conditions remain as favorable as possible, while it’s gotten harder for companies to raise capital that fail to hit those growth rates, even in good times.”
Being able to recruit employees from roles at top companies in the Bay Area is just one reason solid L.A. companies have attained more momentum. “I think that owes to the maturation of the L.A. ecosystem. I think people are drawn to L.A. because Silicon Valley, for all its incredible success in the tech sector, is an industry town and L.A. has a more diverse economy and ecosystem. But also, five years ago, people would ask themselves, ‘If this new role [in L.A.] doesn’t work out, what do I do next?’ And I think the answer to that question is much clearer and more positive today.”
According to Upfront, 40 percent of its initial checks are written to companies based in L.A., though it has bets in other parts of the U.S. and world. Some of the best-known deals in its current portfolio include the scooter company Bird, the sneaker marketplace GOAT, and the online resale store ThredUp. Upfront was also an investor in Ring, the smart doorbell company acquired early last year by Amazon for $1 billion.
In addition to Maliwal, Carney, Nortman and Bettinelli, the firm is managed by general partners Kobie Fuller, Kevin Zhang, Mark Suster and founder Yves Sisteron.
If there was one company at the top of everyone’s mind this year, it was Slack.
The now-ubiquitous workplace messaging tool began trading on the New York Stock Exchange in June after taking an unusual route to the public markets known as a direct listing. Slack bypassed the typical IPO process in favor of putting its current stock on to the NYSE without doing an additional raise or bringing on underwriter banking partners.
Slack co-founder and chief technology officer Cal Henderson and Slack investor and Spark Capital general partner Megan Quinn will join us on stage at TechCrunch Disrupt SF to give a behind the scenes look at Slack’s banner year, the company’s origin story and what convinced Quinn to participate in the business’s funding round years ago.
Early in his career, Henderson was the technical director of Special Web Projects at Emap, a UK media company. Later, he became the head of engineering for Flickr, the photo-sharing tool co-founded by Slack chief Steward Butterfield. In April 2009, he was reported to be starting a new stealth social gaming company with Butterfield, a project that would ultimately become Slack.
Quinn, for her part, added Slack to the Spark Capital portfolio in 2015, participating in the company’s $160 million Series E at a valuation of $2.8 billion. No small startup at the time, Slack already had 750,000 daily users and backing from Accel, Andreessen Horowitz, Social Capital, GV and Kleiner Perkins.
Quinn is a seasoned investor, known for striking deals with Coinbase, Glossier, Rover and Wealthfront, among others. She first entered the venture capital scene in 2012 as an investment partner at Kleiner Perkins, where she invested in early to mid-stage consumer tech startups. Quinn joined Spark Capital in 2015 to make growth-stage investments in companies across the board.
Before trying her hand at VC, she spent seven years in product management and strategic partnership development at Google and one year as the head of product at payments company Square.
Disrupt SF runs October 2 to October 4 at the Moscone Center in San Francisco. Tickets are available here.
Cedric Dussud, Michael Nason, Ahmed Elsamadisi and Matthew Star (pictured above, in order) spent the summer sharing a house in San Francisco, cooking meals together and building Narrator, a startup with ambitions of becoming a universal data model fit for any company.
Narrator is one of more than 100 startups graduating next week from Y Combinator, the San Francisco accelerator program. Put simply, the company provides data-science-as-a-service to its customers: fellow startups.
“We provide the equivalent of a data team for the price of an analyst,” explains Narrator co-founder and director of engineering Star. “Within the first month, our clients get an infinitely scalable data system.”
Led by chief executive officer Elsamadisi, a former senior data engineer at WeWork, the Narrator founding team is made up entirely of alums of the co-working giant. The building blocks of Narrator’s subscription-based data modeling tool were developed during Elsamadisi’s WeWork tenure, where he was tasked with making sense of the company’s disorganized trove of data.
As an early addition to WeWork’s data team, Elsamadisi spent two years bringing WeWork’s data to one place, scaling the team to 40 people and ultimately creating a functional data model the soon-to-be-public company could use to streamline operations. Then in 2017, Elsamadisi had an a-ha moment. The system he created at WeWork could be applied to any data stream, he thought.
“All companies are fundamentally the same when it comes to the kinds of data they want to understand about their business,” Narrator’s Dussud tells TechCrunch. “Every startup wants to know what’s my monthly recurring revenue, why are my customers churning or whatever the case may be. The only reason they have to go hire a data team and hire a business analyst is because the way that their data is structured is specific to that company.”
All Narrator clients use the same consistent format to absorb and manage their data, saving startups time and heaps of money.
Narrator follows a long line of Y Combinator graduates that built startups catering to other startups, as the accelerator becomes more of a SaaS incubator of sorts. PagerDuty and Docker proved that YC companies could build with a strong focus on other YC companies. Brex, a recent YC grad that issues credit cards to entrepreneurs, has leveraged the same startup-focused model for big-time success.
“Why not build a company to make something that other startups can have?” Asks Dussud. “It’s hugely valuable and only big companies have access to it. Let’s make it available to everybody.”
New York-based Narrator sees a massive opportunity ahead. Every company, after all, wants to increase revenue or decrease costs, a difficult task easier accomplished with a data-driven culture.
“If you start to imagine a world where, under the hood, the structure of the data at all companies is the same, you can now start reusing a lot of the things that in the past would actually be quite complicated,” said Star. “Right now, anytime you want to start from scratch with a new data system, you are literally starting from scratch and unfortunately reinventing the wheel. If you had a standardized system, you know, a standardized model, you could start reusing a lot of really wonderful things.”
Narrator is working with 14 clients today, each using an identical data model. Their goal is for Narrator’s structure to become the standard by which all startups do data science. In other words, Narrator hopes to become the operating system for data science.
“What’s kind of amazing is whether we’re working with a financial app … a clothing rental startup or a healthcare company, they’re all using the same data model,” said Star. “Any one of those teams, if they wanted to get the same level of analysis, they would have to hire a data analyst.”
Narrator raised $1.3 million in seed funding led by Flybridge Capital Partners prior to joining YC. Hot off the heels of the accelerator program, there’s no doubt the startup will close another round of financing soon.
Shiru, a new company that’s launching from the latest batch of Y Combinator-backed startups, is joining the ranks of the businesses angling for a spot at the vanguard of the new food technology revolution.
The company was founded by Jasmin Hume, the former director of food chemistry at Just (the company formerly known as Hampton Creek) and takes its name from a homophone of the Chinese shi rou (which Hume has roughly translated to an examination of meat). At Just, Hume was working with a team that was fractionating plants to look at their physical properties to identify what products could be made from the various proteins and chemicals researchers found in the plants.
Shiru, by contrast, is using computational biology to find the ideal proteins for specific applications in the food industry.
The company’s looking at what proteins are best for creating certain kinds of qualities that are used in food additives, things like viscosity building, solubility, foam stability, emulsification, and biding, according to Hume.
In some ways, Hume’s approach looks similar to the early product roadmap for Geltor, a company backed by SOSV and IndieBio that was also looking to make functional proteins. The company, which has raised over $18 million to date, shifted its attention to proteins for the beauty industry and cosmetics instead of food — potentially leaving an opening for Shiru to exploit.
Still in its early days, Shiru doesn’t have a product nailed down yet, but the company the science the company is exploring is increasingly well understood, and Hume says it’s looking at several different genetically engineered feedstocks — from yeasts to undisclosed strains of bacteria and fungi to make its proteins.
“We use the power of molecular design and machine learning to identify protein structures that are more functional than existing alternatives,” says Hume. “The proteins that we are screening for are inspired by nature.”
Hume’s path to founding Shiru involves quite the pedigree. Before Just, she received her doctorate in materials chemistry from New York University, and she’d spent a stretch as a summer associate at the New York-based frontier technology-focused investment firm Lux Capital.
Hume expects to begin pilot production of initial proteins later this year and be producing small but repeatable quantities by the end of 2020.
The company hasn’t raised any outside capital before Y Combinator and is currently in the process of raising a round, Hume said.
Headquartered in Shenzhen, Transsion is a top-seller of smartphones in Africa that recently confirmed its imminent IPO. In 2019 it opened and financed Future Hub, an incubator and seed fund for African startups.
Wapi Capital is the venture fund of Kenyan fintech startup Wapi Pay — a Nairobi-based company that facilitates digital payments between African and Asia via mobile money or bank accounts.
Starting in September 2019, Transsion Future Hub will work with Wapi Capital to select early-stage African fintech companies for equity-based investments of up to $100,000, Transsion Future Hub Senior Investor Laura Li told TechCrunch via email.
Wapi Capital won’t contribute funds to Future Hub’s Africa investments, but will help determine the viability and scale of the startups, including due diligence and deal flow, according to Wapi Pay co-founder Eddie Ndichu.
Wapi Pay and Transsion Future Hub will consider ventures from all 54 African countries; interested startups can reach out directly to either organization, Ndichu and Li confirmed.
The Wapi Capital fintech partnership is not Transsion’s sole VC activity in Africa. Though an exact fund size hasn’t been disclosed, the Transsion Future Hub will also make startup investments on the continent in adtech, fintech, e-commerce, logistics and media and entertainment, according to Li.
Future Hub’s existing portfolio includes Africa-focused browser company Phoenix, content aggregator Scoop and music service Boomplay.
Wapi Capital adds to the list of African-located and run venture funds — which have been growing in recent years — according to a 2018 study by TechCrunch and Crunchbase. Wapi Capital will also start making its own investments and is looking to raise $1 million this year and $10 million over the next three years, according to Ndichu, who co-founded the fund and Wapi Pay with his twin brother Paul.
Transsion’s commitment to African startup investments—through funding to Future Hub—comes as the company is on the verge of listing on China’s new Nasdaq-style STAR Market tech exchange. Transsion confirmed to TechCrunch this month the IPO is in process and that it could raise up to 3 billion yuan (or $426 million).
Transsion sold 124 million phones globally in 2018, per company data. In Africa, Transsion holds 54% of the feature phone market — through its brands Tecno, Infinix and Itel — and in smartphone sales is second to Samsung and ahead of Huawei, according to International Data Corporation stats.
Transsion has R&D centers in Nigeria and Kenya, and its sales network in Africa includes retail shops in Nigeria, Kenya, Tanzania, Ethiopia and Egypt. The company also has a manufacturing facility in Ethiopia.
Transsion’s move into venture investing tracks greater influence from China in African tech.
China’s engagement with African startups has been light compared to China’s deal-making on infrastructure and commodities.
Transsion’s Wapi Pay partnership is the second recent event — after Chinese-owned Opera’s big venture spending in Nigeria — to reflect greater Chinese influence and investment in the continent’s digital scene.
Update: This article has been updated to reflect that Future Hub is a subsidiary of Transsion and the source of the investments for the Wapi Capital partnership.
Croatia has not exactly been known for a huge startup scene in the past, and probably the most famous tech company out of there in recent years has been Rimac Automobili, the startup out of Zagreb that created an electric supercar to rival anything Porsche might make. But the technical talent in the country remains high, as is the way with many Eastern European countries, which have a long and deep heritage of engineering and science going back to the bad old Soviet days.
Croatia is about to get a shot in the arm, however, with the arrival of a home-grown dedicated VC fund, Fil Rouge Capital, which plans to invest in young entrepreneurs, startups and scale-up companies, as well as establishing a local entrepreneurial ecosystem in Croatia.
The fund is fully operational as of last month, having received funding commitments of more than €42 million ($46.6 million), demonstrating a strong interest of investors in the growing startup economy there.
Stevica Kuharski, of the firm, says: “Startups need to be given an opportunity, and opportunities are precisely what Fil Rouge Capital brings to Croatia. Startup founders, whose projects are in very early, early and growth stages now have a place to go to for mentoring and financial support.”
He says Fil Rouge will invest in a variety of sectors, including software, fintech, marketplace, manufacturing, hardware, IOT and logistics.
The fund aims to run over the next four and a half years until the end of 2023, and plans to invest in up to 250 companies operating in Croatia through its three investment stages: “The Startup School” for super-early-stage companies; “The Accelerator Program” for companies that are still early but already up and running; and more full-blown institutional funding-ready companies requiring capital up to €1.5 million.
Nurx, citing 200,000 current patients and a monthly growth rate as high as 20%, has raised $32 million in Series C equity funding in a round co-led by existing investors Kleiner Perkins and Union Square Ventures. The company has also secured $20 million in debt financing, bringing total new capital to $52 million.
The San Francisco-based digital health startup, which seeks to make birth control more accessible and affordable by shipping it direct to consumers, has raised more than $90 million in debt and equity funding to date, with the latest infusion bringing its valuation to nearly $300 million, according to stock authorization filings uncovered by PitchBook. Nurx declined to comment on its valuation.
The goal, Nurx chief executive officer Varsha Rao explains, is to become a telehealth platform focused on all sensitive health needs.
“We see there is a need to help people that may have issues that often carry stigma and judgment by providing a streamlined platform,” Rao tells TechCrunch. “What the company is doing in terms of providing more accessibility from a physical and economic perspective to critical health services is very inspiring for me.”
The fresh bout of funding comes four months after a scathing New York Times report highlighted irresponsible practices at the company, including reshipping returned medications and attempting to revise medical policy on birth control for women over the age of 35.
Nurx’s Rao, who joined from Clover Health just one week before the article was published, says she feels good about how the company has scaled: “I want to make it clear, patient safety was never at risk even then; having said that, we are super committed to always investing in compliance and patient safety and all of the things that are important.”
The business plans to use the funding to double its engineering team and launch additional “sensitive” healthcare services, of which Rao declined to further outline. In addition to shipping birth control D2C, including the pill, shot, ring and patch, Nurx provides emergency contraception, STI and HPV testing and screening kits, and PrEP medication, the once-daily pill that reduces the risk of getting HIV.
The company added STI testing kits to its line up last month and has since performed tests for 1,000 patients, Nurx says.
Nurx’s service is currently live in 26 states and Washington, D.C. The company plans to be accessible to 90% of the U.S. population by the end of the year, with additional launches, including the state of Nebraska, expected this month.