Palantir
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The responsibilities of AI-first investors
Investors in AI-first technology companies serving the defense industry, such as Palantir, Primer and Anduril, are doing well. Anduril, for one, reached a valuation of over $4 billion in less than four years. Many other companies that build general-purpose, AI-first technologies — such as image labeling — receive large (undisclosed) portions of their revenue from the defense industry.
Investors in AI-first technology companies that aren’t even intended to serve the defense industry often find that these firms eventually (and sometimes inadvertently) help other powerful institutions, such as police forces, municipal agencies and media companies, prosecute their duties.
Most do a lot of good work, such as DataRobot helping agencies understand the spread of COVID, HASH running simulations of vaccine distribution or Lilt making school communications available to immigrant parents in a U.S. school district.
The first step in taking responsibility is knowing what on earth is going on. It’s easy for startup investors to shrug off the need to know what’s going on inside AI-based models.
However, there are also some less positive examples — technology made by Israeli cyber-intelligence firm NSO was used to hack 37 smartphones belonging to journalists, human-rights activists, business executives and the fiancée of murdered Saudi journalist Jamal Khashoggi, according to a report by The Washington Post and 16 media partners. The report claims the phones were on a list of over 50,000 numbers based in countries that surveil their citizens and are known to have hired the services of the Israeli firm.
Investors in these companies may now be asked challenging questions by other founders, limited partners and governments about whether the technology is too powerful, enables too much or is applied too broadly. These are questions of degree, but are sometimes not even asked upon making an investment.
I’ve had the privilege of talking to a lot of people with lots of perspectives — CEOs of big companies, founders of (currently!) small companies and politicians — since publishing “The AI-First Company” and investing in such firms for the better part of a decade. I’ve been getting one important question over and over again: How do investors ensure that the startups in which they invest responsibly apply AI?
Let’s be frank: It’s easy for startup investors to hand-wave away such an important question by saying something like, “It’s so hard to tell when we invest.” Startups are nascent forms of something to come. However, AI-first startups are working with something powerful from day one: Tools that allow leverage far beyond our physical, intellectual and temporal reach.
AI not only gives people the ability to put their hands around heavier objects (robots) or get their heads around more data (analytics), it also gives them the ability to bend their minds around time (predictions). When people can make predictions and learn as they play out, they can learn fast. When people can learn fast, they can act fast.
Like any tool, one can use these tools for good or for bad. You can use a rock to build a house or you can throw it at someone. You can use gunpowder for beautiful fireworks or firing bullets.
Substantially similar, AI-based computer vision models can be used to figure out the moves of a dance group or a terrorist group. AI-powered drones can aim a camera at us while going off ski jumps, but they can also aim a gun at us.
This article covers the basics, metrics and politics of responsibly investing in AI-first companies.
The basics
Investors in and board members of AI-first companies must take at least partial responsibility for the decisions of the companies in which they invest.
Investors influence founders, whether they intend to or not. Founders constantly ask investors about what products to build, which customers to approach and which deals to execute. They do this to learn and improve their chances of winning. They also do this, in part, to keep investors engaged and informed because they may be a valuable source of capital.
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Brazil’s Loft adds $100M to its accounts, $700M to its valuation in a single month
Nearly exactly one month ago, digital real estate platform Loft announced it had closed on $425 million in Series D funding led by New York-based D1 Capital Partners. The round included participation from a mix of new and existing investors such as DST, Tiger Global, Andreessen Horowitz, Fifth Wall and QED, among many others.
At the time, Loft was valued at $2.2 billion, a huge jump from its being just near unicorn territory in January 2020. The round marked one of the largest ever for a Brazilian startup.
Now, today, São Paulo-based Loft has announced an extension to that round with the closing of $100 million in additional funding that values the company at $2.9 billion. This means that the 3-year-old startup has increased its valuation by $700 million in a matter of weeks.
Baillie Gifford led the Series D-2 round, which also included participation from Tarsadia, Flight Deck, Caffeinated and others. Individuals also put money in the extension, including the founders of Better (Zach Frenkel), GoPuff, Instacart, Kavak and Sweetgreen.
Loft has seen great success in its efforts to serve as a “one-stop shop” for Brazilians to help them manage the home buying and selling process.
Image Credits: Loft
In 2020, Loft saw the number of listings on its site increase “10 to 15 times,” according to co-founder and co-CEO Mate Pencz. Today, the company actively maintains more than 13,000 property listings in approximately 130 regions across São Paulo and Rio de Janeiro, partnering with more than 30,000 brokers. Not only are more people open to transacting digitally, more people are looking to buy versus rent in the country.
“We did more than 6x YoY growth with many thousands of transactions over the course of 2020,” Pencz told TechCrunch at the time of the company’s last raise. “We’re now growing into the many tens of thousands, and soon hundreds of thousands, of active listings.”
The decision to raise more capital so soon was due to a variety of factors. For one, Loft has received “overwhelming investor interest” even after “a very, very oversubscribed main round,” Pencz said.
“We have seen a continued acceleration in our market share growth, especially in São Paulo and Rio de Janeiro, the two markets we currently operate in,” he added. “We saw an opportunity to grow even faster with additional capital.”
Pencz also pointed out that Baillie Gifford has relatively large minimum check size requirements, which led to the extension being conducted at a higher price and increased the total round size “by quite a bit to be able to accommodate them.”
While the company was less forthcoming about its financials as of late, it told me last year that it had notched “over $150 million in annualized revenues in its first full year of operation” via more than 1,000 transactions.
The company’s revenues and GMV (gross merchandise value) “increased significantly” in 2020, according to Pencz, who declined to provide more specifics. He did say those figures are “multiples higher from where they were,” and that Loft has “a very clear horizon to profitability.”
Pencz and Florian Hagenbuch founded Loft in early 2018 and today serve as its co-CEOs. The aim of the platform, in the company’s words, is “bringing Latin American real estate into the e-commerce age by developing online alternatives to analogue legacy processes and leveraging data to create transparency in highly opaque markets.” The U.S. real estate tech company with the closest model to Loft’s is probably Zillow, according to Pencz.
In the United States, prospective buyers and sellers have the benefit of MLSs, which in the words of the National Association of Realtors, are private databases that are created, maintained and paid for by real estate professionals to help their clients buy and sell property. Loft itself spent years and many dollars in creating its own such databases for the Brazilian market. Besides helping people buy and sell homes, it offers services around insurance, renovations and rentals.
In 2020, Loft also entered the mortgage business by acquiring one of the largest mortgage brokerage businesses in Brazil. The startup now ranks among the top-three mortgage originators in the country, according to Pencz. When it comes to helping people apply for mortgages, he likened Loft to U.S.-based Better.com.
This latest financing brings Loft’s total funding raised to an impressive $800 million. Other backers include Brazil’s Canary and a group of high-profile angel investors such as Max Levchin of Affirm and PayPal, Palantir co-founder Joe Lonsdale, Instagram co-founder Mike Krieger and David Vélez, CEO and founder of Brazilian fintech Nubank. In addition, Loft has also raised more than $100 million in debt financing through a series of publicly listed real estate funds.
Loft plans to use its new capital in part to expand across Brazil and eventually in Latin America and beyond. The company is also planning to explore more M&A opportunities.
This article was updated post-publication to reflect accurate investor information.
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Saltbox raises $10.6M to help booming e-commerce stores store their goods
E-commerce is booming, but among the biggest challenges for entrepreneurs of online businesses are finding a place to store the items they are selling and dealing with the logistics of operating.
Tyler Scriven, Maxwell Bonnie and Paul D’Arrigo co-founded Saltbox in an effort to solve that problem.
The trio came up with a unique “co-warehousing” model that provides space for small businesses and e-commerce merchants to operate as well as store and ship goods, all under one roof. Beyond the physical offering, Saltbox offers integrated logistics services as well as amenities such as the rental of equipment and packing stations and access to items such as forklifts. There are no leases and tenants have the flexibility to scale up or down based on their needs.
“We’re in that sweet spot between co-working and raw warehouse space,” said CEO Scriven, a former Palantir executive and Techstars managing director.
Saltbox opened its first facility — a 27,000-square-foot location — in its home base of Atlanta in late 2019, filling it within two months. It recently opened its second facility, a 66,000-square-foot location, in the Dallas-Fort Worth area that is currently about 40% occupied. The company plans to end 2021 with eight locations, in particular eyeing the Denver, Seattle and Los Angeles markets. Saltbox has locations slated to come online as large as 110,000 square feet, according to Scriven.
The startup was founded on the premise that the need for “co-warehousing and SMB-centric logistics enablement solutions” has become a major problem for many new businesses that rely on online retail platforms to sell their goods, noted Scriven. Many of those companies are limited to self-storage and mini-warehouse facilities for storing their inventory, which can be expensive and inconvenient.
Scriven personally met with challenges when starting his own e-commerce business, True Glory Brands, a retailer of multicultural hair and beauty products.
“We became aware of the lack of physical workspace for SMBs engaged in commerce,” Scriven told TechCrunch. “If you are in the market looking for 10,000 square feet of industrial warehouse space, you are effectively pushed to the fringes of the real estate ecosystem and then the entrepreneurial ecosystem at large. This is costing companies in significant but untold ways.”
Now, Saltbox has completed a $10.6 million Series A round of financing led by Palo Alto-based Playground Global that included participation from XYZ Venture Capital and proptech-focused Wilshire Lane Partners in addition to existing backers Village Global and MetaProp. The company plans to use its new capital primarily to expand into new markets.
The company’s customers are typically SMB e-commerce merchants “generating anywhere from $50,000 to $10 million a year in revenue,” according to Scriven.
He emphasizes that the company’s value prop is “quite different” from a traditional flex office/co-working space.
“Our members are reliant upon us to support critical workflows,” Scriven said.
Besides e-commerce occupants, many service-based businesses are users of Saltbox’s offering, he said, such as those providing janitorial services or that need space for physical equipment. The company offers all-inclusive pricing models that include access to loading docks and a photography studio, for example, in addition to utilities and Wi-Fi.
Image Credits: Saltbox
Image Credits: Saltbox
The company secures its properties with a mix of buying and leasing by partnering with institutional real estate investors.
“These partners are acquiring assets and in most cases, are funding the entirety of capital improvements by entering into management or revenue share agreements to operate those properties,” Scriven said. He said the model is intentionally different from that of “notable flex space operators.”
“We have obviously followed those stories very closely and done our best to learn from their experiences,” he added.
Investor Adam Demuyakor, co-founder and managing partner of Wilshire Lane Partners, said his firm was impressed with the company’s ability to “structure excellent real estate deals” to help them continue to expand nationally.
He also believes Saltbox is “extremely well-positioned to help power and enable the next generation of great direct to consumer brands.”
Playground Global General Partner Laurie Yoler said the startup provides a “purpose-built alternative” for small businesses that have been fulfilling orders out of garages and self-storage units.
Saltbox recently hired Zubin Canteenwalla to serve as its chief operating officer. He joined Saltbox from Industrious, an operator co-working spaces, where he was SVP of Real Estate. Prior to Industrious, he was EVP of Operations at Common, a flexible residential living brand, where he led the property management and community engagement teams.
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What to make of Stripe’s possible $100B valuation
This is The TechCrunch Exchange, a newsletter that goes out on Saturdays, based on the column of the same name. You can sign up for the email here.
Welcome to a special Thanksgiving edition of The Exchange. Today we will be brief. But not silent, as there is much to talk about.
Up top, The Exchange noodled on the Slack-Salesforce deal here, so please catch up if you missed that while eating pie for breakfast yesterday. And, sadly, I have no idea why Palantir is seeing its value skyrocket. Normally we’d discuss it, asking ourselves what its gains could mean for the lower tiers of private SaaS companies. But as its public market movement appears to be an artificial bump in value, we’ll just wait.
Here’s what I want to talk about this fine Saturday: Bloomberg reporting that Stripe is in the market for more money, at a price that could value the company at “more than $70 billion or significantly higher, at as much as $100 billion.”
Hot damn. Stripe would become the first or second most valuable startup in the world at those prices, depending on how you count. Startup is a weird word to use for a company worth that much, but as Stripe is still clinging to the private markets like some sort of liferaft, keeps raising external funds, and is presumably more focused on growth than profitability, it retains the hallmark qualities of a tech startup, so, sure, we can call it one.
Which is odd, because Stripe is a huge concern that could be worth twelve-figures, provided that gets that $100 billion price tag. It’s hard to come up with a good reason for why it’s still private, other than the fact that it can get away with it.
Anyhoo, are those reported, possible prices bonkers? Maybe. But there is some logic to them. Recall that Square and PayPal earnings pointed to strong payments volume in recent quarters, which bodes well for Stripe’s own recent growth. Also note that 14 months ago or so, Stripe was already processing “hundreds of billions of dollars of transactions a year.”
You can do fun math at this juncture. Let’s say Stripe’s processing volume was $200 billion last September, and $400 billion today, thinking of the number as an annualized metric. Stripe charges 2.9% plus $0.30 for a transaction, so let’s call it 3% for the sake of simplicity and being conservative. That math shakes out to a run rate of $12 billion.
Now, the company’s actual numbers could be closer to $100 billion, $150 billion and $4.5 billion, right? And Stripe won’t have the same gross margins as Slack .
But you can start to see why Stripe’s new rumored prices aren’t 100% wild. You can make the multiples work if you are a believer in the company’s growth story. And helping the argument are its public comps. Square’s stock has more than tripled this year. PayPal’s value has more than doubled. Adyen’s shares have almost doubled. That’s the sort of public market pull that can really help a super-late-stage startup looking to raise new capital and secure an aggressive price.
To wrap, Stripe’s possible new valuation could make some sense. The fact that it is still a private company does not.
Market Notes
- Mental health-focused startup Sesh raised money this week from Polaris Partners. The Exchange spent a bit of time on the topic recently, so the funding event caught our eye.
- Here are three more $100 million ARR companies, and a call for startups reaching $50 million ARR.
- Man, what is up at Coinbase?
- Tiger’s investment into Unacadamey also stood out. Why? Mostly because edtech is hotter than the surface of the sun in 2020. Which is wild for a startup genre that previously was a bit more akin to the far apsis of Pluto as recently as last year.
Various and Sundry
And speaking of edtech, Equity’s Natasha Mascarenhas and our intrepid producer Chris Gates put together a special ep on the education technology market. You can listen to it here. It’s good.
Hugs and let’s both go do some cardio,
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2020 IPO report card: Are tech’s newest public companies meeting expectations?
As the American election looms and the IPO cycle slows some, it’s a good time to review how well the public offerings we have seen thus far have performed.
The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
Welcome to a Monday morning data rundown discussing how well the latest-stage startups that went public this year have performed after their first day. We’ll be awarding letter grades for post-IPO performance as well, because we can.
So, how did Snowflake do compared to Vroom, both stacked next to JFrog and One Medical? Let’s find out.
Ranking 2020’s IPOs
The fine folks at my former publication Crunchbase News have a running list of 2020 IPOs, which will help us not miss any names. Of course, we’re not going to include every possible deal; there have been some marginal debuts that we can leave behind.
But, the majors matter. So let’s get into them now:
- Snowflake: It priced above its raised range. Then it went up sharply. From an IPO price of $120 per share, Snowflake is worth $250 per share today. That’s so expensive, compared to the data-focused Snowflake’s revenue, that I can hardly figure out what the hell its price means. The company’s valuation got so rich that we wrote that all tech companies should go public to take advantage of the rich market. This year’s standout IPO. A+.
- Unity: Unity’s IPO was a source of wonder for those curious about the economics of the gaming world. For us finance dorks, it was also a right corker. We were impressed. So were investors. After setting a $34 and $42 per share IPO range, Unity raised it to $44 and $48 per share. Then it went public at $52 per share. Today it’s worth $94.50 per share, or around $25 billion. It was priced at $6 billion, give or take, in its final private round. A huge win of an IPO. A.
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Digging into the next wave of tech IPOs
After taking five consecutive business days off from my work laptop — and to shout at my personal laptop while losing games on Dominion online — I am back. I missed you. And while The Exchange’s regular columns were off this week (Friday aside, which you can read here), there’s still a hell of a lot to talk about.
First, a new website. If you click here, you’ll be taken to a sortable list (spreadsheet? database?) of startups with Black founders. Dubbed The Black Founder List, it’s a great asset and tool.
For folks like myself with a research and reporting focus, the list’s sortability of companies founded by Black entrepreneurs by gender, stage and market focus is amazing. And, for investors, it should provide potential dealflow. Do you write lots of Series C checks? The Black Founder List has 23 Series B startups with Black founders. Or if you prefer Series D checks, there are 11 Series C startups with Black founders to check out.
Who is writing the most checks to Black founders? Among the top names are M25, a midwest VC group, Techstars Boston and a number of angels.
The website was compiled by much the same team that TechCrunch highlighted earlier this year, when their data collection work concerning Black founders was more spreadsheet than app. So, please point your thanks for the new resource to Yonas Beshawred, Sefanit Tades, James Norman and Hans Yadav.
The Black Founder List also has a data submission button, so if you notice a missing name, add it. I want the data set to be as robust as possible, as, I reckon, it will prove a great reporting resource. And public data like this obviates certain excuses from the investing class.
Market Notes
- I missed a lot this week that I was looking forward to, including the Asana and Palantir IPOs. For fuller thoughts, head here. Summaries follow:
- Asana’s direct listing and resulting valuation and implied revenue multiples make its direct listing a win for the company, and the model. If other SaaS companies have the ability to raise ample pre-debut cash, perhaps the direct listing is not as dead as it seemed a few months ago when SPACs stole its spotlight, and most companies were pursuing traditional IPOs regardless.
- Palantir’s direct listing did not feel hot until it dropped some strong revenue guidance. With that, its direct listing went fine despite its cosmically comedic voting structure. Watching Palantir’s higher-ups try to snuff public input while still providing a thin patina of democracy made me think more about Russia or Texas than a functioning democratic system.
- Looking ahead, Airbnb is said to be hunting up $3 billion for its own IPO. Airbnb had to take on a lot of expensive cash when its business collapsed in the early COVID days. It wanted to direct list. Now it’s going to cash in a huge pile during its debut.
- Good. More capital > less capital.
- Sticking to our late-stage theme, when I left, Root was said to be pursuing an IPO, and when I came back, Roblox is now also tipped to be plotting with the public markets. (Root’s IPO in the wake of the successful Lemonade debut made sense. Insurtech is hot.)
- The news should not be a surprise; Roblox’s model has found cachet with young gamers and has found a great way to make money at the same time. With a mix of Legos and video game design and Minecraft, perhaps it’s not a surprise that the company is doing well.
- Reuters reports that Roblox could be worth $4 billion when it goes public. I believe it.
- Datto is going public. Ron and Danny have the details here.
- And I chatted with a few Accel investors, the juicy bits from which you can find here.
Various and Sundry
- Draper Esprit, a Europe-focused venture capital fund that trades on the London Stock Exchange, raised £110 million this week. Esprit is a fun shop to track (I’ve known its denizen James since his LSE days), because it’s more transparent than most VC firms than you’re familiar with thanks to its structure.
- According to the firm’s release, its share sale was “oversubscribed.” Tech.eu has more.
- Mobile app spend grew to $29.3 billion in Q3, driven by 36.5 billion installs, per SensorTower. Revenue was up 32% year-over-year.
- Uber sold $500 million worth of Uber Freight to a PE firm.
- As noted, tech stocks had a bad September, but just how bad might surprise you.
- And I covered Noyo’s Series A before I left, with the post going up on Monday.
- In short, Noyo is doing the hard work to build APIs to connect the world of health insurance. It’s a huge, hard task.
- The $12.5 million was “led by Costanoa Ventures and Spark Capital. Prior investors Core Innovation Capital, Garuda Ventures, the Webb Investment Network, Precursor Ventures and Homebrew upped their investment in the new round.”
- (I can’t shake the thought that there’s something in the middle of the no-code/low-code boom, and startups delivering more of their products via APIs instead of as managed services. And please don’t say mashups, we left that phrase behind ages ago.)
- I missed the window for officially commenting on the Coinbase culture dustup — the Equity crew did talk about it while I was AFK — so I will merely share this thread as my $0.02.
- Also, read this from Eileen Burbidge on TechCrunch concerning the same matter. It’s good.
Regular morning Exchange columns return Monday morning. It’s good to be back.
By the way, TechCrunch Sessions: Mobility is coming up next week. I am going! To help you get there, here’s a 50% off code for you to get full access to the event. Or if it’s your jam, this code will get you into the expo and breakout sessions for free.
Chat soon,
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Unity Software has strong opening, gaining 31% after pricing above its raised range
Whoever said you can’t make money playing video games clearly hasn’t taken a look at Unity Software’s stock price.
On its first official day of trading, the company rose more than 31%, opening at $75 per share before closing the day at $68.35. Unity’s share price gains came after last night’s pricing of the company’s stock at $52 per share, well above the range of $44 to $48 which was itself an upward revision of the company’s initial target.
Games like “Pokémon GO” and “Iron Man VR” rely on the company’s software, as do untold numbers of other mobile gaming applications that use the company’s toolkit for support. The company’s customers range from small gaming publishers to large gaming giants like Electronic Arts, Niantic, Ubisoft and Tencent.
Unity’s IPO comes on the heels of other well-received debuts, including Sumo Logic, Snowflake and JFrog .
TechCrunch caught up with Unity’s CFO, Kim Jabal, after-hours today to dig in a bit on the transaction.
According to Jabal, hosting her company’s roadshow over Zoom had some advantages, as her team didn’t have to focus on tackling a single geography per day, allowing Unity to “optimize” its time based on who the company wanted to meet, instead, of say, whomever was free in Boston or Chicago on a particular Tuesday morning.
Jabal’s comments aren’t the first that TechCrunch has heard regarding roadshows going well in a digital format instead of as an in-person presentation. If the old-school roadshow survives, we’ll be surprised, though private jet companies will miss the business.
Talking about the transaction itself, Jabal stressed the connection between her company’s employees, value and their access to that same value. Unity’s IPO was unique in that existing and former employees were able to trade 15% of their vested holdings in the company on day one, excluding “current executive officers and directors,” per SEC filings.
That act does not seemed to have dampened enthusiasm for the company’s shares, and could have helped boost early float, allowing for the two sides of the supply and demand curves to more quickly meet close to the company’s real value, instead of a scarcity-driven, more artificial figure.
Regarding Unity’s IPO pricing, Jabal discussed what she called a “very data-driven process.” The result of that process was an IPO price that came in above its raised range, and still rose during its first day’s trading, but less than 50%. That’s about as good an outcome as you can hope for in an IPO.
One final thing for the SaaS nerds out there. Unity’s “dollar-based net expansion rate” went from very good to outstanding in 2020, or in the words of the S-1/A:
Our dollar-based net expansion rate, which measures expansion in existing customers’ revenue over a trailing 12-month period, grew from 124% as of December 31, 2018 to 133% as of December 31, 2019, and from 129% as of June 30, 2019 to 142% as of June 30, 2020, demonstrating the power of this strategy.
We had to ask. And the answer, per Jabal, was a combination of the company’s platform strength and how customers tend to use more of Unity’s services over time, which she described as growing with their customers. And the second key element was 2020’s unique dynamics that gave Unity a “tailwind” thanks to “increased usage, particularly in gaming.”
Looking at our own gaming levels in 2020 compared to 2019, that checks out.
This post closes the book on this week’s IPO class. Tired yet? Don’t be. Palantir is up next, and then Asana .
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Extra Crunch Friday roundup: Edtech funding surges, Poland VC survey, inside Shift’s SPAC plan, more
I live in San Francisco, but I work an East Coast schedule to get a jump on the news day. So I’d already been at my desk for a couple of hours on Wednesday morning when I looked up and saw this:
What color is the sky this morning pic.twitter.com/nt5dZp5wWc
— Walter Thompson (@YourProtagonist) September 9, 2020
As unsettling as it was to see the natural environment so transformed, I still got my work done. This is not to boast: I have a desk job and a working air filter. (People who make deliveries in the toxic air or are homeschooling their children while working from home during a global pandemic, however, impress the hell out of me.)
Not coincidentally, two of the Extra Crunch stories that ran since our Tuesday newsletter tie directly into what’s going on outside my window:
As this guest post predicted, a suboptimal attempt I made to track a delayed package using interactive voice response (IVR) indeed poisoned my customer experience, and;
Sheltering in place to avoid the novel coronavirus — and wildfire smoke — is fueling growth in the video-game industry, perhaps one factor in Unity Software Inc.’s plan to go public ahead of competitor Epic Games. In a two-part series, we looked at how the company has expanded beyond games and shared a detailed financial breakdown.
We covered a lot of ground this week, so scroll down or visit the recently redesigned Extra Crunch home page. If you’d like to receive this roundup via email each Tuesday and Friday, please click here.
Thanks very much for reading Extra Crunch; I hope you have a relaxing and safe weekend.
Walter Thompson
Senior Editor
@yourprotagonist
Bear and bull cases for Unity’s IPO
Image Credits: Nigel Sussman (opens in a new window)
In a two-part series that ran on TechCrunch and Extra Crunch, former media columnist Eric Peckham returned to share his analysis of Unity Software Inc.’s S-1 filing.
Part one is a deep dive that explains how the company has grown beyond gaming to develop multiple revenue streams and where it’s headed.
For part two on Extra Crunch, he studied the company’s numbers to offer some context for its approximately $11 billion valuation.
10 Poland-based investors discuss trends, opportunities and the road ahead
Image Credits: Edwin Remsberg (opens in a new window) / Getty Images
As we’ve covered previously, the COVID-19 pandemic is making the world a lot smaller.
Investors who focus on their own backyards still have an advantage, but the ability to set up a quick coffee meeting with a promising investor is no longer one of them.
Even though some VCs are cutting first checks after Zoom calls, regional investors’ personal networks are still a trump card. Tourists will always rely on guide books, however, which is why we continue to survey investors around the world.
A Dealroom report issued this summer determined that 97 VC funds backed more than 1,600 funding rounds in Poland last year. With over 2,400 early- and late-stage startups and 400,000 engineers in the country, it’s easy to see why foreign investors are taking notice.
Editor-at-large Mike Butcher reached out to several investors who focus on Warsaw and Poland in general to learn more about the startups fueling their interest across fintech, gaming, security and other sectors:
- Bryony Cooper, managing partner, Arkley Brinc VC
- Anna Wnuk-Błażejczyk, investor relations manager, Experior.vc
- Rafał Roszak, investment director, YouNick Mint
- Michal Mroczkowski, partner, Market One Capital
- Marcus Erken, partner, Sunfish Partners
- Borys Musielak, partner, SMOK Ventures
- Mathias Åsberg, partner, Nextgrid
- Kuba Dudek, SpeedUp Venture Capital Group
- Marcin Laczynski, partner, Next Road Ventures
- Michał Rokosz, partner, Inovo Venture Partners
We’ll run the conclusion of his survey next Tuesday.
Brands that hyper-personalize will win the next decade
Image Credits: cnythzl (opens in a new window) / Getty Images
Even for fledgling startups, creating a robust customer service channel — or at least one that doesn’t annoy people — is a reliable way to keep users in the sales funnel.
Using AI and automation is fine, but now that consumers have grown used to asking phones and smart speakers to predict the weather and read recipe instructions, their expectations are higher than ever.
If you’re trying to figure out what people want from hyper-personalized customer experiences and how you can operationalize AI to give them what they’re after, start here.
VCs pour funding into edtech startups as COVID-19 shakes up the market
Image Credits: Nigel Sussman (opens in a new window)
For today’s edition of The Exchange, Natasha Mascarenhas joined Alex Wilhelm to examine how the pandemic-fueled surge of interest in edtech is manifesting on the funding front.
The numbers suggest that funding will far surpass the sector’s high-water mark set in 2018, so the duo studied the numbers through August 31, which included a number of mega-rounds that exceeded $100 million.
“Now the challenge for the sector will be keeping its growth alive in 2021, showing investors that their 2020 bets were not merely wagers made during a single, overheated year,” they conclude.
How to respond to a data breach
Image Credits: WhataWin (opens in a new window) / Getty Images
The odds are low that someone’s going to enter my home and steal my belongings. I still lock my door when I leave the house, however, and my valuables are insured. I’m an optimist, not a fool.
Similarly: Is your startup’s cybersecurity strategy based on optimism, or do you have an actual response plan in case of a data breach?
Security reporter Zack Whittaker has seen some shambolic reactions to security lapses, which is why he turned in a post-mortem about a corporation that got it right.
“Once in a while, a company’s response almost makes up for the daily deluge of hypocrisy, obfuscation and downright lies,” says Zack.
Shift’s George Arison shares 6 tips for taking your company public via a SPAC
Image Credits: Eric Burger/EyeEm (opens in a new window) / Getty Images
There’s a lot of buzz about special purpose acquisition companies these days.
Used-car marketplace Shift announced its SPAC in June 2020, and is on track to complete the process in the next few months, so co-founder/co-CEO George Arison wrote an Extra Crunch guest post to share what he has learned.
Step one: “If you go the SPAC route, you’ll need to become an expert at financial engineering.”
Dear Sophie: What is a J-1 visa and how can we use it?
Image Credits: Sophie Alcorn
Dear Sophie:
I am a software engineer and have been looking at job postings in the U.S. I’ve heard from my friends about J-1 Visa Training or J-1 Research.
What is a J-1 status? What are the requirements to qualify? Do I need to find a U.S. employer willing to sponsor me before I apply for one? Can I get a visa? How long could I stay?
— Determined in Delhi
As direct listing looms, Palantir insiders are accelerating stock sales
Image Credits: Patrick T. Fallon/Bloomberg (opens in a new window) / Getty Images
While we count down to the September 23 premiere of NYSE: PLTR, Danny Crichton looked at the “robust secondary market” that has allowed some investors to acquire shares early.
“Given the number of people involved and the number of shares bought and sold over the past 18 months, we can get some insight regarding how insiders perceive Palantir’s value,” he writes.
Use ‘productive paranoia’ to build cybersecurity culture at your startup
Image Credits: JakeOlimb / Getty Images
Zack Whittaker interviewed Bugcrowd CTO, founder and chairman Casey Ellis about the best practices he recommends for creating a startup culture that takes security seriously.
“It’s an everyone problem,” said Ellis, who encouraged founders to promote the notion of “productive paranoia.”
Now that the threat envelope includes everyone from marketing to engineering, employees need to “internalize the fact that bad stuff can and does happen if you do it wrong,” Ellis said.
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Palantir’s concentrated governance is great for execs, but what about shareholders?
A few days ago I wrote down a few notes making a bullish case for Palantir, searching to find good news amidst the company’s huge historical deficits.
Heading into the next phase of Palantir’s march to the public markets, I was very curious to see how the company would hone its S-1 filing to give itself the best possible shot during its impending debut.
The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
And we finally did get a new S-1/A filing, a document that our own Danny Crichton quickly parsed and covered. What he found was a set of amendments that seem to increase the chance that three Palantir insiders will control more than 50% of the company’s voting power forever, possibly making it a controlled company, which would loose the firm from select regulatory requirements.
Danny dryly noted that “given the diminished voting power of employee and investor shares, it is possible that these voting provisions will negatively impact the final price of those shares.” That’s being polite.
Mulling this over this morning, I kept thinking about Snap, which sold stock in its IPO that gave new shareholders no votes at all, and Facebook, which is controlled by Mark Zuckerberg as his personal fiefdom. The two are not alone in this matter. There are a number of other public tech companies that provide certain groups of pre-IPO shareholders more votes than others on a per-share basis, though perhaps to a smaller degree than what Facebook has managed.
It feels like many startups (and former startups) have decided over time that having material shareholder input is a bad idea. That, in effect, they must run companies as not merely monarchies, but unquestioned ones, to boot.
I am not entirely convinced that this is the best way to create long-term shareholder wealth.
If you are on the other side of this particular fence, I understand. After all, Facebook is a global juggernaut and Snap has finally managed to eke out stock-market gains to bring its value back around to where it was when it went public. (A three-year journey.)
But those arguments are only so good. You could easily argue that the two companies could have done much more with less self-sabotage (Facebook) and a bit more spend discipline (Snap).
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The bullish case for Palantir’s direct listing
The Palantir S-1 finally dropped yesterday after TechCrunch spilled a bunch of its guts last Friday. You can read the filing here, if you are so inclined.
Today, however, instead of our usual overview, I have a different goal: We’re going to be a bit more specific.
It’s fun and easy to clown on Palantir’s ridiculous ownership structure, in which a few dudes have decided that, in perpetuity, they must remain co-Lords of the Ring. And, sure, the company is smaller in terms of revenue-scale than many expected (a bit more Hobbiton than Bree, really). And, yes, its net losses are somewhat staggering (post-Helm’s Deep Saruman?), reaching nearly 100% of revenue in 2018.
But things have gotten better in Palantir-land (Mordor?) in recent quarters, which we should note.
So, in light of the generally negative reviews of Palantir’s finances (similar to what is left of Moria?) that I’ve seen in the media and from investors both publicly and privately, here are the bullish bits about the impending direct listing.
The good stuff
In brief, falling net losses in absolute and percent-of-revenue terms paint the picture of a company that is past a high-burn period, allowing profitability to continue to improve; improving gross margins point to a company that is less service-focused and more software-driven over time; the company’s falling operating cash burn is encouraging, and new customer revenue appears sharply higher in 2020 than 2019.
Let’s examine each in order:
- Falling net losses in absolute terms: Palantir lost fractionally less money in 2019 than 2018, but it was a decline all the same. More recently, the first two quarters of 2020 have seen Palantir cut its net loss from $280.5 million in 2019 to $164.7 million. Even better, the company grew during the same period, which means that in percent-of-revenue terms, Palantir did even better.
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