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Lightspeed acquires restaurant software company Upserve for $430M

By Anthony Ha

Lightspeed POS just announced the acquisition of Upserve, expanding Lightspeed’s presence in the restaurant industry.

The company already offers cloud-based point-of-sale software for restaurants and other businesses. It went public in Canada last year before recently debuting on the New York Stock Exchange and acquiring another point-of-sale company, ShopKeep, for $440 million.

The Upserve acquisition is similarly sized — Lightspeed will pay $123 million in cash, along with stock that will bring the total deal size to around $430 million.

Upserve was founded back in 2009 as Swipely, one of several startups encouraging users to share their purchase information with friends. It shifted its offerings to business tools around payments, marketing and loyalty, eventually rebranding as Upserve as it became increasingly focused on the restaurant market. It also raised funding from Vista Equity Partners.

According to the announcement, Upserve brought in $40 million in revenue during the 12-month period ending on September 30. The deal is also supposed to grow Lightspeed’s footprint by 7,000 locations.

“Combining forces with Upserve is a strategic next-step in Lightspeed’s vision of providing the most advanced commerce platform to high-performing businesses around the world,” said Lightspeed founder and CEO Dax Dasilva in a statement. “We believe this acquisition will accelerate the product innovation that has enabled Lightspeed customers to tackle the greatest challenge to their industry in decades and will add exceptional leadership to our teams in anticipation of the economic recovery of the global hospitality industry.”

The announcement also claims that the combination of Lightspeed and Upserve’s teams and technologies will “enable the industry to more easily navigate the new dining needs made permanent by the COVID-19 pandemic.”

Materialize scores $40 million investment for SQL streaming database

By Ron Miller

Materialize, the SQL streaming database startup built on top of the open-source Timely Dataflow project, announced a $32 million Series B investment led by Kleiner Perkins, with participation from Lightspeed Ventures.

While it was at it, the company also announced a previously unannounced $8 million Series A from last year, led by Lightspeed, bringing the total raised to $40 million.

These firms see a solid founding team that includes CEO Arjun Narayan, formerly of Cockroach Labs, and chief scientist Frank McSherry, who created the Timely Dataflow project on which the company is based.

Narayan says that the company believes fundamentally that every company needs to be a real-time company, and it will take a streaming database to make that happen. Further, he says the company is built using SQL because of its ubiquity, and the founders wanted to make sure that customers could access and make use of that data quickly without learning a new query language.

“Our goal is really to help any business to understand streaming data and build intelligent applications without using or needing any specialized skills. Fundamentally what that means is that you’re going to have to go to businesses using the technologies and tools that they understand, which is standard SQL,” Narayan explained.

Bucky Moore, the partner at Kleiner Perkins leading the B round, sees this standard querying ability as a key part of the technology. “As more businesses integrate streaming data into their decision-making pipelines, the inability to ask questions of this data with ease is becoming a non-starter. Materialize’s unique ability to provide SQL over streaming data solves this problem, laying the foundation for them to build the industry’s next great data platform,” he said.

They would naturally get compared to Confluent, a streaming database built on top of the Apache Kafka open-source streaming database project, but Narayan says his company uses straight SQL for querying, while Confluent uses its own flavor.

The company still is working out the commercial side of the house and currently provides a typical service offering for paying customers with support and a service agreement (SLA). The startup is working on a SaaS version of the product, which it expects to release some time next year.

They currently have 20 employees with plans to double that number by the end of next year as they continue to build out the product. As they grow, Narayan says the company is definitely thinking about how to build a diverse organization.

He says he’s found that hiring in general has been challenging during the pandemic, and he hopes that changes in 2021, but he says that he and his co-founders are looking at the top of the hiring funnel because otherwise, as he points out, it’s easy to get complacent and rely on the same network of people you have been working with before, which tends to be less diverse.

“The KPIs and the metrics we really want to use to ensure that we really are putting in the extra effort to ensure a diverse sourcing in your hiring pipeline and then following that through all the way through the funnel. That’s I think the most important way to ensure that you have a diverse [employee base], and I think this is true for every company,” he said.

While he is working remotely now, he sees having multiple offices with a headquarters in NYC when the pandemic finally ends. Some employees will continue to work remotely, with the majority coming into one of the offices.

Cato Network snags $130M Series E on $1B valuation as cloud wide area networking thrives

By Ron Miller

Cato Networks has spent the last five years building a cloud-based wide area network that lets individuals connect to network resources regardless of where they are. When the pandemic hit, and many businesses shifted to work from home, it was the perfect moment for technology like this. Today, the company was rewarded with a $130 million Series E investment on $1 billion valuation.

Lightspeed Venture Partners led the round with participation from new investor Coatue and existing investors Greylock, Aspect Ventures/Acrew Capital, Singtel Innov8 and Shlomo Kramer (who is the co-founder and CEO of the company). The company reports it has now raised $332 million since inception.

Kramer is a serial entrepreneur. He co-founded Check Point Software, which went public in 1996 and Imperva, which went public in 2011, and was later acquired by private equity firm Thoma Bravo in 2018. He helped launch Cato in 2015. “In 2015, we identified that the wide area networks (WANs), which is a tens of billions of dollars market, was still built on the same technology stack […] that connects physical locations, and appliances that protect physical locations and was primarily sold by the telcos and MSPs for many years,” Kramer explained.

The idea with Cato was to take that technology and redesign it for a mobile and cloud world, not one that was built for the previous generation of software that lived in private data centers and was mostly accessed from an office. Today they have a cloud-based network of 60 Points of Presence (PoPs) around the world, giving customers access to networking resources and network security no matter where they happen to be

The bet they made was a good one because the world has changed, and that became even more pronounced this year when COVID hit and forced many people to work from home. Now suddenly having the ability to sign in from anywhere became more important than ever, and they have been doing well with 2x growth in ARR this year (although he wouldn’t share specific revenue numbers).

As a company getting Series E funding, Kramer doesn’t shy away from the idea of eventually going public, especially since he’s done it twice before, but neither is he ready to commit any time table. For now, he says the company is growing rapidly, with almost 700 customers — and that’s why it decided to take such a large capital influx right now.

Cato currently has 270 employees with plans to grow to 400 by the end of next year. He says that Cato is a global company with headquarters in Israel where diversity involves religion, but he is trying to build a diverse and inclusive culture regardless of the location.

“My feeling is that inclusion needs to happen in the earlier stages of the funnel. I’m personally involved in these efforts, at the educational sector level, and when students are ready to be recruited by startups, we are already competitive, and if you look at our employee base it’s very diverse,” Kramer said.

With the new funds, he plans to keep building the company and the product. “There’s a huge opportunity and we want to move as fast as possible. We are also going to make very big investments on the engineering side to take the solution and go to the next level,” he said.

Discuss the unbundling of early-stage VC with Unusual Ventures’ Sarah Leary & John Vrionis

By Natasha Mascarenhas

This year has been everything but business as usual for the venture and tech community. And we still have a presidential election ahead of us.

So, why not listen to the aptly-named experts over at Unusual Ventures? Partners Sarah Leary (co-founder of Nextdoor) and John Vrionis, formerly of Lightspeed Ventures Partners, will join us on Tuesday, October 20 on the Extra Crunch Live virtual stage.

Thanks to all of you who have joined us for our series of live discussions that has included tech leaders like Sydney Sykes, Alexia von Tobel, Mark Cuban and many others (all recordings are still accessible for Extra Crunch subscribers to watch and learn from).

If you’re new, welcome! You’ll have a chance to participate in the live discussion if you have an Extra Crunch subscription.

Unusual Ventures’ investments span the consumer and enterprise space, including companies like Robinhood, AppDynamics, Mulesoft and Winnie.

For this chat, I plan to spend some time talking to Leary and Vrionis about how early-stage venture capital has changed with the rise of rolling funds, community funds and syndicates. Unusual Ventures claims “there’s an enormous opportunity to raise the bar on what seed-stage investors provide for early-stage founders,” so we’ll get into that opportunity as well.

And if we have time, we’ll discuss remote work, building in public and the U.S. presidential election.

So, what are you waiting for? Add the deets to your calendar (below the jump!) and join me next Tuesday.

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Amid layoffs and allegations of fraud, the FBI has arrested NS8’s CEO following its $100+ million summer financing

By Jonathan Shieber

The tagline from today’s announcement from the United States Attorney’s office for the Southern District of New York says it all: “Adam Rogas Allegedly Raised $123 Million from Investors Using Financial Statements that Showed Tens of Millions of Dollars of Revenue and Assets that Did Not Exist”.

Rogas, the co-founder and former chief executive and chief financial officer and board member of the Las Vegas-based fraud prevention company, NS8, was arrested by the Federal Bureau of Investigation and charged in Manhattan court with securities fraud, fraud in the offer of sale of securities, and wire fraud earlier today.

Last week, the company laid off hundreds of staff as reports of an investigation by the Securities and Exchange Commission surfaced, according to a report in Forbes.

“This is a rapidly evolving situation,” Lightspeed Ventures told Forbes in a statement. “We are shocked by the news and have taken steps to inform our LPs. It would be premature to comment further at this time.” Lightspeed Ventures helped lead NS8’s $123 million Series A this June. Other investors include Edison Partners, Lytical Ventures, Sorenson Ventures, Arbor Ventures, Hillcrest Venture Partners, Blu Venture Investors, and Bloomberg Beta, per Crunchbase data.

The allegations are, indeed, shocking.

“As alleged, Adam Rogas was the proverbial fox guarding the henhouse,” said Audrey Strauss, the acting U.S. Attorney for the Southern District of New York, in a statement. “While raising over $100 million from investors for his fraud prevention company, Rogas himself allegedly was engaging in a brazen fraud.  Today’s arrest of Rogas ensures that he will be held accountable for his alleged scheme.”

Allegedly, while Rogas was in control of the bank accounts and spreadsheets that detailed its transactions with customers, he cooked the books to show millions in transactions that did not exist.

From January 2019 through February 2020, the FBI alleges that somewhere between 40 percent and 95 percent of the purported total assets on NS8’s balance sheet were fictitious, according to the statement. Over the same period bank Rogas altered bank statements to reflect $40 million in revenue that simply were not there, according to the Justice Department’s allegations.

On the back of that fake financial data, NS8 was able to raise over $120 million from some top tier investment firms including Lightspeed Venture Partners and AXA Ventures. 

Rogas managed to hoodwink not just the investment firms, but the auditors who were conducting due diligence on their behalf. After the round was completed, NS8 did a secondary offering which let Rogas cash out of $17.5 million through personal sales and through a company he controlled, according to the statement from the DOJ.

“It seems ironic that the co-founder of a company designed to prevent online fraud would engage in fraudulent activity himself, but today that’s exactly what we allege Adam Rogas did. Rogas allegedly raised millions of dollars from investors based on fictitious financial affirmations, and in the end, walked away with nearly $17.5 million worth of that money,” said FBI Assistant Director William F. Sweeney Jr. “Within our complex financial crimes branch, securities fraud cases remain among our top priorities. We’ve seen far too many examples of unscrupulous actors engaging in this type of criminal activity, and we continue to work diligently to weed out this behavior whenever and wherever we find it.”

Outschool, newly profitable, raises a $45M Series B for virtual small group classes

By Natasha Mascarenhas

Outschool, which started in 2015 as a platform for homeschooled students to bolster their extracurricular activities, has dramatically widened its customer base since the coronavirus pandemic began.The platform saw its total addressable market increase dramatically as students went home or campus to abide by COVID regulations instituted by the CDC.

Suddenly, live, small-group online learning classes became a necessity for students. Outschool’s services, which range from engineering lessons through Lego challenges to Spanish teaching by Taylor Swift songs, are now high in demand.

“When the CDC warned that school closures may be required, they talked about ‘internet-based tele-schooling,’” co-founder Amir Nathoo said. “We realized they meant classes over video chat, which is exactly what we offer.”

From August 2019 to August 2020, the online educational class service saw a more than 2,000% increase in bookings. But the surge isn’t just a crop of free users piling atop the platform. Outschool’s sales this year are around $54 million, compared to $6.5 million the year prior. It turned its first profit as a result of the COVID-19 crisis, and is making more than $100 million in annual run rate.

While the profitability and growth could be a signal of the COVID-19 era, today Outschool got a vote of confidence that it isn’t just a pandemic-era boom. Today, Jennifer Carolan of Reach Capital announced at TechCrunch Disrupt that Outschool has raised a $45 million Series B round, bringing its total known capital to $55 million.

The round was led by Lightspeed Venture Partners, with participation from Reach Capital, Union Square Ventures, SV Angel, FundersClub, Y Combinator and others.

The cash gives Outschool the chance to grow its 60-person staff, which started at 25 people this year.

Founder Amir Nathoo was programming computer games from the age of five. So when it came to starting his own company, creating a platform that helped other kids do the same felt right.

In 2015, Nathoo grabbed Mikhail Seregine, who helped build Amazon Mechanical Turk and Google Consumer Surveys, and Nick Grandy, a product manager at Clever, another edtech company and YC alum. The trio drummed up a way to help students access experiences they don’t get in school.

To gauge interest, the company tried in-person classes in the SF Bay area, online content and tested across hundreds of families. Finally, they started working with homeschoolers as an early adopter audience, all to see if people would pay for non-traditional educational experiences.

“Homeschooling was interesting to us because we believed that if some new approach is going to change our education system radically for the better, it was likely that it would start outside the existing system,” Nathoo said.

He added that he observed that the homeschooling community had more flexibility around self-directed extracurricular activities. Plus, those families had a bigger stake in finding live, small-group instruction, to embed in days. The idea landed them a spot in Y Combinator in 2016, and, upon graduation, a $1.4 million seed round led by Collab+Sesame.

“We’d all been on group video calls with work, but we hadn’t seen this format of learning in K12 before,” he said. Outschool began rolling out live, interactive classes in small groups. It took off quickly. Sales grew from $500,000 in 2017 to over $6 million in 2019.

The strategy gave Outschool an opportunity to raise a Series A from Reach Capital, an edtech-focused venture capital fund, in May 2019. They began thinking outwards, past homeschooling families: what if a family with a kid in school wants extra activities, snuck in afterschool, on weekends or on holidays?

Today feels remarkably different for the startup, and edtech more broadly. Nathoo says that 87% of parents who purchase classes on Outschool have kids in school. The growth of Outschool’s total addressable market comes with a new set of challenges and goals.

When the pandemic started, Outschool had 1,000 teachers on its platform. Now, its marketplace hosts 10,000 teachers, all of whom have to get screened.

“That has been a big challenge,” he said. “We aren’t an open marketplace, so we had to rapidly scale our supply and quality team within our organization.” While that back-end work is time-consuming and challenging, the NPS score from students has remained high, Nathoo noted.

Outschool has a number of competitors in the live learning space. Juni Learning, for example, sells live small-group classes on coding and science. The company raised $7.5 million, led by Forerunner Ventures, and has around $10 million in ARR. Note earlier that Outschool is at $100 million in ARR.

“We provide a much broader range of learning options than Juni, which is focused just on coding classes,” Nathoo said. Outschool currently lists more than 50,000 classes on its website.

Varsity Tutors is another Outschool competitor, which is more similar to Outschool. Varsity Tutors sells online tutoring and large-group classes in core subjects such as Math and English. Nathoo says that Outschool’s differentiation remains in its focus of small-group teaching and a variety of topics.

As for what’s ahead for Outschool, Nathoo flirts with the idea of contradiction: what if the platform goes in schools?

“When I think about our strategy going forward, I think of new types of classes, international embedding and embedding ourselves back into school,” he said.

Outschool might use its growing consumer business as an engine to get into school districts, which are notoriously difficult to land deals with due to small budgets. But, to Nathoo, it’s important to get into schools to increase access to learning.

“Our vision is to build a global education community that supplements local school,” he said.

Forage, formerly InsideSherpa, raises $9.3 million Series A for virtual work experiences

By Natasha Mascarenhas

Tech’s coveted internships were some of the first roles to be cut as offices closed and businesses shuttered in response to the coronavirus. A number of companies across the country, including Glassdoor, StubHub, Funding Circle, Yelp, Checkr and even the National Institutes of Health, either paused hiring or canceled their internship programs altogether.

For InsideSherpa co-founders Tom Brunskill and Pasha Rayan, the canceled internships were an opportunity. InsideSherpa, a Y Combinator graduate, hosts virtual work experience programs for college students all around the world.

College students, searching for a way to get job-ready, flocked to the platform from Northern Italy to South-East Asia, to all over the United States. Enrollments in InsideSherpa grew more than 86%, up to 1 million students.

The educational service successfully attracted student interest, and now, has landed investor interest. Today, InsideSherpa announced that it raised $9.3 million in Series A funding, led by Lightspeed Venture Partners . The startup has now raised $11.6 million in known venture funding. Other investors include FundersClub, Y Combinator and Arizona State University.

The financing will be used to grow InsideSherpa’s staff, with more engineering, product and sales roles. Along with the financing, InsideSherpa announced that it has rebranded to Forage.

Forage isn’t selling an internship replacement, but instead comes in one degree before the recruitment process. Students can go to the website and take a course from large companies such as Deloittee, Citi, BCG and GE. The course, designed in collaboration with the particular company and Forage, gives students a chance to “explore what a career would look like at their firm before the internship or entry-level application process opens,” Brunskill explains.

Forage is focused on partnering with large companies that employ upwards of 1,000 students per year via internships to help open up new pipelines. The corporate partners pay a subscription fee per year to post courses, and students can access all courses for free.

Popular courses include the KPMG Data Analytics Program, JPMorgan Chase & Co. Software Engineering Program and the Microsoft Engineering Program.

While Forage declined to disclose ARR, it confirmed that it was profitable heading into its fundraise, which formally closed in July.

Within edtech, flocks of companies have tried (and failed) to deliver on the promise of skills-based learning and employment opportunities as an outcome. The strategy of getting cozy with corporate partners isn’t unique to Forage, but the team views it as a competitive advantage. Of course, the effectiveness of that strategy matters more than the fact that it exists in the first place. Forage did not disclose efficacy information, but said that “some” corporate partners hired up to 52% of the cohort from their programs.

When Brunskill and Rayan first started Forage in 2017, they imagined a mentoring marketplace to connect students to young professionals. Three years later, much has changed.

“While students were interested in the product, they weren’t using it the way we intended,” he said. “Students kept saying to us ‘we just want an internship at company X, can you get me one?’ ”

While Brunskill doesn’t believe there’s any silver bullet solution to fixing education or recruitment systems, he remains optimistic in Forage’s future. After all, even if democratizing access to skills is the first step in a bigger race, it’s not an easy one.

Lightspeed announces the launch of its Southeast Asia operations

By Catherine Shu

A group photo of Lightspeed Venture Capital's Southeast Asia team

Lightspeed’s Southeast Asia team: Akshay Bhushan, Marsha Sugana, Pinn Lawjindakul and Bejul Somaia

Lightspeed Venture Partners announced the launch of its Southeast Asia operations today. Based out of the firm’s new regional headquarters in Singapore, Lightspeed’s team there will invest in startups throughout Southeast Asia from the three global funds it closed earlier this year, which total about $4 billion.

The Southeast Asia team consists of partner Akshay Bhushan, who was a founding member of Flipkart’s corporate development team before joining Lightspeed five years ago; partner Bejul Somaia, who helped set up Lightspeed India; vice president Pinn Lawjindakul, a veteran of Grab and Tiger Global Management; and senior investment associate Marsha Sugana, who previously worked at L Catterton and Goldman Sachs.

Bhushan told TechCrunch that Lightspeed opened its Singapore office in January to serve as a base for its team as they met with entrepreneurs throughout the region. Obviously, the onset of COVID-19 curtailed travel, but they continued talking to startups through video calls and emails.

Lightspeed focuses on early-stage investments and has already invested in some of the most prolific startups in Southeast Asia, including Grab. Its other portfolio companies in the region are Indonesian startups Chilibeli, a social commerce platform, B2B wholesale marketplace Ula and e-commerce logistics platform Shipper, as well as Singaporean software developer NextBillion.AI.

Some of Lightspeed’s investments in other countries have also taken a keen interest in Southeast Asia as a key market for global expansion, including Indian startups OYO Rooms, Darwinbox and Yellow Messenger.

Having regional operations will allow Lightspeed to work more closely with its portfolio companies and make deeper connections with entrepreneurs, Bhushan said.

He added that the pandemic has prompted the rapid adoption of technologies, including platforms that help small businesses digitize their operations or sell online, supply chain solutions and remote working or online education-related services.

In sectors like fintech or logistics, there is also a lot of opportunity in several Southeast Asian countries to build transformative platforms and services. For example, Bhushan said, Shipper is focused on solving some of the biggest supply chain and logistics challenges facing e-commerce sellers in Indonesia, while Grab has made digital payments and other financial services like insurance easier to access.

“The big opportunity in most emerging markets, and this applies to most of the markets in Southeast Asia, is that we generally find that a lot of the fundamental infrastructure is broken, and founders can leverage technology to fill those gaps,” he said. “What excites us are founders who are solving those infrastructural problems, and a lot of our investments are to that effect.”

Hasura raises $25 million Series B and adds MySQL support to its GraphQL service

By Frederic Lardinois

Hasura, a service that provides developers with an open-source engine that provides them a GraphQL API to access their databases, today announced that it has raised a $25 million Series B round led by Lightspeed Venture Partners. Previous investors Vertex Ventures US, Nexus Venture Partners, Strive VC and SAP.iO Fund also participated in this round.

The new round, which the team raised after the COVID-19 pandemic had already started, comes only six months after the company announced its $9.9 million Series A round. In total, Hasura has now raised $36.5 million.

“We’ve been seeing rapid enterprise traction in 2020. We’ve wanted to accelerate our efforts investing in the Hasura community and our cloud product that we recently launched and to ensure the success of our enterprise customers. Given the VC inbound interest, a fundraise made sense to help us step on the gas pedal and give us room to grow comfortably,” Hasura co-founder and CEO Tanmai Gopal told me.

In addition to the new funding, Hasura also today announced that it has added support for MySQL databases to its service. Until now, the company’s service only worked with PostgreSQL databases.

Rajoshi Ghosh, co-founder and COO (left) and Tanmai Gopal, co-founder and CEO (right).

Rajoshi Ghosh, co-founder and COO (left) and Tanmai Gopal, co-founder and CEO (right).

As the company’s CEO and co-founder Tanmai Gopal told me, MySQL support has long been at the top of the most requested features by the service’s users. Many of these users — who are often in the health care and financial services industry — are also working with legacy systems they are trying to connect to modern applications and MySQL plays an important role there, given how long it has been around.

In addition to adding MySQL support, Hasura is also adding support for SQL Server to its line-up, but for now, that’s in early access.

“For MySQL and SQL Server, we’ve seen a lot of demand from our healthcare and financial services / fin-tech users,” Gopa said. “They have a lot of existing online data, especially in these two databases, that they want to activate to build new capabilities and use while modernizing their applications.

Today’s announcement also comes only a few months after the company launched a fully-managed cloud service for its service, which complements its existing paid Pro service for enterprises.

“We’re very impressed by how developers have taken to Hasura and embraced the GraphQL approach to building applications,” said Gaurav Gupta, partner at Lightspeed Venture Partners and Hasura board member. “Particularly for front-end developers using technologies like React, Hasura makes it easy to connect applications to existing databases where all the data is without compromising on security and performance. Hasura provides a lovely bridge for re-platforming applications to cloud-native approaches, so we see this approach being embraced by enterprise developers as well as front-end developers more and more.”

The company plans to use the new funding to add support for more databases and to tackle some of the harder technical challenges around cross-database joins and the company’s application-level data caching system. “We’re also investing deeply in company building so that we can grow our GTM and engineering in tandem and making some senior hires across these functions,” said Gopa.

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