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Yesterday — April 4th 2020Your RSS feeds

New guidance on SBA loans means most startups are still excluded from $349 billion stimulus

By Jonathan Shieber

Under new guidance issued by the Small Business Administration it seems non-profits and faith-based groups can apply for the Paycheck Protection Program loans designed to keep small business afloat during the COVID-19 epidemic, but most venture-backed companies are still not covered.

Late Friday night, the Treasury Department updated its rules regarding the “affiliation” of private entities to include religious organizations but keep in place the same rules that would deny most startups from receiving loans.

(b) If you are a faith-based organization, *no affiliation rules apply to you,* because the SBA just said so. Out of nowhere. At like 10pm on a Friday night.

It doesn't matter if you have a zillion employees; as long as any 1 entity has <500 employees, it can get a #PPPloan.
4/ pic.twitter.com/V0x3Vx6G7x

— Doug Rand (@doug_rand) April 4, 2020

The NVCA and other organizations had pushed Treasury Secretary Steve Mnuchin to clarify the rules regarding startups and their potential eligibility for loans last week. And House Republican leader Kevin McCarthy even told Axios that startups would be covered under the revised regulations.

Apparently that didn’t happen, as Mark Suster, the managing partner of Los Angeles-based Upfront Ventures, noted in a tweet.

2/ There are rumors that the PPP Loan program may still fix the Affiliate Rule next week. Until fixed, it's nearly impossible for most VC-backed startups to apply because it would require huge legal lift to amend all of the charters of these companies to change control provisions

— Mark Suster (@msuster) April 4, 2020

At its essence, the issue for startups seems to be centered on the board rights that venture investors have when they take an equity stake in a company. For startups with investors on the board of directors, the decision-making powers that those investors hold means the startup is affiliated with other companies that the partner’s venture firm has invested in — which could mean that they’re considered an entity with more than 500 employees.

“[If] there’s a startup that’s going gangbusters right now, they shouldn’t apply for a PPP loan,” wrote Doug Rand, the co-founder of Seattle-based startup Boundless Immigration, and a former Assistant Director for Entrepreneurship in the Office of Science and Technology Policy during the Obama administration, in a direct message. “But most startups are getting killed because, you know, the economy is mostly dead.”

The $2 trillion CARES Act passed by Congress and signed by President Trump was designed to help companies that are adversely affected by the economic fallout resulting from the COVID-19 outbreak in the US and their employees — whether those businesses are directly affected because their employees can’t leave home to do their jobs or indirectly, because demand for goods and services has flatlined.

While some tech startups have seen demand for their products actually rise during these quarantined days, many companies have watched as their businesses have gone from one to zero.

The sense frustration among investors across the country is palpable. As the Birmingham-based investor, Matt Hottle, wrote, “After 4 days of trying to help 7 small businesses navigate the SBA PPP program, the program went to shit on launch. I’m contemplating how many small businesses, counting on this money, are probably locked out. I feel like I/ we failed them.”

After 4 days of trying to help 7 small businesses navigate the @SBAgov PPP program, the program went to shit on launch. I’m contemplating how many small businesses, counting on this money, are probably locked out. I feel like I/ we failed them.

— Matt Hottle (@MattRedhawk) April 4, 2020

And although the rules around whether or not many startups are eligible remain unclear, it’s probably wise for companies to file an application, because, as the program is currently structured, the $349 billion in loans are going to be issued on a first-come, first-served basis, as Suster flagged in his tweets on the subject.

General Catalyst is advising its companies that are also backed by SBIC investors to apply for the loans, because that trumps any other rules regarding affiliation, according to an interview with Holly Maloney Burbeck, a managing director at the firm.

And there’s already concerns that the money could run out. In a tweet, the President announced that he would request more money from Congress “if the allocated money runs out.”

I will immediately ask Congress for more money to support small businesses under the #PPPloan if the allocated money runs out. So far, way ahead of schedule. @BankofAmerica & community banks are rocking! @SBAgov @USTreasury

— Donald J. Trump (@realDonaldTrump) April 4, 2020

“Congress saw fit to allow Darden to get a forgivable small business loan—actually a taxpayer-funded grant—for like every Olive Garden in America. But Congress somehow neglected to provide comparable rescue measures for actual small businesses that have committed the sin of convincing investors that they have the potential to employ a huge number of people if they can only survive,” Rand wrote in a direct message. “The Trump administration has full authority to ride to the rescue, and they did… but only for large religious organizations.”

Before yesterdayYour RSS feeds

ARCH Venture Partners raises $1.46 billion across two funds for biotech investing

By Jonathan Shieber

Against a backdrop where the life-or-death consequences of biotechnology innovation are becoming increasingly apparent as the world races to develop vaccines and therapies to treat COVID-19, life sciences investor ARCH Venture Partners has raised $1.46 billion in funding to finance new tech development.

The two funds, ARCH Venture Fund X and ARCH Venture Fund X Overage, are the latest in the firm’s long line of investment vehicles dedicated to invest in early stage biotechnology companies.

“ARCH has always been driven to invest in great science to impact human health. There isn’t a better illustration of our principles than our all-in battle against COVID-19,” said co-founder and Managing Director Robert Nelsen in a statement. “The healthcare revolution will be accelerated by the changes that are happening now and we are excited to continue to invest aggressively in risk takers doing truly transformational science.”

ARCH portfolio companies Vir Biotechnology, Alnylam Pharmaceuticals, VBI Vaccines, Brii Biosciences, and Sana Biotechnology are all working on COVID-19 therapeutics; while Quanterix is developing technology to support clinical testing and clinical trial development. Another company that ARCH has backed, Twist Biosciences, has gene editing tools that the company believes can support therapeutic and vaccine development; and Bellerophon, a developer of inhaled nitric oxide delivery technologies, received emergency access approval from the FDA as a treatment to help alleviate respiratory distress associated with COVID-19.

The firm’s Overage fund will be used to take larger stakes in later-stage companies that require more capital, the firm said.

“Our companies bring cutting-edge science, tools and talent to bear in developing medicines for a wide range of diseases and conditions faced by millions. With these two new funds, we are continuing that work with urgency and a deep sense of purpose,” managing director Kristina Burow said in a statement. “We invest at all levels, whether it’s fifty thousand dollars or hundreds of millions, so that each company and each technology has the best chance to advance and change the landscape.”

The two new funds are roughly the same size as ARCH’s last investment funds, which closed in 2016 with $1.1that billion, but are a big jump from the 2014 ARCH funds that raised $560 million in total capital commitments.

The increasing size of the ARCH funds is a reflection of a broader industry trend which has seen established funds significantly expand their capital under management, but also is indicative of the rising status of biotech investing in the startup landscape.

These days, it’s programmable biology, not software, that’s eating the world.

“ARCH remains committed to our mission of the last 35 years, advancing the most promising innovations from leading life science and physical sciences research to serve the worldwide community by addressing critical health and well-being challenges,” said Keith Crandell in a statement. “ARCH has been privileged to found, support and invest in groundbreaking new companies pursuing advancements in infectious disease, mental health, immunology, genomic and biological tools, data sciences and ways of reimagining diagnostics and therapies.”

Managing directors for the new fund include Robert Nelsen, Keith Crandell, Kristina Burow, Mark McDonnell, Steve Gillis and Paul Thurk.

‘A perfect storm for first time managers,’ say VCs with their own shops

By Connie Loizos

Until very recently, it had begun to seem like anyone with a thick enough checkbook and some key contacts in the startup world could not only fund companies as an angel investor but even put himself or herself in business as a fund manager.

It helped that the world of venture fundamentally changed and opened up as information about its inner workings flowed more freely. It didn’t hurt, either, that many billions of dollars poured into Silicon Valley from outfits and individuals around the globe who sought out stakes in fast-growing, privately held companies — and who needed help in securing those positions.

Of course, it’s never really been as easy or straightforward as it looks from the outside. While the last decade has seen many new fund managers pick up traction, much of the capital flooding into the industry has accrued to a small number of more established players that have grown exponentially in terms of assets under management. In fact, talk with anyone who has raised a first-time fund and you’re likely to hear that the fundraising process is neither glamorous nor lucrative and that it’s paved with very short phone conversations. And that’s in a bull market.

What happens in what’s suddenly among the worst economic environments the world has seen? First and foremost, managers who’ve struck out on their own suggest putting any plans on the back burner. “I would love to be positive, and I’m an optimist, buut I would have to say that now is probably one of the toughest times” to get a fund off the ground,” says Aydin Senkut, who founded the firm Felicis Ventures in 2006 and just closed its seventh fund.

It’s a perfect storm for first-time managers,” adds Charles Hudson, who launched his own shop, Precursor Ventures, in 2015.

Hitting pause doesn’t mean giving up, suggests Eva Ho, cofounder of the three-year-old, seed-stage L.A.-based shop Fika Ventures, which last year closed its second fund with $76 million. She says not to get “too dismayed” by the challenges. Still, it’s good to understand what a first-time manager is up against right now, and what can be learned more broadly about how to proceed when the time is right.

Know it’s hard, even in the best times

As a starting point, it’s good to recognize that it’s far harder to assemble a first fund than anyone who hasn’t done it might imagine.

Hudson knew he wanted to leave his last job as a general partner with SoftTech VC when the firm — since renamed Uncork Capital — amassed enough capital that it no longer made sense for it to issue very small checks to nascent startups. “I remember feeling like, ‘Gosh, I’ve reached a point where the business model for our fund is getting in the way of me investing in the kind of companies that naturally speak to me,” which is largely pre-product startups.

Hudson suggests he may have overestimated interest in his initial idea to create a single GP fund that largely backs ideas that are too early for other investors. “We had a pretty big LP based [at SoftTech] but what I didn’t realize is the LP base that’s interested in someone who is on fund three or four is very different than the LP base that’s interested in backing a brand new manager.”

Hudson says he spent a “bunch of time talking to fund of funds, university endowments — people who were just not right for me until someone pulled me aside and just said, ‘Hey, you’re talking to the wrong people. You need to find some family offices. You need to find some friends of Charles. You need to find people who are going to back you because they think this is a good idea and who aren’t quite so orthodox in terms of what they want to see in terms partner composition and all that.'”

Collectively, it took “300 to 400 LP conversations” and two years to close his first fund with $15 million. (Its now raising its third pre-seed fund).

Ho says it took less time for Fika to close its first fund but that she and her partners talked with 600 people in order to close their $41 million debut effort, adding that she felt like a “used car salesman” by the end of the process.

Part of the challenge was her network, she says. “I wasn’t connected to a lot of high-net-worth individuals or endowments or foundations. That was a whole network that was new to me, and they didn’t know who the heck I was, so there’s a lot of proving to do.” A proof-of-concept fund instill confidence in some of these investors, though Ho notes you have to be able to live off its economics, which can be miserly.

She also says that as someone who’d worked at Google and helped found the location data company Factual, she underestimated the work involved in running a small fund. “I thought, ‘Well, I’ve started these companies and run these big teams. How how different could it be? Learning the motions and learning what it’s really like to run the funds and to administer a fund and all responsibilities and liabilities that come with it . . . it made me really stop and think, ‘Do I want to do this for 20 to 30 years, and if so, what’s the team I want to do it with?'”

Investors will offer you funky deals; avoid these if you can

In Hudson’s case, an LP offered him two options, either a typical LP agreement wherein the outfit would write a small check, or an option wherein it would make a “significant investment that have been 40% of our first fund,” says Hudson.

Unsurprisingly, the latter offer came with a lot of strings. Namely, the LP said it wanted to have a “deeper relationship” with Hudson, which he took to mean it wanted a share of Precursor’s profits beyond what it would receive as a typical investor in the fund.

“It was very hard to say no to that deal, because I didn’t get close to raising the amount of money that I would have gotten if I’d said yes for another year,” says Hudson. He still thinks it was the right move, however. “I was just like, how do I have a conversation with any other LP about this in the future if I’ve already made the decision to give this away?”

Fika similarly received an offer that would have made up 25 percent of the outfit’s debut fund, but the investor wanted a piece of the management company. It was “really hard to turn down because we had nothing else,” recalls Ho. But she says that other funds Fika was talking with made the decision simpler. “They were like, ‘If you sign on to those terms, we’re out.” The team decided that taking a shortcut that could damage them longer term wasn’t worth it.

Your LPs have questions, but you should question LPs, too

Senkut started off with certain financial advantages that many VCs do not, having been the first product manager at Google and enjoying the fruits of its IPO before leaving the outfit in 2005 along with many other Googleaires, as they were dubbed at the time.

Still, as he tells it, it was “not a friendly time a decade ago” with most solo general partners spinning out of other venture funds instead of search engine giants. In the end, it took him “50 no’s before I had my first yes” — not hundreds —   but it gave him a taste of being an outsider in an insider industry, and he seemingly hasn’t forgotten that feeling.

Indeed, according to Senkut, anyone who wants to crack into the venture industry needs to get into the flow of the best deals by hook or by crook. In his case, for example, he shadowed angel investor Ron Conway for some time, working checks into some of the same deals that Conway was backing.

“If you want to get into the movie industry, you need to be in hit movies,” says Senkut. “If you want to get into the investing industry, you need to be in hits. And the best way to get into hits is to say, ‘Okay. Who has an extraordinary number of hits, who’s likely getting the best deal flow, because the more successful you are, the better companies you’re going to see, the better the companies that find you.”

Adds Senkut, “The danger in this business is that it’s very easy to make a mistake. It’s very easy to chase deals that are not going to go anywhere. And so I think that’s where [following others] things really helped me.”

Senkut has developed an enviable track record over time. The companies that Felicis has backed and been acquired include Credit Karma, which was just gobbled up by Intuit; Plaid, sold in January to Visa; Ring, sold in 2018 to Amazon, and Cruise, sold to General Motors in 2016, and that’s saying nothing of its portfolio companies to go public.

That probably gives him a kind of confidence that it’s harder to earlier managers to muster. Still, Senkut also says it’s very important for anyone raising a fund to ask the right questions of potential investors, who will sometimes wittingly or unwittingly waste a manager’s time.

He says, for example, that with Felicis’s newest fund, the team asked many managers outright about how many assets they have under management, how much of those assets are dedicated to venture and private equity, and how much of their allotment to each was already taken. They did this so they don’t find themselves in a position of making a capital call that an investor can’t meet, especially given that venture backers have been writing out checks to new funds at a faster pace than they’ve ever been asked to before.

In fact, Felicis added new managers who “had room” while cutting back some existing LPs “that we respected . .. because if you ask the right questions, it becomes clear whether they’re already 20% over-allocated [to the asset class] and there’s no possible way [they are] even going to be able to invest if they want to.”

It’s a “little bit of an eight ball to figure out what are your odds and the probability of getting money even if things were to turn south,” he notes.

Given that they have, the questions look smarter still.

Proposed amendments to the Volcker Rule could be a lifeline for venture firms hit by market downturn

By Jonathan Shieber

In the wake of the financial crisis, Congress passed regulations limiting the types of investments that banks could make into private equity and venture capital funds. As cash strapped investors pull back on commitments to venture funds given the precipitous drop of public market stocks, loosening restrictions on the how banks invest cash could be a lifeline for venture funds.

That’s the position that the National Venture Capital Association is taking on the issue in comments sent to the chairs of the Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corp., and the Commodities Future Trading Commission.

The proposed revisions of the Volcker Rule would exclude qualifying venture capital funds from the covered fund definition.

“The loss of banking entities as limited partners in venture capital funds has had a disproportionate impact on cities and regions with emerging entrepreneurial ecosystems — areas outside of Silicon Valley and other traditional technology centers,” NVCA president and chief executive Bobby Franklin wrote. “The more challenging reality of venture fundraising in these areas of the country tends to require investment from a more diverse set of limited partners.”

Franklin cited the case of Renaissance Venture Capital, a Michigan-based regionally focused fund that estimated the Volcker Rule cost them $50 million in potential capital commitments resulting in the loss of a potential $800 million in capital invested in the state of Michigan.

“This narrative unfortunately repeats itself, as we have heard firsthand from investors about how the Volcker Rule has affected venture capital investment and entrepreneurial activity across the country,” wrote Franklin. “The majority of these concerns about the Volcker Rule have come from members located in regions with emerging ecosystems, including states like Ohio, Michigan, North Carolina, New Hampshire, Wisconsin, Georgia, and Virginia, to name a few.”

It’s not only small states that could be impacted by the decision to reverse course on banking investments into venture firms in these uncertain times.

There’s a growing concern among venture investors that — just like in 2008 — their limited partners might find that they’re over-allocated into venture investments given the decline in markets, which would force them to pull back on making commitments to new funds.

“Institutional LPs will run into the same issues they had in 2008. If you used to manage $10B and the market declines and you now manage $6B, the percentage allocated to private equity has now increased relative to the whole portfolio,” Hyde Park Ventures partner, Ira Weiss told a Forbes columnist in a March interview. “They’re really not going to look at new managers. If you’ve done really well as a manager, they will probably re-up but may reduce commitment amounts. This will bleed backwards into the venture market. This is happening at a time when Softbank has already had a lot of trouble and people had not really modulated for that yet, but now they will.”

Some of the largest investment funds have already closed on capital, insulating them from the worst hits. These include funds like New Enterprise Associates and General Catalyst . But newer funds are going to have a harder time raising. For them, giving banks the ability to invest in venture firms could be a big boon — and a confidence boost that the industry needs at a time when investors across the board are getting skittish.

“Fundraising for new funds in 2020 and 2021 might prove to be more difficult as asset managers think about rebalancing their portfolio and/or protecting their assets from the current volatility in the market,” Aaron Holiday told Forbes . “This means that VC investing could slow down in 12 – 24 months after the most recent wave of funds (i.e. 2018 and 2019 vintages) are fully deployed.”

Now might be the perfect time to rethink your fundraising approach

By Walter Thompson
Russ Heddleston Contributor
Russ is the co-founder and CEO of DocSend. He was previously a product manager at Facebook, where he arrived via the acquisition of his startup Pursuit.com, and has held roles at Dropbox, Greystripe, and Trulia. Follow him here: @rheddleston and @docsend

Many founders will have kicked off the new year with a new fundraising round. According to the data we shared last year, March, October and November were the months when VCs were reviewing the most decks.

But the COVID-19 pandemic has ground to a halt many industries, and there are even warnings that this will affect the next two quarters in regards to fundraising.

We’ve reviewed the data in our 2020 DocSend Startup Index and we’ve begun tracking the Pitch Deck Interest Metric. With San Francisco under a shelter-in-place order and many VCs scrambling to adjust their processes to an all-remote world, we saw pitch deck interest drop 11.6% when compared to the same week in 2019. While there has been a drop in interest so far, there is still a lot of activity, and VCs seem to still be reading pitch decks.

We will be monitoring the Pitch Deck Interest Metric in the coming weeks, but if you’re an early-stage startup and are in the middle of your fundraise, or are about to fundraise, there are some things you can do to help insure your startup is ready for funding before you meet with any (more) investors.

time spent reading pitch decks

The Pitch Deck Interest Metric declined 11.6% compared to the same week in 2019

Expectations have shifted and will continue to do so

If you were about to kick off a fundraising round, you should have been prepared to contact 50 or more investors, have 20-30 meetings and spend somewhere around 20 weeks before you signed your term sheet. That’s a lot of time and energy to invest, especially when the economy is poised for a downturn and you’re most likely needed in other parts of your business.

If you’ve already started your round and are wondering if you should push through, I’ve written a piece on knowing when to quit and recalibrate versus when to push through (Extra Crunch membership required).

Many factors play into navigating a successful fundraising round, and the expectations of investors are constantly changing — specifically when it comes to the pre-seed round.

Investors are now looking for market-ready products and want to see pitch decks that feature the content they’re expecting. We expect to see this focus intensify over the coming months as VCs have more time to spend not just to review pitch decks, but on due diligence for companies in which they plan to invest. Our new report outlines advice for pre-seed startups that are looking to adjust their fundraising strategy.

Focus on an MVP, not just a great PowerPoint

Our analysis reveals a shift in the level of readiness required by institutional investment to receive pre-seed funding. In the past, pre-seed startups could get by with just an MVPP (Minimum Viable PowerPoint). But now, investors are placing their bets on pre-seed startups that have already entered the market and developed an alpha, beta or shipping product.

In fact, 92% of companies with successful pitch decks had either an alpha, beta or shipping product, where only 68% of companies with unsuccessful pitch decks presented the same type of product readiness.

stage of product development mvp vs mvpp

As the economy moves closer to a downturn we can expect VCs to be more cautious with their investments. The current data already shows a preference for companies that have live products; it’s worth the time and effort to be product-ready coming into a pre-seed round or if you’re a startup ready to tackle the round again with a fresh perspective.

Rethink your deck

That said, even if you do have an MVP, rethinking your pitch deck may be something else to consider. Here’s a good test. Using your pitch deck, spend three to four minutes (that’s all the time you’ll get from a VC) to pitch your business to a friend or family member who knows nothing about your business. Afterward, ask them for a one-sentence description of your company. If they’re not clearly describing what your company does and the problem it’s trying to solve, you probably need to rethink your pitch deck.

According to our recent report, a “less is more” attitude toward creating a compelling pitch deck for meetings could mean more success in pre-seed fundraising.

Your pitch deck will be your main calling card right now. As community events are being replaced with online gatherings during the COVID-19 pandemic, we can expect to see less one-to-one engagement at these events. So pitching a VC in person is not likely to happen anytime soon. Whether you’re sending them a cold email, or getting a warm intro from a portfolio company, you’re going to need to lead with your pitch deck.

Despite the product taking a more prominent role in the fundraising round, the pitch deck is still a focal point and should be tailored to tell your story in the most effective way, as investors are spending less time evaluating them. On average, investors are spending just 3 minutes and 21 seconds on the pitch deck and the average deck is just 20 slides.

If you are in the process of reevaluating your pitch deck, it could be helpful to make sure your slides feature the right content in the right order. Investors spend nearly 50% more time on the product slides in successful pitch decks and over 18% longer on the business model in unsuccessful pitch decks. Additionally, investors spent more time on solution slides in successful decks than unsuccessful decks.

time spent on successful decks

It’s a numbers game… to a certain extent

Another area that could benefit from reevaluation is the number of investors contacted, meetings held and the number of weeks spent in a funding round. Generally speaking, the average amount of investors contacted for successful fundraising rounds is 56, resulting in 26 meetings. On average, successful pre-seed startups will spend 20.5 weeks on fundraising.

When it comes to fundraising, there are diminishing returns for investor outreach. You shouldn’t need to send your deck to more than 60-70 investors and have more than 20-30 meetings. If you’re doing more than that, the ROI on your time just isn’t worth it. Because the current crisis is affecting VCs’ willingness to invest, you’re better off finding a small list of investors who are active and targeting your pitch to them. If you’ve reached out to more than 70 investors, but you’re still faced with a wall of “nos” you’re better off pausing your fundraising and addressing the feedback you’ve received so far. For more on when you should quit and reevaluate versus push through you can read my article here (Extra Crunch membership required).

how long does a pre seed round take

Another area pre-seed startups should evaluate is the number of founders of a company. Our data shows investors still prefer teams of two-three founders, though our data shows that being a solo founder is preferable to having too many founders. For teams of five founders, they averaged earning $195,085 while founding teams of three garnered $511,522.

This may be the right time to find a co-founder. With many people working from home or out of work, this could be the opportunity to take your idea and bring on the technical founder you need. There are online groups and events popping up everywhere in response to social distancing. If you’re worried being a solo founder is going to hold you back, you may want to invest time in those new communities.

meetings and amount raised

Get some perspective

For many startups, especially if you are not in Silicon Valley where a substantial amount of funding happens, the process of fundraising can be very opaque. DocSend’s purpose in analyzing this data is to bring some transparency to the process. This in turn provides perspective.

But what founders should do, if they haven’t done so already, is to get some additional perspective. Talk to experts outside your immediate circle of influence. Don’t have a mentor or advisors? Find them. Get a different take on your product idea or the market conditions. Especially now that community events are going virtual, location doesn’t have to hold you back from joining the startup community and finding people to offer feedback on your product or company.

Fundraising is both an art and science. Combining the insights from our data with the benefit of your own community can help you get back on your feet and pitching your company with hopefully a better outcome.

Helm.ai raises $13M on its unsupervised learning approach to driverless car AI

By Kirsten Korosec

Four years ago, mathematician Vlad Voroninski saw an opportunity to remove some of the bottlenecks in the development of autonomous vehicle technology thanks to breakthroughs in deep learning.

Now, Helm.ai, the startup he co-founded in 2016 with Tudor Achim, is coming out of stealth with an announcement that it has raised $13 million in a seed round that includes investment from A.Capital Ventures, Amplo, Binnacle Partners, Sound Ventures, Fontinalis Partners and SV Angel. More than a dozen angel investors also participated, including Berggruen Holdings founder Nicolas Berggruen, Quora co-founders Charlie Cheever and Adam D’Angelo, professional NBA player Kevin Durant, Gen. David Petraeus, Matician co-founder and CEO Navneet Dalal, Quiet Capital managing partner Lee Linden and Robinhood co-founder Vladimir Tenev, among others.

Helm.ai will put the $13 million in seed funding toward advanced engineering and R&D and hiring more employees, as well as locking in and fulfilling deals with customers.

Helm.ai is focused solely on the software. It isn’t building the compute platform or sensors that are also required in a self-driving vehicle. Instead, it is agnostic to those variables. In the most basic terms, Helm.ai is creating software that tries to understand sensor data as well as a human would, in order to be able to drive, Voroninski said.

That aim doesn’t sound different from other companies. It’s Helm.ai’s approach to software that is noteworthy. Autonomous vehicle developers often rely on a combination of simulation and on-road testing, along with reams of data sets that have been annotated by humans, to train and improve the so-called “brain” of the self-driving vehicle.

Helm.ai says it has developed software that can skip those steps, which expedites the timeline and reduces costs. The startup uses an unsupervised learning approach to develop software that can train neural networks without the need for large-scale fleet data, simulation or annotation.

“There’s this very long tail end and an endless sea of corner cases to go through when developing AI software for autonomous vehicles, Voroninski explained. “What really matters is the unit of efficiency of how much does it cost to solve any given corner case, and how quickly can you do it? And so that’s the part that we really innovated on.”

Voroninski first became interested in autonomous driving at UCLA, where he learned about the technology from his undergrad adviser who had participated in the DARPA Grand Challenge, a driverless car competition in the U.S. funded by the Defense Advanced Research Projects Agency. And while Voroninski turned his attention to applied mathematics for the next decade — earning a PhD in math at UC Berkeley and then joining the faculty in the MIT mathematics department — he knew he’d eventually come back to autonomous vehicles. 

By 2016, Voroninski said breakthroughs in deep learning created opportunities to jump in. Voroninski left MIT and Sift Security, a cybersecurity startup later acquired by Netskope, to start Helm.ai with Achim in November 2016.

“We identified some key challenges that we felt like weren’t being addressed with the traditional approaches,” Voroninski said. “We built some prototypes early on that made us believe that we can actually take this all the way.”

Helm.ai is still a small team of about 15 people. Its business aim is to license its software for two use cases — Level 2 (and a newer term called Level 2+) advanced driver assistance systems found in passenger vehicles and Level 4 autonomous vehicle fleets.

Helm.ai does have customers, some of which have gone beyond the pilot phase, Voroninski said, adding that he couldn’t name them.

Longtime LP Chris Douvos shares how COVID-19 could shake up venture industry

By Connie Loizos

Chris Douvos runs a fund of funds called Ahoy Capital that manages assets on behalf of numerous nonprofit institutions, endowments and foundations throughout the U.S.

Outfits that want exposure to startups — but aren’t large enough to contemplate funding them directly — count on Ahoy and funds like it to invest in venture firms on their behalf.

Douvos has been at it for nearly 20 years, having joined Princeton University’s endowment in 2001 out of business school and investing on behalf of several organizations since, always focusing on venture. Given his background, we suspected he might have some thoughts about what a pullback in funding from big institutions might mean for the venture industry, so we called him up last week.

You can catch a longer version of our chat in podcast form, but you’ll find the most valuable highlights below, edited for length.

TechCrunch: You’ve talked and blogged in the distant past about passing on investing in the Accel fund that ultimately invested in Facebook. What happened?

Chris Douvos: I said no to probably one of the better funds of that decade not once but twice . . . [If you] rewind to 2004, you know, we’re there at Princeton, we’re existing investors. And Accel is coming back [for more capital commitments]. And we were really kind of rethinking our portfolio a little bit because most long-established names had stumbled [after the dot-com crash] . . . and there was a lot of tumult in the portfolio . . . and venture returns [had] just been so grim.

IBM, Amazon, Google and Microsoft partner with White House to provide compute resources for COVID-19 research

By Frederic Lardinois

During today’s White House coronavirus task force press conference, President Trump announced the launch of a new public/private consortium to “unleash the power of American supercomputing resources.” The members of this consortium are the White House, the Department of Energy and IBM . Other companies, including Google, Amazon and Microsoft, as well as a number of academic institutions, are also “contributing lots of different things,” the president said.

While Trump’s comments were characteristically unclear, IBM provided more details, noting that it is working with a number of national labs and other institutions to offer a total of 330 petaflops of compute to various projects in epidemiology, bioinformatics and molecular modeling. Amazon, Google and Microsoft are also part of the consortium, which is being led by IBM, the White House Office of Science and Technology Policy, and the Department of Energy.

IBM and its partners will coordinate the efforts to evaluate proposals and provide access to high-performance computing resources to those that are most likely to have an immediate impact.

“How can supercomputers help us fight this virus? These high-performance computing systems allow researchers to run very large numbers of calculations in epidemiology, bioinformatics, and molecular modeling. These experiments would take years to complete if worked by hand, or months if handled on slower, traditional computing platforms,” writes Dario Gil, IBM’s Director of Research.

AWS has already dedicated $20 million to support COVID-19 research while Microsoft has already announced a number of different initiatives, though mostly around helping businesses cope with the fallout of this crisis. Google has now launched its own coronavirus website (though it’s very different from the one Trump once promised) and Alphabet’s Verily is helping Bay Area residents find testing sites if needed. It’s unclear what exactly Google and Microsoft will contribute to these current efforts, though.

“Today I’m also announcing the launch of a new public/private consortium organized by the White House, the Department of Energy and IBM to unleash the power of American supercomputing resources to fight the Chinese virus,” Trump, who continues to insist on calling COVID-19 ‘the Chinese virus,’ said in today’s press briefing. “The following leaders from private industries, academia and government will be contributing and they are gonna be contributing a lot of different things, but compute primarily — computing resources to help researchers discover new treatments and vaccine. They will be working along with NIH and all of the people working on this. But tremendous help from IBM, Google, Amazon, Microsoft, MIT, Rensselaer Polytechnic Institute, the Department of Energy’s, the National Science Foundation and NASA. They are all contributing to this effort.”

Stocks fall again on continued coronavirus worries

By Jonathan Shieber

Is it good news to say that stocks fell less sharply than they had on previous days?

That’s the bright side of another turbulent trading day across the Nasdaq and New York Stock Exchange. The major indices were down again — although their declines were less severe than they had been during the week.

Investors appeared to shake off positive labor statistics (the U.S. added 273,000 jobs, ahead of expectations), as the expanding number of coronavirus cases in the U.S. and lack of a coordinated response from the Trump Administration took their toll on investor confidence that the impact on the economy would be minimal.

With that said, things could have been worse?

The Dow fell 256.50 points, or just under 1%, to close at 25,864.78, while the S&P stumbled 51.57 points, or 1.7%, to close at 2,972.37 while the Nasdaq slid 1.8%, or 162.98 to close at 8,575.62. The benchmark indices are in the territory of a market correction — hovering at around a 10% loss already on the year.

For startups, it’s important to note that these market pressures can have implications for their businesses. Jittery buyers may be inclined to curb spending and save to conserve cash on their own balance sheets; consumers may rethink priorities and focus on essential purchases as they tighten their own belts.

Sequoia Capital warned in a blog post yesterday that things may change as time rolls along and the global economy stutters.

Here’s their take:

  • Drop in business activity. Some companies have seen their growth rates drop sharply between December and February. Several companies that were on track are now at risk of missing their Q1–2020 plans as the effects of the virus ripple wider.
  • Supply chain disruptions. The unprecedented lockdown in China is directly impacting global supply chains. Hardware, direct-to-consumer, and retailing companies may need to find alternative suppliers. Pure software companies are less exposed to supply chain disruptions, but remain at risk due to cascading economic effects.
  • Curtailment of travel and canceled meetings. Many companies have banned all “non-essential” travel and some have banned all international travel. While travel companies are directly impacted, all companies that depend on in-person meetings to conduct sales, business development, or partnership discussions are being affected.

This isn’t the first time that one of the country’s most successful venture capital firms has warned its portfolio about the possibility of an economic crisis. In the wake of the 2008 financial crisis the firm issued an infamous slide deck warning “RIP Good Times”.

For financial markets the funeral bells are already tolling in the early part of the year. Now, a reckoning may be coming for startups that were on the edge of the bubble.

Stocks fell sharply today, bringing yet more unwelcome volatility to tech shares

By Jonathan Shieber

Are you tired of TechCrunch reporting on the daily stock market gyrations? Well, we’re tired of writing about them. And yet here we are, because stonks yet again did wild things that we have to talk about.

Markets are still skittish about the effect the rapidly spreading novel coronavirus, COVID-19, will have on the economy. And the U.S. is still figuring out exactly how many people in the country have been infected by the virus, and how aggressively it may need to respond. So far, the U.S. Centers for Disease Control and Prevention has identified 99 cases across 13 U.S. states. Ten people have died from the virus.

In case you’ve missed our last half-dozen posts discussing the stock market’s wild jumps and drops, we’re writing about this stuff because the startup companies we know and love don’t exist in a vacuum. What happens on public markets impacts the private markets, helping set valuations through comps and molding sentiment. And the world of startup finance isn’t divorced from the rest of the economy (as much as it would sometimes like to be).

So when something Very Good, or, like today, Very Bad happens, we take note. What follows is the TechCrunch Public Market Guide For Private Market Folks, March 5 2020 Edition.

What happened?

The sound you heard emanating from lower Manhattan today that felt akin to a thousand dishes shattering at once was all the major indices dropping in unison. Here’s the damage (CNBC data):

  • Dow Jones Industrial Average: -969.58, or 3.58%
  • S&P 500: -106.18, or 3.39%
  • Nasdaq Composite: -279.49, or -3.10%

The Nasdaq closed at 8738 and change, making it still richly-valued compared to say, a few years ago. But what hasn’t happened is a return to recent, record highs. Tech shares have fallen, and despite the recent trading back-and-forth, they’ve not recovered all their lost ground.

SaaS companies look about the same, having lost some altitude to a recent trading range (a large one, but one that has also become regular in its huge point and percentage swings) that is a material gap lower than before. Tech shares have broadly repriced.

The reduced valuations might be a new normal, although some analysts feel like the bottom has yet to fully fall out of the market. Facebook, Apple, Amazon, Alphabet and Netflix were all down between 2.5% and nearly 5%, with Alphabet giving up the most ground losing 4.84% of its value (falling $66.84) to close at $1,314.76.

It’s impossible to predict how the markets will move next. The U.S. Congress has authorized an $8.3 billion aid package to support government’s response to the illness, but as companies wrestle with their responses to the illness, it’s worth noting that productivity is bound to be effected. The questions are how much and for how long.

Female-founded startups landed more deals globally in 2019 than ever before

By Natasha Mascarenhas

We all know the disruptive stories of female-founded startups like Glossier and ezCater. And we also know how those success stories belie the much harder time thousands of other women entrepreneurs have when it comes to raising capital.

That’s why it’s so important to have historical data and a window into how these things may be changing, so that the industry can consistently benchmark its successes and failures in an attempt to correct historical inequities in the ways venture firms distributed capital. 

Looking at the latest numbers from All Raise and Pitchbook, it’s clear that for every step forward, the industry still has a long way to go. 

In 2019, female-founded startups across the world landed a record 4,399 investments, according to data from All Raise, a nonprofit organization that wants to increase the diversity in the venture capital industry, and Pitchbook data.

While deal count has increased, dollars raised declined in 2019 sliding to $37.7 billion from $49.9 billion in 2018. It’s worth noting that 2018 included an outsized round from Ant Financial, which may have skewed dollar totals. It’s also worth pointing out that over the same period venture capital firms in the U.S. alone invested more than $130 billion into startup companies

For what it’s worth, 2019 broke all kinds of records. All Raise and Pitchbook’s data shows that 2019, compared to a decade ago, had a 1408% increase in deal value. Additionally, according to Crunchbase data, female-founded unicorns, companies valued at over $1 billion, were being born at an unprecedented rate in 2019. While a female-founded unicorn is still rare, the proliferation is notable, and goes well with one of All Raise’s goals: to increase investment in female-founded companies.

However, All Raise’s latest data doesn’t touch on one of its goals, which is to double the percentage of female investment partners at tech VC firms over the next 10 years. Last month, Pam Kostka, the CEO of All Raise, wrote a Medium blog on how more women became VC partners than ever before in 2019. All Raise claimed major US firms added 52 women partners in 2019. Last month, Recode said those numbers might be “overstating the progress” due to the different definitions of partner. For example, some female partners may have the title of partner, but not the decision-making capabilities. 

Bottom line: the numbers are important, but the nuance within them is more telling, especially when it comes to diversity. For proof, look as far as Kostka’s headline: “More Women Became VC Partners Than Ever Before In 2019 But 65% of Venture Firms Still Have Zero Female Partners.” 

Chargify acquires Keen to bring event-based billing to its platform

By Ron Miller

Chargify, the subscription billing platform, announced today that it has acquired event streaming company, Keen for an undisclosed amount. One interesting aspect of this deal is that both companies are part of the Scaleworks private equity firm’s stable of companies.

Keen gives Chargify an event streaming business, and it has taken advantage of that by adding an event-based billing component to the platform.

Chargify CEO Paul Lynch believes that event-based billing is the next step in subscription pricing. Just as serverless architecture provides a way to pay for only the infrastructure resources you use and no more, event billing provides a way to pay for the software services you use and no more.

“It’s a unit-based kind of billing model where you’re paying down to the very last unit of what you’re consuming,” he said. That means that you are no longer paying a fixed monthly or yearly price for services you may or may not use. Instead, you only pay when you open the service and actually use it.

It sounds logical, but he says it’s actually a hard problem to solve without the kind of technology Keen provides. “No one is delivering event-based billing. So I asked myself why, and it’s because the Keen component, the event data management component is so difficult to build and to manage,” Lynch explained.

He says that having Keen in the same building, and part of the same family of companies certainly helped make the deal happen. “The fact that it was owned by Scaleworks is obviously an enormous benefit. Going out and buying a business, finding that business to acquire is super hard. The fact that Keen was sitting down the hall was an unbelievably surreptitious kind of benefit,” he explained.

That said, the acquisition still involved all the kinds of steps, hurdles and due diligence that would be required in any similar exercise. “You’re still going to the board. You’re still putting together board pricing projections. You’re still looking for Board approval,” he said.

While Keen’s technology becomes an integral part of the Chargify platform with the acquisition, Lynch said that the company will continue to operate as before servicing its 800 customers and building on its product set.

The event-based billing feature is available starting today.

Did African startups raise $496M, $1B or $2B in 2019?

By Jake Bright

Five years ago, it was hard to come by any numbers for annual VC investment in Africa. These days the challenge is choosing which number to follow.

That’s the case for three venture funding studies for Africa that turned up varied results.

The numbers and variance

Investment stats released by media outlet Disrupt Africa, data-base WeeTracker and Africa focused fund Partech have left some people scratching their heads.

From high to low, Partech pegged total 2019 VC for African startups at $2 billion, compared to WeeTracker’s $1.3 billion estimate and Disrupt Africa’s $496 million.

That’s a fairly substantial spread of $1.5 billion between the assessments. The variance filtered down to country VC valuations, though it was a little less sharp.

Africa VC markets 2019Partech and WeeTracker shared the same top-three countries for 2019 VC investment in Africa — Nigeria, Kenya, and Egypt — but with hundred-million dollar differences.

Disrupt Africa came up with a different lead market for startup investment on the continent — Kenya — though its $149 million estimate for the East African country was some $500 million lower than Partech and WeeTracker’s VC leader, Nigeria.

So what accounts for the big deviations? TechCrunch spoke to each organization (and reviewed the reports) and found the contrasting stats derive from different methodologies — namely defining what constitutes a startup and an African startup.

Partech’s larger overall VC valuation for the continent comes from broader parameters for companies and quantifying investment.

“We do not limit the definition of startups by age of the incorporation or size of funds raised,” Partech General Partner Tidjane Deme told TechCrunch.

This led the fund, for example, to include Visa’s $200 million investment in Nigerian financial-services company Interswitch . The corporate round was certainly tech-related, though few would classify Interswitch — which launched in 2002, acquires companies, and has a venture fund — as a startup.

Partech’s higher annual VC value for Africa’s startups could also connect to tallying confidential investment data.

“We…collect and analyze undisclosed deals, accessing more detailed information thanks to our relationships within the ecosystem,” the fund’s report disclosed.

WeeTracker’s methodology also included data on undisclosed startup investments and opened up the count to funding sources beyond VC.

“Debt/loans, grants/awards/prizes/non-equity assistance, crowdfunding, [and] ICOs are included,” WeeTracker clarified in a methodology note.

Disrupt Africa used a more conservative approach across companies and investment. “We are a bit more narrow on what we consider a startup to be,” the site’s co-founder Tom Jackson told TechCrunch.

“In the clearest scenario, an African startup would be headquartered in Africa, founded by an African, and have Africa as its primary market,” Disrupt Africa’s report stated  — though Jackson noted all these factors don’t always align.

“Disrupt Africa tackles this issue on a case-by-case basis,” he said.

Partech was more liberal in its definition of an African startup, including investment for tech-companies that count Africa as their primary market, but not insisting they be incorporated or operate HQs on the continent.

Andela FoundersThat opened up inclusion of large 2019 rounds to Africa focused, New York headquartered tech-talent accelerator Andela and investment to Opera’s verticals, such as OPay in Nigeria.

In addition to following a more conservative definition of African startup, Disrupt Africa’s report was more particular to early-stage ventures. The site’s report primarily counted investment for companies founded within the last five year and excluded “spin-offs of corporates or any other large entity…that [has]…developed past the point of being a startup.”

Commonalities across reports

For all the differences on annual VC counts for Africa, there were some common threads across WeeTracker, Partech, and Disrupt Africa’s investment reports.

The first was the rise of Nigeria — which has Africa’s largest population and economy — as the top destination for startup VC investment on the continent.

The second was the prominence of fintech as the most funded startup sector across Africa, gaining 54% of all VC in Partech’s report and $678 million of the $1.3 billion to startups in WeeTracker’s study.

VC inequality

An unfortunate commonality in each report was the preponderance of startup investment going to English speaking Africa. No francophone country made it into the the top five in any of the three reports. Only Senegal registered on Partech’s country-list, with a small $16 million in VC in 2019.

The Dakar Angel Network launched last year to bridge the resource gap for startups in French-speaking African countries.

Final sum

There may not be a right or wrong stat for annual investment to African startups, just three reports with different methodologies that capture unique snapshots.

Partech and WeeTracker offer a broader view of multiple types of financial support going to tech companies operating in Africa. Disrupt Africa’s assessment is more specific to a standard definition of VC going to startups originating and operating in Africa.

Three reports with varying numbers on the continent’s startup investment is a definite upgrade to what was available not so long ago: little to no formal data on VC in Africa.

Thoma Bravo completes $3.9B Sophos acquisition

By Ron Miller

Thoma Bravo announced today that it had closed its hefty $3.9 billion acquisition of security firm, Sophos, marking yet another private equity deal in the books.

The deal was originally announced in October. Stockholders voted to approve the deal in December.

They were paid $7.40 USD per share for their trouble, according to the company, and it indicated that as part of the closing, the stock had ceased trading on the London Stock Exchange. It also pointed out that investors who got in at the IPO price In June 2015 made a 168% premium on that investment.

Sophos hopes its new owner can help the company continue to modernize the platform. “With Thoma Bravo as a partner, we believe we can accelerate our progress and get to the future even faster, with dramatic benefits for our customers, our partners and our company as a whole,” Sophos CEO Kris Hagerman said in a statement. Whether it will enjoy those benefits or not, time will tell.

As for the buyer, it sees a company with a strong set of channel partners that it can access to generate more revenue moving forward under the Thoma Bravo umbrella. Sophos currently partners with 53,000 resellers and managed service providers, and counts more than 420,000 companies as customers. The platform currently helps protect 100 million users, according to the company. The buyer believes it can help build on these numbers.

The company was founded way back in 1985, and raised over $500 million before going public in 2015, according to Pitchbook data. Products include Managed Threat Response, XG Firewall and Intercept X Endpoint.

The fundraising landscape is shifting in 2020

By Walter Thompson
Elizabeth Yin Contributor
Elizabeth Yin is a founder and general partner of Hustle Fund, a pre-seed venture capital fund that invests in hilariously early software startups across the U.S., Canada and Southeast Asia.

When I was a founder many years ago, I felt like I heard constantly conflicting advice and opinions on raising money for my startup.

It’s easy to raise. It’s hard to raise. If it’s easy to raise, you should raise a LOT of money. You should raise a little money. You should try to go for a high valuation. You should raise at a “normal valuation” so it doesn’t bite you later.

It was hard to understand what was going on and what I should actually do.

Many years later, now as a VC, it turned out that most of the things you hear people say about fundraising are generally true and generally good pieces of advice. All at the same time. Even when these ideas conflict. How is that possible?

Because, like anything else, different pieces of advice are apt for different types of companies and founders. Today’s fundraising landscape is particularly an interesting time of bifurcation that’s worth laying out in detail.

https://techcrunch.com/2020/02/26/qa-with-hustle-funds-elizabeth-yin-on-the-2020-fundraising-landscape/

For some founders, it’s never been an easier time to raise

In the San Francisco Bay Area, if you’re a founder who has a “well-branded” resume, it’s a fantastic time to raise money at the earliest stages. It almost doesn’t even matter what company you’re building. You will get funding. You could be leaving Pinterest to start a company. Maybe you went to MIT and then did a 10-year stint at Google. Or maybe you were a former YC founder who is taking a second crack at a company. Or maybe you sold your last business for $10 million. If you did any of these things, it’s a great time.

For these founders, I’m seeing massive party rounds here in San Francisco — $3 million – $5 million seed rounds. Sometimes $10 million rounds right out of the gates! My friend, a fantastic serial entrepreneur with an exit, raised $8 million recently at $30 million+ post-money valuation with only a very early version of a product. Investors literally threw money at her and her round was oversubscribed.

SaaS is hot

And then, even if you don’t fit this profile, you can still generate a lot of heat on your fundraise. In the last few months, VCs have become very concerned about profitability. It’s not enough to be working on a fast-growth startup anymore. In part, we’ve all seen big-name startups that were once the darlings of Silicon Valley flounder in the late-stage markets because of high burn rates and being nowhere close to profitability.

And VCs have gotten quite scared. Almost to a fault.

So, I’m seeing companies at the Series A and Series B stages with 30% MoM growth that were popular before now struggle to raise their next rounds because they are not profitable. The feedback they receive is to “come back when you’re profitable or really close to it.” This mentality change has had a huge impact on marketplaces and e-commerce companies — companies that don’t have predictable repeat customers or high margins.

On the flip side, SaaS companies have become the new darlings VCs have gone gaga for. SaaS businesses have repeat customers, strong lifetime values and upsell potentials. They are capital-efficient, high-margin businesses. And if you are growing well as a differentiated (differentiated being a key word) SaaS company, you probably have many VCs knocking on your door — at all stages early and late even if you are not on the coasts.

For most founders, it’s still challenging (as always) to raise money

For everyone else, after reading news stories about such large fundraises, it can be confusing to understand why their own fundraise is so challenging. Why is it so hard for me to raise money?

It turns out that fundraising is still hard for everyone else. Even in the Bay Area, if you don’t fall into the categories above, it’s hard. People often erroneously think that just being in San Francisco will miraculously make fundraising easier. That’s far from true. There are certainly many people who get funded there, but there are also just many more startups in San Francisco than elsewhere. Outside the SF Bay Area, it’s even harder to raise. So we have a weird Goldilocks and the Three Bears situation. Some companies are really hot. Most are really cold.

The press mostly writes about the hot deals, like companies that raise $5 million seed rounds and went through YC. After all, no one wants to read about how someone’s fundraising process is going horribly — that’s just not a news story that sells. So now, everyone thinks Silicon Valley is littered with gold just by reading the news. The reality is that San Francisco mostly has poop on the ground and a small number of people will find a Benjamin once in a while.

Valuations are all over the board

I’m seeing valuations well above $10 million post — even $20 million post for hot seed-stage companies. And then for companies that are cold, the valuations are where they’ve always been — largely anchored based on geography. As low as $1 million post within U.S. and Canada. And it can even be lower elsewhere globally.

So when people ask me what a fair valuation is, it’s a really hard question. It depends on where you are, what you’re working on and what your background is. Many people think valuations are based on a company’s progress. That’s just not how it works. Valuations are based on supply and demand. Supply of your fundraising round. And investor demand for your fundraising round. Valuations go up when more investors are interested in investing. There’s no such thing as a “typical” valuation.

Everyone’s mental model will be shifting

Friends outside of Silicon Valley often ask me if I think this time VCs will favor profitable companies over fast growth.

I think the answer is VCs would love to back profitable companies with fast growth.

(That, of course, begs the question in this day and age with other debt or revenue-based financing options why such a company would raise a lot of VC money, but that’s besides the point.)

That said, I do think that in this new era we are entering in 2020, companies that focus on profitability will separate the winners from the losers in the next few years. Thriftier founders will win.

Now, here’s the irony. As we go into this new age where frugality is a strength, I think that the startup journey will actually be harder for the founders who are able to raise their large seed rounds so quickly at high valuations. From past experience, I’ve found that founders who can raise easily in a first raise really struggle later on subsequent raises because they don’t know just how hard a fundraise can be. Moreover, founders who can raise large amounts in the beginning tend to be less frugal and often burn through too much cash before their progress really kicks in. In contrast, overlooked founders who have often found it challenging to raise know that they need to be frugal by default, because it’s unclear how hard the next fundraise will be. These founders know they need to make the business work with or without investors.

The ironic twist is that investors throw money at founders with particular resumes because they believe those founders will be the most likely to succeed with big exits. A strength can quickly turn into a weakness in this market.

My hope for all founders in 2020

My hope for all founders is that they focus on staying thrifty, watch cashflow and chip away at getting to profitability so they can own their own destiny. By focusing on customers, instead of investors, you can sell more and sell quicker. Ultimately, the end goal for a company is to be able to serve customers sustainably and effect change in our larger society.

And that’s what I wish all startups find in 2020, so they don’t have to care about the whims and fancies of investors as they change with the times.


Read our extended interview with Elizabeth Yin (Extra Crunch membership required).

Daily Crunch: Amazon opens its first cashier-less grocery store

By Anthony Ha

Amazon expands its Just Walk Out technology beyond convenience stores, Intuit acquires Credit Karma in its biggest acquisition ever and Grab raises hundreds of millions of dollars. Here’s your Daily Crunch for February 25, 2020.

1. Amazon opens its first cashierless grocery store

Amazon is opening its first grocery store to pilot the use of the retailer’s cashier-less “Just Walk Out” technology, which previously powered 25 Amazon Go convenience stores in a handful of major U.S. metros. The store is 10,400 square feet overall, making it the largest use of Amazon’s Just Walk Out technology to date.

Based in the company’s hometown of Seattle, the new Amazon Go Grocery store allows customers to shop for everyday grocery items like fresh produce, meat, seafood, bakery items, household essentials, dairy, easy-to-make dinner options, beer, wine and spirits and more.

2. Intuit confirms that it is buying Credit Karma for $7.1B in cash and stock

Intuit announced that it plans to acquire Credit Karma — the fintech startup with more than 100 million registered users, 37 million of them active monthly users, which lets people check their credit scores, shop for credit cards and loans, file taxes and more. The financial software giant says it will pay $7.1 billion for the acquisition, making this Intuit’s biggest-ever acquisition to date, and one of the biggest in the category of privately held fintech companies.

3. Grab raises up to $856M to boost payments business as rumors swirl of a merger with rival Gojek

Southeast Asian on-demand transport startup Gojek denies that it is involved in talks to merge with Grab, but today Grab announced a piece of news that could either divert attention from that story — or more likely stoke the fires of speculation that it is indeed gearing up for a deal.

4. New Netflix feature reveals the top 10 most popular programs on its service

The new top 10 list doesn’t offer any hard metrics, but it can at least help point to popular programming and highlight breakout successes Netflix might have in the future. The feature is rolling out now to users worldwide, so you may not see your list quite yet.

5. Instead of IPOs and acquisitions, exiting to community is one alternative

Greg Brodsky, who helps cooperative startups through the Start.coop accelerator, pointed to the “exit to community” idea as an option for startups looking to transition out of the more traditional Silicon Valley model. In this framework, some portion of the company is sold back to the workers or end users. (Extra Crunch membership required.)

6. Revolut raises $500M at a $5.5B valuation

Revolut is building a financial service to replace traditional bank accounts. You can open an account from an app in just a few minutes. You can then receive, send and spend money from the app or use a debit card.

7. Firefox to enable DNS-over-HTTPS by default to US users

Mozilla will bring its new DNS-over-HTTPS security feature to all Firefox users in the U.S. by default in the coming weeks, the browser maker has confirmed. It follows a year-long effort to test the new security feature, which is designed to make browsing the web more secure and private.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 9am Pacific, you can subscribe here.

Instead of IPOs and acquisitions, exiting to community is one alternative

By Megan Rose Dickey

The tech industry is built on the venture capital model where hockey stick growth and selling to a larger company or going public are markers of success. But the traditional VC model does not leave much room for startups that might not be the next unicorn but still generate revenue — just not the type of returns investors are looking for.

This is where exiting to the community comes in.

“A lot of times, selling to the public doesn’t necessarily make the company or its service a better experience for the user or the workers,” Start.coop founder Greg Brodsky previously told TechCrunch. “Often it gets worse. It’s only really better for the investor.”

Brodsky, who helps cooperative startups through the Start.coop accelerator, pointed to this exit to community idea as an option for startups looking to transition out of the more traditional Silicon Valley model. In this framework, some portion of the company is sold back to the workers or end users, he said. This idea is being spearheaded by Nathan Schneider, a Start.coop board member and professor of media studies at the University of Colorado, Boulder.

“The idea with exit to community is how can you create a model where the whole point is to create a vibrant community that will become its eventual stewards,” Schneider tells TechCrunch. “It seems like a natural fit, especially in a moment where we’re looking for increased accountability and the wealth distribution problems in the startup economy.”

Through the Exit to Community project, Schneider is exploring ways to help startups transition from investor-owned to community ownership, which could include users, customers, workers or some combination of all stakeholders. Schneider is holding a series of meetings with people interested in this challenge to try to chart a clear pathway.

Firefox to enable DNS-over-HTTPS by default to US users

By Zack Whittaker

Mozilla will bring its new DNS-over-HTTPS security feature to all Firefox users in the U.S. by default in the coming weeks, the browser maker has confirmed.

It follows a year-long effort to test the new security feature, which aims to make browsing the web more secure and private.

Whenever you visit a website — even if it’s HTTPS enabled — the DNS query that converts the web address into an IP address that computers can read is usually unencrypted. DNS-over-HTTPS, or DoH, encrypts the request so that it can’t be intercepted or hijacked in order to send a user to a malicious site.

These unencrypted DNS queries can also be used to snoop on which websites a user visits.

DoH works at the app-level, and is baked into Firefox. The feature relies on sending DNS queries to third-party providers — such as Cloudflare and NextDNS — both of which will have their DoH offering baked into Firefox and will process DoH queries.

But the move is not without controversy. Last year, an internet industry group branded Mozilla an “internet villain” for pressing ahead the security feature. The trade group claimed it would make it harder to spot terrorist materials and child abuse imagery. But even some in the security community are split, amid warnings that it could make incident response and malware detection more difficult.

The move to enable DoH by default will no doubt face resistance, but browser makers have argued it’s not a technology that browser makers have shied away from. Firefox became the first browser to implement DoH — with others, like Chrome, Edge, and Opera — quickly following suit.

Firefox said users outside of the U.S. can also enable DoH, just as users inside the U.S. can choose to disable it. Mozilla also said it plans to expand to other DoH providers and regions.

How to make a deal with a VC at a tech conference

By Walter Thompson
Mahendra Ramsinghani Contributor
Mahendra Ramsinghani is the founder of Secure Octane Investments, which includes Demisto, CyberGRX and 16 other infrastructure and cybersecurity companies. He is the author of "The Business of Venture Capital" and "Startup Boards," co-authored with Brad Feld.

Are the schmooze sessions, after-parties and secret dinners with investors that take place during tech conferences mere distractions, or are these events an opportunity for founders to close a deal?

Which parties should you attend? How do you get in? And above all, what outcome are you working toward?

Some events are small, while others are shows of pomp, power and pizzazz.For me, this is a time to bring value to my portfolio,” says Sid Trivedi, partner at Foundation Capital. Foundation’s RSA 2020 event is a small gathering of 50 people who fall into one of three categories: buyers from Global 2000 companies, channel partners or portfolio CEOs.

“In particular, I am focused on helping seed-stage companies because they rarely get access to such a buyer universe,” Trivedi says. At the other end of the spectrum, some events will have several hundred attendees, which raises the odds of getting lost in a crowd.

“If the event has a well-curated attendee list, it makes it worthwhile for both sides. Often, I can scan the room in 15 minutes and know if I want to stay here,” said Ariel Tseitlin, a partner at Scale Venture Partners. Some conference events are hosted by top-tier investors and partnership-heavy corporate VCs, while others are driven by consulting groups that share market trends and research content. As one founder bemoaned, “why can’t we just have a Tinder for VC-CEO match-making?”

Bypassing the firewall

If you don’t have an invitation, I don’t advise just showing up at the door; these are well-guarded events. Gate-crashing is a good strategy for a 19-year-old (who has the maturity of a 12-year-old), but not for the rest of us. Some founders use a simple tactic: get an existing portfolio CEO to take you in as their guest. Most VCs love it when they get such an introduction; it’s a great start and much better than sending a cold email or a LinkedIn to the lead partner.

Network with CrunchMatch at TC Sessions: Mobility 2020

By Emma Comeau

Got your sights set on attending TC Sessions: Mobility 2020 on May 14 in San Jose? Spend the day with 1,000 or more like-minded founders, makers and leaders across the startup ecosystem. It’s a day-long deep dive dedicated to current and evolving mobility and transportation tech. Think autonomous vehicles, micromobility, AI-based mobility applications, battery tech and so much more.

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TC Sessions: Mobility 2020 takes place on May 14 in San Jose, Calif. Join, meet and learn from the industry’s mightiest minds, makers, innovators and investors. And let CrunchMatch make your time there much easier and more productive. Buy your early-bird ticket, and we’ll see you in San Jose!

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