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In pandemic era, entrepreneurs turn to SPACs, crowdfunding and direct listings

By Jonathan Shieber

If necessity is the mother of invention, then new business owners are getting very inventive in the ways in which they access cash. Relying on some long-tested and some new avenues to raise money, entrepreneurs are finding more ways to get public market cash faster than they would have in the past.

Whether it’s from Reg A crowdfunding dollars, Special Purpose Acquisition Companies (SPACs) or direct listings, these somewhat arcane and specialized financing vehicles are making a comeback alongside a rise in new funding mechanisms to get to market quickly and avoid the dilution that comes from private market rounds (especially since those rounds are likely to come at a reduced valuation given market conditions).

Some of these tools have existed for a while and are newly popular in an era where retail investors are driving much of the daily fluctuations of the public markets. Wall Street institutions are largely maintaining their conservative postures with regard to new offerings, so secondary market retail volume growth is outpacing institutional. Retail investors want into these new issues and are pouring into the markets, contributing to huge pops to new public offerings for companies like Lemonade this Thursday and creating an environment where SPACs and crowdfunding campaigns can flourish.

The rise of zero-commission brokerages and the popularization of fractional trading led by the startup Robinhood and adopted by every one of the major online brokers including Charles Schwab, TD Ameritrade, E-Trade and Interactive Brokers has created a stock market boom that defies the underlying market conditions in the U.S. and globally. For instance, daily trades on Robinhood are up 300% year-over-year as of March 2020.

According to data from the BATS exchange, the total trade count in the U.S. was up 71% and May trading was up more than 43% over 2019. Meanwhile, E-Trade daily average revenue trades posted a 244% increase in May over last year’s numbers.

Don’t call it a comeback

The appetite for new issues is growing and if many of the largest venture-backed companies are holding off on going public, smaller names are using SPACs to access public capital and reach these new investors.

Growth capital investor Kennet raises $250M fund, backed by Edmond de Rothschild

By Mike Butcher

Venture capital is “not the only fruit” for entrepreneurs, as the often quieter ‘Growth Capital’ can also see great returns for entrepreneurs who prefer to retain a lot of ownership and control but are also willing to bootstrap over a longer period in order to reach revenues and profits. With the COVID-19 pandemic pushing millions of people online, tech investors of all classes are now reaping the dividends in this accelerated, Coronavirus-powered transition to digital.

Thus it is that Kennet Partners, a leading European technology growth equity investor, has raised $250m (€223m) for its fifth fund, ‘Kennet V’, in partnership with Edmond de Rothschild Private Equity, the Private Equity division of the Edmond de Rothschild Group.

Kennet is perhaps best know for its involvement in companies such as Receipt Bank, Spatial Networks and its exist from Vlocity, IntelePeer, and MedeAnalytics. It’s also invested in Eloomi, Codility, Nuxeo and Rimilia. In raising this new fund, Kennet says it exceeded its target and secured new investors from across Europe and Asia.

The Kennet V fund has already started to deploy the capital into new investments in B2B, SaaS across the UK, Europe and the US.

Typically, Kennet invests in the first external funding that companies receive and is used to finance sales and marketing expansion, particularly internationally. It’s cumulative assets managed are approximately $1 billion.

Hillel Zidel, managing director, Kennet Partners, told me by phone that: “We were fortunate in that most of the capital was raised just before Covid hit. But we were still able to bring additional investors in. Had we been designing a fund for now, then this would have been it, because people have rushed towards technology out of necessity. So this has brought forward digitization but at least five years.”

Johnny El-Hachem, CEO, Edmond de Rothschild Private Equity said in a statement: “We partnered with Kennet, because we liked the dynamism of the team coupled with their strategy of financing businesses providing mission-critical technology solutions. The COVID crisis has underscored the importance of many of these tools to business continuity.”

Insurtech unicorn Lemonade raises IPO range ahead of debut

By Alex Wilhelm

Ahead of its expected IPO pricing later today, SoftBank -backed insurtech startup Lemonade has raised its expected price range. After initially targeting $23 to $26 per share in its debut, Lemonade now intends to sell its equity for $26 to $28 per share.


The Exchange is a daily look at startups and the private markets for Extra Crunch subscribers; use code EXCHANGE to get full access and take 25% off your subscription.


The new range boosts Lemonade’s expected value, a boon for insurtech startups like Root, Kin, MetroMile, Hippo and others. Had Lemonade been forced to reduce its pricing, the valuations of its contemporaries could have come under pressure when they went to raise more capital. But with Lemonade noting that the market will bear a higher price for its equity, it’s a good day for startups looking to rebuild insurance products in a digital-first manner.

This morning, let’s work out the Lemonade’s new valuation range, compare it to the company’s final private valuation and figure out if we can understand why the stock market may support the company at its new price. After that, we’ll share a few notes from folks about the IPO and how they think it might go, just for fun.

Upward

Lemonade intends on selling 11 million shares as before, so the company is not targeting a larger bloc of shares to disburse. At its new price range, Lemonade will sell shares worth between $286 million and $308 million, a few dozen million more at the top end of its new range than it had anticipated with its first IPO pricing interval ($253 million and $286 million).

The company has two valuation ranges: one without the 1.65 million shares its underwriters may purchase at its IPO price if they choose, and one including those shares. Without the extra equity, Lemonade is aiming at a $1.43 billion to $1.54 billion valuation; including the extra equity, Lemonade is worth $1.47 billion to $1.58 billion.

Private equity firm Great Hill Partners acquires stock media service Storyblocks

By Frederic Lardinois

Storyblocks, the subscription-based stock media service, today announced that it has been acquired by private equity firm Great Hill Partners. The firm previously backed companies like Wayfair (and then exited that specific investment in 2017) and Custom Ink. Great Hill also acquired Gizmodo Media Group in 2019. Storyblocks and Great Hill did not disclose the price of the acquisition.

Storyblocks was founded in 2009 and raised about $18.5 million since its launch. Over the years, it went through a few changes. Its early focus was on video content and until 2017, it operated under the VideoBlocks moniker (before that, it was FootageFirm). The company’s focus was always on its buffet-style subscription service, though it also offered an “a la carte” marketplace for one-time purchases. Only a small fraction of users actually bought from the marketplace, so last year, it doubled down on its subscription library.

“Our mission was really all about this idea of affordability and access,” Storyblocks CEO TJ Leonard told me ahead of today’s announcement. “That’s core to our DNA. It always will be. But as we look to the future, we see ourselves supporting our customers across their entire workflow as they work to keep up with the content demand of their audience. You wrap all that together and it felt like the moment was right to take the next step. Update, North Atlantic Capital, QED [Investors] — all of our early investors — have done an awesome job supporting the business over the last eight years to help us get to this point. But Great Hill brings a track record — and I think an expertise — that is perfect for this next stage for us.”

Leonard, who just like the rest of the team is staying on, noted that Storyblocks is profitable and wasn’t actively trying to raise any capital to sustain its business or looking for an exit. Instead, he argued, this sale was simply a logical progression.

“We’ve long felt that even though the business is more than ten years old, there’s still a lot of chapters left in our story. We’re really excited to continue to chase them down,” he said. “And we’ve said all along that if we were going to find a new partner, our first criteria was that they needed to believe in the same mission and vision that we had, they needed to believe the same market opportunity that we saw — and they needed to feel like we had the right model and the right team to go take advantage of that opportunity. As we got to know Great Hill better, it was clear that we were really well aligned across all those important points.”

He also noted that he tends to think of Great Hill as “a growth-oriented private equity investor, almost a growth equity investor masquerading with a private equity structure” given that the firm tends to acquire companies but then also often spins them out again. “All of our conversations have been oriented around how do we change what’s working today and accelerate it. How do we take our long term strategic growth plan that sets certain goals over the next five years and accomplish them in three,” he said.

Storyblocks will continue to operate as usual and continue to invest in its content libraries, Leonard told me. COVID-19 only made the demand for stock footage go up (Storyblocks now sees twice as many downloads per week compared to the start of 2020), but the company was already seeing a growing demand for its service before the pandemic, in large parts because the demand for video content only continues to increase.

“This doesn’t feel like an ending. It feels like we have a lot of good work to do,” said Leonard. “It feels like in a lot of ways, the market is just kind of catching up to what we’ve believed since our founding, which is that if you can help people create more high-quality video content, do it at an affordable price, do it in a way that saves them time, then there’s a huge opportunity out there.”

Brazil’s BizCapital raises $12 million for its online lending service

By Jonathan Shieber

BizCapital, an online lender based in Brazil, has raised $12 million from a clutch of investors including the German development finance institution, the corporate venture capital fund of MercadoLibre and existing investors Quona Capital, Monashees, Chromo INvest and 42K Investments.

“This latest round reinforces investors’ confidence in BizCapital’s ability to innovate in the Latin American credit market amid challenging circumstances caused by Covid-19,” said Francisco Ferreira, the company’s chief executive, in a statement. “We have seen four times as many business credit inquiries on our site year over year, and we are ready to serve them.” 

Founded in 2016, the company pitches itself as a fast and reliable way to access financing for working capital. It already has more than 5,000 customers across 1,200 cities in Brazil, according to a statement.

The company said it would use the money to develop new products for Brazilian small and medium-sized businesses and will expand into new distribution channels.

“With this new round of capital, we will continue to widen our product lineup, helping entrepreneurs during the entire lifecycle of their companies,” said Ferreira, in a statement. “There’s never been a more important time for innovation.” 

In a reflection of their American counterparts, Brazil’s venture capital firms had slowed down the pace of their investments, but now it seems like a slew of new deals are coming to market.

The investment reflects the longterm confidence that investors have in the increasingly central position e-commerce and technology-enabled services will have in the future of the Latin American economy.

 

 

All bets are off as Hertz pulls plan to issue $500 million in new stock

By Kirsten Korosec

Hertz, which filed for bankruptcy last month, halted its $500 million stock offering Wednesday after the U.S. Securities and Exchange Commission told the rental company it would review its controversial plan to sell shares that could soon be wiped out completely.

Hertz disclosed Monday that it would issue a $500 million stock offering following approval from the U.S. Bankruptcy Court for the District of Delaware . Last week, the court gave Hertz permission to sell as up to 246.8 million unissued shares (about $1 billion) to Jefferies LLC.

The financially strained company was aiming to tap into a new pool of speculative short-term retail investors in an effort to raise capital. But that plan got the SEC’s attention. Staff at the regulatory agency reached out to Hertz on Monday afternoon and told the company it intended to review its Prospectus Supplement, according to an SEC filing Wednesday. Trading was halted briefly Wednesday prior to Hertz’s announcement.

More from Hertz:

After discussions with the Staff, sales under the ATM Program were promptly suspended pending further understanding of the nature and timing of the Staff’s review. The company is not currently offering any shares under the ATM Program. The company’s advisors have been in regular contact with the Commission since the Staff’s initial contact on June 15, 2020.

As COVID-19 spread throughout the globe, business trips and other travel stopped, leaving Hertz with an unused asset — lots and lots of cars. It wasn’t just that revenue stopped coming in. Used car prices plummeted, further devaluing its fleet.

Hertz filed for Chapter 11 bankruptcy May 22. But as its business dried up, prospectors jumped in. Retail investors, including those using the Robinhood trading app, invested in Hertz and drove up the stock price. Hertz stock dropped more than 83% between February 21 and March 18. It rose briefly and then continued to slide until May 26 when shares closed at $0.56 (that’s down 97.24% from the closing high in February).

Robinhood traders looked at Hertz and didn’t see the poor fundamentals; they saw opportunity. By March 18, more than 3,500 Robinhood users held Hertz stock, according to Robintrack. A month later, that number popped to more than 18,000, and then nearly doubled to surpass 43,000 users by May 21. It peaked June 14 when more than 170,000 Robinhood users held Hertz stock. The stock price rose 887.5% since that May 26 low until it reached $5.53 on June 8. Shares of Hertz have since fallen 63.8% and closed Wednesday at $2.

Remessa Online raises $20 million to become the TransferWise of Latin America

By Jonathan Shieber

Remessa Online, the Brazilian money transfer service, said it has closed on $20 million in financing from one of the leading Latin American venture capital firms, Kaszek Ventures, and Accel Partners’ Kevin Efrusy, the architect of the famed venture capital firm’s Latin American investments.

Since its launch in 2016, Remessa Online has provided a pipeline for over $2 billion worth of international transfers for small and medium-sized businesses in the country. The company now boasts over 300,000 customers from 100 countries and says its fees are typically one eighth the cost of the local money transfer options.

“We understand that transferring money is just the beginning, and we are eager to build a global financial system that will make life easier for global citizens and businesses alike,” Liuzzi said.

Money transfer services are a huge business that startups have spent the last decade trying to improve in Europe and the US. European money transfer company, TransferWise has raised over $770 million alone in its bid to unseat the incumbents in the market. Meanwhile, the business-to-business cross-border payment gateway, Payoneer, has raised roughly $270 million to provide those services to small businesses.

Remessa Online already boasts a powerful group of investors and advisors including André Penha, the co-founder of apartment rental company Quinto Andar, and the former chief operating officer of Kraft Heinz USA, Fabio Armaganijan. With the new investment from Kaszek, firm co-founder Hernan Kazah, the co-founder of the Latin American e-commerce giant, MercadoLibre, and co-founder of Kaszek Ventures, will take a seat on the company’s board.

“We developed an online solution that is faster and substantially cheaper than traditional banking platforms, with digital and scalable processes and an omnichannel customer support offered by a team of experts”, said Remessa Online’s co-founder and strategy director Alexandre Liuzzi, in a statement.

Last year, the company expanded its money transfer service to the UK and Europe, allowing Brazilians abroad to invest money, pay for education or rent housing without documentation or paperwork. The company’s accounts now come with an International Banking Account Number that allows its customers to receive money in nine currencies.

With the new year, Remessa has added additional services for small and medium-sized businesses and expanded its geographic footprint to include Argentina and Chile.

Latin American countries — especially Brazil — have been hit hard by the COVID-19 pandemic. While much of the economy is still reeling, the broad trends that are moving consumers and businesses to adopt ecommerce and mobile payment solutions are just as pronounced in the region as they are in the US, according to investors like Kazah.

“This crisis is accelerating the digitization process of several industries around the world and Remessa Online has taken the lead to transform the cross-border segment in Brazil , specially for SMBs,” he said in a statement.

Founded in 2016,  by Fernando Pavani, Alexandre Liuzzi, Stefano Milo, and Marcio William, Remessa Online was born from the founders own needs to find an easier way to send and receive money from abroad, according to the company.

In 2018, after a $4 million investment from Global Founders Capital and MAR Ventures, the company developed international processing capabilities and a more robust compliance tool kit to adhere to international anti-money laundering and know your customer standards. In the latter half of 2019, the company entered the SMB market with the launch of a toolkit for businesses that had been typically ignored by larger financial services institutions in Brazil.

“We believe in a world without physical borders. Our mission is to help our clients with their global financial needs, so that they can focus on what matters: their international dreams,” said Liuzzi.

Africa’s top angel Tomi Davies eyes startups and co-investors

By Jake Bright

When Nigerian angel investor Tomi Davies backed his first company — Strika Entertainment in 2001 — he admits he wasn’t aware of his future role.

“I was just helping out friends. I didn’t know it was angel investing. I didn’t know there was a structure to it,” he said.

Seven years later, Davies received a 20x return on his first exit and a decade after that he’s recognized as an architect of early-stage investing across Africa.

Davies is President of The African Business Angel Network and continues to fund and mentor young tech entrepreneurs in multiple countries.

On a call with TechCrunch, he shared advice for startups on fundraising, surviving COVID-19 and suggestions for global investors on entering Africa.

VC in Africa

Davies’ ascendance in fundraising runs parallel to the boom in startup formation and VC on the continent over the last decade.

When he began In 2001, there wasn’t much measurable venture or digital entrepreneurial activity in Sub-Saharan Africa, outside South Africa. In fact, there was limited data on VC investing on the continent until around five years ago.

An early Crunchbase assisted study estimated VC to African startups annually grew from $40 million in 2012 to $500 million by 2015. A recent assessment by investment firm Partech tallied $2 billion going to the continent’s digital entrepreneurs in 2019, across top markets Nigeria, South Africa and Kenya.

Africa Top VC Markets 2019

Image Credits: TechCrunch

There are now thousands of VC backed startup entrepreneurs across the continent descending on every conceivable use-case — from fintech to on demand electric motorcycle mobility.

Increasingly, Davies’ home country of Nigeria has become the continent’s unofficial capital for venture investment and startup formation, given its market thesis of having Africa’s largest economy and population of 200 million people.

Even with the boom in VC to the continent’s startups — which has drawn investors such as Goldman Sachs and Steve Case — for years panels at African tech conferences have echoed the need for more early-stage funding options.

Davies has worked to meet that. He came to investing at the friends and family level after receiving an MBA at the University of Miami and an earlier career that spanned roles in management consulting, telecoms and IT.

After emerging as one of the early angels to Africa’s startups, supporting the continent’s innovation ecosystem became a mission for the Nigerian investor.

“My raison d’etre became, and will remain until the day I die, tech in African,” Davies said on a call from Lagos.

How to pitch

In his role as President of The African Angel Business Network, or ABAN, Davies has worked with a team to build out a local investor web across the continent.

“ABAN is very simply a network of networks…we have 49 networks in 33 African countries,” he explained.

Those include Lagos Angel Network, which Davies co-founded, Cairo Angels and Angel Investor Ethiopia, announced in Addis Ababa in 2019.

Tomi Davies (L) judges pitches with Cellulant CEO Ken Njoroge at Startup Ethiopia 2019, Image Credits: Jake Bright

ABAN establishes certain guidelines and criteria for how member networks operate, but each chapter sets its own investment terms, according to Davies.

For example, ABAN affiliated Dakar Angel Network — founded in 2018 to support startups in French speaking Africa — offers seed investments of between $25,000 to $100,000 to early-stage ventures.

Where and how startups seek funds from ABAN’s family of networks depends on where they operate. “One thing I say to everybody, from presidents to business people to investors, is Africa is about cities,” Davies said.

“When you know which city your looking to invest in or seek investment in, automatically we’ll be in a position to say, ‘here’s your network.'”

For the Lagos Angel Network in Nigeria, the team has a pitch night the third Thursday of each month with a 30 day rule. “Before you leave, you’ll hear if we’re interested or not. If we’re interested, we’ve got 30 days to make you an offer,” explained Davies.

Advice to startups

In addition to his work with ABAN, Davies continues to invest in his own portfolio of startups — now at 32 ventures — and is a regular judge on Africa’s tech competition circuit.

He’s developed a framework to assess companies and shared parts of it with TechCrunch.

Tomi Davies (center) at Startup Battlefield Africa 2017

“What I say to any startup raising is the first thing any investor is listening to is how do I get my money back. That’s question number one, ‘How do I get my exit?,'” he said.

Davies stressed three things to satisfy that question: “The product service offering that you have, the customers who see value in that product service offering and the nature of the relationship in terms of channel and price offering,” he said.

“That’s what you’re always tinkering with after you start with some kind of value proposition.”

Weathering recession

Davies referenced the increased significance of referrals, given the coronavirus has cancelled a number of events and limited mobility to pitch in person in Africa’s top VC markets.

“Because of COVID-19, networks have become critically important. Because investors can’t touch, can’t feel, can’t see [founders] people are looking now for referential integrity, ‘Who sent me this deck?,'” Davies said.

On how a coronavirus induced Nigerian recession may impact startups, Davies flagged the country’s non-stop informal commercial activity — and the adaptability of Nigerian entrepreneurs — as factors that could carry ventures through.

“There’s a significant chunk of the economy that’s in the informal market. So even if you look back at the recessions we’ve had…it hasn’t been felt on the streets,” he said.

Davies is also collaborating with partners on creating working capital solutions for startups whose revenues have been impacted by slowdown.

Co-investors

Tomi Davies is direct about his desire to draw new partners from tech centers such as Silicon Valley, into early-stage investing in Africa.

“We are always looking for co-investors and I speak on behalf of all 49 networks in ABAN,” he said. Davies highlighted the local expertise each network brings to their market as a benefit to VCs looking to invest on the continent through an African Business Angel Network affiliate.

What should startup founders know before negotiating with corporate VCs?

By Walter Thompson
Scott Orn Contributor
Scott runs operations at Kruze Consulting, a fast-growing startup CFO consulting firm. Kruze is based in San Francisco with clients in the Bay Area, Los Angeles and New York.
Bill Growney Contributor
Bill Growney, a partner in Goodwin’s Technology & Life Sciences group, focuses his practice on advising technology and other startup companies through their full corporate life-cycle.

Corporate venture capitalists (CVCs) are booming in the startup space as large companies look to take advantage of the fast-paced innovation and original thinking that entrepreneurs offer.

For startups, taking funding from CVCs can come with many benefits, including new opportunities for marketing, partnerships and sales channels. Still, no founder should consider a corporate investor “just another VC.” CVCs come with their own set of priorities, strategic objectives and rules.

When it comes to choosing a CVC with which to enter negotiations, the most important step is doing your own diligence beforehand. An entrepreneur’s goal is to find the perfect match to partner with and guide you as you grow your business. So before you start discussing terms, you’ll want to understand what’s driving the CVC’s interest in venture investing.

While traditional VCs are purely financially driven, CVCs can be in the venture game for a variety of reasons, including finding new technology that might generate marketplace demand for their products. An example is Amazon’s Alexa fund, which invested into emerging companies that drive use and adoption of Alexa. Alternatively, a CVC’s parent company may be looking to invest in tech that will help them operate their own products more efficiently, such as Comcast Ventures investing in DocuSign.

As a rule of thumb, the bigger CVC funds like GV and Comcast tend to be financially driven, meaning they’ll be approaching negotiations through a financial lens. As such, the negotiating process more closely resembles an institutional fund. You as a founder have to do the work to figure out what’s driving your CVC — is this a customer acquisition or distribution opportunity? Or are they seeking to find a source of knowledge transfer and/or bring new tech into their parent company?

“Before negotiating, always look at a CVC’s existing portfolio,” says Rick Prostko, managing director at Comcast Ventures. “Have they made a lot of investments, at what stage, and with whom? From this information you’ll see the strategic thinking of the CVC, and you can determine how best to position yourself when you begin negotiations.”

AngelList India head Utsav Somani launches micro VC fund to back 30 early-stage startups

By Manish Singh

As investors get cautious about writing new checks to early stage startups in India amid the coronavirus outbreak, AngelList’s head in India is betting that this is the right time to back young firms.

On Wednesday, Utsav Somani announced iSeed, a micro VC fund to back up at least 30 startups over the course of two years. iSeed, which is not affiliated with AngelList, is Somani’s maiden venture fund.

In an interview with TechCrunch, Somani said he would write checks of $150,000 each to up to 36 early-stage startups in any tech category and enable his portfolio firms’ access to global investors and their knowledge pool. The fund will not participate in a startup’s follow-on rounds.

iSeed counts a range of high-profile investors, including Naval Ravikant and Babak Nivi, co-founders of AngelList, who are some of the biggest backers of the fund.

Others include founders of Xiaomi, Jake Zeller, a partner at AngelList and Spearhead, Sheel Mohnot, general partner at 500 Fintech, Brian Tubergen of CoinList, Deepak Shahdadpuri, managing director at DST Global, and Kavin Bharti Mittal of Hike.

AngelList launched syndicates program in India in 2018. The platform has been used for 140 investments in India since, including over 20 follow-ons in which firms such as Tiger Global, Sequoia Capital, Ribbit Capital participated.

Somani has also been an angel investor in more than a dozen startups including BharatPe, a firm that it is helping small businesses accept online payments and access working capital, and Jupiter, a neo-bank.

“I like the work AngelList India and Utsav have done since the launch. He brings energy, access and judgement to the table — the things to look for in a first-time fund manager,” said Ravikant in a statement.

Micro VCs is becoming a popular trend in the United States. Ryan Hoover of ProductHunt, for instance, maintains Weekend Fund. Somani said he has appreciated how others have been able to institutionalize the angel investing practice. According to Crunchbase, U.S. investors raised 148 sub-$100 million VC funds in 2018.

Running a micro-fund by leveraging AngelList’s infrastructure has also eased the burden starting such a venture creates for an investor, he said.

Indian startups could use any fund that backs early startups. Early-stage firms have consistently struggled to find enough backers in India, according to data from research firm Tracxn .

And that struggle is now common across the industry. More than two-thirds of startups in the country today are on the verge of running out of all their money in less than three months, according to a survey conducted by industry body Nasscom.

Somani said he is optimistic that great companies will continue to be born out of tough times. He said even his investors were aware of the pandemic and still stood by the fund.

“If you look at the market, we are seeing a number of layoffs. These are the people who would be creating jobs for others in the years to come. Entrepreneurship might be the only option for them.

India’s Khatabook raises $60 million to help merchants digitize bookkeeping and accept payments online

By Manish Singh

Khatabook, a startup that is helping small businesses in India record financial transactions digitally and accept payments online with an app, has raised $60 million in a new financing round as it looks to gain more ground in the world’s second most populous nation.

The new financing round, Series B, was led by Facebook co-founder Eduardo Saverin’s B Capital. A range of other new and existing investors, including Sequoia India, Partners of DST Global, Tencent, GGV Capital, RTP Global, Hummingbird Ventures, Falcon Edge Capital, Rocketship.vc and Unilever Ventures, also participated in the round, as did Facebook’s Kevin Weil, Calm’s Alexander Will, CRED’s Kunal Shah and Snapdeal co-founders Kunal Bahl and Rohit Bansal.

The one-and-a-half-year-old startup, which closed its Series A financing round in October last year and has raised $87 million to date, is now valued between $275 million to $300 million, a person familiar with the matter told TechCrunch.

Hundreds of millions of Indians came online in the last decade, but most merchants — think of neighborhood stores — are still offline in the country. They continue to rely on long notebooks to keep a log of their financial transactions. The process is also time-consuming and prone to errors, which could result in substantial losses.

Khatabook, as well as a handful of young and established players in the country, is attempting to change that by using apps to allow merchants to digitize their bookkeeping and also accept payments.

Today more than 8 million merchants from over 700 districts actively use Khatabook, its co-founder and chief executive Ravish Naresh told TechCrunch in an interview.

“We spent most of last year growing our user base,” said Naresh. And that bet has worked for Khatabook, which today competes with Lightspeed -backed OkCredit, Ribbit Capital-backed BharatPe, Walmart’s PhonePe and Paytm, all of which have raised more money than Khatabook.

khatabook team

The Khatabook team poses for a picture (Khatabook)

According to mobile insight firm AppAnnie, Khatabook had more than 910,000 daily active users as of earlier this month, ahead of Paytm’s merchant app, which is used each day by about 520,000 users, OkCredit with 352,000 users, PhonePe with 231,000 users and BharatPe, with some 120,000 users.

All of these firms have seen a decline in their daily active users base in recent months as India enforced a stay-at-home order for all its citizens and shut most stores and public places. But most of the aforementioned firms have only seen about 10-20% decline in their usage, according to AppAnnie.

Because most of Khatabook’s merchants stay in smaller cities and towns that are away from large cities and operate in grocery stores or work in agritech — areas that are exempted from New Delhi’s stay-at-home orders, they have been less impacted by the coronavirus outbreak, said Naresh.

Naresh declined to comment on AppAnnie’s data, but said merchants on the platform were adding $200 million worth of transactions on the Khatabook app each day.

In a statement, Kabir Narang, a general partner at B Capital who also co-heads the firm’s Asia business, said, “we expect the number of digitally sophisticated MSMEs to double over the next three to five years. Small and medium-sized businesses will drive the Indian economy in the era of COVID-19 and they need digital tools to make their businesses efficient and to grow.”

Khatabook will deploy the new capital to expand the size of its technology team as it looks to build more products. One such product could be online lending for these merchants, Naresh said, with some others exploring to solve other challenges these small businesses face.

Amit Jain, former head of Uber in India and now a partner at Sequoia Capital, said more than 50% of these small businesses are yet to get online. According to government data, there are more than 60 million small and micro-sized businesses in India.

India’s payments market could reach $1 trillion by 2023, according to a report by Credit Suisse .

Brex brings on $150M in new cash in case of an ‘extended recession’

By Natasha Mascarenhas

Fast-growing fintech behemoth Brex is raising big money as its customer base itself — high-growth and spendy startups — is struggling.

The company, which sells a credit card tailored for startups, today announced that it has raised $150 million in a Series C extension from a group of existing investors, including DST Global and Lone Pine Capital.

With the new raise, Brex, which was co-founded by Henrique Dubugras and Pedro Franceschi, has now amassed $465 million in venture capital funding to-date.

Brex plans to use its new capital to invest across engineering, product, and design functions to improve its customer experience. It also plans to make small acquisitions to help with hiring and product goals. In late March, the startup announced that it had acquired three companies, Neji, Compose Labs and Landria, for an undisclosed amount.

Layoffs are impacting a number of businesses, and where upstart companies aren’t cutting staff, they are often reducing spend. That’s not good news for Brex, which makes money on purchases made through its corporate card.

Brex has already cut some customer credit limits to mitigate some of the exposure risk, The Information reported and Dubugras confirmed. Brex, once known for its flashy billboards, has lessened its spend on travel and restaurants to “almost zero” since COVID-19 started.

However, Dubugras seems largely unbothered on how the pandemic impacts Brex’s future. The new fundraise was opportunistic, and he noted how Stripe and Robinhood recently raised as well.

“I’m glad this round came together, but if it hadn’t, we would’ve been fine,” he said. “The capital is so we can play offensive while everyone else plays defensive.”

Its clients have always had a high risk for failure, since they are startups after all, so Brex built a model that accounts for this. “Us lowering credit limits has been happening since the existence of Brex,” Dubugras said. “It’s not something that is new to COVID.”

The new capital, according to Dubugras, is all “general purpose cash” and will go directly to the company’s balance sheet, which now has $450 million. The round was closed a few days ago.

Brex’s rise has largely come during an upmarket. The startup, which launched in Brazil, has long enjoyed time in the spotlight as a Silicon Valley success story. A New York Times headline about the startup captured its allure well: “bad times in tech? Not if you’re a startup serving other startups.

Today’s financing news, while it is an extension of a preexisting Series C round, is Brex’s largest single raise to date. The Y Combinator graduate last raised venture capital money in June 2019, in a $100 million round from Kleiner Perkins valuing the company at $2.6 billion.

In the past, each successive Brex raise came along with a flagship product update. Months after its Series C in October, the company launched its second product: a credit card for ecommerce companies In just a few months time, the new product “multiplied Brex’s TAM and became responsible for one-third of the business’s revenue.” After its June 2019 raise, Brex launched a credit card for life sciences companies, and then a few months later, it announced Brex Cash, a product that acts like a checking account replacement for startups.

Image Credits: brex

In 2020, however, its strategy appears more conservative. Dubugras compared Brex’s business similar to venture capital, in that they get the most value for themselves, and shareholders, with customers that stay and grow with the company for a longer time.

“Going to any new verticals or any kind of growth projects are not necessarily priorities for the year,” he said. “Most of the funds will go toward building the product; the investment in growth is probably done post COVID-19.

It’s up to the company, which has grown comfortably on the shoulders of an upmarket up until this point, to prove that it can retain its venture-ready growth profile. “I’m optimistic about tech, so I’m optimistic about Brex,” Dubugras said.

Users say Robinhood is down as stocks soar

By Zack Whittaker

Users are reporting that trading platform Robin is down on a day that’s seen stock markets soar.

Some users said Etrade was also experiencing problems. A spokesperson for Etrade said its platform is “fully operational” but declined to comment further.

Robinhood’s status page says all systems are “operational,” but its website crashed on loading, stating: “An internal error occured! [sic].”

Robinhood did not immediately comment.

After weeks of turbulent markets largely driven by coronavirus concerns, the Dow Jones Industrial Average (DJIA) is up 3% in early morning trading.

Users quickly turned to Twitter to complain.

Robinhood, which earlier this month raised $280 million pushing its valuation to $8.3 billion, took heat in March after several days of outages saw users unable to trade on the platform. Users were left furious after the outage prevented access to the platform on what was one of the busiest trading days of the year so far.

The financial startup said it would offer case-by-case compensation to its 10 million users for their troubles. Months earlier, the company admitted a glitch that let users borrow more money than they were allowed.

Morgan Stanley bought Etrade earlier this year for $13 billion. Last year Etrade reported record revenue of $2.9 billion.

Africa Roundup: Visa connects to M-Pesa, Flutterwave enters e-commerce

By Jake Bright

It seems the demand for Safaricom’s M-Pesa payment product never eases. Since its 2007 launch in Kenya, the fintech app has commanded over 70% of the mobile money market in that country. When COVID-19 hit the East African nation of 53 million in March, the Kenyan Central Bank turned to M-Pesa as a public health tool to reduce use of cash.

And last month, one of the world’s financial services giants — Visa — connected M-Pesa to its global network.

Visa and Safaricom — which is Kenya’s largest telecom and operator of M-Pesa — announced a partnership on payments and tech.

The arrangement opens up M-Pesa’s own extensive financial services network in East Africa to Visa’s global merchant and card network across 200 countries.

The companies will also collaborate “on development of products that will support digital payments for M-Pesa customers.” The partnership is still subject to regulatory approval.

The details remain vague, but the payment providers also said they will use the collaboration to facilitate e-commerce.

Images Credits: Getty Images

On a continent that is still home to the largest share of the world’s unbanked population, Kenya has one of the highest mobile-money penetration rates in the world. This is largely due to the dominance of M-Pesa in the country, which has 24.5 million customers and a network of 176,000 agents.

As we detailed in ExtraCrunch, Visa has been on a VC and partnership spree with African fintech companies. The global financial services giant has named working with the continent’s payments startups as core to its Africa expansion strategy.

One of those fintech ventures Visa has teamed up with, Flutterwave, launched an e-commerce product in April. The San Francisco and Lagos-based B2B payments company announced Flutterwave Store, a portal for African merchants to create digital shops to sell online.

The product is less Amazon  and more eBay — with no inventory or warehouse requirements. Flutterwave insists the move doesn’t represent any shift away from its core payments business.

The company accelerated the development of Flutterwave Store in response to COVID-19, which has brought restrictive measures to SMEs and traders operating in Africa’s largest economies.

After creating a profile, users can showcase inventory and link up to a payment option. For pickup and delivery, Flutterwave Store operates through existing third party logistics providers, such as Sendy in Kenya and Sendbox in Nigeria.

The service will start in 15 African countries and the only fees Flutterwave will charge (for now) are on payments. Otherwise, it’s free for SMEs to create an online storefront and for buyers and sellers to transact goods.

While the initiative is born out of the spread of coronavirus cases in Africa, it will continue beyond the pandemic. And Flutterwave’s CEO Olugbenga Agboola — aka GB — is adamant Flutterwave Store is not a pivot for the Y-Cominator backed fintech company.

“It’s not a direction change. We’re still a B2B payment infrastructure company. We are not moving into becoming an online retailer, and no we’re not looking to become Jumia,” he told TechCrunch .

In early stage startup activity, a relatively new company — Okra — has created a unique platform that allows it to generate revenue on both sides of the fintech aisle.

Founded in June 2019 by Nigerians Fara Ashiru Jituboh and David Peterside, the company refers to itself as a “super-connector API” with a platform that links bank accounts to third party applications.

Okra’s clients include fintech startups and large financial institutions in Nigeria. The company got the attention of TLcom Capital — a $71 million Africa focused VC firm —that backed Okra with $1 million in pre-seed funding. The Nigerian startup is using the funds to hire and expand to new markets in Africa, most likely Kenya .

More Africa-related stories @TechCrunch               

Nigeria’s Okra raises $1M from TLcom connecting bank accounts to apps

By Jake Bright

A new Nigerian fintech venture, Okra, has racked up a unique mix of accomplishments in less than a year.

The Lagos based API developer created a product that generates revenues from both payment startups and established financial institutions.

Okra has raised $1 million in pre-seed funding from TLcom Capital — a $71 million Africa focused VC firm that rarely invests in early-stage companies or fintech.

The startup is also poised to enter new markets and it’s hiring.

Founded in June 2019 by Nigerians Fara Ashiru Jituboh and David Peterside, Okra casts itself as a motherboard for the continent’s 21st century financial system.

“We’re building a super-connector API that…allows individuals to connect their bank accounts directly to third party applications. And that’s their African bank accounts starting in the largest market in Africa, Nigeria,” said Ashiru Jituboh.

As a sector, fintech has become the continent’s highest funded tech space, receiving the bulk of an estimated $2 billion in VC that went to African startups in 2019. Those ventures, and a number of the continent’s established banks, are in a race to build market share through financial inclusion.

By several estimates — including The Global Findex Database — the continent is home to the largest percentage of the world’s unbanked population, with a sizable number of underbanked consumers and SMEs.

With 54 countries, 1.2 billion people and thousands of relatively young startups, there are a lot of moving parts in Africa’s fintech space. Similar to U.S. company Plaid, Okra is shaping a platform that connects accounts and financial data to banking apps into a revenue generating product.

With Africa’s largest population of 200 million people, Nigeria serves as a major financial hub — but there’s still a disconnect between fintech apps and banks, according to Okra’s Ashiru Jituboh.

“Here in this market there’s no way to directly connect your bank account through an API or directly to an application,” she said.

Okra offers several paid packages for those types of integrations and opens up the code to its five product categories —  authorization, balance, transactions, identity and accounts — to developers.

Image Credits: Okra

Okra has already created a diverse client list that includes mobile payments startup PalmPay, insurer Axa Mansard and Nigerian digital lender Renmoney.

The startup generates revenues through product fees and earns each time a user connects a bank account to a customer, according to Ashiru Jituboh.

On how the Okra differs from other well-funded fintech companies in Nigeria, such as Flutterwave or Interswitch, “The answer is we’re not doing payments, but what we’re doing is making processes with [payment providers] even smoother,” she said.

Ashiru Jituboh comes to her CEO position with a software engineering background and a strong connection to the U.S. Born in Nigeria, she grew up in and studied computer science in North Carolina.

She did stints in finance — JP Morgan Chase and Fidelity Investments — and then in tech companies before making the leap to founder. “I went to work in startups, but I was always employee number two or three,” said Ashiru Jituboh.

She decided to go all in on Okra after returning to Nigeria and noting the need for linking together the country’s emerging digital financial infrastructure.

“When we knew that it was a big addressable market is when we realized that all these fintech CEOs and CTOs were struggling with this use case,” she said.

Shortly after its launch, Okra attracted the attention of TLcom Capital in second quarter 2019, according to VC Andreata Muforo.

With offices in London, Lagos, and Nairobi, the group closed its $71 million Tide Africa fund this year. TLcom has focused primarily on Series A and later investments, including backing Kenyan agtech startup Twiga Foods and Nigerian trucking logistics company Kobo360.

In an interview last year, the fund’s managing partner, Maurizio Caio, explained that TLcom was steering more toward investments in infrastructure oriented tech companies and away from Africa’s more commoditized payments and lending startups.

The VC firm was attracted to Okra for its ability to serve the continent’s broader financial sector. “It’s a service that other fintechs can plug into and utilize, so it’s accelerating the growth of fintech across the continent…That to us was a big hook,” TLcom’s Andreata Muforo told TechCrunch on a call.

Founder Fara Ashiru Jituboh was also a factor in the fund making a $1 million pre-seed investment in Okra. “We found her to be very strong and also liked the fact that she’s a technical founder,” said Muforo. As part of the investments, she and TLcom Capital partner Ido Sum will join Okra’s board.

In addition to hiring fresh engineering talent, the startup aims to take its product offerings that connect bank accounts to apps to new African countries — though it would not disclose where or when.

“We’re looking at three target markets that our clients are already in,” said Ashiru Jituboh. Okra investor Andreata Muforo named Kenya — with one of the highest mobile money penetration rates in the world — as a likely candidate for the startup’s product services.

Digging into Europe’s Q1 venture results

By Alex Wilhelm

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we’re taking a look at a bit of data on the European venture capital scene in Q1. As with our looks at other locales like Silicon Valley and other bits of the United States, we’re taking stock of what happened in the first quarter. Q1 2020 includes pre-COVID-19 results, though as some European countries began to lock-down before the United States, there may be more pandemic-impact in the following results than we’ve seen domestically thus far.

Today’s grip of data is via the folks over at PitchBook, who compiled a venture-focused dig through the continent’s first three months of the year. Let’s parse the top numbers, make a comparison or two and then look to what’s next.

Q1: An ok quarter

Despite COVID-19, China’s broad shuttering and an aged bull market deep, Europe’s venture capital activity in Q1 2020 was mostly fine. It wasn’t great, and there were some less-than-winsome results that could be chalked up to the pandemic, but the first quarter provided an alright start to the year.

In Nigeria PalmPay waives fees and creates ₦100M COVID-19 payout fund

By Jake Bright

Africa focused payment startup PalmPay will waive transfer fees in Nigeria and offer direct payouts to customers who have contracted COVID-19 in the West African country.

The venture — that launched in 2019 backed by China’s Transsion —  has created the PalmPay Support Fund. The initiative will start with 100 million Naira (≈ $300K) and offer individual payments of 100,000 Naira (≈ $250) to PalmPay customers who have contracted the coronavirus.

The startup will expand the fund’s value by providing a matching gift per customer transaction for at least on month. PalmPay will also extend the fund to offer grants to organizations working on coronavirus mitigation and assistance efforts in Nigeria.

On the structure of the initiative — and adding a matching function — PalmPay aims to create interactivity with its clients on coronavirus relief efforts. “We want to provide relief…and get our customers feeling that they’re adding something to it as well,” PalmPay CEO Greg Reeve told TechCrunch on a call.

The company has created a page on its app for applications and funds dispersal. PalmPay is working with Nigeria’s Center for Disease Control on a verification process to confirm those who apply have tested positive for COVID-19, according to Reeve.

Image Credits: PalmPay

PalmPay’s initiative comes as COVID-19 has hit Africa’s largest economies and the continent’s fintech platforms have been mobilized as tools to stem the spread.

Early in March, Africa’s coronavirus numbers by country were in the single digits, but by mid-month those numbers had spiked, leading the World Health Organization’s Regional Director Dr Matshidiso Moeti to sound an alarm.

By WHO stats Tuesday there were 14,922 COVID-19 cases in Africa and 702 confirmed virus related deaths, up from 345 cases and 7 deaths on March 18.

Countries such as South Africa, Kenya and Nigeria — which happen to be Africa’s top tech hubs — have imposed social distancing and lockdown practices.

Governments and startups on the continent have also turned to measures to shift a greater volume of financial transactions to digital payments and away from cash — which the World Health Organization flagged as a conduit for the coronavirus.

It’s an option facilitated by the boom in fintech that’s occurred in Africa over the last decade. By several estimates, the continent is home to the largest share of the world’s unbanked population and has a sizable number of underbanked consumers and SMEs.

But because of that opportunity, fintech startups now receive the majority of VC funding annually in Africa, according to recent data.

Increasingly, Nigeria has become the focal point for digital finance development on the continent, boasting Africa’s largest economy and population (200 million).

The country has multiple new digital-payments entrants — see Chippercash — and several firmly rooted later-stage fintech players, such as Paga and recently confirmed unicorn Interswitch.

PalmPay launched in Nigeria last year on the back of one of Africa’s largest 2019 seed-rounds — $40 million led by Transsion. In addition to a lot of capital, the investment came with an additional competitive advantage for the startup. Through its Tecno brand, Transsion is the largest seller of smartphones in Africa and PalmPay now comes preinstalled on all Tecno devices.

Image Credits: Jake Bright

While PalmPay reamins in the race to capture fintech market share in Nigeria, for now the startup looks to weather the COVID-19 crisis in the country. Like most of Nigeria — and much of the world — PalmPay’s staff are on lockdown and working from home, according to the company’s CEO.

Commercial times in the country could be tough into the next year. Nigeria has already seen a reduction in economic activity as a result of COVID-19, and as a major oil producer, the country will face an additional economic blow due to the drop in demand the pandemic has dealt to petroleum markets.

A trend that could come out of the crisis that benefits fintech players, according to PalmPay CEO Greg Reeve, is greater digital finance adoption in Nigeria. In the past, the country has shown a cash-is-king reluctance by parts of the population to use mobile payments and lagged Africa’s digital finance leaders Kenya and South Africa.

The current health crisis could shift consumer habits in Nigeria, according to Reeve. “We’ve seen an increased use in our service, whilst people aren’t able to move around,” he said.

“There is a natural uptake right now for services like mobile money and I think when people start to use it, they’ll continue to use it when the COVID-19 ceases.”

Green shoots for software companies

By Alex Wilhelm

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

This morning we’re hunting up “green shoots” for software companies. Green shoots is financial slang for positive signals that could point to an economic recovery — or good news amidst a greater pullback. You can even use the term sarcastically, perhaps noting that unemployment claims, while still elevated to historic levels, are falling on a week-over-week basis: Only 2.5 million jobs lost last week! #greenshoots

You get the idea. But today we’re not joking. At the end trading yesterday, the Bessemer cloud index had recovered to around a 10% decline, in total, since the start of the COVID-19 era. Given that the same basket of cloud and SaaS companies was down as much as 37.9% at its 2020 low, its recovery has been little short of monstrous.

But there’s a bit more to dig into. This morning we’ve parsed a set of recent, fascinating survey data from Stifel, a wealth management and investment banking concern. The firm’s technology group asked a few hundred “tech executives, entrepreneurs, and investors” what they are seeing in the market regarding churn. There’s good news for software companies in the mix.

And we’ve pulled a grip of new data from Crunchbase to understand what we know about April’s venture capital market so far. It’s not bad news!

So, some positive vibes today, even if the markets are down. Let’s go!

Green Shoots

How bad SaaS churn will get during the present market downturn is not clear. TechCrunch has covered the issue, asking venture capitalists and doing various surveys of founders about what they are seeing in the market. The results are cautionary, with one survey indicating that three-quarters of founders expecting to see their net retention rates falling “by at least 3% and up to 20+.” That wasn’t a great sign.

Frank raises $5M more in its quest to get students max financial aid

By Alex Wilhelm

Frank, a New York-based student-facing startup, has raised $5 million in what the company described as an “interim strategic round” led by Chegg, a public edtech company. According to Frank founder and CEO Charlie Javice, previous investors Aleph and Marc Rowan took part in the round alongside new investor GingerBread Capital.

The education funding-focused startup last raised known capital in December of 2017, when it closed a $10 million Series A. Frank raised a seed round earlier that same year worth $5.5 million.

According to Javice, her firm closed its round in early March, before the recent market carnage. Bearing in mind that there is always lag between when a funding round is closed and when it is announced, the new Frank round is on the fresher side of things. Most rounds are a bit more like Shippo’s recent investment (closed in December, announced in April) than Podium’s recent deal, which it started raising in mid-February of this year.

Timing aside, what Frank is doing is interesting, so let’s talk about its business, how it approached 2019 and how it’s faring in today’s changed market.

Everyone’s broke

To help keep student debt low, Frank is a bit akin to TurboTax for college money, as TechCrunch wrote when covering its Series A, helping students get through a thicket of forms and aid to collect as much aid as possible while avoiding borrowing.

American higher education is too expensive, and applying for financial help is irksome and byzantine. I can safely report that sans quoting an expert, as I had to go through it as a student and only finished paying my student loans last July.

Frank wants to help make college more affordable, with the company noting in a call with TechCrunch that there’s been a good number of companies working to help students service debt in a less expensive way after they’ve hired the money; it wants to help students avoid taking on so much red ink in the first place.

According to Javice, lots of students fail to finish signing up for federal aid programs, and some students wind up dropping out of programs before finishing them, leaving them saddled with debt but no degree. That’s a hell of a trap to wind up in, as student loans are the barnacles of the financial world — incredibly hard to get rid of.

According to Javice, Frank was a little early to rethinking its own growth/profit trade-off than the rest of the startup world, which woke up when WeWork filed to go public and was quickly booed off Wall Street. In mid-2019, Frank slowed growth to get closer to the margins it wanted. (Thinking out loud, this is probably how the startup managed to survive so long off its December 2017 Series A.)

Indeed, according to Frank’s CEO, it was in a comfortable cash position before this round, which she described as more a vote of confidence than a round of necessity.

Which brings us to today, and the new, COVID-19 world. In an email to TechCrunch, Javice said that “like everyone else,” her company is “adjusting to the new realities.” She added that college and university attendance “has typically been countercyclical” and that her company is “seeing a large demand for higher education and specifically financial aid.”

If the new economy winds up creating a little tailwind for Frank, it won’t be the only startup to accrue help; Slack and Zoom and other remote work-friendly companies have also seen their fortunes turn for the better in recent weeks. And now with $5 million more on hand, it can certainly meet new demand.

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