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Extra Crunch roundup: Jam City SPAC, startup PR, telemedicine market map, more
For this morning’s edition of The Exchange, Alex Wilhelm studied information recently released by mobile gaming studio Jam City as it prepares to go public in a $1.2 billion blank-check deal with DPCM Capital.
“Jam City is a bit like Zynga, but unless you are a mobile-gaming aficionado, you might not have heard of it,” he writes.
Since its launch, Jam City has raised upwards of $300 million, including a $145 million round in 2019. At the time, the company was riding high after signing a deal with Disney to adapt some of the media giant’s intellectual property, which includes brands like Marvel, Fox and Pixar.
Almost half of all Americans play mobile games, so Alex reviewed Jam City’s investor deck, a transcript of the investor presentation call and a press release to see how it stacks up against Zynga, which “has done great in recent quarters, including posting record revenue and bookings in the first three months of 2021.”
(Full disclosure: the second time I worked at a startup founded by Mark Pincus, Zinga slept behind my desk and I was one of her favorite dog-sitters.)
Thanks for reading Extra Crunch; I hope you have an excellent weekend!
Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist
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5 ways to raise your startup’s PR game
Image Credits: Andrii Yalanskyi (opens in a new window)/ Getty Images
The ability to effectively communicate can make or break your launch. It will play a role in determining who wins a new space — you or a competitor.
So how do you make a splash? How do you stay relevant?
For one, you have to stop thinking that what you are up to is interesting.
Every early-stage startup must identify and evaluate a strategic advantage
Image Credits: Eoneren / Getty Images
Whether you’re building a company or thinking about investing, it’s important to understand your strategic advantage.
In order to determine one, you should ask fundamental questions: What’s the long-term, sustainable reason that the company will stay in business?
As M&A accelerates, deal-makers are leveraging AI and ML to keep pace
Image Credits: Fanatic Studio (opens in a new window) / Getty Images
The global pandemic has changed the way we work, including how and where we work. For those involved in the mergers and acquisitions (M&A) industry, a notoriously relationship-driven business, this has meant in-person boardroom handshakes have been replaced by video conference calls, remote collaboration and potentially less travel in the future.
The pandemic has also accelerated digital transformation, and deal-makers have embraced digital tools to help them execute effectively.
The quickening pace of digital transformation is no longer about ensuring a competitive edge. Today, it’s also about business resilience. But what’s on the horizon, and how else will technology evolve to meet the needs of companies and deal-makers?
There are still many inefficiencies in managing M&A, but technologies such as artificial intelligence, especially machine learning, are helping to make the process faster and easier.
New Relic’s business remodel will leave new CEO with work to do
Image Credits: Malte Mueller / Getty Images
Lew Cirne, New Relic’s founder and CEO, is stepping into the executive chairman role. He will be replaced by Bill Staples on July 1.
Cirne spent the last several years rebuilding the company’s platform and changing its revenue model, aiming for what he hopes is long-term success.
TechCrunch decided to dig into the company’s financials to see just what challenges Staples may face as he moves into the corner office. The resulting picture is one that shows a company doing hard work for a more future-aligned product map and business model, albeit one that may not generate the sort of near-term growth that gives Staples ample breathing room with public investors.
Fast growth pushes an unprofitable no-code startup into the public markets: Inside Monday.com’s IPO filing
Image Credits: Nigel Sussman (opens in a new window)
At long last, the Monday.com crew dropped an F-1 filing to go public in the United States. TechCrunch has long known that the company, which sells corporate productivity and communications software, has scaled north of $100 million in annual recurring revenue (ARR).
The countdown to its IPO filing — an F-1, because the company is based in Israel, rather than the S-1s filed by domestic companies — has been ticking for several quarters.
The Exchange has been riffling through the document since it came out, and we’ve picked up on a few things to explore.
The battle for voice recognition inside vehicles is heating up
Image Credits: Bryce Durbin
Until recently, integrating affordable voice-recognition software into an automobile was something from science fiction.
But last year, the percentage of vehicles offering in-car connected services reached 45%. By 2024, analysts predict cars with voice recognition will comprise 60% of the market.
Considering how much time many of us spend behind the wheel, there’s an infinite number of applications for the technology. For our latest Extra Crunch market map, we sized up the general market opportunity before creating a roster of major players and reaching out to investors to see where they’re placing bets.
Industrial automation startup Bright Machines hauls in $435M by going public via SPAC
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Bright Machines is going public via a SPAC-led combination that will see the 3-year-old company merge with SCVX, raising gross cash proceeds of $435 million in the process.
After the transaction is consummated, the startup will sport an anticipated equity valuation of $1.6 billion.
The Bright Machines news indicates that the great SPAC chill was not a deep freeze. And the transaction itself, in conjunction with the previously announced Desktop Metal blank-check deal, implies that there is space in the market for hardware startup liquidity via SPACs. Perhaps that will unlock more late-stage capital for hardware-focused upstarts.
We took a look at what Bright Machines does, and then the financial details that it shared as part of its news.
Want to double your rate of return? Seek counsel from experienced executives
Image Credits: Sujin Jetkasettakorn / EyeEm (opens in a new window) / Getty Images
As a rule of thumb, it takes 7-8 years for a successful startup to achieve an exit. But there’s a simple way to speed up the clock: Bring in one or more founders who have previous executive experience.
According to data gathered by Rob Olson, partner and head of data strategy at venture engine M13, startups that have two or more experienced founders tend to exit 33% faster and raise 34% less capital.
“Combined, these two improvements can nearly double an investor’s rate of return,” says Olson.
Should startups build or buy telehealth infrastructure?
Image Credits: Georgijevic (opens in a new window)/ Getty Images
Digital health in the U.S. got a huge boost from COVID-19 as more people started consulting physicians and urgent care providers remotely in the midst of lockdowns. So much so that McKinsey estimates that up to $250 billion of the current healthcare expenditure in the U.S. has the potential to be spent virtually.
The prominence of digital health is undoubtedly here to stay, but how it looks and feels from provider to provider is still a debate among sector startups.
But for providers who want to deliver care virtually across the country, it’s not as simple as adding a Zoom invite to an annual check-up. The process requires intention every step of the way — right from the clinicians delivering remote care to the choice of payment processor.
Help TechCrunch find the best email marketers for startups
Image Credits: Getty Images under a MirageC (opens in a new window) license.
Email marketing has been with us for decades, but today it has been refined to a science and an art form.
If you’re an early-stage founder, it is one of the best ways to build and grow your direct relationship with your customer. You know how fickle the platforms can be. You can’t afford to mess this up.
So when and how should you think about doing email marketing, versus all of your other frantic priorities?
Here at Extra Crunch, we’re helping you find the answers. We launched a survey of founders who want to recommend a great email marketer or agency they have worked with to the rest of the startup world.
For companies that use ML, labeled data is the key differentiator
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When a company chooses supervised learning, it needs to have a strategy that allows it to label data as quickly as it acquires it.
Supervised learning is currently the most practical approach for most ML challenges, but it requires the crucial additional step of making raw data smart by labeling it.
How Expensify got to $100M in revenue by hiring ‘stem cells’ and not ‘cogs in a wheel’
Image Credits: Nigel Sussman
The influence of a founder on their company’s culture cannot be overstated. Everything from their views on the product and business to how they think about people affects how their company’s employees will behave, and since behavior, in turn, informs culture, the consequences of a founder’s early decisions can be far-reaching.
So it’s not surprising that Expensify has its own take on almost everything it does when you consider what its founder and CEO David Barrett learned early in his life: “Basically everyone is wrong about basically everything.”
As we saw in part 1 of this EC-1, this led him to the revelation that it’s easier to figure things out for yourself than finding advice that applies to you. Eventually, these insights would inform how he would go about shaping Expensify.
Inside Marqeta’s fascinating fintech IPO
Image Credits: Nigel Sussman (opens in a new window)
Marqeta, long a darling of the fintech market though less well known than some companies in its sector due to its infrastructure nature, filed to go public late last week
If you are not familiar with Marqeta, it powers the payment card tech behind products that you use, like Square, a key customer and driver of the unicorn’s growth. Marqeta exhibits a number of fascinating fintech characteristics (majority revenue from interchange, a rabidly competitive market) that make it very interesting to unspool.
May Mobility’s Edwin Olson and Nina Grooms Lee and Toyota AI Ventures’ Jim Adler on validating your startup idea
When a founder has a work history that includes the name of the parent company of one of their key investors, you probably assume that was one of the first deals to come together. Not so with May Mobility and Toyota AI Ventures, which connected for the company’s second seed round after May went out and raised its original seed purely on the strength of its own ideas and proposed solutions.
That’s one of the many interesting things we learned from speaking to May Mobility co-founder and CEO Edwin Olson, as well as Chief Product Officer Nina Grooms Lee and Toyota AI Ventures founding partner Jim Adler on an episode of Extra Crunch Live.
Extra Crunch Live goes down every Wednesday at 3 p.m. EDT/noon PDT. Our next episode is with Sequoia’s Shaun Maguire and Vise’s Samir Vasavada, and you can check out the upcoming schedule right here.
Meanwhile, read on for highlights from our chat with Olson, Grooms Lee and Adler, and then stay tuned at the end for a recording of the full session, including our live pitch-off.
WalkMe is going public: Let’s stroll through its numbers
Image Credits: Getty Images / Somyot Techapuwapat / EyeEm
WalkMe is the second Israel-based technology company to file to go public this week: No-code startup Monday.com is also pursuing an American IPO.
WalkMe’s software provides visual overlays on websites that help users navigate the product in question. Per the company’s F-1 filing, other elements of its service that matter include its onboarding system, Workstation, or its “single interface to the applications within an enterprise and simplifies task completion through a natural language conversational interface and automation.” We’re including that last feature because it says “automation,” which, in the wake of the UiPath IPO, is a word worth watching. Investors are.
At a high level, WalkMe is a SaaS business, which means that when we digest its results we are digging into a modern software company. Let’s do just that.
Can Squarespace dodge the direct-listing value trap?
Image Credits: Nigel Sussman (opens in a new window)
Squarespace’s reference price has been set at $50 per share.
We went over Squarespace’s recently disclosed Q2 and full-2021 guidance and asked how its expectations compare to its reference-price-defined pre-trading valuation. Then, we set some stakes in the ground regarding historical direct-listing results and what we might expect from the company as it adds a third set of data to our quiver.
Let’s get into the numbers!
Mapping out one edtech company’s $200M bet on lifelong learning
Image Credits: Getty Images / DrAfter123
Mumbai-based Emeritus, an edtech company that works with universities to create online upskilling courses for employed folks, just spent a big chunk of cash to break into K-12.
Emeritus, which is part of the Eruditus group, announced this week that it plans to acquire iD Tech, a STEM education service for children. The acquisition, which has not yet closed, is estimated to be around $200 million and leaves iD Tech operating as an independent brand for now.
ID Tech brings a whole different set of customers to its umbrella: The startup offers courses for elementary through high-school students across the globe taught by college students in the U.S.
5 innovative fundraising methods for emerging VCs and PEs
Image Credits: Hiroshi Watanabe / Getty Images
According to Versatile VC founder David Teten, five new strategies are gaining traction among fund managers looking to raise capital from family offices and high-net-worth individuals:
- Online communities and virtual events.
- Platforms that help other investors access your fund.
- Soliciting under the 506(c) designation.
- Launching a rolling fund.
- Crowdfunding from retail investors into a general partnership.
In a summary of a class he taught for the Oper8r VC fund accelerator, Teten offers actionable advice for anyone who wants to connect with pre-qualified investors.
Dear Sophie: What’s happening with visa application receipt notices?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
Our startup employs several individuals who are on work visas or have employment authorization. Many of them have been waiting for quite a while for the government to tell them their applications have been received.
Why? When will things be back on track? We have a few employees who are waiting for green cards, and a few F-1 visa holders who will be extending their OPT to STEM OPT.
Is there anything we can do?
— Patient in Pasadena
Arrival’s Denis Sverdlov on the new era of car manufacturing
Image Credits: Bryce Durbin
Electric vehicle company Arrival wants to break the current auto manufacturing model. Instead of one giant factory and an assembly line, Arrival’s commercial electric vans, buses and cars are robotically built in small, regional microfactories, of which the company wants to open 31 by the end of 2025.
If you want to achieve something radically more efficient, you have to go deeper, into complex, high-level computational algorithms that are not normally used in consumer-facing products.
The London-based company, founded in 2015, joined the ranks of EV companies going public via SPAC, merging with blank-check company CIIG Merger Corp. in March. UPS has already ordered 10,000 of Arrival’s robotically engineered vans, and the company recently signed a deal with Uber to create purpose-built EVs for ride-hail drivers.
Arrival founder Denis Sverdlov has been at the intersection of technological advancement and societal change before.
Chasing hype is human nature: The tyranny of startup trends
Image Credits: Nuthawut Somsuk / Getty Images
The fear of missing out (FOMO) spreads faster than wildfire and often overwhelms rational decision-making.
In the VC community, investors look for lessons from disruptive startups they can use to identify other potential winners. But hype leads to bad decision-making, rushed due diligence and wishful thinking.
When and if those startups actually do well, “irrational FOMO takes over” because the initial assessment was based on bad information, says Victor Echevarria, a partner at Jackson Square Ventures. “Trends are addictive; to remain disciplined and avoid hype is to deny our innate instincts.”
It’s natural for investors to follow the crowd, but in the race to the bottom, FOMO can be high-octane fuel.
Robinhood’s epic Q1 growth explains its fundraising boom
Image Credits: Nigel Sussman (opens in a new window)
The Exchange explores Robinhood’s financial results using the lens of payment for order flow (PFOF) income, which the company said during a congressional hearing constitutes the majority of its revenues.
This particular revenue growth — or the lack thereof — is a good way to understand not only Robinhood’s own results but also its larger market. If Robinhood is seeing rapid growth and strong trading volumes, we can infer with some confidence that others in its space are enjoying a related, if not similar, level of interest.
For Public.com, eToro and others like Freetrade (as well as our own understanding), how Robinhood performed recently is key. So, let’s explore the data.
How to ensure data quality in the era of Big Data
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A little over a decade has passed since The Economist warned us that we would soon be drowning in data. The modern data stack has emerged as a proposed life-jacket for this data flood — spearheaded by Silicon Valley startups such as Snowflake, Databricks and Confluent.
Today, any entrepreneur can sign up for BigQuery or Snowflake and have a data solution that can scale with their business in a matter of hours. The emergence of cheap, flexible and scalable data storage solutions was largely a response to changing needs spurred by the massive explosion of data.
Currently, the world produces 2.5 quintillion bytes of data daily (there are 18 zeros in a quintillion). The explosion of data continues in the roaring ‘20s, both in terms of generation and storage — the amount of stored data is expected to continue to double at least every four years. However, one integral part of modern data infrastructure still lacks solutions suitable for the Big Data era and its challenges: Monitoring of data quality and data validation.
Investors help Procore build a decacorn valuation in public debut
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Watching construction tech software company Procore go public Thursday after pricing above its range makes the IPO slowdown look like the deceleration that wasn’t.
Investors quickly bid up the company’s value in trading, giving Procore a higher valuation than it might have anticipated, along with a boost of confidence for the IPO market in general.
Construction tech may not be as glamorous as space travel, but it’s a massive industry that’s fraught with inefficiencies.
Procore initially set an IPO range of $60 to $65 per share before pricing at $67 per share Wednesday night. Its debut was worth gross proceeds north of $600 million and a fully diluted valuation of $9.6 billion. As of early afternoon Thursday, shares were trading at a solid $85.25.
In light of Procore’s debut, TechCrunch is digging quickly into the company’s new valuation and its resulting revenue multiples.
Telemedicine startups are positioning themselves for a post-pandemic world
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It’s impossible to predict how healthcare institutions will operate post-pandemic, but with so many people now accustomed to telemedicine, startups that provide services around virtual care continue to be poised for success.
Telemedicine has faced an uphill battle to become more relevant in the U.S., with challenges such as meeting HIPAA compliance requirements and insurance companies unwilling to pay for virtual visits. But when COVID-19 began raging across the globe and people had to stay home, both the insurance and healthcare industries were forced to adapt.
Now that people see the benefits and conveniences of “dialing a doc” from the kitchen table, healthcare has changed forever.
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Restrictions on acquisitions would stifle the US startup ecosystem, not rein in big tech
Bipartisanship has long been out of fashion, but one common pursuit among Democrats and Republicans in Washington has been placing Big Tech companies under a microscope.
Congressional committees have held scores of hearings, lawsuits have been filed and legislation has been introduced to regulate privacy and data collection. The knock-on effect of these reforms for young companies and their venture investors is unclear. But one aspect of increased antitrust scrutiny — restrictions on acquisitions — would have a significant negative effect on our entrepreneurial ecosystem, and policymakers should approach these changes with caution.
Acquisitions are an important element of the startup ecosystem
For VC-backed companies, there are effectively three outcomes: standalone company (often via an IPO), merger or acquisition, or bankruptcy. Despite best efforts, company failure is the most common outcome — more than 90% of startups fail. Fortunately, the success stories are often companies with a big impact, like Moderna and Zoom, which helped the world in the pandemic.
Acquisitions contribute to the health of the startup ecosystem, as entrepreneurs who realize liquidity through the sale of their company regularly go on to found innovative new companies and often invest in other startups as angel investors or venture capitalists.
Entrepreneurs are optimists by nature, and so when the company journey begins, there is great hope of one day creating a standalone public company. However, in most cases, an IPO is not possible. The reality is that entrepreneurship is incredibly hard, and the journey from infancy to public company is one that relatively few companies achieve.
Silicon Valley Bank’s 2020 Global Startup Outlook puts it this way: “[T]he fact is most entrepreneurs never expect to reach a public market exit.” Accordingly, 58% of startups expect to be acquired. NVCA-Pitchbook data on acquisitions and IPOs back up the sentiment of founders when it comes to likely exit opportunities. In 2020, there was an approximately 10:1 ratio of acquisitions of VC-backed companies to IPOs, with 1,042 venture-backed companies acquired and 103 entering the public markets.
Some might argue that acquisitions are more dominant today because of the anti-competitive motivations of current tech incumbents. But as Patricia Nakache of Trinity Ventures said in testimony before the Senate Judiciary Committee: “[Acquisitions have] been commonplace in the U.S. since before the dawn of the modern venture capital industry.” In fact, today we are witnessing fewer acquisitions relative to IPOs than in years past, as the average acquisition-to-IPO ratio since 2004 is approximately 15:1. This is happening against a backdrop of challenges in taking small-cap companies public that has reduced the number of companies in the public markets today.
Acquisitions contribute to the health of the startup ecosystem, as entrepreneurs who realize liquidity through the sale of their company regularly go on to found innovative new companies and often invest in other startups as angel investors or venture capitalists.
Furthermore, acquisitions help power the returns of VC funds, thereby allowing VCs to raise new funds and invest in the next generation of entrepreneurs. This “recycling effect” is one of the key drivers of dynamism in our economy and should not be slowed down.
Acquisition changes could impact entrepreneurship
Despite the importance of acquisitions, antitrust reform has included significant changes to how acquisitions are assessed by the federal government. The two most prominent examples in this space are Sen. Amy Klobuchar’s Competition and Antitrust Law Enforcement Reform Act (CALERA) and Sen. Josh Hawley’s Trust-Busting for the Twenty-First Century Act.
These bills are likely a reaction to findings that incumbents have acted like Pac-Man, gobbling up would-be competitors before they become a competitive problem. But both proposals would ultimately harm startup activity and competition rather than propel it.
A common thread between these proposals is to restrict acquisitions by companies valued at more than $100 billion. Hawley’s bill would impose an outright ban on acquisitions by companies of that market cap that “lessen competition in any way.”
Klobuchar’s bill would shift the burden of proof to parties to an acquisition, a major change because the U.S. government bears the burden currently. This means if the government challenges an acquisition in federal court, the parties to the acquisition must demonstrate it does not “create an appreciable risk of materially lessening competition.” If that standard is not met, the acquisition could be blocked.
Both proposals have negative ramifications for venture-backed companies.
First, consider the scope of the proposals: A $100 billion company is indeed a large one, but setting the threshold there captures far more than the large tech companies that have been hauled before Congress for antitrust hearings. Globally, about 150 companies are valued at $100 billion or more, and the U.S. is home to more than 80 of those companies. That exposes acquirers as wide-ranging as Estee Lauder, John Deere, Starbucks and Thermo Fisher Scientific. If you are struggling to recall those companies being under the antitrust spotlight, then you are not alone.
Second, the legal standards imposed by these new bills are daunting. Klobuchar’s proposal leaves startups scratching their heads on where the line is on which acquisitions are tolerated, while Hawley’s bill throws up a misguided red light for vast amounts of acquisitions. These two standards are particularly vexing since acquirers are generally looking for acquirees that complement their existing business. In addition, many of the most acquisitive companies are multifaceted ones that presumably compete with an array of other companies in some way.
Ultimately, the bills from Klobuchar and Hawley would disrupt an important part of our nation’s startup ecosystem. Acquisitions act like grease to help keep the wheels moving by injecting liquidity into the system so participants can move on to create new and hopefully better companies for our country. Those wheels should not be slowed down when the country needs all the entrepreneurship it can muster.
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Financing for students startup StudentFinance raises $5.3M seed from Giant and Armilar
Fintech startup StudentFinance — which allows educational institutions to offer success-based financing for students — has raised a $5.3 million (€4.5 million) seed round co-led by Giant Ventures and Armilar Venture Partners. It’s now raised $6.6 million total, to date.
StudentFinance launched in Spain first, followed by Germany and Finland, with the U.K. planned this year. Existing investors Mustard Seed Maze and Seedcamp, along with Sabadell Venture Capital, also participated.
The startup, which launched at the beginning of 2020, provides the tech back end for institutions to offer flexible payment plans in the form of ISAs (income-share agreements). It also provides data intelligence on the employment market to predict job demand.
It now has 35 education providers signed up, managing over €5 million worth of ISAs. It also works with upskilling platforms including Ironhack and Le Wagon. StudentFinance’s competitors include (in the USA) Blair, Leif, Vemo Education, Chancen (Germany-based) and EdAid (U.K.-based).
As for why StudentFinance stands out from those companies, Mariano Kostelec, co-founder and CEO of StudentFinance, said: “StudentFinance is the only platform in this space providing the full end-to-end, cross-border infrastructure to deliver ISAs for students whilst helping to plug the growing skills gap. Not only do we provide the infrastructure to support the ISA financing model, but we also provide data intelligence on the employment market and a career-as-a-service platform that focuses on placing students in the right job. We are creating an equilibrium between supply and demand.”
With an ISA, students only start paying back tuition once they are employed and earning above a minimum income threshold, with payments structured as a percentage of their earnings. This makes it a “success-based model”, says StudentFinance, which shifts the risk away from the students. They are likely to be popular as workers need to reskill with the onset of digitization and the pandemic’s effects.
The startup was founded in 2019 by Kostelec, Marta Palmeiro, Sergio Pereira and Miguel Santo Amaro. Kostelec and Santo Amaro previously built Uniplaces, which raised $30 million as a student housing platform in Europe.
Cameron Mclain, managing partner of Giant Ventures, commented: “What StudentFinance has built empowers any educational institution to offer ISAs as an alternative to upfront tuition or student loans, broadening access to education and opportunity.”
Duarte Mineiro, partner at Armilar Venture Partners, commented: “StudentFinance is a great opportunity to invest in because aside from its very compelling core purpose, this is a sound business where its economics are backed by a solid proprietary software technology.”
Sia Houchangnia, partner at Seedcamp, commented: “The need for reskilling the workforce has never been as acute as it is today and we believe StudentFinance has an important role to play in tackling this societal challenge.”
Angel backers include investors, which includes: Victoria van Lennep (founder of Lendable); Martin Villig (founder of Bolt); Ed Vaizey (the U.K.’s longest-serving Culture & Digital Economy Minister); Firestartr (U.K.-based early-stage VC); Serge Chiaramonte (U.K. fintech investor); and more.
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Want to double your rate of return? Seek counsel from experienced executives
Does it really take an average of seven to eight years for a successful startup to exit? What can early-stage founders do to accelerate outcomes?
We wanted to know if founding teams can execute faster with a higher degree of success if they’re able to take advantage of relevant executive expertise. After all, that’s the thesis we built our venture model around — we purposefully designed M13 so that early-stage founders get access to experienced executives they wouldn’t otherwise have the money to hire or the time to vet, onboard and manage.
Even if companies are doing everything right, they still reduce time to exit when they have multiple founders with prior relevant experience as a senior leader or operator.
We looked at years of data from hundreds of successful startups. As it turns out, the impact of relevant executive expertise is even greater than we had anticipated — to the tune of doubling the rate of return on a venture investment.
When it comes to measuring leadership experience, information about an individual executive’s experience — for example, how long they’ve been an exec — is publicly available. Unfortunately, there isn’t readily available structured data around a founding team’s seniority and how early the founders bring on people with more experience as an operator or leader.
To find out if leadership experience significantly impacts startups’ success, we analyzed nearly 800 executives at more than 200 companies that reached a sizable exit (greater than or equal to a $500 million valuation) via an IPO on a U.S. exchange or an exit via M&A from 2004-2019. About 70% of the companies in our dataset exited between 2016-2019, including notable IPOs like Spotify, Zoom, Uber and Peloton. We decided to exclude companies in the biotech/life sciences space because these companies follow a different growth trajectory than consumer tech and B2B tech and traditionally exit via IPO or M&A at a much earlier stage.
Here’s what our analysis of startups with successful exits revealed.
Of successful exits, the average actually is 7-8 years
While there are other intangible variables for startup success, the basic equation is the time and capital required to achieve an exit and the size of that exit.
Our dataset validates the widely accepted statement that successful exits take about seven to eight years:
Image Credits: M13
But could a variable like relevant leadership experience actually accelerate the time to exit? We wondered: Beyond time and capital, are there any factors — like experience as a leader or operator — that can have an exponential impact on the exit outcome? And when is the right time for those human capital resources to be introduced to make that impact?
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Opportunity knocks: Exhibit at TC Sessions: Mobility 2021
No matter what slice of the mobility market you’ve claimed as your own — AVs, EVs, data mining, AI, dockless scooters, robotics or the batteries that will charge and change the world — you won’t find a better place to showcase your extraordinary tech and talent than TC Sessions: Mobility 2021.
Buy a Startup Exhibitor Package and virtually plant your early-stage mobility startup in front of a global audience that’s focused exclusively on one of the most complex, rapidly evolving industries. TC Sessions: Mobility, which takes place on June 9, features the top minds and makers, draws thousands of attendees, fosters collaborative community and creates a networking environment ripe with opportunities.
Pro tip: This package is for pre-Series A, early-stage startups only.
The Startup Exhibitor Package costs $380, and it comes with four all-access passes to the event. But wait (insert infomercial voice here), there’s more!
Your virtual expo booth features lead-generation capabilities. You can highlight your pitch deck, run a video loop and/or host live demos. Network with CrunchMatch, our AI-powered platform, to find and connect with the people who can help move your business forward. CrunchMatch lets you host private video meetings — pitch investors, recruit new talent or grow your customer base.
You’ll have access to all the presentations, panel discussions and breakout sessions, too. And video-on-demand means you won’t miss out.
Here’s a peek at just some of the agenda’s great programming you and, thanks to those extra passes, your team can attend — or catch later with VOD:
- EV Founders in Focus: We sit down with the founders poised to take advantage of the rise in electric vehicle sales. This time, we will chat with Kameale Terry, co-founder and CEO of ChargerHelp! a startup that enables on-demand repair of electric vehicle charging stations.
- Will Venture Capital Drive the Future of Mobility? Clara Brenner, Quin Garcia and Rachel Holt will discuss how the pandemic changed their investment strategies, the hottest sectors within the mobility industry, the rise of SPACs as a financial instrument and where they plan to put their capital in 2021 and beyond.
- Driving Innovation at General Motors: GM is in the midst of sweeping changes that will eventually turn it into an EV-only producer of cars, trucks and SUVs. But the auto giant’s push to electrify passenger vehicles is just one of many efforts to be a leader in innovation and the future of transportation. We’ll talk with Pam Fletcher, vice president of innovation at GM, one of the key people behind the 113-year-old automaker’s push to become a nimble, tech-centric company.
TC Sessions: Mobility 2021 takes place June 9. Buy a Startup Exhibitor Package and set yourself up for global exposure and networking success. Show us your extraordinary tech and talent!
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Every early-stage startup must identify and evaluate a strategic advantage
Whether you’re building a company or thinking about investing, it’s important to understand your strategic advantage. In order to determine one, you should ask fundamental questions like: What’s the long-term, sustainable reason that the company will stay in business?
The most important elements for founders to consider when figuring out their strategic advantage(s) include one-sided or “direct” network effects (e.g., with social media sites like Facebook), marketplace network effects (e.g., with two-sided marketplaces like Uber), data moats, first mover and switching costs.
Let’s take a quick look at an example of one-sided network effects. At the very earliest stages of Facebook’s existence, it was just Mark Zuckerberg, a few friends and their basic profiles. The nascent social media platform wasn’t useful beyond a few dorm rooms. They needed a strategic advantage or the company would not make it beyond the edge of campus.
A successful startup without a strategic advantage is just a validated business model vulnerable to copycat companies looking for a market entry point.
In fact, Facebook only truly became a useful platform — and accelerated as a business — when more users came into the fold and more types of email addresses were accepted. Add to that the introduction of an ad marketplace revenue model and you have a clear strategic advantage — based on one-sided network effects — that gave Facebook a strategic edge over other early social media sites like MySpace.
These one-sided network effects are different from two-sided network effects.
Image Credits: Canvas Ventures
Two-sided network effects are most common in marketplace business models. In a two-sided network, supply and demand are matched, like Uber riders (demand) being matched with Uber drivers (supply). The Uber product is not necessarily more valuable just because more users (riders) join, the way Facebook is more valuable when more users join.
In fact, when more users (riders) join the demand side of the Uber network, it might actually be worse for the user experience — it’s harder to find a driver and wait times get longer. The demand side (riders) gets value from more supply (drivers) joining the platform and vice-versa. That’s why it’s called a two-sided network, or a marketplace.
Regardless of industry, a successful startup without a strategic advantage is just a validated business model vulnerable to copycat companies looking for a market entry point. Copycats can range in size from startups with similar grit to large companies like Facebook or Google that have limitless resources to drive competition into the market, and potentially run the startup with the original idea out of business. This vulnerability can prove fatal unless a startup’s founding team explores and embraces one or more strategic advantages.
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HoneyBook raises $155M at $1B+ valuation to help SMBs, freelancers manage their businesses
HoneyBook, which has built out a client experience and financial management platform for service-based small businesses and freelancers, announced today that it has raised $155 million in a Series D round led by Durable Capital Partners LP.
Tiger Global Management, Battery Ventures, Zeev Ventures, 01 Advisors as well as existing backers Norwest Venture Partners and Citi Ventures also participated in the financing, which brings the San Francisco-based company’s valuation to over $1 billion. With the latest round, HoneyBook has now raised $248 million since its 2013 inception. The Series D is a big jump from the $28 million that HoneyBook raised in March 2019.
When the COVID-19 pandemic hit last year, HoneyBook’s leadership team was concerned about the potential impact on their business and braced themselves for a drop in revenue.
Rather than lay off people, they instead asked everyone to take a pay cut, and that included the executive team, who cut theirs “by double” the rest of the staff.
“I remember it was terrifying. We knew that our customers’ businesses were going to be impacted dramatically, and would impact ours at the same time dramatically,” recalls CEO Oz Alon. “We had to make some hard decisions.”
But the resilience of HoneyBook’s customer base surprised even the company, who ended up reinstating those salaries just a few months later. And, as corporate layoffs driven by the COVID-19 pandemic led to more people deciding to start their own businesses, HoneyBook saw a big surge in demand.
“Our members who saw a hit in demand went out and found demand in another thing,” Oz said. As a result, HoneyBook ended up doubling its number of members on its SaaS platform and tripling its annual recurring revenue (ARR) over the past 12 months. Members booked more than $1 billion in business on the platform in the past nine months alone.
HoneyBook combines on its platform tools like billing, contracts and client communication, with the goal of helping business owners stay organized. Since its inception, service providers across the U.S. and Canada such as graphic designers, event planners, digital marketers and photographers have booked more than $3 billion in business on its platform. And as the pandemic had more people shift to doing more things online, HoneyBook prepared to help its members adapt by being armed with digital tools.
Image Credits: HoneyBook
“Clients now expect streamlined communication, seamless payments, and the same level of exceptional service online that they were used to receiving from business owners in person,” Alon said.
Oz co-founded HoneyBook with wife Naama and longtime friend Dror Shimoni. Oz and Naama were both small business owners themselves at one time, so they had firsthand insight on the pain points of running a service-based business.
HoneyBook’s software not only helps SMBs do more business, but helps them “convert potentials to actual clients,” Oz said.
“We help them communicate with potential clients so they can win their business, and then help them manage the relationship so they can keep them,” Naama said.
The company plans to use its new capital toward continued product development and to “dramatically” boost its 103-person headcount across its New York and Tel Aviv offices.
“We’re seeing so much demand for additional services and products, so we definitely want to invest and create better ways for our members to present themselves online,” Alon told TechCrunch. “We’re also seeing demand for financial products and the ability to access capital faster. So that’s just a few of the things we plan to invest in.”
The company also wants to make its platform “more customizable” for different categories and verticals.
Chelsea Stoner, general partner at Battery Ventures, said her firm recognized that the expansive market of productivity tools to serve small businesses and entrepreneurs was “a market of discrete and separate productivity tools.”
HoneyBook, she said, is a true platform for SMBs, “providing a huge array of functionality in one cohesive UX.”
“It unites and connects every task for the solopreneurs, from creating and distributing marketing collateral, to organizing and executing proposals, to sending invoices and collecting payments,” Stoner said. “The company is constantly innovating and iterating in response to its members; we also see a lot of opportunity with payments going forward…And, due to COVID-19 and other factors, the company is sitting on pent-up demand that will accelerate growth even more.”
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Sorbet raises $6M seed led by Viola Ventures to tackle the thorny financials of paid time off
A U.S./Israeli startup, Sorbet — which is tackling what companies do with the financial risks as employees accrue paid time off (PTO) — has raised $6 million in a seed funding round led by Viola Ventures, with participation by Global Founders Capital and Meron Capital.
The economics of paid time off is relatively hidden in the business world, but essentially, Sorbet takes on the burden of this PTO from employers and then allows employees to spend it. This gives the employers far more control over the whole process and the ability to forecast its impact on the business.
Sorbet says that in the U.S., employees use only 72% of PTO balances, even though it’s the most sought-after benefit. But this, effectively, comes out at 768 million unused days off a year, worth around $224 billion. This creates a difficult problem for CFOs and accountants because its creates balance sheet liabilities on the company’s books, says Sorbet. If the employee doesn’t use all of their PTO, the employer can end up owing them a lot of money, which creates a cash flow liability on the company’s books. So Sorbet buys out these PTO liabilities from employees, then loads the cash value of the PTO on prepaid credit cards for the employees.
Speaking to me on a call, CEO and co-founder Veetahl Eilat-Raichel, said: “We researched this whole idea of paid time off and found this huge, massive market failure and inefficiency around the way that PTO is constructed. It’s kind of one of those things where, on the face of it, there’s this boring bureaucratic payroll item that turns into a boring balance sheet item. But under it is a $224 billion problem for U.S. businesses… If you think about it, employers are borrowing money from their employees at the worst terms possible and employees aren’t benefitting either. So everyone’s hurting here.”
She said: “Sorbet assumes the liability on ourselves and so then we can allow the company to control their cash flow and decide when they want to pay us back. They gain a lot of financial value because we are able to be very, very attractive on our funding. So it saves costs, it provides them with complete control of their cash flow and it allows them to give out amazing financial benefits to employees at a time where we can all use some extra cash right now.”
The platform Sorbet has built will, it says, sync with calendars, HR and payroll systems, identify habits and then proactively suggest personalized, pre-approved 3-6 hour “Micro Breaks”, 1-4 day “Micro Vacations” and +1 week Vacations. This, says the startup, increases PTO used by as much as 15%.
Employers can constantly renegotiate the terms of the loan with Sorbet, thus matching future cash flow, insulating themselves against salary raises (wage inflation), and take advantage of other benefits.
The co-founders are Eilat-Raichel, who previously worked at L’Oréal, Lockheed Martin and a fintech entrepreneur; Eliaz Shapira, co-founder and CPO; and Rami Kasterstein, co-founder and board member.
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Founders who don’t properly vet VCs set up both parties for failure
There’s a disconnect between reality and the added value investors are promising entrepreneurs. Three in five founders who were promised added value by their VCs felt duped by their negative experience.
While this feels like a letdown by investors, in reality, it shows fault on both sides. Due diligence isn’t a one-way street, and founders must do their homework to make sure they’re not jumping into deals with VCs who are only paying lip service to their value-add.
Looking into an investor’s past, reputation and connections isn’t about finding the perfect VC, it’s about knowing what shaking certain hands will entail — and either being ready for it or walking away.
Entrepreneurs are increasingly demanding more than a blank check: They want mentorship, product understanding and emotional support, as well as industry connections and expertise. If VCs can’t bring that value, founders now have plenty of other funding routes to choose from, like crowdfunding, angel syndicates, tokenization and SPACs.
To stay competitive, VCs have to at least advertise that they have more than deep pockets. But what if it stops there? Founders have to know exactly what they’re looking for in a VC, which means looking past the front page and vetting their investors.
The ideal investor for modern startups is an operator VC — someone who was a founder or operator at a company before becoming an investor. But even then, ticking boxes isn’t enough to ensure the investor won’t come with their own challenges, like being too hands-on or less strategically minded.
Looking into an investor’s past, reputation and connections isn’t about finding the perfect VC, it’s about knowing what shaking certain hands will entail — and either being ready for it or walking away. There is no single solution to this issue, but here are my recommendations to founders seeking a successful investor relationship in 2021.
Have a guiding framework
No founder-investor relationship can survive misalignment. Because you share responsibility on so many processes, both parties have to be on the same page. So before you even start fundraising, nail down the expectations you need your future investor to meet. What do you need the most? What does your dream investor look like?
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To sell or not to sell: Lessons from a bootstrapped CEO
The clock begins ticking on a startup the day the doors open. Regardless of a young company’s struggles or success, sooner or later the question of when, how or whether to sell the enterprise presents itself. It’s possibly the biggest question an entrepreneur will face.
For founders who self-funded (bootstrapped) their startup, a boardroom full of additional factors come into play. Some are the same as for investor-funded firms, but many are unique.
Put happiness at the center of the decision, and let your intuition — the instincts that made you the person you are today — be your guide.
After 18 years of bootstrapping a BI software firm into a business that now serves 28,000 companies and three million users in 75 countries, here’s what I’ve learned about myself, my company, about entrepreneurship and about when to grab for that brass ring.
Profitable or bust
Starting a software company 7,900 miles southwest of Silicon Valley requires some forethought and not a small amount of crazy. When we opened, it didn’t occur to us that one could have an idea and then go knock on someone’s door and ask for money.
Bootstrapping forced us to be a bit more creative about how we would go about building our company. In the early days, it was a distraction to growth, because we were doing other revenue-generating activities like consulting, development work, whatever we could find to keep ourselves afloat while we built Yellowfin. It meant we couldn’t be 100% focused on our idea.
However, it also meant we had to generate income from our new company from Day One — something funded companies don’t have to do. We never got into the mindset that it was okay to burn lots of cash and then cross our fingers and hope that it worked.
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