E-commerce now accounts for 14% of all retail sales, and its growth has led to a rise in the fortunes of startups that build tools to enable businesses to sell online. In the latest development, a company called VTEX — which originally got its start in Latin America helping companies like Walmart expand their business to new markets with an end-to-end e-commerce service covering things like order and inventory management, front-end customer experience and customer service — has raised $140 million in funding, money it will be using to continue taking its business deeper into more international markets.
The investment is being led by SoftBank, specifically via its Latin American fund, with participation also from Gávea Investimentos and Constellation Asset Management. Previous investors include Riverwood and Naspers; Riverwood continues to be a backer, the company said.
Mariano Gomide, the CEO who co-founded VTEX with Geraldo Thomaz, said the valuation is not being disclosed, but he confirmed that the founders and founding team continue to hold more than 50% of the company. In addition to Walmart, VTEX customers include Levi’s, Sony, L’Oréal and Motorola . Annually, it processes some $2.4 billion in gross merchandise value across some 2,500 stores, growing 43% per year in the last five years.
VTEX is in that category of tech businesses that has been around for some time — it was founded in 1999 — but has largely been able to operate and grow off its own balance sheet. Before now, it had raised less than $13 million, according to PitchBook data.
This is one of the big rounds to come out of the relatively new SoftBank Innovation Fund, an effort dedicated to investing in tech companies focused on Latin America. The fund was announced earlier this year at $2 billion and has since expanded to $5 billion. Other Latin American companies that SoftBank has backed include online delivery business Rappi, lending platform Creditas and property tech startup QuintoAndar.
The common theme among many SoftBank investments is a focus on e-commerce in its many forms (whether that’s transactions for loans or to get a pizza delivered), and VTEX is positioned as a platform player that enables a lot of that to happen in the wider marketplace, providing not just the tools to build a front end, but to manage the inventory, ordering and customer relations at the back end.
“VTEX has three attributes that we believe will fuel the company’s success: a strong team culture, a best-in-class product and entrepreneurs with profitability mindset,” said Paulo Passoni, managing investment partner at SoftBank’s Latin America fund, in a statement. “Brands and retailers want reliability and the ability to test their own innovations. VTEX offers both, filling a gap in the market. With VTEX, companies get access to a proven, cloud-native platform with the flexibility to test add-ons in the same data layer.”
Although VTEX has been expanding into markets like the U.S. (where it acquired UniteU earlier this year), the company still makes some 80% of its revenues annually in Latin America, Gomide said in an interview.
There, it has been a key partner to retailers and brands interested in expanding into the region, providing integrations to localise storefronts, a platform to help brands manage customer and marketplace relations, and analytics, competing against the likes of SAP, Oracle, Adobe and Salesforce (but not, he said in answer to my question, Commercetools, which builds Shopify -style API tools for mid and large-sized enterprises and itself raised $145 million last month).
E-commerce, as we’ve pointed out, is a business of economies of scale. Case in point: While VTEX processes some $2.5 billion in transactions annually, it makes a relatively small return on that — $69 million, to be exact. This, plus the benefit of analytics on a wider set of big data (another economy of scale play), are two of the big reasons VTEX is now doubling down on growth in newer markets like Europe and North America. The company now has 122 integrations with localised payment methods.
“At the end of the day, e-commerce software is a combination of knowledge. If you don’t have access to thousands of global cases you can’t imbue the software with knowledge,” Gomide said. “Companies that have been focused on one specific region are now realising that trade is a global thing. China has proven that, so a lot of companies are now coming to us because their existing providers of e-commerce tools can’t ‘do international.’ ” There are very few companies that can serve that global approach and that is why we are betting on being a global commerce platform, not just one focused on Latin America.”
A commons tactic in both amateur and professional sports – and even in competitions as mundane as a casual board game night – is trash talk. But the negative effect of trash talk may have less to do with the skill of the repartee involved, and more with just the fact that it’s happening at all. A new study conducted by researchers at Carnegie Mellon University suggests that even robots spitting out pretty lame pre-programmed insults can have a negative impact on human players.
CMU’s study involved programming one of SoftBank’s Pepper humanoid robots to deliver scorchers like “I have to say you are a terrible player” to a group of 40 participants, who were playing the robot in a game called “Guards and Treasures,” which is a version of a strategy game often used for studying rationality. During the course of the experiment, participants played 35 times against the robot – some getting bolstering, positive comments form the robot, while others were laden with negative criticism.
Both groups of participants improved at the game over time – but the ones getting derided by the bots didn’t score as highly as the group that was praised.
It’s pretty well-established that people excel when they receive encouragement from other – but that’s generally meant other humans. This study provides early evidence that people could get similar benefits from robotic companions – even ones that don’t look particularly human-like. The researchers still want to do more investigation into whether Pepper’s humanoid appearance affected the outcome, vs. say a featureless box or an industrial robot acting as the automaton opponent and doling out the same kind of feedback.
The results of this and related research could be hugely applicable to areas like at-home care, something companies including Toyota are pursuing to address the needs of an aging population. It could also come into play in automated training applications, both at work and in other settings like professional sports.
WeWork is reportedly being investigated by the New York State Attorney General. According to Reuters, the NYAG’s questions include if WeWork founder and former CEO Adam Neumann engaged in self-dealing.
A WeWork spokesperson said in an email that “we have received an inquiry from the office of the New York State Attorney General and are cooperating in the matter.” TechCrunch also contacted the New York State Attorney General’s office for comment. WeWork is headquartered in New York City.
This comes less than a week after Bloomberg reported WeWork is the subject of a U.S. Securities and Exchange Commission inquiry into potential rule violations related to its cancelled IPO.
WeWork’s parent company, The We Company, announced on Sept. 30 that it was withdrawing its S-1 filing for an initial public offering, shortly after Neumann stepped down as CEO. In addition to questions about the company’s financial state, red flags for investors included that Neumann had borrowed against his WeWork shares and leased properties he owned back to the company.
An entity Neumann controlled also sold the company the right to use the word “We” for $5.9 million, though he later asked the company to unwind the agreement and returned the money after public criticism.
After receiving a lifeline from investor SoftBank worth up to $8 billion, WeWork is now engaging in major cost-cutting measures, including layoffs at Meetup, which it acquired for $200 million in 2017.
Africa-focused fintech startup OPay has raised a $120 million Series B round backed by Chinese investors.
Located in Lagos and founded by consumer internet company Opera, OPay will use the funds to scale in Nigeria and expand its payments product to Kenya, Ghana and South Africa — Opera’s CFO Frode Jacobsen confirmed to TechCrunch.
OPay’s $120 million round comes after the startup raised $50 million in June. It also follows Visa’s $200 million investment in Nigerian fintech company Interswitch and a $40 million raise by Lagos-based payments startup PalmPay — led by China’s Transsion.
There are a couple of quick takeaways. Nigeria has become the epicenter for fintech VC and expansion in Africa. And Chinese investors have made an unmistakable pivot to African tech.
Opera’s activity on the continent represents both trends. The Norway-based, Chinese-owned (majority) company founded OPay in 2018 on the popularity of its internet search engine.
Opera’s web-browser has ranked No. 2 in usage in Africa, after Chrome, the last four years.
The company has built a hefty suite of internet-based commercial products in Nigeria around OPay’s financial utility. These include motorcycle ride-hail app ORide, OFood delivery service and OLeads SME marketing and advertising vertical.
“OPay will facilitate the people in Nigeria, Ghana, South Africa, Kenya and other African countries with the best fintech ecosystem. We see ourselves as a key contributor to…helping local businesses…thrive from…digital business models,” Opera CEO and OPay Chairman Yahui Zhou, said in a statement.
Opera CFO Frode Jacobsen shed additional light on how OPay will deploy the $120 million across Opera’s Africa network. OPay looks to capture volume around bill payments and airtime purchases, but not necessarily as priority. “That’s not something you do every day. We want to focus our services on things that have high-frequency usage,” said Jacobsen.
Those include transportation services, food services and other types of daily activities, he explained. Jacobsen also noted OPay will use the $120 million to enter more countries in Africa than those disclosed.
Since its Series A raise, OPay in Nigeria has scaled to 140,000 active agents and $10 million in daily transaction volume, according to company stats.
Beyond standing out as another huge funding round, OPay’s $120 million VC raise has significance for Africa’s tech ecosystem on multiple levels.
It marks 2019 as the year Chinese investors went all in on the continent’s startup scene. OPay, PalmPay and East African trucking logistics company Lori Systems have raised a combined $240 million from 15 different Chinese actors in a span of months.
OPay’s funding and expansion plans are also a harbinger for fierce, cross-border fintech competition in Africa’s digital finance space. Parallel events to watch for include Interswitch’s imminent IPO, e-commerce venture Jumia’s shift to digital finance and WhatsApp’s likely entry in African payments.
The continent’s 1.2 billion people represent the largest share of the world’s unbanked and underbanked population — which makes fintech Africa’s most promising digital sector. But it’s becoming a notably crowded sector, where startup attrition and failure will certainly come into play.
And not to be overlooked is how OPay’s capital raise moves Opera toward becoming a multi-service commercial internet platform in Africa.
This places OPay and its Opera-supported suite of products on a competitive footing with other ride-hail, food delivery and payments startups across the continent. That means inevitable competition between Opera and Africa’s largest multi-service internet company, Jumia.
SoftBank Corp. announced today that it has reached an agreement to merge with Z Holdings (the SoftBank subsidiary formerly known as Yahoo Japan) and Line Corp., in a move they hope will better position them against competitors. The merger, which was first reported by Nikkei last week, is expected to be completed in October 2020.
SoftBank and Naver, the owner of Line, will each hold 50% of a new holding company that will operate Line and Z Holdings. By uniting, SoftBank and Naver hope that they will better position search portal Yahoo Japan, Line’s messaging app and their other businesses to compete against rivals from the United States and China.
In its announcement, SoftBank said “in the Internet market, overseas companies, especially those based in the United States and China, are overwhelmingly dominant, and even when comparing the size of operations, there is currently a big difference between such overseas companies and those in other Asian countries, other than China.”
Line is one of the most popular messaging apps in Japan, Taiwan and Thailand, but has struggled to compete in other markets, despite offering a wide array of services that includes Line Pay, Line Taxi and Line Music. Yahoo Japan is one of the country’s biggest search engines, but it competes with Google, and its other businesses, including e-commerce, are up against rivals like Rakuten and Alibaba.
Once merged, SoftBank and Naver say cooperation between their subsidiaries and investment portfolio companies will enable them to make more advances in artificial intelligence and other areas, including search, advertising and payment and financial services.
The merger would entail taking Line private by acquiring all outstanding Line shares, options and convertible bonds. The tender offer for Line’s remaining shares will be 5,200 yen, a 13.41% premium over the closing price of Line’s common shares, listed on the Tokyo Stock Exchange, on November 13, before reports came out about the potential merger.
SoftBank’s Vision Fund has single-handedly changed the game when it comes to tech startup investment. And that’s why I’m excited to announce that SoftBank Vision Fund investment director Carolina Brochado is joining us at TechCrunch Disrupt Berlin.
Carolina Brochado isn’t a newcomer when it comes to VC investment. She’s worked for years at Atomico in London. Originally from Brazil, she first joined Atomico as an intern in 2012 while studying her MBA at Columbia Business School.
After her MBA, she joined an e-commerce startup as head of operations. Unfortunately, that startup is now defunct. But she used that opportunity to join Atomico once again, as a principle. She became a partner at Atomico in 2016 and left the firm late last year.
At SoftBank’s Vision Fund, she focuses on fintech, digital health and marketplace startups. Just to give you an idea, some of her past investments with both Atomico and SoftBank include LendInvest, Gympass, Hinge Health, Ontruck and Rekki.
More generally, given the size of SoftBank’s Vision Fund ($100 billion), it has had a huge impact on the growth trajectory of some companies. I’m personally curious to know SoftBank’s approach as board members, whether they get involved in the strategy of those companies or let the executive teams make decisions on their own.
Buy your ticket to Disrupt Berlin to listen to this discussion and many others. The conference will take place on December 11-12.
In addition to panels and fireside chats, like this one, new startups will participate in the Startup Battlefield to compete for the highly coveted Battlefield Cup.
Carolina focuses on fintech, digital health and marketplaces. Prior to joining Softbank, Carolina was a Partner at Atomico, where she sourced and collaborated with portfolio companies for almost five years. Some of her investments included Lendinvest, Gympass, Hinge Health, Ontruck and Rekki.
Previously Carolina has worked as Head of Ops to a now defunct gifting e-commerce start-up, as an investor at Chicago-based private equity firm Madison Dearborn Partners and within Consumer/Retail Investment Banking at Merrill Lynch in New York.
Carolina has a Bachelor of Science degree in Foreign Service from Georgetown University and an MBA from Columbia Business School. She is originally from Brazil.
A UK PR firm pitching to run an account for Ola has proposed running a campaign to politicize ride-hailing as a tactic to shift regulations in its favor.
The approach suggests that, despite the appearance of ride-hailing platforms taking a more conciliatory position with regulators that are now wise to earlier startup tactics in this space, there remains a calculus involving realpolitik, propaganda and high-level lobbying between companies that want to enter or expand in markets, and those who hold the golden tickets to do so.
In 2017 Estonia-based ride-hailing startup Taxify tried to launch in London ahead of regulatory approval, for example, but city authorities clamped down straight away. It was only able to return to the UK capital 21 months later (now known as Bolt).
In Western markets ride-hailing companies are facing old and new regulatory roadblocks that are driving up costs and creating barriers to growth. In some instances unfavorable rule changes have even led companies to pull out of cities or regions all together. Even as there are ongoing questions around the employment classification of the drivers these platforms depend on to deliver a service.
The PR pitch, made by a Tufton Street-based PR firm called Public First, suggests Ola tackle legislative friction in UK regions with a policy influence campaign targeted at local voters.
The SoftBank-backed Indian ride-hailing startup launched in the U.K. in August, 2018 and currently offers services in a handful of regional locations including South Wales, Merseyside and the West Midlands. Most recently it gained a licence to operate in London, and last month launched services in Coventry and Warwick — saying then that passengers in the UK had clocked up more than one million trips since its launch.
Manchester is also on its target list — and features as a focus in the strategy proposal — though an Ola spokesman told us it has no launch date for the city yet. The company met with Manchester’s mayor, Andy Burnham, during a trade mission to India last month.
— Leena Paul (@leenavittal) October 9, 2019
The Public First proposal suggests a range of strategies for Ola to get local authorities and local politicians on-side, and thus avoid problems in potential and future operations, including the use of engagement campaigns and digital targeting to mobilize select coalitions around politicized, self-serving talking points — such as claims that public transport is less safe and convenient; or that air quality improves if fewer people drive into the city — in order to generate pressure on regulators to change licensing rules.
Another suggestion is to position the company less as a business, and more as an organization representing tens of thousands of time-poor people.
Public First advocates generally for the use of data- and technology-driven campaign methods, such as microtargeted digital advertising, as more effective than direct lobbying of local government officials — suggesting using digital tools to generate a perception that an issue is politicized will encourage elected representatives to do the heavy lifting of pressuring regulators because they’ll be concerned about losing votes.
The firm describes digital campaign elements as “crucial” to this strategy.
“Through a small, targeted online digital advertising campaign in both cities, local councillors’ email inboxes would begin to fill with requests from a number of different people (students, businesses, and other members of [a commuter advocacy group it proposes setting up to act as a lobby vehicle]) for the local authority to change its approach on local taxi licensing — in effect, to make it easier for Ola to launch,” it offers as a proposed strategy for building momentum behind Ola in Manchester and Liverpool.
Public First confirmed it made the pitch to Ola but told us: “This was merely a routine, speculative proposal of the sort we generate all the time as we meet people.”
“Ola Cabs has no relationship whatsoever with Public First,” it added.
A spokesperson for Ola also confirmed that it does not have a business relationship with Public First. “Ola has never had a relationship with Public First, does not currently have one and nor will it in the future,” the spokesman told us.
“Ola’s approach in the UK has been defined by working closely and collaborating with local authorities and we are committed to being fully licensed in every area we operate,” he added, suggesting the strategy it’s applying is the opposite of what’s being proposed.
We understand that prior to Public First pitching their ideas to a person working in Ola’s comms division, Ola’s director of legal, compliance and regulation, Andrew Winterton, met with the firm over coffee — in an introductory capacity. But that no such tactics were discussed.
It appears that, following first contact, Public First took the initiative to draw up the strategy suggesting politicizing ride-hailing in key target regions which it emailed to Winterton but only presented to a more junior Ola employee in a follow-up meeting the legal director did not attend.
Ola has built a major ride-hailing business in its home market of India — by way of $3.8BN in funding and aggressive competition. Since 2018 it has been taking international steps to fuel additional growth. In the U.K. its approach to date has been fairly low key, going to cities and regional centers outside of high-profile London first, as well as aiming to serve areas with big Indian populations to help recruit riders and drivers.
It’s a strategy that’s likely been informed by being able to view the track record of existing ride-hailing players — and avoid Uber-style regulatory blunders.
The tech giant was dealt a major shock by London’s transport regulator in 2017, when TfL denied it a licence renewal — citing concerns over Uber’s approach to passenger safety and corporate governance, including querying its explanation for using proprietary software that could be used to evade regulatory oversight.
The Uber story looks to be the high water mark for blitzscaling startup tactics that relied on ignoring or brute forcing regulators in the ride-hailing category. Laws and local authorities have largely caught up. The name of the game now is finding ways to get regulators on side.
The fact that strategic proposals such as Public First’s to Ola are considered routine enough to put into a speculative pitch is interesting, given how the lack of transparency around the use of online tools for spreading propaganda is an issue that’s now troubling elected representatives in parliaments all over the world. Tools such as those offered by Facebook’s ad platform.
In Facebook’s case the company provides only limited visibility into who is running political and issue-based ads on its platform. The targeting criteria being used to reach individuals is also not comprehensively disclosed.
Some of the company’s own employees recently went public with concerns that its advanced targeting and behavioral-tracking tools make it “hard for people in the electorate to participate in the public scrutiny that we’re saying comes along with political speech”, as they put it.
At the same time, platforms providing a conduit for corporate interests to cheaply and easily manufacture ‘politicized’ speech looks to be another under-scrutinized risk for democratic societies.
Among the services Public First lists on its website are “policy development”, “qualitative and quantitative opinion research”, “issues-based campaigns”, “coalition-building” and “war gaming”. (Here, for example, is a piece of work the firm carried out for Google — where its analysis-for-hire results in a puffy claim that the tech giant’s digital services are worth at least $70BN in annual “economic value” for the UK.)
Public First’s choice of office location, in Tufton Street, London, is also notable as the area is home to an interlinked hub of right-leaning think tanks, such as the free market Center for Policy Studies and pro-Brexit Initiative for Free Trade. These are lobby vehicles dressed up as policy wonks which put out narratives intended to influence public opinion and legislation in a particular direction without it being clear who their financial backers are.
Some of the publicity strategies involved in this kind of work appear to share similarities with tactics used by Big Tobacco to lobby against anti-smoking legislation, or fossil fuel interests’ funding of disinformation and astroturfing operations to create a perception of doubt around consensus climate science.
“A lot of what used to get sold in this space essentially was access [to policymakers],” says one former public relations professional, speaking on background. “What you’re seeing an increasingly amount of now is the ‘technification’ of that process. Everyone’s using those kinds of tools — clearly in terms of trying to understand public sentiment better and that kind of thing… But essentially what they’re saying is we can set up a set of politicized issues so that they can benefit you. And that’s an interesting change. It’s not just straight defence and attack; promote your brand vs another. It’s ‘okay, we’re going to change the politics around an issue… in order to benefit your outcome’. And that’s fairly sophisticated and interesting.”
Mat Hope, editor of investigative journalism outlet DeSmog — which reports on climate-related misinformation campaigns — has done a lot of work focused on Tufton Street specifically, looking at the impact the network’s ‘policy-costumed’ corporate talking points have had on UK democracy.
“There is a set of organisations based out of offices in and around 55 Tufton Street in Westminster, just around the corner from the Houses of Parliament, which in recent years have had an outsized impact on British democracy. Many of the groups were at the forefront of the Leave campaign, and are now pushing for a hard or no-deal Brexit,” he told us, noting that Public First not only has offices nearby but that its founders and employees “have strong ties to other organisations based there”.
“The groups regularly lobby politicians in the interests of specific companies or big industry through the guise of grassroots or for-the-people campaigns,” he added. “One way they do this is through targeting adverts or social media posts, using groups with benign sounding names. This makes it hard to trace the campaign back to any particular company, and gives the issue an impression of grassroots support that is, on the whole, artificial.”
Ad platforms such as Facebook which profit by profiling people offer cheap yet powerful tools for corporate interests to identify and target highly specific sub-sets of voters. This is possible thanks to the vast amounts of personal data they collect — an activity that’s finally coming under significant regulatory scrutiny — and custom ad tools such as lookalike audiences, all of which enables behavioral microtargeting at the individual user/voter level.
Lookalike audiences is a powerful ad product that allows Facebook advertisers to upload customer data yet also leverage the company’s pervasive people-profiling to access new audiences that they do not hold data on but who have similar characteristics to their target. These so-called lookalike audiences can be tightly geotargeted, as well as zeroed in on granular interests and demographics. It’s not hard to see how such tools can be applied to selectively hit up only the voters most likely to align with a business’ interests.
The upshot is that an online advertiser is able to pay little to tap into the population-scale reach and vast data wealth of platform giants — turning firehose power against individual voters who they deem — via focus group work or other voter data analysis — to be aligned with a corporate agenda. The platform becomes a propaganda machine for manufacturing the appearance of broad public engagement and grassroots advocacy for a self-interested policy change.
The target voter, meanwhile, is most likely none the wiser about why they’re seeing politicized messaging. It’s that lack of transparency that makes the activity inherently anti-democratic.
The UK’s Digital, Culture, Media and Sport committee raised Facebook’s lookalike audiences as a risk to democracy during a recent enquiry into online disinformation and digital campaigning. It went on to recommend an outright ban on political microtargeting to lookalike audiences online. Though the UK government has so far failed to act on that or its fuller suite of recommendations. (Nor has Facebook responded to increasingly loud calls from politicians and civic society to ban political and issue ads altogether.)
Even a code of conduct published by the International Public Relations Association (IPRA) emphasizes transparency — with member organizations committing to “be open and transparent in declaring their name, organisation and the interest they represent”. (Albeit, the IPRA’s member list is not itself public.)
While online targeting of social media users remains a major problem for democracies, on account of the lack of transparency and individual consent to targeting (or, indeed, to data-based profiling), in recent years we’ve also seen more direct efforts by companies to use their own technology tools to generate voter pressure.
Examples such as ride-hailing giant Uber which, under its founding CEO, Travis Kalanick, became well known for a ‘push button’ approach to mobilizing its user base by sending calls to action to lobby against unfavorable regulatory changes.
Airbnb has also sought to use its platform-reach to beat against local authority rule changes that threaten its ‘home sharing’ business model.
However it’s the opaque tech-fuelled targeting enabled by ad platforms like Facebook that’s far more problematic for democracies as it allows vested interests to generate self-interested pressure remotely — including from abroad — while remaining entirely shielded from view.
Fixing this will require regulatory muscle to enforce existing laws around personal data collection (at least where such laws exist) — and doing so in a way that prevents microtargeting from being the cheap advertising default. Democracies should not allow their citizens to be mirrored in the data because it sets them up to be hollowed out; their individuals aggregated, classified and repackaged as all-you-can-eat attention units for whoever is paying.
And likely also legislation to set firm boundaries around the use of political and campaigning/issue ads online. Turning platform power against the individual is inherently asymmetrical. It’s never going to be a fair fight. So fair ground rules for digital political campaigning — and a proper oversight regime to enforce them — are absolutely essential.
Another democratic tonic is transparency. Which means raising awareness about tech-fuelled tactics that are designed to generate and exploit data-based asymmetries in order to hack and manipulate public opinion. Such skewed stuff only really works when the target is oblivious to what’s afoot. In that respect, every little disclosure of these ‘dark arts’ and the platforms that enable them provides a much-needed counter boost for critical thinking and democracy.
Recently reelected, Indonesian President Joko Widodo announced a desire to move the nation’s capital from Jakarta to the East Kalimantan region, citing environmental concerns, the most exigent of these being the fact that Jakarta is literally sinking due to the uncontrolled extraction of groundwater. Widodo said he wished to separate Indonesia’s government from its business and economic hub in Jakarta.
However, what would a move from Jakarta do to Indonesia’s burgeoning startup economy?
According to Widodo, studies have determined that the best site for the proposed new capital is between North Penajam Paser and Kutai Kertanegara, both located in East Kalimantan. The basis of this selection is due to studies highlighting the region’s relative protection from natural disasters, especially when compared to other regions. This would definitely be a benefit for the governmental heart of Indonesia, ensuring continuous administrative functions in a disaster-prone region. Other governments have separated administrative centers from their economic hubs with varying degrees of success, with some examples being Brazil’s creation of Brasília, as well as Korea’s projected move from Seoul to Sejong.
What is most interesting to note from prior examples is that these newer branched-out cities are non-surprisingly, heavily government-centric. In Brasília, roles tied to the government make up nearly 40% of all jobs, while in Sejong, a lack of facilities like public transit and commercial mall space cause many to commute into Sejong for government work, instead of permanently settling in the area. Given the semi-undeveloped nature of East Kalimantan, these anecdotes are quite troubling if the government is actually moving to North Penajam Paser or Kutai Kertanegara.
These facts raise the question of economic impacts of such governmental moves. In fact, one may even opine that while these moves do allow for governmental growth, ultimately, they may hurt the country economically due to a divestment between both government and economic hubs. In this specific instance, it is most important to analyze the impact of such a move on Indonesia’s startup economy, as the nation is one the world’s leaders in startup growth.
Indonesia has emerged as a startup hub within Southeast Asia in recent years, with its population of over 260 million marking it as the world’s fourth-most populous country. Additionally, Indonesia’s mobile-first population has enabled the full embrace of the internet era, with 95% of all internet users in Indonesia connected to the web via a mobile device.
Similarly, startup growth has boomed in the island archipelago, with several Indonesian-based unicorns disrupting local, regional, and global economies. Softbank-backed ecommerce giant Tokopedia is currently in talks for a pre-IPO funding round, while emerging super-app Gojek controls significant portions of the ride-sharing industry in Asia, simultaneously expanding into separate industries to include digital payments, food delivery, and even video-streaming. Additionally, online travel portal Traveloka (in which Expedia has a minority stake) has recently entered the financial services space, furthering its impact within Asia. These specific examples of high-growth startups demonstrate a population hungry for innovation, further driving the developing startup economy.
WeWork’s efforts to cut costs following the ouster of its chief executive officer and a delayed initial public offering looks to be impacting its subsidiaries. Meetup, which WeWork acquired for a reported $200 million in 2017, announced a round of layoffs this morning, TechCrunch has learned.
The company, which helps people foster in-person connections by facilitating events across the globe, has shed as much as 25% of its workforce, most of which were employees of the company’s engineering department, sources tell TechCrunch.
“Meetup’s top priority is building the best possible product for our community of more than 44 million members around the world,” a representative of the company said in a statement provided to TechCrunch. “Today we made some organizational changes with that goal in mind, including restructuring across some of our departments.”
The news follows WeWork’s own well-documented attempts at restructuring its high-loss business. Late last month, SoftBank provided the over-valued co-working business a much-needed lifeline in the form of a $5 billion loan, a $3 billion tender offer and another $1.5 billion in equity funding, according to The Wall Street Journal. That’s in addition to the billions already invested by the Japanese telecom giant, which now owns a roughly 80% stake. SoftBank’s mountain of cash had previously valued WeWork at an eye-popping $47 billion; the latest investment package, however, valued the company at just $8 billion.
Understandably, WeWork’s new leadership (former vice chairman Sebastian Gunningham and former president and chief operating officer Artie Minson are serving as co-CEOs) seem to be hyper-focused on its new cost-cutting strategy. Multiple reports have indicated the business is weighing sales of several of its subsidiaries, including Meetup, Managed by Q and Conductor. We’ve asked Meetup whether its parent company enforced the staff cuts and will update this story if we hear back.
As for WeWork, it must make a concerted effort to boost its balance sheet in the next few months if it plans to stay committed to a 2020 IPO. The company initially revealed its IPO prospectus in August, disclosing revenue north of $1.5 billion in the six months ending June 30 on losses of $904.6 million. Shortly after, its co-founder and former CEO Adam Neumann’s misbehaviors were published in a number of incriminating stories by The Wall Street Journal and other outlets. Neumann’s trashed reputation coupled with WeWork’s mounting losses forced the company to replace its founding CEO and shelve its IPO, which would have been the second-largest offering of 2019 behind only Uber.
Meetup, founded in 2002, was one of the first IRL social networks. Today’s cuts are not the first since WeWork came into the picture, according to earlier reporting by Gizmodo. Meetup shed roughly 10% of its staff amid negotiations for the acquisition and underwent cultural changes as managers pushed for growth and “more aggressiveness in the workplace.”
The future of Meetup is unclear. WeWork may move forward with a sale of the business or pressure its own cost-cutting measures on the company. In a recent email to Meetup members, CEO David Siegel wrote that he appreciated the recent outpouring of support from the community, as it became apparent the company was in a precarious position because of its owner.
“As you may be aware, there has been significant news about our parent company, WeWork, and what this means for the future of Meetup,” Siegel wrote. “As Meetup’s CEO, I want to personally tell you we’re as committed as ever to bringing people together in person.
Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about how SoftBank is screwing up. Before that, I noted All Raise’s expansion, Uber the TV show and the unicorn from down under.
Uber Head of Payments Peter Hazlehurst addresses the audience during an Uber products launch event in San Francisco, California, on September 26, 2019. (Photo by Philip Pacheco / AFP) (Photo credit should read PHILIP PACHECO/AFP/Getty Images)
The sheer number of startup players moving into banking services is staggering,” writes my Crunchbase News friends in a piece titled “Why Is Every Startup A Bank These Days.”
I’ve been asking myself the same question this year, as financial services business like Brex, Chime, Robinhood, Wealthfront, Betterment and more raise big rounds to build upstart digital banks. North of $13 billion venture capital dollars have been invested in U.S. fintech companies so far in 2019, up from $12 billion invested in 2018.
This week, one of the largest companies to ever emerge from the Silicon Valley tech ecosystem, Uber, introduced its team focused on developing new financial products and technologies. In a vacuum, a multibillion-dollar public company with more than 22,000 employees launching one new team is not big news. Considering investment and innovation in fintech this year, Uber’s now well-documented struggles to reach profitability and the company’s hiring efforts in New York, a hotbed for financial aficionados, the “Uber Money” team could indicate much larger fintech ambitions for the ride-hailing giant.
As it stands, the Uber Money team will be focused on developing real-time earnings for drivers accessed through the Uber debit account and debit card, which will itself see new features, like 3% or more cash back on gas. Uber Wallet, a digital wallet where drivers can more easily track their earnings, will launch in the coming weeks too, writes Peter Hazlehurst, the head of Uber Money.
This is hardly Uber’s first major foray into financial services. The company’s greatest feature has always been its frictionless payments capabilities that encourage riders and eaters to make purchases without thinking. Uber’s even launched its own consumer credit card to get riders cash back on rides. It’s no secret the company has larger goals in the fintech sphere, and with 100 million “monthly active platform consumers” via Uber, Uber Eats and more, a dedicated path toward new and better financial products may not only lead to happier, more loyal drivers but a company that’s actually, one day, able to post a profit.
The TechCrunch team is heading to Berlin again this year for our annual event, TechCrunch Disrupt Berlin, which brings together entrepreneurs and investors from across the globe. We announced the agenda this week, with leading founders including Away’s Jen Rubio and UiPath’s Daniel Dines. Take a look at the full agenda.
This week on Equity, I was in studio while Alex was remote. We talked about a number of companies and deals, including a new startup taking on Slack, Wag’s woes and a small upstart disrupting the $8 billion nail services industry. Listen to the episode here.
Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.
This week Kate and Alex broke the discussion into two main themes. The first dealt with early-stage companies, and the second, as you can imagine, later-stage affairs. Don’t worry, we don’t get to SoftBank for quite some time.
Up top, we dug into Kate’s story about Quill, a formerly stealthy company that could be taking on Slack. That or something similar to Slack . Next, we turned to ManiMe, a startup in the beauty space that raised a smaller $2.6 million to take on a market that is valued in the billions.
After that it was time to leave the auspices of the early-stage market and move to, of all things, a public company. GrubHub reported earnings this week. It went poorly. Alex wanted to riff over the company’s earnings report and what it could mean for startups that are competing with GrubHub, a leader in the food delivery space that DoorDash and Postmates would prefer to lead themselves.
What impact GrubHub may have on the highly-valued on-demand companies isn’t clear yet, but will be pretty damn interesting to see when it does land.
Sticking to the later-stage markets, Alex dug into the problems at Wag which is struggling and looking for a sale despite raising a castle of cash from the Vision Fund. Kate followed that up with notes on problems at Katerra. The Information is reporting this week that the business is going through a number of layoffs and we’re wondering if it will suffer the same fate of some of SoftBank’s other investments.
And, finally, the changing face of things at SoftBank itself. The great money spigot is slowly cutting flow. How many unicorns that will strand isn’t yet clear. But surely it can’t be zero.
SoftBank, a long-time WeWork investor, plans to invest between $4 billion and $5 billion in exchange for new and existing shares, according to CNBC . The deal, expected to be announced as soon as tomorrow, represents a lifeline for WeWork, which is said to be mere weeks from running out of cash and has been shopping several of its assets as it attempts to lessen its cash burn.
WeWork declined to comment.
To be clear, it is reportedly the Vision Fund’s parent company, SoftBank Group Corp. that is taking control, with SoftBank International chief executive officer Marcelo Claure stepping in to support company management, per reports.
The Japanese telecom giant’s move comes precisely four weeks after co-founder and former CEO Adam Neumann relinquished control of the company and transitioned into a non-executive chairman role, and about three weeks after WeWork decided to delay its highly anticipated initial public offering. WeWork’s vice chairman Sebastian Gunningham and the company’s president and chief operating officer Artie Minson are currently serving as WeWork’s co-CEOs.
In addition to those personnel shake-ups, WeWork has lost its communications chief, Jimmy Asci, its chief marketing officer, Robin Daniels and several others. Meanwhile, the company has slashed hundreds of jobs, and opted to shut down its school, WeGrow, in 2020.
Now expected to go public in 2020, WeWork was also said to be in negotiations with JPMorgan for a last-minute cash infusion. The company, now a cautionary tale, will surely continue to reduce the sky-high costs of its money-losing operation in the upcoming months.
WeWork revealed an unusual IPO prospectus in August after raising more than $8 billion in equity and debt funding. Despite financials that showed losses of nearly $1 billion in the six months ending June 30, the company still managed to accumulate a valuation as high as $47 billion, largely as a result of Neumann’s fundraising abilities.
“As co-founder of WeWork, I am so proud of this team and the incredible company that we have built over the last decade,” Neumann said in a statement confirming his resignation last month. “Our global platform now spans 111 cities in 29 countries, serving more than 527,000 members each day. While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive. Thank you to my colleagues, our members, our landlord partners, and our investors for continuing to believe in this great business.”
Airbnb may be another overvalued “unicorn,” but it’s no WeWork.
The Information this morning reported new Airbnb financials — indicating a massive increase in operating losses — that immediately call Airbnb’s future into question. Precisely, Airbnb lost $306 million on operations on $839 million in revenue, namely as a result of marketing spend, in the first quarter of 2019. In total, Airbnb invested $367 million in sales and marketing, representing a 58% increase year-over-year, in Q1. The company is gearing up for a major liquidity event next year and is making a concerted effort to rake in new customers, as any soon-to-be-public business would.
Given WeWork’s sudden demise, coupled with Uber and Lyft’s lukewarm performances on the stock markets, many have wondered how Wall Street will respond to Airbnb’s eventual IPO prospectus. Will money managers have an appetite for another over-valued Silicon Valley darling? Or will the market compete like mad for shares in the massive home-sharing marketplace?
But Airbnb, again, is no WeWork, and I wager Wall Street will have a much friendlier approach to its offering. For one, Airbnb’s co-founder and chief executive officer Brian Chesky isn’t dropping $60 million on private jets — I don’t think. CEO behaviors aside, Airbnb has more capital in the bank than it has raised in its entire 11-year history, which is a whole lot of money. This is all according to a source who is familiar Airbnb’s financials and shared this detail with TechCrunch following The Information’s Thursday morning report. As for Airbnb, the company told TechCrunch, “we can’t comment on the figures, but 2019 is a big investment year in support of our hosts and guests.”
Airbnb’s CEO Brian Chesky speaks at TechCrunch Disrupt SF 2014
Airbnb has attracted more than $3.5 billion in equity funding at a $31 billion valuation and has even more locked away in its bank account. Additionally, Airbnb has an untouched $1 billion credit line, the source said. Presumably, the referenced credit line is the 2016 $1 billion debt financing from JPMorgan, CitiGroup, Morgan Stanley and others.
Moreover, Airbnb has been “cumulatively” free cash flow positive for some time, meaning that it’s seen more money coming in than going out during recent quarters, according to our source. It has been reported that Airbnb surpassed $1 billion in revenue in the second quarter of 2019 and in the third quarter of 2018, but we’re guessing the business did not top $1 billion in Q4 of 2018 or Q1 of 2019 because it if had, that information would probably have been “leaked.”
Finally, Airbnb has been profitable on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis for two consecutive years, the company announced in January. Gross bookings, meanwhile, are growing, as is Airbnb’s business offering and its experiences product.
India’s budget lodging startup Oyo Hotels and Homes said today it plans to raise about $1.5 billion as part of a new financing round as the startup looks to expand its footprints in the U.S. and Europe.
Ritesh Agarwal, the founder and CEO of Oyo, has committed to infuse $700 million to buy new shares in the company, which has already become one of the largest hotel chains in Asia. Existing investors SoftBank Group, Lightspeed Venture Partners, Sequoia India also intend to participate in the round, which would value the six-year-old startup at $10 billion.
In a statement, the 25-year-old founder said the “continued support of our investors like SoftBank Vision Fund, Lightspeed, Sequoia Capital is a testament to the love, trust, and relentless support of our asset owners and customers.”
He added that the startup, which today operates in over 80 markets and manages over 1.2 million rooms, “can build a truly global brand out of India, while ensuring that the business is run efficiently and with a clear path to profitability.”
Oyo, which employs about 20,000 people, said it maintains a strong balance sheet of about $2 billion across different verticals, and plans to invest a significant part of it in the business. Agarwal said the startup is “operating profitably at the building level but at the same time our EBIDTA has also improved by 50%” over the last year.
Oyo, which entered China last year, claims to have 590,000 rooms there and presence in 332 cities. In the U.S., it has established presence in 21 states and 60 cities. In August this year, the company said it was investing $335 million in its rental business in Europe.
In July this year, Agarwal said he was planning to spend $2 billion through an entity called RA Hospitality Holdings, to raise his stake in the company from 10% to 30%. Early investors Lightspeed and Sequoia have agreed to sell part of their stake in the startup. Prior to today’s announcement, Oyo had raised about $1.7 billion — $1 billion of which came from its last year’s financing round. Oyo today counts Airbnb as one of its investors.
Naspers, a South African internet company that has become a major investor in a wide range of digital commerce companies, has in recent years drawn comparisons to the Japanese conglomerate SoftBank. For one thing, Naspers, like SoftBank, is very global in nature, with investments in more than 90 countries. Naspers, like SoftBank, doesn’t shy from writing big checks, as happened a few years ago when it plugged $100 million into LetGo, a New York-based company whose app aims to make it as easy to sell something as it is to throw it away.
Naspers also goes after startups at a variety of stages with the promise that it can help them expand around the world. LetGo, for example, is now available to users in more than 35 countries.
Yet most meaningfully, both are largely associated with early and exceedingly lucrative investments in Chinese companies. In SoftBank’s case, it made an early bet on the Chinese giant Alibaba, and even while it has pared its stake slightly, that holding is valued at more than $100 billion. Similarly, Naspers made an early bet on the Chinese giant Tencent, and it retains a 31% percent stake in the business that its CEO, Bob van Dijk, said today onstage at Disrupt that it has no intention of selling any time soon. That stake is also valued at more than $100 billion.
Still, van Dijk made clear that the comparisons should stop there during the sit-down. Asked how Naspers differentiates itself from SoftBank and whether it would ever form a Vision Fund-esque vehicle to invest money even more aggressively into startups, the answers were that a.) the two are very different and b.) no.
Said van Dijk, “I’ve met [CEO] Masa [Son] and many of his team over the years and they’re an impressive bunch of people. I think what they’ve done is unprecedented and had a big impact on the industry.” Still, Naspers is “not a fund,” he noted; It’s a holding company, and, as such, it can invest for 20 years if it needs. And “that helps, he said. “It allows you to think [about investments] over a long amount of time.” He said this was particularly important around food delivery, into which Naspers has plugged $5 billion in recent years and van Dijk feels strongly has vast potential, even while he acknowledged that for the foreseeable future, the industry is likely to remain to hugely unprofitable.
As for SoftBank, he continued, “They are great investors.” But they are also “broad in their approach,” whereas Naspers is “more focused. We invest in what we really know. What has served us well is to build up expertise, then go bigger. But we couldn’t deploy $100 billion in things that I understand.”
As for how he would judge the performance of SoftBank’s strategy, van Dijk was unsurprisingly democratic. “We co-invested in Flipkart, and we had the same vision of an attractive India market with great growth and great founders.”
Added van Dijk, “They’ve taken a bigger volume approach, and I hope it works out.”
You can catch the entire conversation — in which van Dijk also noted Naspers’s growing interest in U.S. startups, and shared some insights into a new holding company that Naspers recently took public in Europe — below.
According to a new WSJ report, certain members of WeWork’s seven-person board, which includes cofounder and CEO Adam Neumann, are planning to pressure Neumann to step down and instead become We’s non-executive chairman. The move, says the outlet, “would allow him to stay stay at the company he built into one of the country’s most valuable startups, but inject fresh leadership to pursue an IPO that would bring We the cash it needs to keep up its torrid growth.”
The WSJ and Bloomberg are reporting that it is SoftBank specifically that wants Neumann to step down. Neither WeWork nor SoftBank is commenting publicly.
It’s a fascinating development, the kind we saw when Uber’s board successfully forced cofounder and longtime CEO Travis Kalanick to abandon his role as CEO. Still, we’d caution against drawing too close a comparison. While the venture firm Benchmark, which spearheaded Kalanick’s ouster, stood to lose billions of dollars if Kalanick dragged down Uber and continued to push off an IPO, Benchmark was not in a do-or-die situation because of its Uber investment.
SoftBank appears to be in more dire straights, making this standoff a particularly meaningful one.
Let’s back up a minute first, though, and consider who is involved and which way this could potentially go. A few days ago, Business Insider put together a useful cheat sheet about WeWork’s board members that may hint at their allegiance.
1) Ronald Fisher — who is vice chairman at SoftBank Group after founding SoftBank Capital, a U.S. venture arm of SoftBank — joined SoftBank’s board last year. He oversees 114 class A shares, each of which carries one vote. Obviously, he’s going to side with SoftBank.
2) Lewis Frankfort — the chairman of a fitness studio chain called Flywheel Sports — has been a board member of WeWork for roughly five years, and BI says WeWork once loaned him $6.3 million, which he repaid with interest earlier this year. We have to think he’d stick with Neumann out of loyalty. At the same time, he doesn’t wield much power unless he has the right to block significant actions at the company (some shareholders get these blocking rights; some don’t). What we know: He controls 2 million shares, and 750,000 of them are Class B shares that carry 10 votes each.
3) Benchmark, which first backed WeWork in 2012, is represented on the board by Bruce Dunlevie, the founding partner of the venture firm. Benchmark owns 32.6 million Class A shares, and could go either way, seemingly. On the one hand, Benchmark doesn’t want to establish a reputation for pushing out founders after the Kalanick debacle, and if it supports SoftBank over Neumann, it risks this exact thing happening. On the other hand, Benchmark might not want to battle with SoftBank if it thinks it has staying power or it’s concerned (suddenly) that it allowed Neumann to amass too much control.
4) Steven Langman, the cofounder of private equity firm Rhône Group, has ties that go back a ways with Neumann, and he has benefited richly from the association. According to an April story in the WSJ, Langman met Neumann through a shared rabbi in WeWork’s earlier days and joined the board in 2012. He also invested in the company (he owns 2.28 million shares, according to a bond filing). Langman is on both the company’s compensation committee and its succession committee. He also runs a real-estate investment vehicle in partnership with We that buys and develops buildings to then lease back to the co-working company, despite that it raises conflict-of-interest questions. We’d guess he’s on Team Neumann.
5) Mark Schwartz is a former Goldman Sachs exec who stepped off the board of SoftBank earlier this year but who remains on WeWork’s board. Why he left SoftBank’s board may or may not hold clues here. According to The Information, he remains a confidante of SoftBank CEO Masayoshi Son.
6) John Zhao is the chairman and CEO of Hony Capital, which partnered with SoftBank and WeWork to create a standalone entity called WeWork China back in 2017, and Hony has subsequently poured more capital into that subsidiary. We’re not sure how close Zhao is to SoftBank, but if SoftBank brought Hony into WeWork, we’re guessing he will back the Japanese conglomerate on this one. Hony doesn’t own 5 percent or more of WeWork’s parent company so its share holdings aren’t listed publicly.
Harvard Business School professor Frances Frei also brought in roughly a minute ago to add a much-need sprinkling of gender diversity to WeWork’s all-male board. Frei’s name first came to be more broadly recognized when she was hired to help address Uber’s battered culture, so presumably she has ties to Benchmark. We’d guess she’ll side with Dunlevie, meaning that we have no idea whose side she will take.
Neumann, it’s very worth noting, is himself is far more powerful than any of these individuals. Even after the company recently revised Neumann’s supervoting rights, which gave him 20 times the voting power of ordinary shareholders and now give him 10, he could fire the entire board if he so chooses, notes the WSJ.
Naturally, that wouldn’t be a good look for Neumann, who is already battling growing public perception that, among other negatives for a public company CEO, he smokes a whole lot of pot and that he may be delusional. (A WSJ piece last week reported that Neumann likes to smoke marijuana with friends and while airborne. It also said that Neumann has confided to different people his interest in becoming Israel’s prime minister and president of the world.)
All that said, SoftBank is also fast losing credibility. While its CEO, Son, has been long revered as a visionary, a growing number of sources we’ve spoken to question the viability of his entire Vision Fund operation. They see WeWork’s ever-soaring valuation on the private market, from $20 billion to, more recently, $47 billion — which was almost single-handedly SoftBank’s doing — as just one in a costly string of poor calls.
Indeed, despite the roughly $10 billion that SoftBank has sunk into WeWork, the financial loss it would take if WeWork falls apart would pale in comparison to the reputational hit Son would suffer, and you can bet there will be ripple effects.
Our suspicion: given the Vision Fund’s impact on the startup industry over the last few years, there’s a lot more riding on what happens with WeWork than meets the eye. Stay tuned.
Correction: An earlier version of this story did not include WeWork board member Mark Schwartz.
Back in January, Blackstone — the investment firm whose assets under management surpassed a jaw-dropping half a trillion dollars earlier this year — quietly began piecing together a new, growth equity platform called Blackstone Growth, or BXG. Step one was hiring away Jon Korngold from General Atlantic, where he’d spent the previous 18 years, including as a managing director and a member of its management committee.
Step two has been for Korngold, who is responsible for running the new program, to build a team, which he has been doing throughout the year, bringing in “people who speak the language of Blackstone,” he says, including from TCV, Andreessen Horowitz, Carlyle, Vista Private Equity, NEA, and SoftBank .
Apparently, the group is now ready for business. It has already closed on two deals from existing pools of capital with Blackstone, including acquiring outright the mobile ad company Vungle. According to Korngold, two more term sheets “are being signed imminently.”
We talked with him last week for more information about what the group is shopping for, what size checks it is willing to write, and which firms it views as its biggest rivals for deals (and more). Our chat has been edited for length and clarity.
TC: You’ve been hiring throughout the year people who have large-scale growth equity backgrounds. Are many of them women?
JK: Blackstone is one of the most diverse organizations [in terms of] gender or ethnicity. In general, it’s a huge priority for the firm and within our group of 20 people, 40 percent are female, a number we hope to get to 50 percent. Hiring is still in process, but it’s a really healthy culture.
TC: How many people does Blackstone employ altogether?
JK: There are 2,600 altogether across 24 offices.
TC: Is your group investing a discreet pool of capital?
JK: At some point, we’ll have a dedicated pool of capital, but as a firm, we’ve been investing in growth equity for some time [so have relied on other funds within Blackstone to date].
TC: There’s no shortage of growth equity in the world right now. What is Blackstone building that’s so different?
JK: The sheer scale of the operation is different. We have nearly 100 operating professionals — employees of Blackstone — who were hired because they are functional experts — from pricing experts to process engineering experts to human capital and procurement and digital marketing experts — and who can advise our companies.
Also, Blackstone can holistically assist a company through [our] growth equity and real estate and procurement and debt [groups] and other related infrastructure support, enabling companies to fight way above their weight class. We have 6,000 people across our portfolio, and that provides an interesting opportunity for our companies to cross pollinate [and to cross-sell to] one another.
Unlike most growth equity firms, we also have a significant number of data scientists who do three things: identify proprietary signals across asset classes to help instruct where we should be hunting; help our companies monetize their data; and help us in our diligence. They’ll access raw data feeds and almost see the matrix, if you will.
TC: How many data scientists are we talking about?
JK: A couple dozen [across Blackstone].
TC: Blackstone must be competing against fast-growing tech companies for data scientists. How do you convince them that work for an investing giant is the better gig?
JK: If you’re an intellectually curious individual, there are so many signals [coming through Blackstone] that it’s almost a proxy for the world. It’s like manna from heaven. It’s not like they’re doing a single-threaded approach. The nature of the challenges across our companies is so vast and so varying that whether you’re looking at a fast-growing retailer or a cell phone tower in another country, the nature of the tasks is always changing.
TC: SoftBank seems to have shaken things up a bit when it came on to the scene, given the size checks it is writing. Your boss, Steven Schwarzman, who recently talked with us about this bigger new push into growth equity, made sure to note that there are few organizations that can write $500 million checks.
JK: [Laughs.] Everyone in Silicon Valley wants to talk about SoftBank. We celebrate a lot of what SoftBank has done. They’ve validated the thesis that there’s an opportunity for growth equity on a scale that hasn’t traditionally been available.
It’s similar to the way we’re set up. SoftBank was never meant to compete with the venture community; they’re competing with the capital markets, and as private companies look to stay private longer market, SoftBank wants to support their development.
TC: And . . .
JK: I think the reality is that a lot of businesses have unproven business models and unit economics, and they’re garnering massive amounts of capital from different constituents. It’s less about who is staying private longer but are they sustainable over the long run, whether public or private. I think a lot of companies right now now that have unproven business models have been flooded by cash at too small a scale where they aren’t ready to handle it, and it masks weaknesses.
TC: Where is that most acute, in your view?
JK: I see that at the smaller growth equity phase — the $25 million to $150 million [per firm per check] range — where most growth equity resides because you have every VC firm there now. Many of the growth funds that have moved downstream. You also have crossover funds like DST and Coatue and Tiger, along with corporate venture capital. That huge flood of capital has created these massive valuations and it has compressed the due diligence involved.
If you look at Lyft and Uber — and Snap was in this category — the market is starting to speak. Public market shareholders are willing to give you the benefit of the doubt for a while but not indefinitely. You can’t feed the machine for growth’s sake.
TC: So what type of deals are you searching out?
JK: We won’t step into a situation where unit economics aren’t proven from day one. You won’t see us in a company that’s selling $1 for 80 cents and hoping someday that works. We’re Inherently more binary in profile. We’re capital-preservation minded while looking for asymmetric upside, and that’s where we have a disproportionate advantage. You’ll see us do deals where we can put our thumb on the scale, because of our real estate holdings or buyout assets or because [search across our] portfolio for help with procurement costs or insurance or R&D or a company’s go-to-market strategy.
TC: What have you done that proves all these bells and whistles make a difference?
JK: We have a couple of signed deals, including [the mobile ad company] Vungle [for a reported $750 million-ish], though we’re more often looking for growth-equity minority ownership positions. [Think] companies that are looking for a partner and not an owner. We’ll do growth buyouts but the vast majority will be significant minority positions.
We have a couple of other deals that will be signed imminently that we can’t discuss just yet.
TC: Are you hoping to take these companies public? Flip them to another private equity firm? Relatedly, do you have any thoughts about the public market and whether more companies should be going out?
JK: We’ll only look to an IPO if there’s a reason for it. Oftentimes, companies shouldn’t be public; sometimes, they should be, including if they need an acquisition currency or [to better establish their] branding. But the idea of, let’s rush to the door [is not our style].
TC: Who are your most direct competitors? Not Vista Private Equity, since it seems to prefer buying companies whole.
JK: Vista is going exclusively for control buyouts, massive turnarounds. It descends upon a company and says, ‘This is the playbook you will follow.’ It also uses a lot of leverage, where the vast majority or our [deals] are un-levered. We don’t use much debt. Vista and Silver Lake are much more competitors with each other.
TC: KKR then? Carlyle?
KR: They’re also multi-asset managers, but as it relates to growth equity, we’ve really found ourselves in slightly more rarefied air. Blackstone has demonstrated that it can use its scale to create an operational advantage, and virtually no other company — or few — can contemplate checks like we can.
TC: What do you want for these checks, other than a minority position? How involved are you and what size stake, exactly, are you aiming to buy?
JK: We want to have a relevant voice, so we want to be in the boardroom, but there is no target range. It can be 10 or 20 or 30 percent. It can be 80 percent. Ideally you want to be the main outside pool of capital along with management team.
At TechCrunch Disrupt, the original tech startup conference, venture capitalists remain amongst the premier guests.
VCs are responsible for helping startups — the focus of the three-day event — get off the ground, and, as such, they are often the most familiar with trends in the startup ecosystem, ready to deliver insights, anecdotes and advice to our audience of entrepreneurs, investors, operators, managers and more.
In the first half of 2019, VCs spent $66 billion purchasing equity in promising upstarts, according to the latest data from PitchBook. At that pace, VC spending could surpass $100 billion for the second year in a row. We plan to welcome a slew of investors to TechCrunch Disrupt to discuss this major feat and the investing trends that have paved the way for recording funding.
Mega-funds and the promise of unicorn initial public offerings continue to drive investment. SoftBank, of course, began raising its second Vision Fund this year, a vehicle expected to exceed $100 billion. Meanwhile, more traditional VC outfits revisited limited partners to stay competitive with the Japanese telecom giant. Andreessen Horowitz, for example, collected $2.75 billion for two new funds earlier this year. We’ll have a16z general partners Chris Dixon, Angela Strange and Andrew Chen at Disrupt for insight into the firm’s latest activity.
At the early-stage, the fight for seed deals continued, with larger funds moving downstream to muscle their way into seed and Series A financings. Pre-seed has risen to prominence, with new funds from Afore Capital and Bee Partners helping to legitimize the stage. Bolstering the early-stage further, Y Combinator admitted more than 400 companies across its two most recent batches,
We’ll welcome pre-seed and seed investor Charles Hudson of Precursor Ventures and Redpoint Ventures general partner Annie Kadavy to give founders tips on how to raise VC. Plus, Y Combinator CEO Michael Seibel and Ali Rowghani, the CEO of YC’s Continuity Fund, which invests in and advises growth-stage startups, will join us on the Disrupt Extra Crunch stage ready with tips on how to get accepted to the respected accelerator.
Moreover, activity in high-growth sectors, particularly enterprise SaaS, has permitted a series of outsized rounds across all stages of financing. Speaking on this trend, we’ll have AppDynamics founder and Unusual Ventures co-founder Jyoti Bansal and Battery Ventures general partner Neeraj Agrawal in conversation with TechCrunch’s enterprise reporter Ron Miller.
We would be remiss not to analyze activity on Wall Street in 2019, too. As top venture funds refueled with new capital, Silicon Valley’s favorite unicorns completed highly anticipated IPOs, a critical step toward bringing a much needed bout of liquidity to their investors. Uber, Lyft, Pinterest, Zoom, PagerDuty, Slack and several others went public this year, and other well-financed companies, including Peloton, Postmates and WeWork, have completed paperwork for upcoming public listings. To detail this year’s venture activity and IPO extravaganza, David Krane, CEO and managing partner of Uber and Slack investor GV, will be on deck, as will Sequoia general partner Jess Lee, Floodgate’s Ann Miura-Ko and Aspect Ventures’ Theresia Gouw.
There’s more where that came from. In addition to the VCs already named, Disrupt attendees can expect to hear from Bessemer Venture Partners’ Tess Hatch, who will provide her expertise on the growing “space economy.” Forerunner Ventures’ Eurie Kim will give the Extra Crunch Stage audience tips on building a subscription product, Mithril Capital’s Ajay Royan will explore opportunities in the medical robotics field and SOSV’s Arvind Gupta will dive deep into the cutting-edge world of health tech and more.
Disrupt SF runs October 2-4 at the Moscone Center in the heart of San Francisco. Passes are available here.
The super apps WeChat and Alipay became an integral part of the Chinese mobile ecosystem, growing to more than 1 billion monthly active users (MAU) and 1 billion annual active users (AAU), respectively. They both offer services from food delivery and bike sharing to a full suite of financial services such as payment, insurance and investments.
Now, companies from around the world are trying to replicate the successful Chinese model in their region. And Latin America is an especially compelling region for the emergence of super apps, due to its vast population, almost 650 million, distributed in more or less similar countries regarding language, culture and religion. It also has a mobile-first population with 62% of smartphone penetration, according to GSMA data.
After the incredible success of WeChat and Alipay, many companies around the world decided to replicate their model in different regions. Due to the proximity to China and its influence and money, Southeast Asia was one of the first regions in which super apps started to appear. The Singaporean ride-hailing Grab and the Indonesian Go-Jek both raised billions of dollars to not only successfully block the expansion of Uber in the region but also to expand their portfolio of services provided beyond ride-hailing to food delivery, payments and other services.
Note that not all super apps are the same.
In India, payTM is expanding beyond its core service and positioning itself to be the leading player in the country, especially after Tapzo was acquired by Amazon last year and closed.
It is interesting to note that not all super apps are the same. Alipay came from the e-commerce Alibaba and is more focused on financial services, while WeChat started as a messenger app, expanding not only to financial services but also to daily services such as e-commerce, gaming, travel and many others. In Southeast Asia, Go-Jek and Grab started as ride-hailing, expanding to delivery before going to financial services, and payTM started as a prepaid recharge mobile platform and then moved to offer a range of financial and daily services.
Latin American super apps should develop themselves in their own particular way, as the environment in the region is quite different from the one in China.
The internet ecosystem in the region is highly influenced by European and American tech companies that dominate segments such as communication, music, search and many others. It is quite hard for a local startup to compete in those markets. However, there are a few battlegrounds that are not as easy to dominate from abroad, such as ride-hailing, food delivery and finance. Those are on-the-ground or highly regulated industries that are very hard to scale, especially across different countries. Those are precisely the industries in which we have seen the emergence of some super apps candidates, fueled by an unprecedented amount of venture capital investment in the region.
The most prominent candidate to super app in the region is the Colombian on-demand delivery Rappi. It is one of the most funded startups in Latin America, backed by titans such as Sequoia, Andreessen Horowitz and SoftBank, which have poured US$ 1.4 billion in investments so far. Although it started offering just food delivery, it now provides services such as e-scooter, payments, P2P transfer, movie theater tickets and a debit card. It also operates in the most relevant countries in the region: Brazil, Mexico, Colombia, Argentina, Chile, Uruguay and Peru.
Another strong candidate is the financial side of the e-commerce behemoth Mercado Libre (MELI), Mercado Pago. It started as a way to enable payment between users in the marketplace; however, it grew to offer a diverse portfolio of financial services such as online and offline payment, bill payments and, more recently, investment (through its Mercado Fondo). Thanks to its parent company, it’s pretty much all over Latin America, and processes around 400 million transactions annually.
The Brazilian Movile is also positioning itself as a strong competitor. The company already has a diverse portfolio of services, from delivery food to event tickets, courier and even a kids Netflix, operating in Brazil, Mexico, Colombia and Argentina. Not only did it raise a total of US$395 million investment, but also one of its companies, iFood, raised a total of US$592 million.
Latin America is an especially compelling region for the emergence of super apps.
The Spanish Cabify is another company trying to position itself as a super app. It recently started to offer e-scooters and bike service, as well as financial services through its own fintech company, Lana. Even though it raised US$477 million in funding, it will be hard for Cabify to become a super app, as the ride-hailing competition is getting quite intense in the region. Its competitors Uber and Didi are also adding more services and trying to position themselves.
An interesting potential competitor would be Nubank, the Brazilian decacorn (private companies with more than US$10 billion of valuation). It already has more than 8 million customers in Brazil and is starting to expand in the region to Mexico, Argentina and Colombia. Although Nubank still only offers traditional financial services, it has Tencent as a significant investor and has raised US$1.1 billion, so far. Therefore, it would be no surprise if it decides to follow a similar path as WeChat.
Also, in Brazil, Banco Inter (BIDI11) recently launched a marketplace to expand the offer to its customers beyond financial services to e-commerce, travel and more. The challenger bank is already a public company with around US$7 billion valuation, but it is now backed by SoftBank after its latest share offer.
Those are the most well-positioned candidates to be super apps in Latin America. Even so, other players could surprise, such as Magazine Luiza, leading retail and e-commerce in Brazil. Its CEO is transforming the company from a brick-and-mortar retail to a technology company and already showed its ambition to transform MagaLu (its app) into a super app offering many other services. Although it could compete in the Brazilian market, it would be doubtful that it becomes a regional player, as its primary business operates only in Brazil.
We are starting to see the rise of the super apps in Latin America, but they will not follow the Chinese path as the markets are very different. A better comparison could be with the Southeast Asian players as the markets are more similar; however, Latin American’s super apps will probably be the result of the unique environment in the region.
As more companies are looking into the Chinese success stories, we will probably see even more players competing to become the Latin American super app. The venture capitalists are already placing their bets on who will become the leading players in Latin America. One thing is certain: It will be exhilarating to see how the market unfolds in the region — the customers will be the true winners in this battle.
Zume first made waves by entering the scene as a robotic pizza company. Since then, however, the SF Bay Area startup has taken pains to demonstrate that it has its sights set on a loftier goal of providing sustainable infrastructure for the restaurant industry.
Last April, the company made its Zume Pizza wing a wholly owned subsidiary of the newly minted Zume Inc. Seven months later, it reportedly snapped up $375 million from SoftBank, and, in June, used some of that money to purchase Pivot, a plant-based alternative packaging company.
Today, the company takes an important step toward larger industry outreach with the announcement of new partner, &pizza. The chain, which operates 36 “fast-casual” locations, will be utilizing Zume’s “Forward Mobile Kitchen” trucks to expand outreach in its native Washington, D.C.
The food truck model opens the company to some new opportunities not always afforded by the standard brick and mortar model, including the ability to try out new neighborhoods and check the demand for different products.
“Today it costs hundreds of thousands of dollars and takes a year, sometimes more, to open up a bricks and mortar store, but by leveraging our infrastructure they can open a new market in a matter of weeks and they can do it with a flexible financial model,” Zume CEO Alex Garden said in an interview with TechCrunch.
Zume’s offering is a combination of bespoke mobile kitchens that double as food trucks and delivery vehicles, combined with AI systems designed to better understand and respond to customer demand, based on location, traffic patterns and the like.
The deal isn’t make or break for Zume, but it’s an important step for a startup whose promises for profitability still appear fairly abstract from the outside. “What I can tell you for sure is that over between now and the end of the year there’s going to be really a staccato of announcements where we’ll talk about things we’re doing with partners and ways that we’re helping improve their businesses,” says Garden. “People can draw whatever conclusions they want from that financially, but all I can tell you about our financial approach to things is that we are good custodians of the investments that people have made in us and we take it really seriously.”
From the outside, at least, it appears as though the company has made a pivot from a focus on robot-made pizza to something much broader in search of a more viable model. Zume is quick to counter such claims, however, as Garden compares the company to the early days of Amazon. The executive notes that the company has shifted its focus to various aspects of the industry as offering real-world services like its pizza trucks has brought to life various solvable problems.
He turns to the example of pizza boxes, which Zume has transformed from the recognizable square cardboard variety to a round one with grates at the bottom, designed with the express purpose of keeping their contents warm.
“We did internet searches for two weeks trying to find packaging companies that made different pizza boxes and there really wasn’t very much out there, they’re almost all made by a small select group of companies that just repeat the same ideas over and over again,” Garden explains. “So I said, wow that’s really weird. Okay, well, let’s just, we’re a startup, no one can tell us what the rules are. Why don’t we just get a white board and draw what a cool pizza box would be.”
It’s a restless sort of approach to running a startup, but at very least, it has led the company in some interesting directions, and $375 million from SoftBank certainly demonstrates strong investor confidence for a startup with big ideas about revolutionizing the food industry.
Interestingly, it will also make &pizza a potential competitor for Zume Pizza, though the two won’t share a market for now. Garden adds that there’s plenty of space for competition. “People eat a lot of pizza,” he says. “I know it sounds like a trite answer, but there’s no risk at all of cannibalization.”