Many companies will not see the uncertainty of a global pandemic as the perfect moment to go international, but for others (particularly in healthcare, online communications, and workplace mobility) the market is stronger than ever and companies are having to respond quickly internationally to both service existing clients and take advantage of the growth in demand.
We and our team at Taylor Wessing advise 50 to 75 venture-backed North American companies each year on setting up in Europe or Asia. We’ve helped companies such as TaskRabbit, Lime, Glossier, InVision and many others translate their domestic success to new jurisdictions and cultures and to thrive as global businesses.
This is a practical guide to international expansion with the challenges of the current time in mind. It’s a quick-read providing some practical tips and sharing best practices from peer companies to help you come out of the pandemic with a strong international presence. A great deal of this advice is evergreen and will serve you well whatever the circumstances may be.
In particular, we’ll cover the rise (and risks) of distributed workforces — a way for CEOs to hire the best talent anywhere in the world. This has taken on new significance with the boom in remote working as one of several options for CEOs looking for strategic growth during and after COVID.
Ten years ago, the timing question was much simpler. Founders would first of all focus on developing a product and winning over their domestic market, funded through their Series A and B rounds, and then go on to raise their Series C round, which investors would expect to be used to push into new markets.
Since then, with the age of the smartphone in full swing and international direct ordering ubiquitous, opportunities to sell into new markets appeared far earlier in a company’s growth and there is no longer a canned strategy for timing your international expansion.
The current circumstances have exaggerated this trend. There are many challenges in traditional sectors, but also many new market opportunities quickly appearing in healthcare and other technology sectors with founders wanting to move quickly into new markets.
Although it may be tempting to just get a few sales people on the ground to go for it, we would still recommend laying some groundwork and making some key decisions before diving in. For example: ensuring management can give sufficient time and attention to the new market; tweaking your product to comply with local regulations; reworking your sales approach.
If you are early-stage, tread carefully. Our belief is that the Series B round is still the earliest a founder or board should consider international expansion.
If you are early-stage, tread carefully. Our belief is that the Series B round is still the earliest a founder or board should consider international expansion. The companies we’ve worked with who have moved earlier than the B round will generally end up realizing it’s too early. They’ll end up pressing pause, or making a full strategic exit, tail between legs.
International expansion is a matter of focus, as well as financial resources. Once you’re selling into a new market, everyone in the business needs to be thinking internationally, including the CEO, CFO, general counsel, the board, engineers and staff. It can stretch everyone before there are the necessary resources in place to cope.
Even in the best of times our advice would be to not experiment or push the boundaries when it comes to your international strategy, do that elsewhere in your business. You should follow the path most travelled at this stage. This is especially true in the current climate. If you’re thinking of doing something new, something your peers haven’t done before, we should have a conversation first.
Whichever market you’ve chosen, there are some universal first steps (although they might vary slightly between jurisdictions). For example:
The Atlas for Cities, the 500 Startups-backed market intelligence platform connecting tech companies with state and local governments, has been acquired by the Growth Catalyst Partners-backed publishing and market intelligence company Government Executive Media Group.
The San Diego-based company will become the latest addition to a stable of publications and services that include the Route Fifty, publication for local government and the defense-oriented intelligence service, DefenseOne.
The Atlas provides peer-to-peer networks for state and local government officials to share best practices and is a marketing channel for the startups that want to sell services to those government employees. Through The Atlas, government officials can talk to each other, find case studies for best practices around tech implementations, and post questions to crowdsource ideas.
Government contractors can use the site to network with leadership and receive buyer intent data to inform their strategy in the sector, all while getting intelligence about the problems and solutions that matter to state and local jurisdictions across the nation.
“The Atlas delivers on GEMG’s promise to look for companies that complement and supplement the full suite of offerings that we provide to our partners to reach decision makers across all facets of the public sector,” said Tim Hartman, CEO of Government Executive Media Group, said in a statement.
Led by Ellory Monks and Elle Hempen, The Atlas for Cities launched in 2019 and is backed by financing from individual investors and the 500 Startups accelerator program. It now counts 21,000 government officials across 3,400 cities on its platform.
“State and local governments in the United States spend $3.7 trillion per year. That’s almost 20% of GDP,” said Elle Hempen, co-founder of The Atlas. “Our mission to increase transparency and access for local leaders has the opportunity to transform this enormous, inefficient market and enable tangible progress on the most important issues of our times.”
When a friend forwarded this tweet from Paul Graham, it hit close to home:
Startups are subject to something like infant mortality: before they’re established, one thing going wrong can kill the company. Hardware companies seem to be subject to infant mortality their whole lives.
I think the reason is that the evolution of the product is so discontinuous. The company has to keep shipping, and customers to keep buying, new products. Which in practice is like relaunching the company each time.
I don’t know if there is an answer to this, but if there were a way for hardware companies to evolve more the way software companies do, they’d be a lot more resilient.
Looking back on our startup journey at Minut, I remember several moments when we could have died. However, surviving several near misses we learned to tackle these challenges and have become more resilient over time. While there will never be one fully exhaustive answer, here are some of the lessons we learned over the years:
While you can sell hardware with a margin and make important early revenue, it’s not a sustainable business model for a company that requires both software and hardware. You can’t cover an indefinite commitment with a finite amount of money.
Many hardware companies don’t consider subscriptions early enough. While it can be hard to command a subscription from the start (if you can, you might have waited too long to launch), it needs to be in the plan from the beginning. Look for markets where paying subscriptions is the norm rather than markets that operate on a one-time sale model.
It’s tempting to set low prices for hardware to attract customers, but in the beginning you should do the opposite. Margins allow for mistakes to be rectified. A missed deadline might mean you have to opt for freight by air rather than boat. You might have to scrap components or buy them expensively in a supply crunch. Surprises are seldom positive, and you don’t want to use your venture capital to pay for them.
Healthy margins can also be used to cover marketing costs while you learn what kind of messaging works and what channels you can sell through. If that wasn’t enough reason, starting with relatively high prices will help you avoid another common mistake, selling too much at launch.
This might seem counterintuitive — why wouldn’t you want great success out of the gate? The reason is that you will inevitably make mistakes with your early launches, and the bigger the launch, the bigger the blow. There are plenty of companies who achieved amazing crowdfunding success and then failed to deliver even the first units. Startups tend to chase growth at all costs, but for hardware startups in the first few years there is such a thing as too much of a good thing.
If I were to pick one thing that unites the global tech scene in terms of culture I would point to the respect and reverence accorded to startup founders.
After all, creating your own company is an ambition many of us harbor. It can bring with it unparalleled freedom, a lasting legacy, prestige, wealth and the ability to do good. Across social and traditional media the feats of founders big and small are lauded for their genius on a daily basis. Many entrepreneurs go to great lengths to showcase their backbreaking hard work and eye-popping success. An outsider would be forgiven for believing that every founder is living the dream as a result of their talent and toil.
Of course, as with nearly every image projected online, the reality is quite different. There is a seldom talked about price of being a founder — the impact on one’s mental health.
A recent study by the National Institute of Mental Health found that 72% of entrepreneurs are directly or indirectly impacted by mental health issues. This compares to 48% of the general population. The damage can also affect loved ones — 23% of entrepreneurs report that they have family members with problems, which is 7% higher than the relations of nonentrepreneurs.
I am in no way a mental health expert. But what I do know from both my own experience and speaking to scores of business owners I work with is that being a founder is an inherently lonely job. Pressure is high and uncertainty pervades every decision. Fear of failure is ever present. Unaddressed, these issues can take a serious toll.
The unpalatable truth is that the situation appears to be getting worse. A similar study conducted in 2015 by Dr. Michael A. Freeman found the rate of mental health issues among founders to be lower — at 50%. While comparing different research pieces is inexact, we only need to look at how the global recession has damaged many companies and how working from home has contributed to feelings of isolation, to know that the environment for startups has got harder this year. Added to this mix is how social media continues to promote an unhealthy fetishization of hustle culture and founding myths.
A number of founders have told me that they have constant feelings of inadequacy and guilt when they compare themselves to the startup gurus who celebrate working 24/7, are constantly selling, raising money or making their millions. They feel they should be working harder or be doing better — just like all the people they read about.
So how do we address this? The first step is talking about it. This means having an environment where we can be honest that not everything is always fine. Speaking to a fellow founder, not about commercial concerns, but about personal worries can be revelatory. I’ve seen it happen in our community. It’s like an “Emperor’s New Clothes” moment.
The myth of the bulletproof, genius, hustling founder can disappear in a puff of smoke as people suddenly realize they are not alone. They find that the concerns, anxieties and uncertainties they feel are almost universal.
Experienced founders can provide invaluable support to people new to the startup scene. They can share their experiences, both failures and success, and reveal some of their coping mechanisms. I would strongly advise founders who are experiencing some of the worries I’ve outlined to actively seek out advice from both their peers and potential mentors — much in the way they may seek out commercial guidance.
Next, we need to address how we tackle the culture and myths around being a founder. Business owners need to know that many of the extraordinary “success stories” they see celebrated online are exactly that — extraordinary.
Similarly, those that promote the principle that working all hours is the only way to be successful are at best talking about what works for them, and are at worst, engaging in a performance to achieve attention. We need to think carefully about how we respond to these posts. There is a fine line between being supportive and enabling unhealthy or damaging behavior and philosophy.
After all, success in the startup scene is all relative. For some owning a small business that makes them a decent income with a good work-life balance is the goal. For others, it is simply being able to do what they love in the way that they want. Very few will get the exit that makes them a millionaire, and an infinitesimally small minority will build the next Facebook. I cannot stress enough how important it is for founders to keep their aims and ambitions in perspective and ignore the noise they hear online.
More broadly, the industry, including the media, does need to get wiser about how it views and represents founders. For example, a pervasive myth is that some of the biggest tech companies in the world started in garages with no money, then through the genius and sheer bloodymindedness of their founder they were grown into a massive corporation.
The reality is that the vast majority of these tech companies benefited from substantial seed capital from family or connections almost from day one. These founders were also quickly surrounded by highly talented people who did a lot of the heavy lifting and, whisper it, a truckload of good luck. In short, the idea of the superhuman founder perpetuated in the industry is, in nearly all cases, nonsense.
In a similar vein, there are also issues around how we frame success and failure.
Success, as I’ve mentioned earlier, is nearly always couched in the most basic numerical terms. The “unicorn” label is bandied about so often that many people fail to realize that it’s simply a valuation that a few investors have given a company. It does not reflect whether the business is actually successful in the traditional sense, i.e., making money. Generally, the startup scene celebrates and idolizes founders who make big exits or achieve “unicorn status” — less is spoken about the thousands of SMEs that employ people, develop and patent new tech, make a tidy profit and pay taxes.
With failure, there is an altogether different problem. The startup scene downplays failure as par for the course. It is, on the face of it, one of the industry’s great virtues. It enables people to try without fear of embarrassment. However, in practice, it can actually minimize real-world fears nearly all founders have. Failure cannot just be brushed off if you’ve devoted years of your life, spent a lot of money and have staff who rely on you. By simply thinking of failure as part of the process we cannot address and talk about this real source of concern in an open way. “Fail fast” only works for those who can afford it.
Individually, these issues may seem like nothing but white noise and the cure for suffering founders may simply be to get off social media. Unfortunately, it isn’t that simple. Social and traditional media is amplifying startup culture, not creating it. The same tropes are on display at every tech conference and meetup. To fit in, the founder is expected to be a fearless, genius visionary. Deviation from this norm, such as by displaying vulnerability around mental health, is by inference, failure.
Despite its shortcomings in relation to diversity, the startup scene is generally one of the most progressive, collaborative and open industries in the world. These virtues are ideally suited to tackling the reluctance to discuss mental health and creating the network of support that ensures people don’t suffer alone.
To make this happen, we need to dispense with the myths and hagiography around being a founder and be more honest about what the reality of running a business actually entails.
A few years ago, building a bottom-up SaaS company – defined as a firm where the average purchasing decision is made without ever speaking to a salesperson – was a novel concept. Today, by our count, at least 30% of the Cloud 100 are now bottom-up.
For the first time, individual employees are influencing the tooling decisions of their companies versus having these decisions mandated by senior executives. Self-serve businesses thrive on this momentum, leveraging individuals as their evangelists, to grow from a single use-case to small teams, and ultimately into whole company deployments.
In a truly self-service model, individual users can sign up and try the product on their own. There is no need to get compliance approval for sensitive data or to get IT support for integrations — everything can be managed by the line-level users themselves. Then that person becomes an internal champion, driving adoption across the organization.
Today, some of the most well-known software companies such as Datadog, MongoDB, Slack and Zoom, to name a few, are built with a primarily bottom-up product-led sales approach.
In this piece, we will take a closer look at this trend — and specifically how it has fundamentally altered pricing — and at a framework for mapping pricing to customer value.
In a bottom-up SaaS world, pricing has to be transparent and standardized (at least for the most part, see below). It’s the only way your product can sell itself. In practice, this means you can no longer experiment as you go, with salespeople using their gut instinct to price each deal. You need a concrete strategy that aligns customer value with pricing.
To do this well, you need to deeply understand your customers and how they use your product. Once you do, you can “MAP” them to help align pricing with value.
The MAP customer value framework requires deeply understanding your customers in order to clearly identify and articulate their needs across Metrics, Activities and People.
Not all elements of MAP should determine your pricing, but chances are that one of them will be the right anchor for your pricing model:
Metrics: Metrics can include things like minutes, messages, meetings, data and storage. What are the key metrics your customers care about? Is there a threshold of value associated with these metrics? By tracking key metrics early on, you’ll be able to understand if growing a certain metric increases value for the customer. For example:
Activity: How do your customers really use your product and how do they describe themselves? Are they creators? Are they editors? Do different customers use your product differently? Instead of metrics, a key anchor for pricing may be the different roles users have within an organization and what they want and need in your product. If you choose to anchor on activity, you will need to align feature sets and capabilities with usage patterns (e.g., creators get access to deeper tooling than viewers, or admins get high privileges versus line-level users). For example:
Like many of us during COVID-19, I’ve found myself watching a bit more TV than I’m typically accustomed to. My latest binge? “The Karate Kid” series continuation “Cobra Kai” on Netflix.
A long-time fan of “The Karate Kid,” I find my style’s a bit more Miyagi-Do, but, in reflecting upon my last few years as a founding GP at a young VC firm, I see some parallels between what it takes to win as an emerging manager and the mantras by which the Cobra Kai school abides.
Before diving into that, let me quickly set the stage for what the competitive landscape looks like for emerging managers these days. I’ll focus primarily on the seed landscape here, but the Cobra Kai framework applies just as readily to later stage funds as well.
Leading up to the coronavirus pandemic, the venture industry saw a record number of dollars raised by seed funds less than $100 million in size. As is the case across stages however, there has been a notable decline in seed volume in the wake of COVID-19.
U.S. fundraising activity for sub-$100M seed rounds. Data source: PitchBook-NVCA Venture Monitor. Image Credits: Fika Ventures
The opposing dynamics of a contraction in deal volume and an unprecedented amount of readily available investable capital has led to a tremendous amount of competition for the highest-quality deals. This flight to quality can be clearly seen in the rise of seed valuations in the upper quartile compared to the decline in other cohorts. Amid a backdrop of COVID chaos, upper quartile valuations have hit an all-time high.
Angel/seed pre-money valuations by quartile. Data source: PitchBook-NVCA Venture Monitor. Image Credits: Fika Ventures
Due to their smaller fund size and prescriptive portfolio construction mandates, emerging managers have little leeway in terms of the valuations at which they can invest — their ownership requirements and check size limits impose a hard ceiling to which their investors hold them strictly accountable.
If budging on valuation is not a viable tactic to compete against established firms — which, in addition to their ability to be less price sensitive also boast more recognizable brand names, larger teams and higher AUM that affords them higher budgets for platform resources — how can emerging managers win? Enter Cobra Kai.
Let’s face it. As an emerging manager, the chances of you winning a deal once the established players start to circle drops precipitously. In order to win, you need to have a first-mover advantage.
On a practical level, there are two windows of opportunity to achieve this:
Sequoia Capital, the renowned Silicon Valley venture capital firm that has backed companies like Apple, Google, Dropbox, Airbnb and Stripe, recently disclosed that it had opened its first office in Europe. To staff up, it hired partner Luciana Lixandru away from rival Accel Partners.
Even without an official European presence, Sequoia has quietly operated in the region for more than a decade, first investing in Klarna in 2010. Other Europe-founded companies in its portfolio include Baaima, CEGX, Charlotte Tilbury, Dashlane, Evervault, FON Wireless, Front, Graphcore, Mapillary, Metaswitch Networks, n8n, Remote, Skyscanner, Songkick, Tessian, Tourlane, UiPath, Unity and 6Winderkinder (Wunderlist).
Yet, it is only now that the VC firm is putting people on the ground here in Europe, starting with an office in London that has a remit to invest across the continent.
Working alongside Lixandru is junior investor George Robson, who joined from Revolut. Most recently, Sequoia recruited Zoe Jervier Hewitt from EQT as head of talent in Europe. And finally, Matt Miller, a Sequoia U.S. veteran, is also part of the European efforts and plans to relocate next year, while I also understand that Sequoia’s Doug Leone will be spending a lot of his time in Europe.
Last week at the virtual “Node by Slush” event, I interviewed Lixandru and Miller and teased out some important details about Sequoia’s plans.
“There has been this evolution and maturity of the tech ecosystem that has been really meaningful, that has attracted us to want to put down boots on the ground and be more invested in Europe than ever before,” said Sequoia partner Matt Miller.
“One change is in the attitudes of young people. Europe has always been this place where there’s been incredible talent coming out of the computer science programs, across the universities across the continent and the U.K., and these young people previously, were going into careers in investment banking and consulting are bigger conglomerates. And now that those young people are interested in startups and technology careers, that’s fueling a lot of great ideas and a lot of great talent.
“There was a long time this question of, when will there be a $10 billion plus startup, and now there’s multiple of them across the continent. And now the question has really changed: When will there be the next hundred billion dollar startup in Europe, and I think it’s just an evolution over time.
“We find ourselves getting pulled more and more. So when … we want to invest in the best AI semiconductor company in the world, we looked at them in China, Israel and Europe. And the one we wanted to invest in was Graphcore, in Bristol [in the U.K.]. And when we looked … [to] invest in the best process automation company in the world, we looked at automation anywhere in California … and we looked at companies all over the world, and the one we wanted to invest in was UiPath in Romania. And that is increasingly becoming the case.”
“To some extent, success breeds success, too,” said Lixandru. “I think role models are really powerful. And the fact that there have been these category-leading companies created out of Europe, but that are winning on a global scale, like Spotify, Adyen and UiPath … I think that’s really inspirational to the next generation of founders. And I think that has helped a lot.”
“We work as one partnership across two geographies, and we invest from the same pool of capital across both geographies,” explained Lixandru. “And the rationale behind that is exactly what Max talked about. We want to be able to partner with category leading companies, and if they start in Paris, or in Stockholm, or in San Francisco, for us, it does not make a difference. We want to partner with them early. And we want to be able to help them on the ground early … whether they start here in Europe or in the U.S.”
Related to this, Sequoia will share carry — the fund’s profits — with partners across the U.S. and Europe, regardless of where partners reside or where the deal was sourced.
“One of the things that I love the most about Sequoia having been here close to nine years now is the way that we operate is very, very team centric, and that everybody is compensated the same amount in a fund, whether or not it is the investment that they lead or the investment that their partner led,” said Miller. “So when we make an investment, we lock arms together as a team, and we work collectively to help that company be successful.”
Miller said portfolio companies in Europe also get to work with Sequoia’s operational supporting partners in the U.S., too. “And the economic model is one that supports that,” he said.
Milana Lewis, CEO and co-founder of music tech startup Stem, started the fundraising process long before she actually asked any investors for money (dig the well before you’re thirsty — it’s the best way). She recommends that other founders do the same.
Ten years ago, Milana started working at United Talent Agency (UTA), one of the world’s leading talent agencies. When tasked with finding the best tools and technologies that UTA’s clients could use to self-distribute their work, she discovered a glaring gap.
“There were all these tools built for the distribution of content, monetization of content and audience development,” she says. “The last piece missing was the financial aspect.” The entertainment industry desperately needed a platform that would help artists manage the financial side of their business — and that’s how the idea for Stem was born.
Because UTA had its own investment branch, called UTA Ventures, Milana’s job also introduced her to some brilliant investors. Years later, when it was time to fundraise for Stem, those connections played a pretty big role.
In an episode of How I Raised It, Milana shared how Stem has landed some superstar investors and raised a little under $22 million.
Milana’s involvement with UTA Ventures exposed her to the investor experience and put her in the same room as people like Gary Vaynerchuk, Jonathon Triest from Ludlow Ventures, Anthony Saleh from Wndrco and Scooter Braun.
After meeting them the first time, she made sure to nurture those relationships, and she was “honest and vulnerable” about the fact that she wanted to be an entrepreneur one day.
“It’s amazing how much people will help and support you along in that journey,” Milana says. Investors “get excited about making early-stage investments because they want to identify that person before anyone else does.”
As her idea for Stem came together, she shared that with them, too. Over the course of a year, she provided regular updates on her vision, like how she was building out her team, and she also called them for occasional advice.
By the time she approached some of them for funding, she didn’t even need to present a full pitch. By then, they already knew enough about Stem, and about Milana as a businesswoman. Her pitch meeting with Gary Vaynerchuk — the first person to invest — ended up being just 15 minutes long.
“I brought people on my entrepreneurial journey in the beginning,” Milana says. “The biggest piece of advice I could give is to start raising a year before you start raising. Start building relationships and data points.”
Image Credits: Nathan Beckord (opens in a new window)
For each round, Milana put together a lead list — a list of potential investors who she either met socially or through business. Each time, she wanted to have at least 100 names on this list.
Digital PR is an excellent strategy to pair with content marketing, especially if your goals include increasing your brand awareness and improving your backlink portfolio.
When you create excellent content and pitch it to writers, you not only get great media coverage, but you get the link back to your project and the authority that comes with being mentioned in a trusted publication.
This earned media tactic is very effective — but it isn’t easy.
If you get any part of it wrong, your chances of success decrease dramatically. If you’ve run into roadblocks, make sure you’re not making any of these mistakes with your content or your pitching.
Sure, it’s easy to say the news only wants to cover material that is, well, news worthy.
But what does that actually mean?
For content marketers, it usually refers to three criteria: timeliness, relevance and significance.
But there’s a catch: Most content marketing programs don’t have journalists devoted to breaking news like actual media outlets do. So how can you create content that is truly newsworthy without the resources of a newsroom?
By creating and analyzing your own data.
If your brand provides a fresh data set or a new analysis of existing data, then you’re the sole owner of information, and you can offer it exclusively to publications. This makes your pitch much more interesting.
This tactic is a combination of original content marketing and digital PR.
But the content can’t just be timely. It also has to be relevant to the writer you’re pitching and that writer’s audience. I’ll explain more on that in #4.
Finally, significance, which refers to the impact it has on the audience. When you think of local news, this is why they report on things like traffic jams and school closures: It directly affects the daily lives of the people watching and listening.
Alternatively, your data can be significant to writers covering specific beats. For example, for our client ZenBusiness, we surveyed Americans and asked what they thought about the government’s relief packages for COVID-19.
While ZenBusiness operates in the office/work niches, this new insight into American perspective was appealing to the political publication The Hill.
Image Credits: Fractl (opens in a new window)
Significance is tough criteria from a brand perspective, but if you’re able to offer brand-new insights, it’s certainly not impossible.
Imagine a stranger handing you a book with a blank cover and saying, “Here, you’ll find this interesting.” Would you read the whole book?
Tech companies that go public capture our imagination because they are literal happy endings. An Initial Public Offering is the promised land for startup pilgrims who may wander the desert for years seeking product-market fit. After all, the “I” in “ISO” stands for “incentive.”
A flurry of new S-1s in a single week forced me to rearrange our editorial calendar, but I didn’t mind; our 360-degree coverage let some of the air out of various hype balloons and uncovered several unique angles.
For example: I was familiar with Affirm, the service that lets consumers finance purchases, but I had no idea Peloton accounted for 30% of its total revenue in the last quarter.
“What happens if Peloton puts on the brakes?” I asked Alex Wilhelm as I edited his breakdown of Affirm’s S-1. We decided to use that as the subhead for his analysis.
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Thank you very much for reading Extra Crunch this week; I hope you have a relaxing weekend.
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Gaming company Roblox filed to go public yesterday afternoon, so Alex Wilhelm brought out a scalpel and dissected its S-1. Using his patented mathmagic, he analyzed Roblox’s fundraising history and reported revenue to estimate where its valuation might land.
Noting that “the public markets appear to be even more risk-on than the private world in 2020,” Alex pegged the number at “just a hair under $10 billion.”
HANGZHOU, CHINA – JULY 31: An employee uses face recognition system on a self-service check-out machine to pay for her meals in a canteen at the headquarters of Alibaba Group on July 31, 2018 in Hangzhou, Zhejiang Province of China. The self-service check-out machine can calculate the price of meals quickly to save employees’ queuing time. (Photo by Visual China Group via Getty Images)
For all the hype about new forms of payment, the way I transact hasn’t been radically transformed in recent years — even in tech-centric San Francisco.
Sure, I use NFC card readers to tap and pay and tipped a street musician using Venmo last weekend. But my landlord still demands paper checks and there’s a tattered “CASH ONLY” taped to the register at my closest coffee shop.
In China, it’s a different story: Alibaba’s employee cafeteria uses facial recognition and AI to determine which foods a worker has selected and who to charge. Many consumers there use the same app to pay for utility bills, movie tickets and hamburgers.
“Today, nobody except Chinese people outside of China uses Alipay or WeChat Pay to pay for anything,” says finance researcher Martin Chorzempa. “So that’s a big unexplored side that I think is going to come into a lot of geopolitical risks.”
Consumer lending service Affirm filed to go public on Wednesday evening, so Alex used Thursday’s column to unpack the company’s financials.
After reviewing Affirm’s profitability, revenue and the impact of COVID-19 on its bottom line, he asked (and answered) three questions:
Image Credits: XiXinXing (opens in a new window) / Getty Images
“The only thing more rare than a unicorn is an exited unicorn,” observes Managing Editor Danny Crichton, who looked back at Exitpalooza 2020 to answer “a simple question — who made the money?”
Covering each exit from the perspective of founders and investors, Danny makes it clear who’ll take home the largest slice of each pie. TL;DR? “Some really colossal winners among founders, and several venture firms walking home with billions of dollars in capital.
The S-1 Airbnb released at the start of the week provided insight into the home-rental platform’s core financials, but it also raised several questions about the company’s health and long-term viability, according to Alex Wilhelm:
Andrew Anagnost, president and CEO, Autodesk.
Earlier this week, Autodesk announced its purchase of Spacemaker, a Norwegian firm that develops AI-supported software for urban development.
TechCrunch reporter Steve O’Hear interviewed Autodesk CEO Andrew Anagnost to learn more about the acquisition and asked why Autodesk paid $240 million for Spacemaker’s 115-person team and IP — especially when there were other startups closer to its Bay Area HQ.
“They’ve built a real, practical, usable application that helps a segment of our population use machine learning to really create better outcomes in a critical area, which is urban redevelopment and development,” said Anagnost.
“So it’s totally aligned with what we’re trying to do.”
On Monday, Alex dove into the IPO filing for enterprise artificial intelligence company C3.ai.
After poring over its ownership structure, service offerings and its last two years of revenue, he asks and answers the question: “is the business itself any damn good?”
Image Credits: jayk7 / Getty Images
In his new book, “Subprime Attention Crisis,” writer/researcher Tim Hwang attempts to answer a question I’ve wondered about for years: does advertising actually work?
Managing Editor Danny Crichton interviewed Hwang to learn more about his thesis that there are parallels between today’s ad industry and the subprime mortgage crisis that helped spur the Great Recession.
So, are online ads effective?
“I think the companies are very reticent to give up the data that would allow you to find a really definitive answer to that question,” says Hwang.
Image Credits: Zoom
Even after much of the population has been vaccinated against COVID-19, we will still be using Zoom’s video-conferencing platform in great numbers.
That’s because Zoom isn’t just an app: it’s also a platform play for startups that add functionality using APIs, an SDK or chatbots that behave like smart assistants.
Enterprise reporter Ron Miller spoke to entrepreneurs and investors who are leveraging Zoom’s platform to build new applications with an eye on the future.
“By offering a platform to build applications that take advantage of the meeting software, it’s possible it could be a valuable new ecosystem for startups,” says Ron.
Image Credits: Bryce Durbin
Without an on-campus experience, many students (and their parents) are wondering how much value there is in attending classes via a laptop in a dormitory.
Even worse: Declining enrollment is leading many institutions to eliminate majors and find other ways to cut costs, like furloughing staff and cutting athletic programs.
Edtech solutions could fill the gap, but there’s no real consensus in higher education over which tools work best. Many colleges and universities are using a number of “third-party solutions to keep operations afloat,” reports Natasha Mascarenhas.
“It’s a stress test that could lead to a reckoning among edtech startups.”
3D rendering of TNT dynamite sticks in carton box on blue background. Explosive supplies. Dangerous cargo. Plotting terrorist attack. Image Credits: Gearstd / Getty Images.
I look for guest-written Extra Crunch stories that will help other entrepreneurs be more successful, which is why I routinely turn down submissions that seem overly promotional.
However, Henrik Torstensson (CEO and co-founder of Lifesum) submitted a post about the techniques he’s used to scale his nutrition app over the last three years. “It’s a strategy any startup can use, regardless of size or budget,” he writes.
According to Sensor Tower, Lifesum is growing almost twice as fast as Noon and Weight Watchers, so putting his company at the center of the story made sense.
Image via Getty Images / Alexander Spatari
Every year, we ask TechCrunch reporters, VCs and our Extra Crunch readers to recommend their favorite books.
Have you read a book this year that you want to recommend? Send an email with the title and a brief explanation of why you enjoyed it to firstname.lastname@example.org.
We’ll compile the suggestions and publish the list as we get closer to the holidays. These books don’t have to be published this calendar year — any book you read this year qualifies.
Please share your submissions by November 30.
Image Credits: Sophie Alcorn
My VC partner and I are working with 50/50 co-founders on their startup — let’s call it “NewCo.” We’re exploring pre-seed terms.
One founder is on a green card and already works there. The other founder is from India and is working on an H-1B at a large tech company.
Can the H-1B co-founder lead this company? What’s the timing to get everything squared away? If we make the investment we want them to hit the ground running.
— Diligent in Daly City
Japan-based financial services group ORIX Corporation today announced that it has made a $60 million strategic investment into the Israeli crowdsourcing platform OurCrowd. In return, the crowdfunding platform will provide the firm with access to its startup network. OurCrowd also says that the two groups will collaborate to create financial products and investment opportunities for the Japanese and global market, including access to its venture funds and specific companies in the OurCrowd portfolio.
“ORIX is a global leader in diversified business and financial services who will strengthen OurCrowd in many ways,” OurCrowd CEO Jon Medved said in today’s announcement. “We are enthusiastic about the potential to further transform the venture capital asset class together and provide a strong bridge for our innovative companies to the important Asian markets.”
While ORIX already operates in 37 countries, including the U.S., this is the company’s first investment in Israel. It comes at a time where Japanese investments in Israel are already surging. And earlier this year, Israel’s flag carrier El Al was about to launch direct flights to Tokyo, for example, and while the pandemic canceled those plans, it’s a clear sign of the expanding business relations between the two countries.
“We are excited about investing in OurCrowd, Israel’s most active venture investor and one of the world’s most innovative venture capital platforms,” ORIX UK CEO Kiyoshi Habiro said. “We intend to be active partners with OurCrowd and help them accelerate their already impressive growth, while bringing the best of Israeli tech to Japan’s large industrial and financial sectors.”
So far, OurCrowd has made investments in 220 companies across its 22 funds. Some of its most successful exits include Beyond Meat and Lemonade, JUMP Bike, Briefcam and Argus. ORIX, too, has quite a diverse portfolio, with investments that range from real estate to banking and energy services.
The only thing more rare than a unicorn is an exited unicorn.
At TechCrunch, we cover a lot of startup financings, but we rarely get the opportunity to cover exits. This week was an exception though, as it was exitpalooza as Affirm, Roblox, Airbnb, and Wish all filed to go public. With DoorDash’s IPO filing last week, this is upwards of $100 billion in potential float heading to the public markets as we make our way to the end of a tumultuous 2020.
All those exits raise a simple question – who made the money? Which VCs got in early on some of the biggest startups of the decade? Who is going to be buying a new yacht for the family for the holidays (or, like, a fancy yurt for when Burning Man restarts)? The good news is that the wealth is being spread around at least a couple of VC firms, although there are definitely a handful of partners who are looking at a very, very nice check in the mail compared to others.
So let’s dive in.
I’ve covered DoorDash’s and Airbnb’s investor returns in-depth, so if you want to know more about those individual returns, feel free to check those analyses out. But let’s take a more panoramic perspective of the returns of these five companies as a whole.
First, let’s take a look at the founders. These are among the very best startups ever built, and therefore, unsurprisingly, the founders all did pretty well for themselves. But there are pretty wide variations that are interesting to note.
First, Airbnb — by far — has the best return profile for its founders. Brian Chesky, Nathan Blecharczyk, and Joe Gebbia together own nearly 42% of their company at IPO, and that’s after raising billions in venture capital. The reason for their success is simple: Airbnb may have had some tough early innings when it was just getting started, but once it did, its valuation just skyrocketed. That helped to limit dilution in its earlier growth rounds, and ultimately protected their ownership in the company.
David Baszucki of Roblox and Peter Szulczewski of Wish both did well: they own 12% and about 19% of their companies, respectively. Szulczewski’s co-founder Sheng “Danny” Zhang, who is Wish’s CTO, owns 4.9%. Eric Cassel, the co-founder of Roblox, did not disclose ownership in the company’s S-1 filing, indicating that he doesn’t own greater than 5% (the SEC’s reporting threshold).
DoorDash’s founders own a bit less of their company, mostly owing to the money-gobbling nature of that business and the sheer number of co-founders of the company. CEO Tony Xu owns 5.2% while his two co-founders Andy Fang and Stanley Tang each have 4.7%. A fourth co-founder Evan Moore didn’t disclose his share totals in the company’s filing.
Finally, we have Affirm . Affirm didn’t provide total share counts for the company, so it’s hard right now to get a full ownership picture. It’s also particularly hard because Max Levchin, who founded Affirm, was a well-known, multi-time entrepreneur who had a unique shareholder structure from the beginning (many of the venture firms on the cap table actually have equal proportions of common and preferred shares). Levchin has more shares all together than any of his individual VC investors — 27.5 million shares, compared to the second largest investor, Jasmine Ventures (a unit of Singapore’s GIC) at 22 million shares.
Index Ventures, a London- and San Francisco-headquartered venture capital firm that primarily invests in Europe and the U.S., recently announced its latest partner. Carlos Gonzalez-Cadenas, currently COO of London-based fintech GoCardless and previously the chief product officer of Skyscanner, will join Index in January.
Gonzalez-Cadenas is a seasoned entrepreneur and operator, but has also become a prolific angel investor in the U.K. and Europe over the last three years, making more than 50 angel investments in total. Well-regarded by founders and co-investors, his transition to a full-time role in venture capital feels like quite a natural one.
Earlier this week, TechCrunch caught up with Gonzalez-Cadenas over Zoom to learn more about his new role at Index and how he intends to source deals and support founders. Index’s latest hire also shared his insights on Europe’s venture market, describing this era as the “best moment in entrepreneurship in Europe.”
TechCrunch: Let me start by asking, why do you want to become a VC? You’re obviously a well-established entrepreneur and operator, are you sure venture capital is the career for you?
Carlos Gonzalez-Cadenas: I’ve been an angel investor for the last three years and this is something that has basically grown for me quite organically. I started doing just a handful and seeing if this is something I like and over time it has grown quite a lot and so has the number of entrepreneurs I’m partnered with. And this is something I’ve been increasingly more excited to do. So it has grown organically and something that emotionally has been getting closer and closer as time has passed.
And the things I like more specifically are: One, I’m quite a curious person, and for me, investing gives you the possibility of learning a lot about different sectors, about different entrepreneurs, different ways of building businesses, and that is something that I enjoy a lot.
The second bit is that I care a lot about helping entrepreneurs, especially the next generation of entrepreneurs, build great businesses in Europe. I’ve been very lucky, in the past, to learn from great people, like Gareth [Williams, Skyscanner co-founder] and Hiroki [Takeuchi. CEO at GoCardless], in my journey. I feel a duty of helping the next generation of entrepreneurs and sharing all the things that I’ve learnt. I care a lot about setting up founders as much as possible for success and sharing all those experiences I’ve learned [from].
These are the key two motivations that have led me to decide that it would be a great time now to move to the investing side.
How have you managed your deal flow while having a full-time job and where is that deal flow coming from?
It is typically coming in three buckets. A part of it is coming from my entrepreneur and operator network. So there are entrepreneurs and operators I know that are referring other entrepreneurs to me. Another bucket is other investors that I typically co-invest with. Another bucket is venture capitalists. I basically tend to invest quite a lot with VCs and in some cases they are referring deals to me.
In terms of managing it alongside GoCardless, it takes quite a lot of effort. It requires a lot of dedication and time invested during evenings and weekends.
The good thing is that my network typically tends to send me quite highly curated deals so essentially the deal flow I have luckily tends to be quite high quality, which makes things a bit more manageable. But don’t get me wrong, it still takes quite a lot of effort even if the deal flow is relatively high quality.
Presumably you haven’t been able to be all that hands-on as an angel investor, so how are you going to make that transition and what is it that you think you bring with the operational side to venture?
The way I think about this is, the entrepreneurs I typically invest in and their companies tend to be quite capable in their day-to-day perspective. Where they tend to find more value in interactions with me is what I call the “moments of truth.” Those key decisions, those key points in the journey where essentially it can influence the trajectory of the business in a fundamental way. It could be things like, I am fundraising and I don’t know how to position the business. Or I’m thinking about my strategy for the next 18 months and I will basically welcome an experienced person giving me a qualified opinion.
Or I have a big people problem and I don’t know how to solve that problem and I need that third person who has been in my shoes before. Or it could be that I’m thinking about how to organize my team as I move from startup to scale-up and I need help from someone who has scaled teams before. Or could be that I’m hiring three executives and I don’t know what a great CMO looks like. It’s those high-impact, high-leverage questions that the entrepreneurs tend to find helpful engaging with me, as opposed to very detailed day-to-day things that most of the entrepreneurs I work with tend to be quite capable of doing. And so far that model is working. The other thing is that the model is quite scalable because you are engaging 2-3 times per year but those times are high quality and highly impactful for the entrepreneur.
I typically also tend to have pretty regular and frequent communication with entrepreneurs on Slack. It’s more like quick questions that can be solved, and I tend to get quite a lot of that. So I think it’s that bimodel approach of high-frequency questions that we can solve by asynchronous means or high-impact moments a few times per year where, essentially, we need to sit down and we need to think together deeply about the problem.
And I tend to do nothing in the middle, where essentially, it’s stuff that is not so impactful but takes a huge amount of time for everyone, that doesn’t tend to be the most effective way of helping entrepreneurs. Obviously, I’m guided by what entrepreneurs want from perspective, so I’m always training the models in response to what they need.
I’ve long said that I don’t care where you come from, if your name is hard to say, or you have a “funny” accent. There’s a reason for that. For centuries, some of America’s biggest companies have been founded by immigrants. Beyond household names like Levi Strauss (Germany) and Elon Musk (South Africa), more than half of unicorns in the U.S. today came from the minds of scrappy entrepreneurs who were born outside the United States. This country’s economy wouldn’t be the same without them.
It’s not easy to move to a new country to join an industry or found a company. Especially not when political moods can easily shift to create new headwinds. We’ve seen this happen periodically with U.S. immigration policy and visa programs. (I am hopeful that President-elect Biden’s more positive stance will lessen those headwinds in the very near future.)
Yet, despite the challenges of being an immigrant, so many have carved their own path to success. What makes them so special? What is it about immigrants, in particular, that so often leads to such impressive founder stories? Why are they twice as likely as native-born Americans to become entrepreneurs?
The short answer is: Everything that seems to work against them ends up being a huge advantage. From political roadblocks, to cultural barriers, to market differences, immigrants have a knack for transforming challenges into strengths.
On the surface, one might think a great idea is all it takes to secure a coveted visa and launch a startup in the U.S. Sadly, for immigrants, there are several steps they need to take first (and a lot of red tape to get past). While the U.K., Germany, Canada, Chile and other countries offer straightforward startup visa options, the same can’t be said for the U.S., where plans for a similar startup visa were quashed in 2017. Further airtight immigration restrictions under the Trump administration make it extremely difficult for entrepreneurs trying to start their company in America.
It’s no secret that perseverance is key to success for anybody in any field, but foreign-born entrepreneurs have no choice but to make it part of their journey. Just look at Eric Yuan. He might not be a household name, but the China-born entrepreneur was denied a visa eight times in the 1990s before finally landing a job at WebEx and ultimately founding the $35 billion company we all know and love (and need) today: Zoom.
Time and time again, immigrants have proven their scrappiness and found a way to work within the United States’ complicated visa system. Whether they’re getting creative with student visa options, or have the sheer willpower to try again six or seven or eight times, even before starting their companies, immigrant founders often prove they have the resilience needed to overcome any obstacle.
Once the visa situation is sorted out, immigrants also face day-to-day hurdles. For starters, founders who graduated from an unknown college in another country have an uphill battle trying to establish their own reputation and attract VC attention over more “prestigious” competitors. On top of that, immigrants today tend to be on the younger side (nearly 50% are Gen Z or millennials), so they immediately have to deal with doubters who question their maturity. Another reason why being extra-tenacious from the get-go is nonnegotiable.
Language is perhaps the biggest hurdle for immigrant founders. Anyone with an accent knows what it’s like to get funny or confused looks during basic interactions: ordering food, getting directions, finding the bathroom. Oh yeah, and raising millions of dollars in venture funding.
On the bright side, nonnative speakers quickly develop empathy and a deep appreciation for how others live. Europeans, in particular, have traditionally emphasized foreign language education more than Americans, and their proximity to other countries instills a multinational attitude from an early age. Given their life experiences and global network of contemporaries and mentors, immigrant founders have a worldview that helps them think outside the box, challenge the status quo and stand out in a new country.
Sure, a unique work ethic and diverse perspective are great differentiators. But what does that really have to do with growing a company? While many immigrant founders may have the “it factor” that grabs investors’ initial attention, the key to success is translating that worldview into business savvy.
Entrepreneurs from large economic players like China, Germany or India have the advantage of growing up in a fairly typical global market — the lessons learned there can loosely be applied to startup scenes in similar markets like the U.S. Luckily, coming from a small country also has its perks. Namely, a unique idea that starts in a smaller market will have plenty of room to grow in a new, bigger country.
Rappi has brought an untapped delivery app model from Bogotá to stores and customers throughout South America, and Amsterdam-based communications platform MessageBird recently joined Europe’s list of unicorns with a massive funding round to help expand its presence across continents. The Bay Area doesn’t always solve all the world’s tech problems. Quite often, there’s someone with a greater worldview (an immigrant founder) who’s noticed a market hole and is already building its solution on the other side of the world.
COVID-19 has made Silicon Valley totally borderless, as VC networking and meetings can now all be done anywhere in the world. While that has leveled the playing field in some ways, it gives immigrant “underdogs” an unexpected leg up. All of a sudden, that brilliant team from the Czech Republic can collaborate, expand and scale its business from across the world.
These days, no idea is too niche for a small- or large-market immigrant founder. As long as they continue turning challenges into opportunities, immigrants will always find a way to overcome the odds and get their startup off the ground. Now that we’re living in an ever more global world, there will need to be more advocacy for taking politics out of policy if the goal is for that will, that grit and that ingenuity to prosper into potential billion-dollar startups here in the U.S.
Portuguese VC Faber has hit the first close of its Faber Tech II fund at €20.5 million ($24.3 million). The fund will focus on early-stage data-driven startups starting from Southern Europe and the Iberian peninsula, with the aim of reaching a final close of €30 million in the coming months. The new fund targets pre-series A and early-stage startups in Artificial Intelligence, Machine Learning and Data Science.
The fund is backed by European Investment Fund (EIF) and the local Financial Development Institution (IFD), with a joint commitment of €15 million (backed by the Investment Plan for Europe – the Juncker Plan and through the Portugal Tech program), alongside other private institutional and individual investors.
Alexandre Barbosa, Faber’s Managing Partner, said “The success of the first close of our new fund allows us to foresee a growth in the demand for this type of investment, as we believe digital transformation through Intelligence Artificial, Machine Learning and data science are increasingly relevant for companies and their businesses, and we think Southern Europe will be the launchpad of a growing number.”
Faber has already ‘warehoused’ three initial investments. It co-financed a 15.6 million euros Series A for SWORD Health – portuguese startup that created the first digital physiotherapy system combining artificial intelligence and clinical teams. It led the pre-seed round of YData, a startup with a data-centric development platform that provides data science professionals tools to deal with accessing high-quality and meaningful data while protecting its privacy. It also co-financed the pre-seed round of Emotai, a neuroscience-powered analytics and performance-boosting platform for virtual sports.
Faber was a first local investor in the first wave of Portugal’s most promising startups, such as Seedrs (co-founded by Carlos Silva, one f Faber’s Partners) which recently announced its merger with CrowdCube); Unbabel; Codacy and Hole19, among others.
Faber’s main focus is deep-tech and data science startups and as such it’s assembled around 20 experts, researchers, Data Scientists, CTO’s, Founders, AI and Machine Learning professors, as part of its investment strategy.
In particular, it’s created the new role of Professor-in-residence, the first of whom is renowned professor Mário Figueiredo from Lisbon’s leading tech university Instituto Superior Técnico. His interests include signal processing, machine learning, AI and optimization, being a highly cited researcher in these fields.
Speaking to TechCrunch in an interview Barbosa added: “We’ve seen first-time, but also second and third-time entrepreneurs coming over to Lisbon, Porto, Barcelona, Valencia, Madrid and experimenting with their next startup and considering starting-up from Iberia in the first place. But also successful entrepreneurs considering extending their engineering teams to Portugal and building engineering hubs in Portugal or Spain.”
“We’ve been historically countercyclical, so we found that startups came to, and appears in Iberia back in 2012 / 2013. This time around mid-2020, we’re very bullish on what’s we can do for the entrepreneurial engine of the economy. We see a lot happening – especially around our thesis – which is basically the data stack, all things data AI-driven, machine learning, data science, and we see that as a very relevant core. A lot of the transformation and digitization is happening right now, so we see a lot of promising stuff going on and a lot of promising talent establishing and setting up companies in Portugal and Spain – so that’s why we think this story is relevant for Europe as a whole.”
AI startup RealityEngines.AI changed its name to Abacus.AI in July. At the same time, it announced a $13 million Series A round. Today, only a few months later, it is not changing its name again, but it is announcing a $22 million Series B round, led by Coatue, with Decibel Ventures and Index Partners participating as well. With this, the company, which was co-founded by former AWS and Google exec Bindu Reddy, has now raised a total of $40.3 million.
In addition to the new funding, Abacus.AI is also launching a new product today, which it calls Abacus.AI Deconstructed. Originally, the idea behind RealityEngines/Abacus.AI was to provide its users with a platform that would simplify building AI models by using AI to automatically train and optimize them. That hasn’t changed, but as it turns out, a lot of (potential) customers had already invested into their own workflows for building and training deep learning models but were looking for help in putting them into production and managing them throughout their lifecycle.
“One of the big pain points [businesses] had was, ‘look, I have data scientists and I have my models that I’ve built in-house. My data scientists have built them on laptops, but I don’t know how to push them to production. I don’t know how to maintain and keep models in production.’ I think pretty much every startup now is thinking of that problem,” Reddy said.
Since Abacus.AI had already built those tools anyway, the company decided to now also break its service down into three parts that users can adapt without relying on the full platform. That means you can now bring your model to the service and have the company host and monitor the model for you, for example. The service will manage the model in production and, for example, monitor for model drift.
Another area Abacus.AI has long focused on is model explainability and de-biasing, so it’s making that available as a module as well, as well as its real-time machine learning feature store that helps organizations create, store and share their machine learning features and deploy them into production.
As for the funding, Reddy tells me the company didn’t really have to raise a new round at this point. After the company announced its first round earlier this year, there was quite a lot of interest from others to also invest. “So we decided that we may as well raise the next round because we were seeing adoption, we felt we were ready product-wise. But we didn’t have a large enough sales team. And raising a little early made sense to build up the sales team,” she said.
Reddy also stressed that unlike some of the company’s competitors, Abacus.AI is trying to build a full-stack self-service solution that can essentially compete with the offerings of the big cloud vendors. That — and the engineering talent to build it — doesn’t come cheap.
It’s no surprise then that Abacus.AI plans to use the new funding to increase its R&D team, but it will also increase its go-to-market team from two to ten in the coming months. While the company is betting on a self-service model — and is seeing good traction with small- and medium-sized companies — you still need a sales team to work with large enterprises.
Come January, the company also plans to launch support for more languages and more machine vision use cases.
“We are proud to be leading the Series B investment in Abacus.AI, because we think that Abacus.AI’s unique cloud service now makes state-of-the-art AI easily accessible for organizations of all sizes, including start-ups. Abacus.AI’s end-to-end autonomous AI service powered by their Neural Architecture Search invention helps organizations with no ML expertise easily deploy deep learning systems in production.”
Nigeria based startup Autochek looks to bring the sales and servicing of cars in Africa online. The newly founded venture has closed a $3.4 million seed-round co-led by TLcom Capital and 4DX ventures toward that aim.
The raise comes fresh off of Autochek’s September acquisition of digital car sales marketplace Cheki in Nigeria and Ghana. It also follows the recent departure of Autochek CEO Etop Ikpe from Cars45 — the startup he co-founded in 2016, now owned by Amsterdam based OLX Group.
That’s a lot of news in a short-time for Ikpe. His new company will likely be in direct competition with his previous venture (also located in Nigeria). Still, the Nigerian entrepreneur — who built his early tech credentials at e-commerce startups DealDey and Konga — says Autochek is a new model.
“It’s different in the type of technology we’re building and that it’s asset light. I don’t have any inventory. I don’t buy cars. I don’t transact any [physical] cars. I don’t own any inspection locations. I don’t own any dealerships,” Ikpe told TechCrunch on a call from Lagos.
Autochek’s model, according to its CEO, is aimed at creating the digital infrastructure for a new system to better coordinate sales, servicing, and vehicle records of the car market in Nigeria and broader Africa.
Autochek CEO Etop Ikpe, Image Credit: Autochek
Ikpe characterizes that market as still largely informal and fragmented. “We’re basically focused on technology solutions to build the rails of [Africa’s] automotive sector to run on. We’re focusing on three foundations of the market: transactions and trading, maintenance, and financing,” he said.
Autochek’s platform — managed by a developer team in Lagos and Nairobi — is a network for consumers and businesses to buy cars, sell cars, service cars, and finance cars sales.
On the financing side, the startup launched with 10 bank partnerships in Nigeria and two in Ghana, according to Ikpe. Creating more financing options is both a big opportunity for the startup and consumers, he explained. “The used car market in Africa is a $45 billion a year market that has only a 5% financing penetration rate…so there’s huge upside for growth.”
Image Credit: Autochek
Across its core product offerings, Autochek has created a network of partners and standards. The company generates revenues through fees charged on consumer transactions and commissions paid by dealers and service shops on the platform. Consumers can sign up and use the Autochek app for free.
On the sudden departure from his previous startup, Cars45, “I left because I wanted to build something else,” explained Ikpe. There’s been plenty of speculation in local tech press as to what happened, including reports of forced exits by investors. Ikpe declined to get into the details except to say, “I’ve resigned. I’ve moved on and I’m focused on doing what I’m doing right now.”
In addition to its operations in Nigeria — Africa’s most populous nation, largest economy and top VC destination — Autochek plans to use its seed-financing to expand services and geographic scope. The startup will add associated auto related services, such as insurance and blue book pricing products. Autochek is also eying possible entry in new countries such as Ivory Coast, Senegal, South Africa, Kenya, Egypt and Algeria. More M&A could also be in play. “Acquisitions are going to be a core part of our expansion strategy,” said Ikpe.
TLcom Capital Partner Andreata Muforo confirmed the fund’s co-lead on the $3.4 million seed round. Speaking to TechCrunch on a call from Nairobi, she named Autochek’s asset light model, Ikpe’s repeat founder status, and the fund’s view of auto sales and service as an underserved market in Africa as reasons for backing the venture. Golden Palm Investments, Lateral Capital, MSA Capital, and Kepple Africa Ventures also joined the investment round.
While fintech gains the majority of VC financing across Africa’s top tech hubs — such as Nigeria, Kenya and South Africa — mobility related startups operating on the continent have attracted notable support. Drone delivery venture Zipline and trucking logistics company Kobo360 have both received backing from Goldman Sachs. In 2019, FlexClub, a South African startup that matches investors and drivers to cars for ride-hailing services, used a $1.3 million round to expand to Mexico in partnership with Uber.
Repeat founders who have a proven track record, good references, and in the best cases, an exit to point to will have an easy time making inroads with venture capitalists. Earlier this week, for example, the former founders of Udemy and altMBA raised more than $4 million for a startup with no name or final product.
However, broad strokes in an environment as nuanced and dynamic as VC never make sense. As early stage evolves and more capital flows into the sector, some investors actually prefer first-time founders; it all depends on the type of venture capitalist you ask.
“We look for founders who have not had a demonstrable exit before because we think that it can actually taint your perspective,” Darabi said during an Extra Crunch Live. “We look for, instead, founders [who] have had a front row seat of success, or had some product experience where you’re watching from third base but not necessarily the person that takes the whole show home.”
The preference comes directly because of TMV’s investment cadence. TMV invests between $500,000 to $1.5 million into startups that have valuations between $10 million to $15 million. Startups that have heavy market signals or hype will likely exceed that range, and thus become out of reach. For example, a Y Combinator company raised $16 million in a seed round at a $75 million valuation before Demo Day.
As a result, TMV sources founders who have not yet made the leap and want an institutional investor to help them start their first company.
Many consumers might think Noom or Weight Watchers are industry leaders with their nonstop commercials, but neither is the fastest-growing weight management program.
Over the past year, nutrition app Lifesum has acquired users at nearly twice the rate of both Noom and Weight Watchers, according to statistics from Sensor Tower, the independent market intelligence for the mobile app economy.
Over this past summer, we surpassed Noom on the global scale with 45 million users. More impressively, we accomplished this without any TV buys. That’s right — no multimillion dollar ad campaigns, allowing us to redistribute precious marketing dollars to other growth projects.
Here’s a closer look at the three growth marketing tactics I credit with helping us scale Lifesum over the last 36 months. It’s a strategy any startup can use, regardless of size or budget.
Generations approach products differently. It’s important for startups to understand the different generational approaches of their customers. Startups that spend time thinking and strategizing about where generational trends are going will scale faster.
Here’s a closer look at the three growth marketing tactics I credit with helping us scale Lifesum over the last 36 months. It’s a strategy any startup can use, regardless of size or budget.
Millennials and Generation Z are now the largest consumer market in the world, so you can’t ignore them if you want to scale. With Lifesum these generations have helped our brand surpass the older and well-established competitors. We achieved this by intimately understanding how they view health and fitness.
Gen Z and millennials are all about empowerment. They grew up with Google and Facebook, having information at their fingertips. They are far less likely to be moved by a TV commercial since they desire to discover the world on their own.
In our industry, we’ve learned millennials and Gen Z don’t want a one-size-fits-all weight loss program or to count calories like their parents did 20 years ago. As millennials and Gen Z started embracing keto, intermittent fasting and pescatarian diets, our nutrition team had already created tailored programs to help them stick with it.
As a brand, it’s important to look ahead and anticipate what is coming next. This also applies to marketing your product. If you get in early with emerging marketing platforms, you will save money and potentially reach more early adopters.
This month, the Securities Exchange Commission approved major updates to rules enacted via the 2012 JOBS Act. Their stated goal was to “harmonize” the guidelines that establish exemptions for equity crowdfunding, Reg D and Reg A+ offerings. These changes are a powerful step forward for both startups and investors alike.
This is a space I’ve watched closely since we launched Indiegogo in 2008 and Vincent earlier this year. I spent four years working with the Obama administration, the SEC and FINRA to help pass the JOBS Act in 2012. After that, it took another four years of rule refining with the SEC and FINRA before finally seeing equity crowdfunding go live in May 2016. At Indiegogo, we worked with several great partners, helping fund nearly 150 businesses via equity crowdfunding in just a couple of years.
For those who worked behind the scenes, we knew that the initial 2016 rules for equity crowdfunding were baby steps. We were balancing unknown risks with legacy rules, aiming toward broader democratization for both investors and entrepreneurs. Now, crowdfunding’s day has come, and I commend all involved including the regulators, politicians, startups and investors who all worked together to push the ecosystem forward to the next step.
That said, even today equity crowdfunding isn’t perfect. There are limits to how much you can raise, how you can communicate and how much documentation you need to provide. In reality, it’s not much different than raising from a pre-seed or seed investor, or far removed from a traditional product crowdfund. In short, it works.
The SEC made some important changes to the rules, and it’s valuable to explore them one by one. Rather than look at them on a macro scale, here are some of the bullet points that are important to entrepreneurs.
Now for a report card. In hopes of clarifying these changes a bit, I looked at each specific point and gave it a letter grade depending on how important it will be to up-and-coming entrepreneurs. While many of the rules got an A or better, some are still lagging and, as we move into a new administration and new year, the difference between crowdfunding success and failure could be spelled out in these simple changes.
|Grade||Previous rules (2016)||Updated rules (2020)|
|A||Maximum allowed fundraise of $1.07 million||Increase in maximum fundraise to $5 million|
This change is significant. One of the main complaints we heard from entrepreneurs exploring Reg CF were the actual costs associated with the raise. Between financial, legal and platform fees, companies could be looking at setup costs of $100,000 or more. Combined with time, effort and additional marketing expenses, it adds up to a lot of money just to be capped at $1 million. When compared to finding a few angel investors, the costs often don’t justify the effort. But at a $5 million cap, the cost-of-capital economics drastically improve. Also $5 million is real money, not something a few angels can match.
|Grade||Previous rules (2016)||Updated rules (2020)|
|C||Maximum allowed fundraise of $50 million||Increase in maximum fundraise to $75 million|
In this case, it’s nice that the cap has gone up, but this isn’t a game-changer. Rarely do Reg A+ offerings even hit the $50 million cap, and those considering Reg+ rarely cite the cap as a key deciding factor. It’s always nice to see the number go up, but this doesn’t change much.