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.
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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.
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.
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CEO David Solomon told CNBC that beginning this year, Goldman will no longer take companies public if they don’t have at least one “diverse” member on its board of directors.
Some will, perhaps rightly, see the announcement as little more than marketing. After all, it’s already widely viewed as unacceptable for a company to go public without at least one female board member and preferably far more diversity than that.
The deployment comes after a multi-year period of trials by the Met and police in South Wales. The Met says its use of the controversial technology will be targeted to “specific locations … where intelligence suggests we are most likely to locate serious offenders.”
If you use a Zone Player, Connect, first-generation Play:5, CR200, Bridge or pre-2015 Connect:Amp, Sonos is still going to drop support for those devices. But at least the company is backing away from its initial decision that your entire ecosystem of Sonos devices would stop receiving updates, as well.
Eyeson’s website touts “no downloads, no lag, no hassle” video calls. But when TechCrunch came across founder Andreas Kröpfl last December, pitching hard in Startup Alley at Disrupt Berlin, he was most keen to talk about something else entirely: video dating.
Quora, the 10-year-old question-and-answer company based in Mountain View, is laying off staff in its Bay Area and New York offices. CEO Adam D’Angelo did not disclose the scale of the layoffs.
Atlassian reported earnings after-hours yesterday and the market quickly pushed its shares up by more than 10%. Alex Wilhelm explores why. (Extra Crunch membership required.)
The feat, which comes roughly 19 years after the website was founded, is a testament of “what humans can do together,” said Ryan Merkley, chief of staff at Wikimedia, the nonprofit organization that operates the online encyclopedia.
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).
A popular sexting website has exposed thousands of photo IDs belonging to models and sex workers who earn commissions from the site.
SextPanther, an Arizona-based adult site, stored more than 11,000 identity documents on an exposed Amazon Web Services (AWS) storage bucket, including passports, driver’s licenses and Social Security numbers, without a password. The company says on its website that it uses these documents to verify the ages of models with whom users communicate.
Most of the exposed identity documents contain personal information, such as names, home addresses, dates of birth, biometrics and their photos.
Although most of the data came from models in the U.S., some of the documents were supplied by workers in Canada, India and the United Kingdom.
The site allows models and sex workers to earn money by exchanging with paying users text messages, photos and videos, including explicit and nude content. The exposed storage bucket also contained more than 100,000 photos and videos sent and received by the workers.
It was not immediately clear who owned the storage bucket. TechCrunch asked U.K.-based penetration testing company Fidus Information Security, which has experience in discovering and identifying exposed data, to help.
Researchers at Fidus quickly found evidence suggesting the exposed data could belong to SextPanther.
An hour after we alerted the site’s owner, Alexander Guizzetti, to the exposed data, the storage bucket was pulled offline.
“We have passed this on to our security and legal teams to investigate further. We take accusations like this very seriously,” Guizzetti said in an email, who did not explicitly confirm the bucket belonged to his company.
Using information from identity documents matched against public records, we contacted several models whose information was exposed by the security lapse.
“I’m sure I sent it to them,” said one model, referring to her driver’s license, which was exposed. (We agreed to withhold her name given the sensitivity of the data.) We passed along a photo of her license found in the exposed bucket. She confirmed it was her license, but said that the information on her license is no longer current.
“I truly feel awful for others whom have signed up with their legit information,” she said.
The security lapse comes a week after researchers found a similar cache of highly sensitive personal information of sex workers on adult webcam streaming site, PussyCash.
More than 850,000 documents were insecurely stored in another unprotected storage bucket.
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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.
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Italy’s Competition and Markets Authority has launched proceedings against Facebook for failing to fully inform users about the commercial uses it makes of their data.
At the same time, a German court has today upheld a consumer group’s right to challenge the tech giant over data and privacy issues in the national courts.
The Italian authority’s action, which could result in a fine of €5 million for Facebook, follows an earlier decision by the regulator, in November 2018 — when it found the company had not been dealing plainly with users about the underlying value exchange involved in signing up to the “free” service, and fined Facebook €5 million for failing to properly inform users how their information would be used commercially.
In a press notice about its latest action, the watchdog notes Facebook has removed a claim from its homepage — which had stated that the service “is free and always will be” — but finds users are still not being informed, “with clarity and immediacy” about how the tech giant monetizes their data.
The Authority had prohibited Facebook from continuing what it dubs “deceptive practice” and ordered it to publish an amending declaration on its homepage in Italy, as well as on the Facebook app and on the personal page of each registered Italian user.
In a statement responding to the watchdog’s latest action, a Facebook spokesperson told us:
We are reviewing the Authority decision. We made changes last year — including to our Terms of Service — to further clarify how Facebook makes money. These changes were part of our ongoing commitment to give people more transparency and control over their information.
Last year Italy’s data protection agency also fined Facebook $1.1 million — in that case for privacy violations attached to the Cambridge Analytics data misuse scandal.
In separate but related news, a ruling by a German court today found that Facebook can continue to use the advertising slogan that its service is “free and always will be” — on the grounds that it does not require users to hand over monetary payments in exchange for using the service.
A local consumer rights group, vzbv, had sought to challenge Facebook’s use of the slogan — arguing it’s misleading, given the platform’s harvesting of user data for targeted ads. But the court disagreed.
However, that was only one of a number of data protection complaints filed by the group — 26 in all. And the Berlin court found in its favor on a number of other fronts.
Significantly, vzbv has won the right to bring data protection-related legal challenges within Germany even with the pan-EU General Data Protection Regulation in force — opening the door to strategic litigation by consumer advocacy bodies and privacy rights groups in what is a very pro-privacy market.
This looks interesting because one of Facebook’s favored legal arguments in a bid to derail privacy challenges at an EU Member State level has been to argue those courts lack jurisdiction — given that its European HQ is sited in Ireland (and GDPR includes provision for a one-stop shop mechanism that pushes cross-border complaints to a lead regulator).
But this ruling looks like it will make it tougher for Facebook to funnel all data and privacy complaints via the heavily backlogged Irish regulator — which has, for example, been sitting on a GDPR complaint over forced consent by adtech giants (including Facebook) since May 2018.
The Berlin court also agreed with vzbv’s argument that Facebook’s privacy settings and T&Cs violate laws around consent — such as a location service being already activated in the Facebook mobile app; and a pre-ticked setting that made users’ profiles indexable by search engines by default
The court also agreed that certain pre-formulated conditions in Facebook’s T&C do not meet the required legal standard — such as a requirement that users agree to their name and profile picture being used “for commercial, sponsored or related content,” and another stipulation that users agree in advance to all future changes to the policy.
Commenting in a statement, Heiko Dünkel from the law enforcement team at vzbv, said: “It is not the first time that Facebook has been convicted of careless handling of its users’ data. The Chamber of Justice has made it clear that consumer advice centers can take action against violations of the GDPR.”
We’ve reached out to Facebook for a response.