Auto Added by WPeMatico
How students are founding, funding and joining startups
Shawn Xu is a managing partner at The Dorm Room Fund.
There has never been a better time to start, join or fund a startup as a student.
Young founders who want to start companies while still in school have an increasing number of resources to tap into that exist just for them. Students that want to learn how to build companies can apply to an increasing number of fast-track programs that allow them to gain valuable early stage operating experience. The energy around student entrepreneurship today is incredible. I’ve been immersed in this community as an investor and adviser for some time now, and to say the least, I’m continually blown away by what the next generation of innovators are dreaming up (from Analytical Space’s global data relay service for satellites to Brooklinen’s reinvention of the luxury bed).
Bill Gates in 1973
First, let’s look at student founders and why they’re important. Student entrepreneurs have long been an important foundation of the startup ecosystem. Many students wrestle with how best to learn while in school —some students learn best through lectures, while more entrepreneurial students like author Julian Docks find it best to leave the classroom altogether and build a business instead.
Indeed, some of our most iconic founders are Microsoft’s Bill Gates and Facebook’s Mark Zuckerberg, both student entrepreneurs who launched their startups at Harvard and then dropped out to build their companies into major tech giants. A sample of the current generation of marquee companies founded on college campuses include Snap at Stanford ($29B valuation at IPO), Warby Parker at Wharton (~$2B valuation), Rent The Runway at HBS (~$1B valuation), and Brex at Stanford (~$1B valuation).
Some of today’s most celebrated tech leaders built their first ventures while in school — even if some student startups fail, the critical first-time founder experience is an invaluable education in how to build great companies. Perhaps the best example of this that I could find is Drew Houston at Dropbox (~$9B valuation at IPO), who previously founded an edtech startup at MIT that, in his words, provided a: “great introduction to the wild world of starting companies.”
Student founders are everywhere, but the highest concentration of venture-backed student founders can be found at just 5 universities. Based on venture fund portfolio data from the last six years, Harvard, Stanford, MIT, UPenn, and UC Berkeley have produced the highest number of student-founded companies that went on to raise $1 million or more in seed capital. Some prospective students will even enroll in a university specifically for its reputation of churning out great entrepreneurs. This is not to say that great companies are not being built out of other universities, nor does it mean students can’t find resources outside a select number of schools. As you can see later in this essay, there are a number of new ways students all around the country can tap into the startup ecosystem. For further reading, PitchBook produces an excellent report each year that tracks where all entrepreneurs earned their undergraduate degrees.
Student founders have a number of new media resources to turn to. New email newsletters focused on student entrepreneurship like Justine and Olivia Moore’s Accelerated and Kyle Robertson’s StartU offer new channels for young founders to reach large audiences. Justine and Olivia, the minds behind Accelerated, have a lot of street cred— they launched Stanford’s on-campus incubator Cardinal Ventures before landing as investors at CRV.
StartU goes above and beyond to be a resource to founders they profile by helping to connect them with investors (they’re active at 12 universities), and run a podcast hosted by their Editor-in-Chief Johnny Hammond that is top notch. My bet is that traditional media will point a larger spotlight at student entrepreneurship going forward.
New pools of capital are also available that are specifically for student founders. There are four categories that I call special attention to:
- University-affiliated accelerator programs
- University-affiliated angel networks
- Professional venture funds investing at specific universities
- Professional venture funds investing through student scouts
While it is difficult to estimate exactly how much capital has been deployed by each, there is no denying that there has been an explosion in the number of programs that address the pre-seed phase. A sample of the programs available at the Top 5 universities listed above are in the graphic below — listing every resource at every university would be difficult as there are so many.
One alumni-centric fund to highlight is the Alumni Ventures Group, which pools LP capital from alumni at specific universities, then launches individual venture funds that invest in founders connected to those universities (e.g. students, alumni, professors, etc.). Through this model, they’ve deployed more than $200M per year! Another highlight has been student scout programs — which vary in the degree of autonomy and capital invested — but essentially empower students to identify and fund high-potential student-founded companies for their parent venture funds. On campuses with a large concentration of student founders, it is not uncommon to find student scouts from as many as 12 different venture funds actively sourcing deals (as is made clear from David Tao’s analysis at UC Berkeley).
Investment Team at Rough Draft Ventures
In my opinion, the two institutions that have the most expansive line of sight into the student entrepreneurship landscape are First Round’s Dorm Room Fund and General Catalyst’s Rough Draft Ventures. Since 2012, these two funds have operated a nationwide network of student scouts that have invested $20K — $25K checks into companies founded by student entrepreneurs at 40+ universities. “Scout” is a loose term and doesn’t do it justice — the student investors at these two funds are almost entirely autonomous, have built their own platform services to support portfolio companies, and have launched programs to incubate companies built by female founders and founders of color. Another student-run fund worth noting that has reach beyond a single region is Contrary Capital, which raised $2.2M last year. They do a particularly great job of reaching founders at a diverse set of schools — their network of student scouts are active at 45 universities and have spoken with 3,000 founders per year since getting started. Contrary is also testing out what they describe as a “YC for university-based founders”. In their first cohort, 100% of their companies raised a pre-seed round after Contrary’s demo day. Another even more recently launched organization is The MBA Fund, which caters to founders from the business schools at Harvard, Wharton, and Stanford. While super exciting, these two funds only launched very recently and manage portfolios that are not large enough for analysis just yet.
Over the last few months, I’ve collected and cross-referenced publicly available data from both Dorm Room Fund and Rough Draft Ventures to assess the state of student entrepreneurship in the United States. Companies were pulled from each fund’s portfolio page, then checked against Crunchbase for amount raised, accelerator participation, and other metrics. If you’d like to sift through the data yourself, feel free to ping me — my email can be found at the end of this article. To be clear, this does not represent the full scope of investment activity at either fund — many companies in the portfolios of both funds remain confidential and unlisted for good reasons (e.g. startups working in stealth). In fact, the In addition, data for early stage companies is notoriously variable in quality, even with Crunchbase. You should read these insights as directional only, given the debatable confidence interval. Still, the data is still interesting and give good indicators for the health of student entrepreneurship today.
Dorm Room Fund and Rough Draft Ventures have invested in 230+ student-founded companies that have gone on to raise nearly $1 billion in follow on capital. These funds have invested in a diverse range of companies, from govtech (e.g. mark43, raised $77M+ and FiscalNote, raised $50M+) to space tech (e.g. Capella Space, raised ~$34M). Several portfolio companies have had successful exits, such as crypto startup Distributed Systems (acquired by Coinbase) and social networking startup tbh (acquired by Facebook). While it is too early to evaluate the success of these funds on a returns basis (both were launched just 6 years ago), we can get a sense of success by evaluating the rates by which portfolio companies raise additional capital. Taken together, 34% of DRF and RDV companies in our data set have raised $1 million or more in seed capital. For a rough comparison, CB Insights cites that 40% of YC companies and 48% of Techstars companies successfully raise follow on capital (defined as anything above $750K). Certainly within the ballpark!
Dorm Room Fund and Rough Draft Ventures companies in our data set have an 11–12% rate of survivorship to Series A. As a benchmark, a previous partner at Y Combinator shared that 20% of their accelerator companies raise Series A capital (YC declined to share the official figure, but it’s likely a stat that is increasing given their new Series A support programs. For further reading, check out YC’s reflection on what they’ve learned about helping their companies raise Series A funding). In any case, DRF and RDV’s numbers should be taken with a grain of salt, as the average age of their portfolio companies is very low and raising Series A rounds generally takes time. Ultimately, it is clear that DRF and RDV are active in the earlier (and riskier) phases of the startup journey.
Dorm Room Fund and Rough Draft Ventures send 18–25% of their portfolio companies to Y Combinator or Techstars. Given YC’s 1.5% acceptance rate as reported in Fortune, this is quite significant! Internally, these two funds offer founders an opportunity to participate in mock interviews with YC and Techstars alumni, as well as tap into their communities for peer support (e.g. advice on pitch decks and application content). As a result, Dorm Room Fund and Rough Draft Ventures regularly send cohorts of founders to these prestigious accelerator programs. Based on our data set, 17–20% of DRF and RDV companies that attend one of these accelerators end up raising Series A venture financing.
Dorm Room Fund and Rough Draft Ventures don’t invest in the same companies. When we take a deeper look at one specific ecosystem where these two funds have been equally active over the last several years — Boston — we actually see that the degree of investment overlap for companies that have raised $1M+ seed rounds sits at 26%. This suggests that these funds are either a) seeing different dealflow or b) have widely different investment decision-making.
Dorm Room Fund and Rough Draft Ventures should not just be measured by a returns-basis today, as it’s too early. I hypothesize that DRF and RDV are actually encouraging more entrepreneurial activity in the ecosystem (more students decide to start companies while in school) as well as improving long-term founder outcomes amongst students they touch (portfolio founders build bigger and more successful companies later in their careers). As more students start companies, there’s likely a positive feedback loop where there’s increasing peer pressure to start a company or lean on friends for founder support (e.g. feedback, advice, etc).Both of these subjects warrant additional study, but it’s likely too early to conduct these analyses today.
Dorm Room Fund and Rough Draft Ventures have impressive alumni that you will want to track. 1 in 4 alumni partners are founders, and 29% of these founder alumni have raised $1M+ seed rounds for their companies. These include Anjney Midha’s augmented reality startup Ubiquity6 (raised $37M+), Shubham Goel’s investor-focused CRM startup Affinity (raised $13M+), Bruno Faviero’s AI security software startup Synapse (raised $6M+), Amanda Bradford’s dating app The League (raised $2M+), and Dillon Chen’s blockchain startup Commonwealth Labs (raised $1.7M). It makes sense to me that alumni from these communities that decide to start companies have an advantage over their peers — they know what good companies look like and they can tap into powerful networks of young talent / experienced investors.
Beyond Dorm Room Fund and Rough Draft Ventures, some venture capital firms focus on incubation for student-founded startups. Credit should first be given to Lightspeed for producing the amazing Summer Fellows bootcamp experience for promising student founders — after all, Pinterest was built there! Jeremy Liew gives a good overview of the program through his sit-down interview with Afterbox’s Zack Banack. Based on a study they conducted last year, 40% of Lightspeed Summer Fellows alumni are currently active founders. Pear Ventures also has an impressive summer incubator program where 85% of its companies successfully complete a fundraise. Index Ventures is the latest to build an incubator program for student founders, and even accepts founders who want to work on an idea part-time while completing a summer internship.
Let’s now look at students who want to join a startup before founding one. Venture funds have historically looked to tap students for talent, and are expanding the engagement lifecycle. The longest running programs include Kleiner Perkins’ class=”m_1196721721246259147gmail-markup–strong m_1196721721246259147gmail-markup–p-strong”> KP Fellows and True Ventures’ TEC Fellows, which focus on placing the next generation’s most promising product managers, engineers, and designers into the portfolio companies of their parent venture funds.
There’s also the secretive Greylock X, a referral-based hand-picked group of the best student engineers in Silicon Valley (among their impressive alumni are founders like Yasyf Mohamedali and Joe Kahn, the folks behind First Round-backed Karuna Health). As these programs have matured, these firms have recognized the long-run value of engaging the alumni of their programs.
More and more alumni are “coming back” to the parent funds as entrepreneurs, like KP Fellow Dylan Field of Figma (and is also hosting a KP Fellow, closing a full circle loop!). Based on their latest data, 10% of KP Fellows alumni are founders — that’s a lot given the fact that their community has grown to 500! This helps explain why Kleiner Perkins has created a structured path to receive $100K in seed funding to companies founded by KP Fellow alumni. It looks like venture funds are beginning to invest in student programs as part of their larger platform strategy, which can have a real impact over the long term (for further reading, see this analysis of platform strategy outcomes by USV’s Bethany Crystal).
KP Fellows in San Francisco
Venture funds are doubling down on student talent engagement — in just the last 18 months, 4 funds have launched student programs. It’s encouraging to see new funds follow in the footsteps of First Round, General Catalyst, Kleiner Perkins, Greylock, and Lightspeed. In 2017, Accel launched their Accel Scholars program to engage top talent at UC Berkeley and Stanford. In 2018, we saw 8VC Fellows, NEA Next, and Floodgate Insiders all launch, targeting elite universities outside of Silicon Valley. Y Combinator implemented Early Decision, which allows student founders to apply one batch early to help with academic scheduling. Most recently, at the start of 2019, First Round launched the Graduate Fund (staffed by Dorm Room Fund alumni) to invest in founders who are recent graduates or young alumni.
Given more time, I’d love to study the rates by which student founders start another company following investments from student scout funds, as well as whether or not they’re more successful in those ventures. In any case, this is an escalation in the number of venture funds that have started to get serious about engaging students — both for talent and dealflow.
Student entrepreneurship 2.0 is here. There are more structured paths to success for students interested in starting or joining a startup. Founders have more opportunities to garner press, seek advice, raise capital, and more. Venture funds are increasingly leveraging students to help improve the three F’s — finding, funding, and fixing. In my personal view, I believe it is becoming more and more important for venture funds to gain mindshare amongst the next generation of founders and operators early, while still in school.
I can’t wait to see what’s next for student entrepreneurship in 2019. If you’re interested in digging in deeper (I’m human — I’m sure I haven’t covered everything related to student entrepreneurship here) or learning more about how you can start or join a startup while still in school, shoot me a note at sxu@dormroomfund.com. A massive thanks to Phin Barnes, Rei Wang, Chauncey Hamilton, Peter Boyce, Natalie Bartlett, Denali Tietjen, Eric Tarczynski, Will Robbins, Jasmine Kriston, Alicia Lau, Johnny Hammond, Bruno Faviero, Athena Kan, Shohini Gupta, Alex Immerman, Albert Dong, Phillip Hua-Bon-Hoa, and Trevor Sookraj for your incredible encouragement, support, and insight during the writing of this essay.
Powered by WPeMatico
Spotify, eBay set standard for fertility benefits, study finds
The technology sector awards women and same-sex couples the most comprehensive fertility benefit packages, according to a survey by FertilityIQ, an online platform for fertility patients to review doctors and research treatments.
The company asked 30,000 in vitro fertilisation (IVF) patients across industries about their employers’ — or their spouse’s employer’s’ — 2019 fertility treatment policy, and allocated points based on their support for IVF procedures and egg freezing, among other services.
Silicon Valley semiconductor business Analog Devices and eBay led the ranking. The two companies offer employees unlimited IVF cycles with no pre-authorization requirement, meaning employees do not need permission from insurance providers before seeking certain medical services. Pre-authorization has historically impacted lesbian, gay or unpartnered employees from accessing care quickly or at all, FertilityIQ co-founder Jake Anderson explained
Spotify, Adobe, Lyft, Facebook and Pinterest were amongst the highest-ranked technology businesses, too.
“I think a lot of people see the tech sector as being unenlightened when it comes to family values but it’s still the sector that makes the fertility benefits the most widely acceptable,” Anderson, a former consumer internet investor at Sequoia Capital, told TechCrunch.
FertilityIQ’s fertility benefits survey results.
Despite an initial outpouring of skepticism, Facebook and Apple became leaders in the fertility benefit category when they began paying for their female employees to freeze their eggs in 2014. Since then, smaller firms have opted to beef up those benefits to stay competitive with their much larger and richer counterparts.
“The Lyfts, the Airbnbs and the Ubers of the world, who clearly need to compete for those companies for talent, have effectively matched those companies dollar-for-dollar despite a much smaller war-chest,” Anderson said. “These companies that are worth 1/1000th of these bigger companies are effectively going toe-to-toe to offer whatever women need.”
Anderson and his wife, FertilityIQ co-founder Deborah Anderson, noticed improved benefits in 2018 from companies implicated by the #MeToo movement, such as Vice Media, Under Armour and Uber.
“Silicon Valley is notorious for talent moving around on you but it’s probably not coincidental that some of the companies that were in the spotlight in the #MeToo movement have added really generous benefits,” Deborah Anderson told TechCrunch.
Uber, for example, now pays for its employees to complete two IVF cycles but still requires pre-authorization.
One in 7 Americans struggle with infertility and the rate of IVF procedures only continues to increase, with the latest data indicating a 15 percent year-over-year growth rate. IVF costs roughly $22,000 per cycle, per FertilityIQ’s survey, a cost which has similarly increased 15 percent since 2015.
That’s a whole lot of cash for a fertility patient to dole out. If companies foot the bill, they’ll have a better shot at retaining talent.
“Best we can tell, there is no question that employees that get this benefit and use it are more loyal and more likely to stick around,” Jake Anderson said. “The company that helps you build your family is the company that you remain committed to.”
Powered by WPeMatico
Startups Weekly: Even Gwyneth Paltrow had a hard time raising VC
I spent the week in Malibu attending Upfront Ventures’ annual Upfront Summit, which brings together the likes of Hollywood, Silicon Valley and Washington, DC’s elite for a two-day networking session of sorts. Cameron Diaz was there for some reason, and Natalie Portman made an appearance. Stacey Abrams had a powerful Q&A session with Lisa Borders, the president and CEO of Time’s Up. Of course, Gwyneth Paltrow was there to talk up Goop, her venture-funded commerce and content engine.
“I had no idea what I was getting into but I am so fulfilled and on fire from this job,” Paltrow said onstage at the summit… “It’s a very different life than I used to have but I feel very lucky that I made this leap.” Speaking with Frederic Court, the founder of Felix Capital, Paltrow shed light on her fundraising process.
“When I set out to raise my Series A, it was very difficult,” she said. “It’s great to be Gwyneth Paltrow when you’re raising money because people take the meeting, but then you get a lot more rejections than you would if they didn’t want to take a selfie … People, understandably, were dubious about [this business]. It becomes easier when you have a thriving business and your unit economics looks good.”
In other news…
The actor stopped by the summit to promote his startup, HitRecord . I talked to him about his $6.4 million round and grand plans for the artist-collaboration platform.
Backed by GV, Sequoia, Floodgate and more, Clover Health confirmed to TechCrunch this week that it’s brought in another round of capital led by Greenoaks. The $500 million round is a vote of confidence for the business, which has experienced its fair share of well-publicized hiccups. More on that here. Plus, Clutter, the startup that provides on-demand moving and storage services, is raising at least $200 million from SoftBank, sources tell TechCrunch. The round is a big deal for the LA tech ecosystem, which, aside from Snap and Bird, has birthed few venture-backed unicorns.
Pinterest, the nine-year-old visual search engine, has hired Goldman Sachs and JPMorgan Chase as lead underwriters for an IPO that’s planned for later this year. With $700 million in 2018 revenue, the company has raised some $1.5 billion at a $12 billion valuation from Goldman Sachs Investment Partners, Valiant Capital Partners, Wellington Management, Andreessen Horowitz, Bessemer Venture Partners and more.
Kleiner Perkins went “back to the future” this week with the announcement of a $600 million fund. The firm’s 18th fund, it will invest at the seed, Series A and Series B stages. TCV, a backer of Peloton and Airbnb, closed a whopping $3 billion vehicle to invest in consumer internet, IT infrastructure and services startups. Partech has doubled its Africa VC fund to $143 million and opened a Nairobi office to complement its Dakar practice. And Sapphire Ventures has set aside $115 million for sports and entertainment bets.
The co-founder of Y Combinator will throw a sort of annual weekend getaway for nerds in picturesque Boulder, Colo. Called the YC 120, it will bring toget her 120 people for a couple of days in April to create connections. Read TechCrunch’s Connie Loizos’ interview with Altman here.
Consumer wellness business Hims has raised $100 million in an ongoing round at a $1 billion pre-money valuation. A growth-stage investor has led the round, with participation from existing investors (which include Forerunner Ventures, Founders Fund, Redpoint Ventures, SV Angel, 8VC and Maverick Capital) . Our sources declined to name the lead investor but said it was a “super big fund” that isn’t SoftBank and that hasn’t previously invested in Hims.
Five years after Andreessen Horowitz backed Oculus, it’s leading a $68 million Series A funding in Sandbox VR. TechCrunch’s Lucas Matney talked to a16z’s Andrew Chen and Floodgate’s Mike Maples about what sets Sandbox apart.
Here’s your weekly reminder to send me tips, suggestions and more to kate.clark@techcrunch.com or @KateClarkTweets.
- More startup cash:
- Data governance platform Collibra raises $100M at a $1B valuation
- FabFitFun raises $80M for its growing lifestyle brand
- ContentSquare, the digital experience insights platform, raises $60M
- Petal raises $30M from Valar to bank the unbanked with credit cards
- Verbit raises $23M for its transcription service
- Dadi brings in $2M to democratize sperm storage
In a new class-action lawsuit, a former Munchery facilities worker is claiming the startup owes him and 250 other employees 60 days’ wages. On top of that, another former employee says the CEO, James Beriker, was largely absent and is to blame for Munchery’s downfall. If you haven’t been keeping up on Munchery’s abrupt shutdown, here’s some good background.
Consolidation in the micromobility space has arrived — in Brazil, at least. Not long after Y Combinator-backed Grin merged its electric scooter business with Brazil-based Ride, it’s completing another merger, this time with Yellow, the bike-share startup based in Brazil that has also expressed its ambitions to get into electric scooters.
If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase editor-in-chief Alex Wilhelm, TechCrunch’s Silicon Valley editor Connie Loizos and Jeff Clavier of Uncork Capital chat about $100 million rounds, Stripe’s mega valuation and Pinterest’s highly anticipated IPO.
Powered by WPeMatico
Pinterest puts an IPO on its pinboard, hiring Goldman Sachs and JPMorgan to lead an offering this year
Pinterest, the 11-year-old, San Francisco-based site known for the photos its users post about everything from wedding to beauty trends, has hired Goldman Sachs and JPMorgan Chase as lead underwriters for an IPO that it’s planning to stage later this year.
Reuters first reported the news. TechCrunch sources have since confirmed the development. A Pinterest spokesperson declined to “comment on rumors and speculation” when asked this afternoon for more information.
Pinterest has raised roughly $1.5 billion over the years and was valued at $12 billion by its private investors during its last fundraising round in 2017. Notably, its backers include Goldman Sachs Investment Partners, among many other investment firms, both early and later-stage, like Valiant Capital Partners, Wellington Management, Andreessen Horowitz and Bessemer Venture Partners.
The company’s revenue last year was $700 million, more than double what the company generated in revenue in 2017.
It has 250 million monthly active users, compared with the 200 million monthly active users who were on the platform as of mid 2017.
Whether Pinterest has ever been profitable, we couldn’t learn this afternoon. But the company employs 1,600 people across 13 cities globally, including Chicago, London, Paris, São Paulo, Berlin, and Tokyo, and half its users now live outside the U.S., with the international market its fastest-growing segment.
Perhaps unsurprisingly, more than 80 percent of people access the service via its mobile app.
Assessing how Pinterest’s shares might be received by public market shareholders has become a favorite parlor game for Silicon Valley denizens. In a recent report, the outlet The Information posited that Pinterest’s offering could suffer because it’s a social media company that’s frequently lumped together with companies like Facebook and Twitter that have repeatedly raised concerns about users’ privacy and have faced a nearly year-long backlash as a result.
Yet Pinterest is far afield from what most users think of as social media and more akin to a visual search and discovery platform, with people looking for ideas and inspiration rather than to reach other people. So thinks venture capitalist Venky Ganesan of Menlo Ventures, who noted on a recent TechCrunch podcast that “there are no Russian trolls” on Pinterest. More, he’d said, “I haven’t seen Pinterest sell [users’] data. They’re using data to [figure out] advertising on Pinterest; they aren’t brokering [that information] to others.”
Another potential concern for Pinterest is its reliance advertising, which is often the easiest expense for companies to slash when an economy begins to cool, as may be happening here in the U.S. Ads make up 100 percent of the company’s revenue. Here, too, however, Pinterest could prove more durable than some of its competitors. While brand-image driven advertising often gets cut when budgets tighten, direct response advertising often does even better in down markets, as companies seek out clearer returns on their investment, and much of Pinterest’s revenue is driven by direct response advertising. Users see, they click, and they buy. As Ganesan offered during that same podcast visit, “I’ve got three daughters at home, and they spend a lot of time on Pinterest, and they buy stuff.” (Ganesan isn’t an investor in the company; neither is the broader Menlo Ventures team.)
Pinterest could reportedly seek to raise up to $1.5 billion in an offering, according to past media reports. Whether it targets more or less, we’re likely to learn soon, but an IPO has been expected for some time, in part because the company is now getting up there in years as startups go, in part because of its continued growth, and in part because of some new hires that seemed to suggest the company has been gearing up to become publicly traded.
In November, for example, Pinterest brought aboard its first-ever chief marketing officer in Andréa Mallard, who joined the company from Athleta, Gap’s activewear brand, and who now oversees its global marketing and creative teams.
Roughly a year ago, Pinterest also recruited its first COO, hiring Francoise Brougher, who was previously a business lead at Square and a VP of SMB global sales and operations at Google before that.
In fact, unlike many of today’s buzziest companies, Pinterest seems to have retained almost all of the executives who work at the company with one notable exception, In late 2017, it parted ways with its then president, Tim Kendall, who’d been with Pinterest for more than five years at the time and who left to start his own health wellness company.
Powered by WPeMatico
Startups Weekly: Will Trump ruin the unicorn IPOs of our dreams?
The government shutdown entered its 21st day on Friday, upping concerns of potentially long-lasting impacts on the U.S. stock market. Private market investors around the country applauded when Uber finally filed documents with the SEC to go public. Others were giddy to hear Lyft, Pinterest, Postmates and Slack (via a direct listing, according to the latest reports) were likely to IPO in 2019, too.
Unfortunately, floats that seemed imminent may not actually surface until the second half of 2019 — that is unless President Donald Trump and other political leaders are able to reach an agreement on the federal budget ASAP. This week, we explored the government’s shutdown’s connection to tech IPOs, recounted the demise of a well-funded AR project and introduced readers to an AI-enabled self-checkout shopping cart.
1. Postmates gets pre-IPO cash
The company, an early entrant to the billion-dollar food delivery wars, raised what will likely be its last round of private capital. The $100 million cash infusion was led by BlackRock and valued Postmates at $1.85 billion, up from the $1.2 billion valuation it garnered with its unicorn round in 2018.
2. Uber’s IPO may not be as eye-popping as we expected
To be fair, I don’t think many of us really believed the ride-hailing giant could debut with a $120 billion initial market cap. And can speculate on Uber’s valuation for days (the latest reports estimate a $90 billion IPO), but ultimately Wall Street will determine just how high Uber will fly. For now, all we can do is sit and wait for the company to relinquish its S-1 to the masses.
N26, a German fintech startup, raised $300 million in a round led by Insight Venture Partners at a $2.7 billion valuation. TechCrunch’s Romain Dillet spoke with co-founder and CEO Valentin Stalf about the company’s global investors, financials and what the future holds for N26.
Bird is in the process of raising an additional $300 million on a flat pre-money valuation of $2 billion. The e-scooter startup has already raised a ton of capital in a very short time and a fresh financing would come at a time when many investors are losing faith in scooter startups’ claims to be the solution to the problem of last-mile transportation, as companies in the space display poor unit economics, faulty batteries and a general air of undependability. Plus, Aurora, the developer of a full-stack self-driving software system for automobile manufacturers, is raising at least $500 million in equity funding at more than a $2 billion valuation in a round expected to be led by new investor Sequoia Capital.
Here’s your weekly reminder to send me tips, suggestions and more to kate.clark@techcrunch.com or @KateClarkTweets.
WeWork, a co-working giant backed with billions, had planned on securing a $16 billion investment from existing backer SoftBank . Well, that’s not exactly what happened. And, oh yeah, they rebranded.
After 20 long years, augmented reality glasses pioneer ODG has been left with just a skeleton crew after acquisition deals from Facebook and Magic Leap fell through. Here’s a story of a startup with $58 million in venture capital backing that failed to deliver on its promises.
7. Data point
Seed activity for U.S. startups has declined for the fourth straight year, as median deal sizes increased at every stage of venture capital.
Key takeaways:
1. Seed activity for U.S. startups declined for the fourth straight year
2. Median U.S. seed deal was the highest on record in Q4 at $2.1M
3. Seed activity as a % of deals shrunk to 25%
4. Companies securing seed deals are older than ever https://t.co/exr8DRQRAF— Kate Clark (@KateClarkTweets) January 9, 2019
8. Meanwhile, in startup land…
This week edtech startup Emeritus, a U.S.-Indian company that partners with universities to offer digital courses, landed a $40 million Series C round led by Sequoia India. Badi, which uses an algorithm to help millennials find roommates, brought in a $30 million Series B led by Goodwater Capital. And Mr Jeff, an on-demand laundry service startup, bagged a $12 million Series A.
9. Finally, Meet Caper, the AI self-checkout shopping cart
The startup, which makes a shopping cart with a built-in barcode scanner and credit card swiper, has revealed a total of $3 million, including a $2.15 million seed round led by First Round Capital .
Want more TechCrunch newsletters? Sign up here.
Powered by WPeMatico
With SEC workers offline, the government shutdown could screw IPO-ready companies
The government shutdown has entered into day 19, making it the second-longest shutdown in U.S. history. With President Donald Trump slamming his hands down on a table and storming out of negotiations with Speaker Nancy Pelosi and Senator Chuck Schumer earlier today, a fast-approaching end feels unlikely.
Hundreds of thousands of federal workers are out of work as U.S. leaders struggle to reach a fair agreement on the federal budget, including employees of the U.S. Securities and Exchange Commission . The government agency, responsible for protecting investors and maintaining fair, orderly and efficient markets, shut down on December 27 and has just 285 of its 4,436 employees on the clock.
“Due to the ongoing federal government shutdown, the SEC is currently operating in accordance with the agency’s plan for operating during a shutdown,” the agency wrote on its website. “The SEC has staff available to respond to emergency situations involving market integrity and investor protection, including law enforcement.”
EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system that allows companies to electronically file crucial documents, including paperwork for initial public offerings, has remained up and running. That’s led to a “large and growing” backlog of filings, reports CNBC, that could cause a delay in several IPOs, as well as a lasting impact on the state of the IPO market in 2019.
Just left a meeting with Chuck and Nancy, a total waste of time. I asked what is going to happen in 30 days if I quickly open things up, are you going to approve Border Security which includes a Wall or Steel Barrier? Nancy said, NO. I said bye-bye, nothing else works!
— Donald J. Trump (@realDonaldTrump) January 9, 2019
Several major technology companies have taken steps toward early-2019 IPOs, all of which are at risk of a delay. A poor performing stock market is only adding fuel to the flames in a year that many had expected would bring record amounts of liquidity to investors via high-profile offerings. Uber, Lyft, Slack and Pinterest have all begun IPO prep, for example, with Uber chief executive officer Dara Khosrowshahi recently claiming turbulent public markets would not delay the ride-hailing company’s float.
“The good news is that we’ve got a strong balance sheet so we don’t need to go public this year,” he told The Wall Street Journal. “It’s a desire [but] if it doesn’t happen it doesn’t happen. I’d be disappointed and I think our shareholders would be disappointed but the company would be just fine.”
He didn’t comment on the potential resonating effects of a government shutdown, per The WSJ. Uber and its largest U.S. competitor Lyft both filed confidentially with the SEC in December, just weeks before the shutdown began. During the shutdown, companies are still permitted to file confidentially, a method preferred by many companies as it allows them to refrain from disclosing key IPO details and financials to the public ahead of an exit.
Ultimately, tech’s most buzz-worthy unicorns will be the least affected by Trump and co.’s discordance. Well-funded businesses with strong balance sheets, as Khosrowshahi pointed out, have a safety net ready if IPO plans go awry. Smaller businesses, particularly those in need of an infusion of capital to continue operating, will bear the brunt of any IPO delays.
Powered by WPeMatico
Uber’s IPO may not be as eye-popping as we expected
Uber is expected to raise $10 billion later this year in one of the largest U.S. initial public offerings in history. The float will value the ride-hailing giant somewhere between $76 billion — the valuation it garnered with its last private financing — and $120 billion — a sky-high figure assigned by Wall Street bankers that’s had even early Uber investors scratching their heads.
A new report from The Information pegs Uber’s initial market cap at $90 billion. To develop the estimate, the site analyzed undisclosed documents Uber provided creditors in 2017 “in which the company projected it would double net revenue to $14.2 billion by 2019,” ran revenue multiples and compared Uber to GrubHub, which investors say is the business’s closest comparison.
Uber declined to comment on The Information’s analysis.
How we got here
Uber confidentially filed for its long-awaited IPO last month, marking the beginning of a race to the stock markets between it and U.S. competitor Lyft, which filed just hours before, according to a source with knowledge of the situation. Founded in 2009 by Travis Kalanick, Uber has brought in about $20 billion in a combination of debt and equity funding. It counts SoftBank as its largest shareholder in a cap table that also lists Toyota, T. Rowe Price, Fidelity, TPG Growth and many more. As for the skepticism surrounding Uber’s lofty $120 billion valuation, the eye-popping figure seems unachievable considering the company isn’t profitable and has and continues to burn through cash.
An IPO that large would certainly make its investors happy. First Round Capital, for example, seeded Uber with $1.6 million in the company’s first two funding rounds in 2010 and 2011, according to The Wall Street Journal. At a $120 billion valuation, First Round’s shares would be worth some $5 billion. The venture capital firm, however, sold some of its shares to SoftBank alongside Benchmark, which itself would otherwise own shares worth about $14 billion.
Bradley Tusk, an early Uber investor who signed on to help the company surmount political and regulatory barriers in 2011, own shares said to be worth $100 million, though he too gave up 42 percent of his equity in a secondary sale to SoftBank, he recently told TechCrunch.
“I’m quite happy with the 120 number,” Tusk said. “But … I am a little surprised by [it], it does seem to be a really aggressive number.”
“Any investment in Uber is obviously a long-term bet on the future, like someone who invested in Amazon in the early days,” Tusk added. “One thing [Uber chief executive officer Dara Khosrowshahi] is doing well is really expanding Uber into a mobility company as opposed to just a ride-hailing company.”
Dara Kowsrowshahi, chief executive officer of Uber, looks on following an event in New Delhi, India, on Thursday, Feb. 22, 2018. Photographer: Anindito Mukherjee/Bloomberg via Getty Images
A long-term bet on the future
Uber has opted to go public in a year poised to see the most high-flying unicorn IPOs in history. As we’ve reported in great detail on this site, both Lyft and Uber are planning to float, as are Slack and Pinterest . Many of these companies, however, made the call to make their public markets debut before the stock market took a quick turn south. Poor performing stocks may discourage unicorns from emerging from their cozy VC-protected stalls.
Uber will garner increased scrutiny from Wall Street investors as they begin to parse out its true value. Fortunately the company, which like Amazon has long prioritized growth over profit, has “’clear levers’ it could pull in order to turn on the cash spigots if it wanted to, by reducing its marketing spending both in the U.S. and developing markets and by finding partners to help finance its self-driving car development,” according to The Information. “Pulling those levers would slow revenue growth by a third—from a 33% growth in net revenue to 22 percent growth in net revenue in 2019 [but] it would save Uber $2 billion annually.”
In its third quarter 2018 financial results, Uber posted a net loss of $939 million on a pro forma basis and an adjusted EBITDA loss of $527 million, up about 21 percent quarter-over-quarter. Revenue for Q3 was up five percent QoQ at $2.95 billion and up 38 percent year-over-year.
“We had another strong quarter for a business of our size and global scope,” Uber chief financial officer Nelson Chai said in a statement. “As we look ahead to an IPO and beyond, we are investing in future growth across our platform, including in food, freight, electric bikes and scooters, and high-potential markets in India and the Middle East where we continue to solidify our leadership position.”
We can speculate on Uber’s valuation for days but ultimately Wall Street will determine just how high Uber will go. For now, all we can do is sit and wait for the company to relinquish its S-1 to the masses.
Powered by WPeMatico
My product launch wishlist for Instagram, Twitter, Uber and more
‘Twas the night before Xmas, and all through the house, not a feature was stirring from the designer’s mouse . . . Not Twitter! Not Uber, Not Apple or Pinterest! On Facebook! On Snapchat! On Lyft or on Insta! . . . From the sidelines I ask you to flex your code’s might. Happy Xmas to all if you make these apps right.
See More Like This – A button on feed posts that when tapped inserts a burst of similar posts before the timeline continues. Want to see more fashion, sunsets, selfies, food porn, pets, or Boomerangs? Instagram’s machine vision technology and metadata would gather them from people you follow and give you a dose. You shouldn’t have to work through search, hashtags, or the Explore page, nor permanently change your feed by following new accounts. Pinterest briefly had this feature (and should bring it back) but it’d work better on Insta.
Web DMs – Instagram’s messaging feature has become the defacto place for sharing memes and trash talk about people’s photos, but it’s stuck on mobile. For all the college kids and entry-level office workers out there, this would make being stuck on laptops all day much more fun. Plus, youth culture truthsayer Taylor Lorenz wants Instagram web DMs too.
Upload Quality Indicator – Try to post a Story video or Boomerang from a crummy internet connection and they turn out a blurry mess. Instagram should warn us if our signal strength is low compared to what we usually have (since some places it’s always mediocre) and either recommend we wait for Wi-Fi, or post a low-res copy that’s replaced by the high-res version when possible.
Oh, and if new VP of product Vishal Shah is listening, I’d also like Bitmoji-style avatars and a better way to discover accounts that shows a selection of their recent posts plus their bio, instead of just one post and no context in Explore which is better for discovering content.
DM Search – Ummm, this is pretty straightforward. It’s absurd that you can’t even search DMs by person, let alone keyword. Twitter knows messaging is a big thing on mobile right? And DMs are one of the most powerful ways to get in contact with mid-level public figures and journalists. PS: My DMs are open if you’ve got a news tip — @JoshConstine.
Unfollow Suggestions – Social networks are obsessed with getting us to follow more people, but do a terrible job of helping us clean up our feeds. With Twitter bringing back the option to see a chronological feed, we need unfollow suggestions more than ever. It should analyze who I follow but never click, fave, reply to, retweet, or even slow down to read and ask if I want to nix them. I asked for this 5 years ago and the problem has only gotten worse. Since people feel like their feeds are already overflowing, they’re stingy with following new people. That’s partly why you see accounts get only a handful of new followers when their tweets go viral and are seen by millions. I recently had a tweet with 1.7 million impressions and 18,000 Likes that drove just 11 follows. Yes I know that’s a self-own.
Analytics Benchmarks – If Twitter wants to improve conversation quality, it should teach us what works. Twitter offers analytics about each of your tweets, but not in context of your other posts. Did this drive more or fewer link clicks or follows than my typical tweet? That kind of info could guide users to create more compelling content.
(Obviously we could get into Facebook’s myriad problems here. A less sensationalized feed that doesn’t reward exaggerated claims would top my list. Hopefully its plan to downrank “borderline content” that almost violates its policies will help when it rolls out.)
Batched Notifications – Facebook sends way too many notifications. Some are downright useless and should be eliminated. “14 friends responded to events happening tomorrow”? “Someone’s fundraiser is half way to its goal?” Get that shit out of here. But there are other notifications I want to see but that aren’t urgent nor crucial to know about individually. Facebook should let us decide to batch notifications so we’d only get one of a certain type every 12 or 24 hours, or only when a certain number of similar ones are triggered. I’d love a digest of posts to my Groups or Events from the past day rather than every time someone opens their mouth.
I so don’t care
Notifications In The “Time Well Spent” Feature – Facebook tells you how many minutes you spent on it each day over the past week and on average, but my total time on Facebook matters less to me than how often it interrupts my life with push notifications. The “Your Time On Facebook” feature should show how many notifications of each type I’ve received, which ones I actually opened, and let me turn off or batch the ones I want fewer of.
Oh, and for Will Cathcart, Facebook’s VP of apps, can I also get proper syncing so I don’t rewatch the same Stories on Instagram and Facebook, the ability to invite people to Events on mobile based on past invite lists of those I’ve hosted or attended, and the See More Like This feature I recommended for Instagram?
Uber/Lyft/Ridesharing
“Quiet Ride” Button – Sometimes you’re just not in the mood for small talk. Had a rough day, need to get work done, or want to just zone out? Ridesharing apps should offer a request for a quiet ride that if the driver allows with a preset and accepts before you get in, you pay them an extra dollar (or get it free as a loyalty perk), and you get ferried to your destination without unnecessary conversation. I get that it’s a bit dehumanizing for the driver, but I’d bet some would happily take a little extra cash for the courtesy.
“I Need More Time” Button – Sometimes you overestimate the ETA and suddenly your car is arriving before you’re ready to leave. Instead of cancelling and rebooking a few minutes later, frantically rushing so you don’t miss your window and get smacked with a no-show fee, or making the driver wait while they and the company aren’t getting paid, Uber, Lyft, and the rest should offer the “I Need More Time” button that simply rebooks you a car that’s a little further away.
Spotify/Music Streaming Apps
Scan My Collection – I wish I could just take photos of the album covers, spines, or even discs of my CD or record collection and have them instantly added to a playlist or folder. It’s kind of sad that after lifetimes of collecting physical music, most of it now sits on a shelf and we forget to play what we used to love. Music apps want more data on what we like, and it’s just sitting there gathering dust. There’s obviously some fun viral potential here too. Let me share what’s my most embarrassing CD. For me, it’s my dual copies of Limp Bizkit’s “Significant Other” because I played the first one so much it got scratched.
Friends Weekly – Spotify ditched its in-app messaging, third-party app platform, and other ways to discover music so its playlists would decide what becomes a hit in order to exert leverage over the record labels to negotiate better deals. But music discovery is inherently social and the desktop little ticker of what friends are playing on doesn’t cut it. Spotify should let me choose to recommend my new favorite song or agree to let it share what I’ve recently played most, and put those into a Discover Weekly-style social playlist of what friends are listening to.
Snapchat
Growth – I’m sorry, I had to.
Bulk Export Memories – But seriously, Snapchat is shrinking. That’s worrisome because some users’ photos and videos are trapped on its Memories cloud hosting feature that’s supposed to help free up space on your phone. But there’s no bulk export option, meaning it could take hours of saving shots one at a time to your camera roll if you needed to get off of Snapchat, if for example it was shutting down, or got acquired, or you’re just bored of it.
Add-On Cameras – Snapchat’s Spectacles are actually pretty neat for recording first-person or underwater shots in a circular format. But otherwise they don’t do much more, and in some ways do much less, than your phone’s camera and are a long way from being a Magic Leap competitor. That’s why if Snapchat really wants to become a “Camera Company”, it should build sleek add-on cameras that augment our phone’s hardware. Snap previously explored selling a 360-camera but never launched one. A little Giroptic iO-style 360 lens that attaches to your phone’s charging port could let you capture a new kind of content that really makes people feel like they’re there with you. An Aukey Aura-style zoom lens attachment that easily fits in your pocket unlike a DSLR could also be a hit
iOS
Switch Wi-Fi/Bluetooth From Control Center – I thought the whole point of Control Center was one touch access, but I can only turn on or off the Wi-Fi and Bluetooth. It’s silly having to dig into the Settings menu to switch to a different Wi-Fi network or Bluetooth device, especially as we interact with more and more of them. Control Center should unfurl a menu of networks or devices you can choose from.
Shoot GIFs – Live Photos are a clumsy proprietary format. Instagram’s Boomerang nailed what we want out of live action GIFs and we should be able to shoot them straight from the iOS camera and export them as actual GIFs that can be used across the web. Give us some extra GIF settings and iPhones could have a new reason for teens to choose them over Androids.
Gradual Alarms – Anyone else have a heart attack whenever they hear their phone’s Alarm Clock ringtone? I know I do because I leave my alarms on so loud that I’ll never miss them, but end up being rudely shocked awake. A setting that gradually increases the volume of the iOS Alarm Clock every 15 seconds or minute so I can be gently arisen unless I refuse to get up.
Maybe some of these apply to Android, but I wouldn’t know because I’m a filthy casual iPhoner. Send me your Android suggestions, as well as what else you want to see added to your favorite apps.
[Image Credit: Hanson Inc]
Powered by WPeMatico
5 unicorns that will probably go public in 2019 (besides Uber and Lyft)
There’s been plenty of fanfare surrounding Uber and Lyft’s initial public offerings — slated for early 2019 — since the two companies filed confidential IPO paperwork with the U.S. Securities and Exchange Commission in early December. On top of that, public and private investors have had plenty to say about Slack and Pinterest’s rumored 2019 IPOs but those aren’t the only “unicorn” exits we should expect to witness in the year ahead.
Using its proprietary company rating algorithm, data provider CB Insights ranked five billion dollar companies most likely to perform IPOs next year in its latest tech IPO report. The algorithm analyzes non-traditional public signals, including hiring activity, web traffic and mobile app data to make its predictions. These are the startups that topped their list.
Peloton
Peloton Co-Founder and CEO John Foley speaks onstage during TechCrunch Disrupt SF 2018 on September 6, 2018 in San Francisco, California. (Photo by Kimberly White/Getty Images for TechCrunch).
Peloton, dubbed the “Netflix of fitness,” has raised nearly $1 billion in venture capital funding in the six years since it was founded by John Foley, most recently raising $550 million at a $4 billion valuation. The manufacturer of tech-enabled exercise equipment is more than doubling in size every year and is “weirdly profitable,” an unusual characteristic for a venture-backed business of its age. Headquartered in New York, Peloton doesn’t have any public IPO plans, though Foley recently told The Wall Street Journal that 2019 “makes a lot of sense” for its stock market debut.
Select investors: L Catterton, True Ventures, Tiger Global
Cloudflare
Cloudflare co-founder and CEO Matthew Prince appears on stage at the 2014 TechCrunch Disrupt Europe/London. (Photo by Anthony Harvey/Getty Images for TechCrunch)
Cybersecurity unicorn Cloudflare is likely to transition to the public markets in the first half of 2019 in what is poised to be a strong year for IPOs in the security industry. The web performance and security platform is said to be preparing for an IPO at a potential valuation of more than $3.5 billion after last raising capital in 2015 at a $1.8 billion valuation. Since it was founded in 2009, the San Francisco-based company has raised just north of $250 million in VC funding. CrowdStrike, another security unicorn, is also on track to go public next year and it wouldn’t be surprising to see Illumio and Lookout make the jump to the public markets as well.
Select investors: Pelion Venture Partners, NEA, Venrock
Zoom
San Jose-based Zoom Video Communications has reportedly tapped Morgan Stanley to lead its upcoming IPO.
Zoom, a provider of video conferencing services, online meeting and group messaging tools that’s raised $160 million in VC cash to date, is eyeing a multi-billion IPO in 2019 and has reportedly hired Morgan Stanley to lead the offering. Founded in 2011, the company most recently brought in a $100 million Series D financing, entirely funded by Sequoia, at a $1 billion valuation in early 2017. Based in San Jose, Zoom is hoping to garner a valuation significantly larger than $1 billion when it IPOs, according to Reuters.
Select investors: Sequoia, Emergence Capital Partners, Horizons Ventures
Rubrik
Data management company Rubrik co-founder and CEO Bipul Sinha.
Data management company Rubrik has quietly made moves indicative of an impending IPO. The startup, which provides data backup and recovery services for businesses across cloud and on-premises environments, hired former Atlassian chief financial officer Murray Demo as its CFO earlier this year, as well as its first chief legal officer, Peter McGoff. Palo Alto-based Rubrik was valued at over of $1 billion with a $180 million funding round in 2017. The company has raised nearly $300 million to date.
Select investors: Lightspeed Venture Partners, Greylock, Khosla Ventures
Medallia
Medallia, a customer experience management platform that’s nearly two decades old, may finally become a public company in 2019. The San Mateo-based company, which has been rumored to be planning an IPO for several years, hired a new CEO this year and reported $250 million in GAAP revenue for the year ending Jan. 31, 2018, according to Forbes. Medallia hasn’t raised capital since 2015, when it secured a $150 million funding deal at a $1.2 billion valuation. It has raised a total of just over $250 million.
Select investor: Sequoia
Powered by WPeMatico
Did unicorns like Lyft and Uber wait too long?
It was several years ago, at a tech conference in Laguna Beach, Calif., that the venture capitalist Bill Gurley issued one of what would become repeated warnings that startups were staying private too long. Comparing companies that refuse to go public to undergrads whose college careers extend several years past the point that they should, Gurley suggested they should be embarrassed, not proud, for keeping their shares in private hands. “Until you get liquid, you really haven’t accomplished anything,” Gurley said.
Whether Gurley was referring to Uber at the time, only he knows. Though his firm, Benchmark, eventually forced out Travis Kalanick, the co-founder and longtime CEO of Uber, the tipping point was seemingly not Kalanick’s determination to keep Uber privately held as long as possible, but rather an investigation into sexual harassment investigations and the employee misconduct that was discovered in the process.
Either way, it’s looking increasingly like Gurley had a point. As you may have noticed if you care anything about the public markets, they took a nosedive today. In fact, they fell to a new low for the year this afternoon, a reaction in part to the Federal Reserve’s decision earlier today to raise its benchmark overnight lending rate for the fourth time in 2018.
The Fed also signaled minimal rate hikes for next year — forecasting two rate hikes instead of three — but investors were apparently hoping for even better news.
It’s hard to blame them for seeking out more of a silver lining, given everything else that’s going on. Tech stocks are getting battered, with the FANG companies (Facebook, Apple, Netflix and Google) down meaningfully from their share prices of six months ago. (Amazon has held up the best.)
The economy of China — the U.S.’s third largest export partner and its largest import partner — is slowing sharply, which is expected to have an impact on the U.S. and world economies. Add trade tensions into the mix, a sprinkling of uncertainty about regulations, a splash of a possible government shutdown and the growing prospect that Donald Trump will be impeached, and you start to appreciate why the market is finally going off the rails.
Despite so much uncertainty, Uber, Lyft, Slack and now Pinterest, among many others, are racing to become publicly traded at long last. According to Dealogic data quoted in today’s WSJ, 38 unicorn companies went public this year, and more are expected to test the market in 2019. Their venture backers will tell you it’s because the markets recognize a strong growth company when they see it, and that each is finally positioned well to tell their story, aided by some dazzling metrics. Yet it seems just as likely that they see the window, which flew open this year, starting to swing back in the other direction. And if this month is any indicator, it could be hard to pry it open again, at least in the first quarter or two.
“The market is basically closed between now, and the start of a new year is always slow because companies don’t start roadshows [until the markets re-open],” says Kathleen Smith, a principal of Renaissance Capital and the manager of its IPO exchange-traded fund. Pre-IPO companies like Uber are also waiting on their audits to close before they put any numbers in a public document, she notes. But it could be far from smooth sailing after that, suggests Smith. “In normal times, late January and February and March become very active, but we aren’t in a typical market. I can predict from other times that we’ve seen a bear market like this that it will have an impact on IPO activity.”
It’s all part of a vicious cycle, Smith suggests. As public market shareholders begin to feel less affluent and more risk averse, they start redeeming their public market shares. That leaves fund managers who might otherwise gamble on new issuers with less capital to invest, and less flexibility. “Investors are just not going to want to take on any risk positions when market has [taken a turn for the worse],” says Smith.
Put another way, if the markets are as crummy early next year as looks to be the case, it’s too bad, too sad for unicorn companies. “They made the choice to stay private and get capital,” says Smith. “I’ve stated many times that they should be getting while the getting is good. The pain can happen if money dries up, and it will dry up when the public market dries up.”
That doesn’t mean tech’s favorite unicorn companies are doomed, of course, especially those that can show strong fundamentals. For her part, Smith notes that what often happens in a downturn is that offerings get heavily discounted. “Valuations will be chopped if the companies want investors to participate. They’ll have to be sure to make money.”
Even if they don’t get the rich prices that ambitious bankers might pitch them (or that their VCs assigned them before that), they can always grow into the valuations their investors want to see. One need look no further than Facebook to remember why a bumpy offering doesn’t mean all that much longer term.
“Just because a stock crashes below its IPO price isn’t a sign of a bubble,” says Pivotal Research analyst Brian Wieser. “You also have to keep in mind the dynamic of companies going public,” he says. “You expect IPOs to be overvalued. Investors in these companies are necessarily selling to the greatest fool.”
Still, there may be fewer fools willing to buy what they are selling than there might have been this year or last, and if those numbers really change, today’s unicorns will look like tomorrow’s donkeys. They’re certainly going to face more scrutiny than they might have had they moved sooner.
“Maybe we’ll roar into 2019 and all will be well,” says Lise Buyer, the founder of Class V Group, an advisory firm for IPOs. “But to the extent that investors will be more selective, they’ll look at path to profitability, and they’ll look at the valuations these companies took when they were private.” Then they’ll do their own math, suggests Buyer.
If the market is truly shifting, public market shareholders “won’t care what valuations companies achieved when they were private,” says Buyer. “They’ll only be willing to pay what they are willing to pay.”
Powered by WPeMatico