Market Analysis

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CRV’s Saar Gur wants to invest in a new wave of games built for VR, Twitch and Zoom

Saar Gur is adept at identifying the next big consumer trends earlier than most: The San Francisco-based general partner at CRV has led investments into leading consumer internet companies like Niantic, DoorDash, Bird, Dropbox, Patreon, Kapwing and ClassPass.

His own experience stuck at home during the COVID-19 pandemic spurred his interest in three new investment themes focused on the next generation of games: those built for VR, those built on top of Twitch and those built for video chat environments as a socializing tool.

TechCrunch: We’ve been in a “VR winter,” as it’s been called in the industry, following the 2014-2017 wave of VC funding into VR drying up as the market failed to gain massive consumer adoption. You think VR could soon be hot again. Why?

Saar Gur: If you track revenues of third-party games on Oculus, the numbers are getting interesting. And we think the Quest is not quite the Xbox moment for Facebook, but the device and market response to the Quest have been great. So we are more engaged in looking at VR gaming startups than ever before.

What do you mean by “the Xbox moment,” and what will that look like for VR? Facebook hasn’t been able to keep up with demand for Oculus Quest headsets, and most VR headsets seem to have sold out during this pandemic as people seek entertainment at home. This seems like progress. When will we cross the threshold?

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SaaS stocks defy gravity amid pandemic, record job losses

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

This week shares of SaaS and cloud companies reached new record highs as investors bid their equities higher following an earnings cycle that came in better than some expected.

SaaS stocks, as measured by the Bessemer-Nasdaq cloud index, closed at a 1,484.93 yesterday, a record, and just a hair under its intraday high of 1,491.59.

The raw numbers matter less than the index’s movement. From highs of around 1,400 in March, the index dropped to 892.60 during the early-year market selloff. Since then, SaaS and cloud companies have come roaring back. This is reflected in the new, higher valuation multiple that the companies are priced at by investors today, namley an enterprise value/revenue multiple of 14.7x.

So let’s take a look at why the SaaS cohort is the apple of Wall Street’s eye. There isn’t a single reason, but we have two that are worth considering. (Also up ahead: Notes on a chat with Alteryx’s CEO and a working definition of socialism. It’s Friday, let’s have some fun.)

A reminder

Briefly, we observe movements in the value of public SaaS and cloud stocks because they inform private market investors about possible exit values for startups. This helps VCs price venture rounds. So, in a somewhat slow mechanism, public values of a stocks help price startups. Given the portion of venture capital dollars and the amount of startup effort that goes into the SaaS space (AI companies are often built using SaaS models, lots of consumer apps are SaaS, and business software is lucrative), we care a lot about the value of SaaS and cloud stocks.

So is the run-up in SaaS stocks, therefore, good for startups? Yep. Now let’s get into why clouds shares are going up.

A meditation of the morality on capitalism

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Health APIs usher in the patient revolution we have been waiting for

Rish Joshi
Contributor

Rish is an entrepreneur and investor. Previously, he was a VC at Gradient Ventures (Google’s AI fund), co-founded a fintech startup building an analytics platform for SEC filings and worked on deep-learning research as a graduate student in computer science at MIT.

If you’ve ever been stuck using a health provider’s clunky online patient portal or had to make multiple calls to transfer medical records, you know how difficult it is to access your health data.

In an era when control over personal data is more important than ever before, the healthcare industry has notably lagged behind — but that’s about to change. This past month, the U.S. Department of Health and Human Services (HHS) published two final rules around patient data access and interoperability that will require providers and payers to create APIs that can be used by third-party applications to let patients access their health data.

This means you will soon have consumer apps that will plug into your clinic’s health records and make them viewable to you on your smartphone.

Critics of the new rulings have voiced privacy concerns over patient health data leaving internal electronic health record (EHR) systems and being surfaced to the front lines of smartphone apps. Vendors such as Epic and many health providers have publicly opposed the HHS rulings, while others, such as Cerner, have been supportive.

While that debate has been heated, the new HHS rulings represent a final decision that follows initial rules proposed a year ago. It’s a multi-year win for advocates of greater data access and control by patients.

The scope of what this could lead to — more control over your health records, and apps on top of it — is immense. Apple has been making progress with its Health Records app for some time now, and other technology companies, including Microsoft and Amazon, have undertaken healthcare initiatives with both new apps and cloud services.

It’s not just big tech that is getting in on the action: startups are emerging as well, such as Commure and Particle Health, which help developers work with patient health data. The unlocking of patient health data could be as influential as the unlocking of banking data by Plaid, which powered the growth of multiple fintech startups, including Robinhood, Venmo and Betterment.

What’s clear is that the HHS rulings are here to stay. In fact, many of the provisions require providers and payers to provide partial data access within the next 6-12 months. With this new market opening up, though, it’s time for more health entrepreneurs to take a deeper look at what patient data may offer in terms of clinical and consumer innovation.

The incredible complexity of today’s patient data systems

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How will digital media survive the ad crash?

When I first met Bustle Digital Group’s Jason Wagenheim, it was right as New York City was beginning to go into lockdown. The BDG offices were empty thanks to the company’s newly instituted work-from-home policy, but it still seemed reasonable to meet in-person to learn more about BDG’s broader vision.

At the time, Wagenheim — a former Fusion and Condé Nast executive who joined BDG as chief revenue officer before becoming president in February — acknowledged that we were entering a period of uncertainty, but he sounded a note of cautious optimism for the year ahead.

Since then, of course, things have been pretty rough for the digital media industry (along with the rest of the world), with a rapid reduction in ad spending leading to layoffs, furloughs and pay cuts. BDG (which owns properties like Elite Daily, Input, Inverse, Nylon and Bustle itself) had to make its share of cuts, laying off two dozen employees, including the entire staff of The Outline.

And indeed, when I checked back in with Wagenheim, he told me that he’s anticipating a 35% decline in ad revenue for this quarter. And where he’d once hoped BDG would reach $120 or $125 million in ad revenue this year, he’s now trying to figure out “what does our company look like at $75 or $90 million?”

At the same time, he insisted that executives were determined not to completely dismantle the businesses they’d built, and to be prepared whenever advertising does come back.

We also discussed how Wagenheim handled the layoffs, how the company is reinventing its events sponsorship business and the trends he’s seeing in the ad spending that remains. You can read an edited and condensed version of our conversation below.

TechCrunch: We should probably just start with the elephant in the room, which is that you guys had to make some cuts recently. You were hardly the only ones, but do you want to talk about the thought process behind them?

Jason Wagenheim: Yeah, we ended up having to say goodbye to about 7% of our team, and we had salary reductions to the tune of 18% company-wide for those that made over $70,000. And then we had 30% pay cuts for executives.

You’ve read about all this, I’m sure. It was a really, really hard decision. We spent two weeks in planning, dozens of spreadsheets, negotiating with our investors on a plan that would keep the company moving forward, but [had to] be very sober to the reality of what was happening around us. But also most importantly for us, for our executive team, we weren’t about to disassemble the company that we spent the last 12 to 18 months building.

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Enterprise companies find MLOps critical for reliability and performance

Rish Joshi
Contributor

Rish is an entrepreneur and investor. Previously, he was a VC at Gradient Ventures (Google’s AI fund), co-founded a fintech startup building an analytics platform for SEC filings and worked on deep-learning research as a graduate student in computer science at MIT.

Enterprise startups UIPath and Scale have drawn huge attention in recent years from companies looking to automate workflows, from RPA (robotic process automation) to data labeling.

What’s been overlooked in the wake of such workflow-specific tools has been the base class of products that enterprises are using to build the core of their machine learning (ML) workflows, and the shift in focus toward automating the deployment and governance aspects of the ML workflow.

That’s where MLOps comes in, and its popularity has been fueled by the rise of core ML workflow platforms such as Boston-based DataRobot. The company has raised more than $430 million and reached a $1 billion valuation this past fall serving this very need for enterprise customers. DataRobot’s vision has been simple: enabling a range of users within enterprises, from business and IT users to data scientists, to gather data and build, test and deploy ML models quickly.

Founded in 2012, the company has quietly amassed a customer base that boasts more than a third of the Fortune 50, with triple-digit yearly growth since 2015. DataRobot’s top four industries include finance, retail, healthcare and insurance; its customers have deployed over 1.7 billion models through DataRobot’s platform. The company is not alone, with competitors like H20.ai, which raised a $72.5 million Series D led by Goldman Sachs last August, offering a similar platform.

Why the excitement? As artificial intelligence pushed into the enterprise, the first step was to go from data to a working ML model, which started with data scientists doing this manually, but today is increasingly automated and has become known as “auto ML.” An auto-ML platform like DataRobot’s can let an enterprise user quickly auto-select features based on their data and auto-generate a number of models to see which ones work best.

As auto ML became more popular, improving the deployment phase of the ML workflow has become critical for reliability and performance — and so enters MLOps. It’s quite similar to the way that DevOps has improved the deployment of source code for applications. Companies such as DataRobot and H20.ai, along with other startups and the major cloud providers, are intensifying their efforts on providing MLOps solutions for customers.

We sat down with DataRobot’s team to understand how their platform has been helping enterprises build auto-ML workflows, what MLOps is all about and what’s been driving customers to adopt MLOps practices now.

The rise of MLOps

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More debt, improving margins: How startups are retooling in the COVID-19 era

A new data set from Silicon Valley Bank (SVB) details how startups are reacting to the post-unicorn era as COVID-19-related disruptions upset the global economy and remake the risk tolerance of private investors.

What SVB’s new report shows is unsurprising: venture capital deal volumes are falling, startups are tapping existing debt capacities to add cash to balances while they still can and some upstart firms are curtailing spend to reduce unprofitability. The last data point comes via the lens of startups that recently raised, making the data more a snapshot of what companies that are successfully attracting capital may have accomplished with regard to improving profitability — the directional shifts are material regardless of that particular nuance.

Let’s briefly examine what the data says and what it tells us about the state of the startup market.

Spending less, borrowing more

Venture capitalists are pulling back, SVB data indicates. A chart from its Q2 markets report notes that the “SVB Deal Activity Index” had fallen from a rating of 160 in early March to just over 70 by mid-to-late-April. That staggering decline means fewer rounds are getting done and that there is less capital going into startups of all sizes.

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The future of deep-reinforcement learning, our contemporary AI superhero

Rish Joshi
Contributor

Rish is an entrepreneur and investor. Previously, he was a VC at Gradient Ventures (Google’s AI fund), co-founded a fintech startup building an analytics platform for SEC filings and worked on deep-learning research as a graduate student in computer science at MIT.

It was not long ago that the world watched World Chess Champion Garry Kasparov lose a decisive match against a supercomputer. IBM’s Deep Blue embodied the state of the art in the late 1990s, when a machine defeating a world (human) champion at a complex game such as chess was still unheard of.

Fast-forward to today, and not only have supercomputers greatly surpassed Deep Blue in chess, they have managed to achieve superhuman performance in a string of other games, often much more complex than chess, ranging from Go to Dota to classic Atari titles.

Many of these games have been mastered just in the last five years, pointing to a pace of innovation much quicker than the two decades prior. Recently, Google released work on Agent57, which for the first time showcased superior performance over existing benchmarks across all 57 Atari 2600 games.

The class of AI algorithms underlying these feats — deep-reinforcement learning — has demonstrated the ability to learn at very high levels in constrained domains, such as the ones offered by games.

The exploits in gaming have provided valuable insights (for the research community) into what deep-reinforcement learning can and cannot do. Running these algorithms has required gargantuan compute power as well as fine-tuning of the neural networks involved in order to achieve the performance we’ve seen.

Researchers are pursuing new approaches such as multi-environment training and the use of language modeling to help enable learning across multiple domains, but there remains an open question of whether deep-reinforcement learning takes us closer to the mother lode — artificial general intelligence (AGI) — in any extensible way.

While the talk of AGI can get quite philosophical quickly, deep-reinforcement learning has already shown great performance in constrained environments, which has spurred its use in areas like robotics and healthcare, where problems often come with defined spaces and rules where the techniques can be effectively applied.

In robotics, it has shown promising results in using simulation environments to train robots for the real world. It has performed well in training real-world robots to perform tasks such as picking and how to walk. It’s being applied to a number of use cases in healthcare, such as personalized medicine, chronic care management, drug discovery and resource scheduling and allocation. Other areas that are seeing applications have included natural language processing, computer vision, algorithmic optimization and finance.

The research community is still early in fully understanding the potential of deep-reinforcement learning, but if we are to go by how well it has done in playing games in recent years, it’s likely we’ll be seeing even more interesting breakthroughs in other areas shortly.

So what is deep-reinforcement learning?

If you’ve ever navigated a corn maze, your brain at an abstract level has been using reinforcement learning to help you figure out the lay of the land by trial and error, ultimately leading you to find a way out.

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All product creators can learn something from Jackbox Games’ user experiences

Jason Shen
Contributor

Jason Shen is a three-time startup founder and the CEO of Midgame, a gaming technology company backed by Techstars and Betaworks.

During this period of shelter-in-place, people have had to seek out new forms of entertainment and social interaction. Many have turned to a niche party series made by a company best known for an irreverent trivia game in the ’90s called “You Don’t Know Jack.”

Since 2014, the annual release of the Jackbox Party Pack has delivered 4-5 casual party games that run on desktop, mobile and consoles that can be played in groups as small as two and as large as 10. In a clever twist, players use smartphones as controllers, which is perfect for typing in prompts, selecting options, making drawings, etc.

The games are tons of fun and perfect for playing with friends over video conference, and their popularity has skyrocketed, as indicated by Google Trends. I polled my own Twitter following and found that nearly half of folks had played in the last month, though a full third hadn’t heard of Jackbox at all.

Have you played Jackbox Games in the last month?

— Jason Shen (@JasonShen) April 9, 2020

How do these games work?

There are more than 20 unique games across Jackbox Party Packs 1-6, too many to explain — but here are three of the most popular:

  • Fibbage: A twist on the traditional trivia game, players are asked to invent an answer to a question of obscure knowledge (e.g. “a Swedish man who works as a dishwasher receives disability benefits due to his unusual addiction to ____.”) Then all the invented answers are mixed in with the truth and players must select the real answer while avoiding fakes. You earn points for guessing correctly and for tricking other players (the answer is “heavy metal”).

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Why COVID-19 could delay Interswitch, Africa’s next big IPO

The economic effects of COVID-19 could delay Africa’s next big IPO — that of Nigerian fintech unicorn Interswitch.

If so, it wouldn’t be the first time the Lagos-based payments company’s plans for going public were postponed; the tech world has been anticipating Interswitch’s stock market debut since 2016.

For the continent’s innovation ecosystem, there’s a lot riding on the digital finance company’s IPO. After e-commerce venture Jumia, it would become only the second listing of a VC-backed African tech company on a major exchange. And Interswitch’s stock market debut — when it occurs — could bring more investor attention and less controversy to the region’s startup scene.

What is Interswitch?

TechCrunch reached out to Interswitch on the window for listing, but the company declined to comment. The tech firm’s path from startup to IPO aspirant traces back to the vision of founder Mitchell Elegbe, a Nigerian electrical engineering graduate whose entire career has pretty much been Interswitch.

Africa’s tech scene is still fairly young, but it does have a timeline with several definitive points. An early one would be the success of mobile money in East Africa, with the launch of Safaricom’s M-Pesa in 2007. Another is the notable wave of VC-backed startups and founders that launched around 2010.

Interswitch CEO Mitchell Elegbe (Photo Credits: Interswitch)

With Interswtich, Elegbe pre-dated both by a number of years, founding his fintech company back in 2002 to connect Nigeria’s largely disconnected banking system. The firm became a pioneer of the infrastructure to digitize Nigeria’s economy.

Interswitch created the first electronic switch whereby Nigerian financial institutions could communicate and thereby operate ATMs and point of sales operations. The company now provides much of the rails for Nigeria’s online banking system.

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A turbulent stock market is a boon to investing-focused fintech startups

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

A few weeks back we dug into the boom that savings and investing apps and services were enjoying. Companies like Acorns, M1 Finance, Robinhood and others were seeing rapid growth in their assets under management (AUM) and downloads. New data out today underscores how well finance apps are faring in the new, chaotic COVID-19 era.

You can run a simple test on yourself in this case. Since, say, January of this year, have you paid more or less attention to your banking and investing related apps and, more broadly, your financial life? Perhaps you are trying to put a bit more away? Or make sure your 401k isn’t invested in something silly?

If so, you are far from alone. To detail just how much more activity this slice of the startup world is enjoying, this morning we’re taking another look at the growth that this slice of the fintech world is undergoing. We’ll lean on some new data from a mobile app analytics provider (AppAnnie) and a report from a brokerage-infra startup (DriveWealth) to get a clearer picture of where investing and savings apps are growing and just how well they are performing.

Investing in a downturn

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