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Fintech startups raised $34B in 2019

By Manish Singh

Financial services startups raised less money in 2019 than they did in 2018 as VC firms looked to back late stage firms and focused on developing markets, a new report has revealed.

According to research firm CB Insights’ annual report published this week, fintech startups across the world raised $33.9 billion* in total last year across 1,912 deals*, down from $40.8 billion they picked up by participating in 2,049 deals the year before.

It’s a comprehensive report, which we recommend you read in full here (your email is required to access it), but below are some of the key takeaways.

  • Early stage startups struggled to attract money: Per the report, financing for startups looking to close Seed or Series A dropped to a five-year low in 2019. On the flip side, money pouring into Series B or beyond startups was at record five-year high.

    Early-stage deals dropped to a 12-quarter low as deal share globally shifts to mid- and late-stages (CB Insights)

  • Emerging and frontier markets were at the centre stage of the most of the action: South America, Africa, Australia, and Southeast Asia all topped their annual highs last year.
  • Asia outpaced Europe in the second half of last year on both number of deals and bulk of capital raised. In Q3, European startups raised $1.6 billion through 95 deals, compared to $1.8 billion amassed by Asian startups across 157 deals. In Q4, a similar story was at play: European startups participated in 100 rounds to raise $1.2 billion, compared to $2.14 billion* raised by Asian startups across 125 deals*.
  • Emergence of 24 new fintech unicorns in 2019: 8 fintech startups including Next Insurance, Bight Health, Flywire, High Radius, Ripple, and Figure attained the unicorn status in Q4 2019, and 16 others made it to the list throughout the rest of the last year.

    The fintech market globally today has 67 unicorns as of earlier this month (CB Insights)

  • Insurtech sector, or startups such as Lemonade, Hippo, Next, Wefox, Bright Health that are offering insurance services, got a major boost last year. They raised 6.2 billion last year, up from $3.2 billion in 2018.
  • Startups building solutions such as invoicing and taxing services and payroll and payments solutions for small and medium businesses also received the nod of VCs. In the U.S. alone, where more than 140 startups are operating in the space, raised $4 billion. In many more markets, such startups are beginning to emerge. In India, for instance Open and NiYo are building neo-banks for small businesses and they both raised money last year.
  • Nearly 50% of all funding to fintech startups was concentrated in 83-mega rounds (those of size $100 million or above.): According to the research firm, 2019 was a record year for such rounds across the globe, except in Europe.

    2019 saw 83 mega-rounds totaling $17.2B, a record year in every market except Europe

  • Funding of Germany-based startups reached an annual high: 65 deals in 2019 resulted in $1.79 billion raise, compared to 56 deals and raise of $757 million in 2018, and 66 deals and $622 million raise in 2017.
  • Financial startups in Southeast Asia (SEA) raised $993 million across 124 rounds in 2019 in what was their best year.

*CB Insights report includes a $666 million financing round of Paytm . It was incorrectly reported by some news outlets and the $666 million raise was part of the $1 billion round the Indian startup had revealed weeks prior. We have adjusted the data accordingly.

Rippling starts billboard battle with Gusto

By Josh Constine

Remember when Zenefits imploded, and kicked out CEO Parker Conrad. Well, Conrad launched a new employee onboarding startup called Rippling, and now he’s going after another HR company called Gusto with a new billboard, “Outgrowing Gusto? Presto change-o.”

The problem is, Gusto got it taken down by issuing a cease & desist order to Rippling and the billboard operator Clear Channel Outdoor. That’s despite the law typically allowing comparative advertising as long as it’s accurate. Gusto sells HR, benefits and payroll software, while Rippling does the same but adds in IT management to tie together an employee identity platform.

Rippling tells me that outgrowing Gusto is the top reasons customers say they’re switching to Rippling. Gusto’s customer stories page lists no customers larger than 61 customers, and Enlyft research says the company is most often used by 10 to 50-person staffs. “We were one of Gusto’s largest customers when we left the platform last year. They were very open about the fact that the product didn’t work for businesses of our size. We moved to Rippling last fall and have been extremely happy with it,” says Compass Coffee co-founder Michael Haft.

That all suggests the Rippling ad’s claim is reasonable. But the C&D claims that “Gusto counts as customers multiple companies with 100 or more employees and does not state the businesses will ‘outgrow’ their platfrom at a certain size.”

In an email to staff provided to TechCrunch, Rippling CMO Matt Epstein wrote, “We take legal claims seriously, but this one doesn’t pass the laugh test. As Gusto says all over their website, they focus on small businesses.”

So rather than taking Gusto to court or trying to change Clear Channel’s mind, Conrad and Rippling did something cheeky. They responded to the cease & desist order in Shakespeare-style iambic pentameter.

Our billboard struck a nerve, it seems. And so you phoned your legal teams,
who started shouting, “Cease!” “Desist!” and other threats too long to list.

Your brand is known for being chill. So this just seems like overkill.
But since you think we’ve been unfair, we’d really like to clear the air.

Rippling’s general counsel Vanessa Wu wrote the letter, which goes on to claim that “When Gusto tried to scale itself, we saw what you took off the shelf. Your software fell a little short. You needed Workday for support,” asserting that Gusto’s own HR tool couldn’t handle its 1,000-plus employees and needed to turn to a bigger enterprise vendor. The letter concludes with the implication that Gusto should drop the cease-and-desist, and instead compete on merit:

So Gusto, do not fear our sign. Our mission and our goals align.
Let’s keep this conflict dignified—and let the customers decide.

Rippling CMO Matt Epstein tells me that “While the folks across the street may find competition upsetting, customers win when companies push each other to do better. We hope our lighthearted poem gets this debate back down to earth, and we look forward to competing in the marketplace.”

Rippling might think this whole thing was slick or funny, but it comes off a bit lame and try-hard. These are far from 8 Mile-worthy battle rhymes. If it really wanted to let customers decide, it could have just accepted the C&D and moved on…or not run the billboard at all. It still has four others that don’t slam competitors running. That said, Gusto does look petty trying to block the billboard and hide that it’s unequipped to support massive teams.

We reached out to Gusto over the weekend and again today asking for comment, whether it will drop the C&D, if it’s trying to get Rippling’s bus ads dropped too and if it does in fact use Workday internally.

Given Gusto has raised $516 million10X what Rippling has — you’d think it could just outspend Rippling on advertising or invest in building the enterprise HR tools so customers really couldn’t outgrow it. They’re both Y Combinator companies with Kleiner Perkins as a major investor (conflict of interest?), so perhaps they can still bury the hatchet.

At least they found a way to make the HR industry interesting for an afternoon.

Payments infra startup Finix closes $35M Series B led by Sequoia

By Alex Wilhelm

This morning Finix, a software-as-a-service (SaaS) startup selling payments tech to other businesses, announced that it has raised a $35 million Series B. Sequoia led the round, which also saw participation from new investors Activant Capital and Inspired Capital.

Finix did not disclose a new valuation as part of its round, and declined to share any growth metrics regarding its business. Instead, it offered a TAM figure and noted the number of countries in which it currently operates.

The company’s latest round is a doubling of its Series A, a $17.5 million round from July of 2019 led by Bain Capital Ventures; Insight Venture Partners, Aspect Ventures and Visa also took part in that round. Adding to the list, Homebrew invested in the company during its infancy.

Finix has now raised more than $55 million to date, according to the company, inclusive of an October, 2017-era seed investment.

The round

In an interview, Finix’s Richie Serna told TechCrunch that his company put together its latest round “to scale up the organization,” boosting its product and engineering muscles while also pursuing further international payment support. According to Serna, Finix’s larger clients have asked the company to expand international support, as having “international reach is a really key component for any business.”

Internationalization in the payments space requires many hands, a need that Finix intends to meet by doubling its staff by the end of the year. The company had around 60 staff at year’s end, Serna previously told TechCrunch.

Notably Finix, despite being a player in the payments space, doesn’t think of itself as a payments company. Instead, according to its CEO, Finix self-describes “as a payment infrastructure company.”

That difference is reflected in how the company charges for its service. Instead of charging similarly to, say, Stripe, which takes 2.9% and $0.30 “per successful card charge,” Finix charges its customers a regular software fee, along with a sliding fee depending on the number of payments they process.

Not taking a percentage cut of transactions opens up interesting revenue opportunities for Finix customers. Serna detailed how bringing payment tech via Finix can help some companies grow top line, something that’s quite interesting for other SaaS players:

Historically the distribution of payments has been fairly fragmented and almost bolted on. So there’s a number of software companies like MindBody and Toast, who, historically would just have sort of a revenue share with one of their payment processors. So if you signed up for someone like a MindBody as a yoga studio, you would then go and set up a partnership with FirstData or WorldPay to start accepting payments on that platform. In that model, someone like a MindBody would make a few basis points on every single transaction. By bringing their payments back in-house, and offering a more comprehensive, all in one solution, they can actually take more revenue.

Startups can expand revenue by owning their own payments tech — sometimes substantially. Serna told TechCrunch that Lightspeed said during their IPO process that “they were actually doubling their overall take rate by becoming a payment company.”

How does that work?

The yoga example that Serna mentioned is easy to unpack by way of analogy. Doing so will help us better understand why Finix expects SaaS companies, to pick an example, to bring payment tech “in-house.”

Imagine you own a company called, say WeaveBasket, and that it sells SaaS software to underwater basket weaving instructional studios, helping them manage client booking and the like. You can charge only so much for company’s your software, presenting you with a revenue ceiling; after all, the average underwater basket weaving studio can only generate so much margin with which to pay costs. But if you set up WeaveBasket to help underwater basket weaving studios to also accept payments for classes through your software, you can generate lots more revenue for your SaaS company — WeaveBasket generates revenue from regular software fees, and by taking a cut of its customers’ customer payment flow.

“Vertical SaaS companies are looking at how they can directly embed and bake these payments capabilities into their platform,” Serna told TechCrunch.

All this fits back into the round; Finix is a bet that providing payment technology on a SaaS basis will attract legion uptake by companies of all sorts. As a deck that Finix’s Serna showed TechCrunch a few weeks ago stated, “software companies are becoming payments companies,” and his company wants to be the engine behind that change.

The bet

The payments world is stuffed full of players at different points of the transaction stack, including processors, banks, card networks and payment facilitators like Lightspeed and Stripe. It’s a complex set of relationships. Serna agrees, calling the industry “a blackbox to basically everybody” in a 2019 interview.

Creating simplicity through software is something that has generally done well in the technology world in recent years. Twilio took telephony and boiled it down into APIs. Plaid did the same thing with consumer finance. Finix, it seems, wants to let anyone who takes lots of payments to be able to reduce their relationship load, control costs and perhaps drive more revenue.

The startup now has the capital with which to bring its vision more fully to life, but domestically and abroad. Let’s see how far Finix can get on its new check — and its willingness to take a small risk and share a bit more concerning its business performance in the future.

How Bykea is winning Pakistan’s ride-hailing and delivery market

By Manish Singh

Increasingly, the streets of Karachi and Lahore are being flooded with men riding bikes and wearing green T-shirts, a writer friend recently told me. In a sense, these men represent the emergence of Pakistan’s tech startups.

India now has more than 25,000 startups and raised a record $14.5 billion last year, according to government figures. But not all Asian countries are as large as India or have such a thriving startup ecosystem. Long overdue, things are beginning to change in bordering Pakistan.

Bykea, a three-year-old ride-hailing and delivery service, today has more than 500,000 bikes registered on its platform. It operates in some of Pakistan’s most populated cities, such as Karachi, Lahore and Islamabad, Muneeb Maayr, Bykea founder and CEO, told TechCrunch.

Maayr is one of the most recognized startup founders in Pakistan, and previously worked for Rocket Internet, helping the giant run fashion e-commerce platform Daraz in the country. While leading Daraz, he expanded the platform to cater to categories beyond fashion; Daraz was later sold to Alibaba.

Apple Card users can now download monthly transactions in a spreadsheet

By Matthew Panzarino

One of the big questions I got around the time the Apple Card launched was whether you’d be able to download a file of your transactions to either work with manually or import into a piece of expenses management software. The answer, at the time, was no.

Now Apple is announcing that Apple Card users will be able to export monthly transactions to a downloadable spreadsheet that they can use with their personal budgeting apps or sheets.

When I shot out a request for recommendations for a Mint replacement for my financing and budgeting, a lot of the responses showed just how spreadsheet-oriented many of the tools on the market are. Mint accepts imports, as do others like Clarity Money, YNAB and Lunch Money. As do, of course, personal solutions rolled in Google Sheets or other spreadsheet programs.

The one rec I got the most and which I’m trying out right now, Copilot, does not currently support importing spreadsheets, but founder Andres Ugarte told me it’s on their list to add. Ugarte told me that they’re happy to see the download feature appear because it lets users monitor their finances on their own terms. “Apple Card support has been a top request from our users, so we are very excited to provide a way for them to import their data into Copilot .”

Here’s how to export a spreadsheet of your monthly transactions:

  • Open Wallet
  • Tap “Apple Card”
  • Tap “Card Balance”
  • Tap on one of the monthly statements
  • Tap on “Export Transactions”

If you don’t yet have a monthly statement, you won’t see this feature until you do. The last step brings up a standard share sheet letting you email or send the file however you normally would. The current format is CSV, but in the near future you’ll get an OFX option as well.

So if you’re using one of the tools (or spreadsheet setups) that would benefit from being able to download a monthly statement of your Apple Card transactions, then you’re getting your wish from the Apple Card team today. If you use a tool that requires something more along the lines of API-level access, like something using Plaid or another account linking-centric tool, then you’re going to have to wait longer.

No info from Apple on when that will arrive, if at all, but I know that the team is continuing to launch new features, so my guess is that this is coming at some point.

Venmo woos retailers with branded, animated stickers for its newsfeed

By Sarah Perez

Venmo’s newsfeed is about to get more interesting. Historically, the PayPal-owned app’s users would comment on their transactions using text, or as is more common, emoji. But now the company is planning to add support for custom, animated stickers, as well.

These animations were designed in partnership with Holler so they’re unique to the Venmo app and tailored to the sorts of transactions that take place there. For example, one is of a hoagie sandwich broken in half with text that reads “split the bill.” Another features a spinning pizza. One includes two characters pushing an IKEA shopping cart. And so on.

IKEA isn’t the only brand to be included in the new stickers, as it turns out — Subway and others are also participating, Venmo says. (Keurig was initially listed as a sticker partner, then pulled out at the last minute. Other news sites have still included the brand’s mention, but to be clear — it isn’t launching now.)

The move to introduce stickers — and particularly those featuring select retailers — comes at a time when Venmo is looking for ways to establish itself as a payment method of choice at brick-and-mortar stores. On that front, the company this past fall launched a rewards program tied to its physical Venmo card to offer users 5% back at stores like Target, Sephora, Dunkin’ Donuts, and Wendy’s, among others.

Though Venmo parent company PayPal had already tried to establish itself as an optional at checkout through point-of-sale integrations in years past, it never really took off. In more recent months, PayPal instead chose to partner instead of competing with payment rivals like Apple, Google, Visa, Mastercard, and others. Venmo, however, still has a shot at becoming at establishing a foothold in the physical retail space, thanks to its Venmo account-linked card and its forthcoming credit card.

In addition, its service is favored by millennial and Gen Z shoppers who often opt for non-traditional cards and banking products, like mobile banking apps and cards that also function as status symbol cards, like the new  Apple Card. Plus, they prefer visual communication when it comes to sharing what they’re spending — over 90% of Venmo transactions include emojis, the company notes.

Venmo says the new stickers in the app will help the retailers to better connect with Venmo users and could allow for tailored experiences, going forward. But not all the stickers are branded — some are just happy tacos or burritos, jars and mugs filled with pennies, and other generic images.

The stickers are rolling out, starting today, says Venmo.

African fintech firm Flutterwave raises $35M, partners with Worldpay

By Jake Bright

San Francisco and Lagos-based fintech startup Flutterwave has raised a $35 million Series B round and announced a partnership with Worldpay FIS for payments in Africa.

With the funding, Flutterwave will invest in technology and business development to grow market share in existing operating countries, CEO Olugbenga Agboola — aka GB — told TechCrunch.

The company will also expand capabilities to offer more services around its payment products.

More than payments

“We don’t just want to be a payment technology company, we have sector expertise around education, travel, gaming, e-commerce, fintech companies. They all use our expertise,” said GB.

That means Flutterwave will provide more solutions around the broader needs of its clients.

The Nigerian-founded startup’s main business is providing B2B payments services for companies operating in Africa to pay other companies on the continent and abroad.

Launched in 2016, Flutterwave allows clients to tap its APIs and work with Flutterwave developers to customize payments applications. Existing customers include Uber, Booking.com and e-commerce company Jumia.

In 2019, Flutterwave processed 107 million transactions worth $5.4 billion, according to company data.

Flutterwave did the payment integration for U.S. pop-star Cardi B’s 2019 performances in Nigeria and Ghana. Those are two of the countries in which the startup operates, in addition to South Africa, Uganda, Kenya, Tanzania, Zambia, the U.K. and Rwanda.

Flutterwave Cardi B Nigeria“We want to scale in all those markets and be the payment processor of choice,” GB said.

The company will hire more business development staff and expand its developer team to create more sector expertise, according to GB.

“Our business goes beyond payments. People don’t want to just make payments, they want to do something,” he said. And Fluterwave aims to offer more capabilities toward what those clients want to do in Africa.

GB Flutterwave disrupt

Olugbenga Agboola, aka GB

“If you are a charity that wants to raise money for cancer research in Ghana, or you want to sell online, or you’re Cardi B…who wants to do concerts in Africa…we want to be able to set up payments, write the code and create the platform for those needs,” GB explained.

That also means Flutterwave, which built its early client base across global companies, aims to serve smaller African businesses, including startups. Current customers include African-founded tech companies, such as moto ride-hail venture Max.ng.

Worldpay partnership

The new round makes Flutterwave the payment provider for Worldpay in Africa.

“With this partnership, any Worldpay merchant in Europe or the U.S. can accept any African payment. If someone goes to pay Netflix with an African card, it just works,” GB said.

In 2019, Worldpay was acquired for a reported $35 billion by FIS, a U.S. financial services provider. At the time of the purchase, it was projected the two companies would generate revenues of $12 billion annually, yet neither has notable presence in Africa.

Therein lies the benefit of collaborating with Flutterwave.

FIS’s Head of Ventures Joon Cho confirmed the partnership with TechCrunch. FIS also backed Flutterwave’s $35 million Series B. US VC firms Greycroft and eVentures led the round, with participation of Visa, Green Visor and African fund CRE Venture Capital.

Flutterwave’s latest funding brings the company’s total investment to $55 million and follows a year in which the fintech venture announced a series of weighty partnerships.

In July 2019, the startup joined forces with Chinese e-commerce company Alibaba’s Alipay to offer digital payments between Africa and China.

The Alipay collaboration followed one between Flutterwave and Visa to launch a consumer payment product for Africa, called GetBarter.

Flutterwave and African fintech

Flutterwave’s $35 million round and latest partnership are among the reasons the startup has become a standout in Africa’s digital-finance landscape.

As a sector, fintech gains the bulk of dealflow and the majority of startup capital flowing to African startups annually. VC to Africa totaled $1.35 billion in 2019, according to WeeTracker’s latest stats.

While a number of payment startups and products have scaled — see Paga in Nigeria and M-Pesa in Kenya — the majority of the continent’s fintech companies are P2P in focus and segregated to one or two markets.

Flutterwave’s platform has served the increased B2B business payment needs spurred by the decade of growth and reform that has occurred in Africa’s core economies.

The value the startup has created is underscored not just by transactional volume the company generates, but the partnerships it has attracted.

A growing list of the masters of the payment universe — Visa, Alipay, Worldpay — have shown they need Flutterwave to do finance in Africa.

Marijuana delivery giant Eaze may go up in smoke

By Ingrid Lunden

The first cannabis startup to raise big money in Silicon Valley is in danger of burning out. TechCrunch has learned that pot delivery middleman Eaze has seen unannounced layoffs, and its depleted cash reserves threaten its ability to make payroll or settle its AWS bill. Eaze was forced to raise a bridge round to keep the lights on as it prepares to attempt major pivot to ‘touching the plant’ by selling its own marijuana brands through its own depots.

If Eaze fails, it could highlight serious growing pains amid the ‘green rush’ of startups into the marijuana business.

Eaze, the startup backed by some $166 million in funding that once positioned itself as the “Uber of pot” — a marketplace selling pot and other cannabis products from dispensaries and delivering it to customers — has recently closed a $15 million bridge round, according to multiple source. The fund was meant to keep the lights on as Eaze struggles to raise its next round of funding amid problems with making decent margins on its current business model, lawsuits, payment processing issues, and internal disorganization.

 

An Eaze spokesperson confirmed that the company is low on cash. Sources tell us that the company, which laid off some 30 people last summer, is preparing another round of cuts in the meantime. The spokesperson refused to discuss personnel issues but noted that there have been layoffs at many late stage startups as investors want to see companies cut costs and become more efficient.

From what we understand, Eaze is currently trying to raise a $35 million Series D round according to its pitch deck. The $15 million bridge round came from unnamed current investors. (Previous backers of the company include 500 Startups, DCM Ventures, Slow Ventures, Great Oaks, FJ Labs, the Winklevoss brothers, and a number of others.) Originally, Eaze had tried to raise a $50 million Series D, but the investor that was looking at the deal, Athos Capital, is said to have walked away at the eleventh hour.

Eaze is going into the fundraising with an enterprise value of $388 million, according to company documents reviewed by TechCrunch. It’s not clear what valuation it’s aiming for in the next round.

An Eaze spokesperson declined to discuss fundraising efforts but told TechCrunch, “The company is going through a very important transition right now, moving to becoming a plant-touching company through acquisitions of former retail partners that will hopefully allow us to more efficiently run the business and continue to provide good service to customers.

Desperate to grow margins

The news comes as Eaze is hoping to pull off a “verticalization” pivot, moving beyond online storefront and delivery of third-party products (rolled joints, flower, vaping products and edibles) and into sourcing, branding and dispensing the product directly. Instead of just moving other company’s marijuana brands between third-party dispensaries and customers, it wants to sell its own in-house brands through its own delivery depots to earn a higher margin. With a number of other cannabis companies struggling, the hope is that it will be able to acquire brands in areas like marijuana flower, pre-rolled joints, vaporizer cartridges, or edibles at low prices.

An Eaze spokesperson confirmed that the company plans to announce the pivot in the coming days, telling TechCrunch that it’s “a pretty significant change from provider of services to operating in that fashion but also operating a depot directly ourselves.”

The startup is already making moves in this direction, and is in the process of acquiring some of the assets of a bankrupt cannabis business out of Canada called Dionymed — which had initially been a partner of Eaze’s, then became a competitor, and then sued it over payment disputes, before finally selling part of its business. These assets are said to include Oakland dispensary Hometown Heart, which it acquired in an all-share transaction (“Eaze effectively bought the lawsuit,” is how one source described the sale). This will become Eaze’s first owned delivery depot.

In a recent presentation deck that Eaze has been using when pitching to investors — which has been obtained by TechCrunch — the company describes itself as the largest direct-to-consumer cannabis retailer in California. It has completed more than 5 million deliveries, served 600,000 customers and tallied up an average transaction value of $85. 

To date, Eaze has only expanded to one other state beyond California, Oregon. Its aim is to add five more states this year, and another three in 2021. But the company appears to have expected more states to legalize recreational marijuana sooner, which would have provided geographic expansion. Eaze seems to have overextended itself too early in hopes of capturing market share as soon as it became available.

An employee at the company tells us that on a good day Eaze can bring in between $800,000 and $1 million in net revenue, which sounds great, except that this is total merchandise value, before any cuts to suppliers and others are made. Eaze makes only a fraction of that amount, one reason why it’s now looking to verticatlize into more of a primary role in the ecosystem. And that’s before considering all of the costs associated with running the business. 

Eaze is suffering from a problem rampant in the marijuana industry: a lack of working capital. Since banks often won’t issue working capital loans to weed-related business, deliverers like Eaze can experience delays in paying back vendors. A source says late payments have pushed some brands to stop selling through Eaze.

Another drain on its finances have been its marketing efforts. A source said out-of-home ads (billboards and the like) allegedly were a significant expense at one point. It has to compete with other pot purchasing options like visiting retail stores in person, using dispensaries’ in-house delivery services, or buying via startups like Meadow that act as aggregated online points of sale for multiple dispensaries.

Indeed, Eaze claims that its pivot into verticalization will bring it $204 million in revenues on gross transactions of $300 million. It notes in the presentation that it makes $9.04 on an average sale of $85, which will go up to $18.31 if it successfully brings in ‘private label’ products and has more depot control.

Selling weed isn’t eazy

The poor margins are only one of the problems with Eaze’s current business model, which the company admits in its presentation have led to an inconsistent customer experience and poor customer affinity with its brand — especially in the face of competition from a number of other delivery businesses.  

Playing on the on-demand, delivery-of-everything theme, it connected with two customer bases. First, existing cannabis consumers already using some form of delivery service for their supply; and a newer, more mainstream audience with disposable income that had become more interested in cannabis-related products but might feel less comfortable walking into a dispensary, or buying from a black market dealer.

It is not the only startup that has been chasing that audience. Other competitors in the wider market for cannabis discovery, distribution and sales include Weedmaps, Puffy, Blackbird, Chill (a brand from Dionymed that it founded after ending its earlier relationship with Eaze), and Meadow, with the wider industry estimated to be worth some $11.9 billion in 2018 and projected to grow to $63 billion by 2025.

Eaze was founded on the premise that the gradual decriminalisation of pot — first making it legal to buy for medicinal use, and gradually for recreational use — would spread across the US and make the consumption of cannabis-related products much more ubiquitous, presenting a big opportunity for Eaze and other startups like it. 

It found a willing audience among consumers, but also tech workers in the Bay Area, a tight market for recruitment. 

“I was excited for the opportunity to join the cannabis industry,” one source said. “It has for the most part has gotten a bad rap, and I saw Eaze’s mission as a noble thing, and the team seemed like good people.”

Eaze CEO Ro Choy

That impression was not to last. The company, this employee was told when joining, had plenty of funding with more on the way. The newer funding never materialised, and as Eaze sought to figure out the best way forward, the company cycled through different ideas and leadership: former Yammer executive Keith McCarty, who cofounded the company with Roie Edery (both are now founders at another Cannabis startup, Wayv), left, and the CEO role was given to another ex-Yammer executive, Jim Patterson, who was then replaced by Ro Choy, who is the current CEO. 

“I personally lost trust in the ability to execute on some of the vision once I got there,” the ex-employee said. “I thought that on one hand a picture was painted that wasn’t the truth. As we got closer and as I’d been there longer and we had issues with funding, the story around why we were having issues kept changing.” Several sources familiar with its business performance and culture referred to Eaze as a “shitshow”.

No ‘Push For Kush’

The quick shifts in strategy were a recurring pattern that started well before the company got tight financial straits. 

One employee recalled an acquisition Eaze made several years ago of a startup called Push for Pizza. Founded by five young friends in Brooklyn, Push for Pizza had gone viral over a simple concept: you set up your favourite pizza order in the app, and when you want it, you pushed a single button to order it. (Does that sound silly? Don’t forget, this was also the era of Yo, which was either a low point for innovation, or a high point for cynicism when it came to average consumer intelligence… maybe both.)

Eaze’s idea, the employee said, was to take the basics of Push for Pizza and turn it into a weed app, Push for Kush. In it, customers could craft their favourite mix and, at the touch of a button, order it, lowering the procurement barrier even more.

The company was very excited about the deal and the prospect of the new app. They planned a big campaign to spread the word, and held an internal event to excite staff about the new app and business line. 

“They had even made a movie of some kind that they showed us, featuring a caricature of Jim” — the CEO at a the time — “hanging out of the sunroof of a limo.” (I’ve been able to find the opening segment of this video online, and the Twitter and Instagram accounts that had been created for Push for Kush, but no more than that.)

Then just one week later, the whole plan was scrapped, and the founders of Push for Pizza fired. “It was just brushed under the carpet,” the former employee said. “No one could get anything out of management about what had happened.”

Something had happened, though: the company had been taking payments by card when it made the acquisition, but the process was never stable and by then it had recently gone back to the cash-only model. Push for Kush by cash was less appealing. “They didn’t think it would work,” the person said, adding that this was the normal course of business at the startup. “Big initiatives would just die in favor of pushing out whatever new thing was on the product team’s radar.” 

Eaze’s spokesperson confirmed that “we did acquire Push For Pizza . . but ultimately didn’t choose to pursue [launching Push For Kush].”

Payments were a recurring issue for the startup. Eaze started out taking payments only in cash — but as the business grew, that became increasingly problematic. The company found itself kicked off the credit card networks and was stuck with a less traceable, more open to error (and theft) cash-only model at a time when one employee estimated it was bringing in between $800,000 and $1 million per day in sales. 

Eventually, it moved to cards, but not smoothly: Visa specifically did not want Eaze on its platform. Eaze found a workaround, employees say, but it was never above board, which became the subject of the lawsuit between Eaze and Dionymed. Currently the company appear to only take payments via debit cards, ACH transfer, and cash, not credit card.

Another incident sheds light on how the company viewed and handled security issues. 

Can Eaze rise from the ashes?

At one point, employees allegedly discovered that Eaze was essentially storing all of its customer data — including users’ signatures and other personal information — in an Azure bucket that was not secured, meaning that if anyone was nosing around, it could be easily discovered and exploited.

The vulnerability was brought to the company’s attention. It was something that was up to product to fix, but the job was pushed down the list. It ultimately took seven months to patch this up. “I just kept seeing things with all these huge holes in them, just not ready for prime time,” one ex-employee said of the state of products. “No one was listening to engineers, and no one seemed to be looking for viable products.” Eaze’s spokesperson confirms a vulnerability was discovered but claims it was promptly resolved.

Today, the issue is a more pressing financial one: the company is running out of money. Employees have been told the company may not make its next payroll, and AWS will shut down its servers in two days if it doesn’t pay up. 

Eaze’s spokesperson tried to remain optimistic while admitting the dire situation the company faces. “Eaze is going to continue doing everything we can to support customers and the overall legal cannabis industry. We’re excited about the future and acknowledge the challenges that the entire community is facing.”

As medicinal and recreational marijuana access became legal in some states in the latter 2010s, entrepreneurs and investors flocked to the market. They saw an opportunity to capitalize on the end of a major prohibition — a once in a lifetime event. But high government taxes, enduring black markets, intense competition, and a lack of financial infrastructure willing to deal with any legal haziness have caused major setbacks.

While the pot business might sound chill, operations like Eaze depend on coordinating high-stress logistics with thin margins and little room for error. Plenty of food delivery startups from Sprig to Munchery went under after running into similar struggles, and at least banks and payment processors would work with them. With the odds stacked against it, Eaze has a tough road ahead.

Why Bill.com didn’t pursue a direct listing

By Alex Wilhelm

Bill.com went public today after pricing its shares higher than it initially expected. The B2B payments company sold nearly 10 million shares at $22 apiece, raising around $216 million in its IPO. Public investors felt that the company’s price was a deal, sending the value of its equity to $35.51 per share as of the time of writing.

That’s a gain of over 61%.

On the heels of its successful pricing run and raucous first day’s trading, TechCrunch caught up with Bill.com CEO René Lacerte to dig into his company’s debut. We wanted to know how pricing went, and whether the company (which possibly could have valued itself more richly during its IPO pricing, given its first-day pop) had considered a direct listing.

Lacerte detailed what resonated with investors while pricing Bill.com’s shares, and also did a good job outlining his perspective on what matters for companies that are going public. As a spoiler, he wasn’t super focused on the company’s first-day return.

For more on the Bill.com IPO’s nuts and bolts, head here. Let’s get into the interview.

René Lacerte

The following interview has been edited for length and clarity. Questions have been condensed.

TechCrunch: How did your IPO pricing feel, and what did you learn from the process?

Lacerte: I think the whole experience has been an incredible learning experience from a capitalism perspective; that’s probably a broader conversation. But you know, it really came down to how our story resonated with investors, and so there’s three components that we kind of really talked to folks about.

Robinhood lets you invest as little as 1 cent in any stock

By Josh Constine

One share of Amazon stock costs over $1700, locking out less wealthy investors. So to continue its quest to democratize stock trading, Robinhood is launching fractional share trading this week. This lets you buy 0.000001 shares, rounded to the nearest penny, or just $1 of any stock with zero fee.

The ability to buy by millionth of a share lets Robinhood undercut Square Cash’s recently announced fractional share trading, which sets a $1 minimum for investment. Robinhood users can sign up here for early access to fractional share trading.

As incumbent brokerages like Charles Schwab and E*Trade move to copy Robinhood’s free stock trading, the startup has to stay ahead in inclusive financial tools. Fractional share trading ensures no one need be turned away, and Robinhood can keep growing its user base of 10 million with its war chest of $910 million in funding.

Robinhood has a bunch of other new features aimed at diversifying its offering for the not-yet-rich. Today its Cash Management feature it announced in October is rolling out to its first users on 800,000 person wait list, offering them 1.8% APY interest on cash in their Robinhood balance plus a Mastercard debit card for spending money or pulling it out of a wide network of ATMs. The feature is effectively a scaled-back relaunch of the botched debut of 3% APY Robinhood Checking a year ago which was scuttled since the startup failed to secure the proper insurance it now has for Cash Management.

Additionally, Robinhood is launching two more widely requested features early next year. Dividend Reinvestment Plan (DRIIP) will automatically reinvest cash dividends Robinhood users receive into stocks or ETFS. Recurring Investments will let users schedule daily, weekly, bi-weekly, or monthly investments into stocks. With all this, Crypto trading, and  Robinhood is evolving into a full financial services suite that will be much harder for competitors to copy.

Robinhood Debit Card

How Robinhood Fractional Shares Work

“We believe that if you want to invest, it shouldn’t matter how much money you have. With fractional shares, we’re opening up a whole universe of stocks and funds including Amazon, Apple, Disney, Berkshire Hathaway, and thousands of others” Robinhood product manager Abhishek Fatehpuria tells me.

Users will be able to place real-time fractional share orders in dollar amounts as low as $1 or share amounts as low as 0.000001 shares rounded to the penny during market hours. Stocks worth over $1 per share with a market capitalization above $25 million are eligible, with 4000 different stocks and ETFs available for commission-free, real-time fractional trading.

“We believe that participation is power. Since day one, we’ve focused on breaking down barriers like trade commissions and account minimums to help people participate in the financial system” says Fatehpuria. “We have a unique user base — half our customers tell us they’re first time investors, and the median age of a Robinhood customer is 30. This means we have a unique opportunity to expand access to the markets for this new generation.”

Robinhood is racing to corner the freemium investment tool market before other startups and finance giants can catch up. It opened a waitlist for its UK launch next year which will be its first international market. But in just the past month, Alpaca raised $6 million for an API that lets anyone build a stock brokerage app, and Atom Finance raised $10.6 million for its free investment research tool that could compete with Robinhood’s in-app feature. Meanwhile, Robinhood suffered an embarrassing bug letting users borrow more money than allowed.

The move fast and break things mentality triggers new dangers when introduced to finance. Robinhood must resist the urge to rush as it spreads itself across more products in pursuit of a leveler investment playing field.

Bill.com’s IPO pricing is good news for unprofitable startups

By Alex Wilhelm

Business-to-business payments company Bill.com priced its IPO today at an above-range $22 per share. The firm, selling 9.82 million shares in its offering, will raise around $216 million at a roughly $1.6 billion valuation.

The company’s IPO pricing comes during a modestly uncertain time for unprofitable companies looking to go public. Following the WeWork IPO mess, concerns arose that growth-oriented companies might struggle to drum up investor interest when going public.

Bill.com’s offering makes it plain that not all loss-making companies are equal; the firm’s pricing journey indicates that its growth story resonated more with investors than concerns relating to its losses. The company had targeted a $16 to $18 per-share IPO price range. However, that range was raised to $19 to $21 per share yesterday, ahead of pricing.

Financial history

To understand what the Bill.com IPO means for startups, let’s remind ourselves of how much capital it raised while private itself, and how it performed financially.

Bill.com raised $347.1 million while private across a host of Series and venture rounds, including $100 million in 2017 and $88 million in 2018. The Palo Alto-based company raised from Franklin Templeton, JP Morgan and Temasek during its late-stage private life. When it was younger, Bill.com raised capital from Emergence, DCM, Icon Ventures, Financial Partners Fund and Scale Venture Partners, among others.

The company was valued, according to Crunchbase data, at precisely $1 billion on a post-money valuation following its 2018 investment. This makes its IPO a comfortably up transaction, adding value to even Bill.com’s most recently added private investors.

Heading into its IPO, Bill.com posted both growing revenue and growing losses:

  • Q3 revenue: $35.2 million, up 56.9% year-over-year
  • Q3 net loss: $5.7 million, up 544.3 % year-over-year

The firm’s net loss growth looks worse than it really is, given that it lost less than $1 million in its year-ago Q3; but investors looking for a path to profits may not have appreciated the direction or pace of its net results, regardless of how small a base they were calculated from.

An above-range pricing on a company that raised its pricing interval while losing more money than it did a year ago should allay concerns among private companies that the IPO window is closed. It is not, provided that your losses are slim as a percent of revenue and your growth is solid.

PayPal’s exiting COO Bill Ready to join Google as its new president of Commerce

By Sarah Perez

In June, PayPal announced its Chief Operating Officer Bill Ready would be departing the company at the end of this year. Now we know where he’s ending up: Google. Ready will join Google in January as the company’s new commerce chief, reporting directly to Prabhakar Raghavan, SVP, Ads, Commerce and Payments.

Ready’s role at Google will not involve payments, which means he won’t be directly involved with PayPal’s competitor, Google Pay. Instead, as Google’s new president of Commerce, Ready will focus on leading Google’s vision, strategy and delivery of its commerce products. However, the role will see Ready working in close partnership with both the advertising and payments operations.

Google’s prior head of ads, commerce and payments, Sridhar Ramaswamy, left the company in 2018 after more than 15 years, which is when Raghavan stepped in. But Ready’s role is a new one, as it will focus on commerce specifically.

“Bill’s exceptional track record building great experiences for consumers and deeply strategic partnerships makes him a powerful addition to our team. I couldn’t be more excited for the future of commerce at Google,” said Raghavan, in a statement.

Added Ready, “I’ve long admired how Google has enabled access to the digital economy for everyone. Google has been making world-class commerce capabilities universally accessible to partners of all sizes, and I look forward to furthering that mission,” he said.

Ready joined PayPal in 2013 when it acquired his startup, the payments gateway Braintree, for $800 million (he became CEO of Braintree and Venmo). Today, Braintree powers payments for businesses like Uber, Airbnb, Facebook and Jet.com, while Venmo sees more than $25 billion in transaction volume on a quarterly basis.

Once at PayPal, Ready moved up the ranks to become EVP and COO in 2016. In this role, he was responsible for product, technology and engineering at PayPal, as well as the end-to-end customer experiences for PayPal’s consumer, merchant, Braintree, Venmo, Paydiant and Xoom businesses. He was also co-chair of PayPal’s Operating Group, which focuses on delivering on revenue and profit goals for the company.

At PayPal, Ready was behind a number of the company’s biggest moves, including the introduction of its most-rapidly adopted product ever, PayPal One Touch, as well as Pay with Venmo, the redesign of the PayPal mobile app, PayPal Commerce and the expansion of Braintree’s global reach.

PayPal announced Ready’s plans for departure this summer, saying he was planning to engage in other entrepreneurial interests outside the company.

Heading up commerce at Google will be a big task for Ready, given commerce’s close proximity to parent company Alphabet’s main source of revenue, which is advertising. In Q3 2019, Google’s ad revenue was $33.92 billion out of total revenue of $40.5 billion.

Today, many consumers visit Google first to shop for products, which allows it to charge top dollar for its ads. But over the years, Amazon has been steadily chipping away at Google’s lead as more consumers go directly to its site to hunt for products.

To address this challenge, Google has begun to transform its Shopping business.

At Google Marketing Live this year, Google unveiled a new look and feel for its shopping properties, which included rebranding its Google Express app as the new Google Shopping app. The goal with the changes is to better serve the way consumers now shop online. Today, people often start “shopping” by doing things like browsing Pinterest for inspiration or seeing what influencers are posting on Instagram, for example. Instagram capitalized on this trend with the launch of Instagram Shopping in March, which allows users to checkout right in its app.

PayPal is also now moving in this direction. The company recently made its largest-ever acquisition with a $4 billion deal for shopping and awards platform Honey. With Honey’s integrations, PayPal will be able to target shoppers with personalized promotions and offers earlier on in their shopping journey, then direct them to PayPal’s checkout as the final step.

Google’s commerce plans are similar in that regard.

It envisions a universal cart and new ways to shop across its platform of services, including Search, Shopping, Images, and even YouTube and Gmail. This will allow Google to also capture shoppers’ attention as they engage with Google properties — like browsing images for product ideas or watching YouTube videos, for example.

As a part of the Google Shopping revamp, the dedicated Shopping homepage was updated to allow consumers to filter products by brands they love, features they want, as well as read product reviews and videos. Shoppers could add items to a universal cart where purchases were backed by a Google guarantee, as well as receive customer service and make easy returns, as before with Google Express.

Google’s travel business also falls under commerce, and similarly received new attention this year with updates designed to simplify the experience of trip planning on google.com/travel, and more features around tracking flight price drops and predictions. 

On the advertising side, Google’s highly visual Showcase Shopping ads were expanded outside of Google Shopping. And Shopping Actions — customers’ ability to shop directly from Google surfaces, like Google Assistant — are making their way to new services, like YouTube.

Google is also ramping up its ability to serve smaller and local businesses with features aimed at driving in-store pickup traffic to brick-and-mortar stores.

Critical to making Google’s new Shopping platform successful is being able to forge retail partnerships — as, unlike Amazon, Google itself is not really in the business of selling directly to consumers, outside of its own hardware devices.

Ready’s experience will prove valuable here, too. At PayPal, he was able to build strategic partnerships with a number of unlikely players — including Visa, Mastercard, Apple, Walmart, Samsung, and even Google.

What Ready’s strategy and vision will more precisely entail for Google will have to wait until after he’s on board, however.

“I’m thrilled to welcome Bill to Google as we continue our work to create more helpful commerce experiences and build a thriving ecosystem for partners of all sizes,” said Sundar Pichai, CEO of Google and Alphabet.

Image Credits: Getty Images — Bloomberg/Contributor; Ready: Google

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