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Creating a prediction machine for the financial markets

By Walter Thompson
Fayze Bouaouid Contributor
Fayze Bouaouid is co-founder and CEO of financial intelligence application Springbox AI. He has a Master's of Science in Banking and Finance and nearly two decades of experience in banking and asset management.

Artificial intelligence and machine-learning technologies have evolved a lot over the past decade and have been useful to many people and businesses, especially in the realm of finance, banking, investment and trading.

In these industries, there are many activities that machines can perform better and faster than humans, such as calculations and financial reporting, as long as the machines are given the complete data.

The AI tools being built by humans today are becoming another level more robust in their ability to predict trends, provide complex analysis, and execute automations faster and cheaper than humans. However, there has not been an AI-powered machine built yet that can trade on its own.

There are many activities that machines can perform better and faster than humans, such as calculations and financial reporting, as long as the machines are given the complete data.

Even if it was possible to train such a system that could replace human judgment, there would still be a margin of error, as well as some things that are only understandable by human beings. Humans are still ultimately responsible for the design of AI-based prediction machines, and progress can only happen with their input.

Data is the backbone of any prediction machine

Building an AI-based prediction machine initially requires an understanding of the problem being solved and the requirements of the user. After that, it’s important to select the machine-learning technique that will be implemented, based on what the machine will do.

There are three techniques: supervised learning (learning from examples), unsupervised learning (learning to identify common patterns), and reinforcement learning (learning based on the concept of gamification).

After the technique is identified, it’s time to implement a machine-learning model. For “time series forecasting” — which involves making predictions about the future — long short-term memory (LSTM) with sequence to sequence (Seq2Seq) models can be used.

LSTM networks are especially suited to making predictions based on a series of data points indexed in time order. Even simple convolutional neural networks, applicable to image and video recognition, or recurrent neural networks, applicable to handwriting and speech recognition, can be used.

Why do SaaS companies with usage-based pricing grow faster?

By Richard Dal Porto
Kyle Poyar Contributor
Kyle Poyar is VP of Growth at OpenView.

Today we know of HubSpot — the maker of marketing, sales and service software products — as a preeminent public company with a market cap above $17 billion. But HubSpot wasn’t always on the IPO trajectory.

For its first five years in business, HubSpot offered three subscription packages ranging in price from $3,000 to $18,000 per year. The company struggled with poor churn and anemic expansion revenue. Net revenue retention was near 70%, a far cry from the 100%+ that most SaaS companies aim to achieve.

Something needed to change. So in 2011, they introduced usage-based pricing. As customers used the software to generate more leads, they would proportionally increase their spend with HubSpot.  This pricing change allowed HubSpot to share in the success of its customers.

In a usage-based model, expansion “just happens” as customers are successful.

By the time HubSpot went public in 2014, net revenue retention had jumped to nearly 100% — all without hurting the company’s ability to acquire new customers.

HubSpot isn’t an outlier. Public SaaS companies that have adopted usage-based pricing grow faster because they’re better at landing new customers, growing with them and keeping them as customers.

Image Credits: Kyle Povar

Widen the top of the funnel

In a usage-based model, a company doesn’t get paid until after the customer has adopted the product. From the customer’s perspective, this means that there’s no risk to try before they buy. Products like Snowflake and Google Cloud Platform take this a step further and even offer $300+ in free usage credits for new developers to test drive their products.

Many of these free users won’t become profitable — and that’s okay. Like a VC firm, usage-based companies are making a portfolio of bets. Some of those will pay off spectacularly — and the company will directly share in that success.

Top-performing companies open up the top of the funnel by making it free to sign up for their products. They invest in a frictionless customer onboarding experience and high-quality support so that new users get hooked on the platform. As more new users become active, there’s a stronger foundation for future customer growth.

Yard Stick provides measurement technology to combat climate change

By David Riggs
Jesse Klein Contributor
Jesse Klein is a science, outdoor and business journalist who has written for New Scientist, GreenBiz, The New York Times and WIRED. Having previously worked inside Bay Area startups, she has a deep understanding of the pressing issues facing the businesses of tomorrow.

The solution to the world’s climate change problems could be under our feet, as soil has the potential to store more than three times the amount of carbon in the atmosphere But about 45% of the Earth’s soil is used for agriculture, and most farmland has lost up to 30% of its carbon from unsustainable land management practices.

To turn agricultural land into a thriving carbon sink, farmers need to be able to manage it by shifting to regenerative agriculture practices like reducing tillage, planting cover crops and increasing crop rotations and biodiversity. But you can’t manage something until you can measure it, and that’s where Yard Stick comes in. 

“Soil sequestration can be a really powerful carbon removal technology,” said Chris Tolles, CEO of Yard Stick. “But only if we’ve got really high-quality science and technology helping us measure it.”

Quantifying regenerative agriculture is a challenge, and measuring soil carbon is no exception. The traditional method, dry combustion, requires a lot of leg work. Scientists trudge across acres of land digging up soil samples and mail them thousands of miles to a lab where another scientist burns the soil to calculate the carbon. 

“That is not scalable for obvious reasons,” Tolles said. “We need a measurement technology that can release that bottleneck.” 

Yard Stick hopes to be that technology — a hand-held soil probe to measure carbon soil levels onsite. The Massachusetts-based startup was founded out of the Soil Health Institute using a $3.25 million grant from the U.S. Department of Energy’s Advanced Research Projects Agency-Energy program. This funding exists to specifically help pro-social technology solutions come to market.   

Four soil experts — Dr. Christine Morgan, chief scientific officer of the Soil Health Institute; engineer Kevin Meissner, associate professor at the University of Nebraska; Yufeng Ge; and Alex McBratney from the University of Sydney — combined their research and expertise to create a probe that uses spectral analysis, resistance sensors, machine learning and agricultural statistics to measure and calculate the amount of carbon in an area of soil. Tolles is tasked with bringing the product out of the academic world and into the commercial market. 

The probe is attached to a hand-held drill. The small camera on its tip is tuned to capture the specific wavelengths reflected off of organic carbon using VisNIR spectrometry. Resistance sensors use the force needed to drill the probe into the ground to calculate the density of the soil. With those two inputs, plus a few complicated algorithms and statistical analyses, Yard Stick can calculate the amount of carbon in the ground without ever digging up a sample and mailing it to a lab to be burned.

Soil measurement tool by Yard stick lying on ground

Image Credits: Yard Stick

“One, we can take samples way faster. Number two, the cost is dramatically lower,” Tolles said. “And what that means, three, you’ll get a more accurate measurement of your carbon stock because our technology is so much cheaper and easier, that you can dramatically increase your sampling density.”

Yard Stick is currently working with a few large food companies engaged in regenerative agriculture pilot programs with farms across the United States. Yard Stick doesn’t plan to sell directly to farms. Instead, it works with project developers like these companies. Yard Stick is using these connections to verify its probe is as reliable as the traditional gold standard of carbon soil measuring and to introduce its product and service to farmers. Yard Stick plans to sell a data measurement service, not the hardware itself. 

“None of our customers want to own a spectrometer,” Tolles said. “They don’t know what to do with one even if we made it idiot simple.” 

Yard Stick sends its people out to take the measurements and then provides reports to farmers and other stakeholders that put the data in context, charging per acre. At some point Tolles hopes the device will be simple enough that anyone with a bit of training can use the probe so the number of Yard Stick employees isn’t a rate-limiting factor.

By 2022, Yard Stick hopes to be measuring 200,000 acres using a few thousand probes.

With more data and just as importantly more data sharing, we can begin to turn the ship around on climate change. But data is a sensitive business to be in. 

“We want to acknowledge the limitations of late-stage capitalist worldviews, which don’t often incentivize sharing,” Tolles said. “There’s a real tragic risk here that the information is so valuable that everybody wants to keep it to themselves and the benefits of soil carbon marketplaces only accrue to the same giant industrial agricultural corporations that have had it for so long.”

A few other early-stage companies are also trying to bust open the market for soil carbon, including LaserAg, which works in laboratories instead of in the fields, and CloudAgronomics, which uses satellites for remote measurement of soil health. But Yard Stick’s main competitor is every farm out there that isn’t measuring and managing their carbon stores, which, according to Tolles, is 99.9% of farms.

“Our mission is to avoid catastrophic climate change,” Tolles said. “So I think we’re inclined to be very pro-competitor.” 

 

Dear Sophie: Tips for filing for a green card for my soon-to-be spouse

By Walter Thompson
Sophie Alcorn Contributor
Sophie Alcorn is the founder of Alcorn Immigration Law in Silicon Valley and 2019 Global Law Experts Awards’ “Law Firm of the Year in California for Entrepreneur Immigration Services.” She connects people with the businesses and opportunities that expand their lives.

Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.

“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”

Extra Crunch members receive access to weekly “Dear Sophie” columns; use promo code ALCORN to purchase a one- or two-year subscription for 50% off.


Dear Sophie:

My fiancé is in the U.S. on an H-1B visa, which is set to expire in about a year and a half.

We were originally planning to marry last year, but both he and I want to have a ceremony and party with our families and friends, so we decided to hold off until the pandemic ends. I’m a U.S. citizen and plan to sponsor my fiancé for a green card.

How long does it typically take to get a green card for a spouse? Any tips you can share?

— Sweetheart in San Francisco

Dear Sweetheart:

Congratulations! It’s so wonderful to hear you’re planning to take the next step with your beloved. I understand wanting to wait to have a big wedding and party. However, to avoid the risk that your husband-to-be will have to leave the U.S., I recommend that you get married in a civil ceremony as soon as possible and immediately file for a green card.

Be sure to check out the podcast that my law partner, Anita Koumriqian and I posted on the ins and outs of applying for a fiancé visa (if your fiancé is living outside of the U.S.) or a marriage-based green card.

If your husband has already been sponsored for a green card by his employer and he’s only waiting for his priority date to become current, his employer might be able to renew his H-1B visa beyond six years, which would mean he won’t have to leave the U.S. while he waits for either green card to come through. Keep in mind that due to COVID-19 restrictions and an increase in filings, U.S. Citizenship and Immigration Services (USCIS) is facing significant delays in processing all immigration cases. Currently, USCIS may take more than a year to process marriage-based green card petitions.

To answer your second question, here are my tips for getting a marriage-based green card for your soon-to-be husband:

Ask for employer support

Given that your fiancé’s employer could benefit by retaining him without going through (or needing to complete) the lengthier and more costly process for an employer-sponsored green card, your fiancé should ask his company to cover the legal and filing costs for the marriage-based green card. Your fiancé’s employer will also probably still have to submit an H-1B visa renewal on his behalf.

For a good-faith marriage, marriage-based green cards generally are quicker, less document-intensive and less expensive than getting an employer-sponsored green card. If your fiancé is from India or China, he would face a substantially longer wait for an employee-based green card due to the annual numerical and per-country caps.

There are no numerical or per-country caps on marriage-based green cards for immediate relatives. Because of this, you will be able to file Form I-130 (Petition for Alien Relative), which establishes your relationship to your spouse, and Form I-485 (Application to Register Permanent Residence or Adjust Status) for the green card at the same time (concurrent filing).

A composite image of immigration law attorney Sophie Alcorn in front of a background with a TechCrunch logo.

Image Credits: Joanna Buniak / Sophie Alcorn (opens in a new window)

Hire an immigration attorney

Filing a petition to sponsor a spouse for a green card sounds straightforward, but it requires more than just filling out the appropriate forms. Many couples come to us after going it alone and running into problems or getting denied.

Reducing the spread of misinformation on social media: What would a do-over look like?

By Walter Thompson
Kristen Berman Contributor
Kristen Berman is the co-founder and CEO of Irrational Labs, a behavioral research and design consultancy.
Evelyn Gosnell Contributor
Evelyn Gosnell is a managing director at Irrational Labs, a behavioral research and design consultancy.
Richard Mathera Contributor
Richard Mathera is a managing director at Irrational Labs, a behavioral research and design consultancy.

The news is awash with stories of platforms clamping down on misinformation and the angst involved in banning prominent members. But these are Band-Aids over a deeper issue — namely, that the problem of misinformation is one of our own design. Some of the core elements of how we’ve built social media platforms may inadvertently increase polarization and spread misinformation.

If we could teleport back in time to relaunch social media platforms like Facebook, Twitter and TikTok with the goal of minimizing the spread of misinformation and conspiracy theories from the outset … what would they look like?

This is not an academic exercise. Understanding these root causes can help us develop better prevention measures for current and future platforms.

Some of the core elements of how we’ve built social media platforms may inadvertently increase polarization and spread misinformation.

As one of the Valley’s leading behavioral science firms, we’ve helped brands like Google, Lyft and others understand human decision-making as it relates to product design. We recently collaborated with TikTok to design a new series of prompts (launched this week) to help stop the spread of potential misinformation on its platform.

The intervention successfully reduces shares of flagged content by 24%. While TikTok is unique amongst platforms, the lessons we learned there have helped shape ideas on what a social media redux could look like.

Create opt-outs

We can take much bigger swings at reducing the views of unsubstantiated content than labels or prompts.

In the experiment we launched together with TikTok, people saw an average of 1.5 flagged videos over a two-week period. Yet in our qualitative research, many users said they were on TikTok for fun; they didn’t want to see any flagged videos whatsoever. In a recent earnings call, Mark Zuckerberg also spoke of Facebook users’ tiring of hyperpartisan content.

We suggest giving people an “opt-out of flagged content” option — remove this content from their feeds entirely. To make this a true choice, this opt-out needs to be prominent, not buried somewhere users must seek it out. We suggest putting it directly in the sign-up flow for new users and adding an in-app prompt for existing users.

Shift the business model

There’s a reason false news spreads six times faster on social media than real news: Information that’s controversial, dramatic or polarizing is far more likely to grab our attention. And when algorithms are designed to maximize engagement and time spent on an app, this kind of content is heavily favored over more thoughtful, deliberative content.

The ad-based business model is at the core the problem; it’s why making progress on misinformation and polarization is so hard. One internal Facebook team tasked with looking into the issue found that, “our algorithms exploit the human brain’s attraction to divisiveness.” But the project and proposed work to address the issues was nixed by senior executives.

Essentially, this is a classic incentives problem. If business metrics that define “success” are no longer dependent on maximizing engagement/time on site, everything will change. Polarizing content will no longer need to be favored and more thoughtful discourse will be able to rise to the surface.

Design for connection

A primary part of the spread of misinformation is feeling marginalized and alone. Humans are fundamentally social creatures who look to be part of an in-group, and partisan groups frequently provide that sense of acceptance and validation.

We must therefore make it easier for people to find their authentic tribes and communities in other ways (versus those that bond over conspiracy theories).

Mark Zuckerberg says his ultimate goal with Facebook was to connect people. To be fair, in many ways Facebook has done that, at least on a surface level. But we should go deeper. Here are some ways:

We can design for more active one-on-one communication, which has been shown to increase well-being. We can also nudge offline connection. Imagine two friends are chatting on Facebook messenger or via comments on a post. How about a prompt to meet in person, when they live in the same city (post-COVID, of course)? Or if they’re not in the same city, a nudge to hop on a call or video.

In the scenario where they’re not friends and the interaction is more contentious, platforms can play a role in highlighting not only the humanity of the other person, but things one shares in common with the other. Imagine a prompt that showed, as you’re “shouting” online with someone, everything you have in common with that person.

Platforms should also disallow anonymous accounts, or at minimum encourage the use of real names. Clubhouse has good norm-setting on this: In the onboarding flow they say, “We use real names here.” Connection is based on the idea that we’re interacting with a real human. Anonymity obfuscates that.

Finally, help people reset

We should make it easy for people to get out of an algorithmic rabbit hole. YouTube has been under fire for its rabbit holes, but all social media platforms have this challenge. Once you click a video, you’re shown videos like it. This may help sometimes (getting to that perfect “how to” video sometimes requires a search), but for misinformation, this is a death march. One video on flat earth leads to another, as well as other conspiracy theories. We need to help people eject from their algorithmic destiny.

With great power comes great responsibility

More and more people now get their news from social media, and those who do are less likely to be correctly informed about important issues. It’s likely that this trend of relying on social media as an information source will continue.

Social media companies are thus in a unique position of power and have a responsibility to think deeply about the role they play in reducing the spread of misinformation. They should absolutely continue to experiment and run tests with research-informed solutions, as we did together with the TikTok team.

This work isn’t easy. We knew that going in, but we have an even deeper appreciation for this fact after working with the TikTok team. There are many smart, well-intentioned people who want to solve for the greater good. We’re deeply hopeful about our collective opportunity here to think bigger and more creatively about how to reduce misinformation, inspire connection and strengthen our collective humanity all at the same time.

Investors are missing out on Black founders

By Richard Dal Porto
Craig J. Lewis Contributor
Craig J. Lewis is the founder and CEO of Gig Wage, a simplified fintech payroll platform built for contract workers.

I’m a Black man in America — that’s hard. Black founders, and uniquely Black founders in tech, are facing insurmountable odds.

As the recipients of less than 1% of venture capital raise, institutionalized systems are visibly at play. Within almost 10 years of my entrepreneurial journey, I have encountered just as many setbacks and failures as I have successes.

However, I have pressed forward despite the disparities that often plague the Black entrepreneurial community. From imbalances in fundraising to minimal capital and access, Black brilliance and its cloak of resilience continues to rise.

Now, as a CEO who has ambitiously raised nearly $13 million for my current venture, against the odds, I posit that it is not the Black founders who are missing out the most — it is the investors who are at a loss, not comprehending that they have underestimated the power of these founders’ Black brilliance.

Black founders need to own their resiliency and leverage the power that has resulted from their unique experiences.

When you think about the intersection of venture capital and technology, and specifically how it works — it is being led from an engineering perspective. Developers and coders historically go to specific schools and colleges, entering a funnel that guides them to success.

Historically, many Black students (more so Black male students), are influenced by sports as a vehicle to higher education and not necessarily the institutions recognized for technological prowess.

Their parents and community encourage athleticism because that is the only thing they know — as an institutionalized mindset reinforced over time. Unless they are guided into the accepted foundations for technology, or get into a Cal Berkeley, Stanford or Harvard, where many of the technology companies are built, they are immediately funneled outside of the “circle,” which sets the first of many ongoing obstacles for a Black tech founder.

I offer, however, that these “obstacles” are not in fact barriers but the crucial catalyst for these founders’ superpowers.

Admittedly, there were no entrepreneurs in my family. I did not have access to information about the best colleges. Despite having great grades and graduating with honors, I was completely unaware of how valuable an Ivy League education could be.

As a star basketball player, with my skills and grades, I could have played and graduated from somewhere like Yale, Brown, Columbia or even a school like Southern Methodist University where I was offered a full scholarship. But because of the lack of knowledge that I could actually do so and benefit from being inside the Ivy League “circle,” I didn’t.

I was in college from 2000 to 2004. A lot of great companies were started at elite schools during that period. It is this institutional blocking of information from myself and many other Black students that molded our overall perspective and created our glass ceilings.

Breaking through that glass ceiling, overcoming these odds to press forward relentlessly, with unyielding focus, and to hold conversations with the types of investors I have had to sit in front of, with the type of company that I have built, takes a different level of brilliance that only the Black experience can provide. For 2021 and beyond, Black founders need to not only recognize, but unlock that power as they look to fundraise and catapult their tech companies to success. It would be smart, and incredibly beneficial for investors, venture capitalists and the entire entrepreneurial ecosystem to take heed.

For Black founders, a paradigm shift is evident, but it can only manifest if implemented in these five ways.

Black founders: Forget what you think works in fundraising

Black founders and specifically Black tech founders are fed a monotonous script of how to raise money “the right way,” in light of disparaging statistics highlighting a lack of funding — so much that there is a robotic approach to the process. They try to become this cookie-cutter entrepreneur that is designed to raise money from investors, with their playbook and by their rules.

Black founders capitulate and conform to what society has dictated as appropriate fundraising, often glorifying the investor with the fate of their startup in their hands, without realizing that they hold the negotiating power. Their playbook hasn’t won us any games. As of today, own your power.

Become an irresistible force: Leverage your expertise

Set the playbook aside and lean more into your expertise and uniqueness.

Years ago, Mark Cuban delivered a keynote address at Dallas Startup Week that chronicled his road to success. One of his main points was to “Know your business, and know your business cold.” It was so simple, yet so impactful.

Early on in my career, I learned about venture capital from my experiences working for a startup. While I did not know the area in depth, I referenced what little knowledge I had as I raised for my own company years later. Although I was limited in my dealings with venture capitalists, I was confident in my background and expertise (at that time as a payroll technology sales professional) to truly stake my claim and seat at the table.

So while they may have sold a company for $7 billion or have $35 billion AUM (assets under management), I knew that they were not as well-versed in payroll or payroll technology than I was. It was this tenacious mindset that made me look at investors, rather than up to them, thereby positioning us on equal footing.

Connect in the common goal of brilliance

As a Black founder in tech, I have encountered many injustices — from networking to fundraising to the game of business as a whole. Even among those sitting at the table, there is a plethora of worldviews, political preferences, religious propensities and more that create a melting pot of divisiveness. However, recognizing that the common thread between all of the players in the game is the desire to be part of the brilliant business opportunity at hand is what will ultimately prevail.

It served me well not to overindex whether the venture capitalists liked me or on our differences. Locking in on the ambition of my entrepreneurial spirit and focusing on my brilliance — my Black brilliance — made them want to invest in me. Simplistically, investors want to give their money to founders who will make them money — passionately and ambitiously. Be you and find the investor that appreciates you.

Get in front of as many investors as you can

Black founders are not getting in front of enough investors. Systemically, the venture capital landscape has marginalized this community and has failed to expand their network for inclusiveness. Currently, ethnic minorities are severely underrepresented in the venture capital industry. Eighty percent of investment partners are white, with only a staggering 3% being Black or African-American.

Regardless, Black entrepreneurs must press forward and still show up. The sheer number of people that entrepreneurs must face during the fundraising process is astronomical, so one must not be swayed by the disillusionment of opportunity.

Realistically speaking, it takes a long time to raise money. Period. I have talked to thousands of potential investors to raise nearly $13 million for my current company. If you are a Black founder, it is going to take you longer to fundraise and you are going to have to get in front of more people. So I ask, “Do you have enough oxygen in the tank to withstand the obstacles, for a long enough period of time, to attract the venture capital that you need?The wealth gap says no.

When I first started Gig Wage, the number one question I received from investors is, “How much runway do you have?” I would answer, “Until I get to where I need to get.” They would then rephrase, “How much money do you have in the bank? How long is your wife going to let you do this?” I would reply, “It does not matter how much money I have in the bank because I’m going to keep going until this happens.”

Discriminatively, there was this unspoken expectation that I lacked the financial wherewithal and stamina to withstand the fundraising process, and at times it was extremely discouraging — because to be honest, when I looked in the bank account, I realistically had about nine to 12 months of runway.

The reason Black people raise less than 1% of venture capital is because the racism weaved into the fabric of American society bleeds over into the entrepreneurial ecosystem. Despite it all, I took thousands of meetings. I was willing to endure with an ambitious conviction that I was going to win. Again, this is Black brilliance.

Own your resiliency, own your power 

As a Black man, I have personally endured challenges to build resiliency — mirroring similar realities of other Black men in America. Whether it was dealing with the police or witnessing men in my family struggle with drugs, violence, poverty or the like — I often think, “Why would I be intimidated by an investor meeting or a term sheet?” The construct of America has dealt me much worse.

Black founders need to own their resiliency and leverage the power that has resulted from their unique experiences. The victory mentality that ensues thereafter is the type of mindset that venture capitalists should want to invest in, and if they do not, they are undoubtedly missing out.

The unyielding focus of “The world is stacked against me but I’m not going to quit. I’m going to pivot. I’m going to be resourceful. I’m going to figure it out — even if I’m scared,” is a person you need to invest in. It is not necessarily that they have a groundbreaking business idea, but culturally, Black people have a passion and a perspective that is unmatched, with limitless possibilities that venture capitalists are overlooking.

So for 2021 and well beyond, Black founders, and those especially in tech, need to shift their respective paradigms, own their place within the entrepreneurial space, take back their power and continue to operate at the utmost in Black brilliance. It is the investors, not the founders, that are missing out. Be bold. Be courageous. Be audacious.

As for me, the best thing that I can do right now is to continue to drive the conversation, illuminate the disparities and be as successful for Black entrepreneurs, Black professionals and the world at large as possible. I am owning my power and I’m committed to epitomizing and evangelizing Black brilliance.

4 strategies for deep tech startups recruiting top growth marketers

By Richard Dal Porto
Jessica Li Contributor
Jessica is on the growth marketing team at Zageno, a multivendor, online marketplace for life science products, and is head of content at Elpha, a Y Combinator-backed community of 40,000+ women in tech.

In an earlier article, I wrote about how and when to build go-to-market teams at deep tech companies. There, I noted that it is more important for growth hires at deep tech companies to have functional expertise than industry expertise.

But how do deep tech companies connect and cultivate strong relationships with talented nontechnical growth people outside of their industry? In this article, I answer this question, articulating exactly how to:

  • Write role descriptions that entice talented growth people.
  • Create company marketing materials that brands your startup well to talent.
  • Craft thoughtful end-to-end candidate experiences for growth talent.
  • Close top growth candidates.

Incredible growth people are independent and creative and are drawn to environments that explicitly value these traits.

Write a job description that explains how you operate

Underscore the autonomy. Incredible growth people are independent and creative and are drawn to environments that explicitly value these traits. Growth talent wants to know that they have room to experiment, fail and iterate with the support and trust of their company. Highlight the creative agency you give to your growth team. Paint the role as one of managing a subset of the startup and its initiatives.

Show you are ready for a growth marketer. Do not expect your growth person to be a panacea for the company. Growth people work cross-functionally, but there are boundaries where the growth role starts and ends. Growth people cannot sell a product that is not ready. Growth people cannot fix product bugs. Growth people cannot replace excellent customer service. Ensure your role description is clear on what the growth person would do and what they would lean on other teams for. Demonstrate that you have a team structure in place where a growth marketer could fit in and thrive.

Articulate your talent needs. Growth is a broad category. Some growth marketers are more creative. Others are more quantitative. Some have more industry experience. Others have more functional experience. Be clear on what type of growth marketer you need and how this person’s talents would complement those of the existing team.

Use marketing to share your history and chart the future

Generate excitement and establish credibility. People can naturally be skeptical about new technologies and younger companies. Do anything you can to ameliorate these concerns. Link to relevant news articles from well-known publications and thought leaders in your industry. Incorporate customer testimonials that speak to the transformative impact your product creates. Name drop well-known advisors, investors and team members.

Use today’s tech solutions to meet the climate crisis and do it profitably

By Walter Thompson
Bertrand Piccard Contributor
Bertrand Piccard initiated the Solar Impulse Foundation after his history-making flight around the world in a solar-powered plane. Fueled only by the rays of the sun, his flight proved that existing methods and technologies can provide clean energy and solutions that protect the environment in a profitable way.

Five years ago I landed the Solar Impulse 2 in Abu Dhabi after flying around the globe powered solely by solar energy, a first in aviation history.

It was also a milestone in energy and technology history. Solar Impulse was an experimental plane, weighing as little as a family car and using 17,248 solar cells. It was a flying laboratory, full of groundbreaking technologies that made it possible to produce renewable energy, store it and use it when necessary in the most efficient manner.

The time has come to use technology again to address the climate crisis affecting us all. As we enter the most crucial decade of climate action — and most likely our last chance to limit global warming to 1.5°C — we need to ensure that clean technologies become the only acceptable norm. These technologies exist now and they can be profitably implemented at this crucial moment.

Hundreds of clean tech solutions exist that protect the environment in a profitable way,

Here are just four innovations from our solar-powered plane that the market can start using now before it’s too late.

From insulating the cabin to insulating our homes

The building sector is one of the largest energy consumers in the world. Next to a reliance on carbon-heavy fuels for heating and cooling, poor insulation and associated energy loss are among the main reasons.

Inside Solar Impulse’s cockpit, insulation was crucial for the plane to fly at very high altitudes. Covestro, one of our official partners, developed an ultra-lightweight and insulating material. The cockpit insulation performance was 10% higher than the standards at the time because the pores in the insulating foam were 40% smaller, reaching a micrometer scale. Thanks to its very low density of fewer than 40 kilograms per cubic meter, the cockpit was ultra-lightweight.

This technology and many others exist. We now need to ensure that all market players are motivated to make hyperefficient building insulation their standard operating procedure.

From propelling an electric aircraft to propelling clean mobility

Solar Impulse was first and foremost an electric airplane when it flew 43,000 km without a single drop of fuel. Its four electric motors had a record-beating efficiency of 97%, far ahead of the miserable 27% of standard thermal engines. This means that they only lost 3% of the energy they used versus 73% for combustion propulsion. Today, electric vehicle sales are soaring. According to the International Energy Agency, when Solar Impulse landed in 2016, there were approximately 1.2 million electric cars on the road; the figure has now risen to over 5 million.

Nevertheless, this acceleration is far from enough. Power sockets are still far from replacing petrol pumps. The transport sector still accounts for one-quarter of global energy-related CO2 emissions. Electrification must happen much more quickly to reduce CO2 emissions from our tailpipes. To do so, governments need to boost the adoption of electric vehicles through clear tax incentives, diesel and petrol engine bans, and major infrastructure investments. 2021 should be the year that puts us on a one-way road to zero-emission vehicles and puts thermal engines in a dead end.

An aircraft microgrid can work for off-grid communities

To fly for several days and nights, reaching a theoretically endless flight potential, Solar Impulse relied on batteries that stored the energy collected during the day and used it to power its engines during the night.

What was made possible with Si2 on a small scale should guide the way to future-proofing power-generation systems that are made up entirely of renewable energy. In the meantime, microgrids, like those used in Si2, could benefit off-grid systems in remote communities or energy islands, allowing them to abolish diesel or other carbon-heavy fuels already today.

On a larger scale, we are looking at smart grids. If all “stupid grids” were replaced by smart grids, it would allow cities, for example, to manage production, storage, distribution and consumption of energy and to cut peaks in energy demand that would reduce CO2 emissions dramatically.

Energy efficiency in the air and on the ground

Solar Impulse’s philosophy was to save energy instead of trying to produce more of it. This is why the relatively small amount of solar energy we collected became enough to fly day and night. All the airplane parameters, including wingspan, aerodynamics, speed, flight profile and energy systems, had therefore been designed to minimize energy loss.

Unfortunately, this approach still stands out against the inefficiency of most of our energy use today. Even though the IEA found energy efficiency improved by an estimated 13% between 2000 and 2017, it is not enough. We need bolder action by policymakers to encourage investors. One of the best ways to do so is to put strict energy efficiency standards in place.

For example, California has set efficiency standards on buildings and appliances, such as consumer electronics and household appliances, estimated to have saved consumers more than $100 billion in utility bills. These measures are as good for the environment as they are for the economy.

Si2 was the future; now, it should define the present

When we used all these different innovations to build Solar Impulse, they were groundbreaking and futuristic. Today, they should define the present; they should be the norm. Next to the technologies mentioned above, hundreds of clean tech solutions exist that protect the environment in a profitable way, many of which have received the Solar Impulse Efficient Solution Label.

Just as for the Si2 technologies, we must now ensure that they enter the mainstream market. The faster we scale them, the faster we will set our economy on track to achieve the Paris Agreement goals and attain sustainable economic growth.

How Bitcoin is helping middle-class users survive the pandemic

By David Riggs
Leigh Cuen Contributor
Leigh Cuen is a reporter in New York City. Her work has been published by Vice, Business Insider, Newsweek, Teen Vogue, Al Jazeera English, The Jerusalem Post, and many others. Follow her on Instagram at @leighcuen.

Regulators may still want to imply Bitcoin is merely a tool for criminals, but for many middle-class users, it’s proving to be a lifeline.

Even as politicians like European Central Bank President Christine Lagarde criticize cryptocurrency for providing “loopholes” used for “funny business,” people like Saeed, an Iranian immigrant to France, see cryptocurrency as a necessity, because of the difficulty using mainstream financial systems.

Until 2020, Saeed, who asked to be identified only by his first name, was a software engineer in Iran whose salary barely reached €300 due to rampant inflation. In 2017, he started freelancing for international clients that paid him in Bitcoin. By September 2020, he’d finally saved enough Bitcoin to go to graduate school in France. However, the pandemic made his immigration process much harder.

“I passed all that strange bureaucracy and to get to a course in France last September, with only €1,000 in my pocket,” Saeed said. “HSBC, Banque Nationale de Paris, La Banque Postale, all rejected me, declining to open a bank account. I finally found a bank after a month.”

In the meantime, Saeed used Bitcoin. He is exactly the type of person who benefits from “loopholes” in the traditional banking system.

“Many people in Iran are working with European tech companies,” Saeed said. “Maybe I can’t buy Bitcoin directly from the exchange because of my nationality.”

Saeed thinks Lagarde represents bankers’ and government interests, not average citizens, who are happy to work with him. He said stricter regulations would make his access to the financial system more time-consuming and expensive, because he’d have to pay friends and colleagues to transact on his behalf. However, Iranian migrants are hardly the sole user group relying on Bitcoin during the pandemic.

In the United Kingdom, a British expat named Paul found himself trapped in London when flights back to his Asian country of residence got canceled. Due to tight capital controls in his former country, and the challenges of repatriation during constant lockdowns, Paul was living in between regulatory systems.

“I closed down the business [in Asia] just before the pandemic started. My father passed away and it was difficult to continue my company,” Paul said. “I was in hotels and Airbnbs for weeks and didn’t have a residential address…without Bitcoin I would have been locked out of cash. I could only take money out of the ATM for a certain number of months because it’s limited to holidays.”

Luckily, Paul had a little Bitcoin from earlier that year. Unlike Saeed, he didn’t feel comfortable with the technical aspects, but he learned quickly. He used Bitcoin to buy gift cards for groceries, phone bills, hotels and Uber, plus paid a friend back in Asia to help wrap up his apartment and put things in storage.

“I think it was generally a bad idea but, at least with Brexit, thank god we won’t be subject to whatever Lagarde does,” Paul said, adding that regulation can be beneficial if it avoids restrictions for people who don’t have banking access.

Today, almost a year later, Paul still doesn’t have access to most of his financial accounts. Instead, he downloaded Monzo, a banking app that uses passports for identity verification instead of residential addresses. He pays friends in London to deposit to his Monzo account.

“It becomes really convoluted. I primarily use crypto because it’s easier,” Paul said. “One of my friends is a student from Nigeria and had a similar experience. He used Bitcoin to pay his school fees… I’ve been at my current residence for a couple of months, so I would be able to finally open a bank account. But now I don’t really see the need, especially with the news of negative interest rates.”

Meanwhile, the fiat-denominated price of Bitcoin surged over the past six months. This provided Saeed and Paul both with a little extra capital to spend time figuring out what they want to do next. For Saeed, does it make sense to do the graduate program online, with fewer networking benefits and hands-on experiences (the reason he came to France)? How does Paul move forward with his career now that his family business closed and his sector (music marketing) is in shambles? 

Buying Bitcoin could be considered a form of gambling. Indeed, many middle-class hobbyist traders accrued life-changing amounts of wealth over the past year, usually by experimenting with risky software. For people like Paul and Saeed, who generally avoid experimental trades and lack alternative investment options, Bitcoin’s price appreciation is helping them get through a period of abysmal job markets and intermittent lockdowns. People don’t need to live in a dictatorship or a country suffering from high inflation to benefit from Bitcoin. I would know; I’m one of them. 

Like many people during the pandemic, my living situation changed dramatically and I initially couldn’t work full-time from home. I was lucky to sell a few poems in exchange for cryptocurrency, usually via direct messages and Bitcoin wallets or as digital collectibles through collaborations with tech-savvy artists. Then the bull market surged again, sending those meager earnings high enough to cover some of my bills. A valet worker and student in Kansas named Hess had a similar experience. 

Quarantine helped kill his relationship of six years and he found himself needing to move out. He put his savings into Bitcoin during spring 2020, so that by December he was able to move out.

“COVID hit and I was out of steady work for four months,” Hess said. “Honestly, if it wasn’t for my decision to basically throw 70% of my net worth into Bitcoin, I don’t think I would be in as good of a place mentally and financially.”

To be clear, that is an extremely risky financial move and I would not advise it as a first resort. Yet, for many people experiencing unexpected change due to COVID-19, Bitcoin has become the lifeline it was for Hess.

Over the past year, Bitcoin donations may have gained popularity with several American communities, including some of the extremist groups involved with storming Capitol Hill. Incoming Treasury Secretary Janet Yellen echoed Lagarde’s concerns about Bitcoin being used for criminal activities.

However, so far, the analytics company Chainalysis estimates such donations add up to roughly $522,000. These numbers might also be compared to the cumulative totals managed by other subjects referenced in this article. For yet another lawful example, Lawrence Douglas, a former operations director at an event security company in California, lost his job as a result of the pandemic.

“Cash App pretty much changed my financial life,” Douglas said. “Bitcoin prices during the calendar year of 2020 provided me with lots of wiggle room, while I currently search for a new job.”

As an unemployed Black man, he was statistically less likely to have connections who could help him learn about stocks or precious metals, for example. He said Bitcoin, comparatively, has a “low barrier to entry.” In April 2020, he turned his stimulus check into a little Bitcoin nest egg. By November, he was utilizing a strategy called dollar-cost averaging, routinely buying small amounts of Bitcoin.

Douglas, like Paul, first bought cryptocurrency during the pandemic. On the other hand, when I interviewed more than a dozen Bitcoin users across Europe and North America for this article, most of them were crypto veterans who said Bitcoin gave them “peace” during the year-long crisis. Anesthesiologist Quentin Lobb, for example, said “bottom line, our net worth grew tremendously in 2020, thanks to Bitcoin. It has provided a pleasant and exciting sense of financial security.”

Yet another crypto veteran, Texas real estate agent broker Brandon Arnold, said the national political and economic situation was more “mentally taxing than ever before.” Against that backdrop, controlling a fraction of his own wealth gives him a sense of security. The price appreciation helps too, to be sure, though it’s not why Bitcoin is now so popular with middle-class users.

“If I factor in the risk of not having access to my capital, the price volatility doesn’t really matter,” Paul said. “As long as the price of Bitcoin doesn’t go to zero, it’s still more useful for me than the other options available.”

 

Dear Sophie: What are Biden’s immigration changes?

By Walter Thompson
Sophie Alcorn Contributor
Sophie Alcorn is the founder of Alcorn Immigration Law in Silicon Valley and 2019 Global Law Experts Awards’ “Law Firm of the Year in California for Entrepreneur Immigration Services.” She connects people with the businesses and opportunities that expand their lives.

Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.

“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”

Extra Crunch members receive access to weekly “Dear Sophie” columns; use promo code ALCORN to purchase a one- or two-year subscription for 50% off.


Dear Sophie:

I work in HR for a tech firm. I understand that Biden is rolling out a new immigration plan today.

What is your sense as to how the new administration will change business, corporate and startup founder immigration to the U.S.?

—Free in Fremont

Dear Free:

Today is a historic day. The pace of change is accelerating now, especially in Washington. At the time of this writing, Biden is expected to imminently launch a new legislative proposal for comprehensive immigration reform. As the world sits back and watches, we are focusing great collective attention on upgrading our political, sociological and technological structures so that each human has the chance to succeed.

One of the things I adore about my practice of supporting international professionals with U.S. immigration is bearing witness to the process of individual transformation; it is an honor to support people in their personal journey from living in a world of effects to becoming the cause.

The immediate focus of the proposed legislation is centered around a solution for Dreamers (who are in the U.S. without documentation) as well as supporting the rights of refugees and asylum-seekers and children. For more of my recent thoughts on this topic, check out my recent podcast explaining many of the changes. The draft bill is expected to span hundreds of pages, so please follow this Dear Sophie column for more updates as I track and explore the details, especially related to tech immigration.

Innovation will be supported by many new immigration opportunities coming into greater focus. Biden’s campaign platform celebrated how “Immigrants are essential to the strength of our country and the U.S. economy.” The Biden team has prioritized immigration as a key focus within COVID, with an immediate goal of rewriting most Trump-era rules. For context, Trump issued more than 400 immigration-related executive orders and proclamations during his term.

H-1Bs: Although H-1Bs have been in the news a lot regarding new wage rules changing the order of the lottery and litigation, the lottery is still happening this spring, and if you want to sponsor candidates, the time to act is now, regardless of what is happening in Washington. If your company is planning on sponsoring individuals for an H-1B visa — whether they’re already living in the U.S. or are living abroad — I suggest that you continue to prepare for the upcoming H-1B registration period.

Joe Biden’s new gig

By Walter Thompson
Jim Messina Contributor
Jim Messina is a political and corporate advisor and CEO of The Messina Group. He previously served as the White House Deputy Chief of Staff for Operations under President Barack Obama from 2009 to 2011 and as the campaign manager for Obama's successful 2012 re-election campaign.

After serving as Obama-Biden campaign manager and White House Deputy Chief of Staff and now living in San Francisco and working with the tech sector, I am hopeful about the Biden-Harris administration’s ability to put in place smart policies and regulatory stability to further unleash the industry’s vast potential — not to mention the effect their calm and measured leadership could have on our greater economy.

However, with new leadership comes new perspectives on many of the most critical issues facing Silicon Valley. While the bonds between the innovation economy and the Obama-Biden Administration resulted in national prosperity, the tech sector is now intertwined in nearly every facet of American life.

The resulting tension means the new Administration will take its role as regulator seriously and investors and businesses alike should not overlook how quickly President Biden will move on policy – especially as it relates to the future of work and getting the U.S. economy back on track.

There’s no question the gig companies had a banner year in 2020. Even with ride-hailing usage down dramatically, the strength of meal, grocery and just about everything else delivered combined with the victory in California of Proposition 22 has driven up market caps and positioned many startups for going public. Yet, while the West Coast may be feeling emboldened, the Beltway has another trajectory in mind.

Congress has been working on gig worker classification legislation named the PRO Act for months. The bill closely mirrors the maligned California Assembly Bill 5 that Proposition 22 mostly reversed. It’s broadly supported by labor and could see some traction this year. Labor is already working hard to line up support from the various Congressional coalitions, and at the same time gig economy companies are gearing up to fight it with their unlimited resources.

The question is – what will President Biden do? Long ago he voiced his support for AB 5 and laid out plans to solve worker misclassification during the campaign, but he’s also hiring and appointing staff to the Administration deeply experienced in tech. President Biden has been governing longer than most startup founders have been alive, he’s a master at understanding forces in Washington and how to reach a compromise. He knows that what’s rarely discussed during legislative debate is how the law will actually be implemented.

We shouldn’t be surprised if the Biden Administration convenes the Department of Labor and the industry to determine how companies actually enact worker protections.

Despite most bills being thousands of pages, they’re rarely prescriptive. Those details are left up to agencies. President Biden has oversight of the Department of Labor, which, if the PRO Act is passed, will be responsible for its implementation.

We shouldn’t be surprised if the Biden Administration convenes the Department of Labor and the industry to determine how companies actually enact worker protections. President Biden’s nominee for Labor Secretary, Boston Mayor Marty Walsh, while a staunch supporter of labor, is also well regarded by the business sector as someone they can work with and reach a compromise.

We just have to look to the states to understand why this outcome is so plausible. The gig companies already have Proposition 22 type campaigns underway in six states and are running legislation in a half dozen more. By the end of 2021 there will be law on the books codifying worker protections in nearly a third of the country, modeled on Proposition 22.

This kind of momentum is hard to ignore and labor knows it. Although labor is aligned in its support of the PRO Act, the alignment becomes blurry when considering state action. For example, many northeastern states have had a thriving black car and taxi industry for decades.

This means Labor’s position on gig laws in New York and New Jersey are quite different than places like Washington State or Illinois where gig workers are still relatively new and the ink is drying on regulations supported by Uber and Lyft just a few years ago. Labor is aligned as much as they can be and enough to support the PRO Act, but there isn’t a national movement and that leaves room for compromise.

This is all good news for the tech sector. It’s a fantasy to think that regulation wouldn’t eventually come to protect the very workers who power the gig economy. And that’s a good thing – tech has a moral responsibility to do right by its workers. However, those regulations shouldn’t and won’t be imposed on tech. Rather it will take weeks and months of campaigns and bills winding their way through the states and Congress, culminating with negotiations and compromises.

Or maybe even years of renewed regulatory processes. All of which will be overseen by a new President who has witnessed first-hand over his career how innovation can help the nation grow and recover.

After four years of Trump’s stubborn denialism, magic thinking and economic harm, Biden will promote policy rigor, public spiritedness and private sector ingenuity to work together for innovative solutions. It will be hard work and I promise you it won’t be pretty, but we should expect the dawn of a new era of U.S. tech-driven dynamism.

It may not be as glamorous as D2C, but beauty tech is big money

By Walter Thompson
Sindhya Valloppillil Contributor
Sindhya Valloppillil is the founder and CEO of Skin Dossier, a venture partner at Next Gen Ventures, a freelance writer and formerly a beauty industry executive and marketing professor.

Last week, Procter & Gamble (P&G) announced that it was terminating plans to acquire razor startup Billie following a U.S. Federal Trade Commission lawsuit to stop the deal.

Last year, Edgewell Personal Care ditched its debt-heavy $1.37 billion deal for Harry’s, Inc, formerly valued at $1 billion after the FTC sought to block the acquisition.

In addition to these FTC challenges, it is also now becoming clear that relying on VC-subsidized products and celebrating outrageous valuations can be problematic for D2C brands. With a few wonderful and rare exceptions such as Rothy’s (which raised $42 million but was profitable from the beginning and generated $140 million in revenue within two years of launching), D2C unicorns are addicted to the cycle of venture funding to feed growth in order to maintain a high valuation multiple.

The path to profitability has become a more important part of the startup story versus growth at all costs.

This works for a while; however, when the path to profitability appears murky and exit options either don’t appear or only appear from nontech companies with very conservative multiples, the walls start crumbling.

In a WWD article, Odile Roujol, the former CEO of Lancôme who launched venture fund FAB Ventures, said, “Generally speaking, the era of $1 billion valuations for beauty companies is over. The people that struggle have been the companies that spend so much money in just a few years.” She went on to say, “The big corporations now … are not ready to spend $1.2 billion, $1.5 billion on such a brand like Glossier.”

This change in sentiment from acquirers is further fueled by recent research on the challenges of turning hypergrowth companies profitable. In his Harvard Business School case study “Direct to Consumer Brands,” Professor Sunil Gupta wrote, “Acquiring DTC brands is easy for incumbent conglomerates, but making them profitable is challenging. More than three years after Unilever acquired Dollar Shave Club, it was still unprofitable.”

Unilever executives learned that the average cost of acquiring a new customer online was about the same as in stores. David Taylor, CEO of P&G, said his company was still figuring out how to turn recently acquired direct-to-consumer brands into profitable businesses.

Taylor summarized this dilemma, saying, “There are many, many launches that grow fast … a business model that makes money is a higher challenge.” Since making these realizations, incumbent conglomerates will be more cautious when considering the acquisition of hyped D2C brands that raised lots of venture capital.

Beauty tech is a better bet: Meitu and Perfect Corp.

What’s cooler than beauty companies that are (or were) valued at $1 billion? Beauty tech SaaS companies that are worth $5.2 billion at IPO. We don’t hear much about the leading global beauty tech companies such as Meitu and Perfect Corp. because their founders are not celebrity influencers, they don’t have massive Instagram followings here in the U.S. and they are not celebrated in our media. Although their companies are based in Asia and they raised money mostly from Chinese investors, their companies are global successes.

15 steps to fundraising a new VC or private equity fund

By Walter Thompson
David Teten Contributor
David Teten is founder of Versatile VC and writes periodically at teten.com and @dteten.

Launching is easy; fundraising is harder.

I’ve been fortunate to be a partner at two different VC firms over the past nine years, and we’ve grown AUM 10x both times.

Based on my experience, taking the 15 steps below will help build the core of a high-performing fundraising and investor relations function.

1. Build the firm as much as possible before soliciting LPs

The more baked you are, the more investable you are. The best possible move is to invest in and warehouse some special purpose vehicles that fit your strategy. However, that may distract you from the larger goal of raising a fund, not just a special purpose vehicle.

The next best move is to build your core team, e.g., recruit an advisory board, venture partners and EIRs. Lastly, gather feedback. Yohei Nakajima, founder of Untapped.vc, said, “Before pitching LPs and building my firm, I talked with over 50 people I knew to get feedback.”

2. Set up a basic marketing toolkit: Deck, website and social media

It’s virtually mandatory to develop a detailed, data-backed deck and ideally a video pitch. Your materials should ideally meet the expectations of the Institutional Limited Partners Association, even if you’re not targeting institutions. Keep these documents constantly up to date, so all team members are aligned on key numbers, e.g., total dollars raised so far. You’ll look unprofessional if you’re not coordinated.

Fundamentally, almost no one invests based on a deck; they want to talk with the people. However, a high-credibility deck opens the door to a meeting where you then have the chance to sell yourself.

Note that limited partners view formatting as a proxy for professionalism. It’s worth investing a little money in a graphic designer who can design a consistent website, business card, logo and presentation templates.

Richard Dukas, CEO, Dukas Linden Public Relations, said, “If you don’t have a website and have no material online presence, you likely won’t get past the first hurdle with potential investors.”

When you’re fundraising, you’re selling a luxury good. The less widely marketed your fund, the more valuable it is perceived to be. For example, one LP told me she prefers to receive customized emails from fund principals, as opposed to a bulk-mailed quarterly update. An extreme example of this are venture capitalists who don’t even bother with a website, e.g., Benchmark and Thrive Capital. They are the equivalent of a nightclub with an unmarked door, but other investors will need to shape up their social media tech stack.

3. Make your online profile data-driven and internally consistent

All team members should have internally consistent and professional profiles on Linkedin at a minimum and typically also on Twitter, Facebook and/or other platforms you use. In particular, highlight the metrics by which you measured your past activities: size of exit, number of people you managed, budget you were responsible for, etc.

4. Set up a data room with a completed due diligence questionnaire

Among the most important information to include: details on return history, legal documents, fund organization chart, portfolio construction model, portfolio company one-pagers, key personnel resumes and case studies of past investments. We are using Digify to manage this.

5. Prepare FAQs for prospective LPs

You will inevitably receive a wide range of one-off questions from potential LPs. Make sure to compile all your answers in a single document so that you can recycle and refine these answers.

12 ‘flexible VCs’ who operate where equity meets revenue share

By Walter Thompson
David Teten Contributor
David Teten is founder of Versatile VC and writes periodically at teten.com and @dteten.
Jamie Finney Contributor
Jamie Finney is a founding partner at Greater Colorado Venture Fund, where he blogs about his work on VC and small communities.

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.

An argument against cloud-based applications

By Walter Thompson
Michael Huth Contributor
Professor Michael Huth (Ph.D.) is co-founder and CTO of Xayn and teaches at Imperial College London. His research focuses on cybersecurity, cryptography and mathematical modeling, as well as security and privacy in machine learning.

In the last decade we’ve seen massive changes in how we consume and interact with our world. The Yellow Pages is a concept that has to be meticulously explained with an impertinent scoff at our own age. We live within our smartphones, within our apps.

While we thrive with the information of the world at our fingertips, we casually throw away any semblance of privacy in exchange for the convenience of this world.

This line we straddle has been drawn with recklessness and calculation by big tech companies over the years as we’ve come to terms with what app manufacturers, large technology companies, and app stores demand of us.

Our private data into the cloud

According to Symantec, 89% of our Android apps and 39% of our iOS apps require access to private information. This risky use sends our data to cloud servers, to both amplify the performance of the application (think about the data needed for fitness apps) and store data for advertising demographics.

While large data companies would argue that data is not held for long, or not used in a nefarious manner, when we use the apps on our phones, we create an undeniable data trail. Companies generally keep data on the move, and servers around the world are constantly keeping data flowing, further away from its source.

Once we accept the terms and conditions we rarely read, our private data is no longer such. It is in the cloud, a term which has eluded concrete understanding throughout the years.

A distinction between cloud-based apps and cloud computing must be addressed. Cloud computing at an enterprise level, while argued against ad nauseam over the years, is generally considered to be a secure and cost-effective option for many businesses.

Even back in 2010, Microsoft said 70% of its team was working on things that were cloud-based or cloud-inspired, and the company projected that number would rise to 90% within a year. That was before we started relying on the cloud to store our most personal, private data.

Cloudy with a chance of confusion

To add complexity to this issue, there are literally apps to protect your privacy from other apps on your smart phone. Tearing more meat off the privacy bone, these apps themselves require a level of access that would generally raise eyebrows if it were any other category of app.

Consider the scenario where you use a key to encrypt data, but then you need to encrypt that key to make it safe. Ultimately, you end up with the most important keys not being encrypted. There is no win-win here. There is only finding a middle ground of contentment in which your apps find as much purchase in your private data as your doctor finds in your medical history.

The cloud is not tangible, nor is it something we as givers of the data can access. Each company has its own cloud servers, each one collecting similar data. But we have to consider why we give up this data. What are we getting in return? We are given access to applications that perhaps make our lives easier or better, but essentially are a service. It’s this service end of the transaction that must be altered.

App developers have to find a method of service delivery that does not require storage of personal data. There are two sides to this. The first is creating algorithms that can function on a local basis, rather than centralized and mixed with other data sets. The second is a shift in the general attitude of the industry, one in which free services are provided for the cost of your personal data (which ultimately is used to foster marketing opportunities).

Of course, asking this of any big data company that thrives on its data collection and marketing process is untenable. So the change has to come from new companies, willing to risk offering cloud privacy while still providing a service worth paying for. Because it wouldn’t be free. It cannot be free, as free is what got us into this situation in the first place.

Clearing the clouds of future privacy

What we can do right now is at least take a stance of personal vigilance. While there is some personal data that we cannot stem the flow of onto cloud servers around the world, we can at least limit the use of frivolous apps that collect too much data. For instance, games should never need access to our contacts, to our camera and so on. Everything within our phone is connected, it’s why Facebook seems to know everything about us, down to what’s in our bank account.

This sharing takes place on our phone and at the cloud level, and is something we need to consider when accepting the terms on a new app. When we sign into apps with our social accounts, we are just assisting the further collection of our data.

The cloud isn’t some omnipotent enemy here, but it is the excuse and tool that allows the mass collection of our personal data.

The future is likely one in which devices and apps finally become self-sufficient and localized, enabling users to maintain control of their data. The way we access apps and data in the cloud will change as well, as we’ll demand a functional process that forces a methodology change in service provisions. The cloud will be relegated to public data storage, leaving our private data on our devices where it belongs. We have to collectively push for this change, lest we lose whatever semblance of privacy in our data we have left.

Dear Sophie: What’s the new minimum salary required for H-1B visa applicants?

By Walter Thompson
Sophie Alcorn Contributor
Sophie Alcorn is the founder of Alcorn Immigration Law in Silicon Valley and 2019 Global Law Experts Awards’ “Law Firm of the Year in California for Entrepreneur Immigration Services.” She connects people with the businesses and opportunities that expand their lives.

Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.

“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”

Extra Crunch members receive access to weekly “Dear Sophie” columns; use promo code ALCORN to purchase a one- or two-year subscription for 50% off.


Dear Sophie:

I’m a grad student currently working on F-1 STEM OPT. The company I work for has indicated it will sponsor me for an H-1B visa this year.

I hear the random H-1B lottery will be replaced with a new system that selects H-1B candidates based on their salaries. How will this new process work?

— Positive in Palo Alto

Dear Positive:

Thanks for your timely question! The Department of Homeland Security (DHS), which oversees U.S. Citizenship and Immigration Services (USCIS), finalized a new rule last week (Jan. 8), that replaces the random H-1B lottery with a pay-to-play system. There may be litigation that could change things before this year’s selection process, but interestingly, removing the randomness from the H-1B lottery is one point on which both Biden and Trump agree.

To find out more about all the changes that will impact this year’s H-1B process and how to prepare, register for our upcoming webinar on Jan. 20, on how to Get Ready for the H-1B FY2022 Lottery. In the meantime, listen to my recent H-1B podcast in which I discuss what the 2021 lottery will look like, and download our free H-1B guide. Also, check out the podcast episode on What Makes a Strong H-1B Petition.

Under this new wage-based H-1B allocation system, which is slated to go into effect on March 9, USCIS will select H-1B registrants based on the highest relative wages paid, taking into account the job, where it will be done and the job level (think of it like a career stage). This change is aimed at encouraging employers to offer higher salaries and higher-skilled positions to H-1B candidates to better protect the wages and working conditions of U.S. workers and increase the likelihood that H-1B visas will be awarded to the best and the brightest individuals. In a nutshell, this is great news for Silicon Valley companies that have cash and need to remove risk.

While the new rule substantially increases predictability in the “lottery” process, it may make it more difficult for companies that are unfunded, pre-revenue early-stage startups to get H-1B visas for founders or employees, particularly since other forms of compensation, such as equity or stock options, are not considered wages. So the lesson here is to get some predictable revenue or runway prior to Q2 when you need to submit the I-129 petition so you can demonstrate the “ability to pay” at a higher wage level.

Is there still room in the cloud-security market?

By Walter Thompson
Kelley Mak Contributor
Kelley Mak is a principal at Work-Bench, where he focuses on early-stage enterprise technology investments in areas including security, cloud and developer tools.

While the initial shock of the COVID-19 pandemic has subsided for businesses, one of its main legacies is how it ushered in a tidal wave of accelerated digital transformation.

A recent Twilio survey revealed that 97% of global enterprise decision-makers believe the pandemic sped up their company’s digital transformation, and on top of that, 79% of the respondents said that COVID-19 increased the budget for digital transformation.

As technology becomes the driving force of competitive differentiation, cloud plays a key role in making this a reality and impacts everything from data and analytics to the modern workplace. Cloud-based infrastructure promises more flexibility, scale and cost-effectiveness, as well as enables enterprises to have more agile application development and keep up with service demand.

What’s clear is that despite shortfalls in security, innovation in cloud and infrastructure will charge ahead.

Even with all of the hype and excitement around cloud’s potential, it is still early days. In his recent keynote at AWS re:Invent, the AWS CEO Andy Jassy mentioned that spending on cloud computing is still only 4% of the overall IT market. And a Barclays CIO survey found that enterprises have 30% of their workloads running in the public cloud, with the expectation to increase to 39% in 2021.

It’s become clear that the movement to cloud has its barriers and that large enterprises are often skittish to make the jump. Flexera’s State of the Cloud 2020 report outlined some of these top cloud challenges, citing security as #1. This has been widely apparent in conversations that I’ve had with Fortune 500 CISOs and security teams, who are wary of the shift from their current state of security operations. Some of the major concerns brought up include:

  • No longer your own master. When working with the public cloud providers, companies must relinquish control to some aspects of back-end management. This is tough for large enterprises who have a history of customizing products because you can’t completely tailor the environment to your liking and are limited to what’s on the cloud service provider’s platform.
  • Lack of standardization. Each cloud provider has their own solutions and own intricacies. Add to that other pitfalls, like an unknown cadence of updates, there is an opaqueness to interoperability and policies can’t be uniformly applied across environments.
  • Requires a new skill set. Lack of resources/expertise ranks among the top challenges for enterprises. A recent report on challenges in cloud transformation found that 86% of IT decision-makers believe shortage of talent will slow down 2020 cloud projects.

Equal access to capital and entrepreneurship is the final civil rights movement

By Walter Thompson
Joseph Heller Contributor
Joseph Heller is a small businesses expert and the CEO of Supplied, a wholesale platform for small businesses and brands that makes it easier for boutique owners to access high-quality, affordable items.

Context is always important. In the grand scheme of things, I have privilege: I was born a male, in the most powerful country in the world, during the most prosperous time in history, to parents who both went to college, all in a middle-class neighborhood.

I could have been born during my dad’s generation when there were still signs that said “Whites Only” and he was barred from entry. Even now, the fact that I’m half-Jewish and look more ambiguous than “Black” has been a privilege.

But despite my privilege, I’m also confident that my Black heritage made it more difficult for me to raise venture capital. It’s a reality that goes against the classic Silicon Valley ethos: strive for perfection and constantly improve.

It’s in our national interests to make becoming an entrepreneur as egalitarian as possible.

Today — and the data proves this — if you are a white male, you have an unfair advantage when looking to raise venture capital. This doesn’t take anything away from the brilliant white male entrepreneurs that have built incredible companies, but it has made an equivalent crowd of Black founders almost nonexistent.

As a nation we know the benefits of encouraging entrepreneurship across backgrounds: Entrepreneurs create jobs, spark innovation and allow us to maintain our position as the most competitive nation on the planet. It’s in our national interests to make becoming an entrepreneur as egalitarian as possible, and yet we’ve fallen remarkably short of that goal across both race and gender.

I moved to southern China shortly after graduating from UC Berkeley. A lot of my decision-making process at the time was more subconscious, but I always had this feeling that as a Black male, I wasn’t going to get fair treatment working for a large company; I always knew my path to success was through being an entrepreneur and creating my own company. China, not the U.S., seemed the place to do that.

I fell in love with the entrepreneurial spirit of China. And surprisingly, as a foreigner in China, I felt that I wasn’t judged in the context of race. They saw me as an American that could bring them business opportunities and that was it, I felt that I was judged more on the merits of the value that I could bring than I would in the U.S. — and it was refreshing. Spurred by opportunities, I started a successful import and export business in China, and after a few years I had over 30 employees. I loved the experience of working with factories and I found it mesmerizing watching products that we use and wear being made.

At that time, my clients were larger U.S.-based retailers and brands. I could see the growth of Shopify and how this deceptively simple e-commerce product, plus marketing tools like Instagram, allowed small businesses to sell online and market their products in ways that had only been accessible to my larger clients years before. But I kept thinking that there was no equivalent inroad for small businesses to vast resources of supply chain and manufacturing.

That was the reason I founded The/Studio, a custom manufacturing platform that would give small businesses access to factories so that they could easily manufacture products in low quantities, without having to deal with all of the hassle and risks associated with manufacturing — just like the big brands.

At the time, I didn’t even know that raising venture capital was a possibility. And really, this was where my race became an obstacle. Those closer to the concentric circles of venture capital know that venture capital exists and they know how to access it.

Those that are further away don’t know how it truly can scale your company, let alone how to access it. Now, when you have a commodity like capital that is a closely held resource to a favored few, that’s called elitism and cronyism. I believe it’s the antithesis of what Silicon Valley is supposed to stand for and it’s detrimental to America’s ability to lead on a global, entrepreneurial scale.

By 2016, without capital, I had bootstrapped the company to eight digits in revenue. We had more than 100 employees and the business was profitable. I knew that there was a much larger opportunity for us to take advantage of — the same one Shopify seized on — but I felt that I didn’t have the financial resources, nor the knowledge at the time, to really grow the business in the way that I thought was possible or responsible.

It was at this time that I started to understand that at this point in a technology company’s trajectory, they really need venture capital to put fuel to the fire. Not just for the money, though that helps — we needed the counsel and guidance that often comes with it, too.

So I upped and moved to San Francisco. I was very optimistic that it would be easy for my company to raise millions of dollars in venture capital — after all, I was used to reading in TechCrunch about companies that were raising millions of dollars, and sometimes tens of millions of dollars, with no product, just a good idea (and sometimes a bad one). I’d proven my ability as an entrepreneur by already building a sizable business with a massive TAM, plus a product that was live, already profitable and ready to be scaled.

I started off with several introductions that one of my friends from college and a former VC made for me to several of his previous colleagues. In the traditional Silicon Valley way, I would take one introduction and turn it into another. I began to realize that venture capital is a bit of a social game — and I was about to play it for two years.

Joseph Heller is CEO and founder of Supplied.

Joseph Heller is CEO and founder of Supplied. Image Credits: Supplied

During this process, I want to be clear that I never faced overt racism; everyone was polite and gracious with their time. But when going to pitch meetings and VC events, I got the same feeling that I would get when you go to a high-end country club or a luxury store on Rodeo Drive in Beverly Hills. It was clear that the venture community — and the few entrepreneurs that they anointed to be part of their chosen — were a closely knit elite who wanted nothing to do with outsiders.

An air of arrogance, elitism and exclusivity pervaded literally every interaction. They spoke a certain way, they were looking for cues of who else you knew in their network — and the minute that they discovered that you were not one of them, the meeting was basically over. This feeling was in stark contrast with what in my mind Silicon Valley had stood for. I had envisioned an ideal where any brilliant, hard-working entrepreneur with a good idea and was scrappy as hell could raise money and find success.

In reality, it was a place where your admittance to the club was heavily based on your race, gender and what university you went to (even UC Berkeley wasn’t highly regarded). If you weren’t white, male and from Harvard, Stanford or the Ivies, you had to relentlessly pursue your vision for years to get in through the back door.

The/Studio did finally raise an $11 million series A — after 18 months and 150 meetings and 145 “no’s.” Read that again. I was mostly pitching white male VCs. Their prejudgements and the fact that you don’t know their friends made it a “no” before the meeting even started. The wider data suggests strongly that there was a racial component to this, as does my personal napkin math: Roughly 120 of the VCs I pitched were white and we got zero term sheets from them. Thirty that I pitched were ethnic minorities and I received five term sheets, or a success rate of 17%.

Two years later, I’ve become part of that exclusive group of entrepreneurs that have raised a sizable venture capital round. And I now have a behind-the-scenes view of what Silicon Valley is all about. There are some truly brilliant investors and entrepreneurs in Silicon Valley and the data backs that up; the number of VC-backed companies that go public in Silicon Valley dwarf the rest of the nation for a good reason.

But I’ve also learned that there are a lot of incompetent investors that are investors simply because of who they know, and a lot of entrepreneurs that aren’t the best in the world who get funded because of who they know. In addition, I’ve met a lot of people that would be great investors that never will have the opportunity to be investors, because of who they don’t know and how they look. Likewise, I know many great entrepreneurs, just as good as the ones that have taken major companies public, that won’t raise VC money because of who they don’t know and how they look.

I do believe there is a deep-seated perception in Silicon Valley that people that look a certain way and have a certain pedigree are the best entrepreneurs. The system is set up in a way that reinforces this mentality with a positive feedback loop: The VC structure is set up in a way that they make money off of 10% of their deals and the other 90% can fail, no problem.

If they invest in someone that is unknown within their social circles, they run the risk of being challenged by their partnership on why they made that decision, so the personal risk of going out on a limb is big. If they invest in someone that has a ton of social credibility in Silicon Valley, then even if they fail, nobody will question them. It’s part of the process.

VCs are only human, and if you have billions of dollars of capital to deploy and thousands of entrepreneurs that want to raise money from you, and you can only select a few a year, it’s easy to take the resistance-free route and invest in people that you know. Those people are generally white males. It becomes a self-fulfilling prophecy, because statistically if you invest in predominantly white males and a few of them succeed, then invest in far fewer people of color or women, even fewer of them will succeed. You end up internalizing that bias in your mathematically “objective” decision-making.

We saw this same issue begin to be resolved for women in the last decade. There were very few female entrepreneurs who raised VC money 10 years ago — 823 women-owned businesses, according to a recent Forbes study. There are still very few female-led VC-backed companies today, compared to male-led ones, but there are a lot more now; over 3,450 as of 2019, according to the same study. Women didn’t get smarter in 10 years; pressure was applied to VCs and they started being less myopic.

They realized that women made great entrepreneurs — and investors, too. During the last decade, more VC firms began hiring — and were started — by women, although even now it’s still a meager 11%.

But what about the racial divide? I know a brilliant Black guy that has a master’s degree in electrical engineering and computer science from one of the top five engineering schools in the nation, heads an engineering team for a company that has raised hundreds of millions of dollars and has created a high-tech startup serving enterprise customers, doing over $1 million a year in revenue, is profitable and totally bootstrapped. I’m confident that if he were a white male, he would have already raised significant VC money. He hasn’t.

Again, I don’t think it’s a matter of overt racism. But he probably isn’t accepted and doesn’t feel comfortable in VC social circles; he probably doesn’t have the confidence that he can raise money; he hasn’t seen others that look like him raise money. Because he lacks these things and because he doesn’t have the traditional “entrepreneur look,” he would be dismissed by VCs.

Now, all this being said, change begins with entrepreneurs, too. For instance, we recently launched a new product called Supplied that allows small businesses and boutiques to buy products wholesale directly from factories in China. About 95% of our customers are women — and 60% of our customers are people of color.

We didn’t set out to build a product for this market, but once they embraced it, we embraced them. Initially, my board, which is all white and male, didn’t understand this market and was a bit cautious. I don’t blame them; there was nothing nefarious about their assumptions or initial concerns, they just didn’t have the experience in their life that helped them to understand our customer.

But I did, at least the racial challenges faced by our customer base. I had conviction that there was a business here because I know a lot of women of color that had similar experiences and aspirations as the customers that were gravitating toward our platform, only to be shut out by prohibitively high prices on other “wholesale” platforms.

And I recognized my own inability to fully understand our customer base, as well as the fact that my team wasn’t diverse enough to really understand them, either. So I deliberately tried to recruit more women into our organization. I’m now proud to say that my executive leadership is 33% female, 33% Black, 77% people of color. The team that runs Supplied is predominantly female, just like the customer base.

Both The/Studio and Supplied’s head of marketing are Black women, with one working from Nigeria and the other from Ghana. Our diversity numbers are far better than almost any tech company I’ve encountered. Diversity isn’t something we just talk about; it comes naturally to us, because diversity comes naturally to me.

Silicon Valley has created incredible outcomes, and I don’t want to unfairly malign Silicon Valley as this racist institution that deliberately keeps out minorities and women. But because of many factors — which do include overt racism, historical factors and just human nature — the fact remains that Silicon Valley does not reflect our nation’s diversity across race and gender. Yet.

Our country is becoming more diverse and the rest of the world more wealthy. For Silicon Valley to maintain its crown as a beacon of innovation, it’s important to make it more diverse so it can understand the United States as well as emerging markets. It doesn’t need to be a zero-sum game where more people of color will push out the incumbents. In fact, it will make things more competitive, with a more diverse perspective on the world, which is better for returns and opportunities for all.

Blacks founders and other underrepresented groups also have an obligation to pull up their bootstraps and pursue being entrepreneurs and being funded, no matter how hard it is. This generation will serve as the inspiration — and employer — of the next. The more Black people who get funding, the more Black entrepreneurialism becomes normalized, creating a flywheel effect of normalizing investing in Black founders for VCs and encouraging more Black people to pursue being entrepreneurs.

I firmly believe that equal access to capital and entrepreneurship is the final civil rights movement. We have an opportunity to create real equality — financial and social — in Silicon Valley and the world, all while building the future.

Flexible VC: A new model for startups targeting profitability

By Walter Thompson
David Teten Contributor
David Teten is founder of Versatile VC and writes periodically at teten.com and @dteten.
Jamie Finney Contributor
Jamie Finney is a founding partner at Greater Colorado Venture Fund, where he blogs about his work on VC and small communities.

Of the Inc. 5000 companies, only 6.5% raised money from VCs and 7.7% raised from angels. Where else can fast-growing companies get funding?

More and more startups are pursuing revenue-based VCs, but it’s not a good fit for everyone. A new category of investors has emerged offering a hybrid between VC and revenue-based investment (RBI), which we call “flexible VC.”

From RBI, flexible VCs borrow the ability to reap meaningful returns without demanding founders build for an exit. From traditional equity VC, flexible VC borrows the option to pursue and reap the rewards of an outsized exit. Every flexible VC structure allows founders to access immediate risk capital while preserving exit, growth trajectory and ownership optionality.

Before raising capital, we encourage founders to dig into the nuances between different flexible VC structures.

Our categorization is not a technical one. Rather, we want to accommodate the wide variety of instruments currently offered by flexible VC investors, detailed below. As two fund managers employing flexible VC, we think it is a healthy addition to the ecosystem and will yield more predictable and stable healthy returns for investors.

Flexible VC 101: Equity meets revenue share

This is currently the most common investment structure: The flexible VC investor purchases either equity ownership, or a convertible right to equity, and a right to regularly scheduled payments based on a percentage of revenues.

By tying payments to actual revenues, founders and investors remain aligned around the company’s real-time performance, good or bad.

“Too often, investment structures force the management team to make decisions between misaligned growth and investment (return) objectives. This structure allows for alignment on the front end, and real-time flexibility for performance metrics,” says Samira Salman, a family office investor and advisor.

Payments are commonly delayed for a grace period of 12-36 months. John Berger, director of Operations and Impact Solutions at Toniic, observed that this has clear investor benefits: “The grace period became a feature because it benefits investors in regions like the U.S. where there can be tax differences between short- and long-term gains. It has moved from its origins as a tax benefit and can be viewed as a feature that benefits founders.” After the grace period, the return payments begin, often lasting until a return cap is hit, such as 2-5 times the original investment.

To account for these revenue share payments, the investor’s ownership (or convertible right to ownership) is simultaneously reduced. Once the return cap is reached, the investor is typically left with a residual stake — a fraction of the pre-revenue share ownership. At any point, should the founder wish to pursue a traditional equity VC round, or get bought, the revenue share is paused, and the investor’s then-current ownership converts to equate to a traditional equity VC investor.

Flexible VC 102: Variations

Flexible VCs have created structures based on other company performance metrics than revenues, such as profits or founder salaries. These different company performance metrics provide a slight variation in how the investor and founder relationship is defined. For example, profit-sharing structures ensure payments do not begin until the company is profitable, though likely delaying returns to the investor and complicating payment calculations.

Similarly, when flexible VC structures are based off of the founder’s own compensation (often via salary or dividends), investors are specifically tying their returns to the financial success of the founder. This translates less directly to company performance compared to a revenue or profit share, but offers uniquely personal alignment. These variations in founder alignment allow flexible VCs to specialize in the types of companies they work with.

The state of flexible VC

In all these cases, capital is provided to fuel forecasted growth without creating a commitment to a particular vision for future funding rounds, exit goals and associated blitzscaling. The founder retains full control over whether they want to optimize for hypergrowth (usually at the expense of profitability) or for organic, profitable growth. Flexible VC opens up a new risk capital option for bootstrappers, minorities, family-owned and countless other founder segments left out by the traditional funding landscape.

A range of small VCs are deploying with flexible VC structures, but we believe the total amount of AUM deployed with this strategy is well under $50 million. Similar to the explosion of seed funds in the past decade, we (and some limited partners too) believe these Flexible VCs are on the forefront of what will become a major segment of the venture ecosystem.

We detail below the major categories of VC:

Funder category Equity ownership Returns primarily based on  Composition of returns Example VC
Equity VC Yes, typically preferred equity.

15%-20% sold per round. On average, founders own just 43% of equity by Series B, declining thereafter.

The value ascribed by subsequent investors (in a secondary); buyers (acquisition); or the public markets (IPO). Volatile, uncapped. Andressen Horowitz, ff Venture Capital, HOF Capital, Sequoia.
Flexible VC: Revenue-based Yes, nonvoting common shares (if converted).

5%-20% initial stake, with 50%-90% of this redeemable.

Gross revenues (generally 2%-8%). 2x-5x return cap + path to uncapped equity returns. Capacity Capital, Greater Colorado Venture Fund, Indie.VC, Reformation Partners, UP Fund, Versatile VC.
Flexible VC: Compensation-based Yes, via conversion rights at a valuation cap. “Founder earnings” (Founder salaries + dividends + retained earnings). 2x-5x return cap + path to uncapped equity returns. Chisos.
Flexible VC: Blended Return Yes, via conversion rights at a valuation cap. Profits, founder salaries, and/or dividends declared. Typically ~3x+ return cap + path to uncapped equity returns. Discretionary dividends and salary share built in. Collab Capital, Earnest Capital, TinySeed.
Revenue-share investing No. Gross revenues (generally 2%-8%). 1.35x-2.2x return cap. Novel Growth Partners, Lighter Capital, Rev Up, Corl.

Flexible VC versus other venture capital models

Flexible VC investors offer founders some of the same advantages as equity VCs:

  • Aligned incentives. Whether it is a breakout success or complete failure and loss of capital, investors are along for the ride. When the company hits potholes, flexible VC investors usually don’t have the nuclear options of firing management and/or doing a recapitalization. Their only option is to work with management to try to fix the problems.
  • Few strings attached. Founders have autonomy to spend the funds in whatever way they like.
  • Long-term alignment. Many flexible VCs retain a small residual stake in the company after the return cap is reached, driving alignment well beyond the horizon of the revenue share, similar to the long-term orientation of equity VC.
  • Seed-stage compatible. Like traditional equity VC investors, flexible VCs accommodate early-stage investment risk within their portfolios better than a traditional RBI funder.
  • Eligible for favorable treatment under qualified small business stock exemption, if structured as equity. This applies if the investment converts into common stock; details are beyond this essay’s scope.

Flexible VCs also offer investors some of the same advantages as RBI:

  • Clear return expectations. The return cap is a stated multiple of the investment, typically 2x-5x.
  • Early liquidity. Equity VC is a “get rich slow” business. Flexible VC creates early liquidity that can be either reinvested or distributed to LPs.
  • Improved financial management. All parties want the company to be able to afford the payment obligations and, ideally, deliver a quick return. As a result, unfounded hockey-stick graphs and unicorn promises give way to financial fluency, realistic expectations, frank conversations about what a business can credibly achieve and transparency.
  • Profitability is prioritized. The revenue that is going to grow the company immediately is the same revenue that is going to get investors to their return cap. If the company is profitable, the revenue share becomes increasingly affordable. This drives an earlier focus on profitability than is typical for a company backed by traditional equity VC.
  • Founder retains control. Flexible VCs typically purchase nonvoting common stock, if they purchase stock (one even assigns their voting rights to the founders). This keeps the founder in the driver’s seat of the company.
  • Attractive to women and underrepresented founders. See Why Are Revenue-Based Investors Investing in Women & Diverse Entrepreneurs?

Flexible VC also offers some unique advantages:

  • Straightforward equity interface. If an equity round is needed to fund breakout growth beyond what the flexible VC funds, the mechanics of including a flexible VC in an equity VC round are predetermined and simple.
  • Prepared for blitzscaling, but neither required nor expected. Blitzscaling typically means prioritizing user growth over revenue growth and revenue growth over profitability. Tim O’Reilly, CEO, O’Reilly Media, argues, “Blitzscaling isn’t really a recipe for success but rather survivorship bias masquerading as a strategy.” With flexible VC, not every company is expected to achieve breakout growth, but that possibility is accounted for up front.
  • Particular application in impact capital. Our research has found that impact investors appear to be particularly interested in flexible VC. An impact investor typically needs some economic return to function, but doesn’t necessarily want the company as a whole to exit, given exits often have a negative impact on the company’s founding mission. Flexible VC allows impact VCs to thread this needle.

That said, nothing is cost-free. The unique disadvantages of flexible VC include:

Inadequate federal privacy regulations leave US startups lagging behind Europe

By Walter Thompson
Cillian Kieran Contributor
Cillian Kieran is CEO and co-founder of Ethyca, a New York-based privacy company.

“A new law to follow” seems unlikely to have featured on many business wishlists this holiday season, particularly if that law concerned data privacy. Digital privacy management is an area that takes considerable resources to whip into shape, and most SMBs just aren’t equipped for it.

But for 2021, I believe startups in the United States should be demanding that legislators deliver a federal privacy law. Yes, they should demand to be regulated.

For every day that goes by without agreed-upon federal standards for data, these companies lose competitive edge to the rest of the world. Soon there may be no coming back.

For every day that goes by without agreed-upon federal standards for data, these companies lose competitive edge to the rest of the world.

Businesses should not view privacy and trust infrastructure requirements as burdensome. They should view them as keys that can unlock the full power of the data they possess. They should stop thinking about privacy as compliance and begin thinking of it as a harmonization of the customer relationship. The rewards flowing to each party from such harmonization are bountiful. The U.S. federal government is in a unique position to help realize those rewards.

To understand what I mean, cast your eyes to Europe, where it’s become clear that the GDPR was nowhere near the final destination of EU data policy. Indeed it was just the launchpad. Europe’s data regime can frustrate (endless cookie banners anyone?), but it has set an agreed-upon standard of protection for citizens and elevated their trust in internet infrastructure.

For example, a Deloitte survey found that 44% of consumers felt that organizations cared more about their privacy after GDPR came into force. With a baseline standard established — seatbelts in every car — Europe is now squarely focused on raising the speed limit.

EU lawmakers recently unveiled plans for “A Europe fit for the Digital Age.” in the words of Internal Market Commissioner Thierry Breton, it’s a plan to make Europe “the most data-empowered continent in the world.”

Here are some pillars of the plan. While reading, imagine that you are a U.S.-based health tech startup. Imagine the disadvantage you would face against a similar, European-based company, if these initiatives came to fruition:

  • A regulatory framework covering data governance, access and reuse between businesses, between businesses and government, and within administrations to create incentives for data sharing.
  • A push to make public-sector data more widely available by opening up “high-value datasets” to enable their reuse to foster innovation.
  • Support for cloud infrastructure, platforms and systems to support the data reuse goals, with investments in European high-impact projects on European data spaces and trustworthy, energy-efficient cloud infrastructures.
  • Sector-specific actions to build European data spaces that focus on specific areas such as industrial manufacturing, the Green New Deal, mobility or health.

There are so many ways governments can help businesses maximize their data leverage in ways that improve society. But the American public currently has no appetite for that. They don’t trust the internet.

They want to see Mark Zuckerberg and Jeff Bezos sweating it out under Senate Committee questioning. Until we trust our leaders to protect basic online rights, widespread data empowerment initiatives will not be politically viable.

In Europe, the equation is totally different. GDPR was the foundation of a European data strategy, not the capstone.

While the EU powers forward, America’s ability to enact federal privacy reform is stymied by two quintessentially American privacy sticking points:

  • Can I personally sue a business that violates my privacy rights?
  • Can individual states build additional privacy protections on top of a federal law, or will it act as a nationwide “ceiling”?

These are important questions that must be answered as a function of our country’s unique cultural and political history. But currently they’re the roadblocks that stall American industry while the EU, seatbelts secure, begins speeding down the data autobahn.

If you want a visceral example of how this gap is already impacting American businesses, look no further than the fallout of the ECJ’s Schrems II decision in the middle of last summer. Europe’s highest court invalidated a key agreement used to transfer EU data back to the U.S., essentially because there’s no federal law to ensure EU citizens’ data would be protected once it lands in America.

The legal wrangling continues, but the impact of this decision was so considerable that Facebook legitimately threatened to quit operating Europe if the Schrems II ruling was enforced.

While issues generated for smaller businesses don’t grab as many headlines, rest assured that on the front lines of this issue, I’ve seen many SMB’s data operations thrown into total chaos. In other words, the geopolitical battle for a data-driven business edge is already well underway. We are losing.

To sum it up, the United States increasingly finds itself in a position that’s unprecedented since the dawn of the internet era: laggard. American tech companies still innovate at a fantastic rate, but America’s inability to marshal private sector practices to reflect evolving public sentiment threatens to become a yoke around the economy’s neck.

The catastrophic response to the COVID-19 pandemic fell far short of other nations’ efforts. Our handling of data privacy protection costs far less in human terms, but it grows astronomically more expensive in dollar terms with every passing day.

The technology exists to treat users respectfully in a cost-effective manner. The public will is there.

The business will is there. The legislative capability is there.

That’s why I believe America’s startup community should demand federal lawmakers follow the recent example of Europe, India, New Zealand, Brazil, South Africa and Canada. They need to introduce federally guaranteed modern data privacy protections as soon as possible.

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