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Without desks and a demo day, are accelerators worth it?
As a result of the pandemic, accelerators have moved operations fully remote to abide by social distancing. The shift has forced well-known programs like 500 Startups, Y Combinator and Techstars to go fully online, while encouraging existing venture capital firms to launch new digital-only fellowships like Cleo Capital and NextView Ventures.
Before the pandemic, accelerators could advertise their value by lending desk space once used by Airbnb, Twilio and Brex’s co-founders, plus a glitzy demo day. Now, stripped of their in-person element, the actual value of an accelerator program — and the network they provide — is being tested in new ways.
So a question remains for participating founders: Are they getting the benefits of what they thought they signed up for?
In the Zoom where it happened
The last thing Michael Vega-Sanz wanted to do was was join another Zoom get-together for entrepreneurs. But the car-sharing company he co-founded with twin brother Matthew was in the middle of a pivot, so they joined NextView Ventures’ inaugural remote accelerator program.
“I envisioned an accelerator with awkward happy hours, mass Zoom calls,” Vega-Sanz said. Fast-forward one month into the program, he says it “has been quite the opposite.”
Before joining NextView’s accelerator, Vega-Sanz did an in-person incubator at Babson College in Boston, but there’s “a lot less fluff” in being virtual, he told TechCrunch.
“[With in-person] the reality was you’d go to lunch, and by the time you drove over there and had all your side talk, small talk, chit-chat and actually got into the nitty-gritty of the event, there was a lot of time loss,” he said. “You could have been working for your company during that time.”
If possible, Vega-Sanz still recommends that first-time founders attend a physical accelerator instead of a virtual one for the energy it brings, even with the downside of useless events.
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Why is SAP spinning Qualtrics out via an IPO?
Over the weekend, software giant SAP announced that it will take Qualtrics public, with the German software company retaining a majority stake in the Utah-based “experience management” firm after its forthcoming debut.
SAP paid $8 billion in cash for Qualtrics back in 2018, right before the smaller firm was set to go public. Chatting with the CEOs of both companies around the time of the deal, they were pretty pumped about the combination. Since then, SAP has swapped CEOs.
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At the time, the deal not only made waves within the business realm, it also helped put Utah’s startup scene on the map. (An $8 billion deal makes an impact.)
Current commentary on the spin-out idea seems to rotate on the idea of unlocking value: That if SAP can float a good chunk of Qualtrics’ shares, the market may give that equity a good price. Then, the value of Qualtrics that SAP will retain will gain implicit value, perhaps boosting the value of its own shares. Making the point, CNBC quoted analysts from Bernstein Research, which said it believes “many SAP investors do not fully understand Qualtrics,” and that the spin-out might “help at least as it relates to better understanding its value.”
What is Qualtrics worth? If we can understand that, we’ll know if the current commentary regarding the spin-out makes sense. So this morning, let’s remind ourselves how big Qualtrics was heading into its IPO, what it might have been worth, how much it has have grown since and what that might be worth at today’s super-high software valuations.
Did SAP overpay? Did it get a deal? Let’s find out what Qualtrics might look like in 2020.
2018
Before SAP stole it from the public markets, Qualtrics was looking for $18 to $21 per share on the public markets, valuing the company at around $3.9 billion to $4.5 billion. SAP had to pay up for Qualtrics stock, obviously, to get the deal done given how hot the Utah-based firm was at the time.
Qualtrics had growth and profits, two things that combine to create lots and lots of market value. Here are some key Qualtrics numbers from the time:
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VCs and startups consider HaaS model for consumer devices
I’ve been following consumer audio electronics company Nura with great interest for a few years now — the Melbourne-based startup was one of the first companies I met with after starting with TechCrunch. At the time, its first prototype was a big mess of circuits and wires — the sort of thing you could never imagine shrunk down into a reasonably sized consumer device.
Nura managed, of course. And the final product looked and sounded great; hell, even the box was nice. If I’m lucky, I see a consumer hardware product once or twice a year that seems reasonably capable of disrupting an industry, and Nura’s custom sound profiles fit that bill. But the company was unique for another reason. A graduate of the HAX accelerator, the startup announced NuraNow roughly this time last year.
Hardware as a service (HaaS) has been a popular concept in the IT/enterprise space for some time, but it’s still fairly uncommon in the consumer category. For one thing: A hardware subscription presents a new paradigm for thinking about purchases. That is a big lift in a country like the U.S., which spent years weaning consumers off contract-based smartphones.
That Nura jumped at the chance shouldn’t be a big surprise. Backers HAX/SOSV have been proponents of the model for some time now. I’ve visited their Shenzhen offices a few times, and the topic of HaaS always seems to come up.
In a recent email exchange, General Partner Duncan Turner described HaaS as “a great way to keep in contact with your customers and up-sell them on new features. Most importantly, for startups, recurring revenue is critical for scaling a business with venture capital (and will help appeal to a broad set of investors). HaaS often has a low churn (as easier to put onto long-term contracts).”
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Are insurtech startups undervalued?
On the heels of Hippo’s funding round and our exploration of how the private markets appear to be more conservative than public investors at the moment, we’re asking a new question: are a bunch of insurtech startups undervalued?
Hippo — an insurtech startup focused on home insurance — put together a $150 million round at a $1.5 billion post-money valuation after growing its gross written premium to $270 million “in the past 12 months.” At that valuation, and at pre-adjustment premium scale, Hippo is super-cheap compared to Lemonade, another venture-backed insurtech startup that just went public.
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There’s no need to relitigate Hippo’s valuation and how the private markets have valued the firm. But our work yesterday does give us the chance to do some fun math on other players in the neo-insurance space, namely, Root and MetroMile. Using data accrued from financial filings and valuation data from Pitchbook and Crunchbase, we can grok how much the two firms are worth using Hippo’s and Lemonade’s current premium multiples.
If you aren’t familiar, the cohort of startups we’re looking at have raised well over $1 billion as a group; VCs really believe in them. How they are priced then, and how they exit, will help determine the results of many a venture fund.
So, are other players in the startup insurance market cheap at their last private price when compared to Lemonade and Hippo? Did their venture backers overpay? Let’s find out.
Cheap? Expensive?
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Edtech startups flirt with unicorn-style growth
When Quizlet became a unicorn earlier this year, CEO Matthew Glotzbach said he’d prefer to distance the company from the common nomenclature for a startup valued at or above $1 billion.
“The way Quizlet has gotten to this point is by building and growing a very responsible business,” he said. “It’s the result of the hard work of the team for a decade. We’re much more like a camel.”
It’s clear, though, that the tides might be changing. In edtech, the rich are getting richer. Last week, Mountain View-based Coursera announced it had raised a $130 million Series F round a day after The Information broke a story about Udemy reportedly raising new financing at a $3 billion valuation.
For anyone who has been following my edtech coverage in recent few months, this momentum is hardly surprising. Earlier in the pandemic, MasterClass raised $100 million, Quizlet became a unicorn and Byju’s became India’s second-most-valuable startup.
While edtech’s boom is predictable, the industry is known — to the chagrin of founders and to the benefit of long-time investors — for being conservative. Today we’ll look to understand how a boost in late-stage funding may impact the market on a broader scale.
High-flying camels
Ian Chiu, an investor at Owl Ventures, tells TechCrunch that the rise of big rounds brings a “watershed moment” to the $6 trillion education market. Owl Ventures was founded in 2014 and is one of the biggest edtech-focused firms out there, but Chiu says the recent strong capital flow shows that the sector is finally emerging as a sector other investors are noticing.
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Tracking the growth of low-code, no-code startups
Startup buzz comes in waves, with a particular thesis or focus coming into vogue at certain times. Remember the short-lived boom in chat bots? That was good fun. And there was the ICO craze, which lead every startup you’ve heard of to consider the financing option for at least a weekend.
We’ve also endured the early-AI bubble, the blockchain rush and a cannabis-driven wave as well. Even subtheses can see spikes, such as the neobanking industry, say, or roboadvising. Hell, we saw minicrazes in insurtech marketplaces and OKR software this year alone.
Fads in startups are not new. Today, as venture investment tilts toward enterprise software, we’re in something of a SaaS craze. Inside of today’s SaaS surge, however, is a smaller trend that I want to explore more: no-code and low-code startups.
Largely, low-code and no-code refer to tools that allow nondevelopers to either employ little (low-code) to no code while either building logic inside of software, or full applications. Low/no-code development often features drag-and-drop interfaces (Techopedia, TechTarget), but not all low-code and no-code tools are used to build apps.
Defining the sector and its focus is difficult. PitchBook says low/no-code development platforms “expedite the creation of new applications with minimal coding requirements and offer tools for nonprogrammers.” A recent TechCrunch article by a couple of venture capitalists argued that low/no-code work is “not a category itself, but rather a shift in how users interface with software tools.”
A bit like how AI and fintech are squishy categories, low-code and no-code have a wide remit.
After talking to a number of entrepreneurs lately who built these capabilities into their startups’ applications, it appears that today founders expect the capabilities to more helpful for nondevelopers reordering logic inside apps for their own needs, instead of building whole-cloth applications.
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All B2B startups are in the payments business
Jeff Coppolo has over 25 years of experience in the fintech industry and is currently Head of Global Business Development and Partnerships for payments processing company BlueSnap.
The COVID-19 pandemic has forced businesses to rethink how they accept and make payments. Paper invoices, checks and point-of-sale payments have given way to “corona-free payments” through mobile apps, electronic invoicing and ACH. Although significant, this is the sideshow to a more significant reshuffling of the payments industry.
Nearly $150 trillion in worldwide B2B and B2C transactions take place every year, but only a tiny portion are digital. A lot of technology companies want their piece of that massive pie. Until recently, though, only payment facilitators (aka, “payfacs”), gateways, banks and credit card companies had access to it.
That’s changing. Whether they know it yet or not, B2B tech platforms are becoming payments companies. Payfacs are competing to integrate their technology into these platforms, which drive an ever-growing number of transactions. Revenue-sharing deals are on the table, and payfacs are pushing the competitive advantages they can offer to the clients of these B2B platforms. Capabilities like cross-border payments, seamless customer onboarding, fraud protection, marketplace payments and B2B invoicing influence, which payfacs win in “integrated payments” (the jargon for this space) and which don’t.
B2B companies that use to leave the choice of gateway to their clients need to become savvy in payment technology, both to control the user experience and to tap this new business. There’s a massive amount of revenue on the table, and it’s just too easy to blow this opportunity and alienate clients in the process.
How we arrived here
A decade ago, the revolution in cloud computing led to a wave of B2B tech platforms promising to “disrupt” every industry. Gyms got gym management platforms. Hospitals got clinic management platforms. Retailers got commerce management platforms. Media companies got subscription management platforms. Many of these fill-in-the-blank management platforms — all independent software vendors (ISVs) — helped clients manage their operations and interactions with consumers or other businesses.
But ISVs didn’t get involved in payments, which was odd, given how complementary payments were to their platforms and how much money was at stake. Mastercard says there is about $120 trillion annually in B2B payments worldwide, and paper checks still dominate about half of the U.S.’s $25 trillion payment volume. Meanwhile, retail e-commerce sales account for $4.2 trillion out of $26 trillion in total retail, or about 16.1%, according to eMarketer. Less than 8% of global commerce is thought to occur online.
You’d think B2B software companies would find a way to generate revenue on some of that $146 trillion in transactions, but most did not. Payment processing is its own, messy, complicated niche. Payfacs go through a grueling underwriting process to provision a merchant account, which includes know-your-customer (KYC) and anti-money laundering (AML) checks. If a merchant defaults, the payfac is next in line to make good on the transactions.
When you run a venture-backed B2B platform, you have enough to worry about already.
So, B2B platforms stayed clear. They formed integrations with a basket of payfacs (Stripe, PayPal, Square, my company BlueSnap, etc.) and then let their clients choose which one to use. That’s a lot of integrations to maintain.
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‘Animal Crossing: New Horizons’ and the limits of today’s game economies
Kaiser Hwang is a longtime member of the games community and a vice president at Forte, an organization building an open economic platform for games.
“Animal Crossing: New Horizons” is a bonafide wonder. The game has been setting new records for Nintendo, is adored by players and critics alike and provides millions of players a peaceful escape during these unprecedented times.
But there’s been something even more extraordinary happening on the fringe: Players are finding ways to augment the game experience through community-organized activities and tools. These include free weed-pulling services (tips welcome!) from virtual Samaritans, and custom-designed items for sale — for real-world money, via WeChat Pay and AliPay.
Well-known personalities and companies are also contributing, with “Rogue One: A Star Wars Story” scribe Gary Whitta hosting an A-list celebrity talk show using the game, and luxury fashion brand Marc Jacobs providing some of its popular clothing designs to players. 100 Thieves, the white-hot esports and apparel company, even created and gave away digital versions of its entire collection of impossible-to-find clothes.
This community-based phenomenon gives us a pithy glimpse into not only where games are inevitably going, but what their true potential is as a form of creative, technical and economic expression. It also exemplifies what we at Forte call “community economics,” a system that lies at the heart of our aim in bringing new creative and economic opportunities to billions of people around the world.
What is community economics?
Formally, community economics is the synthesis of economic activity that takes place inside, and emerges outside, virtual game worlds. It is rooted in a cooperative economic relationship between all participants in a game’s network, and characterized by an economic pluralism that is unified by open technology owned by no single party. And notably, it results in increased autonomy for players, better business models for game creators, and new economic and creative opportunities for both.
The fundamental shift that underlies community economics is the evolution of games from centralized entertainment experiences to open economic platforms. We believe this is where things are heading.
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This Week in Apps: US ponders TikTok ban, apps see a record Q2, iOS 14 public beta arrives
Welcome back to This Week in Apps, the Extra Crunch series that recaps the latest OS news, the applications they support and the money that flows through it all.
The app industry is as hot as ever, with a record 204 billion downloads and $120 billion in consumer spending in 2019. People are now spending three hours and 40 minutes per day using apps, rivaling TV. Apps aren’t just a way to pass idle hours — they’re a big business. In 2019, mobile-first companies had a combined $544 billion valuation, 6.5x higher than those without a mobile focus.
In this Extra Crunch series, we help you keep up with the latest news from the world of apps, delivered on a weekly basis.
This week, we’re digging into the news of a possible TikTok ban in the U.S. and how that’s already impacting rival apps. Also, both Android and iOS saw beta launches this week — a near-ready Android 11 beta 2 and the public beta of iOS 14. We also look at the coronavirus’ impact on the app economy in Q2, which saw record downloads, usage and consumer spending. In other app news, Instagram launched Reels in India, Tinder debuted video chat and Quibi flounders while Pokémon GO continues to reel it in.
Headlines
Apple release iOS 14 public beta
Image Credits: Apple
The much-anticipated new version of the iOS mobile operating system, iOS 14, became available for public testing on Thursday. Users who join the public beta will be able to try out the latest features, like the App Library, Widgets and smart stacks, an updated Messages app, a brand-new Translate app, biking directions in Apple Maps, upgraded Siri and various improvements to core apps like Notes, Reminders, Weather, Home, Safari and others.
When iOS 14 launches to the general public, it may also include support for QR code payments in Apple Pay, according to a report of new assets discovered in the code base.
Alongside the public beta, developers received their second round of betas for iOS 14, iPadOS 14 and other Apple software.
Google’s efforts in speeding up Android updates has been good news for Android 10
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What do investors bidding up tech shares know that the rest of us don’t?
The biggest story to come out of the post-March stock market boom has been explosive growth in the value of technology shares. Software companies in particular have seen their fortunes recover; since March lows, public software companies’ valuations have more than doubled, according to one basket of SaaS and cloud stocks compiled by a Silicon Valley venture capital firm.
Such gains are good news for startups of all sizes. For later-stage upstarts, software share appreciation helps provide a welcoming public market for exits. And, strong public valuations can help guide private dollars into related startups, keeping the capital flowing.
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For software-focused startup companies, especially those pursuing recurring revenue models like SaaS, it’s a surprisingly good time to be alive.
Indeed, after COVID-19 hit the United States, layoffs and rising software sales churn were key, worrying indicators coming out of startup-land. Since then, the data has turned around.
As TechCrunch reported in June, startup layoffs have declined and software churn has recovered to the point that business and enterprise-focused SaaS companies are on the bounce.
But instead of merely recovering to near pre-COVID levels, software stocks have continued to rise. Indeed, the Bessemer Cloud Index (EMCLOUD), which tracks SaaS firms, has set an array of all-time highs in recent weeks.
There’s some logic to the rally. After speaking to venture capitalists over the past few weeks, notes from EQT Ventures‘ Alastair Mitchell, Sapphire’s Jai Das, and Shomik Ghosh from Boldstart Ventures paint the picture of a possibly accelerating digital transformation for some software companies, nudged forward by COVID-19 and its related impacts.
The result of the trend may be that the total addressable market (TAM) for software itself is larger than previously anticipated. Larger TAM could mean bigger future sales for and more substantial future cash flows for some software companies. This argument helps explain part of the market’s present-day enthusiasm for public tech equities, and especially the shares of software companies.
We won’t be able explain every point that Nasdaq has gained. But the TAM argument is worth understanding if we want to grok a good portion of the optimism that is helping drive tech valuations, both private and public.
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