Radish is announcing that it has raised $63.2 million in new funding.
Breaking up book-length stories into smaller chapters that released over days or weeks is an idea that was popularized in the 19th century, and startups have been trying to revive it for at least the past decade. Still, this round represents a major step up in funding, not just for Radish (which only raised around $5 million before this), but also compared to other startups in a relatively nascent market. (Digital fiction startup Wattpad is the notable exception.)
When I first wrote about Radish at the beginning of 2017, the startup was focused on user-generated content. Last year, however, the company launched the Radish Originals program, where Radish is able to produce more content using teams of writers lead by a showrunner, and where the startup owns the resulting intellectual property.
“Instead of becoming YouTube or Wattpad for serial fiction, we want to be more like Netflix and create our own originals,” Kim told me. “I got a lot of inspiration from platforms in Korea, China and Japan, where serial fiction is huge and established on mobile.”
One of the ideas Radish took from the Asian markets is rapidly updating its stories. For example, its most popular title, “Torn Between Alphas” (a romance story with werewolves) has released 10 seasons in less than a year, with each season consisting of more than 50 chapters — in fact, later seasons have more than 100 chapters — that are released multiple times a day.
“On Netflix, you can binge-watch three seasons of a show at once,” Kim said. “On Radish, you can binge-read a thousand episodes.”
While Radish borrowed the writing room model from TV — and hired Emmy-winning TV writers, particularly those with a background in soap opera — Kim said it’s also taken inspiration from gaming. For one thing, it relies on micro-payments to make money, where users buy coins that allow them to unlock later chapters of a story (chapters usually cost 20 or 30 cents on average, and more chapters get moved out from behind the paywall over time). In addition, the company can allow readers to determine the direction of stories by A/B testing different versions of the same chapter.
Kim pointed to the fall of 2019 as Radish’s “inflection point,” where the model really started to work. Now, the company says its most popular story has made more than $4 million and has more than 50 million “reads.” Radish stories are mostly in the genres of romance, paranormal/sci-fi, LGBTQ, young adult, and horror, mystery and thriller, and Kim said the audience is largely female and based in the United States.
By raising a big round led by SoftBank Ventures Asia (the early stage investment arm of troubled SoftBank Group) and Kakao Pages (which publishes webtoons, web novels and more, and is part of Korean internet giant Kakao), Kim said he can take advantage of their expertise in the Asian market to grow Radish’s audience in the U.S. That will mean increasing content production in the hopes of creating more hit titles, and also spending more on performance marketing.
“With its own fast-paced original content production, Radish is best positioned to become a leading player in the global online fiction market,” said SoftBank Ventures Asia CEO JP Lee in a statement. “Radish has proven that its serialized novel platform can change the way people consume online content, and we are excited to support the company’s continued disruption in the mobile fiction space. Leveraging our global SoftBank ecosystem, we hope to support and accelerate Radish’s expansion across different regions worldwide.”
When BigCommerce, the Texas-based Shopify competitor, first announced an IPO price range, the numbers looked a little light.
With a range of just $18 to $20 per share, it appeared that the firm was targeting a valuation of around $1.18 billion to $1.31 billion. Given that BigCommerce had revenue of “between $35.5 million and $35.8 million” in Q2 2020, up a little over 30% from the year-ago period (and better margins than Shopify) its implied revenue multiple that its IPO price range indicated felt low.
At the time, TechCrunch wrote that “BigCommerce feels cheap at its current multiple,” and that if you added “recent market exuberance for cloud shares that we’ve see in other IPOs … it feels even more underpriced.”
Those feelings have been borne out. Today, BigCommerce announced a new, higher IPO price range. The firm now intends to price its IPO between $21 and $23 per share. Let’s calculate its new valuation, compare that to its preliminary Q2 results to get new multiples for the impending e-commerce software IPO, and figure how its most recent investors are set to fare in its impending debut.
By moving its pricing up from $18 to $20 to $21 to $23, BigCommerce boosted its IPO range by 16.7% at its lower end and 15% at the upper end. At its new prices BigCommerce is worth between $1.38 billion and $1.51 billion.
As expected, BigCommerce has filed to go public. The Austin, Texas, based e-commerce company raised over $200 million while private. The company’s IPO filing lists a $100 million placeholder figure for its IPO raise, giving us directional indication that this IPO will be in the lower, and not upper, nine-figure range.
BigCommerce, similar to public market darling Shopify, provides e-commerce services to merchants. Given how enamored public investors are with its Canadian rival, the timing of BigCommerce’s debut is utterly unsurprising and is prima facie intelligent.
Of course, we’ll know more when it prices. Today, however, the timing appears fortuitous.
BigCommerce is a SaaS business, meaning that it sells a digital service for a recurring payment. For more on how it derives revenue from customers, head here. For our purposes what matters is that public investors will classify it along with a very popular — today’s trading notwithstanding — market segment.
Starting with broad strokes, here’s how the company performed in 2019 compared to 2018, and Q1 2020 in contrast to Q1 2019:
BigCommerce didn’t grow too quickly in 2019, but its Q1 2020 expansion pace is much better. BigCommerce will file an S-1/A with more information in Q2 2020, we expect; it can’t go public without sharing more about its recent financial performance.
If the company’s revenue growth acceleration continues in the most recent period — bearing in mind that e-commerce as a segment has proven attractive to many businesses during the COVID-19 pandemic — BigCommerce’s IPO timing would appear even more intelligent than it did at first blush. Investors love growth acceleration.
Moving from revenue growth to revenue quality, BigCommerce’s Q1 2020 gross margins came in at 77.5%, a solid SaaS result. In Q1 2019 its gross margin was 76.8%, a slightly worse figure. Still, improving gross margins are popular as they indicate that future cash flows will grow at a faster clip than revenues, all else held equal.
In 2018 BigCommerce lost $38.9 million on a GAAP basis. Its net loss expanded modestly to $42.6 million in 2020, a larger dollar figure in gross terms, but a slimmer percent of its yearly top line. You can read those results however you’d like. In Q1 2020, however, things got better, as the company’s GAAP net loss fell to $4 million from its year-ago Q1 result of $10.5 million.
The BigCommerce big commerce business is growing more slowly than I had anticipated, but its overall operational health is better than I expected.
A few other notes, before we tear deeper into its S-1 filing tomorrow morning. BigCommerce’s adjusted EBITDA, a metric that gives a distorted, partial view of a company’s profitability, improved along similar lines to its net income, falling from -$9.2 million in Q1 2019 to -$5.7 million in Q1 2020.
The company’s cash flow is, akin to its adjusted EBITDA, worse than its net loss figures would have you guess. BigCommerce’s operating activities consumed $10 million in Q1 2020, an improvement from its Q1 2019 operating cash burn of $11.1 million.
The company is further in debt than many SaaS companies, but not so far as to be a problem. BigCommerce’s long-term debt, net of its current portion, was just over $69 million at the end of Q1 2020. It’s not a nice figure, per se, but it is one small enough that a good IPO haul could sharply reduce while still providing good amounts of working capital for the business.
Investors listed in its IPO document include Revolution, General Catalyst, GGV Capital, and SoftBank.
After aggressive cost-cutting measures, including mass layoffs and selling several of its businesses, WeWork’s chairman expects the company to have positive cash flow in 2021. Marcelo Claure, who became WeWork’s chairman after co-founder Adam Neumann resigned as chief executive officer last fall, told the Financial Times that the co-working space startup is on target to meet its goal, set in February, of reaching operating profitability by the end of next year.
Claure is also chief operating officer of SoftBank Group, which invested $18.5 billion in the co-working space, according to leaked comments made by Claure during an October all-hands meeting.
SoftBank said in April that it would lose $24 billion on investments, with one of the main reasons being WeWork’s implosion last year. The company’s financial and management issues brought its valuation down from as much as $47 billion at the beginning of 2019 to $2.9 billion in March, according to a May report by CNBC.
In addition to the layoffs, WeWork sold off businesses including Flatiron School, Teem and its share of The Wing. Claure told the Financial times that WeWork also cut its workforce from a high of 14,000 last year to 5,600.
Neumann resigned as CEO in September, reportedly at the behest of SoftBank, over concerns about the company’s financial health and his behavior. Then the company postponed its IPO filing. The next month, SoftBank took ownership of WeWork as part of a financing package.
Claure is credited with orchestrating a turnaround at Sprint, cutting losses and increasing its stock price in 2015, three years after it was acquired by SoftBank. He has served as SoftBank Group’s COO since 2018.
Despite the impact of the COVID-19 pandemic, which forced many people to work from home, Claure said that companies have been leasing spaces from WeWork to serve as satellite offices close to where employees live. But he also said that revenues were flat during the second-quarter because many tenants terminated their leases or stopped paying rent.
Arm today announced plans to spinoff its two IoT business, a move that would effectively transfer the divisions under the broader umbrella of Softbank Group core, which purchased the chip designer back in 2016. The move comes as Arm seeks to focus its efforts exclusively on the semiconductor IP business that has made the company a ubiquitous presence in the mobile world.
The transfer is pending addition review from the company’s board, along with standard regulatory reviews — though Arm says it expects the move to be completed before the end of September of this year. While it would effectively remove the IoT Platform and Treasure Data businesses from its brand, the company says it plans to continue to collaborate with the ISG (IoT Services Group) businesses. The company will retain its business on the compute IP aspect of IoT, while leaving the data software and services aspects as their own spinoff businesses.
“Arm believes there are great opportunities in the symbiotic growth of data and compute,” ARM CEO Simon Segars said in a release tied to the news. “SoftBank’s experience in managing fast-growing, early-stage businesses would enable ISG to maximize its value in capturing the data opportunity. Arm would be in a stronger position to innovate in our core IP roadmap and provide our partners with greater support to capture the expanding opportunities for compute solutions across a range of markets.”
Arm’s IoT business has seen quite a bit of success, with its technologies shipping on billions of devices and the planned goal of one trillion expected next decade.
NPB games are known for engaging antics that extend well beyond the play on the field. But what’s to be done in the era of COVID-19 when baseball is played in front of an empty stadium? For many — including Korea’s KBO League and the upcoming shortened MLB season — cardboard cutouts are an attempt to bring something familiar to the otherwise surreal experience.
Japan, on the other hand, is leaning into the surreality. The Fukuoka SoftBank Hawks are getting some cheerleading help from a couple of familiar robots. Softbank’s own Pepper and Spot (of the Softbank-owned Boston Dynamics) formed the cheering section at a game this week, as the NPB team took on the Rakuten Eagles. The celebration is the first of many, running through the end of the month.
It is, as Softbank Notes, “the first time that Spot has performed a dance at a sports event.” Boston Dynamics’ robot has taken on a number of jobs of late, as the company has offered the quadruped up for sale — a first in its 25+ year history. Construction and security are among the key uses for the ‘bot, though Softbank is obviously equally interested in putting on a show. Pepper, the product of Softbank’s 2015 acquisition of Aldebaran Robotics, meanwhile, has become a familiar sight in the hospitality industry.
When the shortened MLB season kicks off in States later this month, many teams will be filling stands with cardboard cutouts. The Oakland A’s, notably, announced a plan to charge fans to have their likeness appear on the life-size cardboard facades.
Distressed satellite constellation operator OneWeb, which had entered bankruptcy protection proceedings at the end of March, has completed a sale process, with a consortium led by the UK Government as the winner. The group, which includes funding from India’s Bharti Global – part of business magnate Sunila Mittal’s Bharti Enterprises – plan to pursue OneWeb’s plans of building out a broadband internets satellite network, while the UK would also like to potentially use the constellation for Positioning, Navigation and Timing (PNT) services in order to replace the EU’s sat-nav resource, which the UK lost access to in January as a result of Brexit.
The deal involves both Bharti Global and the UK government putting up around $500 million each, respectively, with the UK taking a 20 percent equity stake in OneWeb, and Bharti supplying the business management and commercial operations for the satellite firm.
OneWeb, which has launched a total of 74 of its planned 650 satellite constellation to date, suffered lay-offs and the subsequent bankruptcy filing after an attempt to raise additional funding to support continued launches and operations fell through. That was reportedly due in large part to majority private investor SoftBank backing out of commitments to invest additional funds.
The BBC reports that while OneWeb plans to essentially scale back up its existing operations, including reversing lay-offs, should the deal pass regulatory scrutiny, there’s a possibility that down the road it could relocate some of its existing manufacturing capacity to the UK. Currently, OneWeb does its spacecraft manufacturing out of Florida in a partnership with Airbus.
OneWeb is a London-based company already, and its constellation can provide access to low latency, high-speed broadband via low Earth orbit small satellites, which could potentially be a great resource for connecting UK citizens to affordable, quality connections. The PNT navigation services extension would be an extension of OneWeb’s existing mission, but theoretically, it’s a relatively inexpensive way to leverage planned in-space assets to serve a second purpose.
Also, while the UK currently lacks its own native launch capabilities, the country is working towards developing a number of spaceports for both vertical and horizontal take-off – which could enable companies like Virgin Orbit, and other newcomers like Skyrora, to establish small-sat launch capabilities from UK soil, which would make maintaining and extending in-space assets like OneWeb’s constellation much more accessible as a domestic resource.
Ahead of its expected IPO pricing later today, SoftBank -backed insurtech startup Lemonade has raised its expected price range. After initially targeting $23 to $26 per share in its debut, Lemonade now intends to sell its equity for $26 to $28 per share.
The new range boosts Lemonade’s expected value, a boon for insurtech startups like Root, Kin, MetroMile, Hippo and others. Had Lemonade been forced to reduce its pricing, the valuations of its contemporaries could have come under pressure when they went to raise more capital. But with Lemonade noting that the market will bear a higher price for its equity, it’s a good day for startups looking to rebuild insurance products in a digital-first manner.
This morning, let’s work out the Lemonade’s new valuation range, compare it to the company’s final private valuation and figure out if we can understand why the stock market may support the company at its new price. After that, we’ll share a few notes from folks about the IPO and how they think it might go, just for fun.
Lemonade intends on selling 11 million shares as before, so the company is not targeting a larger bloc of shares to disburse. At its new price range, Lemonade will sell shares worth between $286 million and $308 million, a few dozen million more at the top end of its new range than it had anticipated with its first IPO pricing interval ($253 million and $286 million).
The company has two valuation ranges: one without the 1.65 million shares its underwriters may purchase at its IPO price if they choose, and one including those shares. Without the extra equity, Lemonade is aiming at a $1.43 billion to $1.54 billion valuation; including the extra equity, Lemonade is worth $1.47 billion to $1.58 billion.
The house of cards has well and truly collapsed for Wirecard, the German payments company that has been accused of accounting fraud. Today it announced that its German operation Wirecard AG was applying for insolvency proceedings in a Munich court, the Amtsgericht München, due to “impending insolvency and over-indebtedness.” It also issued a separate statement that elaborated to note that “the company’s ability to continue as a going concern is not assured” after it was unable to reach a deal with lenders over loans coming due on June 30 and July 1, respectively for €800 million ($896 million) and €500 million ($560 million).
It also said it hopes to restructure under temporary bankruptcy measures, and in the meantime Wirecard Bank AG would not be part of proceedings. “BaFin [the financial services watchdog] has already appointed a special representative for Wirecard Bank AG. In future, the release processes for all payments of the bank will be located exclusively within the bank and no longer at Group level.”
The collapse comes not just at a time when Wirecard’s own loans are falling due, but we have been facing a global recession due to the global health pandemic: that has had a knock-on effect for a number of industries, and so while some businesses are thriving, others have halted altogether, or slowed down considerably, which will have a direct impact on a company whose business model is set up to make incremental commissions on payments.
The Softbank-backed, publicly-traded business is still determining whether insolvency applications will also need to be filed for subsidiaries of the Wirecard Group: the company provides online and in-person payment services to merchants in other countries — most recently opening a subsidiary in Mexico — with offices in some 28 other locations.
Wirecard’s stock, traded in Germany on the Deutsche Borse Xetra exchange, has today plummeted nearly 77% (after drops in previous days), giving it a market cap of $350 million, an Enron-style collapse. As a point of contrast, when SoftBank invested $1 billion last year, it was worth around $19 billion.
The news brings a sad, but unsurprising, development to an especially rough week for the company, after its auditors Ernst & Young discovered a $2.1 billion accounting hole in its books, and then the former CEO, Markus Braun, was arrested on charges of fraud.
Those who have been watching the company for longer than the past week might also recall that all of this has been going on for months, although a separate investigation led by KPMG and published in April determined that “no incriminating evidence was found for the publicly raised accusations of balance sheet manipulation.”
Wirecard is one of the many disastrous investments made by SoftBank in recent times: the Japanese technology and investment giant put $1 billion into the company in April 2019.
Unlike many of its other bad deals — which have included troubled WeWork and Uber, which has failed to live up as a public company to the valuation expectations made by SoftBank and others when it was still private — this one did not come out of its Vision Fund, but was made directly by the SoftBank Group.
With the downfall coming as it has to a company that is publicly traded, Wirecard has been unable to offset its losses and its financial situation as they have played out on an open forum. The company counts Olympus, Getty Images, Orange, KLM among its customers.
Google said on Thursday it plans to offer crediting feature to millions of merchants in India through its Google Pay app starting later this year as the American technology group looks to help small businesses in the country steer through the pandemic and also find a business model for its mobile payments service.
The company said it was working with financial institutions to offer loans to merchants from within Google Pay for Business app. The Google Pay’s business app, which the Android giant launched late last year, has already amassed 3 million merchants, it said.
Google’s announcement comes today as part of its effort to share its broader initiatives for small and micro-businesses in India. The company said Google My Business, an app it launched in India in the second half of 2017 to help mom and pop stores and other small merchants build online presence, has been used by more than 26 million businesses in the country to list themselves on Google search and Maps. India has about 60 million small and micro-sized businesses in the nation, according to government estimates.
“Every month we drive over 150 million direct connections between these businesses and customers including calls, online reservations and direction requests,” it said.
New Delhi ordered a nationwide lockdown in late March in a bid to control the spread of Covid-19. The move forced most businesses to suspend their operations. In recent weeks, the Indian government has moved to relax some of its restrictions and many stores have resumed their businesses.
Last year Google launched Spot feature in India that allows businesses to easily create their own branded commercial fronts that will be accessible to customers through Google Pay app.
In May, Google introduced Nearby Stores as a Spot feature on Google Pay app that allowed local businesses in select part of the country get discovered by customers in their neighborhood. The company said it is expanding this offering across India starting today.
Thursday’s announcement also outlines the grip Google has on small businesses in India, and how its scale — and resources — could pose additional challenges for scores of startups that are already attempting to serve businesses.
Paytm, which works with over 16 million merchants, earlier this year launched a range of gadgets, including a device that displays QR check-out codes that comes with a calculator and USB charger, a jukebox that provides voice confirmations of transactions and services to streamline inventory management for merchants.
For some of these players, Google’s increasingly growing interest in targeting merchants means they will be facing off the search giant on two fronts. TechCrunch reported earlier this month that Google Pay had about 75 million transacting users in India, more than any of its competitors. But Google Pay, and most other payments services in India are struggling to find a business model for their services.
Facebook, Google’s global rival, has courted more than 1 million merchants in India on its WhatsApp’s business app. WhatsApp, which is the most popular app in India, is informally used by countless of additional merchants in the country.
Son said he sees the move as “graduating” from Alibaba Group’s board, his most successful investment to date, as he swiftly moved to defend the Japanese group’s investment strategy, which has been the subject of scrutiny and public mockery in recent quarters.
Son said his conglomerate’s holding has recovered to the pre-coronavirus outbreak levels. The firm has benefited from the rising value of Alibaba Group and its stake in Sprint, following the telecom operator’s merger with T-Mobile. Son said his firm has seen an internet rate of return (or IRR, a popular metric used by VC funds to demonstrate their performance) of 25%.
In a shareholder meeting today, he said he was worried that many people think that SoftBank is “finished” and are calling it “SoftPunku,” a colloquial used in Japan which means a broken thing. All combined, SoftBank’s shareholder value now stands at $218 billion, he said.
Son insisted that he was leaving the board of Alibaba Group, a position he has held since 2005, on good terms and that there hadn’t been any disagreements between him and Ma.
Son’s move follows Jack Ma, who co-founded Alibaba Group, leaving the board of SoftBank last month after assuming the position for 13 years. Son famously invested $20 million in Alibaba 20 years ago. Early this year, SoftBank still owned shares worth $100 billion in Alibaba.
A range of SoftBank’s recent investments has spooked the investment world. The firm, known for writing big checks, has publicly stated that its investment in ride-hailing giant Uber, office space manager WeWork, and a range of other startups has not provided the return it had hoped.
Several of these firms, including Oyo, a budget-lodging Indian startup, has moreover been hit hard by the pandemic.
Son, who has raised $20 billion by selling T-Mobile stake, said after factoring in other of his recent deals SoftBank had accumulated $35 billion or 80% of the total planned unloading of investments.
Lemonade, a heavily-backed startup that sells renters and homeowners insurance to consumers, filed to go public today. The company (backed by SoftBank, part of the Sequoia empire, General Catalyst and Tusk Venture Partners, among others) releasing its financial results helps shed light on the burgeoning insurtech market, which has attracted an ocean of capital in recent quarters.
TechCrunch covered a part of the insurtech world earlier this year, asking why insurance marketplaces were picking up so much investment, so quickly. Lemonade is different from insurance marketplaces in that it’s a full-service insurance provider.
Indeed, as its S-1 notes:
By leveraging technology, data, artificial intelligence, contemporary design, and behavioral economics, we believe we are making insurance more delightful, more affordable, more precise, and more socially impactful. To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, and the full technology stack to power them.
Lemonade is pitching that it has technology to make insurance a better business and a better consumer product. It is tempting. Insurance is hardly anyone’s favorite product. If it could suck marginally less, that would be great. Doubly so if Lemonade could generate material net income in the process.
Looking at the numbers, the pitch is a bit forward-looking.
Parsing Lemonade’s IPO filing, the business shows that while it can generate some margin from insurance, it is still miles from being able to pay for its own operation. The filing reminds us more of Vroom’s similarly unprofitable offering than Zoom’s surprisingly profitable debut.
Lemonade is targeting a $100 million IPO according to its filings. That number is imprecise, but directionally useful. What the placeholder target tells us is that the company is more likely to try to raise $100 million to $300 million in its debut than it is to take aim at $500 million or more.
So, the company, backed by $480 million in private capital to date, is looking to extend its fundraising record, not double it in a single go. What has all that money bought Lemonade? Improving results, if stiff losses. Let’s parse some charts that the company has proffered and then chew on its raw results.
First, this trio of bar charts that are up top in the filing:
Gross written premiums (GWP) is the total amount of revenue expected by Lemonade for its sold insurance products, notably discounting commissions and some other costs. As you’d expect, the numbers are going up over time, implying that Lemonade was effective in selling more insurance products as it aged.
The second chart details how much money the company is losing on a net basis compared to the firm’s gross written premium result. This is a faff metric, and one that isn’t too encouraging; Lemonade’s GWP more than doubled from 2018 to 2019, but the firm’s net losses per dollar of GWP fell far less. This implies less-than-stellar operating leverage.
The final chart is more encouraging. In 2017 the company was paying out far more in claims than it took in from premiums. By 2019 it was generating margin from its insurance products. The trend line here is also nice, in that the 2018 to 2019 improvement was steep.
And then there’s this one:
This looks good. That said, improving adjusted EBITDA margins that remain starkly negative as something to be proud of is very Unicorn Era. But 2020 is alive with animal spirits, so perhaps this will engender some public investor adulation.
Regardless, let’s dig into the numbers. Here’s the main income statement:
Some definitions. What is net earned premium? According to the company it is “the earned portion of our gross written premium, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements.” Like pre-sold software revenue, premium revenue is “earned pro rata over the term of the policy, which is generally.” Cool.
Net investment income is “interest earned from fixed maturity securities, short term securities and other investments.” Cool.
The two numbers are the company’s only material revenue sources. And they sum to lots of growth. From $22.5 million in 2018 to $67.3 million in 2019, a gain of 199.1%. More recently, the company’s Q1 results saw its revenue grow from $11.0 million in 2019 to $26.2 million in 2020, a gain of 138.2%. A slower pace, yes, but from a higher base and more than large enough for the company to flaunt growth to a yield-starved public market.
Now, let’s talk losses.
We’ll talk margins a little later, as that bit is annoying. What matters is that Lemonade’s cost structure is suffocating when compared to its ability to pay for it. Net losses rose from $52.9 million in 2018 to $108.5 million in 2019. More recently, a Q1 2019 net loss of $21.6 million was smashed in the first quarter of 2020 when the firm lost $36.5 million.
Indeed, Lemonade only appears to lose more money as time goes along. So how is the company turning so much growth into such huge losses? Here’s a hint:
This is messy, but we can get through it. First, see how operating revenue is different than the GAAP revenue metrics we saw before? That’s because it’s a non-GAAP (adjusted) number that means the “total revenue before adding net investment income and before subtracting earned premium ceded to reinsurers.” Cool.
That curiosity aside, what we really care about is the company’s adjusted gross profit. This metric, defined as “total revenue excluding net investment income and less other costs of sales, including net loss and loss adjustment expense, the amortization of deferred acquisition costs and credit card processing fees,” which means gross profit but super not really, is irksome. Given that Lemonade is already adjusting it, it’s notable that the company only managed to generate $5.4 million of the stuff in Q1.
Recall that the company had GAAP revenue of $26.2 million in that three-month period. So, if we adjust the firm’s gross profit, the company winds up with a gross margin of just a hair over 20%.
So what? The company is spending heavily — $19.2 million in Q1 alone — on sales and marketing to generate relatively low-margin revenue. Or more precisely, Lemonade generated enough adjusted gross profit in Q1 2020 to cover 28% of its GAAP sales and marketing spend for the same period. Figure that one out.
Anyway, the company raised $300 million from SoftBank last year, so it has lots of cash. “$304.0 million in cash and short-term investments,” as of the end of Q1 2020, in fact. So, the company can sustain its Q1 2020 operating cash burn ($19.4 million) for a long time. Why go public then?
Because like we wrote this morning (Extra Crunch subscription required), Vroom showed that the IPO market is open for growth shares and SoftBank needs a win. Let’s see what investors think, but this IPO feels like it’s timed to get out while the getting is good. Who can get mad at that?
In India, it’s Google and Walmart-owned PhonePe that are racing neck-and-neck to be the top player in the mobile payments market, while Facebook remains mired in a regulatory maze for WhatsApp Pay’s rollout.
In May, more than 75 million users transacted on Google Pay app, ahead of PhonePe’s 60 million users, people familiar with the companies’ figures told TechCrunch. More than 10 million users transact on SoftBank -backed Paytm’s app everyday, according to internal data seen by TechCrunch.
Google still lags Paytm’s reach with merchants, but the Android -maker has maintained its overall lead in recent months despite every player losing momentum due to one of the most stringent lockdowns globally in place in India.
The company is facing an antitrust probe in India over allegations that it is abusing its market position to unfairly promote its mobile payments app in the country, Reuters reported last month.
Paytm, once the dominant player in India, has been struggling to sustain its user base for nearly two years. The company had about 60 million transacting users in January last year, said people familiar with the matter.
Paytm had over 50 million monthly active users on its app in May, a spokesperson told TechCrunch.
Data sets consider transacting users to be those who have made at least one payment through the app in a month. It’s a coveted metric and is different from the much more popular monthly active users (MAU), or daily active users (DAU) that various firms use to share their performance. A portion of those labeled as monthly active users do not make any transaction on the app.
India’s homegrown payment firm, Paytm, has struggled to grow in recent years in part because of a mandate by India’s central bank to mobile wallet firms — the middlemen between users and banks — to perform know-your-client (KYC) verification of users, which created confusion among many, some of the people said. These woes come despite the firm’s fundraising success, which amounts to more than $3 billion.
In a statement, a Paytm spokesperson said, “When it comes to mobile wallets one has to remember the fact that Paytm was the company that set up the infrastructure to do KYC and has been able to complete over 100 million KYCs by physically meeting customers.”
Paytm has long benefited from integration with popular services such as Uber, and food delivery startup Swiggy, but fewer than 10 million of Paytm’s monthly transacting users have relied on this feature in recent months.
Two executives, who like everyone else spoke on the condition of anonymity because of fear of retribution, also said that Paytm resisted the idea of adopting Unified Payments Interface. That’s the nearly two-year-old payments infrastructure built and backed by a collation of banks in India that enables money to be sent directly between accounts at different banks and eliminates the need for a separate mobile wallet.
Paytm’s delays in adopting the standard left room for Google and PhonePe, another early adopter of UPI, to seize the opportunity.
Paytm, which adopted UPI a year after Google and PhonePe, refuted the characterization that it resisted joining UPI ecosystem.
“We are the company that cherishes innovation and technology that can transform the lives of millions. We understand the importance of financial technology and for this very reason, we have always been the champion and supporter of UPI. We, however, launched it on Paytm later than our peers because it took a little longer for us to get the approval to start UPI based services,“ a spokesperson said.
A sign for Paytm online payment method, operated by One97 Communications Ltd., is displayed at a street stall selling accessories in Bengaluru, India, on Saturday, Feb. 4, 2017. Photographer: Dhiraj Singh/Bloomberg via Getty Images
Missing from the fray is Facebook, which counts India as its biggest market by user count. The company began talks with banks to enter India’s mobile payments market, estimated to reach $1 trillion by 2023 (according to Credit Suisse), through WhatsApp as early as 2017. WhatsApp is the most popular smartphone app in India with over 400 million users in the country.
Facebook launched WhatsApp Pay to a million users in the following year, but has been locked in a regulatory battle since to expand the payments service to the rest of its users. Facebook chief executive Mark Zuckerberg said WhatsApp Pay would roll out nationwide by end of last year, but the firm is yet to secure all approvals — and new challenges keep cropping up. The company, which invested $5.7 billion in the nation’s top telecom operator Reliance Jio Platforms in April, declined to comment.
PhonePe, which was conceived only a year before WhatsApp set eyes to India’s mobile payments, has consistently grown as it added several third-party services. These include leading food and grocery delivery services Swiggy and Grofers, ride-hailing giant Ola, ticketing and staying players Ixigo and Oyo Hotels, in a so-called super app strategy. In November, about 63 million users were active on PhonePe, 45 million of whom transacted through the app.
Karthik Raghupathy, the head of business at PhonePe, confirmed the company’s transacting users to TechCrunch.
Three factors contributed to the growth of PhonePe, he said in an interview. “The rise of smartphones and mobile data adoption in recent years; early adoption to UPI at a time when most mobile payments firms in India were betting on virtual mobile-wallet model; and taking an open-ecosystem approach,” he said.
“We opened our consumer base to all our merchant partners very early on. Our philosophy was that we would not enter categories such as online ticketing for movies and travel, and instead work with market leaders on those fronts,” he explained.
“We also went to the market with a completely open, interoperable QR code that enabled merchants and businesses to use just one QR code to accept payments from any app — not just ours. Prior to this, you would see a neighborhood store maintain several QR codes to support a number of payment apps. Over the years, our approach has become the industry norm,” he said, adding that PhonePe has been similarly open to other wallets and payments options as well.
But despite the growth and its open approach, PhonePe has still struggled to win the confidence of investors in recent quarters. Stoking investors’ fears is the lack of a clear business model for mobile payments firms in India.
PhonePe executives held talks to raise capital last year that would have valued it at $8 billion, but the negotiations fell apart. Similar talks early this year, which would have valued PhonePe at $3 billion, which hasn’t been previously reported, also fell apart, three people familiar with the matter said. Raghupathy and a PhonePe spokesperson declined to comment on the company’s fundraising plans.
As UPI gained inroads in the market, banks have done away with any promotional incentives to mobile payments players, one of their only revenue sources.
At an event in Bangalore late last year, Sajith Sivanandan, managing director and business head of Google Pay and Next Billion User Initiatives, said current local rules have forced Google Pay to operate without a clear business model in India.
The coronavirus pandemic that prompted New Delhi to order a nationwide lockdown in late March preceded a significant, but predictable, drop in mobile payments usage in the following weeks. But while Paytm continues to struggle in bouncing back, PhonePe and Google Pay have fully recovered as India eased some restrictions.
About 120 million UPI transactions occurred on Paytm in the month of May, down from 127 million in April and 186 million in March, according to data compiled by NPCI, the body that oversees UPI, and obtained by TechCrunch. (Paytm maintains a mobile wallet business, which contributes to its overall transacting users.)
Google Pay, which only supports UPI payments, facilitated 540 million transactions in May, up from 434 million in April and 515 million in March. PhonePe’s 454 million March figure slid to 368 million in April, but it turned the corner, with 460 million transactions last month. An NPCI spokesperson did not respond to a request for comment.
PhonePe and Google Pay together accounted for about 83% of all UPI transactions in India last month. UPI itself has over 117 million users.
Industry executives working at rival firms said it would be a mistake to dismiss Paytm, the one-time leader of the mobile payments market in India.
Paytm has cut its marketing expenses and aggressively chased merchants in recent quarters. Earlier this year, it unveiled a range of gadgets, including a device that displays QR check-out codes that comes with a calculator and USB charger, a jukebox that provides voice confirmations of transactions and services to streamline inventory management for merchants.
Merchants who use these devices pay a recurring fee to Paytm, Vijay Shekhar Sharma, co-founder and chief executive of the firm told TechCrunch in an interview earlier this year. Paytm has also entered several businesses, such as movie and travel ticketing, lending, games and e-commerce, and set up a digital payments bank over the years.
“Everyone knows Paytm. Paytm is synonymous with digital payments in India. And outside, there’s a perceived notion that it’s truly the Alipay of India,” an executive at a rival firm said.
Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. Last week, we had a barrage of news ranging from SoftBank’s latest bet on China’s autonomous driving sector to Chinese apps making waves in the U.S. (not TikTok).
TikTok isn’t the only app with a Chinese background that’s making waves in the U.S. A brand new short-video app called Zynn has been topping the iOS chart in America since May 26, just weeks after its debut. Zynn’s maker is no stranger to Chinese users: it was developed by short-video platform Kuaishou, the nemesis of Douyin, TikTok’s Chinese sister.
The killer feature behind Zynn’s rise is an incentive system that pays people small amounts of cash to sign up, watch videos or invite others to join, a common user acquisition tactic in the Chinese internet industry.
Paying people to use & recommend your app to others i.e. the classic Qutoutiao (趣头条 Fun Headlines) model popularized in China from around 2017 has now made it over to the States
Given how many unemployed people there are due to Covid-19. Never been a better time to test this https://t.co/nXXoCrlTvW
— Matthew Brennan (@mbrennanchina) May 27, 2020
The other app that’s been trending in the U.S. for a while is News Break, a hyper-local news app founded by China’s media veteran Jeff Zheng, with teams in China and the U.S. It announced a heavy-hitting move last week as it onboards Harry Shum, former boss of Microsoft AI and Research Group, as its board chairman.
Alibaba looks for overseas influencers
The Chinese e-commerce giant is searching for live-streaming hosts in Europe and other overseas countries to market its products on AliExpress, its marketplace for consumers outside China. Live-streaming dancing and singing is nothing new, but the model of selling through live videos, during which consumers can interact with a salesperson or session host, has gained major ground in China as shops remained shut for weeks during the coronavirus outbreak.
In Q1 2020, China recorded more than 4 million e-commerce live-streaming sessions across various platforms, including Alibaba. Now the Chinese giant wants to replicate its success abroad, pledging that the new business model can create up to 100,000 new jobs for content creators around the world.
Oppo in Germany
Oppo announced last week its new European headquarters in Düsseldorf, Germany, a sign that the Chinese smartphone maker has gotten more serious on the continent. The move came weeks after it signed a distribution deal with Vodafone to sell its phones in seven European countries. Oppo was also one of the first manufacturers to launch a 5G commercial phone in Europe.
Chinese tech stocks return
We speculated last week that Hong Kong might become an increasingly appealing destination for U.S.-listed Chinese tech companies, many of which will be feeling the heat of tightening accounting rules targeting foreign companies. Two firms have already taken action. JD.com and NetEase, two of China’s biggest internet firms, have won approvals to list in Hong Kong, Bloomberg reported, citing sources.
Massive losses in SoftBank’s first Vision Fund didn’t seem to deter the Japanese startup benefactor from placing bold bets. China’s ride-hailing giant Didi has completed an outsized investment of over $500 million in its new autonomous driving subsidiary. The financing led by SoftBank marked the single-largest fundraising round in China’s autonomous driving sector.
The capital will give Didi a huge boost in the race to win the autonomous driving race, where it is a relative latecomer. It’s competing with deep-pocketed players that are aggressively testing across the world, including the likes of Alibaba, Tencent and Baidu, and startups such as Momenta, NIO and Pony.ai.
Speaking of live-streaming e-commerce, two of China’s biggest internet companies have teamed up to exploit the new business model. JD, the online retailer that is Alibaba’s long-time archrival, has signed a strategic partnership with Kuaishou — yes, the maker of Zynn and TikTok’s rival in China.
The collaboration is part of a rising trend in the Chinese internet, where short video apps and e-commerce platforms pally up to explore new monetization avenues. The thinking goes that video platforms can leverage the trust that influencers instill in their audience to tout products.
Despite reporting an unprofitable first quarter, Meituan, a leader in China’s food delivery sector, saw its shares reach a record high last week to bring its valuation to over $100 billion.
Notion, the fast-growing work collaboration tool that recently hit a $2 billion valuation and has attracted a loyal following in China, was briefly banned in China last week. It’s still investigating the cause of the ban, but the timing noticeably coincided with China’s annual parliament meeting, which began last week after a two-month delay due to COVID-19. Internet regulation and censorship normally toughen around key political meetings in the country.
The race to automate vehicles on China’s roads is heating up. Didi, the Uber of China, announced this week an outsized investment of over $500 million in its freshly minted autonomous driving subsidiary. Leading the round — the single largest fundraising round in China’s autonomous driving sector — is its existing investor Softbank, the Japanese telecom giant and startup benefactor that has also backed Uber.
As China’s largest ride-hailing provider with mountains of traffic data, Didi clearly has an upper hand in developing robotaxis, which could help address driver shortage in the long term. But it was relatively late to the field. In 2018, Didi ranked eighth in kilometers of autonomous driving tests carried out in Beijing, far behind search giant Baidu which accounted for over 90% of the total mileage that year.
It’s since played aggressive catchup. Last August, it spun off its then three-year-old autonomous driving unit into an independent company to focus on R&D, building partnerships along the value chain, and promoting the futuristic technology to the government. The team now has a staff of 200 across its China and U.S. offices.
As an industry observer told me, “robotaxis will become a reality only when you have the necessary operational skills, technology and government support all in place.”
Didi is most famous for its operational efficiency, as facilitating safe and pleasant rides between drivers and passengers is no small feat. The company’s leadership hails from Alibaba’s legendary business-to-business sales team, also known as the “Alibaba Iron Army” for its ability in on-the-ground operation.
The autonomous segment can also benefit from Didi’s all-encompassing reach in the mobility industry. For instance, it’s working to leverage the parent company’s smart charging networks, fleet maintenance service and insurance programs for autonomous fleets.
The fresh capital will enable Didi’s autonomous business to improve safety — an area that became a focal point of the company after two deadly accidents — and efficiency through conducting R&D and road tests. The financing will also allow it to deepen industry cooperation and accelerate the deployment of robotaxi services in China and abroad.
Over the years, Didi has turned to traditional carmakers for synergies in what it dubs the “D-Alliance,” which counts more than 31 partners. It has applied autonomous driving technology to vehicles from Lincoln, Nissan, Volvo, BYD, to name a few.
Didi has secured open-road testing licenses in three major cities in China as well as California. It said last August that it aimed to begin picking up ride-hailing passengers with autonomous cars in Shanghai in a few months’ time. It’s accumulated 300,000 kilometers of road tests in China and the U.S. as of last August.
Nuro, the autonomous robotics startup that has raised more than $1 billion from Softbank Vision Fund, Greylock and other investors, said Thursday it will test prescription delivery in Houston through a partnership with CVS Pharmacy. The pilot, which will use a fleet of the startup’s autonomous Toyota Prius vehicles and transition to using its custom-built R2 delivery bots, is slated to begin in June.
The partnership marks Nuro’s expansion beyond groceries and into healthcare. Last month, the startup dipped its autonomous toe in the healthcare field through a program to delivery food and medical supplies at temporary field hospitals in California set up in response to the COVID-19 pandemic.
The pilot program centers on one CVS Pharmacy in Bellaire, Texas and will serve customers across three zip codes. Customers who place prescription orders via CVS’ website or pharmacy app will be given the option to choose an autonomous delivery option. These pharmacy customers will also be able add other non-prescription items to their order.
Once the autonomous vehicle arrives, customers will need to confirm their identification to unlock their delivery. Deliveries will be free of charge for CVS Pharmacy customers.
“We are seeing an increased demand for prescription delivery,” Ryan Rumbarger, senior vice
president of store operations at CVS Health, said in a prepared statement. “We want to give our customers more choice in how they can quickly access the medications they need when it’s not convenient for them to visit one of our pharmacy locations.”
Nuro is already operating in the Houston area. Walmart announced in December a pilot program to test autonomous grocery delivery in the Houston market using Nuro’s autonomous vehicles. Under the pilot, Nuro’s vehicles deliver Walmart online grocery orders to a select group of customers who opt into the service in Houston. The autonomous delivery service involves R2, Nuro’s custom-built delivery vehicle that carries products only, with no on-board drivers or passengers, as well as autonomous Toyota Priuses that deliver groceries.
Nuro also partnered with Kroger (Fry’s) in 2018 to test autonomous Prius vehicles and its first-generation custom-built robot known as R1. The R1 autonomous vehicle was operating as a driverless service without a safety driver on board in the Phoenix suburb of Scottsdale. In March 2019, Nuro moved the service with Kroger to Houston, beginning with autonomous Priuses.
The company’s contactless delivery program shuttling medical supplies and food is also continuing. Under that program, which began in late April, Nuro’s R2 bots are used at two events centers — in San Mateo and the Sleep Train Arena in Sacramento — that have been turned into temporary healthcare facilities for COVID-19 patients. Nuro is delivering meals and equipment to more than 50 medical staff at both sites every week.
It’s unclear how long the field hospital program will continue. Last week, there were 25 patients across the two sites. The Sleep Train Arena is accepting patients through June 30 via California Office of Emergency Services. The hospital may be converted to a shelter for those affected by fires through the end of this year.
Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.
First, a big thanks to everyone who took part in the Equity survey, we really appreciated your notes and thoughts. The crew is chewing over what you said now, and we’ll roll up the best feedback into show tweaks in the future.
Today, though, we’ve gone Danny and Natasha and Chris and Alex back again for our regular news dive. This week we had to leave the Vroom IPO filing, Danny’s group project on The Future of Work, and a handwashing startup (?) from Natasha to get to the very biggest stories:
And at the end, we got Danny to explain what the flying frack is going on over at Luckin. It’s somewhere between tragedy and farce, we reckon. That’s it for today, more Tuesday after the holiday!
Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
There’s a famous old post going around Twitter this week by entrepreneur and developer David Heinemeier Hansson (@DHH). DHH is a critic of certain elements of the startup world, especially wild valuations. This entry from him is, in my view, a classic of the genre.
The post in question is titled “Facebook is not worth $33,000,000,000,” and was written back in 2010.
You can already imagine who might find the post irksome — namely folks who are in the business of putting capital into high-growth companies. This sort of snark, though not precisely recent, is a good example of how posts like the Facebook entry are read on Twitter.
If you take a moment to actually read DHH’s blog, however, you’ll find that the first part of his argument is that selling a minute slice of a company at a high price, thus “revaluing” the company at a new, stratospheric valuation, is a little silly. DHH didn’t like that by selling a few percentage points of itself, Facebook’s worth was pegged at $33 billion. We’ve seen some similarly-small-dollar, high-valuation rounds recently that could be scooted into the same bucket.
It’s a somewhat fair point.
But what struck me this morning while re-reading the DHH piece was that his second two points are useful rubrics for framing the modern, post-unicorn era. DHH wrote that profits matter, companies are ultimately valued on them, and that companies that don’t scale financial results as they add customers (or users) aren’t great.
The JV will provide Mapbox’s mapping platform, including APIs and data services, to developers in Japan. Between June 1 and September 30, Mapbox Japan will also provide up to three months of free support for organizations building COVID-19 related mapping services, including infection cases and statistical data, for developers in the country, which has relied on tracking virus clusters to limit the spread of infections.
Mapbox collects data from sources including government and commercial databases, and uses them in customizable AI-based APIs, SDKs and other products. Its clients have included Facebook, Snap, the New York Times, the Federal Communications Commission and automotive companies like Land Rover and Rimac.
Founded in 2010 by Eric Gunderson, Mapbox says its tech now reaches more than 600 million monthly users. SoftBank Vision Fund led Mapbox’s $164 million Series C in 2017. At the time, Gunderson told TechCrunch that part of the funding would be used to expand in Asia through SoftBank’s presence in regions including Southeast Asia and China.
Mapbox has operated in Japan since July 2019, though that was through partnerships with Yahoo! Japan and Zenrin, one of the country’s biggest mapping software companies. Zenrin also has a partnership with Google Maps, but early last year Google began reducing the amount of mapping data it uses from Zenrin, possibly to focus on building its own trove of mapping data in Japan.
Working closely with Zenrin opens potential new opportunities for Mapbox in Japan. Last year, Gunderson told Nikkei Asian Review that “we are going to be the number one mapping provider in all of Japan and we’ll be able to do this because we have the best data in all of Japan through our partnership with Zenrin.” The company plans to develop products for the Japanese market that include mapping services for industrial automation.
In SoftBank’s announcement, Eric Gan, SoftBank Corp. head of business development, said, “I am very excited to bring Mapbox’s technology to Japan to help enterprises enhance their existing mapping services while also creating new customizable location-based services and management tools. We are seeing a significant rise in demand for Mapbox’s products from retail, ride-share, hotel, office-sharing, payment, mobility and manufacturing industries.”
SoftBank Group Corp. is currently seeking buyers for about $20 billion of its shares in T-Mobile US, according to reports in the Wall Street Journal and Bloomberg. If the proposed sale goes through, its proceeds could help offset SoftBank’s heavy investment losses over the past year.
According to its first-quarter earnings report yesterday, SoftBank’s Vision Fund lost $17.4 billion in value for the year ended March 31, obliterating the $12.8 billion gain the fund recorded a year ago. Earlier this year, the company announced plans to sell up to $41 billion of its assets to increase its share buyback program.
Bloomberg reports that under the proposed deal, which could be announced this week, SoftBank would sell part of its stake to Deutsche Telekom AG, T-Mobile’s parent company. Deutsche Telekom currently owns about 44% of T-Mobile’s shares, but would achieve majority ownership if the deal with SoftBank goes through. Softbank would then sell some of its remaining stake to other investors in a secondary offering.
T-Mobile is the United States’ third-largest wireless carrier, after AT&T and Verizon Wireless*, and it has a current market capitalization of about $126 billion, which means SoftBank’s stake is worth about $31 billion, while Deutsche Telekom’s is about $55 billion.
According to the Wall Street Journal, banks including Morgan Stanley and Goldman Sach Group are currently seeking investors for the proposed sale.
*Disclosure: Verizon is TechCrunch’s parent company.