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Extra Crunch roundup: Jam City SPAC, startup PR, telemedicine market map, more
For this morning’s edition of The Exchange, Alex Wilhelm studied information recently released by mobile gaming studio Jam City as it prepares to go public in a $1.2 billion blank-check deal with DPCM Capital.
“Jam City is a bit like Zynga, but unless you are a mobile-gaming aficionado, you might not have heard of it,” he writes.
Since its launch, Jam City has raised upwards of $300 million, including a $145 million round in 2019. At the time, the company was riding high after signing a deal with Disney to adapt some of the media giant’s intellectual property, which includes brands like Marvel, Fox and Pixar.
Almost half of all Americans play mobile games, so Alex reviewed Jam City’s investor deck, a transcript of the investor presentation call and a press release to see how it stacks up against Zynga, which “has done great in recent quarters, including posting record revenue and bookings in the first three months of 2021.”
(Full disclosure: the second time I worked at a startup founded by Mark Pincus, Zinga slept behind my desk and I was one of her favorite dog-sitters.)
Thanks for reading Extra Crunch; I hope you have an excellent weekend!
Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist
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5 ways to raise your startup’s PR game
Image Credits: Andrii Yalanskyi (opens in a new window)/ Getty Images
The ability to effectively communicate can make or break your launch. It will play a role in determining who wins a new space — you or a competitor.
So how do you make a splash? How do you stay relevant?
For one, you have to stop thinking that what you are up to is interesting.
Every early-stage startup must identify and evaluate a strategic advantage
Image Credits: Eoneren / Getty Images
Whether you’re building a company or thinking about investing, it’s important to understand your strategic advantage.
In order to determine one, you should ask fundamental questions: What’s the long-term, sustainable reason that the company will stay in business?
As M&A accelerates, deal-makers are leveraging AI and ML to keep pace
Image Credits: Fanatic Studio (opens in a new window) / Getty Images
The global pandemic has changed the way we work, including how and where we work. For those involved in the mergers and acquisitions (M&A) industry, a notoriously relationship-driven business, this has meant in-person boardroom handshakes have been replaced by video conference calls, remote collaboration and potentially less travel in the future.
The pandemic has also accelerated digital transformation, and deal-makers have embraced digital tools to help them execute effectively.
The quickening pace of digital transformation is no longer about ensuring a competitive edge. Today, it’s also about business resilience. But what’s on the horizon, and how else will technology evolve to meet the needs of companies and deal-makers?
There are still many inefficiencies in managing M&A, but technologies such as artificial intelligence, especially machine learning, are helping to make the process faster and easier.
New Relic’s business remodel will leave new CEO with work to do
Image Credits: Malte Mueller / Getty Images
Lew Cirne, New Relic’s founder and CEO, is stepping into the executive chairman role. He will be replaced by Bill Staples on July 1.
Cirne spent the last several years rebuilding the company’s platform and changing its revenue model, aiming for what he hopes is long-term success.
TechCrunch decided to dig into the company’s financials to see just what challenges Staples may face as he moves into the corner office. The resulting picture is one that shows a company doing hard work for a more future-aligned product map and business model, albeit one that may not generate the sort of near-term growth that gives Staples ample breathing room with public investors.
Fast growth pushes an unprofitable no-code startup into the public markets: Inside Monday.com’s IPO filing
Image Credits: Nigel Sussman (opens in a new window)
At long last, the Monday.com crew dropped an F-1 filing to go public in the United States. TechCrunch has long known that the company, which sells corporate productivity and communications software, has scaled north of $100 million in annual recurring revenue (ARR).
The countdown to its IPO filing — an F-1, because the company is based in Israel, rather than the S-1s filed by domestic companies — has been ticking for several quarters.
The Exchange has been riffling through the document since it came out, and we’ve picked up on a few things to explore.
The battle for voice recognition inside vehicles is heating up
Image Credits: Bryce Durbin
Until recently, integrating affordable voice-recognition software into an automobile was something from science fiction.
But last year, the percentage of vehicles offering in-car connected services reached 45%. By 2024, analysts predict cars with voice recognition will comprise 60% of the market.
Considering how much time many of us spend behind the wheel, there’s an infinite number of applications for the technology. For our latest Extra Crunch market map, we sized up the general market opportunity before creating a roster of major players and reaching out to investors to see where they’re placing bets.
Industrial automation startup Bright Machines hauls in $435M by going public via SPAC
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Bright Machines is going public via a SPAC-led combination that will see the 3-year-old company merge with SCVX, raising gross cash proceeds of $435 million in the process.
After the transaction is consummated, the startup will sport an anticipated equity valuation of $1.6 billion.
The Bright Machines news indicates that the great SPAC chill was not a deep freeze. And the transaction itself, in conjunction with the previously announced Desktop Metal blank-check deal, implies that there is space in the market for hardware startup liquidity via SPACs. Perhaps that will unlock more late-stage capital for hardware-focused upstarts.
We took a look at what Bright Machines does, and then the financial details that it shared as part of its news.
Want to double your rate of return? Seek counsel from experienced executives
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As a rule of thumb, it takes 7-8 years for a successful startup to achieve an exit. But there’s a simple way to speed up the clock: Bring in one or more founders who have previous executive experience.
According to data gathered by Rob Olson, partner and head of data strategy at venture engine M13, startups that have two or more experienced founders tend to exit 33% faster and raise 34% less capital.
“Combined, these two improvements can nearly double an investor’s rate of return,” says Olson.
Should startups build or buy telehealth infrastructure?
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Digital health in the U.S. got a huge boost from COVID-19 as more people started consulting physicians and urgent care providers remotely in the midst of lockdowns. So much so that McKinsey estimates that up to $250 billion of the current healthcare expenditure in the U.S. has the potential to be spent virtually.
The prominence of digital health is undoubtedly here to stay, but how it looks and feels from provider to provider is still a debate among sector startups.
But for providers who want to deliver care virtually across the country, it’s not as simple as adding a Zoom invite to an annual check-up. The process requires intention every step of the way — right from the clinicians delivering remote care to the choice of payment processor.
Help TechCrunch find the best email marketers for startups
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Email marketing has been with us for decades, but today it has been refined to a science and an art form.
If you’re an early-stage founder, it is one of the best ways to build and grow your direct relationship with your customer. You know how fickle the platforms can be. You can’t afford to mess this up.
So when and how should you think about doing email marketing, versus all of your other frantic priorities?
Here at Extra Crunch, we’re helping you find the answers. We launched a survey of founders who want to recommend a great email marketer or agency they have worked with to the rest of the startup world.
For companies that use ML, labeled data is the key differentiator
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When a company chooses supervised learning, it needs to have a strategy that allows it to label data as quickly as it acquires it.
Supervised learning is currently the most practical approach for most ML challenges, but it requires the crucial additional step of making raw data smart by labeling it.
How Expensify got to $100M in revenue by hiring ‘stem cells’ and not ‘cogs in a wheel’
Image Credits: Nigel Sussman
The influence of a founder on their company’s culture cannot be overstated. Everything from their views on the product and business to how they think about people affects how their company’s employees will behave, and since behavior, in turn, informs culture, the consequences of a founder’s early decisions can be far-reaching.
So it’s not surprising that Expensify has its own take on almost everything it does when you consider what its founder and CEO David Barrett learned early in his life: “Basically everyone is wrong about basically everything.”
As we saw in part 1 of this EC-1, this led him to the revelation that it’s easier to figure things out for yourself than finding advice that applies to you. Eventually, these insights would inform how he would go about shaping Expensify.
Inside Marqeta’s fascinating fintech IPO
Image Credits: Nigel Sussman (opens in a new window)
Marqeta, long a darling of the fintech market though less well known than some companies in its sector due to its infrastructure nature, filed to go public late last week
If you are not familiar with Marqeta, it powers the payment card tech behind products that you use, like Square, a key customer and driver of the unicorn’s growth. Marqeta exhibits a number of fascinating fintech characteristics (majority revenue from interchange, a rabidly competitive market) that make it very interesting to unspool.
May Mobility’s Edwin Olson and Nina Grooms Lee and Toyota AI Ventures’ Jim Adler on validating your startup idea
When a founder has a work history that includes the name of the parent company of one of their key investors, you probably assume that was one of the first deals to come together. Not so with May Mobility and Toyota AI Ventures, which connected for the company’s second seed round after May went out and raised its original seed purely on the strength of its own ideas and proposed solutions.
That’s one of the many interesting things we learned from speaking to May Mobility co-founder and CEO Edwin Olson, as well as Chief Product Officer Nina Grooms Lee and Toyota AI Ventures founding partner Jim Adler on an episode of Extra Crunch Live.
Extra Crunch Live goes down every Wednesday at 3 p.m. EDT/noon PDT. Our next episode is with Sequoia’s Shaun Maguire and Vise’s Samir Vasavada, and you can check out the upcoming schedule right here.
Meanwhile, read on for highlights from our chat with Olson, Grooms Lee and Adler, and then stay tuned at the end for a recording of the full session, including our live pitch-off.
WalkMe is going public: Let’s stroll through its numbers
Image Credits: Getty Images / Somyot Techapuwapat / EyeEm
WalkMe is the second Israel-based technology company to file to go public this week: No-code startup Monday.com is also pursuing an American IPO.
WalkMe’s software provides visual overlays on websites that help users navigate the product in question. Per the company’s F-1 filing, other elements of its service that matter include its onboarding system, Workstation, or its “single interface to the applications within an enterprise and simplifies task completion through a natural language conversational interface and automation.” We’re including that last feature because it says “automation,” which, in the wake of the UiPath IPO, is a word worth watching. Investors are.
At a high level, WalkMe is a SaaS business, which means that when we digest its results we are digging into a modern software company. Let’s do just that.
Can Squarespace dodge the direct-listing value trap?
Image Credits: Nigel Sussman (opens in a new window)
Squarespace’s reference price has been set at $50 per share.
We went over Squarespace’s recently disclosed Q2 and full-2021 guidance and asked how its expectations compare to its reference-price-defined pre-trading valuation. Then, we set some stakes in the ground regarding historical direct-listing results and what we might expect from the company as it adds a third set of data to our quiver.
Let’s get into the numbers!
Mapping out one edtech company’s $200M bet on lifelong learning
Image Credits: Getty Images / DrAfter123
Mumbai-based Emeritus, an edtech company that works with universities to create online upskilling courses for employed folks, just spent a big chunk of cash to break into K-12.
Emeritus, which is part of the Eruditus group, announced this week that it plans to acquire iD Tech, a STEM education service for children. The acquisition, which has not yet closed, is estimated to be around $200 million and leaves iD Tech operating as an independent brand for now.
ID Tech brings a whole different set of customers to its umbrella: The startup offers courses for elementary through high-school students across the globe taught by college students in the U.S.
5 innovative fundraising methods for emerging VCs and PEs
Image Credits: Hiroshi Watanabe / Getty Images
According to Versatile VC founder David Teten, five new strategies are gaining traction among fund managers looking to raise capital from family offices and high-net-worth individuals:
- Online communities and virtual events.
- Platforms that help other investors access your fund.
- Soliciting under the 506(c) designation.
- Launching a rolling fund.
- Crowdfunding from retail investors into a general partnership.
In a summary of a class he taught for the Oper8r VC fund accelerator, Teten offers actionable advice for anyone who wants to connect with pre-qualified investors.
Dear Sophie: What’s happening with visa application receipt notices?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
Our startup employs several individuals who are on work visas or have employment authorization. Many of them have been waiting for quite a while for the government to tell them their applications have been received.
Why? When will things be back on track? We have a few employees who are waiting for green cards, and a few F-1 visa holders who will be extending their OPT to STEM OPT.
Is there anything we can do?
— Patient in Pasadena
Arrival’s Denis Sverdlov on the new era of car manufacturing
Image Credits: Bryce Durbin
Electric vehicle company Arrival wants to break the current auto manufacturing model. Instead of one giant factory and an assembly line, Arrival’s commercial electric vans, buses and cars are robotically built in small, regional microfactories, of which the company wants to open 31 by the end of 2025.
If you want to achieve something radically more efficient, you have to go deeper, into complex, high-level computational algorithms that are not normally used in consumer-facing products.
The London-based company, founded in 2015, joined the ranks of EV companies going public via SPAC, merging with blank-check company CIIG Merger Corp. in March. UPS has already ordered 10,000 of Arrival’s robotically engineered vans, and the company recently signed a deal with Uber to create purpose-built EVs for ride-hail drivers.
Arrival founder Denis Sverdlov has been at the intersection of technological advancement and societal change before.
Chasing hype is human nature: The tyranny of startup trends
Image Credits: Nuthawut Somsuk / Getty Images
The fear of missing out (FOMO) spreads faster than wildfire and often overwhelms rational decision-making.
In the VC community, investors look for lessons from disruptive startups they can use to identify other potential winners. But hype leads to bad decision-making, rushed due diligence and wishful thinking.
When and if those startups actually do well, “irrational FOMO takes over” because the initial assessment was based on bad information, says Victor Echevarria, a partner at Jackson Square Ventures. “Trends are addictive; to remain disciplined and avoid hype is to deny our innate instincts.”
It’s natural for investors to follow the crowd, but in the race to the bottom, FOMO can be high-octane fuel.
Robinhood’s epic Q1 growth explains its fundraising boom
Image Credits: Nigel Sussman (opens in a new window)
The Exchange explores Robinhood’s financial results using the lens of payment for order flow (PFOF) income, which the company said during a congressional hearing constitutes the majority of its revenues.
This particular revenue growth — or the lack thereof — is a good way to understand not only Robinhood’s own results but also its larger market. If Robinhood is seeing rapid growth and strong trading volumes, we can infer with some confidence that others in its space are enjoying a related, if not similar, level of interest.
For Public.com, eToro and others like Freetrade (as well as our own understanding), how Robinhood performed recently is key. So, let’s explore the data.
How to ensure data quality in the era of Big Data
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A little over a decade has passed since The Economist warned us that we would soon be drowning in data. The modern data stack has emerged as a proposed life-jacket for this data flood — spearheaded by Silicon Valley startups such as Snowflake, Databricks and Confluent.
Today, any entrepreneur can sign up for BigQuery or Snowflake and have a data solution that can scale with their business in a matter of hours. The emergence of cheap, flexible and scalable data storage solutions was largely a response to changing needs spurred by the massive explosion of data.
Currently, the world produces 2.5 quintillion bytes of data daily (there are 18 zeros in a quintillion). The explosion of data continues in the roaring ‘20s, both in terms of generation and storage — the amount of stored data is expected to continue to double at least every four years. However, one integral part of modern data infrastructure still lacks solutions suitable for the Big Data era and its challenges: Monitoring of data quality and data validation.
Investors help Procore build a decacorn valuation in public debut
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Watching construction tech software company Procore go public Thursday after pricing above its range makes the IPO slowdown look like the deceleration that wasn’t.
Investors quickly bid up the company’s value in trading, giving Procore a higher valuation than it might have anticipated, along with a boost of confidence for the IPO market in general.
Construction tech may not be as glamorous as space travel, but it’s a massive industry that’s fraught with inefficiencies.
Procore initially set an IPO range of $60 to $65 per share before pricing at $67 per share Wednesday night. Its debut was worth gross proceeds north of $600 million and a fully diluted valuation of $9.6 billion. As of early afternoon Thursday, shares were trading at a solid $85.25.
In light of Procore’s debut, TechCrunch is digging quickly into the company’s new valuation and its resulting revenue multiples.
Telemedicine startups are positioning themselves for a post-pandemic world
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It’s impossible to predict how healthcare institutions will operate post-pandemic, but with so many people now accustomed to telemedicine, startups that provide services around virtual care continue to be poised for success.
Telemedicine has faced an uphill battle to become more relevant in the U.S., with challenges such as meeting HIPAA compliance requirements and insurance companies unwilling to pay for virtual visits. But when COVID-19 began raging across the globe and people had to stay home, both the insurance and healthcare industries were forced to adapt.
Now that people see the benefits and conveniences of “dialing a doc” from the kitchen table, healthcare has changed forever.
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Restrictions on acquisitions would stifle the US startup ecosystem, not rein in big tech
Bipartisanship has long been out of fashion, but one common pursuit among Democrats and Republicans in Washington has been placing Big Tech companies under a microscope.
Congressional committees have held scores of hearings, lawsuits have been filed and legislation has been introduced to regulate privacy and data collection. The knock-on effect of these reforms for young companies and their venture investors is unclear. But one aspect of increased antitrust scrutiny — restrictions on acquisitions — would have a significant negative effect on our entrepreneurial ecosystem, and policymakers should approach these changes with caution.
Acquisitions are an important element of the startup ecosystem
For VC-backed companies, there are effectively three outcomes: standalone company (often via an IPO), merger or acquisition, or bankruptcy. Despite best efforts, company failure is the most common outcome — more than 90% of startups fail. Fortunately, the success stories are often companies with a big impact, like Moderna and Zoom, which helped the world in the pandemic.
Acquisitions contribute to the health of the startup ecosystem, as entrepreneurs who realize liquidity through the sale of their company regularly go on to found innovative new companies and often invest in other startups as angel investors or venture capitalists.
Entrepreneurs are optimists by nature, and so when the company journey begins, there is great hope of one day creating a standalone public company. However, in most cases, an IPO is not possible. The reality is that entrepreneurship is incredibly hard, and the journey from infancy to public company is one that relatively few companies achieve.
Silicon Valley Bank’s 2020 Global Startup Outlook puts it this way: “[T]he fact is most entrepreneurs never expect to reach a public market exit.” Accordingly, 58% of startups expect to be acquired. NVCA-Pitchbook data on acquisitions and IPOs back up the sentiment of founders when it comes to likely exit opportunities. In 2020, there was an approximately 10:1 ratio of acquisitions of VC-backed companies to IPOs, with 1,042 venture-backed companies acquired and 103 entering the public markets.
Some might argue that acquisitions are more dominant today because of the anti-competitive motivations of current tech incumbents. But as Patricia Nakache of Trinity Ventures said in testimony before the Senate Judiciary Committee: “[Acquisitions have] been commonplace in the U.S. since before the dawn of the modern venture capital industry.” In fact, today we are witnessing fewer acquisitions relative to IPOs than in years past, as the average acquisition-to-IPO ratio since 2004 is approximately 15:1. This is happening against a backdrop of challenges in taking small-cap companies public that has reduced the number of companies in the public markets today.
Acquisitions contribute to the health of the startup ecosystem, as entrepreneurs who realize liquidity through the sale of their company regularly go on to found innovative new companies and often invest in other startups as angel investors or venture capitalists.
Furthermore, acquisitions help power the returns of VC funds, thereby allowing VCs to raise new funds and invest in the next generation of entrepreneurs. This “recycling effect” is one of the key drivers of dynamism in our economy and should not be slowed down.
Acquisition changes could impact entrepreneurship
Despite the importance of acquisitions, antitrust reform has included significant changes to how acquisitions are assessed by the federal government. The two most prominent examples in this space are Sen. Amy Klobuchar’s Competition and Antitrust Law Enforcement Reform Act (CALERA) and Sen. Josh Hawley’s Trust-Busting for the Twenty-First Century Act.
These bills are likely a reaction to findings that incumbents have acted like Pac-Man, gobbling up would-be competitors before they become a competitive problem. But both proposals would ultimately harm startup activity and competition rather than propel it.
A common thread between these proposals is to restrict acquisitions by companies valued at more than $100 billion. Hawley’s bill would impose an outright ban on acquisitions by companies of that market cap that “lessen competition in any way.”
Klobuchar’s bill would shift the burden of proof to parties to an acquisition, a major change because the U.S. government bears the burden currently. This means if the government challenges an acquisition in federal court, the parties to the acquisition must demonstrate it does not “create an appreciable risk of materially lessening competition.” If that standard is not met, the acquisition could be blocked.
Both proposals have negative ramifications for venture-backed companies.
First, consider the scope of the proposals: A $100 billion company is indeed a large one, but setting the threshold there captures far more than the large tech companies that have been hauled before Congress for antitrust hearings. Globally, about 150 companies are valued at $100 billion or more, and the U.S. is home to more than 80 of those companies. That exposes acquirers as wide-ranging as Estee Lauder, John Deere, Starbucks and Thermo Fisher Scientific. If you are struggling to recall those companies being under the antitrust spotlight, then you are not alone.
Second, the legal standards imposed by these new bills are daunting. Klobuchar’s proposal leaves startups scratching their heads on where the line is on which acquisitions are tolerated, while Hawley’s bill throws up a misguided red light for vast amounts of acquisitions. These two standards are particularly vexing since acquirers are generally looking for acquirees that complement their existing business. In addition, many of the most acquisitive companies are multifaceted ones that presumably compete with an array of other companies in some way.
Ultimately, the bills from Klobuchar and Hawley would disrupt an important part of our nation’s startup ecosystem. Acquisitions act like grease to help keep the wheels moving by injecting liquidity into the system so participants can move on to create new and hopefully better companies for our country. Those wheels should not be slowed down when the country needs all the entrepreneurship it can muster.
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Financing for students startup StudentFinance raises $5.3M seed from Giant and Armilar
Fintech startup StudentFinance — which allows educational institutions to offer success-based financing for students — has raised a $5.3 million (€4.5 million) seed round co-led by Giant Ventures and Armilar Venture Partners. It’s now raised $6.6 million total, to date.
StudentFinance launched in Spain first, followed by Germany and Finland, with the U.K. planned this year. Existing investors Mustard Seed Maze and Seedcamp, along with Sabadell Venture Capital, also participated.
The startup, which launched at the beginning of 2020, provides the tech back end for institutions to offer flexible payment plans in the form of ISAs (income-share agreements). It also provides data intelligence on the employment market to predict job demand.
It now has 35 education providers signed up, managing over €5 million worth of ISAs. It also works with upskilling platforms including Ironhack and Le Wagon. StudentFinance’s competitors include (in the USA) Blair, Leif, Vemo Education, Chancen (Germany-based) and EdAid (U.K.-based).
As for why StudentFinance stands out from those companies, Mariano Kostelec, co-founder and CEO of StudentFinance, said: “StudentFinance is the only platform in this space providing the full end-to-end, cross-border infrastructure to deliver ISAs for students whilst helping to plug the growing skills gap. Not only do we provide the infrastructure to support the ISA financing model, but we also provide data intelligence on the employment market and a career-as-a-service platform that focuses on placing students in the right job. We are creating an equilibrium between supply and demand.”
With an ISA, students only start paying back tuition once they are employed and earning above a minimum income threshold, with payments structured as a percentage of their earnings. This makes it a “success-based model”, says StudentFinance, which shifts the risk away from the students. They are likely to be popular as workers need to reskill with the onset of digitization and the pandemic’s effects.
The startup was founded in 2019 by Kostelec, Marta Palmeiro, Sergio Pereira and Miguel Santo Amaro. Kostelec and Santo Amaro previously built Uniplaces, which raised $30 million as a student housing platform in Europe.
Cameron Mclain, managing partner of Giant Ventures, commented: “What StudentFinance has built empowers any educational institution to offer ISAs as an alternative to upfront tuition or student loans, broadening access to education and opportunity.”
Duarte Mineiro, partner at Armilar Venture Partners, commented: “StudentFinance is a great opportunity to invest in because aside from its very compelling core purpose, this is a sound business where its economics are backed by a solid proprietary software technology.”
Sia Houchangnia, partner at Seedcamp, commented: “The need for reskilling the workforce has never been as acute as it is today and we believe StudentFinance has an important role to play in tackling this societal challenge.”
Angel backers include investors, which includes: Victoria van Lennep (founder of Lendable); Martin Villig (founder of Bolt); Ed Vaizey (the U.K.’s longest-serving Culture & Digital Economy Minister); Firestartr (U.K.-based early-stage VC); Serge Chiaramonte (U.K. fintech investor); and more.
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Extra Crunch roundup: Selling SaaS to developers, cracking YC after 13 tries, all about Expensify
Before Twilio had a market cap approaching $56 billion and more than 200,000 customers, the cloud-communications platform developed a secret sauce to fuel its growth: a developer-focused model that dispensed with traditional marketing rules.
Software companies that sell directly to end users share a simple framework for managing growth that leverages discoverability, desirability and do-ability — the “aha!” moment where a consumer is able to incorporate a new product into their workflow.
Data show that traditional marketing doesn’t work on developers, and it’s not because they’re impervious to a sales pitch. Builders just want reliable tools that are easy to use.
As a result, companies that are looking to create and sell software to developers at scale must toss their B2B playbooks and meet their customers where they are.
Attorney Sophie Alcorn, our in-house immigration law expert, submitted two columns: On Monday, she analyzed a decision by the U.S. Department of Homeland Security not to cancel the International Entrepreneur Parole program, which potentially allows founders from other countries to stay in the U.S. for as long as 60 months.
On Wednesday, she responded to a question from an entrepreneur who asked whether it made sense to sponsor visas for workers who are working remotely inside the U.S.
Thanks very much for reading Extra Crunch this week, and have a great weekend.
Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist
4 lessons I learned about getting into Y Combinator (after 13 applications)
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Can you imagine making 13 attempts at something before attaining a successful outcome?
Alex Circei, CEO and co-founder of Git analytics tool Waydev, applied 13 times to Y Combinator before his team was accepted. Each year, the accelerator admits only about 5% of the startups that seek to join.
“Competition may be fierce, but it’s not impossible,” says Circei. “Jumping through some hoops is not only worth the potential payoff but is ultimately a valuable learning curve for any startup.”
In an exclusive exposé for TechCrunch, he shares four key lessons he learned while steering his startup through YC’s stringent selection process.
The first? “Put your business value before your personal vanity.”
The Expensify EC-1
Image Credits: Illustration by Nigel Sussman, art design by Bryce Durbin
In March, TechCrunch Daily Reporter Anna Heim was interviewing executives at Expensify to learn more about the company’s history and operations when they unexpectedly made themselves less available.
Our suspicions about their change of heart were confirmed on May 3 when the expense report management company confidentially filed to go public.
With a founding team comprised mainly of P2P hackers, it’s perhaps inevitable that Expensify doesn’t look and feel like something an MBA might envision.
“We hire in a super different way. We have a very unusual internal management structure,” said founder and CEO David Barrett. “Our business model itself is very unusual. We don’t have any salespeople, for example.”
Similar to the way companies must file a Form S-1 that describes their operations and how they plan to spend capital, TechCrunch EC-1s are part origin story, part X-ray. We published the first article in a series on Expensify on Monday:
- “How a band of P2P hackers planted the seeds of a unique expense management giant” (2,400 words/10 minutes) — Explores the founders’ days with a P2P content distribution startup called Red Swoosh (Travis Kalanick’s venture before Uber) and how that experience influenced Expensify’s development.
We’ll publish the remainder of Anna’s series on Expensify in the coming weeks, so stay tuned.
As Procore looks to nearly double its private valuation, the IPO market shows signs of life
Image Credits: Nigel Sussman (opens in a new window)
Construction tech unicorn Procore Technologies this week set a price range for its impending public offering. The news comes after the company initially filed to go public in February of 2020, a move delayed by the pandemic.
In March 2021, Procore filed again for a public offering, but its second shot ran into a cooling IPO market. The company filed another S-1/A in April, and then another in early May. This week’s filing is the first that sets a price for the Carpinteria, California-based software upstart.
But Procore is not the only company that filed and later put on hold an IPO to get back to work on floating. Kaltura, a software company focused on video distribution, also recently got its IPO back on track. Are we seeing a reacceleration of the IPO market? Perhaps.
3 golden rules for health tech entrepreneurs
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Family physician Bobbie Kumar lays out the golden rules to ensure your healthcare product, service or innovation is on the right track.
Rule 1: “It’s not enough to develop a ‘new tool’ to use in a health setting,” Dr. Kumar writes. “Maybe it has a purpose, but does it meaningfully address a need, or solve a problem, in a way that measurably improves outcomes? In other words: Does it have value?”
Dear Sophie: How does the International Entrepreneur Parole program work?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
I’m the founder of an early-stage, two-year-old fintech startup. We really want to move to San Francisco to be near our lead investor.
I heard International Entrepreneur Parole is back. What is it, and how can I apply?
— Joyous in Johannesburg
Digging into digital mortgage lender Better.com’s huge SPAC
Image Credits: Nigel Sussman (opens in a new window)
If you have heard of Better.com but really had no idea what it does before this moment, welcome to the club. Mortgage tech is like pre-kindergarten applications — it applies to a very specific set of folks at a very particular moment. And they care a lot about it. But the rest of us aren’t really aware of its existence.
Better.com, a venture-backed digital mortgage lender, announced this week that it will combine with a SPAC, taking itself public in the second half of 2021. The unicorn’s news comes as the American IPO market is showing signs of fresh life after a modest April.
As tech offices begin to reopen, the workplace could look very different
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The pandemic forced many employees to begin working from home, and, in doing so, may have changed the way we think about work. While some businesses have slowly returned to the office, depending on where you live and what you do, many information workers remain at home.
That could change in the coming months as more people get vaccinated and the infection rate begins to drop in the U.S.
Many companies have discovered that their employees work just fine at home. And some workers don’t want to waste time stuck on congested highways or public transportation now that they’ve learned to work remotely. But other employees suffered in small spaces or with constant interruptions from family. Those folks may long to go back to the office.
On balance, it seems clear that whatever happens, for many companies, we probably aren’t going back whole-cloth to the prior model of commuting into the office five days a week.
For unicorns, how much does the route to going public really matter?
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On a recent episode of TechCrunch’s Equity podcast, hosts Natasha Mascarenhas and Alex Wilhelm invited Yext CFO Steve Cakebread and Latch CFO Garth Mitchell on to discuss when companies should go public, the costs and benefits of the process and when a SPAC can make sense. Yext pursued a traditional IPO a few years back; Latch is now going public via a blank-check company combination.
The chat was more than illustrative, as we got to hear two CFOs share their views on delayed public offerings and when different types of debuts can make the most sense. While the TechCrunch crew has, at times, made light of certain SPAC-led deals, the pair argued that the transactions can make good sense.
Undergirding the conversation was Cakebread’s recent IPO-focused book, which not only posited that companies going public earlier rather than later is good for their internal operations but also because it can provide the public with a chance to participate in a company’s success.
In today’s hypercharged private markets and frothy public domain, his argument is worth considering.
The truth about SDK integrations and their impact on developers
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Ken Harlan, the founder and CEO of Mobile Fuse, writes about the perks and pitfalls of software development kits.
“The digital media industry often talks about how much influence, dominance and power entities like Google and Facebook have,” Harlan writes. “Generally, the focus is on the vast troves of data and audience reach these companies tout. However, there’s more beneath the surface that strengthens the grip these companies have on both app developers and publishers alike.
“In reality, SDK integrations are a critical component of why these monolith companies have such a prominent presence.”
Don’t hate on low-code and no-code
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The Exchange caught up with Appian CEO Matt Calkins after his enterprise app software company reported its first-quarter performance to discuss the low-code market and what he’s hearing in customer meetings. To round out our general thesis — and shore up our somewhat bratty headline — we’ve compiled a list of recent low-code and no-code venture capital rounds, of which there are many.
As we’ll show, the pace at which venture capitalists are putting funds into companies that fall into our two categories is pretty damn rapid, which implies that they are doing well as a cohort. We can infer as much because it has become clear in recent quarters that while today’s private capital market is stupendous for some startups, it’s harder than you’d think for others.
Bird’s SPAC filing shows scooter-nomics just don’t fly
A pair of Bird e-scooters parked in Barcelona. Image Credits: Natasha Lomas/TechCrunch
Historically — and based on what we’re seeing in this fantastical filing — Bird proved to be a simply awful business. Its results from 2019 and 2020 describe a company with a huge cost structure and unprofitable revenue, per filings. After posting negative gross profit in both of the most recent full-year periods, Bird’s initial model appears to have been defeated by the market.
What drove the company’s hugely unprofitable revenues and resulting net losses? Unit economics that were nearly comically destructive.
Dear Sophie: Does it make sense to sponsor immigrant talent to work remotely?
Image Credits: Bryce Durbin/TechCrunch
Dear Sophie,
My startup is in big-time hiring mode. All of our employees are currently working remotely and will likely continue to do so for the foreseeable future — even after the pandemic ends. We are considering individuals who are living outside of the U.S. for a few of the positions we are looking to fill.
Does it make sense to sponsor them for a visa to work remotely from somewhere in the United States?
— Selective in Silicon Valley
The hamburger model is a winning go-to-market strategy
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“Today, we live in a world of product-led growth, where engineers (and the software they have built) are the biggest differentiator,” says Coatue Management general partner Caryn Marooney and investor David Cahn. “If your customers love what you’re building, you’re headed in the right direction. If they don’t, you’re not.
“However, even the most successful product-led growth companies will reach a tipping point, because no matter how good their product is, they’ll need to figure out how to expand their customer base and grow from a startup into a $1 billion+ revenue enterprise.
“The answer is the hamburger model. Why call it that? Because the best go-to-market (GTM) strategies for startups are like hamburgers:
- The bottom bun: Bottom-up GTM.
- The burger: Your product.
- The top bun: Enterprise sales.”
Software subscriptions are eating the world: Solving billing and cash flow woes simultaneously
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Krish Subramanian, the co-founder and CEO of Chargebee, writes that while subscription business models are attractive, there are two major pitfalls: First, payment.
“Regardless of company size, there’s an ongoing need to convince customers to sign up long term,” Subramanian writes. “The second issue: How do businesses cover the funding gap between when customers sign up and when they pay?”
Is there a creed in venture capital?
Image Credits: Aimee Blasee (opens in a new window)
Scott Lenet, the president of Touchdown Ventures, asks how deal-makers should think about how to handle themselves when counter-parties attempt to change an agreement. “When is it OK to modify terms, and when should deal-makers stand firm?” he asks.
“Entrepreneurs and investors should recognize that contracts are worth very little without the ongoing relationship management that keeps all parties aligned. Enforcement is so unusual in the world of startups that I consider it a mostly dead-end path. In my experience, good communication is the only reliable remedy. This is the way.”
Even startups on tight budgets can maximize their marketing impact
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“Search engine optimization, PR, paid marketing, emails, social — marketing and communications is crowded with techniques, channels, solutions and acronyms,” writes Dominik Angerer, CEO and co-founder of Storyblok, which provides best practice guidance for startups on how to build a sustainable approach to marketing their content. “It’s little wonder that many startups strapped for time and money find defining and executing a sustainable marketing campaign a daunting prospect.
“The sheer number of options makes it difficult to determine an effective approach, and my view is that this complexity often obscures the obvious answer: A startup’s best marketing asset is its story.”
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Opportunity knocks: Exhibit at TC Sessions: Mobility 2021
No matter what slice of the mobility market you’ve claimed as your own — AVs, EVs, data mining, AI, dockless scooters, robotics or the batteries that will charge and change the world — you won’t find a better place to showcase your extraordinary tech and talent than TC Sessions: Mobility 2021.
Buy a Startup Exhibitor Package and virtually plant your early-stage mobility startup in front of a global audience that’s focused exclusively on one of the most complex, rapidly evolving industries. TC Sessions: Mobility, which takes place on June 9, features the top minds and makers, draws thousands of attendees, fosters collaborative community and creates a networking environment ripe with opportunities.
Pro tip: This package is for pre-Series A, early-stage startups only.
The Startup Exhibitor Package costs $380, and it comes with four all-access passes to the event. But wait (insert infomercial voice here), there’s more!
Your virtual expo booth features lead-generation capabilities. You can highlight your pitch deck, run a video loop and/or host live demos. Network with CrunchMatch, our AI-powered platform, to find and connect with the people who can help move your business forward. CrunchMatch lets you host private video meetings — pitch investors, recruit new talent or grow your customer base.
You’ll have access to all the presentations, panel discussions and breakout sessions, too. And video-on-demand means you won’t miss out.
Here’s a peek at just some of the agenda’s great programming you and, thanks to those extra passes, your team can attend — or catch later with VOD:
- EV Founders in Focus: We sit down with the founders poised to take advantage of the rise in electric vehicle sales. This time, we will chat with Kameale Terry, co-founder and CEO of ChargerHelp! a startup that enables on-demand repair of electric vehicle charging stations.
- Will Venture Capital Drive the Future of Mobility? Clara Brenner, Quin Garcia and Rachel Holt will discuss how the pandemic changed their investment strategies, the hottest sectors within the mobility industry, the rise of SPACs as a financial instrument and where they plan to put their capital in 2021 and beyond.
- Driving Innovation at General Motors: GM is in the midst of sweeping changes that will eventually turn it into an EV-only producer of cars, trucks and SUVs. But the auto giant’s push to electrify passenger vehicles is just one of many efforts to be a leader in innovation and the future of transportation. We’ll talk with Pam Fletcher, vice president of innovation at GM, one of the key people behind the 113-year-old automaker’s push to become a nimble, tech-centric company.
TC Sessions: Mobility 2021 takes place June 9. Buy a Startup Exhibitor Package and set yourself up for global exposure and networking success. Show us your extraordinary tech and talent!
Is your company interested in sponsoring or exhibiting at TC Sessions: Mobility 2021? Contact our sponsorship sales team by filling out this form.
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Is there a creed in venture capital?
How should venture capitalists and corporate innovators assess Din Djarin, the protagonist of The Mandalorian? He’s introduced as a bounty hunter, a mercenary vocation in the Star Wars mythos that has been reserved primarily for villains.
One of the most interesting aspects of Jon Favreau’s show is how Din Djarin wrestles with the orthodoxy of his Mandalorian beliefs. His insistence on honor makes the character an appealing hero, and his character’s growth is demonstrated by when he chooses to be flexible versus when he holds fast to the rules he believes.
Although “This is the way” emerged as the show’s quotable soundbite, there is another line that’s more relevant to venture capital and corporate innovation: “You’re changing the deal.” Din Djarin uses this phrase to spar with adversaries who try to advance their objectives by disregarding clearly understood agreements.
Enforcement is so unusual in the world of startups that I consider it a mostly dead-end path.
Of course, terms change in venture capital and entrepreneurship all the time, with investors and entrepreneurs finding themselves in Din Djarin’s position.
This challenge is built into the very structure of venture capital fund raising, in which a Series A financing is usually followed by Series B, and then Series C, and each of these transactions frequently adds, subtracts, and modifies terms, changing the deal from the perspective of the startup and existing investors.
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Beyond the fanfare and SEC warnings, SPACs are here to stay
The number of SPACs in the deep tech sector was skyrocketing, but a combination of increased SEC scrutiny and market forces over the past few weeks has slowed the pace of new SPAC transactions. The correction is an inevitable step on the path to mainstreaming SPACs as an alternative to IPOs, but it won’t cause them to go away. Instead, blank-check vehicles will evolve and will occupy a small and specialized — but important — part of the startup financing landscape.
I believe that SPAC financings can solve a major problem for all capital-intensive technology startups: the need for faster — and potentially cheaper — access to large amounts of capital to fund product development over multiple years.
The tsunami of SPAC financings sparked commentary from all corners of the capital markets community, from equity analysts and securities lawyers to VCs and fund managers — and even central bankers. That’s understandable, as more than $60 billion of SPAC deals have been announced since the beginning of 2020, plus $55 billion in PIPE capital, according to investment bank PJT Partners.
The views debated by finance experts often relate to the reasonableness of SPAC pricing and transaction structures, the alignment of incentives for stakeholders, and post-merger financial and stock price performance. But I’m not going to add another voice to the debate on the risk-reward calculus.
As the co-founder of a quantum computing software startup who worked in financial markets for two decades, I’d like to offer my perspective on two issues that I think my peers care more about: Can SPACs still solve the funding problem for capital-intensive, deep tech startups? And will they become a permanent financing option?
Keeping the lights on at deep tech startups
I believe that SPAC financings can solve a major problem for all capital-intensive technology startups: the need for faster — and potentially cheaper — access to large amounts of capital to fund product development over multiple years.
SPACs have created a limitless well of capital that deep tech startups are diving into. That’s because they are proving to be more attractive than other sources of financing, such as taking investments from later-stage VC funds or growth equity funds with finite fund sizes and specific investment themes.
The supply of growth capital from these vehicles has been astounding. In 2020, SPACs alone raised more than $83 billion via 248 IPOs, which is equal to a third of the total $300 billion raised by the entire global VC community. If the present rate of financings had continued, the annual amount of SPAC financings would have been on par with the total R&D expenditure of the U.S. government — roughly $130 billion to $150 billion.
This new supply of capital can let startups keep the lights on, helping them address a practical need while they develop products that may take a decade to field. Before SPACs, any startup that wanted to remain independent had to lurch from one round of VC financing to the next. That, as well as the intense IPO process, is a major time sink for management teams and distracts them from focusing on product development.
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4 strategies for building a digital health unicorn
It’s an entrepreneur’s market in digital health today, with startups raising record-breaking funding at soaring valuations and debuting on public markets to eager investors.
According to CB Insights, as of March 3, 2021, there are 51 healthcare unicorns — “startups” — worth $1 billion or more around the world. Global venture capital funding, including private equity and corporate VC, into digital health was the highest ever in the first quarter 2021 at $7.2 billion, according to Mercom Capital Group.
The massive influx of capital to healthcare should not be surprising; the pandemic has made it starkly clear that digital health is the future of healthcare. To that end, we should anticipate additional healthcare exits worth more than $1 billion in the near term. Which again, is great for entrepreneurs — as long as they understand how hard it is to build a unicorn in healthcare. Today, becoming a unicorn requires founders who are long on vision and operational experience.
Today, becoming a unicorn requires founders who are long on vision and operational experience.
Company founders most often turn to veteran investors for help with grand-slam strategies to create the next healthcare unicorn. That’s why many of them seek counsel from the Merck Global Health Innovation Fund: Because we have the experience, resources, successful track record and networks to build real scale in digital health.
During the pandemic, lots of investors jumped in to invest in digital health for the first time. But we’ve been investing for more than a decade. Two of our portfolio companies, Preventice Solutions and Livongo, exited last year as unicorns, rounding out the $6.2 billion in digital health market value MGHIF has exited over the last two years. And we are expecting two more unicorn exits in 2021. But we’re not stopping there; we’ll be investing our $500 million fund in drone-supported supply chain technologies, telehealth, AI, digital pathology, remote clinical trials and Internet of Medical Things (IoMT).
Given our success, here are four instrumental strategies to building a unicorn in digital health that we know work.
Raise the “right amount” of capital to build the right company
We often ask entrepreneurs: Would you rather own 20% of a $50 million company or 5% of a $1 billion company? To most, the answer is obvious. In our experience, too many entrepreneurs worry about dilution and never raise the right amount of capital.
It’s well known that companies with rapidly growing revenues are valued at a premium — but it’s important to remember that this is hard to do in healthcare. Getting to scale takes time because healthcare is so complicated and involves so many stakeholders.
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Dell dumps another big asset, moving Boomi to Francisco Partners and TPG for $4B
It’s widely known that Dell has a debt problem left over from its massive acquisition of EMC in 2016, and it seems to be moving this year to eliminate part of it in multi-billion-dollar chunks. The first step was spinning out VMware as a separate company last month, a move expected to net close to $10 billion.
The second step, long expected, finally dropped last night when the company announced it was selling Boomi to a couple of private equity firms for $4 billion. Francisco Partners is joining forces with TPG to make the deal to buy the integration platform.
Boomi is not unlike MuleSoft, a company that Salesforce purchased in 2018 for $6.5 billion, although a bit longer in the tooth. They both help companies with integration problems by creating connections between disparate systems. With so many pieces in place from various acquisitions over the years, it seems like a highly useful asset for Dell to help pull these pieces together and make them work, but the cash is trumping that need.
Providing integration services is a growing requirement as companies look for ways to make better use of data locked in siloed systems. Boomi could help, and that’s one of the primary reasons for the acquisition, according to Francisco executives.
“The ability to integrate and connect data and workflows across any combination of applications or domains is a critical business capability, and we strongly believe that Boomi is well positioned to help companies of all sizes turn data into their most valuable asset,” Francisco CEO Dipanjan Deb and partner Brian Decker said in a statement.
As you would expect, Boomi’s CEO Chris McNabb put a positive spin on the deal about how his new bosses were going to fuel growth for his company. “By partnering with two tier-one investment firms like Francisco Partners and TPG, we can accelerate our ability for our customers to use data to drive competitive advantage. In this next phase of growth, Boomi will be in a position of strength to further advance our innovation and market trajectory while delivering even more value to our customers,” McNabb said in a statement.
All of this may have some truth to it, but the company goes from being part of a large amorphous corporation to getting absorbed in the machinery of two private equity firms. What happens next is hard to say.
The company was founded in 2000, and sold to Dell in 2010. Today, it has 15,000 customer, but Dell’s debt has been well documented, and when you string together a couple of multi-billion-dollar deals as Dell has recently, pretty soon you’re talking real money. While the company has not stated it will explicitly use the proceeds of this deal to pay off debt as it did with the VMware announcement, it stands to reason that this will be the case.
The deal is expected to close later this year, although it will have to pass the typical regulatory scrutiny prior to that.
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Sorbet raises $6M seed led by Viola Ventures to tackle the thorny financials of paid time off
A U.S./Israeli startup, Sorbet — which is tackling what companies do with the financial risks as employees accrue paid time off (PTO) — has raised $6 million in a seed funding round led by Viola Ventures, with participation by Global Founders Capital and Meron Capital.
The economics of paid time off is relatively hidden in the business world, but essentially, Sorbet takes on the burden of this PTO from employers and then allows employees to spend it. This gives the employers far more control over the whole process and the ability to forecast its impact on the business.
Sorbet says that in the U.S., employees use only 72% of PTO balances, even though it’s the most sought-after benefit. But this, effectively, comes out at 768 million unused days off a year, worth around $224 billion. This creates a difficult problem for CFOs and accountants because its creates balance sheet liabilities on the company’s books, says Sorbet. If the employee doesn’t use all of their PTO, the employer can end up owing them a lot of money, which creates a cash flow liability on the company’s books. So Sorbet buys out these PTO liabilities from employees, then loads the cash value of the PTO on prepaid credit cards for the employees.
Speaking to me on a call, CEO and co-founder Veetahl Eilat-Raichel, said: “We researched this whole idea of paid time off and found this huge, massive market failure and inefficiency around the way that PTO is constructed. It’s kind of one of those things where, on the face of it, there’s this boring bureaucratic payroll item that turns into a boring balance sheet item. But under it is a $224 billion problem for U.S. businesses… If you think about it, employers are borrowing money from their employees at the worst terms possible and employees aren’t benefitting either. So everyone’s hurting here.”
She said: “Sorbet assumes the liability on ourselves and so then we can allow the company to control their cash flow and decide when they want to pay us back. They gain a lot of financial value because we are able to be very, very attractive on our funding. So it saves costs, it provides them with complete control of their cash flow and it allows them to give out amazing financial benefits to employees at a time where we can all use some extra cash right now.”
The platform Sorbet has built will, it says, sync with calendars, HR and payroll systems, identify habits and then proactively suggest personalized, pre-approved 3-6 hour “Micro Breaks”, 1-4 day “Micro Vacations” and +1 week Vacations. This, says the startup, increases PTO used by as much as 15%.
Employers can constantly renegotiate the terms of the loan with Sorbet, thus matching future cash flow, insulating themselves against salary raises (wage inflation), and take advantage of other benefits.
The co-founders are Eilat-Raichel, who previously worked at L’Oréal, Lockheed Martin and a fintech entrepreneur; Eliaz Shapira, co-founder and CPO; and Rami Kasterstein, co-founder and board member.
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