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GoTenna is ramping up public sector mesh networking with a $24M C round
GoTenna is best known for its outdoors-oriented consumer products that let you text and share locations between smartphones off the grid. But the company has found that government work — military, fire, rescue — is the real market, and is pursuing it with a vengeance on the strength of a $24 million funding round.
“We’ve been busy!” said Daniela Perdomo, founder and CEO of the company, in an interview. “We have a good problem, which is a technology that can be so foundationally enabling for so many use cases.”
GoTenna’s core tech is mesh networking over radio frequencies normally used for walkie-talkies: long range but low bandwidth. Yet if all you need to send are GPS coordinates or a short message, it’s perfectly sufficient and works great where mobile and satellite connections are impractical. Just turn on the device, smaller than a deck of cards, and you can chat over miles in the middle of nowhere with your climbing partners or back-country ski pals.
In the last couple of years the company has shifted its priorities from consumer tech — the GoTenna and Mesh series of gadgets — to filling the needs of public-sector clients that have been asking for something like this for years.
Firefighters, military operations, local law enforcement, search and rescue — many were using bulky, over-engineered, expensive solutions that haven’t changed much in decades. GoTenna works with nearly any smartphone and instantly creates a mesh network that can span miles, making it perfect for off-grid communications.
Perdomo said this was actually more or less the plan from the beginning.
“It was in my first-ever pitch deck when we raised our seed in 2013, there was this blue-sky vision of how the technology would be used,” she told me. “But it was simpler to launch an MVP to consumers. We always felt that product was going to bring in the public sector. And that’s exactly what happened — when we launched our first-generation product, I think within 24 hours we had a variety of different public sector customers reach out to us.”
“We now have some federal agencies that have been customers through every generation of the product. We sill have our consumer product, and people love it, but it’s a small part of our business compared to the public sector,” she said.
An example of how the interface might look in use. It can relay the locations of other GoTenna devices at intervals, helping teams keep in touch automatically.
While disaster response crews could of course just buy a couple dozen of the regular GoTenna products, they were quick to ask for “pro” versions with features prized by advanced users and military customers.
Longer range, more programmable wireless parameters, compatibility with various legacy systems — the Pro and new ProX versions of the GoTenna system hit a lot of sweet spots. As Perdomo told me when the Pro first came out, legacy systems are powerful in some ways but can also be horribly expensive, incompatible with foreign wireless systems or even have legal restrictions on where they can be used.
For a cash-strapped NGO that goes around doing global aid, a $100-$500 gadget that turns an ordinary phone into a versatile mesh node is potentially game-changing. (You can also use them to temporarily replace destroyed communications infrastructure.)
But deep-pocketed federal agencies and military branches are also shelling out for the devices, and increasingly for the software support contracts that go with them. GoTenna’s Aspen Grove is a proprietary mesh network protocol that they’ve engineered to be faster and more robust than anything else out there. I’d exert a little skepticism here normally, but from what I’ve seen, the systems GoTenna is replacing or augmenting aren’t exactly competitive.
In fact, GoTenna’s next major hardware project is to create a mesh networking board that can be integrated right into existing hardware, simplifying the systems and baking its protocols in even deeper.
“We have a long list of companies that want to integrate our tech into vehicles, aircraft, anything you can think of,” Perdomo said. “So you can put one of these babies on a UAV and let ‘er rip! Our record range, point to point from a UAV, is 69 miles.”
Meanwhile the company is also releasing a broader open-source mesh platform called Lot 49 that’s meant to be capable of supporting a global messaging infrastructure without relying on any wireless providers. That could be a big deal for Internet of Things-type devices as well.
Interestingly, Perdomo doesn’t feel threatened by the new and rather scary kid on the block: communications satellite constellations like Starlink and OneWeb. If the idea is that GoTenna lets you communicate where the grid doesn’t reach, what happens when the grid is global?
“No matter how many satellites you put up, repeaters you put up, cables you lay down, you always have that last mile. You need resiliency, access, and I believe neutrality as well,” she said. And indeed you’re not going to take a Starlink ground station with you on a covert operation or into an active wildfire. And having an existing, ongoing business agreement with a satellite communications provider may not even be desirable in the first place.
“There’s a reason why certain incumbents in the tactical radio space as well as carriers are partnering with us,” Perdomo pointed out — and indeed Comcast Ventures is a new face among the investors. “We’re creating a new layer in the communications stack, mesh networks with a focus on bursty data. I think of us as perfectly complementary to every other communications company.”
As for that funding, it will go toward easing the rapid growth the company is experiencing, finishing the pro and embedded options, hiring up and expanding operations to support their growing services business. The $24 million round was led by Founders Fund, with participation from Comcast Ventures and existing investors Union Square Ventures, Collaborative Fund, Walden VC, MentorTech and Bloomberg Beta.
“We’ve been in R&D for a really long time,” Perdomo said. “It’s exciting now to also be becoming a business. All of the most impressive mainstream telecommunications technologies we use today, things like the internet or GPS, they hit it out of the park with the public sector first. If you can win there, in life or death situations, you know you can win everywhere else as well.”
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Startups Weekly: VCs are drunk on beverage startups
Hello and welcome back to Startups Weekly, a newsletter published every Saturday that dives into the week’s most noteworthy venture deals, fundraises, M&A transactions and trends. Let’s take a quick moment to catch up. Last week, I wrote about an alternative to venture capital called revenue-based financing and before that, I jotted down some notes on one of VCs’ favorite spaces: cannabis tech. Remember, you can send me tips, suggestions and feedback to kate.clark@techcrunch.com or on Twitter @KateClarkTweets.
This week, I want to share some thoughts — questions, rather — on beverages. Just as my inbox has been full of cannabis-related pitches, it’s also been packed with descriptions of new…drinks. Perhaps the most noted so far is Liquid Death, canned water for the punk rock crowd, because why not? Liquid Death has attracted nearly $2 million in funding from angel investors like Away co-founder Jen Rubio and Twitter co-founder Biz Stone. Before I tell you about a few other up-and-coming beverage makers, I must beg the question: Does the beverage industry need disrupting?
Founders say yes. Why? For one, because millennials, according to various studies, are consuming less alcohol than previous generations and are therefore seeking non-alcoholic beverage alternatives. Enter Seedlip, a non-alcoholic spirits company, for example. Or Haus, launching this summer, an all-natural apéritif distilled from grapes that has a lower alcohol content than most hard liquors. Haus, like any good consumer startup in 2019, is shipped directly to your door.
Beverages are being disrupted, there’s no stopping it. pic.twitter.com/DMEg88t4iO
— Kate Clark (@KateClarkTweets) May 21, 2019
Bev, a canned wine business that recently raised $7 million in seed funding from Founders Fund, thinks marketing in the alcohol industry is the problem. Founder Alix Peabody designed a line of female-focused canned rosé. If you’re wondering why alcohol needs to be gendered in such a way, you’re not alone. Peabody explained most alcohol brands cater to men, and that’s a problem.
“The joke I like to make is there’s a go-to type of alcohol for every type of bro and we just don’t have that for women,” Peabody told TechCrunch earlier this year.
Finally, the wellness movement is taking over, driving VCs toward some odd upstarts. From wellness chat and journaling apps to therapy substitutes to fitness companies, stick wellness in a pitch and investors will take a second look. More Labs, for example, is backed with $8 million in VC funding. The company is readying the launch of Liquid Focus, a biohacking-beverage that claims to “solve modern-day stressors without the negative side effects.” Finally, Elements, “an elevated functional wellness beverage formulated with clinical levels of adaptogens to give your body exactly what it needs in four categories (focus, vitality, calm, and rest) for specific cognitive functions” (damn, what copy), recently launched. It doesn’t appear to be funded yet, but let’s just give it a few months.
There’s more where that came from, but I’m done for now. On to other news.
I almost skipped IPO corner this week because no big-name companies dropped or amended their S-1s or completed a highly anticipated IPO, as has been the case basically every week of 2019. But I decided I better give a quick update on Luckin Coffee’s tough second week on the stock market. Luckin Coffee, if you aren’t familiar, is Starbucks’ Chinese rival. The company raised more than $550 million after pricing at $17 per share a little over a week ago. Immediately the stock skyrocketed 20 percent to a roughly $5 billion market cap; then came concerns of the company’s lofty valuation, major cash burn and uncertain path to profitability. Luckin has dropped around 25 percent since closing its debut trading day. It closed Friday down 3 percent.
Y Combinator, the popular accelerator program and investment firm announced this week that it has promoted longtime partner Geoff Ralston to president. This comes two months after former president Sam Altman stepped down to focus his efforts full-time on OpenAI. The promotion of Ralston is an unsurprising choice for YC, an organization that employs roughly 60 people, many of whom have been affiliated with it in one way or another for years.
Automattic acquires subscription payment company Prospress
Shopify quietly acquires Handshake, an e-commerce platform for B2B wholesale purchasing
Streem buys Selerio in an effort to boost its AR conferencing tech
As Amex scoops up Resy, a look at its acquisition history
The Los Angeles ecosystem is $76 million stronger this week as Fika Ventures, a seed-stage venture capital firm, announced its sophomore investment fund. Fika invests roughly half of its capital exclusively in startups headquartered in LA, with a particular fondness for B2B, enterprise and fintech companies. The firm was launched in 2017 by general partners Eva Ho and TX Zhuo, formerly of Susa Ventures and Karlin Ventures, respectively. The pair raised $41 million for the debut effort, opting to nearly double that number the second time around as a means to participate in more follow-on fundings.
DoorDash raises $600M at a $12.7B valuation
TransferWise completes $292M secondary round at a $3.5B valuation
Auth0 raises $103M, pushes its valuation over $1B
Canva gets $70M at a $2.5B valuation
Payment card startup Marqeta confirms $260M round at close to $2B valuation
Modsy scores $37M to virtually design your home
Sun Basket whips up $30M Series E
Zero raises $20M from NEA for a credit card that works like debit
Nigeria’s Gokada raises $5.3M for its motorcycle ride-hail biz
Our premium subscription service had another great week of interesting deep dives. This week, TechCrunch’s Lucas Matney went deep on Getaround’s acquisition of Drivy for his latest installment of The Exit, a new series at TechCrunch where we chat with VCs who were in the right place at the right time and made the right call on an investment that paid off. Here are some of the other Extra Crunch pieces that stood out this week:
- 10 immigration tips for luck-struck tech workers
- When will customers start buying all those AI chips?
- Takeaways from KubeCon; the latest on Kubernetes and cloud-native development
- Why startups need to be careful about export licenses and the Huawei ban
If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase News editor-in-chief Alex Wilhelm and I discuss how startups are avoiding IPOs and VC’s insatiable interest in food delivery startups.
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SoFi launches gig-focused ETF
SoFi is one of the leading fintech startups to emerge from San Francisco and breach the financial markets. Originally started as a way to better finance student debt, it has since expanded to include products targeted at personal loans and home loans.
Today, the company announced a new exchange-traded fund (ETF) product focused on the gig economy. GIGE, which trades on Nasdaq, is an actively managed fund advised by Toroso Investments that allows investors to capitalize on this hot sector of the economy. Toroso offers a range of services around creating and managing ETFs.
The company also announced the creation of an ETF focused on high-growth stocks. That ETF, which trades as SFYF on the NYSE, is designed to identify and capture the growth of the top 50 of the 1,000 largest publicly traded issues.
It has formerly used that growth focus to create two ETFs, targeting 500 high-growth companies under the trading name SFY and a product it called “SoFi Next 500 ETF,” which trades under SFYX, both of which have no management fees.
SoFi’s SFYF fund is composed specifically of public companies that show the strongest growth on three key metrics: top-line revenue growth, net income growth and forward-looking consensus estimates of net income growth.
For its GIGE fund, SoFi defines the “gig economy” as a group of companies that “embrace and support the workforce in which employment is based around short-term engagements that allow for flexibility and personal freedom and temporary contracts.”
SoFi’s new funds add value to investors primarily through providing 1) access to industry disruptors at 2) an earlier-stage point in their growth cycle.
In recent years, more and more investors have been trying to get a piece of the hottest tech companies earlier with a growing number of traditional institutional investors now dipping their toes into startup and tech investing.
Furthermore, a number of platforms and funds were launched to support the high-demand for access to some of the top public and private companies and major disruptive trends, including funds focused on themes such as artificial intelligence, big data, cybersecurity or the next manufacturing revolution.
SoFi argues that its GIGE fund offers compelling value due to the speed at which it offers investors access to new equity issues, as the fund is structured so that most post-IPO companies can join the GIGE within 31 days of IPO, relative to the 60-90 days traditional passive funds that often have to wait to add a newly IPO’d company.
Additionally, because SoFi’s GIGE fund is actively managed, SoFi is also offering fund investors access to experienced asset managers and an alternative to algorithmic, machine-led passive funds that have increasingly dominated the capital markets.
“Our members are excited by high-growth and gig economy companies because these companies are in many cases part of their lives,” said SoFi CEO Anthony Noto in a press release. “We’re giving our members a way to get started investing by buying what they know and investing in themselves.”
The announcement is the company’s latest step in its attempt to further establish itself under the new guard of CEO Anthony Noto, formerly of Goldman Sachs, who replaced former head Michael Cagney in 2018, as the company looks to move further away from dark clouds in its past established by lawsuits, sexual harassment claims, FTC penalties and chunky rounds of layoffs. In the past week, the company also announced that CMO and former COO, Joanne Bradford, will be leaving the company at the end of May, though the split was reportedly long-planned and amicable.
The launch of SoFi’s new investment products also comes just weeks after the company was reportedly in discussions to raise $500 million from the Qatar Investment Authority.
To date, SoFi has raised roughly $2 billion in venture capital, according to data from Crunchbase, with backing from a number of Silicon Valley and Wall Street heavy hitters, including SoftBank, Silver Lake Partners, Morgan Stanley, Founders Fund and a host of others.
Already at a valuation of nearly $4.5 billion, according to PitchBook, SoFi appears well on its way to an eventual IPO. Noto, however, noted in a recent interview with Yahoo Finance that “an IPO is not a priority at this point” for SoFi as the company remains focused on executing on a high-quality sustainable growth path.
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Where top VCs are investing in media, entertainment & gaming
Most of the strategy discussions and news coverage in the media and entertainment industry is concerned with the unfolding corporate mega-mergers and the political implications of social media platforms.
These are important conversations, but they’re largely a story of twentieth-century media (and broader society) finally responding to the dominance Web 2.0 companies have achieved.
To entrepreneurs and VCs, the more pressing focus is on what the next generation of companies to transform entertainment will look like. Like other sectors, the underlying force is advances in artificial intelligence and computing power.
In this context, that results in a merging of gaming and linear storytelling into new interactive media. To highlight the opportunities here, I asked nine top VCs to share where they are putting their money.
Here are the media investment theses of: Cyan Banister (Founders Fund), Alex Taussig (Lightspeed), Matt Hartman (betaworks), Stephanie Zhan (Sequoia), Jordan Fudge (Sinai), Christian Dorffer (Sweet Capital), Charles Hudson (Precursor), MG Siegler (GV), and Eric Hippeau (Lerer Hippeau).
Cyan Banister, Partner at Founders Fund
“In 2018 I was obsessed with the idea of how you can bring AI and entertainment together. Having made early investments in Brud, A.I. Foundation, Artie and Fable, it became clear that the missing piece behind most AR experiences was a lack of memory.
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Mutiny at HQ Trivia fails to oust CEO
This week’s banishment of host Scott Rogowsky was merely a symptom of the ongoing struggle to decide who will lead HQ Trivia. According to multiple sources, over half of the startup’s staff signed an internal petition to depose CEO Rus Yusupov who they saw as mismanaging the company. But Yusupov then fired three core supporters of the mutiny, leading to a downward spiral of morale that mirrors HQ’s plummeting App Store rank.
TechCrunch spoke to multiple sources familiar with HQ Trivia’s internal troubles to piece together how the live video mobile game went from blockbuster to nearly bust. Two sources said HQ recently only had around $6 million in the bank but was burning over $1 million per month, meaning its runway could be dwindling. But its early investors are reluctant to hand Yusupov any more cash. “
Employees petitioned to remove HQ Trivia’s CEO Rus Yusupov
HQ reimagined gaming and mobile entertainment with the launch of its 12-question trivia game in August 2017 where players all competed live in twice-daily shows with anyone who got all the answers right split a cash jackpot. The games felt urgent since you could only participate at designated times, fun to play against friends or strangers, and winning carried a significance no single-player or non-stop online game could match.
When TechCrunch wrote the first coverage of HQ Trivia in October 2017, it had just 3500 concurrent players. But by January it had climbed to the #3 game and #6 overall app in the App Store, and grown to 2.38 million players by March. Quickly, copycats from China and Facebook entered the market. But they all lacked HQ’s secret weapon — its plucky host comedian Scott Rogowsky. Affectionately awarded nicknames like Quiz Daddy, Quiz Khalifa, Host Malone, and Trap Trebek from the “HQties” who played daily, he was the de facto face of the startup.
Yet HQ had some shaky foundations. Co-founder Colin Kroll, who’d also started Vine with Yusupov and sold it to Twitter, had been fired from Twitter after 18 months for being a bad manager, Recode reported. He’d also picked up a reputation of being creepy around female employees, as well as Vine stars, TechCrunch has learned. Rapid growth and an investigation by early HQ investor Jeremy Liew that found no egregious misconduct by Kroll paved the way for a $15 million investment. The round was led by Founders Fund’s Cyan Bannister, and it valued HQ at over $100 million.
Yusupov failed to translate that cash into sustained growth and product innovation. His public behavior had already raised flags. He yelled at a Daily Beast reporter after the outlet’s Taylor Lorenz interviewed Rogowsky without Yusupov’s approval, threatening to fire the host. “You’re putting Scott’s job in jeopardy. Is that what you want? . . . Please read me your story word for word,” Yusupov said. When he learned Rogowsky had expressed his preference for salad restaurant chain Sweetgreen, Yusupov shouted “He cannot say that! We do not have a brand deal with Sweetgreen! Under no circumstances can he say that.” The next day, Yusupov falsely claimed he’d never threatened Rogowsky’s job.
With HQ’s bank account full, sources say Yusupov was extremely slow to make decisions, allowing HQ to stagnate. The novelty of playing trivia for money via phone has begun to wear off, and people increasingly ignored HQ’s push notifications to join its next game. But beyond bringing in some guest hosts and the option to buy a second chance after a wrong answer, HQ ceased to evolve. HQ fell to the #196 game on iOS and the #585 overall app as concurrent players waned.
That’s when things started to get a bit Game Of Thrones.
Pawns In A CEO War
Liew pushed for HQ to swap Kroll into the CEO spot in September 2018 while moving Yusupov to Chief Creative Officer, which was confirmed despite an HR complaint against Kroll for aggressive management. However, three sources tell TechCrunch that Yusupov pushed that HQ employee to file the complaint against Kroll. As the WSJ reported after Kroll’s death, that employee later left the startup because they felt that they’d been exploited. “There was definitely what felt like manipulation there, and that’s also why that employee resigned from the company.” one source said. Another source said that staffer “believed Rus used their unhappiness about work to use them as a pawn in his CEO war and not because Rus actually cared about resolving things.”
Cyan of Founders Fund stepped down from HQ’s board after the decision to swap out Yusupov due to her firm’s reputation of keeping founders in control, Recode’s Kurt Wagner reported. Sources say that despite Kroll’s reputation, the staff believed in him. “Colin loved HQ and was dedicated to all the employees more than Rus. Rus cares about Rus. Colin cared about the content” a source tells me.
Three sources say that in a desperate ploy to retain power and prevent Kroll’s rise, Yusupov suggested Rogowsky, a comedian with no tech or management experience, be made CEO of HQ Trivia. He even suggested the company film a reality show about Rogowsky taking over. That idea was quickly shot down as preposterous.
“It was a very personal desperation tactic not to have Colin be CEO. It was not a professionally thought-out idea” a source tells me, though another said it was always hard to tell if Yusupov’s crazy ideas were jokes. Both Yusupov and HQ Trivia declined to respond to multiple requests for comment, but we’ll update if we hear back.
HQ Trivia co-founder Colin Kroll passed away in December
Then tragedy struck in December. Kroll, then CEO, was found dead in his apartment from a drug overdose. Employees were distraught over what would happen next. “Colin’s plan was to ship fast, and get new things out there” a source says, noting that Kroll had pushed for the release of HQ’s first new game type HQ Words modeled after Wheel Of Fortune. “He wasn’t perfect but in the time he was in charge, the ship started to turn, but when Rus took over again it was like the 9 months where we did nothing.”
Coup d’éHQ
By February 2019, HQ’s staff was fed up. Two sources confirm that 20 of the roughly 35 employees signed a letter asking the board to remove Yusupov and establish a new CEO. With HQ’s download rate continuing to sink, they feared he’d run the startup into the ground. One source suggested Yusupov might rather have seen the whole startup come crashing down with the blame placed on the product than have it come to light that he played a large hand in the fall. The tone of the letter, which was never formally delivered but sources believe the board knew of, wasn’t accusatory but a plea for transparency about the company’s future and the staff’s job security.
At a hastily convened all-hands meeting in late February, HQ investor Liew told the company his fund Lightspeed would support a search for a new CEO to replace Yusupov, and provide that new CEO with funding for 18 more months of runway. Liew told the staff he would step down from the board once that CEO was found, but the search continues and so Liew remains on HQ’s board.
“Mostly everyone was on Jeremy’s side as no one wanted to work under Rus. Jeremy wasn’t trying to screw him over the way Rus would screw other people over. He just wanted to do what was right, getting behind what everyone wanted” a source said of Liew.
Instead, HQ’s board moved forward with instituting a new executive decision-making committee composed of Yusupov, HQ’s head of production Nick Gallo, and VP of engineering Ben Sheats. Yusupov would remain interim CEO, and he continued to cling to power and there’s been little transparency about the CEO replacement process. Until a new CEO is found, HQ must subsist on its existing funds. The staff is “always worried about running out of runway” and are given vague answers when they ask leadership about how much money is left.
On March 1st, the committee emerged from a meeting and fired three employees who had spearheaded the petition and been vocal about Yusupov’s failings.
One who wasn’t fired was Rogowsky, despite sources saying at one point he’d tried to organize the staff to go on strike. Other employees had been cautious about standing up to Yusupov. “Everyone was terrified of retaliation. Their fears have totally been validated” a source explains. Engineers and other staffers with strong employment prospects began to drain out of the company. Those left were just trying to hold onto their jobs. Without inspiring leadership or a strategy to reverse user shrinkage, recruiting replacements would prove difficult.
Yusupov remains on the board, along with Tinder CEO Elie Seidman who Yusupov appointed to his additional common seat. Liew retains his seat until the new CEO is found and given that seat. And Kroll’s seat appears to have gone to Lightspeed partner Merci Victoria Grace. Lightspeed and Cyan of Founders Fund declined to respond to requests for comment.
Losing Face
Tensions at HQ and a desire to diversify his prospects led Rogowsky to pick up a side gig hosting baseball talk show ChangeUp on the DAZN network, TMZ reported this week. He’d hoped to continue hosting HQ during its big weekend contests. But tensions with Yusupov and the CEO’s desire for the host to remain exclusively at HQ led negotiations to sour causing Rogowsky to leave the startup entirely. TechCrunch was first to report that he’s been replaced by former HQ guest host Matt Richards, who Yusupov bluntly told me Friday had polled higher than Rogowsky in a SurveyMonkey survey of HQ’s top players.
In tweets, Rogowsky revealed that that “Sadly, it won’t be possible for me to continue hosting HQ concurrently as I had hoped” noting, “I wasn’t given the courtesy of a farewell show.” Finding a way to preserve Rogowsky’s ties to HQ likely would have been best for the startup. TechCrunch had raised the concern a year ago that unless Rogowsky was properly locked in with an adequate equity vesting schedule at HQ, he could leave. Or worse, he could be poached by Facebook, Snapchat, or YouTube to host an HQ competitor.
“Rus is a visionary but not a good leader. He is extremely manipulative in an unproductive way. He’s a dude who just cares a lot about his reputation” a source noted. “A lot of the negative sentiment amongst staff is the belief that he cares more about his reputation than the company itself.”
HQ’s next attempt to revive growth appears to be HQ Editor’s Picks, is described as “a new live show on your phone where our host shows funny viral videos and you decide on who gets paid.” Finally it seems willing to embrace the potential of interactive live video entertainment outside of trivia and puzzles. HQ Editor’s Picks will face an uphill battle, since HQ dropped out of the top 1500 iOS apps last month, according to App Annie. Sensor Tower estimates that HQ saw just 8 percent as many downloads in March 2019 as March 2018.
After the loss of its spirit animal Rogowsky, the employees’ chosen leader Kroll, the supervision of veteran investor Cyan, and its product momentum, tough questions are what remain for HQ Trivia. The company’s struggles have paralyzed its progress towards finding a new viral mechanic or game format that attracts users. While HQ Words is fun, it’s too similar to its trivia competition to change the startup’s trajectory. And all of the in-fighting could scare off any talent hoping to turn HQ around. Unfortunately, securing an extra life for the game will take a more than a $3.99 in-app purchase.
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Morphin instantly Deepfakes your face into GIFs
Want to star in your favorite memes and movie scenes? Upload a selfie to Morphin, choose your favorite GIF and your face is grafted in to create a personalized copy you can share anywhere. Become Tony Stark as he suits up like Iron Man. Drop the mic like Obama, dance like Drake or slap your mug on Fortnite characters.
Now after three years in stealth developing image-mapping technology, Morphin is ready to launch its put-you-in-a-GIF maker. While it might look like just a toy, investors see real business potential. Morphin raised $1 million last summer from Betaworks, the incubator that spawned Giphy, plus Founders Fund, Precursor, Shrug Capital and Boost.vc’s accelerator.
Elon Musk as Iron Man
“We believe in the future you’ll be able to be the main character in your own film. Imagine a super hero movie where you’re the main protagonist?,” co-founder Loic Ledoux asks. “That sounded like science fiction a few years ago and now with AI and computer vision we definitely see our tech going there.”
Ledoux also wants to reclaim faceswaps as something fun rather than a weapon for misinformation. “Deepfakes brought something pretty negative to computer vision. But it’s not all bad. It’s about how you use the tech to give people a new tool for self expressions and storytelling.” And since Morphin re-generates the whole clip from scratch with CGI animation, they look right at a glance, but clearly aren’t manipulated copies of the original video designed to fool anyone.
Kanye performs magic
Morphin started three years ago with the intention to build personalized avatars for games and VR so you could be a FIFA soccer player or Skyrim knight. Ledoux had started a 3D printing company to explore opportunities in scanning and modeling when he saw a chance to connect your real and virtual faces. He teamed up with his co-founder Nicholas Heriveaux, who’d spent 13 years working on 3D tech while modding games like Grand Theft Auto to insert his avatar and assets.
What they quickly recognized was that “People were just reacting to themselves on the screen,” ignoring the gameplay, Ledoux recalls. “Being able to see yourself as a hero was the underlying sentiment, so we focused on video completely.” Recognizable GIFs became its preferred medium, as they combine familiarity and the ability to convey complex emotions with a template that’s easy to personalize so they stand out.
Morphin’s tech no longer requires 3D scanning hardware and it works with just a regular selfie. You just snap a headshot, select a GIF from its iOS or Android app’s library and a few seconds later you have a CGI version of yourself in the scene (with no watermark) that you can export and post. “We wanted it to be super straightforward because we wanted people to relate to the content,” Ledoux notes. Over 1 million scenes have been created by 50,000 beta users, and each time a celebrity shares one of the GIFs Morphin has been sending them for marketing, scores of their followers demand to know which app they were using.
Morphin’s nine-person French team will have to keep innovating to stay ahead of avatar-making competitors like the ubiquitous Snapchat Bitmoji, Genies, Moji Edit and Mirror AI. Facebook, Microsoft and Google all have launched or are building their own avatar creators. But these typically live as 2D stickers or 3D AR animations you overlay on the real world. By using GIFs as a canvas, Morphin takes the pressure off your visage looking perfect and instead emphasizes the message you’re trying to get across.
The challenge will be for Morphin to become a consistent part of people’s communication stack. It’s easy to imagine playing with it and posting a few GIFs. But iconic new GIFs don’t emerge each day and without a social network to stay for, Morphin is at risk of becoming merely a forgotten tool. The app might need TikTok-style challenges like submitting the best personalized GIF to match a prompt or a GIF browsing feed to keep people coming back.
Turning Donald Glover into Jay Gatsby
Morphin isn’t racing to monetize yet, but sees a chance to sell longer premium video scenes à la carte or as an unlimited subscription. Ledoux eventually hopes to unlock new forms of storytelling beyond existing GIFs. There’s also a chance for Morphin to highlight sponsored clips from upcoming movies or TV shows. “In the long-term we’re more interested in the analogy of Lil Miquela and how people are interacting with digital characters,” Ledoux explains, citing a virtual pop star whose developer Brud recently raised at a $125 million valuation.
One of the most exciting things about Morphin is that it will allow people to take the spotlight no matter how they look. Often times certain races, genders and looks are unfairly excluded from starring in today’s most popular media. But Morphin could let the underrepresented take their rightful place as stars of the screen.
Your faithful author Josh Constine dropping the mic like Obama
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The Silicon Valley exodus continues
For a long time, it was the norm for founders to haul their hardware to the 3000 block of Sand Hill Road, where the venture capitalists of “Silicon Valley” would be awaiting their pitches. Today, many of the investors that touted the exclusivity of “The Valley” have moved north to San Francisco, where they have better access to top entrepreneurs.
Y Combinator, a Silicon Valley institution and to many the lifeblood of the startups and venture capital ecosystem, is the latest to pack up shop. YC, which invests $150,000 for 7 percent equity in a few hundred startups per year, is currently searching for a space in SF to operate its accelerator program, sources close to YC confirm to TechCrunch, because the majority of YC’s employees and its portfolio founders reside in the city.
Founded in 2005, YC’s roots are in Mountain View, California. In its first four years, YC offered programs in Cambridge, Massachusetts and Mountain View before opting in 2009 to focus exclusively on The Valley. In late 2013, as more and more of its partners and portfolio companies were establishing themselves in SF, YC opened a satellite office in the city in what would be the beginning of its journey northbound.
The small satellite office, used to support SF-based staff and provide portfolio companies resources and workspace, is located in Union Square. The fate of YC’s Mountain View office is unclear.
YC’s move north will be the latest in a series of small changes that, together, point to a new era for the accelerator. Approaching its 15th birthday, YC announced in September it was changing up the way it invests. No longer would it seed startups with $120,000 for 7 percent equity, it would give startups an additional 30,000 to cover the expenses of getting a business off the ground and it would admit a whole lot more companies.
YC began mentoring its largest cohort of companies to date in late 2018. The astonishing 200-plus group in its winter 2019 batch is more than 50 percent larger than the 132-team cohort that graduated in spring 2018. To accommodate the truly gigantic group at YC Demo Days later this month (March 18 and 19), YC has moved to a new venue, SF’s Pier 48. Historically, YC Demo Days were hosted at the Computer History Museum near its home in Mountain View.
YC has also ditched “Investor Day,” which is typically an opportunity for investors to schedule meetings with startups that just completed the accelerator program. YC writes that the decision came “after analyzing its effectiveness.” On top of that, rumors suggest YC is planning to put an end to Demo Days. Other accelerators, AngelPad for example, put a stop to the tradition last year after realizing demo day was more of a stress to startup founders than a resource. Sources close to YC, however, tell TechCrunch these rumors are categorically false.
YC isn’t the first accelerator to ditch its Silicon Valley digs. 500 Startups, a smaller yet still prolific accelerator, opened an SF satellite office the same year as YC, and in 2018, the nine-year-old program made the decision to permanently relocate to SF. Venture capital firms, too, have realized the opportunities are larger in SF than on Sand Hill Road.
The transition from the peninsula to the city began around 2012, when VC heavyweights like Uber and Twitter-backer Benchmark opened an office in SF’s mid-market neighborhood. Months later, 47-year-old Kleiner Perkins, an investor in Stripe and DoorDash, opened the doors to its new workplace in SF’s South Park neighborhood.
Around that same time a whole bunch of firms followed suit: Shasta Ventures, Norwest Venture Partners, Accel, GV, General Catalyst and NEA opened SF shops, to name a few. Many of these firms, Benchmark, Kleiner and Accel, for example, held onto their Silicon Valley locations. Firms like True Ventures and Peter Thiel’s Founders Fund planted stakes in SF years prior. Both firms have operated SF offices since 2005; True Ventures, for its part, has managed a Palo Alto office from the get-go, as well.
“When we first started, it was [expected] that it would be maybe 60-40 Peninsula to the city; it’s actually turned out to be 80-20 SF to The Valley,” True Ventures co-founder Phil Black told TechCrunch. “For us, it was important to be near our customer: the founder. It’s important for us to be in and around where founders are doing their things.”
The transition out of The Valley is ongoing. Other VC funds are still in the process of opening their first SF offices as more partners beg for shorter commutes. Khosla Ventures, for example, is currently searching for an SF headquarters.
Silicon Valley real estate will likely remain a hot — or warm, at least — commodity, however. Why? Because long-time investors have lives established in that part of the bay, where they’ve built homes in well-kept, affluent cities like Woodside, Atherton and Los Altos.
Still, Y Combinator’s move highlights an increasingly adopted mantra: Silicon Valley isn’t the goldmine it used to be. For the best deals and greatest access to entrepreneurs, SF takes the cake — for now, that is. But with rising rents and a changing attitude toward geographically diverse founders, how long SF will remain the destination for top talent is an entirely different question.
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Startups Weekly: Flexport, Clutter and SoftBank’s blood money
The Wall Street Journal published a thought-provoking story this week, highlighting limited partners’ concerns with the SoftBank Vision Fund’s investment strategy. The fund’s “decision-making process is chaotic,” it’s over-paying for equity in top tech startups and it’s encouraging inflated valuations, sources told the WSJ.
The report emerged during a particularly busy time for the Vision Fund, which this week led two notable VC deals in Clutter and Flexport, as well as participated in DoorDash’s $400 million round; more on all those below. So given all this SoftBank news, let us remind you that given its $45 billion commitment, Saudi Arabia’s Public Investment Fund (PIF) is the Vision Fund’s largest investor. Saudi Arabia is responsible for the planned killing of dissident journalist Jamal Khashoggi.
Here’s what I’m wondering this week: Do CEOs of companies like Flexport and Clutter have a responsibility to address the source of their capital? Should they be more transparent to their customers about whose money they are spending to achieve rapid scale? Send me your thoughts. And thanks to those who wrote me last week re: At what point is a Y Combinator cohort too big? The general consensus was this: the size of the cohort is irrelevant, all that matters is the quality. We’ll have more to say on quality soon enough, as YC demo days begin on March 18.
Anyways…
Surprise! Sort of. Not really. Pinterest has joined a growing list of tech unicorns planning to go public in 2019. The visual search engine filed confidentially to go public on Thursday. Reports indicate the business will float at a $12 billion valuation by June. Pinterest’s key backers — which will make lots of money when it goes public — include Bessemer Venture Partners, Andreessen Horowitz, FirstMark Capital, Fidelity and SV Angel.
Ride-hailing company Lyft plans to go public on the Nasdaq in March, likely beating rival Uber to the milestone. Lyft’s S-1 will be made public as soon as next week; its roadshow will begin the week of March 18. The nuts and bolts: JPMorgan Chase has been hired to lead the offering; Lyft was last valued at more than $15 billion, while competitor Uber is valued north of $100 billion.
Despite scrutiny for subsidizing its drivers’ wages with customer tips, venture capitalists plowed another $400 million into food delivery platform DoorDash at a whopping $7.1 billion valuation, up considerably from a previous valuation of $3.75 billion. The round, led by Temasek and Dragoneer Investment Group, with participation from previous investors SoftBank Vision Fund, DST Global, Coatue Management, GIC, Sequoia Capital and Y Combinator, will help DoorDash compete with Uber Eats. The company is currently seeing 325 percent growth, year-over-year.
Here are some more details on those big Vision Fund Deals: Clutter, an LA-based on-demand storage startup, closed a $200 million SoftBank-led round this week at a valuation between $400 million and $500 million, according to TechCrunch’s Ingrid Lunden’s reporting. Meanwhile, Flexport, a five-year-old, San Francisco-based full-service air and ocean freight forwarder, raised $1 billion in fresh funding led by the SoftBank Vision Fund at a $3.2 billion valuation. Earlier backers of the company, including Founders Fund, DST Global, Cherubic Ventures, Susa Ventures and SF Express all participated in the round.
Here’s your weekly reminder to send me tips, suggestions and more to kate.clark@techcrunch.com or @KateClarkTweets.
Menlo Ventures has a new $500 million late-stage fund. Dubbed its “inflection” fund, it will be investing between $20 million and $40 million in companies that are seeing at least $5 million in annual recurring revenue, growth of 100 percent year-over-year, early signs of retention and are operating in areas like cloud infrastructure, fintech, marketplaces, mobility and SaaS. Plus, Allianz X, the venture capital arm attached to German insurance giant Allianz, has increased the size of its fund to $1.1 billion and London’s Entrepreneur First brought in $115 million for what is one of the largest “pre-seed” funds ever raised.
Flipkart co-founder invests $92M in Ola
Redis Labs raises a $60M Series E round
Chinese startup Panda Selected nabs $50M from Tiger Global
Image recognition startup ViSenze raises $20M Series C
Circle raises $20M Series B to help even more parents limit screen time
Showfields announces $9M seed funding for a flexible approach to brick-and-mortar retail
Podcasting startup WaitWhat raises $4.3M
Zoba raises $3M to help mobility companies predict demand
Indian delivery men working with the food delivery apps Uber Eats and Swiggy wait to pick up an order outside a restaurant in Mumbai. ( INDRANIL MUKHERJEE/AFP/Getty Images)
According to Indian media reports, Uber is in the final stages of selling its Indian food delivery business to local player Swiggy, a food delivery service that recently raised $1 billion in venture capital funding. Uber Eats plans to sell its Indian food delivery unit in exchange for a 10 percent share of Swiggy’s business. Swiggy was most recently said to be valued at $3.3 billion following that billion-dollar round, which was led by Naspers and included new backers Tencent and Uber investor Coatue.
Lalamove, a Hong Kong-based on-demand logistics startup, is the latest venture-backed business to enter the unicorn club with the close of a $300 million Series D round this week. The latest round is split into two, with Hillhouse Capital leading the “D1” tranche and Sequoia China heading up the “D2” portion. New backers Eastern Bell Venture Capital and PV Capital and returning investors ShunWei Capital, Xiang He Capital and MindWorks Ventures also participated.
Longtime investor Keith Rabois is joining Founders Fund as a general partner. Here’s more from TechCrunch’s Connie Loizos: “The move is wholly unsurprising in ways, though the timing seems to suggest that another big fund from Founders Fund is around the corner, as the firm is also bringing aboard a new principal at the same time — Delian Asparouhov — and firms tend to bulk up as they’re meeting with investors. It’s also kind of time, as these things go. Founders Fund closed its last flagship fund with $1.3 billion in 2016.”
If you enjoy this newsletter, be sure to check out TechCrunch’s venture capital-focused podcast, Equity. In this week’s episode, available here, Crunchbase News editor-in-chief Alex Wilhelm and I discuss Pinterest’s IPO, DoorDash’s big round and SoftBank’s upset LPs.
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Logistics startup Flexport just raised a SoftBank-led round at a whopping $3.2 billion valuation
Flexport, a 5.5-year-old, San Francisco-based full-service air and ocean freight forwarder, says it has raised $1 billion in fresh funding led by the SoftBank Vision Fund.
Earlier backers of the company, including Founders Fund, DST Global, Cherubic Ventures, Susa Ventures and SF Express, all participated in the round, which reportedly pegs the company’s post-money valuation at $3.2 billion.
According to Forbes, which broke the news, Flexport generated revenue of $471 last year, up from $224.8 million in 2017, thanks in part to some customers who the company says spend more than $10 million a year at Flexport for its help in managing their supply chains.
The company is apparently moving so fast, it hasn’t had a chance to update its marketing materials. CEO Ryan Petersen tells Forbes the company now employs 1,066 people across 11 offices and four warehouses around the world. Its site states it has 600 employees.
Axios reported last week that Flexport was in talks to raise money in a deal led by SoftBank that would value the company in the $3 billion range.
It had previously raised $305 million across five rounds, including, most recently, in April 2018, according to Crunchbase.
Flexport competes with numerous other freight forwarding online marketplaces that are focused on price comparison, as well as helping their clients book and track shipments. But its goal, seemingly, is to compete more directly with heavyweights like DHL, FedEx and UPS. In late 2017, it said it was beginning to charter its own aircraft. Petersen tells Forbes that Flexport now has four warehouses around the world, too.
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Startups Weekly: Even Gwyneth Paltrow had a hard time raising VC
I spent the week in Malibu attending Upfront Ventures’ annual Upfront Summit, which brings together the likes of Hollywood, Silicon Valley and Washington, DC’s elite for a two-day networking session of sorts. Cameron Diaz was there for some reason, and Natalie Portman made an appearance. Stacey Abrams had a powerful Q&A session with Lisa Borders, the president and CEO of Time’s Up. Of course, Gwyneth Paltrow was there to talk up Goop, her venture-funded commerce and content engine.
“I had no idea what I was getting into but I am so fulfilled and on fire from this job,” Paltrow said onstage at the summit… “It’s a very different life than I used to have but I feel very lucky that I made this leap.” Speaking with Frederic Court, the founder of Felix Capital, Paltrow shed light on her fundraising process.
“When I set out to raise my Series A, it was very difficult,” she said. “It’s great to be Gwyneth Paltrow when you’re raising money because people take the meeting, but then you get a lot more rejections than you would if they didn’t want to take a selfie … People, understandably, were dubious about [this business]. It becomes easier when you have a thriving business and your unit economics looks good.”
In other news…
The actor stopped by the summit to promote his startup, HitRecord . I talked to him about his $6.4 million round and grand plans for the artist-collaboration platform.
Backed by GV, Sequoia, Floodgate and more, Clover Health confirmed to TechCrunch this week that it’s brought in another round of capital led by Greenoaks. The $500 million round is a vote of confidence for the business, which has experienced its fair share of well-publicized hiccups. More on that here. Plus, Clutter, the startup that provides on-demand moving and storage services, is raising at least $200 million from SoftBank, sources tell TechCrunch. The round is a big deal for the LA tech ecosystem, which, aside from Snap and Bird, has birthed few venture-backed unicorns.
Pinterest, the nine-year-old visual search engine, has hired Goldman Sachs and JPMorgan Chase as lead underwriters for an IPO that’s planned for later this year. With $700 million in 2018 revenue, the company has raised some $1.5 billion at a $12 billion valuation from Goldman Sachs Investment Partners, Valiant Capital Partners, Wellington Management, Andreessen Horowitz, Bessemer Venture Partners and more.
Kleiner Perkins went “back to the future” this week with the announcement of a $600 million fund. The firm’s 18th fund, it will invest at the seed, Series A and Series B stages. TCV, a backer of Peloton and Airbnb, closed a whopping $3 billion vehicle to invest in consumer internet, IT infrastructure and services startups. Partech has doubled its Africa VC fund to $143 million and opened a Nairobi office to complement its Dakar practice. And Sapphire Ventures has set aside $115 million for sports and entertainment bets.
The co-founder of Y Combinator will throw a sort of annual weekend getaway for nerds in picturesque Boulder, Colo. Called the YC 120, it will bring toget her 120 people for a couple of days in April to create connections. Read TechCrunch’s Connie Loizos’ interview with Altman here.
Consumer wellness business Hims has raised $100 million in an ongoing round at a $1 billion pre-money valuation. A growth-stage investor has led the round, with participation from existing investors (which include Forerunner Ventures, Founders Fund, Redpoint Ventures, SV Angel, 8VC and Maverick Capital) . Our sources declined to name the lead investor but said it was a “super big fund” that isn’t SoftBank and that hasn’t previously invested in Hims.
Five years after Andreessen Horowitz backed Oculus, it’s leading a $68 million Series A funding in Sandbox VR. TechCrunch’s Lucas Matney talked to a16z’s Andrew Chen and Floodgate’s Mike Maples about what sets Sandbox apart.
Here’s your weekly reminder to send me tips, suggestions and more to kate.clark@techcrunch.com or @KateClarkTweets.
- More startup cash:
- Data governance platform Collibra raises $100M at a $1B valuation
- FabFitFun raises $80M for its growing lifestyle brand
- ContentSquare, the digital experience insights platform, raises $60M
- Petal raises $30M from Valar to bank the unbanked with credit cards
- Verbit raises $23M for its transcription service
- Dadi brings in $2M to democratize sperm storage
In a new class-action lawsuit, a former Munchery facilities worker is claiming the startup owes him and 250 other employees 60 days’ wages. On top of that, another former employee says the CEO, James Beriker, was largely absent and is to blame for Munchery’s downfall. If you haven’t been keeping up on Munchery’s abrupt shutdown, here’s some good background.
Consolidation in the micromobility space has arrived — in Brazil, at least. Not long after Y Combinator-backed Grin merged its electric scooter business with Brazil-based Ride, it’s completing another merger, this time with Yellow, the bike-share startup based in Brazil that has also expressed its ambitions to get into electric scooters.
If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase editor-in-chief Alex Wilhelm, TechCrunch’s Silicon Valley editor Connie Loizos and Jeff Clavier of Uncork Capital chat about $100 million rounds, Stripe’s mega valuation and Pinterest’s highly anticipated IPO.
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