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Layoffs hit another Softbank co as $3.2B Flexport cuts 50
Fearing weak fundraising options in the wake of the WeWork implosion, late stage startups are tightening their belts. The latest is another Softbank-funded company, joining Zume Pizza (80% of staff laid off), Wag (80%+), Fair (40%), Getaround (25%), Rappi (6%), and Oyo (5%) that have all cut staff to slow their burn rate and reduce their funding needs. Freight forwarding startup Flexport that is laying off 3% of its global staff.
“We’re restructuring some parts of our organization to move faster and with greater clarity and purpose. With that came the difficult decision to part ways with around 50 employees” a Flexport spokesperson tells TechCrunch after we asked today if it had seen layoffs like its peers.
Flexport CEO Ryan Petersen
Flexport had raised a $1 billion Series D led by SoftBank at a $3.2 billion valuation a year ago, bringing it to $1.3 billion in funding. The company helps move shipping containers full of goods between manufacturers and retailers using digital tools unlike its old-school competitors.
“We underinvested in areas that help us serve clients efficiently, and we over-invested in scaling our existing process, when we actually needed to be agile and adaptable to best serve our clients, especially in a year of unprecedented volatility in global trade” the spokesperson explained.
Flexport still had a record year, working with 10,000 clients to finance and transport goods. The shipping industry is so huge that it’s still only the seventh largest freight forwarder on its top Trans-Pacific Eastbound leg. The massive headroom for growth plus its use of software to coordinate supply chains and optimize routing is what attracted SoftBank.
The Flexboard Platform dashboard offers maps, notifications, task lists, and chat for Flexport clients and their factory suppliers.
But many late-stage startups are worried about where they’ll get their next round after taking huge sums of cash from SoftBank at tall valuations. As of November, SoftBank had only managed to raise about $2 billion for its Vision Fund 2 despite plans for a total of $108 billion, Bloomberg reported. LPs were partially spooked by SoftBank’s reckless investment in WeWork. Further layoffs at its portfolio companies could further stoke concerns about entrusting it with more cash.
Unless growth stage startups can cobble together enough institutional investors to build big rounds, or other huge capital sources like sovereign wealth funds materialize for them, they might not be able to raise enough to keep rapidly burning. Those that can’t reach profitability or find an exit may face down-rounds that can come with onerous terms, trigger talent exodus death spirals, or just not provide enough money.
Flexport has managed to escape with just 3% layoffs for now. Being proactive about cuts to reach sustainability may be smarter than gambling that one’s business or the funding climate with suddenly improve. But while other SoftBank startups had to spend tons to edge out direct competitors or make up for weak on-demand service margins, Flexport at least has a tried and true business where incumbents have been asleep at the wheel.
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Emerge raises $20M to take its digital freight marketplace for truckers up a gear
Trucking is currently the most popular mode of transporting freight in the U.S., accounting for around $12.5 billion of the $17 billion freight market, according to the Bureau of Transportation Statistics. But with thousands of small and single-vehicle operators and legacy (often paper-based) systems underpinning communications, it’s also one of the most inefficient.
Now there are signs that this is changing. A startup out of Phoenix, Ariz. called Emerge, which has built a platform for shippers and brokers to find and allocate truck freight more effectively across the long tail of available truck-based carriers (a little like a Flexport but for trucks), is announcing a round of $20 million, funding it will use to continue building out its technology, as well as to keep expanding business.
The Series A — led by NewRoad Capital Partners, with previous investors Greycroft and 9Yards Capital also participating — comes on the heels of some already strong traction for Emerge. Since being founded in 2018 by brothers Andrew and Michael Leto, the company has processed more than $1 billion in freight with 1,500% year-over-year growth between 2018 and 2019. Emerge has now raised just over $40 million and we understand that its valuation is currently at more than $100 million.
Some of its traction so far is down to the founders. Both are vets of the trucking industry whose previous company, a multimodal shipment visibility/supply chain solutions platform called 10-4, sold to Trimble in a $400 million deal. And some of that is down to the gap in the market that Emerge is filling.
“Gap” is actually the operative word here. How shipments are booked on trucks today is quite inefficient, with orders often leaving empty spaces on truck beds that could be filled with goods going in the same direction; and in about 20% of all journeys carrying no load at all.
Part of the reason for this is the antiquated way that shippers book space on trucks, and part of the reason is because there is just simply too much fragmentation in the system, with 80% of all shipments today contract-based and the remaining 20% operating as a “spot market” and booked on the fly, and neither of them particularly efficient when it comes to truck occupancy. (Most of the latter spot market is booked through spreadsheets and email, Michael Leto, the CEO, said in an interview.)
Emerge’s solution is something of a stick-and-carrot approach that reminds me a little also of how advertising exchanges work.
A shipper that wants to use the Emerge platform essentially activates/lists its entire inventory of truck providers on the platform to get started. That list and inventory, in turn, become part of a bigger database of other providers: and again, this is a long-tail approach, with typically the trucking companies on the platform having no more than 200 trucks (and often fewer) in their fleets.
Then, when a shipper goes to Emerge to book a shipment, options are provided that might include previous truckers, but might also include others. The idea is that this provides a more efficient picture, and that in turn gets passed on as cost savings to the customers, who can typically reduce shipping costs by as much as 20% using the platform.
If the cost savings and expanded choice are the carrots, the stick comes in the form of the requirement to upload truck data and share it with other shippers: you can’t use the system without doing it.
“But it’s a network effect,” Leto explained when I asked if Emerge ever saw resistance to the model. “We allow these companies to share capacity to drive efficiencies, and to drive and lower costs with less deadhead miles. There are a lot of benefits to capacity sharing.” It doesn’t seem to have deterred too many in any case. There are currently some 30,000 carrier profiles on the platform, and 12,000 transportation entities — including carriers, brokers or other shippers — transacted in Q4 alone, speaking to activity on the platform being strong.
Emerge is not the only company that has identified the opportunity in providing a better and more updated platform to communicate and book space in the fragmented truck market. Sennder out of Berlin — which last year raised a sizeable round of funding — has also built a platform to centralise communications around booking shipments. It, however, seems to have less of an emphasis on encouraging shippers to take the lead in expanding that network effect that Leto describes.
Others that are tackling the wider shipping and logistics market and trying to improve how it runs include Sendy out of Kenya, which recently also announced a $20 million raise; Flexport, which now has a $3.2 billion valuation; Zencargo, which has also raised $20 million; and FreightHub ($30 million), Bringg ($25 million) and NEXT ($97 million).
But within that, Emerge’s performance so far, coupled with the Leto brothers’ history as founders, is giving the startup some extra mileage as we enter the next phase of what trucking might hold, which could include a critical mass of autonomous and electric vehicles on pre-defined routes.
“Uniquely, Emerge combines an exciting new technology designed to serve existing, unmet market need with experienced industry operators and entrepreneurs,” said Tracy Black of NewRoad in a statement. “Andrew and Michael are building the most innovative marketplace we’ve seen in the freight and digital marketplace industry — bringing contracts and carriers together to create new capacity. We are excited to be leading their Series A and I am thrilled to join the board to support their growth.”
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How Bykea is winning Pakistan’s ride-hailing and delivery market
Increasingly, the streets of Karachi and Lahore are being flooded with men riding bikes and wearing green T-shirts, a writer friend recently told me. In a sense, these men represent the emergence of Pakistan’s tech startups.
India now has more than 25,000 startups and raised a record $14.5 billion last year, according to government figures. But not all Asian countries are as large as India or have such a thriving startup ecosystem. Long overdue, things are beginning to change in bordering Pakistan.
Bykea, a three-year-old ride-hailing and delivery service, today has more than 500,000 bikes registered on its platform. It operates in some of Pakistan’s most populated cities, such as Karachi, Lahore and Islamabad, Muneeb Maayr, Bykea founder and CEO, told TechCrunch.
Maayr is one of the most recognized startup founders in Pakistan, and previously worked for Rocket Internet, helping the giant run fashion e-commerce platform Daraz in the country. While leading Daraz, he expanded the platform to cater to categories beyond fashion; Daraz was later sold to Alibaba.
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Marijuana delivery giant Eaze may go up in smoke
The first cannabis startup to raise big money in Silicon Valley is in danger of burning out. TechCrunch has learned that pot delivery middleman Eaze has seen unannounced layoffs, and its depleted cash reserves threaten its ability to make payroll or settle its AWS bill. Eaze was forced to raise a bridge round to keep the lights on as it prepares to attempt major pivot to ‘touching the plant’ by selling its own marijuana brands through its own depots.
TechCrunch spoke with nine sources with knowledge of Eaze’s struggles to piece together this report. If Eaze fails, it could highlight serious growing pains amid the ‘green rush’ of startups into the marijuana business.
Eaze, the startup backed by some $166 million in funding that once positioned itself as the “Uber of pot” — a marketplace selling pot and other cannabis products from dispensaries and delivering it to customers — has recently closed a $15 million bridge round, according to multiple source. The funding was meant to keep the lights on as Eaze struggles to raise its next round of funding amid problems with making decent margins on its current business model, lawsuits, payment processing issues, and internal disorganization.
An Eaze spokesperson confirmed that the company is low on cash. Sources tell us that the company, which laid off some 30 people last summer, is preparing another round of cuts in the meantime. The spokesperson refused to discuss personnel issues but noted that there have been layoffs at many late stage startups as investors want to see companies cut costs and become more efficient.
From what we understand, Eaze is currently trying to raise a $35 million Series D round according to its pitch deck. The $15 million bridge round came from unnamed current investors. (Previous backers of the company include 500 Startups, DCM Ventures, Slow Ventures, Great Oaks, FJ Labs, the Winklevoss brothers, and a number of others.) Originally, Eaze had tried to raise a $50 million Series D, but the investor that was looking at the deal, Athos Capital, is said to have walked away at the eleventh hour.
Eaze is going into the fundraising with an enterprise value of $388 million, according to company documents reviewed by TechCrunch. It’s not clear what valuation it’s aiming for in the next round.
An Eaze spokesperson declined to discuss fundraising efforts but told TechCrunch, “The company is going through a very important transition right now, moving to becoming a plant-touching company through acquisitions of former retail partners that will hopefully allow us to more efficiently run the business and continue to provide good service to customers.
Desperate to grow margins
The news comes as Eaze is hoping to pull off a “verticalization” pivot, moving beyond online storefront and delivery of third-party products (rolled joints, flower, vaping products and edibles) and into sourcing, branding and dispensing the product directly. Instead of just moving other company’s marijuana brands between third-party dispensaries and customers, it wants to sell its own in-house brands through its own delivery depots to earn a higher margin. With a number of other cannabis companies struggling, the hope is that it will be able to acquire brands in areas like marijuana flower, pre-rolled joints, vaporizer cartridges, or edibles at low prices.
An Eaze spokesperson confirmed that the company plans to announce the pivot in the coming days, telling TechCrunch that it’s “a pretty significant change from provider of services to operating in that fashion but also operating a depot directly ourselves.”
The startup is already making moves in this direction, and is in the process of acquiring some of the assets of a bankrupt cannabis business out of Canada called Dionymed — which had initially been a partner of Eaze’s, then became a competitor, and then sued it over payment disputes, before finally selling part of its business. These assets are said to include Oakland dispensary Hometown Heart, which it acquired in an all-share transaction (“Eaze effectively bought the lawsuit,” is how one source described the sale). This will become Eaze’s first owned delivery depot.
In a recent presentation deck that Eaze has been using when pitching to investors — which has been obtained by TechCrunch — the company describes itself as the largest direct-to-consumer cannabis retailer in California. It has completed more than 5 million deliveries, served 600,000 customers and tallied up an average transaction value of $85.
To date, Eaze has only expanded to one other state beyond California, Oregon. Its aim is to add five more states this year, and another three in 2021. But the company appears to have expected more states to legalize recreational marijuana sooner, which would have provided geographic expansion. Eaze seems to have overextended itself too early in hopes of capturing market share as soon as it became available.
An employee at the company tells us that on a good day Eaze can bring in between $800,000 and $1 million in net revenue, which sounds great, except that this is total merchandise value, before any cuts to suppliers and others are made. Eaze makes only a fraction of that amount, one reason why it’s now looking to verticatlize into more of a primary role in the ecosystem. And that’s before considering all of the costs associated with running the business.
Eaze is suffering from a problem rampant in the marijuana industry: a lack of working capital. Since banks often won’t issue working capital loans to weed-related business, deliverers like Eaze can experience delays in paying back vendors. Another source says late payments have pushed some brands to stop selling through Eaze.
Another drain on its finances have been its marketing efforts. A source said out-of-home ads (billboards and the like) allegedly were a significant expense at one point. It has to compete with other pot purchasing options like visiting retail stores in person, using dispensaries’ in-house delivery services, or buying via startups like Meadow that act as aggregated online points of sale for multiple dispensaries.
Indeed, Eaze claims that its pivot into verticalization will bring it $204 million in revenues on gross transactions of $300 million. It notes in the presentation that it makes $9.04 on an average sale of $85, which will go up to $18.31 if it successfully brings in ‘private label’ products and has more depot control.
Selling weed isn’t eazy
The poor margins are only one of the problems with Eaze’s current business model, which the company admits in its presentation have led to an inconsistent customer experience and poor customer affinity with its brand — especially in the face of competition from a number of other delivery businesses.
Playing on the on-demand, delivery-of-everything theme, it connected with two customer bases. First, existing cannabis consumers already using some form of delivery service for their supply; and a newer, more mainstream audience with disposable income that had become more interested in cannabis-related products but might feel less comfortable walking into a dispensary, or buying from a black market dealer.
It is not the only startup that has been chasing that audience. Other competitors in the wider market for cannabis discovery, distribution and sales include Weedmaps, Puffy, Blackbird, Chill (a brand from Dionymed that it founded after ending its earlier relationship with Eaze), and Meadow, with the wider industry estimated to be worth some $11.9 billion in 2018 and projected to grow to $63 billion by 2025.
Eaze was founded on the premise that the gradual decriminalisation of pot — first making it legal to buy for medicinal use, and gradually for recreational use — would spread across the US and make the consumption of cannabis-related products much more ubiquitous, presenting a big opportunity for Eaze and other startups like it.
It found a willing audience among consumers, but also tech workers in the Bay Area, a tight market for recruitment.
“I was excited for the opportunity to join the cannabis industry,” one source said. “It has for the most part has gotten a bad rap, and I saw Eaze’s mission as a noble thing, and the team seemed like good people.”
Eaze CEO Ro Choy
That impression was not to last. The company, this employee was told when joining, had plenty of funding with more on the way. The newer funding never materialised, and as Eaze sought to figure out the best way forward, the company cycled through different ideas and leadership: former Yammer executive Keith McCarty, who cofounded the company with Roie Edery (both are now founders at another Cannabis startup, Wayv), left, and the CEO role was given to another ex-Yammer executive, Jim Patterson, who was then replaced by Ro Choy, who is the current CEO.
“I personally lost trust in the ability to execute on some of the vision once I got there,” the ex-employee said. “I thought that on one hand a picture was painted that wasn’t the truth. As we got closer and as I’d been there longer and we had issues with funding, the story around why we were having issues kept changing.” Several sources familiar with its business performance and culture referred to Eaze as a “shitshow”.
No ‘Push For Kush’
The quick shifts in strategy were a recurring pattern that started well before the company got tight financial straits.
One employee recalled an acquisition Eaze made several years ago of a startup called Push for Pizza. Founded by five young friends in Brooklyn, Push for Pizza had gone viral over a simple concept: you set up your favourite pizza order in the app, and when you want it, you pushed a single button to order it. (Does that sound silly? Don’t forget, this was also the era of Yo, which was either a low point for innovation, or a high point for cynicism when it came to average consumer intelligence… maybe both.)
Eaze’s idea, the employee said, was to take the basics of Push for Pizza and turn it into a weed app, Push for Kush. In it, customers could craft their favourite mix and, at the touch of a button, order it, lowering the procurement barrier even more.
The company was very excited about the deal and the prospect of the new app. They planned a big campaign to spread the word, and held an internal event to excite staff about the new app and business line.
“They had even made a movie of some kind that they showed us, featuring a caricature of Jim” — the CEO at a the time — “hanging out of the sunroof of a limo.” (I’ve been able to find the opening segment of this video online, and the Twitter and Instagram accounts that had been created for Push for Kush, but no more than that.)
Then just one week later, the whole plan was scrapped, and the founders of Push for Pizza fired. “It was just brushed under the carpet,” the former employee said. “No one could get anything out of management about what had happened.”
Something had happened, though: the company had been taking payments by card when it made the acquisition, but the process was never stable and by then it had recently gone back to the cash-only model. Push for Kush by cash was less appealing. “They didn’t think it would work,” the person said, adding that this was the normal course of business at the startup. “Big initiatives would just die in favor of pushing out whatever new thing was on the product team’s radar.”
Eaze’s spokesperson confirmed that “we did acquire Push For Pizza . . but ultimately didn’t choose to pursue [launching Push For Kush].”
Payments were a recurring issue for the startup. Eaze started out taking payments only in cash — but as the business grew, that became increasingly problematic. The company found itself kicked off the credit card networks and was stuck with a less traceable, more open to error (and theft) cash-only model at a time when one employee estimated it was bringing in between $800,000 and $1 million per day in sales.
Eventually, it moved to cards, but not smoothly: Visa specifically did not want Eaze on its platform. Eaze found a workaround, employees say, but it was never above board, which became the subject of the lawsuit between Eaze and Dionymed. Currently the company appear to only take payments via debit cards, ACH transfer, and cash, not credit card.
Another incident sheds light on how the company viewed and handled security issues.
Can Eaze rise from the ashes?
At one point, employees allegedly discovered that Eaze was essentially storing all of its customer data — including users’ signatures and other personal information — in an Azure bucket that was not secured, meaning that if anyone was nosing around, it could be easily discovered and exploited.
The vulnerability was brought to the company’s attention. It was something that was up to product to fix, but the job was pushed down the list. It ultimately took seven months to patch this up. “I just kept seeing things with all these huge holes in them, just not ready for prime time,” one ex-employee said of the state of products. “No one was listening to engineers, and no one seemed to be looking for viable products.” Eaze’s spokesperson confirms a vulnerability was discovered but claims it was promptly resolved.
Today, the issue is a more pressing financial one: the company is running out of money. Employees have been told the company may not make its next payroll, and AWS will shut down its servers in two days if it doesn’t pay up.
Eaze’s spokesperson tried to remain optimistic while admitting the dire situation the company faces. “Eaze is going to continue doing everything we can to support customers and the overall legal cannabis industry. We’re excited about the future and acknowledge the challenges that the entire community is facing.”
As medicinal and recreational marijuana access became legal in some states in the latter 2010s, entrepreneurs and investors flocked to the market. They saw an opportunity to capitalize on the end of a major prohibition — a once in a lifetime event. But high government taxes, enduring black markets, intense competition, and a lack of financial infrastructure willing to deal with any legal haziness have caused major setbacks.
While the pot business might sound chill, operations like Eaze depend on coordinating high-stress logistics with thin margins and little room for error. Plenty of food delivery startups from Sprig to Munchery went under after running into similar struggles, and at least banks and payment processors would work with them. With the odds stacked against it, Eaze has a tough road ahead.
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Snackpass snags $21M to let you earn friends free takeout
“We were in the back washing blenders so they could keep taking Snackpass orders,” recalls co-founder and CEO Kevin Tan. The team from order-ahead food startup Snackpass was willing to get their hands dirty to keep up with demand at one of their first restaurant partners, Tropical Smoothie Cafe on the Yale University campus.
Why were people so eager to pay for takeout through Snackpass? Because it lets them earn loyalty points to redeem for free food — both for themselves and as gifts for their friends. Sending people Snackpass rewards became a new way to flirt or show gratitude at Yale. And through the Venmo-esque Snackpass social feed, users could keep up with a fresh form of gossip while discovering restaurants.
“Anywhere someone is standing in line to order something, we can solve that with Snackpass,” says Tan. “Consumer spending will be social in the future.”
That future is already taking hold. Two years after launch, Snackpass is on 11 college campuses across the U.S., often boasting a 75% penetration rate amongst students within six months. It takes a cut of every order and keeps margins high because users pick up the food themselves rather than waiting for delivery. While other food ordering startups battle to offer discounts as marauding users deal-hop between apps, Snackpass keeps users coming back through its loyalty program.
Its momentum, retention and opportunity to expand from colleges to dense cities has now won Snackpass a $21 million Series A led by Andreessen Horowitz partner Andrew Chen. The round was joined by other heavy hitters, like Y Combinator, General Catalyst, Inspired Capital and First Round, plus angels, including musician Nas, NFL star Larry Fitzgerald and legendary talent agent Michael Ovitz. Building on Snackpass’ $2.7 million seed, the cash will go toward hiring up with the goal of reaching 100 campuses in two years.
“Takeout is an important market because it’s huge — also in the hundreds of billions — and fragmented,” writes Chen. “The opportunity complements the food delivery market in a big way: For the average restaurant, there are 6 takeout orders for every delivery order!”
“Its own language”
Like many of the best startup ideas, Snackpass was born out of the founders’ own needs at Yale. Slow and expensive food delivery services didn’t make sense for smaller orders like a coffee, ice cream or a pepperoni slice on campuses small enough for customers to walk or bike to the restaurant. Tan says, “I was dabbling in several side projects, including helping a friend who managed a local pizza shop build a website to help better reach the local student community.” He realized how tough it was for restaurants around colleges to retain and reward customers, especially as regulars graduated.
Tan joined up with neuroscience student and Thiel Fellow Jamie Marshall, who became Snackpass’ COO. “I had grown up calling in every order,” Marshall tells me. “Waiting in line didn’t make sense for me. I used every order-ahead platform and thought this was the future.” Jonathan Cameron, a serial entrepreneur who’d built his own order-ahead app called Happy Hour, rounded out the founding team.
Snackpass founders (from left): Jamie Marshall and Kevin Tan
Snackpass offers users a list of nearby restaurants from which they can order ahead, with special tags for ones offering deals. Menu items include counts of how many people have ordered them and how many rewards points you’ll earn buying them. You pay in the app, skip the line at the restaurant and grab your order from the counter. Each restaurant can configure their own rewards system with how much items earn and cost, such as giving you a free coffee for every 10 you buy.
Users can then spend their points to get themselves free menu items, or send a virtual Snackpass gift card to any of their phone contacts or people they find via search. This gives Snackpass a way to grow virally that most food apps lack. Thankfully, you can block people on Snackpass if they get creepy showering you with gifts.
Each purchase and gift on Snackpass shows up in its social feed unless you make it private. “That’s become its own language. People use it to flirt with each other, or bond and connect with someone new,” Tan tells me. “There’s some drama or intrigue there seeing who’s sending gifts to who. People even look at the feed in the way they look at someone’s Instagram to see what’s going on with them.”
Snackpass has also done some integration work specifically for the college market that sets it apart from other order-ahead and delivery services. It can sync with students’ campus meal plans so they can spend them through the app. And student groups from clubs to fraternities can pre-load and replenish accounts for their members. Snackpass works with the same organizations to launch on new campuses. “We host parties, sponsor tailgates and make it feel like a student-led effort so it grows organically across campus communities,” Tan explains. “These efforts, combined with the social feed which would give anyone FOMO if they’re not in the app.”
Network effect commerce
With all the competition in the space, restaurants can be inundated with apps to manage, some of which just exacerbate spikes in demand that overwhelm kitchens. “There is certainly a risk that local restaurants will start to get platform fatigue, finding that using some apps will take too big of a bite out of their margins,” says Tan. That’s why Snackpass built features that let restaurants batch orders and control how many come in at a certain time so dine-in patients and non-app users aren’t stuck with unreasonable delays.
Snackpass has recruited talent from Uber Eats and an advisor from Yelp’s executive team to help it navigate the tricky SMB sales process. One ace up its sleeve is that it can offer to send push notifications to announce recently signed partners or specials they’re launching, driving the new customers restaurants are desperate for. Tan says his startup is considering if it could charge for this kind of promotion down the line. Most customers who walk into restaurants are effectively in incognito mode, but Snackpass provides its partners with analytics to help them improve their own businesses.
“At the surface level there is a lot of competition in this space,” Tan admits. “The social aspect of the app has been the key differentiator for us. Other companies have been focused on creating the fastest, cheapest, most efficient delivery service, but it’s really hard to make those margins work and consumers are trained to shop around on different apps to get the best deal or fastest delivery time . . . Eating food is supposed to be fun and social, and our generation grew up online and in social networks. We’re combining the social aspect of eating with the utility of order ahead, which has helped us build loyalty and enable retention amongst our users.”
It will still be a battle to overtake long-running competitors like Allset, Level Up and Ritual, plus incumbents that offer takeout pickup like Uber and Grubhub. Logistics is a cut-throat business, and plenty of startups have already failed in the restaurant loyalty space.
Having Andreessen Horowitz’s support could give Snackpass some extra firepower. “A16z has better support and services for their portfolio companies than any other VC we’ve come across and they’ve delivered,” Tan tells me. “We knew that Andrew Chen understands growth and marketplaces from his blog and his Twitter.” That’s critical in a crowded space where such a precise balance of customer acquisition and lifetime value is necessary.
Snapchat, TikTok and Fortnite have all tapped into the youth market with a lighthearted nature that keeps users coming back until they develop network effect. Snackpass is managing to do the same, not with a messaging app or game, but a commerce platform. “We play up creativity, silliness and delight in areas where most companies focus on utility and convenience,” Tan concludes. “We built Snackpass for ourselves and our friends. We’ve carried on this philosophy: if something makes us laugh, we put it in the app.”
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Omni storage & rentals fails, shutters, sells engineers to Coinbase
$35 million-funded Omni is packing up and shutting down after struggling to make the economics of equipment rentals and physical on-demand storage work out. It’s another victim of a venture capital-subsidized business offering a convenient service at an unsustainable price.
The startup fought for a second wind after selling off its physical storage operations to competitor Clutter in May. Then sources tell me it tried to build a whitelabel software platform for letting brick-and-mortar merchants rent stuff like drills or tents as well as sell them so Omni could get out of hands-on logistics. But now the whole company is folding, with Coinbase hiring roughly 10 of Omni’s engineers.
“They realized that the core business was just challenging as architected” a source close to Omni tells TechCrunch. “The service was really great for the consumer but when they looked at what it would take to scale, that would be difficult and expensive.” Another source says Omni’s peak headcount was around 70.
The news follows TechCrunch’s report in October that Omni had laid off operations teams members and was in talks to sell its engineering team to Coinbase. Omni had internally discussed informing its retail rental partners ahead of time that it would be shutting down. Meanwhile, it frantically worked to stop team members from contacting the press about the startup’s internal troubles.
“We’ll be winding down operations at Omni and closing the platform by the end of this year. We are proud of what we built and incredibl y thankful for everyone who supported our vision over the past five and a half years” an Omni spokesperson says. Omni CEO Tom McLeod did not respond to multiple requests for comment. Oddly, Omni was still allowing renters to pay for items as of this morning, though it’s already shut down its blog and hasn’t made a public announcement about its shut down.
“Coinbase has reached an agreement with Omni to hire members of its engineering team. We’re always looking for top-tier engineering talent and look forward to welcoming these new team members to Coinbase” a Coinbase spokesperson tells us. The team was looking for more highly skilled engineers they could efficiently hire as a group, though it’s too early to say what they’ll be working on.
Omni originaly launched in 2015, offering to send a van to your house to pick up and index any of your possession, drive them to a nearby warehouse, store them, and bring them back to you whenever you needed for just a few dollars per month. It seemed too good to be true and ended up being just that.
Eventually Omni pivoted towards letting you rent out what you were storing so you and it could earn some extra cash in 2017. Sensing a better business model there, it sold its storage business to Softbank-funded Clutter and moved to helping retail stores run rental programs. But that simply required too big of a shift in behavior for merchants and users, while also relying on slim margins.
One major question is whether investors will get any cash back. Omni raised $25 million from cryptocurrency company Ripple in early 2018. Major investors include Flybridge, Highland, Allen & Company, and Founders Fund, plus a slew of angels.
The implosion of Omni comes as investors are re-examining business fundamentals of startups in the wake of Uber’s valuation getting cut in half in the public markets and the chaos at WeWork ahead of its planned IPO. VCs and their LPs want growth, but not at the cost of burning endless sums of money to subsidize prices just to lure customers to a platform.
It’s one thing if the value of the service is so high that people will stick with a startup as prices rise to sustainable levels, as many have with ride hailing. But for Omni, ballooning storage prices pissed off users as on-demand became less afforable than a traditional storage unit. Rentals were a hassle, especially considering users had to pick-up and return items themselves when they could just buy the items and get instant delivery from Amazon.
Startups that need a ton of cash for operations and marketing but don’t have a clear path to ultra-high lifetime value they can earn from customers may find their streams of capital running dry.
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Prosus Ventures leads $40M investment in Indian logistics startup ElasticRun
Millions of neighborhood stores that dot large and small cities, towns and villages in India and have proven tough to beat for e-commerce giants and super-chain retailers are at the center of a new play in the country. A score of e-commerce companies, offline retail chains and fintech startups are now racing to work with these mom and pop stores as they look to tap a massive untapped opportunity.
A Pune-based startup with an idea to build a logistics network using these kirana stores said today it has won the backing of a major international investor. Three-and-a-half-year-old ElasticRun said it has raised $40 million in a Series C financing round led by Prosus Ventures (formerly Naspers Ventures). Existing investors Avataar Ventures and Kalaari Capital also participated in the round.
The startup has raised $55.5 million to date, Sandeep Deshmukh, co-founder and CEO of ElasticRun, told TechCrunch in an interview.
Most of these kirana stores each day go through hours of down time — when the footfall is low and the business is slow. ElasticRun works with hundreds of thousands of these stores across 200 Indian cities to have them deliver goods to other kirana stores and consumers.
Supplying goods to these stores are FMCG (fast moving consumer goods) brands that are trying to reach the last mile in the nation. Nearly every top FMCG brand in the country today is a partner of ElasticRun, said Deshmukh.
Deshmukh, co-founder and CEO of ElasticRun, talking about the startup’s business at a recent conference
It’s a win-win scenario for every stakeholder, Deshmukh said. Stores are getting access to more goods than ever, and also getting the opportunity to increase their business in slow hours. And for brands and e-commerce companies, access to such a wide-reaching delivery pool has never been easier, he said.
Deshmukh, who previously worked at Amazon and helped the e-commerce company build its transportation network in India, said he and his other co-founders built ElasticRun because traditional logistics networks are beginning to show cracks.
India’s trucking system, for instance, has long been a laggard in India’s economy. A World Bank report five years ago noted that lorries in India spend about 60% of their time sitting idle.
Because there is a digital log of each transaction, Deshmukh said the startup has a good idea about the financial capacity of these kirana stores. This has enabled it to connect them with relevant financial partners to access working capital, he said.
Deshmukh said the startup will use the fresh capital to on-board more neighborhood stores and deepen its penetration in the country. ElasticRun is also working on new products to expand its offerings for brands and kirana stores and improving its analytics and machine learning algorithms to tackle larger scale.
“By working with the network of small stores across the country, we solve that problem while helping the store owners grow their businesses at the same time. In addition, offering a flexible logistics extension to consumer goods companies to directly reach these small retail shops is a huge advantage over traditional distribution networks,” he said.
In a statement, Ashutosh Sharma, head of Investments for India, Prosus Ventures, said, “ElasticRun is one of those rare businesses that identified a massive need in the market, matched it with a local solution paired with technology, for the benefit of all parties involved. Consumers get faster deliveries and greater choice of goods, store owners realize increased revenues and touchpoints with their customers, and consumer goods companies get better access and insight into their target audiences.”
Update: At an event organised by Prosus Ventures this evening, Deshmukh said while ElasticRun is focused on building solutions, in the future he may consider expanding to some Southeast Asian markets that are facing similar challenges.
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Polte raises $12.5 million to track devices using LTE signal
Polte has raised another $12.5 million. The company is building a service that leverages 4G (and potentially 5G) signal to track things for commercial and industrial use cases. The main advantage is that using cellular signal uses a lot less battery than acquiring GPS location and transmitting it over cellular.
Today’s funding round is an extension of the company’s Series A round. In 2017, Polte raised $6 million — and the company is raising another $12.5 million this year. Polte isn’t disclosing the list of investors. The startup participated in TechCrunch’s Startup Battlefield.
There are many potential use cases for Polte, but most of them involve tracking stuff on the move with as little battery as possible. You could use it for your supply chain, if you’re running a logistics or transportation company, in the energy or automotive industry, etc.
If you want to use an IoT device to track a package over multiple weeks, it can be a costly effort as you need to determine the location of the package using GPS and transmit the location of the package over the air. While GPS is insanely accurate, it also requires a ton of battery just to position a device on a map.
That’s why some devices rely on Wi-Fi signal to triangulate a position with a database of Wi-Fi access points. But that’s not as accurate, especially in the countryside.
Polte turns data from the cell modem into location information. It works with existing modems; Polte is a software solution. None of the computing is done on the device itself. Polte-enabled devices transmit 300 bytes of data back to Polte’s servers so the company can determine the location a few seconds later.
This way, you can use cheaper IoT devices to track packages. And if you’re running a company that wants to track thousands or millions of items, that could help you save a ton of money over the long run.
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Get guaranteed rent for your home from new startup Doorstead
Missing out on a month’s rent because you can’t find a tenant is a huge loss. Searching for someone to fill a home takes work, while property managers are incentivized to price your place too high, leading to costly vacancies.
But new startup Doorstead wants to take on the risk and the work for you. It acts as a property manager for single-family homes, but guarantees you rent at a specific rate starting in a certain number of days, even if it can’t fill the house or apartment. It also handles all the algorithmic pricing, advertising, tenant interviews, repairs, maintenance, leases and online payments in exchange for 8% of rent. Owners just sit back and receive the money, making it much easier to profit off of distant real estate. The startup claims to earn users 3% to 9% more than other property management models.
Doorstead’s approach to the hot sector of “iRenting” has attracted a $3.3 million seed round co-led by M13 and Silicon Valley Data Capital, and joined by Venture Reality Fund and SOMA Capital. They’re betting on co-founders Jennifer Bronzo, whose parents ran a construction and property management firm, and Ryan Waliany, who worked in product at Uber after his recipe platform Kitchenbowl was acqui-hired.
Doorstead co-founders (from left): Jennifer Bronzo and Ryan Waliany
“I grew up going to job sites and learning about construction,” Bronzo says. “In the recent decade, my family purchased a lot of properties in the Bay and they needed help filling capacity. I saw so many opportunities in property management because of how antiquated the industry is.” Doorstead is now operating in five cities around the San Francisco Bay Area.
As consumers grow accustomed to zero-friction services, that approach is branching into bigger and bigger sectors like the trillions paid for long-term rentals. Waliany, Doorstead’s CEO, tells me, “We’re in the process of Uber’izing each step of the property management life cycle.” The startup is hoping to become the OpenDoor of rentals.
How Doorstead works
First, property owners contact Doorstead and provide some basic information on the home they want to rent out. They receive a preliminary offer before the startup does an inspection and takes professional marketing photos while digging through reams of data on local pricing, availability and demand to pick a rate its algorithm believes it can fill the home for quickly. Owners then receive a final offer agreement saying they’ll be paid $X per month starting in Y number of days (typically 21 to 45 days), with Doorstead absorbing all the risk if it can’t find a tenant.
From there, the startup does approved maintenance and cleaning as necessary, and then methodically lists the home on all the top rental platforms. It handles open house walk-throughs and runs background checks on potential tenants to find who will most reliably pay rent. Doorstead prepares a lease and gets it signed by a tenant, but even if it doesn’t, owners still get their guaranteed payments. Rent is collected online, and if a move-out or eviction is necessary, Doorstead takes care of the transition to finding a new tenant.
There’s plenty of margin for Doorstead to earn if it can consistently fill homes faster. Most property managers charge at least 50% of the first month’s rent, but instead, Doorstead keeps all the rent of any extra days if it fills the spot before the guaranteed due date. From there, it charges 8% of monthly rent with no tenant placement fee, which is close to or under the common 10% fee on single-family home property management. And if it manages to secure a higher rate from tenants than its guarantee, it gives 70% to the owner.
Doorstead claims to be less risky than alternatives
“Property management incumbents have a 43-day vacancy average which leads to $86 billion in economic waste in the U.S. alone,” Waliany tells TechCrunch. “This means that landlords could earn the same money and lower rents by 12% for tenants with an efficient market.”
The rise of iRenting
With Doorstead, even if the owner lives far away, the turn-key service lets them efficiently rent their home. That’s not only important to them, but to overcrowded cities like San Francisco that often see apartments left vacant by overseas owners because they’re too much effort to rent out. To date, Doorstead’s algorithm has allowed it to recoup 100% of its guarantees and it’s shooting to stay above 90%, while maintaining its NPS of 80.
But if the startup is working that well, it’s only a matter of time until incumbents try to barge in.
“It would be a no brainer for Airbnb to enter this market and Zillow to open this,” Waliany admits, given their existing pricing algorithms and popularity as rental destinations. But Bronzo says “the biggest barrier is the operations piece that an Airbnb and Zillow haven’t stepped into.” It would be a big departure from their lean software-based marketplaces. Other property management startups like Mynd, OneRent and BelongHome only offer guaranteed rent once tenants are found, absolving themselves of most of the risk. They’d have to take on a more precarious business model.
What about Zeus, Sonder and Lyric, which offer property management of homes they then use for corporate housing or as boutique hotels? “An owner of ours considered Zeus versus Doorstead and went with Doorstead because: 1) our offer was ~12% higher, and 2) they didn’t want the wear-and-tear that comes with having people move in and out of the property every few days or few months,” Waliany explains. “Sonder and Lyric have 300 move-in and move-outs over a six-year period. Doorstead has ~4 move ins/outs and that results in significantly less wear-and-tear and a much easier operations to manage. Not only that, the long-term rental market is 42x larger and has 12x more addressable revenue.” Doorstead will have to build a brand and product moat to defend against inevitable direct competition.
As iRenting is still a fresh concept, Waliany warns that “with any new business model, there will inevitably be ‘unknown unknowns’ that we cannot predict, black swan events and things that we might only be able to learn through calculated bets.” Luckily, because it doesn’t hold the leases for very long, and home rentals typically increase in an economic downturn, Doorstead’s liability is manageable in the event of a recession or other crisis.
“There are three large trillion-dollar industries — food, transportation and housing. At Doorstead, we have an opportunity to completely redefine the housing value chain by creating a new class of property management that eliminates unnecessary vacancies. In the end, this redefinition of the value chain allows ourselves to become the Blackstone of the future,” Waliany concludes. “It seems like we’re giving everyone free money.” That will prove either the startup’s downfall or a powerful growth tactic.
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We’ll have self-flying cars before self-driving cars, Thrun says
Once you get up high enough, you don’t have to worry about a lot of the obstacles like pedestrians and traffic jams that plague autonomous cars. That’s why Sebastian Thrun, Google’s self-driving team founder turned CEO of flying vehicle startup Kitty Hawk, said onstage at TechCrunch Disrupt SF today that we should expect true autonomy to succeed in the air before the road.
“I believe we’re going to be done with self-flying vehicles before we’re done with self-driving cars,” Thrun told TechCrunch reporter Kirsten Korosec.
Why? “If you go a bit higher in the air then all the difficulties with not hitting stuff like children and bicycles and cars and so on just vanishes . . . Go above the buildings, go above the trees, like go where the helicopters are!” Thrun explained, but noted personal helicopters are so noisy they’re being banned in some places like Napa, Calif.
That proclamation has wide-reaching implications for how cities are planned and real estate is bought. We may need more vertical take-off helipads sooner than we needed autonomous car-only road lanes. More remote homes in the forest that have only a single winding road that reaches them like those in Big Sur, Calif. might suddenly become more accessible and thereby appealing to the affluent because they could just take a self-flying car to the city or office.
The concept could also have wide-reaching implications for the startup industry. Obviously Thrun’s own company, Kitty Hawk, would benefit from not being too early to market. Kitty Hawk announced its Heaviside vehicle today that’s designed to be ultra quiet. If the prophecy comes true, Uber, which is investing in vertical take-off vehicles, could also be in a better position than Lyft and other ride-hailing players focused on cars.
To make sure its vehicles don’t get banned and potentially pave the way for more aerial autonomy, Kitty Hawk recently recruited former FAA Administrator Mike Huerta as an advisor.
Eventually, Thrun says that because cars have to navigate indirect streets but in the air “we can go in a straight line, we believe we will be roughly a third of the energy cost per mile as Tesla.” And with shared UberPool-style flights, he sees the cost of energy getting down to just “$0.30 per mile.”
But in the meantime, Thrun is trying to get people, including me, to stop saying flying cars. “I personally don’t like the word ‘flying car,’ but it’s very catchy. The technical term is called eVTOL. These are typically electrically propelled vehicles, they can take off and land vertically, eVTOLs, vertical take-off landing, so that you don’t need an airport. And then they fly very much like a regular plane.” We’ll see if that mouthful catches on, and if the skies get more congested before the roads thin out.
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