TechCrunch has found itself writing about layoffs at a few notable tech companies this week — and not just Softbank-backed ones. The focus is very much profits, as Alex Wilhelm summed up on Thursday, especially after the failed WeWork IPO and subsequent valuation and headcount decimation. We’ll be digging into the topic more soon but there does seem to be a certain consumery thread here. And perhaps some fears of negative macro trends bubbling up?
23andMe cut 16% or 100 people, citing slowing sales for DNA tests. Quora reduced an undisclosed number to focus on revenue.
Plenty of tech investors have criticized Softbank’s approach to writing large check for large valuations, but they can’t avoid the same fears these days. So does Mozilla, which had to cut 70 people this month after struggling to build revenue products.
It still all seems sort of normal given the very high valuations and recent reconsiderations, at least so far. Layoffs may very well continue this year in a way that is necessary and even healthy in the long run.
More on TechCrunch, from Alex:
23andMe and Mozilla are not alone, however. Playful Studios cut staff just this week, 2019 itself saw more than 300% more tech layoffs than in the preceding year and TechCrunch has covered a litany of layoffs at Vision Fund-backed companies over the past few months, including:
- Staff cuts at Zume, the startup famous for considering making mobile pizza robots
- Personnel reductions at Rappi, an e-commerce company
- Cuts at Getaround, a car rental service
- Layoffs at Oyo, a budget hotel unicorn
Scooter unicorns Lime and Bird have also reduced staff this year. The for-profit drive is firing on all cylinders in the wake of the failed WeWork IPO attempt. WeWork was an outlier in terms of how bad its financial results were, but the fear it introduced to the market appears pretty damn mainstream by this point. (Forsake hope, alle ye whoe require a Series H.)
Image: Bryce Durbin/TechCrunch
Fresh data sets are in on last year from Crunchbase, as well as PitchBook and the NVCA. Alex identified a few key takeaways: slightly lower early-stage fundings, a big global year overall, and some of the above WeWork-attributed drops already surfacing in the Q4 data over on TechCrunch.
I have to wonder what we really know right now, though. These are the best publicly-accessible funding databases out there, but many companies have stopped filing Form Ds with the U.S. Securities and Exchange Commission in recent years, as Danny Crichton has been covering in this ongoing series. That was a main data source, especially about early-stage stealth companies.
The Crunchbase report goes over the global trend for the year, and that’s another confounding factor, actually — how trackable are startup funding dollars across borders these days? And how do you account for remote teams in that mix? And how do you account for crypto…?
If you are building a company now at any stage, the financial signs out now are not in my humble opinion ones to have any fear over. Especially relative to the other problems that are almost certainly in front of you.
There is a lot of money in VC now regardless of anything else, as the Pitchbook-NVCA report notes, and there will be for a long time.
As if on cue, we had a couple guest columnists provide articles about capital efficiency and recession-proofing your company. Shin Kim has a two-parter on TechCrunch and Extra Crunch, where he breaks down why most tech IPOs are not WeWork (in a good way) and how to pace your own fundraising regardless of anything else going on.
Schwark Satyavolu, meanwhile, digs into the best practices for startups in the next recession for Extra Crunch, starting with this brutal real-life intro:
I founded my first startup, Yodlee, in a strong economy with almost 20 competitors. Ten years and a painful recession later, we were the only game in town. Critical to our success was acquiring our largest competitor, something we never could have done in a strong economy because they never would have been willing to sell. The recession made it untenable for them to fundraise, enabling us not only to buy them, but to do so without cash in an all-equity deal.
Board representation is a hot topic for companies of all sizes and none other than Goldman Sachs said this week that it would only take companies public that had at least one underrepresented board member.
CEO David Solomon said that companies that had gone public in the last four years with at least one female board member did significantly better than those without, but Megan Dickey notes for Extra Crunch that’s not quite all the way towards the goal:
But the lack of people of color on boards is perhaps a more urgent issue. Late last year, a Crunchbase study found that 60% of the most funded VC-backed startups don’t have a single woman on their board of directors. But there are even fewer black people, let alone black women, on boards. A 2018 Deloitte study found that of the Fortune 100 companies, white men held 61.4% of board seats, white women held 19.1%, men of color had 13.7% of board seats and women of color had just 5.8% of board seats.
Connie Loizos, meanwhile, writes for TechCrunch that boards themselves are not all of the way towards the goal:
Let’s be real here. Directors of public companies typically meet just four times a year to review quarterly results. It’s important and necessary, sure. But beyond ensuring that strategic objectives are being met and hopefully making useful introductions to the company, these roles are assigned more importance by industry watchers than they should. (They often pay ludicrous amounts given the work involved, too.)
Even pledging that Goldman is only going to take public companies that give back — say 1% of future profits to the NAACP, as one idea — would instantly put the bank in pole position for those founders and investors who truly want to be progressive. Goldman might miss out on a lot of business in the immediate term, we realize, but we’re guessing it’s a gamble that would pay off over time.
Why Front’s latest investment (a $59 million Series C) is a pretty big deal. Not because of how much money it has raised — the firm has raised more in a single, preceding round — but because of who put the capital to work.
On the venture capital front, Danny and Alex also chewed over signaling risk in venture, and why bigger funds are writing earlier and earlier checks.
Also on the docket was the latest from Lambda School, which our former co-host and friend Kate Clark wrote. The gist is that regardless of how you feel about the company, your views are probably a bit too negative, or a bit too positive. (More on the company’s ilk from Extra Crunch here, and here.)
And three media deals, including The Athletic’s latest investment ($50 million), who might buy the company behind the hit podcast “Serial” and why Spotify might buy The Ringer. Which is about sports, it turns out.
Want Startups Weekly in your inbox each week? You can sign up for this and TechCrunch’s other newsletters here.
The startup community has lost another moral leader today.
Leila Janah, a serial entrepreneur who was the CEO and founder of machine learning training data company Samasource, passed away at the age of 37 due to complications from Epithelioid Sarcoma, a form of cancer, according to a statement from the company.
She focused her career on social and ethical entrepreneurship with the goal of ending global poverty, founding three distinct organizations over her career spanning the for-profit and non-profit worlds. She was most well-known for Samasource, which was founded a little more than a decade ago to help machine learning specialists develop better ML models through more complete and ethical training datasets.
Janah and her company were well ahead of their time, as issues related to bias in ML models have become top-of-mind for many product leaders in Silicon Valley today. My TechCrunch colleague Jake Bright had just interviewed Janah a few weeks ago, after Samasource raised more than $15 million in venture capital, according to Crunchbase.
In its statement, the company said:
We are all committed to continuing Leila’s work, and to ensuring her legacy and vision is carried out for years to come. To accomplish this, Wendy Gonzalez, longtime business partner and friend to Leila, will take the helm as interim CEO of Samasource. Previously the organization’s COO, Wendy has spent the past five years working alongside Leila to craft Samasource’s vision and strategy.
In addition to Samasource, Janah founded SF-based Samaschool, a 501(c)(3) nonprofit dedicated to helping low-income workers learn critical freelancing skills by helping them negotiate the changing dynamics in the freelance economy. The organization has built partnerships with groups like Goodwill to empower them to offer additional curricular resources within their own existing programs and initiatives.
Janah also founded LXMI, a skin-care brand that emphasized organic and fair-trade ingredients, with a focus on sourcing from low-income women’s cooperatives in East Africa. Founded three years ago, the company raised a seed round from the likes of NEA, Sherpa, and Reid Hoffman according to Crunchbase.
Across all of her initiatives, Janah consistently put the concerns of under-represented people at the forefront, and designed organizations to empower such people in their daily lives. Her entrepreneurial spirit, commitment, and integrity will be sorely missed in the startup community.
Clayton Christensen, a longtime professor at Harvard Business School who became famous worldwide after authoring in 1997 the best-selling business book, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail,” passed away last night,
The Desert News reported earlier today that the cause tied to complications from leukemia treatments that Christensen was receiving in Boston. He was 67 years old.
Clayton had suffered from ill health for years, always battling his way back. By the age of 58, Clayton — who was diagnosed with Type 1 diabetes at age 30 — had already suffered a heart attack, cancer, and a stroke, telling Forbes in 2011 that he tried to view such setbacks as opportunities, even, apparently, when they involved intensive speech therapy, which he was undergoing at the time.
Indeed, while the entire business world came to know Christensen after Intel cofounder Andy Grove brought him into the company as an advisor during tough times, then announced to the world that “Innovator’s Dilemma” was the best book he’d read in 10 years — this was saying something, given Grove’s own writing skills — Christensen came from modest means.
According to a 2012 profile in New Yorker magazine, he grew up on the “wrong side of the tracks” in Salt Lake City, in a Mormon household, collecting paper tray liners from fast food restaurants, and stuffing his 6′ 8″ frame into a 1986 Chevy Nova that he drove around town. According to the profile, Christensen, an excellent student and a popular one (he was student body president), “wanted to go to Harvard or Yale, and got into both, but his mother wanted him to go to Brigham Young. Not knowing what to do, he fasted and prayed, and he discovered that God agreed with his mother. That wasn’t the answer he was looking for, so he fasted and prayed some more, just to make sure he hadn’t misheard or something, but he hadn’t, so he went to Brigham Young.”
There, he studied economics before and after a two-year leave of absence to serve as a volunteer full-time missionary for the LDS Church. Then it was off to Oxford, where he earned a master’s as a Rhodes Scholar, then Harvard Business School. After receiving his MBA, he landed at Boston Consulting Group, and after a few years in the working world, headed back to Harvard for a PhD so he could teach.
Throughout the course of his career, Christensen would write 10 books, though none were as ubiquitous as “Innovator’s Dilemma,” which was timed perfectly in retrospect. It put forth a theory why people buy products that are often cheaper and easier to use than their more sophisticated and more expensive predecessors, and resonated widely as one incumbent after another — Xerox, U.S. Steel, Digital Equipment Corp. — stumbled while other companies began rising in their dust: think Amazon, Google, Apple.
Interestingly, according to the New Yorker, one of Christensen’s rare, bad calls was his prediction that the Apple iPhone wouldn’t be widely adopted because it was too fancy.
Apple cofounder Steve Jobs was a fan nevertheless. According to the Walter Isaacson biography of Jobs published in October 2011, just weeks after Jobs’s death, “The Innovator’s Dilemma” “deeply influenced” him.
If you’re interested in learning more, you might enjoy this conversation between Christensen and investor-entrepreneur Marc Andreessen; it took place in 2016 at the Startup Grind series.
Two years after Vine’s co-founder Dom Hofmann announced he was building a successor to the short-form video app, today Byte makes its debut on iOS and Android. Byte lets you shoot or upload and then share six-second videos. It comes equipped with standard social features like a feed, Explore page, notifications, and profiles. For now, though Byte lacks the remixability, augmented reality filters, transition effects, and other bonus features you’ll find in apps like TikTok.
What Hofmann hopes will differentiate Byte is an early focus on helping content creators make money — something TikTok, and other micro-entertainment apps largely don’t offer. The app plans to soon launch a pilot of its partner program for offering monetization options to people proving popular on Byte. When asked if Byte would offer ad revenue sharing, tipping, or other options to partners, Hofmann told me that “We’re looking at all of those, but we’ll be starting with a revenue share + supplementing with our own funds. We’ll have more details about exactly how the pilot program will work soon.”
Many creators who’ve grown popular on apps like TikTok and Snapchat that lack direct monetization have tried to pull their audiences over to YouTube where they can earn a steady ad-share. By getting started paying early, Byte might lure some of those dancers, comedians, and pranksters over to its app and be able to retain them long-term. Former Vine stars turned TikTok stars like Chris Melberger. Joshdarnit, and Lance Stewart are already on Byte.
very soon, we'll introduce a pilot version of our partner program which we will use to pay creators. byte celebrates creativity and community, and compensating creators is one important way we can support both. stay tuned for more info.
— byte (@byte_app) January 25, 2020
Staying connected with Byte’s most loyal users is another way Hofmann hopes to set his app apart. He’s been actively running a beta tester forum since the initial Byte announcement in early 2018, and sees it as a way to find out what features to build next. “It’s always a bummer when the people behind online services and the people that actually use them are disconnected from one another, so we’re trying out these forums to see if we can do a better job at that” Hofmann writes.
Byte founder Dom Hofmann
Byte is a long time coming. To rewind all the way, Hofmann co-founded Vine in June 2012 with Colin Kroll and Rus Yusupov, but it was acquired by Twitter before its launch in January 2013. By that fall, Hofmann had left the company. But 2014 and 2015 saw Vine’s popularity grow thanks to rapid-fire comedy skits and the creativity unlocked by its looping effect. Vine reached over 200 million active users. Then the unthinkable happened. Desperate to cut costs, Twitter shut down Vine’s sharing feed in late 2016 so it wouldn’t have to host any more video content. The creative web mourned.
By then, Hofmann had already built the first version of Byte, which offered more free-form creation. You could pull together photos, GIFs, drawings and more into little shareable creations. But this prototype never gained steam. Hofmann gave Vine fans hope when he announced plans to build a successor called V2 in early 2018, but cancelled it a few months later. Hofmann got more serious about the project by then end of 2018, announcing the name Byte and then beginning beta testing in April 2019.
Now the big question will be whether Byte can take off despite its late start. Between TikTok, Snapchat, Instagram, and more, do people need another short-form video app? Winning here will require seducing high quality creators who can get bigger view counts elsewhere. Considering there’s already a pile of TikTok competitors like Dubsmash, Triller, Firework, and Facebook’s Lasso available in the US, creators seeking stardom on a less competitive network already have plenty of apps to try. Hofmann may have to rely on the soft spot for Vine in people’s memories to get enough activity on Byte to recreate its predecessor’s magic.
David Spreng spent more than 20 years in venture capital before dipping his toe into the world of revenue-based financing and realizing there was a growing appetite for alternatives to venture capital. Indeed, since forming debt-lending company Runway Growth Capital in mid-2015, Spreng has been busy writing checks to a variety of mostly later-stage companies on behalf of his institutional investors. (One of these, Oak Tree Capital Management in LA, is a publicly-traded credit firm.)
He expects he’ll be even busier in 2020. The reason — if you haven’t noticed already — is a general slowing down in what has been a very long boom cycle. “We’re in the late innings of a very long game,” said Spreng today, calling from Davos, where he has been attending meetings this week. “I don’t think the cycle is going to end this second. But where we went from a growth-at-all-costs mentality, boards are now saying, ‘let’s find a balance between top line growth and capital efficiency — let’s figure out a path to profitability.’ ”
Why is that good for Spreng and his colleagues? Because when a cycle ends, venture capitalists get stingier with their portfolio companies, writing fewer checks to support startups that aren’t hitting it out of the park, and often taking a bigger bite under more onerous terms when they do reinvest to counter the added risk they’re taking.
Earlier today, Google href="https://twitter.com/searchliaison/status/1220768238490939394?s=21"> announced that it would be redesigning the redesign of its search results as a response to withering criticism from politicians, consumers, and the press over the way in which search results display were made to look like ads.
Google makes money when users of its search service click on ads. It doesn’t make money when people click on an unpaid search result. Making ads look like search results makes Google more money.
It’s also a pretty evil (or at least unethical) business decision by a company whose mantra was “Don’t be evil”(although they gave that up in 2018).
Users began noticing the changes to search results last week and at least one user flagged the changes earlier this week.
There's something strange about the recent design change to google search results, favicons and extra header text: they all look like ads, which is perhaps the point? pic.twitter.com/TlIvegRct1
— Craig Mod (@craigmod) January 21, 2020
Google responded with a bit of doublespeak from its corporate account about how the redesign was intended to achieve the opposite effect of what it was actually doing.
“Last year, our search results on mobile gained a new look. That’s now rolling out to desktop results this week, presenting site domain names and brand icons prominently, along with a bolded ‘Ad’ label for ads,” the company wrote.
Virginia’s Senator Mark Warner took a break from impeachment hearings to talk to the Washington Post about just how bad the new search redesign was.
“We’ve seen multiple instances over the last few years where Google has made paid advertisements ever more indistinguishable from organic search results,” Warner told the Post. “This is yet another example of a platform exploiting its bottleneck power for commercial gain, to the detriment of both consumers and also small businesses.”
Google’s changes to its search results happened despite the fact that the company is already being investigated by every state in the country for antitrust violations.
For Google, the rationale is simple. The company’s advertising revenues aren’t growing the way they used to, and the company is looking at a slowdown in its core business. To try and juice the numbers, dark patterns present an attractive way forward.
Indeed, Google’s using the same tricks that it once battled to become the premier search service in the U.S. When the company first launched its search service, ads were clearly demarcated and separated from actual search results returned by Google’s algorithm. Over time, the separation between what was an ad and what wasn’t became increasingly blurred.
— Ginny Marvin (@GinnyMarvin) July 25, 2016
“Search results were near-instant and they were just a page of links and summaries – perfection with nothing to add or take away,” user experience expert Harry Brignull (and founder of the watchdog website darkpatterns.org) said of the original Google search results in an interview with TechCrunch.
“The back-propagation algorithm they introduced had never been used to index the web before, and it instantly left the competition in the dust. It was proof that engineers could disrupt the rules of the web without needing any suit-wearing executives. Strip out all the crap. Do one thing and do it well.”
“As Google’s ambitions changed, the tinted box started to fade. It’s completely gone now,” Brignull added.
The company acknowledged that its latest experiment might have gone too far in its latest statement and noted that it will “experiment further” on how it displays results.
Here’s our full statement on why we’re going to experiment further. Our early tests of the design for desktop were positive. But we appreciate the feedback, the trust people place in Google, and we’re dedicating to improving the experience. pic.twitter.com/gy9PwcLqHj
— Google SearchLiaison (@searchliaison) January 24, 2020
If a thousand companies make their own smart light bulb, do a thousand companies also have to design a light switch app to control them?
Kraftful, a company out of Y Combinator’s Summer 2019 class, doesn’t think so. Kraftful builds the myriad components that an IoT/Smart Home company might need, puzzle piecing them together into apps for each company without requiring them to reinvent the light switch (or the pad lock button, or the smart thermostat dial) for the nth time.
Because no company wants an app that looks identical to a competitor’s, much of what Kraftful does is built to be tailored to each company’s branding — all the surface level stuff, like iconography, fonts, colors, etc. are all customizable. Under the hood, though, everything is built to be reusable.
This focus on finding the parts that can be built once makes sense, especially given the team’s background. CEO Yana Welinder and CTO Nicky Leach were previously Head of Product and a Senior Engineer, respectively, at IFTTT — the web service made up of a zillion reusable, interlinking “recipe” applets that let you hook just about anything (Gmail, Instagram, your cat’s litterbox, whatever) into anything else to let one trigger actions on the other.
Kraftful founders Nicky Leach and Yana Welinder
So why now? More smart devices are coming onto the market every day, many of them from legacy appliance companies who don’t have much (or any) history in building smartphone apps. Good apps are the exception — the Philips Hue app is one of the better ones out there, and even it’s a little wonky sometimes. Many of them are… real bad.
Bad apps get bad App Store reviews, and bad reviews dent sales. And even for those who dive in and buy it without checking the reviews first, bad apps means returned devices. According to this iQor survey from 2018, 22% of smart home customers give up and return the products before getting them to work.
“We kind of looked around and realized that 80% of all smart home apps have zero, one, or two stars on the app store,” Welinder tells me.
Knowing what’s working and what’s not with buyers is a strength of Kraftful’s approach; behind the scenes, they can run all sorts of analytics on how users are actually interacting with components in the apps they’re powering and adjust all of them accordingly. If they make a tweak to the setup process in one app, do more users actually get all the way through it? Great. Now roll that out everywhere.
“If you look at some of the leading smart lock apps, they all have very… very similar interfaces. They’ve basically gotten to a standardized user experience, but they’ve all be developed individually.” says Welinder. “So all of these companies are spending the resources designing and developing these apps, but they’re not getting the benefit of being standardized across the board and being able to leverage data from all of these apps to be able to improve them all at once”
Kraftful builds the app for both iOS and Android, tailors it to the brand’s needs, offers cloud functionality like push notifications and activity history, provides analytics for insights on how users are actually using an app, and keeps everything working as OS updates roll out and as device display sizes grow ever larger.
Of course, the entire concept of a dedicated app for a smart home device has some pretty fierce competition — between Apple’s Homekit and Google Home, the platform makers themselves seem pretty set on gobbling up much of the functionality. But most buyers still expect their shiny devices to have their own apps — something branded and purpose-built, something for the manual to point them to. Power users, meanwhile, will always want to do things beyond what the all-encompassing solutions like Homekit/Home are built for.
Folks at Google seem to agree with Kraftful’s approach, here — the team counts the Google Assistant Investments Program as one of the investors in the $1 million they’ve raised. Other investors include YC, F7 Ventures, Cleo Capital, Julia Collins (co-founder of Zume Pizza and Planet Forward), Lukas Biewald (co-founder of CrowdFlower), Nicolas Pinto (co-founder of Perceptio) and a number of other angel investors.
Welinder tells me they’re already working with multiple companies to start powering their apps; NDAs prevent her from saying who, at this point, but she notes that they’re “some of the largest brands that provide smart lights, plugs/switches, thermostats, and other smart home products.”
We are living through one of the nation’s longest periods of economic growth. Unfortunately, the good times can’t last forever. A recession is likely on the horizon, even if we can’t pinpoint exactly when. Founders can’t afford to wait until the midst of a downturn to figure out their game plans; that would be like initiating swim lessons only after getting dumped in the open ocean.
When recession inevitably strikes, it will be many founders’ — and even many VCs’ — first experiences navigating a downturn. Every startup executive needs a recession playbook. The time to start building it is now.
While recessions make running any business tough, they don’t necessitate doom. I co-founded two separate startups just before downturns struck, yet I successfully navigated one through the 2000 dot-com bust and the second through the 2008 financial crisis. Both companies not only survived but thrived. One went public and the second was acquired by Mastercard.
I hope my lessons learned prove helpful to building your own recession game plan.
In entrepreneurship, the goal isn’t just to survive; it’s to win. Some founders think that surviving recession amounts to hoarding cash and sitting out the financial winter. While there’s wisdom in hoarding cash (see below), I strongly recommend against sitting idly when that time could be actively leveraged to strengthen competitive advantage.
I founded my first startup, Yodlee, in a strong economy with almost 20 competitors. Ten years and a painful recession later, we were the only game in town. Critical to our success was acquiring our largest competitor, something we never could have done in a strong economy because they never would have been willing to sell. The recession made it untenable for them to fundraise, enabling us not only to buy them, but to do so without cash in an all-equity deal. I recommend thinking ahead of time about which companies you would want to buy if the opportunity arose, and your goals for doing so, such as consolidating competition, acquiring customers or engineering talent, entering new markets or strengthening product offerings or distribution channels.
You can’t rebuild a plane when you’re traveling 500 miles per hour. During a strong economy, companies spend most of their energy on sales and growth. During a weaker economy, it’s easier to justify the investment in infrastructure and technical debt. Yodlee was built on PERL, which we knew would eventually need upgrading. Once the downturn hit, we took advantage of the slower sales cycles to totally retool in Java, an enterprise-class programming language capable of scale. And we didn’t stop there — we created six new products during the downturn.
The precipice of a recession is not the time to over-index on top-line revenue. You never want to be on your customers’ top five lists of easiest-to-cut products and services. Instead, take the time to understand your customers’ needs, embed yourself deeply in their operations or customer experience and invest significantly in top-notch customer success.
At my second startup, Truaxis, once recession struck, we pivoted from credit card customer acquisition for banks (which requires no help during a recession) to helping banks address churn. Our revised offering yielded a tremendous ROI for banks — a 10X increase in profit. Our product also became the cornerstone to their online consumer banking experience. If you figure out how to make your product indispensable or core to the customer experience, it won’t get cut, even during a recession.
Both of my companies started out with B2C business models. After each recession hit, I quickly pivoted to B2B2C. Here’s why: While consumers can react immediately to economic jitters, businesses must keep spending in order to keep operating. Plus, they work on annual budget cycles. Even when businesses want to reduce their costs, they typically can’t react very quickly because they have to wait out their contracts.
In a bull economy, short-term contracts are popular because they enable companies to keep raising prices. Don’t be tempted by short-term cash. B2B and B2B2C firms should take the potential revenue hit by locking in long-term contracts now while budgets and buyers are flush.
While the economy is still healthy, explore options for diversifying your revenue streams and customer bases to more recession-resistant segments. If your business is consumer-focused, consider a different distribution model via businesses or new consumer segments like affluent populations, which are less sensitive to economic fluctuations. If you have an enterprise-focused business, transition more of your revenue to larger enterprises, which are more financially resilient than smaller ones, or to enterprises that need your service for survival, especially in a down market.
Key to the diversification strategy is plotting your axis ahead of time. You don’t want to start your exploration when the market has already turned and you’re burning cash faster than you can get it. Upon exploration, you may find that no pivot is necessary — perhaps only the need to slow down. Now is the time to look for and deeply understand the signals in your business, though you may not need to act on them for a while — or perhaps even ever.
It’s obviously a lot easier to raise money in a healthy economy than a weak one. If your coffers aren’t full going into a downturn, it doesn’t matter what you do; you’ve lost the game right there. Having enough cash can make the difference between emerging as the market leader (i.e. the only one still with cash in the bank) and going out of business — even if your company would have thrived in a strong economy. Be conservative when projecting how much money you’ll need to stay afloat. Many leaders underestimate how much elongated sales cycles, diminished average deal sizes and dwindling total sales transactions weaken total revenue.
I’m supportive of founders seeking aggressive valuations, but it’s important to realize the potential downside. Valuations soften during recessions, which can lead to corrections or recapitalizations. Recapitalizations create new companies in which the old stock is worth nearly nothing, leaving many employees’ options under water.
I learned this the hard way at Yodlee after raising a lot of money at a high valuation in 1999. We banked enough money that we could have lasted through most downturns without fundraising. Alas, while the average recession lasts 11 months, the dot-com crash lasted several years. Even though we were strong enough to fundraise during the recession, our high valuation forced us to recapitalize. This was crushing for the employees whose equity was suddenly worthless.
In a weak economy, startups struggle to retain their strongest employees who often retreat for safer work environments and more predictable incomes. Recapitalizations deliver an unwanted shove out the door to demoralized employees who feel they have no reason to stay. Inevitably after recapitalizations the people who are strong enough to get hired elsewhere do so. Surviving a downturn is challenging enough. Doing so without a strong, motivated team is nearly impossible.
When my Yodlee board members suggested we pivot from B2C to B2B2C, I thought they were crazy. We had acquired 1 million users through word of mouth in only two-three months. I couldn’t believe they advocated such a significant pivot when things were going so well. I eventually came to understand that these seasoned board members were actually saving my business.
As my colleague Karan Mehandru said, “investors are your war partners, not your beer buddies.” When fundraising, think carefully about who you want around the table if the economy goes south. I recommend asking potential investors if they’ve weathered downturns before and how they’d help you navigate one. I’d ask the same questions of the firm’s other partners to look for consistency of answers and to gauge your investors’ standing and seniority within the partnership. All too many board members are lovely when companies grow rapidly, but challenging when speed bumps arise. Will your board members actively help you address these challenges or stand in passive judgment?
Being a founder is hard enough, but leading a startup through a recession catapults an already challenging job to a whole different level. Whether the recession begins tomorrow or in four years, I hope you’ll learn from my experience and be prepared either way.
Los Angeles is one of the most desirable locations for commercial real estate in the United States, so it’s little wonder that there’s something of a boom in investments in technology companies servicing the market coming from the region.
It’s one of the reasons that CREXi, the commercial real estate marketplace, was able to establish a strong presence for its digital marketplace and toolkit for buyers, sellers and investors.
Since the company raised its last institutional round in 2018, it has added more than 300,000 properties for sale or lease across the U.S. and increased its user base to 6 million customers, according to a statement.
It has now raised $30 million in new financing from new investors, including Mitsubishi Estate Company (“MEC”), Industry Ventures and Prudence Holdings . Previous investors Lerer Hippeau Ventures and Jackson Square Ventures also participated in the financing.
CREXi makes money three ways. There’s a subscription service for brokers looking to sell or lease property; an auction service where CREXi will earn a fee upon the close of a transaction; and a data and analytics service that allows users to get a view into the latest trends in commercial real estate based on the vast collection of properties on offer through the company’s services.
The company touts its service as the only technology offering that can take a property from marketing to the close of a sale or lease without having to leave the platform.
According to chief executive Mike DeGiorgio, the company is also recession-proof thanks to its auction services. “As more distressed properties hit the market, the best way to sell them is through an online auction,” DeGiorgio says.
So far, the company has seen $700 billion of transactions flow through the platform, and roughly 40% of those deals were exclusive to the company.
“The CRE industry is evolving, and market players, especially younger, digitally native generations are seeking out platforms that provide free and open access to information,” said Gavin Myers, general partner at Prudence Holdings, in a statement. “CREXi directly addresses this market need, providing fair access to a range of CRE information. As CREXi continues to build out its stable of services, features, and functionality, we’re thrilled to partner with them and support the company’s continued momentum.”
CREXi joins the ranks of startups based in Los Angeles that have raised money to reshape the real estate industry. Estimates from Built in LA count roughly 127 companies, which have raised in excess of $2.4 billion, active in the real estate industry in Los Angeles. These companies range from providers of short-term commercial office space, like Knotel, or co-working companies like WeWork, to companies focused on servicing the real estate industry like Luxury Presence, which raised a $5 million round earlier in the year.
Due to inaccurate information provided by the company, an initial version of this story indicated that CREXi had raised $29 million in its Series B round. The correct number is $30 million.
Germany’s top soccer (football) league, Bundesliga, announced today it is partnering with AWS to use artificial intelligence to enhance the fan experience during games.
Andreas Heyden, executive vice president for digital sports at the Deutsche Fußball Liga, the entity that runs The Bundesliga, says that this could take many forms, depending on whether the fan is watching a broadcast of the game or interacting online.
“We try to use technology in a way to excite a fan more, to engage a fan more, to really take the fan experience to the next level, to show relevant stats at the relevant time through broadcasting, in apps and on the web to personalize the customer experience,” Heyden said.
This could involve delivering personalized content. “In times like this when attention spans are shrinking, when a user when a user opens up the app the first message should be the most relevant message in that context in that time for the specific user,” he said.
It can also help provide advanced statistics to fans in real time, even going so far as to predict the probability of a goal being scored at any particular moment in a game that would have an impact on your team. Heyden thinks of it as telling a story with numbers, rather than reporting what happened after the fact.
“We want to, with the help of technology, tell stories that could not have been told without the technology. There’s no chance that a reporter could come up with a number of what the probability of a shot [scoring in a given moment]. AWS can,” he said.
Werner Vogels, CTO at Amazon, says this about using machine learning and other technologies on the AWS platform to add to the experience of watching the game, which should help attract younger fans, regardless of the sport. “All of these kind of augmented customer fan experiences are crucial in engaging a whole new generation of fans,” Vogels told TechCrunch.
He adds that this kind of experience simply wasn’t possible until recently because the technology didn’t exist. “These things were impossible five or 10 years ago, mostly because now with all the machine learning software, as well as how the [pace of technology] has accelerated at such a [rate] at AWS, we’re now able to do these things in real time for sports fans.”
Bundesliga is not just any football league. It is the second biggest in the world in terms of revenue and boasts the highest stadium attendance of all football teams worldwide. Today’s announcement is an extension of an ongoing relationship between DFL and AWS, which started in 2015 when Heyden helped move the league’s operations to the cloud on AWS.
Heyden says that it’s not a coincidence he ended up using AWS instead of another cloud company. He has known Vogels (who also happens to be a huge soccer fan) for many years, and has been using AWS for more than a decade, even well before he joined the DFL. Today’s announcement is an extension of that long-term relationship.
With the recent emphasis on Uber and WeWork, much media attention has been focused on high-burn, “software-enabled” startups. However, most of the IPOs of the last few years in tech have been in higher capital efficiency software-as-a-service startups (SaaS).
In the last 30 months (2017 2H onwards), a total of 21 U.S.-based, VC-backed SaaS companies have gone public, including Zoom, Slack, Datadog and others1. I analyzed all 21 companies to understand their fundraising and revenue-generating trajectories. A deep dive into the individual companies’ trajectories can be found in this Extra Crunch article.
Here are the summary takeaways from this data set:
Here is a scatterplot of the ARR and cumulative capital raised at the time each company went public. Most companies are clustered close to the diagonal line that represents ARR and capital raised matching each other. Total capital raised is often neck-and-neck or slightly higher than ARR.
It is useful to introduce a metric instead of looking at gross dollars, given the high variance in revenue of the companies in the data set — Sprout Social had $106 million and Dropbox had $1,222 million in ARR, a 10x+ difference. Total capital raised as a multiple of ARR normalizes this variance. Below is a histogram of the distribution of this metric.
The distribution is concentrated around 1.00x-1.25x, with the median company raising 1.23x of ARR by the time of its IPO.
There are outliers on both ends. Domo is a profligate outlier that had raised $690 million to get to $128 million of ARR, or 5.4x of ARR — no other company comes remotely close. Zoom and Datadog are efficient outliers. Zoom raised $161 million to get to $423 million of ARR and Datadog raised $148 million to get to $333 million of ARR, both representing only 0.4x of ARR.
How much capital a company raised tells only half of the story of capital efficiency, because many companies are sitting on a significant cash balance. For example, PagerDuty raised a total of $174 million but had $128 million of cash left when it went public. As another example, Slack raised a total of $1,390 million prior to going public but had $841 million of unspent cash.
Why do some SaaS companies end up seemingly over-raising capital beyond their immediate cash needs despite the dilution to existing shareholders?
One reason might be that companies are being opportunistic, raising capital far ahead of actual needs when market conditions are favorable.
Another reason may be that VCs that want to meet ownership targets are pushing for larger rounds. For example, a company valued at $400 million pre-money may only need $50 million of cash but could end up taking $100 million from a VC that wants to achieve 20% post-money ownership.
These confounding factors make cash burn — calculated by subtracting the cash balance from total capital raised4 — a more accurate measure of capital efficiency than total capital raised. Here is a distribution of total cash burn as a multiple of ARR.
Remarkably, Zoom achieved negative cash burn, meaning Zoom went public with more cash on its balance sheet than all of the capital it raised.
The median company’s cash burn at IPO was 0.77x of ARR, quite a bit less than the total capital raised of 1.23x of ARR.
The Rule of 40 is a popular heuristic to gauge the business health of a SaaS company. It asserts that a healthy SaaS company’s revenue growth rate and profit margins should sum to 40%+. The below chart shows how the 21 companies score on the Rule of 405.
Among the 21 companies, eight companies exceed the 40% threshold: Zoom (123%), Crowdstrike (119%), Datadog (76%), Bill.com (56%), Elastic (55%), Slack (52%), Qualtrics (44%) and SendGrid (41%).
Interestingly, the same outliers in terms of capital efficiency as measured by cash burn, on both extremes, are the same outliers in the Rule of 40. Zoom and Datadog, which have the highest capital efficiency, score the highest and third highest on the Rule of 40. And inversely, Domo and MongoDB, which have the lowest capital efficiency, also score lowest on the Rule of 40.
This is not surprising, because the Rule and capital efficiency are really two sides of the same coin. If a company can sustain high growth without sacrificing profit margins too much (i.e. score high on the Rule of 40), it will over time naturally end up burning less cash compared to peers.
To apply all of this to your favorite SaaS business, here are some questions to consider. What is the total capital raised in multiples of ARR? What is the total cash burn in multiples of ARR? Where does it stack compared to the 21 companies above? Is it closer to Zoom or Domo? How does it score on the Rule of 40? Does it help explain the company’s capital efficiency or lack thereof?
Thanks to Elad Gil and Denton Xu for reviewing drafts of this article.
1Only includes U.S.-based, VC-backed SaaS companies. Includes Quatrics, even though it did not go public, as it was acquired right before its scheduled IPO.
2Includes institutional investments prior to the IPO. Does not include founders’ personal capital investment.
3Note that this is not annual recurring revenue, which is not a reporting requirement for public companies. Annual run-rate revenue is calculated by annualizing quarterly revenue (multiplying by four). The two metrics will track closely for SaaS businesses, given that SaaS revenue is predominantly recurring software subscriptions.
4This is a simplified definition as it will capture non-operational uses of cash such as share repurchase from founders.
5Revenue growth is calculated as the growth rate of the revenue during the last 12 months (LTM) over the revenue during the 12 months prior to that. Profit margins are non-GAAP operating margins, calculated as operating income plus stock-based compensation expense divided by revenue over the last 12 months (LTM).
[Update: The App Store has returned. Back to your regularly scheduled Fridays.]
Midday on Friday it appeared that Apple’s App Store, a critical piece of the digital and mobile economies, struggled with uptime issues. Apple’s own status page indicated that the application vendor was having an “ongoing” issue that affected “some users.”
The company said that it was investigating the issue, according to its website.
Users weren’t pleased. A quick Twitter search shows a host of complaints from users noting that they can’t make purchases on the App Store, were struggling with sign-on issues and that downloads had ground to a halt.
Despite launching after the original iPhone, the App Store has become an industry to itself. According to certain data, the App Store drove $50 billion gross sales in 2019 — Apple takes a cut of transactions and sales, generating material revenue for itself.
The App Store will come back, but Apple is losing money along with its developer partners as we speak. More when it’s back. Until then, well, there’s Android or a walk.
Goldman Sachs CEO David Solomon recently said the investment bank won’t take companies public that don’t have at least one board member from an underrepresented group. The main focus will be on female board members, he told CNBC, because companies that have gone public in the last four years with at least one woman on their board of directors performed “significantly better” than those without. The new rule is set to go into effect in the U.S. and Europe on July 1.
While the move is significant, what Solomon and Goldman are doing is not a novel idea, nor is it the best version of an outdated idea. It reminds me of something Salesforce CEO Marc Benioff said a few years ago at Dreamforce:
Overall, diversity is extremely important to us. Right now, this is the major issue [gesturing to the room/crowd]. I think when we feel like we’ve got this, you know, a little bit more under control, then I think that one is gonna surface as the major thing we’re focusing on. We’re not ignoring it, it’s something that we support, it’s something that we’re working on, but this is our major focus right now, is the women’s issue.
At the time, Benioff failed to address the complexity of diversity, which is what Goldman Sachs is doing. A “focus on women” does not take into account the intersectional identities many people have. And it’s those intersectional identities — whether it’s being a black woman, a trans man and so forth — that bring both intellectual and financial value to the table. By focusing on women, as Solomon said, Goldman Sachs is setting itself up to exclude women of color, as they are oftentimes left out of women-focused initiatives. This outdated and misguided strategy, where diversity equals more (white) women, needs to be squashed.
While this requirement will likely increase returns for Goldman Sachs and operate as a forcing function to boost diversity at startups, it needs to go further. By focusing on a broader definition of diversity, Goldman Sachs could be more inclusive and make its returns even greater.
TechCrunch Sessions: Robotics+AI 2020 is gearing up to be one amazing show. This annual day-long event draws the brightest minds and makers from these two industries — 1,500 attendees last year alone. And if you really want to make 2020 a game-changing year, grab yourself an early-bird ticket and save $150 on tickets before prices go up after January 31.
Not convinced yet? Check out some agenda highlights featuring some of today’s leading robotics and AI leaders:
See the full agenda here.
If you’re a startup, nab one of the five demo tables left and showcase your company to new customers, press, and potential investors. Demo tables run $2,200 and come with four attendee tickets so you can divide and conquer the networking scene at the conference.
Students, get your super-reduced $50 ticket here and learn from some of the biggest names in the biz and meet your future employer or internship opportunity.
Don’t forget, the early-bird ticket sale ends on January 31. After that, prices go up by $150. Purchase your tickets here and save an additional 18% when you book a group of four or more.
Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
SaaS stocks had a good run in late 2019. TechCrunch covered their ascent, a recovery from early-year doldrums and a summer slowdown. In 2020 so far, SaaS and cloud stocks have surged to all-time highs. The latest records are only a hair higher than what the same companies saw in July of last year, but they represent a return to form all the same.
Given that public SaaS companies have now managed to crest their prior highs and have been rewarded for doing so with several days of flat trading, you might think that there isn’t much room left for them to rise. Not so, at least according to Atlassian . The well-known software company reported earnings after-hours yesterday and the market quickly pushed its shares up by more than 10%.
Why? It’s worth understanding, because if we know why Atlassian is suddenly worth lots more, we’ll better grok what investors — public and private — are hunting for in SaaS companies and how much more room they may have to rise.
Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.
This week Danny and Alex are back with more than ever to get through. 2020 has come out of the gate fast when it comes to news, so much so that we had to leave out of the show way more than we wanted. Things like the newest members of the $100 million ARR club, One Medical’s proposed IPO pricing, the Clubhouse funding round and Placer.ai’s latest investment.
But we did manage to chat through a host of news, including:
All that and we had fun. One more thing: Don’t fret, we’re going to bring guests back in just a few weeks. So if you’ve missed hearing from Folks Who Actively Invest, fear not, the VCs will be back.
Founder Andreas Kröpfl has spent almost a decade hard-grafting in the b2b unified communications space, building a videoconferencing business with a patented single-stream system and a claim of no ‘drop-offs’ thanks to “unique low-bandwidth technology”.
His Austria-based startup’s current web-based videoconferencing system, eyeson (née Visocon), which launched in 2018, has had some nice traction since launch, as he tells it, garnering a few million customers and getting a nomination nod as a Gartner Cool Vendor last year.
Eyeson’s website touts ‘no hassle, no, lag, no downloads’ video calls. Pricing options for the target b2b users run the gamut from freelance pro to full-blown enterprise. While the business itself has pulled in a smidge less than $7M in investor funding over the years.
But when TechCrunch came across Kröpfl last December, pitching hard in startup alley at Disrupt Berlin, he was most keen to talk about something else entirely: Video dating.
That’s because last summer the team decided to branch out by building their own video dating app, reusing their core streaming tech for a consumer-focused social experiment. And after a period of internal beta testing — which hopefully wasn’t too awkward within a small (up-til-then) b2b-focused team — they launched an experimental dating app in November in India.
The app, called Ahoi, is now generating 100,000 video calls and 250,000 swipes per day, says Kröpfl.
This is where he breaks into a giggle. The traction has been crazy, he says.
In the staid world of business videoconferencing you can imagine eyeson’s team eyeing the booming growth of certain consumer-focused video products rather enviously.
Per Kröpfl, they had certainly noticed different desires among their existing users — which pushed them to experiment. “We saw that private people like the simple fun features (GIF reactions, …) and that business meetings were more focused on ‘drop-off’ [rates] and business features,” he tells us. “To improve both in one product was not working any more. So eyeson goes business plus SaaS.”
“Cloning eyeson but make it social,” is how he sums up the experiment.
Ahoi is very evidently an MVP at this stage. It also looks like a pretty brave and/or foolish (depending on your view) full-bore plunge into video dating, with nothing so sophisticated as a privacy screen to prevent any, er, unwanted blushes… (Whereas safety screening is an element we’ve recently seen elsewhere in the category — see: Blindlee.)
There’s also seemingly no way for users to specify the gender they wish to talk to.
Instead, Ahoi users state interests by selecting emoji stickers — such as a car, cat, tennis racket, games console or globetrotter. And, well, it goes without saying that even if you like cars a lot you’re unlikely to change your sexual orientation over the category.
There are no generic emoji that could be used to specify a sexual interest in men or women. But, er, there’s a horse…
Such limits may explain why Ahoi is generating so many early swipes — and rather fewer actual calls — in that the activity sums to (mostly) men looking for women to videochat with and being matched with, er, men.
And frustration, sexual or otherwise, probably isn’t the greatest service to try and sell.
Still, Kröpfl reckons they’ve landed on a winning formula that makes handy reuse of their core videoconferencing tech — letting them growth hack in a totally new category. Swipe right to video date.
“People are disappointed by perfect profiles on Tinder and the reality when meeting people,” he posits. “Wasted time. Especially women do not want to be stalked by men pretending to be someone else. We solve both by a real live conversation where only after a call both can decide to be connected or never see each other again.”
Notably, marketing around the app does talk rather fuzzily about it being a way to “find new pals”.
So while Kröpfl frames the experiment as dating, the reality of the product is more ‘open to options’. Think of it as a bit like Chatroulette — just with slightly more control (in that you have a few seconds to decide if you don’t want to talk to the next in-app match).
The very short countdown timer (you get just five seconds to opt out of a matched video chat) is very likely generating a fair number of unintended calls. Though such high velocity matching might appeal to a certain kind of speed dating addict.
Kröpfl says Ahoi has been seeing up to 20,000 new users added daily. They’re bullishly targeting 3M+ users this year, and already toying with ideas for turning video dates into a money spinner by offering stuff like premium subscriptions and/or video ads. He says the plan is to turn Ahoi into a business “step by step”.
“Everyone loves to make his profile better,” he suggests, floating monetization options down the line. Quality filtering for a fee is another possibility (“everyone is annoyed by being connected to the wrong people”).
They picked India for the test launch because it has a lot of people on the same timezone, a large active mobile user-base and cheap marketing is still “easily possible”. He also says that dating apps seemed popular there, in their experience. (Albeit, the team presumably didn’t have a great deal of relevant experience in this category — given Ahoi is an experiment.)
The intent is also to open Ahoi up to other markets in time too, once they get more accustomed to dealing with all the traffic. Kröpfl notes they had to briefly take the app off the store last month, as they worked on adding more server capability.
“It is very early and we were not prepared for this usage,” he says, admitting they’ve been “struggling to work on early feedbacks”. “We had to make it invisible temporarily — to improve server capacity and stability.”
The contrast in pace of uptake between the stolid (but revenue-generating) world of business meeting-fuelled videoconferencing and catnip consumer dating — which is money-sucking unless or until you can hit a critical mass of usage and get the chance to try applying monetization strategies — does sound like it’s been rather irresistible to Kröpfl.
Asked what it feels like to go from one category to the other he says “crazy, surprised and thrilling”, adding: “It is somehow also frustrating when all the intense b2b work is not as closely interesting to people as Ahoi is. But amazing that it is possible thanks to an extremely focused and experienced team. I love it.”
TechCrunch’s Manish Singh agreed to brave the local video dating app waters in India to check Ahoi out for us.
He reported back not having seen any women using the app. Which we imagine might be a problem for Ahoi’s longer term prospects — at least in that market.
“I spoke with one guy, who said his friend told him about the app. He said he joined to talk to girls but so far, he is only getting matched with boys,” said Singh. “I saw several names appear on the app, but all of them were boys, too.”
He told us he was left wondering “why people are on these apps, and why they have so much free time on a weekday”.
For ‘people’ it seems safe to conclude that most of Ahoi’s early adopters are men. As the Wall Street Journal reported back in 2018, India’s women are famously cool on dating apps — in that they’re mostly not on them. (We asked Kröpfl about Ahoi’s gender breakdown but he didn’t immediately get back to us on that. Update: We’re told the app’s male to female ratio is 85:15. “India is challenging,” Kröpfl admits.)
That market quirk means those female users who are on dating apps tend to get bombarded with messages from all the lonely heart guys with not much to swipe. Which, in turn, could make a video dating app like Ahoi an unattractive prospect to female users — if there’s any risk at all of being inundated with video chats.
And even if there are enough in-app controls to prevent unwelcome inundation by default, women also might not feel like they want their profile to be seen by scores of men simply by merit of being signed up to an app — as seems inevitable if the gender balance is so skewed.
Add to that, if the local perception among single women is that men on dating apps are generally a turn-off — because they’re too eager/forward — then jumping into any unmoderated video chat is probably not the kind of safe space these women are looking for.
No matter, Kröpfl and his team are clearly having far too much fun growth hacking in an unfamiliar, high velocity consumer category to sweat the detail.
What’s driving Ahoi’s growth right now? “Performance marketing mainly,” he says, pointing also to “viral engagement by sharing and liking profiles”.
Notably, there are a lot of reviews of Ahoi on Google Play already — an unusual amount for such an early app. Many of them appear to be five star write-ups from accounts with European-sounding names and a sometimes robotic grasp of language.
“Eventhough Ahoi has been developed recently, it had high quality for user about calling, making friends and widing your knowlegde [sic],” writes one reviewer with atrocious spelling whose account is attached to the name ‘Dustin Stephens.’
“Talking with like minded people and same favor will creat a fun and interesting atmosphere. Ahoi will manage for you to call like condition above,” says another apparently happy but not entirely clear user, going by the name ‘Elisa Herring’.
There’s also a ‘Madeleine Mcghin’, whose profile uses a photo of the similarly named child who infamously disappeared during a holiday in Portugal in 2007. “My experience with this app was awesome,” this individual writes. “It gives me the option to find new people in every country.”
Another less instantly tasteless five-star reviewer, ‘Stefania Lucchini’, leaves a more surreal form of praise. “A good app and it will bring you extra income, I would say it’s a great opportunity to have AHOI and be a part of it but it’s that it will automatically ban you even if you don’t show it. Marketing. body part, there are still 5 stars for me,” she (or, well, ‘it’) writes.
Among the plethora of dubious five-star reviews a couple of one-star dunks stand out — not least because they come from accounts with names that sound like they might actually come from India. “Waste u r time,” says one of these, who uses the name Prajal Pradhan.
This pithy drop-kick has been given a full 72 thumbs-up by other Play Store users.
We’re down in Sunnyvale, CA today, where Alchemist Accelerator is hosting a demo day for its most recent batch of companies. This is the 23rd class to graduate from Alchemist, with notable alums including LaunchDarkly, MightyHive, Matternet, and Rigetti Computing. As an enterprise accelerator, Alchemist focuses on companies that make their money from other businesses, rather than consumers.
21 companies presented in all, each getting five minutes to explain their mission to a room full of investors, media, and other founders.
Here are our notes on all 21 companies, in the order in which they presented:
i-50: Uses AI to monitor human actions on production lines, using computer vision to look for errors or abnormalities along the way. Founder Albert Kao says that 68% of manufacturing issues are caused by human error. The company currently has 3 paid pilots, totalling $190k in contracts.
Perimeter: A data visualization platform for firefighters and other first responders, allowing them to more quickly input and share information (such as how a fire is spreading) with each other and the public. Projecting $1.7M in revenue within 18 months.
Einsite: Computer vision-based analytics for mining and construction. Sensors and cameras are mounted on heavy machines (like dump trucks and excavators). Footage is analyzed in the cloud, with the data ultimately presented to job site managers to help monitor progress and identify issues. Founder Anirudh Reddy says the company will have $1.2M in bookings and be up and running on 2100 machines this year.
Mall IQ: A location-based marketing/analytics SDK for retail stores and malls to tie into their apps. Co-founder Batu Sat says they’ve built an “accurate and scalable” method of determining a customer’s indoor position without GPS or additional hardware like Bluetooth beacons.
Ipsum Analytics: Machine learning system meant to predict the outcome of a company’s ongoing legal cases by analyzing the relevant historical cases of a given jurisdiction, judge, etc. First target customer is hedge funds, helping them project how legal outcomes will impact the market.
Vincere Health: Works with insurance companies to pay people to stop smoking. They’ve built an app with companion breathalyzer hardware; each time a user checks in with the breathalyzer to prove they’re smoking less, the user gets paid. They’ve raised $400k so far.
Harmonize: A chat bot system for automating HR tasks, built to work with existing platforms like Slack and Microsoft Teams. An employee could, for example, message the bot to request time off — the request is automatically forwarded to their manager, presenting them with one-click approve/deny buttons which handle everything behind the scenes. The company says it currently has 400 paying customers and is seeing $500k in ARR, projecting $2M ARR in 2020.
Coreshell Technologies: Working on a coating for lithium-Ion batteries which the company says makes them 25% cheaper and 50% faster to produce. The company’s co-founder says they have 11 patents filed, with 2 paid agreements signed and 12 more in the pipeline.
in3D: An SDK for 3D body scanning via smartphone, meant to help apps do things like gather body measurements for custom clothing, allow for virtual clothing try-ons, or create accurate digital avatars for games.
Domatic: “Intelligent power” for new building construction. Pushes both data and low-voltage power over a single “Class 2” wire , making it easier/cheaper for builders to make a building “smart”. Co-founder Jim Baldwin helped build Firewire at Apple, and co-founder Gladys Wong was previously a hardware engineer at Cisco.
MeToo Kit: a kit meant to allow victims of sexual assault or rape to gather evidence through an at-home, self-administered process. Co-founder Madison Campbell says that they’ve seen 100k kits ordered by universities, corporations, non-profits, and military organizations. The company garnered significant controversy in September of 2019 after multiple states issued cease-and-desist letters, with Michigan’s Attorney General arguing that such a kit would not be admissible in court. Campbell told Buzzfeed last year that she would “never stop fighting” for the concept.
AiChemist Metal: Building a thin, lightweight battery made of copper and cellulose “nanofibers”. Co-founder Sergey Lopatin says the company’s solution is 2-3 lighter, stronger, and cheaper than alternatives, and that the company is projecting profitability in 2021. Focusing first on batteries for robotics, flexible displays, and electric vehicles.
Delightree: A task management system for franchises, meant to help owners create and audit to-dos across locations. Monitors online customer reviews, automatically generating potential tasks accordingly. In pilot tests with 3 brands with 16 brands on a waitlist, which the company says translates to about $400k in potential ARR.
DigiFabster: A ML-powered “smart quoting” tool for manufacturing shops doing things like CNC machining to make custom parts and components. Currently working with 125 customers, they’re seeing $500k in ARR.
NachoNacho: Helps small/medium businesses monitor and manage software subscriptions their employees sign up for. Issues virtual credit cards which small businesses use to sign up for services; you can place budgets on each card, cancel cards, and quickly determine where your money is going. Launched 9 months ago, NachoNacho says it’s currently working with over 1600 businesses.
Zapiens: a virtual assistant-style tool for sharing knowledge within a company, tied into tools like Slack/Salesforce/Microsoft 365. Answers employee questions, or uses its understanding of each employee’s expertise to find someone within the company who can answer the question.
Onebrief: A tool aiming to make military planning more efficient. Co-founder/Army officer Grant Demaree says that much of the military’s planning is buried in Word/Powerpoint documents, with inefficiencies leading to ballooning team sizes. By modernizing the planning approach with a focus on visualization, automation and data re-usability, he says planning teams could be smaller yet more agile.
Perceive: Spatial analytics for retail stores. Builds a sensor that hooks into existing in-store lighting wiring to create a 3D map of stores, analyzing customer movement/behavior (without face recognition or WiFi/beacon tracking) to identify weak spots in store layout or staffing.
Acoustic Wells: IoT devices for monitoring and controlling production from oil fields. Analyzes sound from pipes “ten thousand feet underground” to regulate how a machine is running, optimizing production while minimizing waste. Charges monthly fee per oil well. Currently has letters of intent to roll out their solution in over 1,000 wells.
SocialGlass: A marketplace for government procurement. Lets governments buy goods/services valued under $10,000 without going through a bidding process, with SocialGlass guaranteeing they’ve found the cheapest price. Currently working with 50+ suppliers offering 10,000 SKUs.
Applied Particle Technology: Continuous, realtime worker health/safety tracking for industrial environments. Working on wireless, wearable monitors that stream environmental data to identify potential exposure risks. Focusing first on mining and metals industries, later moving into construction, firefighting, and utilities environments.
The private launch market is an area of a lot of focus in the emerging space startup industry, not least because it unlocks the true potential of most of the rest of the market. But so far, we can count on one hand the number of new, private space launch companies that have actually transported payloads to orbit. Out of a number of firms racing to be the next to actually launch, LA-based Relativity Space is a prime contender, with a unique approach that could set it apart from the crowd.
I spoke to CEO Tim Ellis about what makes his company different and about what kind of capabilities it will bring to the launch market once it starts flying, something the company aims to do beginning next year. Fresh off a $140 million funding round in October 2019, Relativity’s model could provide another seismic shift in the economics of doing business in space, and has the potential to be as disruptive to the landscape — if not more so — as SpaceX.
“We built the largest metal 3D printers in the world, which we call a ‘Stargate,’ ” Ellis said. “It’s actually replacing a whole factory full of fixed tooling — and having all of our processes being 3D printing, we really view that as being the future because that lets us automate almost the entire rocket production, and then also reduce part count for much larger launch vehicles so our rocket can carry a 1,250-kg payload to orbit.” Because Relativity Space’s launch vehicle is nearly 10 times larger than those made by Rocket Lab or Orbex, “it’s a totally different payload class.”
That difference is crucial, and represents the paradigm shift that Relativity Space could engender once its products are introduced to the commercial market. The company knows first-hand how its approach fundamentally differs from existing launch providers like Blue Origin and SpaceX — Ellis previously worked as a propulsion engineer at Blue Origin, and co-founder and CTO Jordan Noone worked on SpaceX’s Dragon capsule program. Ellis said Relativity’s approach won’t just unlock cost savings due to automation, it will also provide clients with the ability to launch payloads that weren’t possible with previous launch vehicle design constraints.