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Private equity giveth, and private equity taketh away

By Natasha Mascarenhas

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

Natasha and Alex and Grace and Chris gathered to dig through the week’s biggest happenings, including some news of our own. As a note, Equity’s Monday episode will be landing next Tuesday, thanks to a national holiday here in the United States. And we have something special planned for Wednesday, so stay tuned.

Ok! Here’s the rundown from the show:

That’s a wrap from us for the week! Keep your head atop your shoulders and have a great weekend!

Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Sphere raises $2M to help employees lobby for green 401(k) plans

By Mike Butcher

In the United States, a 401(k) plan is an employer-sponsored defined-contribution pension account. However, with legacy institutional investing, most of these have at least some level of fossil fuel involvement and let’s face it, very few of us really know. Now a startup plans to change that.

California-based startup Sphere wants to get employees to ask their employers for investment options that are not invested in fossil fuels. To do that it’s offering financial products that make it easier – it says – for employers to offer fossil-free investment options in their 401(k) plans. This could be quite a big movement. Sphere says there are over $35 trillion in assets in retirement savings in the US as of Q1 2021.

It’s now raised a $2M funding round led by climatetech-focused VC Pale Blue Dot led the investment round. Also participating were climate-focused investors including Sundeep Ahuja of Climate Capital. Sphere is also a registered ‘Public Benefit Corporation’ allowing it to campaign in public about climate change.

Alex Wright-Gladstein, CEO and founder of Sphere said: “We are proud to be partnering with Pale Blue Dot on our mission to reverse climate change by making our money talk. Heidi, Hampus, and Joel have the experience and drive to help us make big changes on the short 7 year time scale that we have to limit warming to 1.5°C.” Wright-Gladstein has also teamed up with sustainable investing veteran Jason Britton of Reflection Asset Management and BITA custom indexes.

Wright-Gladstein said she learned the difficulty of offering fossil-free options in 401(k) plans when running her previous startup, Ayar Labs. She tried to offer a fossil-free option for employees, but found out it took would take three years to get a single fossil-free option in the plan.

Heidi Lindvall, General Partner at Pale Blue Dot said: “We are big believers in Sphere’s unique approach of raising awareness through a social movement while offering a range of low-cost products that address the structural issues in fossil-free 401(k) investing.”

Vista Equity to acquire majority stake in SaaS startup Drift, taking it to unicorn status

By Mary Ann Azevedo

Private equity firm Vista Equity Partners announced today that it is taking a majority stake in Drift, a company which aims to be the Amazon of businesses, with a “growth investment” that propels the venture-backed startup to unicorn status.

Unfortunately, neither party would disclose the amount of the investment, or Drift’s new valuation. But co-founder and CEO David Cancel did say the SaaS company saw 70% growth in its annual recurring revenue (ARR) in 2020 compared to the year prior and is on target for a similar metric this year. It is not yet profitable, as it is focused on growth, he added.

Prior to this financing, Boston-based Drift had raised $107 million in funding from the likes of Sequoia Capital, CRV and General Catalyst since its 2015 inception.

So just what does the company do exactly? The startup says it is out to ”reimagine the B2B buying experience,” according to Cancel. By using its software, Drift’s 50,000 customers are able to bring together sales and marketing teams on one platform to “deliver personalized conversations” that the company says build trust and accelerate revenue. 

Its customers include ServiceNow, Okta, Grubhub, Mindbody, Adobe, Ellie May and Snowflake, among others. Today 75% of Drift’s customers are mid-market enterprise, according to Cancel. 

Over the past five years, Drift has worked to create and define something it describes as “Conversational Marketing” with the goal of helping marketers “harness the digital experience for lead generation.” Or to put it more simply, Drift subscribers can use chatbots to help turn web visits into sales.

The company says it is out to remove the friction between buyers and sellers so they can not only get more leads, but also close more sales. This led Drift to expand its focus to build a platform that includes conversational sales, which integrates chat, email, video and artificial intelligence to power conversations, not just on a customer’s website, but for the sales team too. 

Cancel said that Vista’s strategic growth investment will help the company move even faster, expand globally and launch a new B2B category called “Conversation Commerce,” an interactive approach to conversations that Drift believes has the potential to “transform the entire B2B revenue function.”

Basically, the company is trying to make the B2B buying/selling experience similar to that of a B2C one. At least 80% of B2B buyers are not only looking for, but expect, a buying experience similar to that of a B2C customer, according to Cancel.

So far in 2021, Drift’s customers generated $5 billion in pipeline value by making the customer side of the buying process easier, he said.

For Cancel, a serial entrepreneur who previously founded and sold four other companies, the notion of owning a company with a unicorn valuation was not something he and co-founder and CTO Elias Torres were overly consumed with.

But what did appeal to the pair was the opportunity to add to the too-short list of U.S.-based unicorns with Latin founders and serve as an inspiration for other entrepreneurs of Latin descent. Cancel’s parents emigrated from Puerto Rico and Cuba while Torres emigrated from Nicaragua in his teens.

“I didn’t really care about that [unicorn] status except for one reason and the reason was that we are both Latino and if we hit this milestone, then we would be part of the less than 1% of Latinos that had ever done that,” Cancel told TechCrunch. “And that was important to us because we believe that we have the responsibility to pay it forward and to help people and to inspire other people who are like us and are often marginalized. We want to show that they can do this too.”

Torres agreed, saying that he and Cancel were “proud to be one of the only Latino-founded companies to ever achieve over $1 billion valuation – a rare, Latino-founded unicorn.”

“We want to see more of us do the same and we will pave the way for other Latino founders and leaders to achieve success,” he added.

By having a majority owner in Vista, which focuses exclusively on backing enterprise software, data and technology-enabled businesses, Cancel believes that Drift can “get more efficient in some areas.” He also thinks that the firm can help it ramp up its acquisitions pace. (So far it has made three.)

The nearly 600-person company still has its sights on going public, according to Cancel, and believes that by working with Vista, it will have a “clearer path” to do so.

“It’s something we think about a lot,” he told TechCrunch. “It’s still in our future.”

Monti Saroya, co-head of the Flagship Fund and senior managing director at Vista, thinks that Drift represents a “compelling” opportunity for Vista.

“Drift is a company that is experiencing hypergrowth at scale, we and we believe the conversational marketing and sales tools it offers will continue to be in high demand as companies race to modernize their B2B commerce strategies,” he told TechCrunch.

Earlier this year, Vista — which has over $77 billion in assets under management — invested $242 million to acquire a minority stake in Vena, a Canadian company focused on the Corporate Performance Management (CPM) software space.

Meanwhile, Vista’s acquisition of Drift is expected to close in the fourth quarter of 2021.

A new coalition for “Open Cap Table” presents an opportunity for equity transparency

By Danny Crichton
Yifat Aran Contributor
Dr. Yifat Aran is a visiting scholar at the Technion, Israel Institute of Technology, and an Assistant Professor in Haifa University Faculty of Law. She earned her JSD from Stanford Law School where her dissertation focused on equity-based compensation in Silicon Valley startups.

The ownership of startups is often a mystery. In the absence of a public registry, it is difficult to figure out who owns what. Since most startups incorporate in Delaware, the Delaware Division of Corporations holds relevant information, but you may not be able to get all the information you need, and putting it together from the legal paperwork will be challenging.

To understand a startup’s capital structure, you must have access to its capitalization table, also known as cap table. The cap table shows shareholder information, current ownership stakes along with economic and voting rights, future equity purchase rights, vesting schedules and purchase prices. All of this information is compiled into a format that founders and investors can digest easily, allowing them to calculate payouts in various exit scenarios, analyze equity dilution from new hire equity grants, and understand the impact of additional funding rounds.

Initially, startups might collect this data using Excel spreadsheets, but as the ownership structure grows more complex, it becomes more difficult to follow and document, and the cost of errors become a big problem. This has led to the development of a cap table management software industry.

However, the way in which various cap table data items are organized and accounted for varies among the different service providers. Without a standard, it is impossible to automatically synchronize data between software platforms, making it difficult to switch vendors as well as to ensure that all parties are on the same page.

Now, a coalition of Silicon Valley law firms and startup vendors is forming to address this issue. In a Medium post from July 27, the Open Cap Table Coalition stated its intention to “improve the interoperability, transparency, and portability of startup cap table data.” Since standardization means fewer billable hours for lawyers and less lock-in for software platforms, it may go against the short-term interest of some participants. However, the coalition reflects Silicon Valley’s way of doing business – as AnnaLee Saxenian, the Dean of the UC Berkeley School of Information noted in her influential 1994 book “Regional Advantage”, the Valley is a place where intense competitors become partners and informal co-operation and exchange become institutionalized.

As such, the founding members certainly deserve praise. Eliminating inefficiencies allows the ecosystem to move faster and allows players to concentrate on creating value. However, if only founders and investors can see the data, the open cap table coalition will fall short of its potential. For the open cap table to be truly open, the information that determines equity value must be accessible to all equity holders, including startup employees.

I have written on TechCrunch in the past about the abuse potential of startup equity compensation, a highly opaque and practically unregulated market. Employees are often swayed by the allure of stock options without understanding what these securities are and how they are valued. Successful IPO stories portraying employees as instant millionaires create an impression that startup equity offers a fast track to financial prosperity. However, success is the exception, not the rule, when it comes to startups, and wrong investment decisions can result in an employee going into debt. Further, it can be damaging to the startup and the ecosystem in the long term if employees’ expectations are not in line with the startup’s financial reality.

“Pretty much nothing destroys trust between shareholders and startups quicker than poor communication, especially around issues such as the status of the cap table,” wrote Aaron Solomon, head of strategy for Esquire Digital, in support of the open cap table initiative. The exact same is true for employee trust in the company and its leadership — miscommunication around equity issues can be detrimental. As Travis Kalanick discovered first hand, messing with employee equity can backfire.

“We are going to IPO as late as humanly possible,” Kalanick said in June 2016. “It’ll be one day before my employees and significant others come to my office with pitchforks and torches. We will IPO the day before that.” However, waiting for employees to lose their temper is a risky game; you may wake up a day too late instead of the day before. Nowadays, when it is harder to find good employees than to raise money, transparency with both capital and human capital providers is vital.

A couple of years ago, I interviewed startup lawyers and founders in Silicon Valley to understand why they don’t share more information with employees. There was a recurring fear of liability as well as disagreement over disclosure formats. Now, when the industry’s influential players decide on a cap table format, it is possible to also form an agreement on how these data should be shared with employees. If the coalition takes on this challenge, it could easily change the industry by establishing a voluntary standard that everyone can rally around.

Capital/labor relationships in startups are inherently imbalanced, since employees contribute human capital but are denied information and voting rights. It is possible to partially rectify this imbalance by providing employee equity-holders with bottom-line information on what they stand to gain under various exit scenarios. Making information accessible and easy to understand for employees can help startups attract talent and maintain positive culture.

Saxenian’s book on Silicon Valley’s regional advantage describes also how employee stock options contributed to the transformation of Silicon Valley in the 1970s. However, as capital markets and regulations have changed, employee, entrepreneur, and investor relationships have been negatively impacted, resulting in ongoing friction over liquidity and risk allocation. Today, by establishing real equity transparency, Silicon Valley can retain its competitive edge. Until the Open Capital Table Coalition engages in this challenge, it cannot claim to foster a genuinely open community.

The bar for behavioral health startups just got higher

By Natasha Mascarenhas

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines. Happy Saturday!

After news broke that meditation app Headspace and on-demand mental health care platform Ginger were merging, we couldn’t resist hopping on the mics to do a bonus episode. And, because we were in the mood for hot takes, Natasha and Alex held the conversation on Twitter Spaces. The special guests we had on, who we’ll get to down below, did not disappoint.

It’s a quick show, but the tl;dr is that you want to listen if you’re curious why a meditation app would get into therapy, the precedent by Lyra Health and Calm, and how consolidation looks for the sector going forward.

Here’s who helped us understand and contextualize the news:

  • Lux Capital partner Deena Shakir (who is also coming to Disrupt, incidentally)
  • Chrissy Farr of OMERS Ventures (who you may also know as a former CNBC reporter in the healthech space)
  • 7WireVentures’ Alyssa Jaffee (who needs her own podcast because she was shining during the Spaces)

And, special shout out to Ginger CEO Russell Glass, who joined the Space but wasn’t able to come up on stage due to technical difficulties. Twitter Spaces are fun, but the platform is still a bit nascent so goofs can bedevil live production.

However, we managed to get some notes from him via email, so let’s take a quick look at those:

  • Glass said that he agreed with “what Chrissy Farr and others said about there simply not being enough therapists in the market today to meet the overwhelming demand,” adding that there’s “real global need today for what Headspace Health can offer – a scaled, comprehensive platform that can truly democratize mental healthcare.”
  • He also doubleclicked on the discussing regarding future “meaningful market consolidation,” noting that he expects to see it “especially” happen in “areas that address higher acuity care for severe mental illness.”

Make sure you are following the podcast on Twitter so that you catch us when we go live. These are meant to be spontaneous pop up shows, so your best bet is to turn on notifications to never miss our Spaces. Ok that’s all. Thanks everyone!

Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

The pure hell of managing your JPEGs

By Natasha Mascarenhas

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

Natasha and Alex and Grace and Chris were joined by none other than TechCrunch’s own Mary Ann Azevedo, in her first-ever appearance on the show. She’s pretty much the best person and we’re stoked to have her on the pod.

And it was good that Mary Ann was on the show this week as she wrote about half the dang site. Which meant that we got to include all sorts of her work in the rundown. Here’s the agenda:

And that’s a wrap, for, well, at least the next five seconds.
Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Politico sells, Forbes SPACs and Vice cuts

By Alex Wilhelm

The Equity crew felt that there was enough media news out recently that we simply had no choice but to fire up a Twitter Space and have a chat. The above episode is a discussion of a few things, in a loose and relaxed manner, so don’t take any of the Verizon jokes too seriously, Verizon, as we still work for you. For a few more days.

Regardless, here’s what Danny and Alex got into:

  • Politico sells for $1 billion: Its new parent company Axel Springer is also buying the rest of Politico Europe and all of Protocol at the same time. This deal exploded everyone’s Twitter feed due to its scale, and the fact that it was one heck of an exit for a media company. One billion dollars? For media? In this economy? Yes!
  • Forbes is going public via a SPAC: Yep, the venerable Forbes magazing and its enormous digital arm are taking the blank-check route to the public markets, which means that we got its numbers and time to stroll through them. Our take is that Forbes has done massive work to take its IRL brand and extend it into the digital world. The company has big plans to boot, and will be worth more than $800 million when it combines.
  • Layoffs hit Vice: As Vice turns its focus to video content — you’ve heard this story before — it is shedding some of its editorial staff. The layoffs were a stinkbomb on Media Twitter after the other news of the week, but were sadly not a huge surprise. The company’s union decried them as something of a yearly recurrence. Not good, not good at all.

And there’s more media news to come. Our parent company Verizon Media is expected to close its sale to Apollo on September 1 or sometime soon after, which means we will either be hosting Equity regularly as always, or we’ll be hosting the RUDE (Recently Unemployed Due to (Private) Equity) podcast.

Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

OnlyFans’ policy change is a tale as old as the internet

By Natasha Mascarenhas

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

For our Wednesday show this week, Natasha and Alex and Danny had colleague Amanda Silberling on the show to help us parse through OnlyFans‘ precedent-setting move to ban sexually explicit content on its service. The decision was a bolt from the blue for many of its creators, a great portion of whom created and monetized adult videos and images through the subscription service. It also stirred up a ton of debate around fintech, crypto, venture capital and the morality of decision-makers.

We put all the facts in context for you, hitting the following points:

  • OnlyFans’ recently leaked financials. Of course, the company’s historical, and projected revenues, are now dated thanks to the platform’s planned content changes, but all the same the numbers help put into context just how much money OnlyFans’ adult creators were earning on its platform.
  • The leaked financials were part of a pitch deck that the company was using on its plight to raise more capital — an endeavor that has apparently been challenging for the startup. This tension made us think about the role that venture capital plays in funding vice startups, and why a tiny clause may stop many from getting into the game. Let’s just say, the money behind the money has a way of having weight.
  • And finally, we wondered what might be ahead for adult-content creators. Per Silberling, the world of adult content has ever been in flux, with creators and other sex workers moving from platform to platform as corporate policies, and national laws, evolved. To see OnlyFans wind up where Patreon and Tumblr previously tread is not a complete surprise.
Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Boston’s startup market is more than setting records in scorching start to year

By Anna Heim

The global startup community is currently enjoying a period of fundraising success that may be unprecedented in the history of technology and venture capital. While this is happening around the world, few startup hubs in the world are reveling in a greater boost to their ability to attract capital than Boston.

The well-known U.S. city is a traditional venture capital hub, but one that seemed to fall behind its domestic rivals Silicon Valley and New York City in recent years. However, data indicates that Boston’s startup activity in fundraising terms has reached a new, higher plateau, funneling record sums into the city’s upstart technology companies this year.

And, according to local investors, there could be room for further acceleration in capital disbursement.


The Exchange explores startups, markets and money.

Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.


The Exchange wanted to better understand what’s driving Boston’s rapid-fire results, and discover if there is any particular need for caution or concern. Is the market overheated? According to local investors Rob Go from NextView, Jamie Goldstein from Pillar VC, Lily Lyman from Underscore and Sanjiv Kalevar from OpenView, things may be more than warm, but Boston’s accelerating venture capital totals in 2021 are not based on FOMO or other potentially ephemeral trends.

Instead, Boston is benefiting from larger structural changes to at least the U.S. venture capital market, helping close historical gaps in its startup funding market and access funds that previously might have skipped the region. And local university density isn’t hurting the city’s cause, either, boosting its ability to form new companies during a period of rich investment access.

Let’s talk data, and then hear from the investing crew about just what is going on over in Beantown.

A record year in the making

When discussing venture capital data, we often note that it is somewhat laggy, with rounds announced long after they are closed. In practice, this means that more recent data can undersell how a particular quarter has performed. With Boston’s 2021 thus far, all that we can say is that if this data includes normal venture capital lag, it will simply be all the more incredible.

NoRedInk raises $50 million Series B to help students become better writers

By Natasha Mascarenhas

“In order to become a better writer, read your written words out loud.”

That’s one of the first, and best, writing tips I ever received. I always found the advice ironic because it required me to change the medium of my writing to become a better writer. Still, all these years later, it’s true: Vocalizing your words helps identify typos and incomplete thoughts, but also notice more subtle things like awkward turns of phrases or a weird rhythm in your sentence structure. Best of all, if you find yourself bored of your own text while reading out loud, you know readers will be, too.

This is all to say that writing, even for those who love writing, is a deeply human art built on top of non-obvious rules. While those complications don’t exactly scream for a tech solution, NoRedInk, a San Francisco-based startup, has spent nearly a decade trying to help students get better at their writing through software.

NoRedInk announced today that its digital writing curriculum, which pairs adaptive learning with Mad Libs-style prompts, has helped it raise a $50 million Series B led by Susquehanna Growth Equity, with participation from True Ventures. Other investors in the company include GSV, Rethink Education and Kapor Capital.

The financing event comes nearly six years after its Series A, a signal that the company has ambition to scale meaningfully in the coming months and years. With millions more, though, NoRedInk has to address its biggest challenge: the intricacies of the subject matter that it wants to make simple.

Founder and CEO Jeff Scheur built NoRedInk in 2012 when he was an English teacher in Chicago. The site served as a way to help kids get more than “red ink” on their papers, a nod at how teachers often use red ink to mark corrections and suggestions on assignments.

“Kids get feedback on their paper and they have no idea what to do with it,” Scheur said. “They see the grade, but they tend to just throw it out … so I started building tools to figure out how to help [students] apply very difficult to learn skills that we expect kids to know, but don’t explicitly teach them.”

Since launch, NoRedInk’s goal is to help students with writing skills ranging from how to structure an essay to how to cut fluff from their arguments to how to cite correctly.

Image Credits: NoRedInk

“One of the great challenges about teaching writing is that we want to demystify the process of becoming a great writer without reducing the art form of expression,” he said. “So that means providing kids with lots of targeted personalized practice, and helping them realize that there’s no one way to write.”

It thus makes sense that NoRedInk uses adaptive learning, an educational method that uses an algorithm to get inputs of learners, such as strength areas or preferences, to create an output that better meets them where they are. After asking students for their favorite characters and role models, NoRedInk creates personalized writing exercises targeting each student’s interests, then guides them through the writing process with light support.

noredink

Image Credits: NoRedInk

Scheur described part of the goal of NoRedInk as “breaking down difficult to learn skills with various degrees of scaffolding.”

To date, more than 10 billion exercises have been completed on NoRedInk’s practice engine — which is data the company uses to underscore problem areas, shared struggles and potential blind spots of traditional curriculum for its districts.

NoRedInk has a free-but-limited version of its platform for teachers to try, but offers a full-fledged premium version that integrates with learning management systems and other classrooms to offer a school and district a view of progress.

As the business expands, NoRedInk might need to get deeper into drafts in order to win over market share. Will it ever play the role of suggesting tone the way that AI-based grammar and writing unicorn Grammarly does? For now, it appears not.

“Grammarly is a great consumer app, it’s a modern-day version of Grammar spellcheck that Microsoft Word did all those years ago,” Scheur said. “NoRedInk is very different; it’s what schools and districts use to teach skills.”

Future tech exits have a lot to live up to

By Alex Wilhelm

Inflation may or may not prove transitory when it comes to consumer prices, but startup valuations are definitely rising — and noticeably so — in recent quarters.

That’s the obvious takeaway from a recent PitchBook report digging into valuation data from a host of startup funding events in the United States. While the data covers the U.S. startup market, the general trends included are likely global, given that the same venture rush that has pushed record capital into startups in the U.S. is also occurring in markets like India, Latin America, Europe and Africa.

The rapidly appreciating startup price chart is interesting, and we’ll unpack it. But the data also implies a high bar for future IPOs to not only preserve startup equity valuations at their point of exit, but exceed their private-market prices. A changing regulatory environment regarding antitrust could limit large future deals, leaving a host of startups with rich price tags and only one real path to liquidity.

That situation should be familiar: It’s the unicorn traffic jam that we’ve covered for years, in which the global startup markets create far more startups worth $1 billion and up than the public markets have historically accepted across the transom.

Let’s talk about some big numbers.

Startup valuations: Up, and going upper

To summarize what PitchBook published: Round sizes are going up as valuations go up, and with the latter rising faster than the former, we’re not seeing investors get more ownership despite them having to spend more for deal access.

In the early-stage market, deal sizes are rising as follows:

Image Credits: PitchBook

Prices are going up as well, as the following chart shows:

Image Credits: PitchBook

Which leads to the following decline in equity take rates:

Image Credits: PitchBook

Those charts belie somewhat how quickly venture capital is changing. For example, in 2020, the median early-stage value created between rounds was $16 million (or a relative velocity 54%, if you prefer). In 2021 thus far, it’s $39.4 million (120% relative velocity). And that 2020 figure was a prior record. It just got smashed.

The PitchBook dataset has other superlatives worth noting. Enterprise-focused seed pre-money valuations hit an average of $11 million in the first half of 2021, an all-time high. Early-stage valuations for enterprise-focused startups also hit fresh records — $92.7 million on average, $43.0 million median — this year after rising consistently since 2011.

And late-stage valuations for enterprise tech startups have gone vertical (chart on the right):

Equity Monday: Stocks up, cryptos up, regulation up

By Alex Wilhelm

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

This is Equity Monday, our weekly kickoff that tracks the latest private market news, talks about the coming week, digs into some recent funding rounds and mulls over a larger theme or narrative from the private markets. You can follow the show on Twitter here. I also tweet.

Today’s show was good fun to put together. Here’s what we got to:

Woo! And that’s the start to the week. Hugs from here, and we’ll chat you on Wednesday!

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 a.m. PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts!

Spotify to spend $1B buying its own stock

By Alex Wilhelm

Music streaming service Spotify today said it will spend up to $1 billion between now and April 21, 2026 to repurchase its own shares. The dollar amount represents just under 2.5% of Spotify’s market cap, with the company valued at $41.06 billion this morning as its shares rose 5.1% following the repurchase news.

The company previously executed a similar buyback program in 2018.

A public company using some of its cash to repurchase its shares is nothing new. Many public companies, including Apple, Alphabet, and Microsoft, have active share repurchase programs, and it is common to see mature or nearly-mature companies devoting a fraction of their balance sheet or a regular percentage of their free cash flow to buying back their own equity.

The goal of such efforts is to return cash to shareholders. Buybacks, along with dividends, are among the key ways that companies can use their wealth to reward shareholders. Also, by buying their own stock, companies can boost the value of their individual shares. By limiting the shares in circulation, the company’s share count declines and the value of each share consequently rises, in theory, as it represents a larger fraction of ownership in the corporation.

Spotify shares have traded as high as $387.44 apiece in the past 12 months, but are now worth just $215.84, inclusive of today’s gains. From that perspective, seeing Spotify decide to deploy some cash to repurchase its own equity makes sense — the company is buying low.

But if you ask a recently public company what it intends to do with its excess cash, buybacks are not usually the answer. For example, TechCrunch asked Root Insurance CEO Alex Timm if his company intended to use cash reserves to purchase its own equity after its recent Q2 2021 earnings report. Root’s share price has declined in recent months, perhaps making it an attractive time to reward shareholders through buybacks. Timm demurred on the idea, saying instead that his company is building for the long-term. That translates to: That cash is earmarked for growth, not shareholder return.

But isn’t Spotify still a growth company? It certainly isn’t valued on the weight of its profits. In the first half of 2021, for example, Spotify posted net profit of a mere €3 million on revenues of €4.5 billion.

If Spotify is still a growth-focused company, shouldn’t it preserve its capital to invest in exclusive podcasts and the like — efforts that may grant it pricing power in the future and allow for stronger revenue growth and gross margins over time?

To answer that, we’ll have to check the company’s balance sheet. From its Q2 2021 earnings, here are the key numbers:

  • Spotify closed out the second quarter with “€3.1 billion in cash and cash equivalents, restricted cash, and short term investments.”
  • And in the second quarter, Spotify generated free cash flow of €34 million. That figure was up €7 million from a year earlier despite “higher working capital needs arising from select licensor payments (delayed from Q1), podcast-related payments, and higher ad-receivables”.

More simply, despite paying up for efforts that are generally understood to be key to Spotify’s long-term ability to improve its gross margins — and therefore its net profitability — the company is still throwing off cash. And with a huge bank account earning little, thanks to globally low prices for cash and equivalent holdings, Spotify is using a chunk of its funds to buy back stock.

By spending $1 billion over the next few years, Spotify won’t materially harm its cash position. Indeed, it will remain incredibly cash-rich. However, the move may help defend its valuation and keep itchy investors happy. Moreover, as the company is buying its stock at a firm discount to where the market valued it recently, it could get something akin to a deal, given Spotify’s long-term faith in the value of its own business.

Perhaps the better question as this juncture is not whether Spotify is a weird company for deciding to break off a piece of its wealth for shareholders, but instead why we aren’t seeing other breakeven-ish tech companies with neutral cash flows and fat accounts doing the same.

Bird shows improving scooter economics, long march to profitability

By Alex Wilhelm

Newly reported financial data from Bird, an American scooter sharing service, shows a company with an improving economic model, and a multi-year path to profitability. However, that path is fraught unless a number of scenarios all work out, in concert and without a glitch.

Bird, well-known for its early battles with domestic rival Lime, is pursuing a SPAC-led deal that will see it go public and raise fresh capital. The former startup is merging with Switchback II Corporation in a deal that values it at around $2.3 billion, including a $160 million PIPE (private investment in public equity) component. (Note: The group purchasing TechCrunch’s parent company from its own parent company, is part of the Bird PIPE.)


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COVID-19 hasn’t been kind to Bird and similar companies around the world. As many around the world stayed home, usage of shared-asset services and ride-hail applications fell sharply. Bird saw rides decline. Airbnb took a temporary hit. Uber and Lyft saw ride demand fall.

Responses to the crisis were varied. Airbnb cut costs, and raised external capital. Lyft cut expenses and focused on its core model, while Uber grew its food delivery business, which saw transaction volume soar as demand fell for its traditional business.

Meanwhile, Bird flipped its entire business model. That decision has helped the scooter outfit improve its economics markedly, giving it a shot at generating profit in the future — provided its forecasts prove achievable.

This morning, let’s talk about how Bird has changed its business, their impacts on its operating results, and how long the company thinks its climb to profitability is.

Fleet management → Fleet managers

In their initial forms, Bird and Lime bought and deployed large fleets of electric scooters. Not only was this capital intensive, the companies also wound up with costs that were more than sticky — charging wasn’t simple or cheap, moving scooters around to balance demand took both human capital and vehicles, and the list went on.

Throw in vehicle depreciation — the pace at which scooters in the wild degraded from use or abuse — and the businesses proved excellent vehicles for raising capital and throwing that money at more scooters, costs, and, as it turned out, losses.

Results improved somewhat over time, though. As scooter-share companies increasingly built their own hardware, their economics improved. Sturdier scooters meant lower depreciation, and better battery tech could allow for more rides per charge. That sort of thing.

But the model wasn’t incredibly lucrative even before COVID-19 hit. Costs were high, and the model did not break even even on a gross margin basis, let alone when considering all corporate expenses. You can see the financial mess from that period of operations in historical Bird results.

Men are a niche demographic

By Natasha Mascarenhas

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

Danny was back, joining Natasha and Alex and Grace and Chris to chat through the week’s coming and goings. But, before we get to the official news, here’s some personal news: Danny is stepping back from his role as co-host of the Friday show! Yes, Mr. Crichton will still take part in our mid-week, deep dive episodes, but this is the conclusion of his run as part of the news roundup. We will miss him, glad that his transitions and wit will continue to be part of the Equity universe.

Who will take the third chair? Well, stay tuned. We have some neat things planned.

Now, the rundown:

Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

A VC shares 5 things no one told you about pitching VCs

By Walter Thompson
Kunal Lunawat Contributor
Kunal Lunawat is the co-founder and managing partner of Agya Ventures, a venture capital firm focused on proptech, travel, hospitality and the future of the built world.

The success of a fundraising process is entirely dependent on how well an entrepreneur can manage it. At this stage, it is important for founders to be honest, straightforward and recognize the value meetings with venture capitalists and investors can bring beyond just the monetary aspect.

Here are five pointers that founders should consider while pitching to venture capitalists:

Be honest and accurate

Raising a venture round is, in a way, a sales process, but any claims that could call into question a founder’s trustworthiness can result in a negative outcome rather than an investment.

As VCs, we cannot overemphasize how important it is that founders are transparent and upfront.

Here are a few select cases of such claims:

  • Overstating traction or revenues, which due diligence brought to light.
  • Concealing material attributes of the founding team — such as a co-founder’s commitment to the company, which at best was part time.
  • Speaking of committed investors who were about to wire money to the company, except they were still at the due diligence stage and eventually decided not to invest.

Investing in early-stage companies is often about making bets on people. As VCs, we cannot overemphasize how important it is that founders are transparent and upfront. It is critical to help establish the initial seeds of trust with a capital partner.

Further, most investors understand that things change — if there are any material shifts during the diligence process, communicating them promptly is an additional signal of maturity and uprightness. This will go a long way during the capital raise and beyond.

Know your BATNA

Founders often enter conversations with venture capitalists with a good handle on their product and the business. However, it’s common for entrepreneurs to falter at the negotiation stage, not knowing what their best alternative to a negotiated agreement (BATNA) is.

We have witnessed founders who mistake initial interest in the venture market for real commitment, and unreasonably hike their valuation, which results in them losing serious investors. We have also seen founders fail to ascribe the value serious VCs bring to the table and consequently hesitate to discount their valuation, only to later realize that the existing cap table lacks firepower.

The best way for founders to uncover their BATNA is to run an efficient process. This requires:

The hottest fintech market you aren’t paying attention to

By Alex Wilhelm

Hello and welcome back to Equity, TechCrunch’s venture-capital-focused podcast, where we unpack the numbers behind the headlines.

For our Wednesday show this week, Natasha and Alex and Danny had colleague Tage Kene-Okafor on the show to chat about the burgeoning African startup scene. Tage has become TechCrunch’s key correspondent in the area, chronicling the continent’s expanding venture capital totals, public company performance and startup ecosystem.

Given that we’ve paid attention to just how much money African startups are raising, we wanted to have Tage on to give us a better, deeper understanding of the continent’s technology activity. Here’s what we got into:

  • The power of Y Combinator in Africa: Is the well-known American accelerator a kingmaker in Africa? Or are we merely seeing more of its activity thanks to our own information biases?
  • Fintech as core focus: As in many markets, fintech investment and startup activity stand out in Africa. We wanted to better understand why that’s the case in Africa, and what startups are building in the realm of financial technology.
  • African e-commerce: The continent’s e-commerce market is perhaps best known through the lens of Jumia, a public tech company that works in the sale of goods online, and their delivery. How quickly is e-commerce growing in Africa, and which startups could be the next breakouts? We asked Tage.

Equity is back on Friday with our weekly news roundup!

Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

What is happening to risk-taking in venture capital?

By Annie Siebert
Navin Chaddha Contributor
Navin Chaddha is managing partner at Mayfield, an inception and early-stage investor with more than 50 years of a people-first investing philosophy.

Sam Lessin’s post in The Information, “The End of Venture Capital as We Know It,” prompted heated debate in Silicon Valley. He argued that the arrival of new players with large amounts of capital is changing the landscape of late-stage investing for venture capitalists and forcing VCs to “enter the bigger pond as a fairly small fish, or go find another small pond.”

But there’s another important trend developing in venture capital that has even more significant consequences than whether VCs are being forced to fight with bigger, deeper pockets for late-stage investment opportunities. And that is the move away from what has always defined venture capital: taking risks on the earliest-stage companies.

The VC industry at large, instead of taking risks at inception and in the early stages, is investing in later-stage companies where the concept is proven and companies have momentum.

The data indicates investing in early-stage companies is decreasing rapidly. According to data from PitchBook and the National Venture Capital Association, as a percentage of total U.S. venture capital dollars invested, angel/seed stage has reduced from 10.6% to 4.9% over the last three years, early-stage has reduced from 36.5% to 26.1% during the same time period, while late-stage has drastically increased from 52.9% to 69%, coming (as Lessin pointed out) from new players such as hedge funds and mutual funds.

This is happening at a time when there has been a record rate of new business creation. According to the U.S. Census Bureau, seasonally adjusted monthly business applications have been around 500,000 per month from the second half of 2020 to June 2021, compared with 300,000 per month in the year preceding the pandemic.

This data should be a red flag. Venture capital is about investing in risk to help the most innovative, transformative ideas get from concept to a flourishing enterprise. But the VC industry at large, instead of taking risks at inception and in the early stages, is investing in later-stage companies where the concept is proven and companies have momentum.

Here, the skill is more about finance to determine how much to invest and at what valuation to hit a certain return threshold rather than having the ability to spot a promising founder with a breakthrough idea. There’s an important role for late-stage investing, but if that’s where too much of the industry’s focus is applied, we’ll stifle innovation and limit the pipeline of companies to invest in Series B and beyond in the future.

The irony is that there’s never been a better time to be an inception investor given lower capital needs of getting from idea to Series A milestones. Startup costs have been driven down with access to cloud, social, mobile and open-source technologies, allowing entrepreneurs to test ideas and build momentum with small pools of capital.

This has spawned a golden age of innovation and many new trends are emerging, creating a large pool of companies that need money and support to take an idea and turn it into a flourishing business.

It’s also ironic that when we are judged for our prowess as VC investors, the only question that has ever mattered is who was the earliest investor, who had the genius to recognize a brilliant idea. It is not who led the last round(s) before an IPO.

This is not some esoteric argument about venture capital; there will be real consequences for our ability to innovate and invest in areas such as the renaissance of silicon, biology as technology, human-centered AI, unleashing the power of data, climate-friendly investing, saving lives, re-humanization of social media, blockchain and quantum computing.

The VC industry cannot forget its roots. In its early days, it served as the catalyst for the success of iconic companies such as Genentech, Apple, Microsoft, Netscape, Google, Salesforce, Amazon and Facebook. Without these companies, we would not have a biotech industry, the internet, the cloud, social media and mobile computing, all of which have dramatically changed how we live, play and work.

We can’t know the future, but with AI, machine learning and a new generation of semiconductors and materials, we certainly know profound change lies ahead. But it won’t happen if venture capital doesn’t play a major role at a company’s inception. We have to step up and do more to change the discouraging statistics above.

And it’s not just about individual firm glory: If we want the U.S. to maintain its leadership as the innovation engine of the world, the venture industry has to do more to support bold ideas at the earliest stages to give them a shot at succeeding. Maybe it’s time, as Lessin suggested, for VCs to “go find another small pond” or rather swim deeper in the one some of us are already in: the one that is full of inception-stage companies looking for investors who will partner with them throughout their journey.

Crypto’s coming of age moment

By Alex Wilhelm

This week Danny and Alex and Chris took to Twitter Spaces to chat about the current state of the crypto economy, and hang out with friends in a live Twitter Space. We’re doing more of these, so make sure that you are following the show on Twitter.

As a small programming note, I forgot to tell the folks who chimed in during the chat that we were recording it, so we had to cut most the Q&A portion of the show. We got Ezra’s permission, thankfully. The mixup was a bummer as we learned a lot. In the future, we’ll not make that mistake and keep all the voices.

So, what did we talk about? The following:

Ok, we’re back Monday with your regularly scheduled programming!

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday morning at 7:00 a.m. PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

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Don’t give your weed dealer all your data

By Natasha Mascarenhas

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

Our beloved Danny was back, joining Natasha and Alex and Grace and Chris to chat through yet another incredibly busy week. As a window into our process, every week we tell one another that the next week we’ll cut the show down to size. Then the week is so interesting that we end up cutting a lot of news, but also keeping a lot of news. The chaotic process is a work in progress, but it means that the end result is always what we decided we can’t not talk about.

Here’s what we got into:

Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.
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