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The SEC and the DOJ just charged this startup founder with fraud, saying he lied to Tiger and others
Today, both the U.S. Department of Justice and the Securities and Exchange Commission charged Manish Lachwani, co-founder of mobile app testing company HeadSpin, with fraud. The SEC says he violated antifraud provisions, and the civil penalties it’s seeking include a permanent injunction, a conduct-based injunction, and to bar him for serving as a corporate executive or board member.
The DOJ, which arrested Lachwani earlier, has accused him of one count of wire fraud and one count of securities fraud, and the associated penalties if he’s found guilty are more harsh, including, for wire fraud, a maximum sentence of 20 years in prison and a fine of $250,000. If he’s found guilty of securities fraud, he faces a maximum sentence of 20 years in prison and a fine of $5,000,000.
Both the the SEC and the DOJ say Lachwani — who led the six-year-old company as CEO until May of last year — defrauded investors out of $80 million by falsely claiming that HeadSpin had “achieved strong and consistent growth in acquiring customers and generating revenue” when he was pitching its Series C round to potential backers.
By the SEC’s telling, his fabrications were designed to help secure the round at a so-called unicorn valuation. That apparent plan worked, too, with Palo Alto-based HeadSpin attracting coverage in Forbes in February of last year after Dell Technologies Capital, Iconiq Capital and Tiger Global provided the company with $60 million in Series C funding at a $1.16 billion valuation. Forbes reported at the time that the valuation was double the valuation investors assigned HeadSpin when it closed its Series B round in October 2018.
The SEC also says that Lachwani was looking to enrich himself, saying he did so “by selling $2.5 million of his HeadSpin shares in a fundraising round during which he made misrepresentations to an existing HeadSpin investor.” (It isn’t clear from its complaint whether the SEC is referring to the Series C or an earlier round.)
The two federal complaints suggest that Lachwani’s alleged scheming to inflate HeadSpin’s valuation dates back to “at least 2018,” and the DOJ says it picked up momentum when the company was fundraising in late 2019.
More specifically, the DOJ complaint alleges that “in materials and presentations to potential investors, Lachwani reported false revenue and overstated key financial metrics of the company … he maintained control over operations, sales, and record-keeping, including invoicing, and he was the final decision-maker on what revenue was booked and included in the company’s financial records.”
In the investigation that led to the DOJ’s charges, the FBI discovered “multiple examples” of Lachwani “instructing employees to include revenue from potential customers that inquired but did not engage HeadSpin, from past customers who no longer did business with HeadSpin, and from existing customers whose business was far less than the reported revenue,” says the department.
How far off were these collective calculations? The complaint says that ultimately, Lachwani “provided investors false information that overstated HeadSpin’s annual recurring revenue … by approximately $51 million to $55 million.”
According to the complaint, Lachwani’s fraud unraveled after the company’s board of directors conducted an internal investigation and revised HeadSpin’s valuation down from $1.1 billion to $300 million. Indeed, in August of last year, The Information reported that the company was planning to lower the value of its Series C stock by nearly 80%.
The outlet reported at the time that Lachwani had already been replaced by another executive. That person, according to LinkedIn, is Rajeev Butani, who joined HeadSpin as its chief sales officer early last year.
Nikesh Arora, a former SoftBank president and the current CEO and chairman of Palo Alto Networks, helped lead the internal review as a then-director on the board of HeadSpin, said The Information.
The SEC says its investigation is continuing. The DOJ similarly notes in its announcement that “a complaint merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.”
Either way, the outlook doesn’t look very promising right now for Lachwani, who, according to Forbes, previously sold a mobile cloud business to Google and wound up co-founding HeadSpin after Yahoo co-founder Jerry Yang introduced him to Brien Colwell, a former Palantir and Quora engineer who was working at the time on a different startup.
Colwell remains with HeadSpin as its CTO. He has not been named in either the SEC or the DOJ’s complaints relating to HeadSpin.
The company itself, which says it has been cooperating with the government’s investigation, was also not charged.
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Squire, a barbershop tech startup, triples its valuation to $250M in latest round
Squire, a startup that sells software to barbershops, has raised $59 million in a round led by Iconiq Capital. The raise is $45 million in equity capital, and $15 million in debt financing.
The round comes just months after Squire closed its $34 million Series B, led by CRV. With the new financing, Squire has nearly tripled its valuation, up from $85 million in June to $250 million today. Other investors in the company include Tiger Global and Trinity Ventures.
What happened? Squire’s revenue went from zero in March, when all barber shops closed, to between $10 million to $20 million in ARR just 10 months later, TechCrunch has learned. The growth indicates how the next wave of barbershops will be built atop digital technology, instead of offline processes.
“We just took off like a lightning bolt,” co-founder Dave Salvant tells TechCrunch.
Salvant and Squire’s other co-founder, Songe LaRon, began the business in 2016 as a back-end barbershop management tool for independent businesses. Squire lets businesses schedule appointments, offer loyalty programs and install contactless and cashless payment. The team claims that barbershop operations are more complex than many other types of small businesses because there are multiple parties transacting, plus customers might check out different services from different barbers all within one service.
That’s where Squire comes in — to be a point of sale to manage those confusing transactions.
The coronavirus has threatened the livelihoods of small and medium-sized business owners, making it harder for them to secure loans or financing to undergo tricky times. Salvant says that Squire took on $15 million in debt financing to create a banking-as-a-service feature for these business owners.
“This market is underserved by traditional financial institutions,” Salvant said. “And we think there’s opportunities to help these owners with financial tools.”
Going forward, Squire plans to expand into new markets, including Australia, Canada and the U.K. The majority of capital raised will go toward hiring new sales and marketing professionals.
Squire’s total staff is currently 100 people.
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Sutter Hill strikes ice-cold, $2.5B pre-market return with Snowflake’s IPO filing
Today is the day for huge VC returns.
We talked a bit about Sequoia’s coming huge win with the IPO of game engine Unity this morning. Now, Sequoia might actually have the second largest return among companies filing to go public with the SEC today.
Snowflake filed its S-1 this afternoon, and it looks like Sutter Hill is going to make bank. The long-time VC firm, which invests heavily in the enterprise space and generally keeps a lower media profile, is the big winner across the board here, coming out with an aggregate 20.3% stake in the data management platform, which was last privately valued at $12.4 billion earlier this year. At its last valuation, Sutter Hill’s full stake is worth $2.5 billion. My colleagues Ron Miller and Alex Wilhelm looked a bit at the financials of the IPO filing.
Sutter Hill has been intimately connected to Snowflake’s early build-out and success, providing a $5 million Series A funding back in 2012, the year of the company’s founding, according to Crunchbase.
Now, there are some caveats on that number. Sutter Hill Ventures (aka “the fund”) owns roughly 55% of the firm’s total stake, with the balance owned by other entities owned by the firm’s management committee members. Michael Speiser, the firm’s partner who sits on Snowflake’s board, owns slightly more than 10% of Sutter Hill’s stake directly himself according to the SEC filing.
In addition to Sutter Hill, Sequoia also got a large slice of the data computing company: its growth fund is listed as having an 8.4% stake in the coming IPO. That makes for two Sequoia Growth IPOs today — a nice way to start the week this Monday afternoon.
Finally, Altimeter Capital, which did the Series C, owns 14.8%; ICONIQ owns 13.8%; and Redpoint, which did the Series B, owns 9.0%.
To see the breakdown in returns, let’s start by taking a look at the company’s share price and carrying values for each of its rounds of capital:
On top of that, what’s interesting is that Snowflake broke down the share purchases by firm for the last four rounds (D through G-1) the company fundraised:
That level of detail actually allows us to grossly compare the multiples on invested capital for these firms.
Sutter Hill, despite owning large sections of the company early on, continued to buy up shares all the way through the Series G, investing an additional $140 million in the later-stage rounds of the company. Adding in the entirety of its $5 million Series A round and a bit from the Series B assuming pro rata, the firm is looking on the order of a 16x return (assuming the IPO price is at least as good as the last round price).
Outside Sutter Hill, Redpoint has the best multiple return profile, given that it only invested $60 million in these later-stage rounds while still maintaining a 9.0% ownership stake. Both Sutter Hill and Redpoint purchased roughly 20% of their overall stakes in these later-stage rounds. Doing some roughly calculating, Redpoint is looking at a return of about 12-13x.
Sequoia’s multiple on investment is capped a bit given that it only invested in the most recent funding rounds. Its 8.4% stake was purchased for nearly $272 million, all of which came in these late-stage rounds. At Snowflake’s last round valuation of $12.4 billion, Sequoia’s stake is valued at $1.04 billion — a return of slightly less than 4x. That’s very good for mezzanine capital, but nothing like the multiple that Sutter Hill or Redpoint got for investing early.
Doing the same back-of-the-envelope math and Altimeter is looking at a better than 6x return, and ICONIQ got 7x. As before, if the stock zooms up, those returns will look all the better (and of course, if the stock crashes, well…)
One final note: The pattern for these last four funding rounds is unusual for venture capital: Snowflake appears to have “spread the love around,” having multiple firms build up stakes in the startup over several rounds rather than having one definitive lead.
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Miro lands $50M Series B for digital whiteboard as demand surges
Miro is a company in the right place at the right time. The makers of a digital whiteboard are seeing usage surge right now as businesses move from the workplace and physical whiteboards. Today, the company announced a hefty $50 million Series B.
Iconiq Capital led the round with help from Accel and a slew of individual investors. Today’s investment brings the total raised to around $75 million, according to the company. Among the company’s angel investors was basketball star Steph Curry.
What’s attracting this level of investment is that this is a product made for a moment when workers are forced to stay home. One of the primary complaints about working at home is the inability to sit in the same room with colleagues and brainstorm around a whiteboard. This reproduces that to an extent.
What’s more, Miro isn’t simply light-weight add-in like you might find built into a collaboration tool like Zoom or Microsoft Teams; it’s more of a platform play designed to integrate with many different enterprise tools, much like Slack does for communications.
Miro co-founder and CEO Andrey Khusid said the company planned the platform idea from its earliest days. “The concept from day one was building something for real-time collaboration and the platform thing is very important because we expect that people will build on top of our product,” Khusid told TechCrunch.
Image Credit: Miro
That means that people can build integrations to other common tools and customize the base tool to meet the needs of an individual team or organization. It’s an approach that seems to be working as the company reports it’s profitable with more than 21,000 customers including 80% of the Fortune 100. Customers include Netflix, Salesforce, PwC, Spotify, Expedia and Deloitte.
Khusid says usage has been skyrocketing among both business and educational customers as the pandemic has forced millions of people to work at home. He says that has been a challenge for his engineering team to keep up with the demand, but one that the company has been able to meet to this point.
The startup just passed the 300 employee mark this week, and it will continue to hire with this new influx of money. Khusid expects to have another 150 employees before the end of the year to keep up with increasing demand for the product.
“We understand that we need to come out strong from this situation. The company is growing much faster than we expected, so we need to have a very strong team to maintain the growth at the same pace after the crisis ends.”
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Moveworks snags $75M Series B to resolve help desk tickets with AI
Moveworks, a startup using AI to help resolve help desk tickets in an automated fashion, announced a $75 million Series B investment today.
The round was led by Iconiq Capital, Kleiner Perkins and Sapphire Ventures. Existing investors Lightspeed Venture Partners, Bain Capital Ventures and Comerica Bank also participated. The round also included a personal investment from John W. Thompson, a partner at LightSpeed Venture Partners and chairman at Microsoft. Today’s investment brings the total raised to $105 million, according to the company.
That’s a lot of money for an early-stage company, but CEO and co-founder Bhavin Shah says his company is solving a common problem using AI. “Moveworks is a machine learning platform that uses natural language understanding to take tickets that are submitted by employees every day to their IT teams for stuff they need, and we understand [the content of the tickets], interpret them, and then we take the actions to resolve them [automatically],” Shah explained.
He said the company decided to focus on help desk tickets because they saw data when they were forming the company that suggested a common set of questions, and that would make it easier to interpret and resolve these issues. In fact, they are currently able to resolve 25-40% of all tickets autonomously.
He says this should lead to greater user satisfaction because some of their problems can be resolved immediately, even when IT personnel aren’t around to help. Instead of filing a ticket and waiting for an answer, Moveworks can provide the answer, at least part of the time, without human intervention.
Aditya Agrawal, a partner at Iconiq, says that the company really captured his attention. “Moveworks is not just transforming IT operations, they are building a more modern and enlightened way to work. They’ve built a platform that simplifies and streamlines every interaction between employees and IT, enabling both to focus on what matters,” he said in a statement.
The company was founded in 2016, and in the early days was only resolving 2% of the tickets autonomously, so it has seen major improvement. It already has 115 employees and dozens of customers (although Shah didn’t want to provide an exact number).
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Snowflake co-founder and president of product Benoit Dageville is coming to TC Sessions: Enterprise
When it comes to a cloud success story, Snowflake checks all the boxes. It’s a SaaS product going after industry giants. It has raised bushels of cash and grown extremely rapidly — and the story is continuing to develop for the cloud data lake company.
In September, Snowflake’s co-founder and president of product Benoit Dageville will join us at our inaugural TechCrunch Sessions: Enterprise event on September 5 in San Francisco.
Dageville founded the company in 2012 with Marcin Zukowski and Thierry Cruanes with a mission to bring the database, a market that had been dominated for decades by Oracle, to the cloud. Later, the company began focusing on data lakes or data warehouses, massive collections of data, which had been previously stored on premises. The idea of moving these elements to the cloud was a pretty radical notion in 2012.
It began by supporting its products on AWS, and more recently expanded to include support for Microsoft Azure and Google Cloud.
The company started raising money shortly after its founding, modestly at first, then much, much faster in huge chunks. Investors included a Silicon Valley who’s who such as Sutter Hill, Redpoint, Altimeter, Iconiq Capital and Sequoia Capital .
Snowflake fund raising by round. Chart: Crunchbase
The most recent rounds came last year, starting with a massive $263 million investment in January. The company went back for more in October with an even larger $450 million round.
It brought on industry veteran Bob Muglia in 2014 to lead it through its initial growth spurt. Muglia left the company earlier this year and was replaced by former ServiceNow chairman and CEO Frank Slootman.
TC Sessions: Enterprise (September 5 at San Francisco’s Yerba Buena Center) will take on the big challenges and promise facing enterprise companies today. TechCrunch’s editors will bring to the stage founders and leaders from established and emerging companies to address rising questions, like the promised revolution from machine learning and AI, intelligent marketing automation and the inevitability of the cloud, as well as the outer reaches of technology, like quantum computing and blockchain.
Tickets are now available for purchase on our website at the early-bird rate of $395.
Student tickets are just $245 – grab them here.
We have a limited number of Startup Demo Packages available for $2,000, which includes four tickets to attend the event.
For each ticket purchased for TC Sessions: Enterprise, you will also be registered for a complimentary Expo Only pass to TechCrunch Disrupt SF on October 2-4.
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SendBird snags additional $50M for messaging API tool, as it extends Series B to $102M
SendBird, a startup that enables developers to add messaging to their apps with a couple of lines of code, announced a secondary Series B investment of $50 million today. This additional funding comes on top of the $52 million, the company raised in February.
The new money was led by Tiger Global Management, with significant participation from Iconiq, the firm that led the initial Series B round. Today’s investment brings the total raised to more than $120 million, according to Crunchbase data.
This is a huge investment for a Series B-level company, and what appears to be driving such a large influx of cash is a fast-growing market with tremendous demand for user-to-user messaging inside apps. By offering this as an API service, developers can drop the capability into their apps without having to build it from scratch. It’s a similar value proposition as Twilio for communications or Stripe for payments.
As SendBird CEO John Kim told us in the first part of the Series B investment in February, his company is aiming to make it simple for developers to add in-app messaging:
We are a very flexible, fully customizable, white label messaging capability. We come with a fully managed infrastructure. So basically, you can log into any mobile applications or websites out there, and use our messaging capability.
Kim says today’s additional money comes at a time when his company is accelerating its go-to-market strategy. “Starting from marketing and sales, we are building the go-to-market engine to scale our global presence by hiring leaders in key areas of the business and building teams around those leaders. To accelerate this process, we’re working with our new investors for Series B, who have made many investments in our target markets and built strong connections there,” Kim told TechCrunch.
Founded in South Korea in 2013, SendBird has 98 employees, with headquarters in San Mateo, Calif. It was a member of the Y Combinator Winter 2016 class.
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Valued at $500M, investors say HeadSpin is ‘one of the fastest-scaling software companies’ ever
HeadSpin has closed a $20 million Series B, valuing the provider of mobile application performance software at $500 million. New investors ICONIQ Capital, Battery Ventures and EQT Ventures participated in the funding round. Existing backers GV, Telstra Ventures, Danhua Capital, Nexus Ventures Partners and NextWorld Capital did not participate.
The company emerged from stealth last year with Manish Lachwani at the helm. Lachwani was the former principal architect of the Amazon Kindle, chief technology officer of mobile gaming company Zynga and co-founder and chief technology officer of Google-acquired Appurify, which helped developers automate testing and optimization of their mobile apps and websites.
He’s been in the application performance management business for a long time; under his leadership, Palo Alto-based HeadSpin has quickly grown into one of the fastest growing, though relatively unknown, startups in Silicon Valley.
“What HeadSpin has been able to achieve in its first three years is remarkable, and it has already attracted dozens of major clients across the mobile ecosystem,” ICONIQ partner Will Griffith said in a statement. “The company is quickly becoming the new standard of record for all mobile ecosystem players going forward. It’s one of the fastest-scaling software companies we’ve seen.”
HeadSpin works with Tinder, DocuSign and some 200 other app providers, allowing the companies to test and monitor their apps in real-time and on real devices before, during and after an app is released. The AI-enabled platform gives developers the ability to experience their app just as any regular user would and highlights high priority issues so companies can quickly resolve customer’s problems at scale.
Founded in 2015, HeadSpin says it expects to double revenue in 2018 but did not disclose any financial metrics.
Chief technology officer Brien Colwell is the other half of the company’s founding team. Colwell is the founder and former CEO of Nextop.io, a Y Combinator graduate and app optimization startup. Colwell and Lachwani are joined by HeadSpin’s head of product Sriram Krishnan, Tinder’s former head of international growth. Krishnan joined HeadSpin in October 2017 after working with HeadSpin’s toolset in his role at the app-based dating company.
“When I signed up for HeadSpin, I found out how phenomenal the product was,” Krishnan told TechCrunch .
“A lot of what we built was predicated on the fact that the mobile ecosystem is still very new,” he added. “If you think about the apps world, it’s only been around 10 years … It’s the Wild West out there when it comes to understanding performance.”
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ServiceTitan is LA’s least likely contender to be the next billion-dollar startup
The city of Glendale, Calif. seems like an unlikely place to grow one of the next billion-dollar startups in the booming Los Angeles tech ecosystem.
Located at the southeastern tip of the San Fernando Valley, the Los Angeles suburb counts its biggest employers as the adhesive manufacturer Avery Dennison; the Los Angeles industrial team for the real estate developer CBRE; the International House of Pancakes; Disney Consumer Products; DreamWorks Studios; Walt Disney Animation and Univision. “Silicon Beach” this ain’t.
But it’s here in the (other) Valley’s southernmost edge that investors have found a startup they consider to be the next potential billion-dollar “unicorn” that will come out of Los Angeles. The company is ServiceTitan, and its market… is air conditioners.
More specifically, it’s the contractors that service equipment like the heating, ventilation and cooling systems at commercial and residential properties across the U.S.
Founded by Ara Mahdessian and Vahe Kuzoyan in 2012, ServiceTitan is very much an up-and-coming billion-dollar business that’s a family (minded) affair.
Mahdessian and Kuzoyan met on a ski trip organized by the Armenian student associations at Stanford and the University of Southern California back when both men were in college.
Both programmers, the two reconnected after doing stints as custom developers during and after college, and then when they were developing tools for their families’ businesses as residential contractors in the Los Angeles suburb of Glendale.
The two men built a suite of services to help contractors like their fathers manage their businesses. Now following a $62 million round of funding led by Battery Ventures last month, the company is worth roughly $800 million, according to people with knowledge of the investment, and is on its way to becoming Los Angeles’ next billion-dollar business.
Battery isn’t the only marquee investor to find value in ServiceTitan’s business developing software managing day labor.
Iconiq Capital, the investment firm managing the wealth of some of Silicon Valley’s most successful executives (the firm counts Facebook chief executive Mark Zuckerberg, and senior staff like Dustin Moskovitz and Sheryl Sandberg; Twitter chief Jack Dorsey; and LinkedIn founder and chief executive Reid Hoffman among its clients, according to a 2014 Forbes article), has also taken a shine to the now-gargantuan startup from Glendale.
It was Iconiq that put a whopping $80 million into ServiceTitan just last year — and while the 2017 cash infusion may have been larger, the company’s valuation has continued to rise.
That’s likely due to a continually expanding toolkit that now boasts a customer relationship management system, efficient dispatching and routing, invoice management, mobile applications for field professionals and marketing analytics and reporting tools.
“ServiceTitan’s incredibly fast growth is a testament to the brisk demand for new mobile and cloud-based technology that is purpose-built for the tradesmen and women in our workforce,” said Battery Ventures general partner Michael Brown — who’s taking a seat on the ServiceTitan board.
What distinguishes the ServiceTitan business from other point solutions is that they’ve taken to targeting not mom-and-pop small businesses but franchises like Mr. Rooter and George Brazil. Gold Medal Service, John Moore Services, Hiller Plumbing, Casteel Air, Baker Brothers Plumbing and Air Conditioning and Bonney may not be household names, but they’re large providers of contractors who work under those brands.
The company counts 400 employees on staff, and will look to use the money to continue to grow out its suite of products and services, according to a March statement announcing the funding.
And as Battery Ventures investor Sanjiv Kalevar noted in a blog post last year, the opportunity for software companies serving blue-collar workers is huge.
For people sitting at our desks and working behind laptops on programs like Microsoft Office, it can be easy to overlook the large, sometimes forgotten, workforce out there in construction, manufacturing, transportation, hospitality, retail and many other multi-billion dollar industries. Indeed, more than 60% of U.S. workers and even more globally fall into these “blue collar” industries.
By and large, these workers have not benefitted much from recent technology improvements available to office-based workers—think new email and workplace-collaboration technologies, or advanced sales and HR systems. Never mind the long-term opportunities for companies in these sectors from technologies like artificial intelligence, drones, and virtual or augmented reality; hourly and field workers are dealing with much more basic on-the-job challenges, like finding work, getting their jobs done on time and getting paid. These more basic needs can be solved with seemingly simple technologies—software for billing, scheduling, navigation and many other business workflows. These kinds of technologies, unlike AI, don’t automate away workers. Instead, they empower them to be more efficient and productive.
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Modern Meadow raises $40 million to grow leather without livestock
A Brooklyn-based startup called Modern Meadow has raised $40 million to become a top source of leather for the world’s makers of fashion and accessories, luggage, sporting goods, upholstery and furniture. Rather than raising animals to slaughter them and take the skin off their backs in a physically and chemically intensive process, Modern Meadow “biofabricates” its leather… Read More
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