COVID-19
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All B2B startups are in the payments business
Jeff Coppolo has over 25 years of experience in the fintech industry and is currently Head of Global Business Development and Partnerships for payments processing company BlueSnap.
The COVID-19 pandemic has forced businesses to rethink how they accept and make payments. Paper invoices, checks and point-of-sale payments have given way to “corona-free payments” through mobile apps, electronic invoicing and ACH. Although significant, this is the sideshow to a more significant reshuffling of the payments industry.
Nearly $150 trillion in worldwide B2B and B2C transactions take place every year, but only a tiny portion are digital. A lot of technology companies want their piece of that massive pie. Until recently, though, only payment facilitators (aka, “payfacs”), gateways, banks and credit card companies had access to it.
That’s changing. Whether they know it yet or not, B2B tech platforms are becoming payments companies. Payfacs are competing to integrate their technology into these platforms, which drive an ever-growing number of transactions. Revenue-sharing deals are on the table, and payfacs are pushing the competitive advantages they can offer to the clients of these B2B platforms. Capabilities like cross-border payments, seamless customer onboarding, fraud protection, marketplace payments and B2B invoicing influence, which payfacs win in “integrated payments” (the jargon for this space) and which don’t.
B2B companies that use to leave the choice of gateway to their clients need to become savvy in payment technology, both to control the user experience and to tap this new business. There’s a massive amount of revenue on the table, and it’s just too easy to blow this opportunity and alienate clients in the process.
How we arrived here
A decade ago, the revolution in cloud computing led to a wave of B2B tech platforms promising to “disrupt” every industry. Gyms got gym management platforms. Hospitals got clinic management platforms. Retailers got commerce management platforms. Media companies got subscription management platforms. Many of these fill-in-the-blank management platforms — all independent software vendors (ISVs) — helped clients manage their operations and interactions with consumers or other businesses.
But ISVs didn’t get involved in payments, which was odd, given how complementary payments were to their platforms and how much money was at stake. Mastercard says there is about $120 trillion annually in B2B payments worldwide, and paper checks still dominate about half of the U.S.’s $25 trillion payment volume. Meanwhile, retail e-commerce sales account for $4.2 trillion out of $26 trillion in total retail, or about 16.1%, according to eMarketer. Less than 8% of global commerce is thought to occur online.
You’d think B2B software companies would find a way to generate revenue on some of that $146 trillion in transactions, but most did not. Payment processing is its own, messy, complicated niche. Payfacs go through a grueling underwriting process to provision a merchant account, which includes know-your-customer (KYC) and anti-money laundering (AML) checks. If a merchant defaults, the payfac is next in line to make good on the transactions.
When you run a venture-backed B2B platform, you have enough to worry about already.
So, B2B platforms stayed clear. They formed integrations with a basket of payfacs (Stripe, PayPal, Square, my company BlueSnap, etc.) and then let their clients choose which one to use. That’s a lot of integrations to maintain.
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Roblox launches Party Place, a private venue for virtual birthday parties and other meetups
The coronavirus pandemic and related government lockdowns have led to a surge in online gaming — particularly on social platforms where people can connect with real-life friends in a virtual venue. We’ve already heard of Fortnite birthday parties, Roblox playdates and Animal Crossing meetups taking place online amid the pandemic. Now, Roblox is launching a new feature called “Party Place” to directly cater to the growing demand among users for a dedicated, private place to host virtual events.
The company’s new “Party Place” venue is based on the technology the gaming company built to accommodate its own virtual events, including its 7th Annual Bloxy Awards and the One World: Together At Home concert, hosted in April in collaboration with Lady Gaga.
The venue itself doesn’t offer any activities or games, but rather serves as a private place for Roblox users to gather — for example, for a virtual birthday party, a remote learning activity with classmates, for virtual playdates, or anything else. From Party Place, the group can chat and hang out as they decide which Roblox game they plan to play next.
The product is in beta testing, according to the Roblox website, and has seen only around 45.3,000 visits since its launch last week. Likely, many of these visits were just from curious kids poking around in a public area as you can today join the Party Place venue without a private server if you want to just see the venue. Roblox, however, says it’s making private servers available for free in Party Place, so parents and kids can create a place where only those friends they directly invite can join and play.
Roblox has been doing particularly well as the pandemic has forced children to stay at home under lockdown. The entertainment platform now has more than 120 million active monthly players and, as of June, surpassed a milestone of $1.5 billion in lifetime player spending, according to a report from Sensor Tower. It hit the new record only seven months after reaching its $1 billion milestone — a surge in consumer spend attributed directly to the global COVID-19 pandemic and the related growth in entertainment platforms and social gaming.
In March, Roblox revenue grew 28% month-over-month to $69.8 million, the report found. In April, revenue grew 34% to $93.2 million. And by May, sales hit close to $103 million.
Roblox had already begun catering to players’ interest in social gaming with its launch of its “Play Together” game sort in April, which made it easier for players to find those games where you socialize with others — like visiting a virtual shopping mall, going camping or riding virtual water slides, for example. These games also offer an option for private VIP servers, often for a small fee paid in Roblox’s virtual currency, Robux, which is renewed on a subscription basis until you cancel.
Of course, the company isn’t the only one developing products in response to user demand for online “hangout” spots in virtual worlds. Fortnite, for instance, introduced “Party Royale,” a game mode offering a weapons-free party island featuring mini-games and, sometimes, even live concerts. Its Travis Scott concert was hosted in the game, attracting 12.3 million concurrent players at its peak.
For today’s younger players — the COVID kids, so to speak — platforms like Fortnite and Roblox are becoming their own version of a social network. The kids don’t just go online to play. They socialize, chat and hang out with a mix of real-life friends and virtual ones, blurring the lines between online and offline in ways that traditional social networks, like Facebook, do not.
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COVID-19 has driven engagement for an already thriving gaming industry
A few days after releasing new figures for the month of June, NPD is offering up some broader trends for the gaming industry at large. It likely won’t surprise you to hear that the industry continues to thrive in 2020, and COVID-19-driven stay-at-home orders have only further contributed to gaming adoption here in the U.S.
According to the report, three out of four people in the U.S. play some amount of video games. That’s 244 million people — up by 32 million from 2018. Among those who play, 39% are light gamers, playing less than five hours a week; 32% are classified as moderate, at five to 15 hours, and 20% play more than 15 hours a week, putting them in the heavy camp. On average, gamers surveyed play around 14 hours a week, up from the 12 hours reported in 2018.
The novel coronavirus has driven adoption, as gaming sales have suggested for several months now. Of those surveyed, 35% say they’re playing more than they were prior to pandemic restrictions. Though most are simply playing on non-gaming-specific devices they already owned — primarily things like smartphones, tablets and computers.
Only 6% of respondents say they began gaming on a new platform. The relatively low figure seems to reflect some of the dire economics of the last several months. Few were purchasing new consoles. In the case of the Switch, Nintendo ran into some serious supply issues that have found the console out of stock in many online stores. Microsoft and Sony, meanwhile, are launching new systems before the end of the year, meaning current systems will be outdated in the not so distant future.
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Extension rounds help some startups play offense during COVID-19
The venture capital world is constantly changing, and its evolution can sometimes flip pieces of conventional wisdom on their heads. For example, a recent flurry of extension rounds from Silicon Valley’s hottest startups like Stripe and Robinhood seem to signal that the investment type has suddenly become cool.
Extensions evolving from unloved to hot is not the first time that a type of VC deal has gained, or lost luster. In past times, for example, raising consecutive rounds from the same lead investor was often perceived as a negative signal; why couldn’t the startup find a new, different lead investor? Today, in contrast, venture capitalists are using inside rounds to double-down on winning startups, a way of helping ensure returns for their own backers.
The recent phenomenon of extensions becoming vogue is a tale of the times, in which the best startups get to play offense, and startups that can’t show accelerating growth are left behind. Let’s explore what has changed.
A series of fortunate extensions
TechCrunch first wrote about the new extension-round trend after seeing what felt like a wave of the deals crop up. Some were large, like MariaDB’s huge $25 million add-on to its Series C, or Robinhood’s biblical $320 million addition to its Series F.
But most were smaller events like Sayari adding $2.5 million to its Series B, or CALA adding $3 million to its seed round. Even more recently, Eterneva raised another $3 million on top of its seed round, and also out this week was a million pounds more for Edinburgh-based Machine Labs’ seed round.
One reason for the growth of extension rounds in 2020 has been runway — making sure that a startup has enough. Upstarts often raise on an 18-month cadence. But because of COVID-19 and its constituent economic disruptions, many have reduced costs in a bid to bolster how long they have until their cash stores reach zero.
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8 edtech investors talk re-skilling, digital universities, ISAs and other post-pandemic trends
We know that the coronavirus has brought unprecedented attention to the edtech market, but now what? What happens when schools are no longer clambering toward an overnight solution? When the surges slow? When our world reopens and there doesn’t need to be a full-suite of at-home solutions for kids and parents?
As the next wave of edtech companies are being built to address these novel use cases, investors are looking for solutions that aren’t simply pandemic-era important. To some, that means skipping the latest videoconferencing platform play and maybe cutting a check to a digital-only university. To others, it means looking for the platform that will educate a diverse range of users, especially the unemployed.
A spree of recent consolidation within the market shows that there is a need for a better plumbing system in the fragmented world of edtech.
We turned to eight investors in the space to understand which subcategories are shaping up to be the future, following up on our first survey last fall when the world was very different, and another in early April when less was understood about the pandemic. Our goal here was to find nonobvious ways innovation is living within the noisier-than-ever sector. The result? Intel on nascent trends, deal-makers and what adaption looks like amid a time of uncertainty.
Today you’ll get a deep dive on the nerdy stuff from the following investors:
- Reach Capital’s Jennifer Carolan, Shauntel Garvey and Chian Gong
- Ian Chiu, Owl Ventures
- Jan Lynn-Matern, Emerge Education
- David Eichler, TCV
- Rebecca Kaden, Union Square Ventures
- Jomayra Herrera, Cowboy Ventures
Investors differed on which subcategories benefitted the most, but it’s clear that the pandemic didn’t lift up the entirety of the edtech space. One investor noted that the pandemic made them even less interested in ISAs, while other venture capitalists noted how valuable the financing instrument is now, more than ever before.
We got into some of the big themes that have risen in the past few months: online learning, re-skilling, ISAs, virtual universities and where each investor draws their line around these categories.
A common theme throughout the commentary now is that the opportunity presented by coronavirus is not being met with complacency, but instead a push to grow better. Investors talked about innovation needs to account for childcare, cost, digital infrastructure, and the addressable population, pandemic or not.
I think that’s enough teasing. Now, onto the answers.
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Game developer poll suggests longer hours and less productivity as the industry adapts to remote work
Ahead of the upcoming online-only version of its big annual conference, GDC commissioned a survey of 2,500 game developers to determine how the industry is coping with the ongoing impact of the COVID-19 pandemic. While gaming sales are up as many turn to the medium to cope with stay-at-home orders, the virus appears to be impacting devs in similar (if somewhat blunted) fashion to innumerable other industries.
For starters, 32% find themselves being less productive, in spite of working longer hours. That no doubt sounds familiar to anyone who has attempted to transition to a home office amid the pandemic. Some 70% of developers say they’ve moved to working from home — if that number seems relatively low, that’s only because 27% of those surveyed say they were already working from home. That leaves some 3% in the office, I suppose.
One-quarter of respondents say their household income has declined, while a third say their business has declined over the last few months. A third also say they’ve had a project delayed. That could certainly complicate the upcoming schedules of the latest version of the Xbox and PlayStation, both due out at the end of the year.
The shift toward moving online found many companies scrambling to update their workflows, including a shift to different cloud services. Though, the nature of the industry means that many were already accustomed to having a distributed workforce prior to the pandemic. While two-thirds say their company has a plan to return to the office, only 12% feel safe returning to the office right now.
The majority of respondents added that they believe the pandemic will permanently change some aspect of their workplace, going forward. “We had to make some changes on our daily tasks to compensate not being at our office working physically together, but those have proven to increase our efficiency and productivity,” one developer responded. “Lately we have even talked about embracing the home office configuration even after the pandemic.”
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Benchmark-backed Optimizely confirms it has laid off 15% of staff
Optimizely, a San Francisco-based startup that popularized the concept of A/B testing, has laid off 15% of its staff, the company confirmed in a statement to TechCrunch. The layoff impacts around 60 people, and those laid off were given varied levels of severance. Each employee was given six months of COBRA and was allowed to keep their laptops.
“As with so many other businesses globally, Optimizely has been impacted by COVID-19. Today, we have had to make a heartbreaking decision to reduce the size of our workforce,” Erin Flynn, chief people office, wrote in a statement to TechCrunch, adding that “today’s difficult decision sets up our business for continued success.”
The startup was founded in 2009 by Dan Siroker and Pete Koomen on the idea that it helps to have customers experience different versions of the website, also known as A/B testing, to see what iteration sticks best. A year after founding, the startup went through Y Combinator and in 2013 it signed a lease for a 56,000-square-foot office in San Francisco.
Optimizely last raised $50 million in Series D financing from Goldman Sachs, bringing its total venture capital secured to date to $200 million. Other investors include Index Ventures, Andreessen Horowitz and GV.
In June, Optimizely said it handles more than 6 billion events a day. Customers include Visa, BBC, IBM, The Wall Street Journal, Gap, StubHub and Metromile.
Optimizely was not listed as applying for a PPP loan, a program created by the government to help businesses avoid laying off staff. The loans were met with controversy in Silicon Valley, as some thought venture-backed businesses should turn to investors, instead of the government, for extra capital.
Optimizely’s layoffs are somewhat surprising, given recent earnings reports that show that enterprise SaaS companies have broadly benefited from the coronavirus pandemic. In an online work world, infrastructure and software services become more vital by the day. Box, for example, helps people manage content in the cloud and it beat expectations on adjusted profit and revenue. So why is Optimizely struggling?
There are a ton of reasons for layoffs beyond what the market thinks about a business. Optimzely’s customers are a mix of heavy-hitters in enterprise, but also include businesses that have struggled during this pandemic, including StubHub and Metromile — both of which had layoffs.
While the pace of layoffs is slowing down, cuts themselves aren’t disappearing. As the stocks show us, it’s a volatile time and businesses are looking for ways to stay financially safe.
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VidMob rethinks video production in the pandemic era
VidMob, which started out as a marketplace connecting marketers and video editors, now bills itself as a “creative technology platform.” Now there’s a “creator network” that’s part of a broader suite of tools for managing video production and turning those videos into online ads.
And the company has continued to evolve during the COVID-19 pandemic. Founder and CEO Alex Collmer told me that how customers use the platform has changed substantially in recent months. For example, he said that one of the platform’s “best skills” involved taking existing footage — including footage shot for TV commercials — and other creative assets and turning them into social media ads. But of course, “Over the last few months, all physical shoots were canceled.”
So Collmer said that rather than simply treating VidMob as a social media advertising tool, brands are increasingly turning to the startup for a way to manage remote video production. The result is that the company saw 100% year-over-year “logo growth” (a.k.a. new customers) in the first quarter, and then grew another 50% in Q2.
“What we have seen here is the acceleration of the digital transformation of the enterprise,” he said. “Pretty much every client we have, every marketer we talk to is looking very seriously at how to move all their creative operations onto some sort of unifying software platform, so that they feel safe in the event that they continue to have to work in a remote environment, and to be more efficient with existing media.”
One of those gin brand Monkey 47, whose brand lead Jennifer Schwartz said in a statement, “We have worked multiple times with VidMob as they quickly and efficiently help a lean and nimble brand like ours get out our message to millions of consumers.”
Another client is Citi, whose Chief Brand Officer Carla Hassan told me her team has been working with VidMob since last year. She said that as as a result of the pandemic, like many marketers, “We were required to really be flexible and adjust and scale programs quickly.”
For example, in response to the #InItTogether hashtag, Citi used VidMob to create a series of inspirational videos showcasing the work of its employees — such as Mihir in the video above, who was 3D printing protective equipment for his communities.
“As we thought about how we told the stories, we realized that your colleagues are some of the most important heroes that you have,” Hassan said.
According to Citi, the videos have been viewed nearly 250,000 times since the campaign launched in early May, with 80% of that viewing on LinkedIn.
And although dealing with the initial pandemic and shutdown was difficult enough, the news keeps coming, with protests for racial justice, a COVID-19 resurgence, resulting closures and more.
“We’re going to be in a period of uncertainty for a while, but to be honest, I see that as an opportunity,” Hassan said. “Brands who understand what their consumers want, brands who are tuned into the cultural zeitgeist, brands [who] pivot quickly to create content that is relevant and engaging and drive business KPIs … that will be what wins in the future.”
Similarly, Collmer said that in a period of uncertainty, brands need to respond more quickly, rather than simply falling silent: “Shutting up and going away is not a great way to position yourself.”
Update: This post has been updated to correctly identify the executive at Citi and to include a quote from Monkey 47.
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Recurrency is taking on giants like SAP with a modern twist on ERP
Recurrency, a member of the Summer 2020 Y Combinator cohort, was started by a 21 year old just out of college. He decided to take on a highly established market that is led by giants like SAP, Infor, Oracle and Microsoft, but instead of taking a highly complex area of enterprise software in one big bite, he is starting by helping wholesale businesses.
Sole founder and company CEO Sam Oshay just graduated from the University of Pennsylvania with a dual degree that straddled engineering and business, before joining the summer batch. Oshay is bringing a modern twist to ERP by using machine learning to drive more data-driven decision making.
“What makes us different from other ERPs like SAP, Infor and Epicor is that we can tell the user something that they don’t already know.” He says these traditional ERPs are basically data entry systems. For example, you could enter a pricing list, but you can’t do anything with it in terms of predictions.
“We can scan historical data and make pricing recommendations and predictions. So we are an ERP that not only does data analysis, but also imports external data and matches it to internal data to make recommendations and predictions,” Oshay explained.
While he doesn’t expect to remain confined to just the wholesale side of the business, it makes sense that he started with it because his family has a history of running these kinds of businesses. In fact, his grandfather immigrated to the U.S. after World War II and started a hardware wholesale business that his uncle still runs today. His dad started his own business selling wholesale shipping supplies, and he grew up in the family business, giving him some insight that most recent college grads probably wouldn’t have.
“I learned about the wholesale business at a very deep level. And what I observed is that so many of the issues with my dad’s business came down to issues with his ERP system. It occurred to me that if someone were to build an ERP extension or a better ERP, they could unlock so much of the value that is currently locked inside these legacy systems,” he said.
So he did what good entrepreneurs do, and began building it. For starters, his system plugs into legacy systems like SAP or NetSuite, but the plan is to build a better ERP, one step at a time. For now, it’s about wholesale, but he has a much broader vision for his company.
He originally applied to YC during the Fall 2019 semester of his junior year, and was admitted to the winter batch, but deferred to the Summer 2020 group to complete his studies. He spent his remaining time at UPenn sprinting to early graduation, taking 10 classes to come close to finishing his studies (with just a dissertation standing between him and his degree).
With this batch being delivered remotely, he says that the YC team has taken that into account and is still offering a meaningful experience for the summer group. “All of the events that YC would normally be doing are still happening, just remotely. And to my knowledge, some of the events we’re doing are designed specifically for this weird set of circumstances. The YC team has put quite a bit of thought into making this batch meaningful and I think they’ve succeeded,” he said.
While the pandemic has created new challenges for an early-stage business, he says that in some ways it’s helped him focus better. Instead of going out with friends, he’s home with his head down working on his company with little distraction.
As you would expect, it’s early days for the product, but he has three customers who are operational and two more in the implementation phase. He also has two employees so far, a front end and back end engineer.
For now, he’s going to continue building his product and his business, and he sees the pandemic as a time when businesses might be more open to changing a system like a legacy ERP. “If they want to try something new, and you can make it easier for them to try that, I’ve found that’s a place where you can make a sale,” he said.
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FlexJobs CEO Sara Sutton on what newly remote companies tend to get right and wrong
Over the last few months, just about any tech company that can go remote has gone remote.
Are companies adopting remote for the long haul, or is it just a holdover until they can get people back in the office? What are newly remote companies getting wrong or right in the transition? If a company is going to be sticking with a remote workforce, what can they do to make their roles more enticing and to build a better culture?
FlexJobs CEO Sara Sutton has been thinking about remote work for longer than most. She founded FlexJobs in 2007 — at a time when she herself was looking for a more flexible job — as a platform tailored specifically for jobs that didn’t keep you in an office all day. In 2015 she also founded Remote.co, a knowledge base for remote companies and employees to share the lessons they’ve learned along the way.
I recently got a chance to chat with Sara about her views and insights on remote work. Here’s the transcript of our chat, lightly edited for brevity and clarity.
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