Softbank
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Guardian Circle upgrades with a decentralized alert network
Chris Hays and Mark Jeffrey wanted to create a way for everyone to be able to tell their loved ones if they were in trouble. Their first product, Guardian Circle, did just that, netting a mention a few years ago. Now the same team is truly decentralizing alerts with a new token called, obviously, Guardium.
The plan is to create an ad hoc network of helpers and first responders. “Guardium and Guardian Circle together open the emergency response grid to vetted citizens, private response and compatible devices for the very first time,” write the founders. “Providing an economic framework on our global distributed emergency response network; Guardium brings first responders to the 4 billion people on the planet without government-sponsored emergency response.”
Because the product already works, the team is taking on the token sale as a new challenge.
“We’re serial entrepreneurs — both of us have been venture-backed in the past by names like SoftBank and Intel, and we’ve been senior execs in companies backed by Sequoia and Elon Musk. Transitioning to the token sale-backed universe has been an interesting study in contrasts,” said Hays. “There are a number of ‘panic button apps’ — but without exception, all of them have forgotten ‘the second half of the problem’ — organizing the response. Getting people who do not know one another into instant communication and location sharing during an emergency — the importance of that cannot be overstated.”
The founders found that their idea wasn’t fundable in the valley. After all, what VC wants to help people when they can invest in Snapchat? Instead, Hays and Jeffrey are aiming bigger.
“We’re rebooting the world’s safety grid,” said Hays. “We’re creating a new global public utility. And we want it to service everyone, everywhere on earth. Although it is a very big vision, and it is a capitalist, multibillion dollar ecosystem that we’re chasing — it’s still a very different vision, and not the one venture capitalists are looking for.”
The token works to create a flash mob of help. Guard tokens pay first responders and dispatchers and “cities, campuses, and resorts stake $GUARD to access Alerts created within their geofenced borders,” allowing local folks to help immediately. They’ve sold half of their hard cap of $10 million thus far.
While tokens are always an iffy investment, this team has produced product and, more important, it’s clear they’ll never raise venture. A token, no matter how it’s used in the future, seems like a solid solution.
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The disappearing Form D
We are experimenting with new content forms at TechCrunch. This is a rough draft of something new — provide your feedback directly to the authors: Danny at danny@techcrunch.com or Arman at Arman.Tabatabai@techcrunch.com if you like or hate something here.
Ignoring the midterm hysteria, we continue our obsession with SoftBank today by looking at the group’s IPO of its telecom unit. But first, some thoughts about Form Ds.
Recently, I was looking up the investment history of Patreon (Note: I was an investor in the company through my previous venture firm CRV). I did what I normally do: I went straight to the SEC’s EDGAR system and started searching for the company and its filings. And came up with nothing. Full-text search, office address searches and founder name searches — nothing was returned.
And yet, the company has publicly raised more than $100 million in venture capital according to Crunchbase, and to my knowledge, is not incorporated outside of the United States.
There should be a whole spate of filings, and yet none exist. What’s up with that?
After some investigation, my working hypothesis is that startups are (increasingly?) not filing disclosures with the SEC as a specific strategy to avoid scrutiny.
To take a step back, when companies take money from investors, they sell those investors securities. Under American laws, all securities need to be registered with the Securities and Exchange Commission using pre-defined templates (such as an S-1 registration form) to ensure that all investors know exactly what they are buying.
However, registration is expensive and time-consuming, and so U.S. law also provides a set of exemptions from registration for companies where that process is impractical. Startups take advantage of these exemptions and stay private, until they eventually want to become public through a registration with the SEC.
One mandated component of taking advantage of these registration exemptions is that the startup needs to file a Form D with the SEC. The Form D is free to file and relatively simple, requiring basic information such as the amount of capital fundraised and who the investors were in the round. It’s required to be filed 15 days after the first sale of securities, and, conveniently, the form preempts most state securities laws so that startups don’t have to file in state jurisdictions.
There are theoretically large penalties for failing to file — a company could open itself to investor lawsuits, and there are various financial felonies available that could be applied, as well.
But that’s legal theory, and the practicalities are that almost nothing bad happens to startups that fail to file a Form D. American courts, along with the SEC, have upheld that a startup does not lose its covered security exemption by failing to file the form. The only additional requirement is generally to file state security forms in lieu of the federal form.
A bigger question is why go through this when filing is easy and free? The obvious answer is that startups don’t want to put their round’s information out in the public eye where the good people at TechCrunch will see it and report on it. Of course, the whole point of Form D disclosure is to provide the public a modicum of information about what is happening in the economy.
But actually, the motivations go far beyond that. One reader, Paul David Shrader, saw our note yesterday that we were investigating Form Ds and offered this list of reasons on why companies in general (and to be clear, not specific to any company he has advised) choose to forgo filing:
As for the “why,” there are a few reasons why management, the board of directors, or even investors may be sensitive to fundraising disclosures:
1. The company doesn’t want the increased scrutiny internally that comes along with a new funding round. This can come from employees demanding different levels of compensation.
2. The company doesn’t want increased regulatory scrutiny. Many startups operate in regulatory gray areas, and increased attention from regulators before they are ready can be a Bad Thing.
3. The company has security concerns. For startups that operate in certain environments internationally, raising a monster round can place a target on the backs of its employees. This has been an issue in Latin America from time to time.
4. The company has competitive concerns. Raising a big round may attract new entrants to the market or heighten attention from existing competitors before a startup has solidified its position in the market.
5. Investors don’t want disclosure. Some investors want to disclose new investments on their own timeframe, and they make this a condition of their investment. Publicly-traded investors or sovereign wealth funds may only want to disclose at the time of their quarterly reports.
6. Flat rounds or down rounds can suck away any positive momentum. When founders are trying to convince customers and employees to join the rocket ship that is their company, a flatlining fundraise can look like… well, a flatlining company.
7. The round may not be closed yet. Companies sometimes have optimistic goals about the size of a round (“We’re raising $4 million!”), but only have a smaller amount committed at the outset of the round. Sometimes a single round can take 18+ months to close, even though a sizable (or not so sizable) percentage closed at the outset.
Some of these are obvious, but others, such as internal compensation concerns or international security concerns, were more surprising to me. Thanks Paul David for the thoughts.
Now, I said at the outset that my hypothesis is that startups are increasingly foregoing Form D disclosure. Arman and I are still doing work on this (the SEC has some data sets), but to be frank, it is very hard to operationalize and prove. Form D filings are up or steady, which makes sense given that the number of startups in areas like San Francisco have skyrocketed over the past decade. We are trying to prove something that doesn’t exist, and Karl Popper has helpfully explained that that is impossible.
Nonetheless, we are still interested in whether the legal norms have shifted here, and will hopefully report back on this again. If you are a startup attorney with an opinion here, please email Danny@techcrunch.com or Arman.tabatabai@techcrunch.com with your thoughts.
SoftBank’s telecom IPO weirdness
Photo by Alessandro Di Ciommo/NurPhoto via Getty Images
Talking about filings, one of the most complicated filings in the world is underway. While we were digging into SoftBank’s financing strategies yesterday, all the activity around the looming IPO of its telco business caught our attention.
As we analyzed yesterday, though SoftBank’s debt balance continues to balloon, the company’s balance sheet has rarely prevented it from pursuing investments in the past.
SoftBank continues to dole out multi-billion-dollar checks with stunning regularity, having invested around one-third of its $90+ billion Vision Fund. And we know SoftBank has no intention of slowing its torrid pace, with chairman and CEO Masayoshi Son previously stating he plans to raise $100 billion funds that would spend around $50 billion annually, every two or three years.
One way SoftBank is looking to access additional funding to pour into the next batch of unicorns is by taking a portion of its Japanese mobile business public. For some context, SoftBank is generally considered to be the third largest telco in Japan behind NTT DoCoMo and KDDI.
Even though initial estimates expect SoftBank to only sell around 30-40 percent of the company’s shares, the offering is widely expected to be one of the largest listings ever at potentially more than $25 billion, which would value the overall business at $90 billion on the high end. Reuters recently reported via a Japanese news service that the Tokyo Stock Exchange is expected to give SoftBank approval to list shares next Monday, with a likely listing date of December 19th.
But the progression of the IPO has been oddly complex and unique from the beginning.
First, there was an issue with a set of bonds SoftBank had issued in 2013, which were guaranteed by the telecom business and had covenants requiring that the company hold investment-grade credit ratings before pursuing a sale of any sort. However, SoftBank’s bonds hold junk status from major credit ratings agencies. To fix that roadblock, SoftBank issued a new set of bonds with better terms to buy back the bonds with the prohibitive covenants, undercutting and aggravating some investors of the initial bonds.
Then, it was reported that while lining up the underwriting banks for the IPO, SoftBank reportedly asked banks to commit to loans to the Vision Fund that total around $9 billion, a claim SoftBank has not commented on. As reported by Bloomberg:
The IPO’s top underwriters, which include Nomura Holdings Inc. and Goldman Sachs Group Inc., have given non-binding assurances while they finalize terms of the loan to the Vision Fund, the people said. Stakes in around five of the investment fund’s holdings will be used as collateral, according to the people, who asked not to be identified because the information is private.
Deutsche Bank AG, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. were also among banks chosen to lead SoftBank’s wireless unit IPO, Bloomberg News reported last week. Details of the loan are still being worked out, and terms could change, the people said. Meanwhile, Deutsche Bank and Goldman Sachs committed about $1 billion each, they said.
While the fund’s holdings (perhaps Uber or WeWork or others) would be set as collateral, Bloomberg also reported in the same article that the loans were non-recourse, meaning that if for some reason SoftBank were unable to repay the loan, the lenders would have no claim to any assets outside of the company stakes set as collateral. The loan terms become more concerning with the Vision Fund since it invests in many unlisted and, in many cases, unprofitable companies. As we noted yesterday, at least one potential lender, Bank of America, decided not to participate due to concerns that the terms were too risky.
Such sausage-making isn’t usually visible to the public, which would seem to indicate that at least some of the banks are grousing to reporters about terms they find egregious. As always, feel free to grouse to us as well.
What’s next
- Definitely drop us a line if you have thoughts about Form Ds or SoftBank — we are continuing to investigate
Reading docket
What we are reading (or at least, trying to read)
- Politico EU’s What the US midterms mean for the world
- The Atlantic’s The Bus Is the Best Public Transit for Cities
- Daniel J Hopkins’ The Increasingly United States (about how U.S. elections are more national and less local than ever before)
- Bloomberg’s piece called “The $6 Trillion Barrier Holding Electric Cars Back ”
- The New Yorker piece called “Why Doctors Hate Their Computers”
- Eliot Peper’s new science fiction novel Borderless
- A new report about China’s military and its deep connections into American academic research
- “LA Is Trying to Fix its Prostitution Problem by Banning Right Turns at Night—and it Might be Working” — intriguing headline, let’s see if it follows through
- The Information’s deep dive into white-collar crime and lack of prosecution thereof in Silicon Valley
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SoftBank is considering taking a majority stake in WeWork
SoftBank may soon own up to 50 percent of WeWork, a well-funded provider of co-working spaces headquartered in New York, according to a new report from The Wall Street Journal.
SoftBank is reportedly weighing an investment between $15 billion and $20 billion, which would come from its $92 billion Vision Fund, a super-sized venture fund led by Japanese entrepreneur and investor Masayoshi Son.
WeWork declined to comment.
SoftBank already owns some 20 percent of WeWork. The firm invested $4.4 billion in the company in August 2017, $1.4 billion of which was set aside to help WeWork expand in China, Japan and Southeast Asia.
This August, WeWork raised another $1 billion from SoftBank in convertible debt. At the same time, WeWork disclosed financials to a handful of media outlets, sharing that its revenue had doubled to $763.8 million in the first half of 2018 as losses increased to $723 million.
SoftBank, for its part, seems to have a hankering for real estate tech. Not only has it become a key stakeholder in WeWork, but it has deployed significant amounts of capital to Opendoor, Compass, Katerra and others.
Last month, the Vision Fund backed Opendoor, a platform for buying and selling homes, with $400 million. The same day, it led a $400 million round for Compass, valuing the real estate brokerage startup at $4.4 billion. As for Katerra, SoftBank poured $865 million into the construction tech business in January.
WeWork, founded in 2010 by Adam Neumann and Miguel McKelvey, has raised nearly $5 billion in a combination of debt and equity funding to date. It was valued at $20 billion in 2017, though reports earlier this summer estimated its valuation would fall somewhere between $35 billion and $40 billion with additional capital from SoftBank. A $40 billion valuation would make it the second most valuable VC-backed company in the U.S. behind only Uber.
WeWork has more than 268,000 members across 287 locations in 23 countries.
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Eventbrite’s IPO should encourage tech companies to get out while they still can
Eventbrite is having one hell of a debut on the New York Stock Exchange this morning.
Shares of the ticketing startup, founded back in 2006, have shot up over 50 percent in trading on the NYSE. After pricing its shares at $23 in its initial offering, investors have bid up the stock to a whopping $37, putting the company’s valuation at nearly $3 billion.
$EB prices $23, opens $36 pic.twitter.com/cYgCuqbmh8
—
(@hunterwalk) September 20, 2018
That’s well above where the ticketing company had hoped to be when it initially set terms for the public offering earlier this month.
The company started trading priced above its share price and nearly doubled its valuation. And if Eventbrite can do it, really almost any later-stage startup should be thinking about the public markets right now.
Performance for the San Francisco ticketing company has been… somewhat lackluster. As we noted when wrote about the company’s offering:
Eventbrite is not profitable and has been losing money since 2016. According to the documents, it posted losses of $40.4 million in 2016 and $38.5 million in 2017. In the first six months of 2018, the company has posted a net loss of $15.6 million. The company is making changes to make up for some of those losses — at the end of August, it announced a new pricing scheme for its customers using the “Essentials” package.
Its revenue is rising though, increasing from $133 million in 2016 to $201 million last year.
Since the beginning of the year tech public offerings have been on a tear. As The Wall Street Journal noted in July, 120 companies had raised $35.2 billion on U.S. exchanges at that point — the best showing for public markets since 2014 and the fourth busiest year since 1995, according to the financial data and analysis service Dealogic.
We’ve noted before that it’s a bit mind-boggling that investors and their portfolio companies wouldn’t be taking more advantage of these heady times. Nothing lasts forever (not even cold November rain) and certainly not markets that have been this bullish for this long.
Some of the reasoning is likely thanks to a market that’s still awash in private equity, sovereign wealth and late-stage dollars. SoftBank has hundreds of billions to invest; private equity firms are beginning to look at growth-stage companies the way that I look at banana cream pies from Cassell’s; and venture firms are beefing up big time to keep up with the Joneses (or in this case, the Blackstoneses).
However, the fun is certainly going to come to an end, and likely sooner rather than later. Early-stage investors are beginning to dole out their advice on lowering cash burn (something that happens every time they see the beginning of the end of the beginning of the end).
Low burn rates have gone out of fashion, but I expect we’ll be reminded very quickly at the beginning of the next downturn why they’re so valuable for early-stage startups.
— Sam Altman (@sama) September 19, 2018
With that in mind, later-stage companies should be looking for the exit signs wherever they can find them. Right now, that’s an IPO window that seems to be wide open.
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Meet the startups in the latest Alchemist class
Alchemist is the Valley’s premiere enterprise accelerator and every season they feature a group of promising startups. They are also trying something new this year: they’re putting a reserve button next to each company, allowing angels to express their interest in investing immediately. It’s a clever addition to the demo day model.
You can watch the live stream at 3pm PST here.
Videoflow – Videoflow allows broadcasters to personalize live TV. The founding team is a duo of brothers — one from the creative side of TV as a designer, the other a computer scientist. Their SaaS product delivers personalized and targeted content on top of live video streams to viewers. Completely bootstrapped to date, they’ve landed NBC, ABC, and CBS Sports as paying customers and appear to be growing fast, having booked over $300k in revenue this year.
Redbird Health Tech – Redbird is a lab-in-a-box for convenient health monitoring in emerging market pharmacies, starting with Africa. Africa has the fastest growing middle class in the world — but also the fastest growing rate of diabetes (double North America’s). Redbird supplies local pharmacies with software and rapid tests to transform them into health monitoring points – for anything from blood sugar to malaria to cholesterol. The founding team includes a Princeton Chemical Engineer, 2 Peace Corps alums, and a Pharmacist from Ghana’s top engineering school. They have 20 customers, and are growing 36% week over week.
Shuttle – Shuttle is getting a head start on the future of space travel by building a commercial spaceflight booking platform. Space tourism may be coming sooner than you think. Shuttle wants to democratize access to the heavens above. Founded by a Stanford Computer Science alum active in Stanford’s Student Space Society, Shuttle has partnerships with the leading spaceflight operators, including Virgin Galactic, Space Adventures, and Zero-G. Tickets to space today will set you back a cool $250K, but Shuttle believes that prices will drop exponentially as reusable rockets and landing pads become pervasive. They have $1.6m in reservations and growing.
Birdnest – Threading the needle between communal and private, Birdnest is the Goldilocks of office space for startups. Communal coworking spaces are accessible but have too many distractions. Traditional office spaces are private but inflexible on their terms. Birdnest brings the best of each without the drawbacks: finding, leasing, and operating a network of underutilized spaces inside of private offices. The cofounders, a duo of Duke and Kellogg MBA grads, are at $300K ARR with a fast-growing 50+ client waitlist.
Tag.bio – Tag.bio wants to make data science actionable in healthtech. The founding team is comprised of a former Ayasdi bioinformatician and a former Honda Racing engineer with a Stanford MBA. They’ve developed a next-generation data science platform that makes it easy and fast to build data apps for end users, or as they say, “WordPress for data science.” The result they claim is lightning-fast analysis apps that can be run by end users, dramatically accelerating insight discovery. They count the UCSF Medical Center and a “large Swiss pharma company” as early customers.
nCorium – They’ve built a new server architecture to handle the onslaught of AI to come with what they claim is the world’s first AI accelerator on memory to deliver 30x greater performance than the status quo. The quad founding team is intimidatingly technical — including a UCSD Professor, and former engineers from Qualcomm and Intel with 40 patents among them. They have $300K in pilots.
Spiio – Software eats landscaping with Spiio, which combines cloud-driven AI with physical sensors to monitor watering and landscaping for big companies. Their smart system knows when to water and when not to. This reduces water consumption by 50%, which means their system pays for itself in less than 30 days for big companies. They want to connect every plant to the internet, and look like they are off to a good start — $100K in orders from brand name Valley tech firms, and they are doubling monthly.
Element42 – Fraud is a major problem — For example, if you buy a Rolex on eBay, you run the risk of winding up with a counterfeit. Started by ex-VPs from Citibank, the founders are using risk models and technologies that banks use to help brands combat fraud and counterfeiting. Designed with token economics, they also incentivize customers to buy genuine products by serving exclusive content and promotions only to genuine product holders. Built on blockchain at the core, they claim to be the world’s first peer-to-peer authentication platform for physical assets. They have 45 customers across two industry verticals, 800K in ARR and are a member of World Economic Forum’s global initiatives against corruption.
My90 – Distrust between the public and the police has rarely been more strained than it is today. My90 wants to solve that by collecting data about interactions between the police and the public—think traffic stops, service calls, etc.—and turn these into actionable intelligence via an online analytics dashboard. Users text My90 anonymously about their interactions, and My90’s dashboard analyzes the results using natural language processing. Customers include major city police departments like the San Jose Police Department and the world’s largest community policing program. They have booked $150K in pilots and are expanding aggressively across the US.
Nunetz – A Stanford Computer Science grad and UCSF Neurosurgeon have come together to try to build a single unifying interface to replace the deluge of monitors and data sources in today’s clinical health environment. The goal is to prepare a daily “battle map” for physicians, nurses, and other providers, with an initial focus on the Intensive Care Unit (ICU). They have closed 3 paid pilots with hospitals through grants.
When Labs – If you hate managing people, When Labs wants to unburden you. Using an AI-powered assistant that texts with employees to negotiate assignments for hourly work, WhenLabs is trying to free customers like Hilton from spending money on managers who would normally do this manually. As the system gets smarter, they claim employees will prefer interfacing with their AI bot more than a human. AI and HR is a crowded space, but this might be the team to separate from the pack: the founding team’s previous company had a 9 figure exit to IBM.
FirstCut – FirstCut helps businesses put video content out at scale. Video dominates social media — it creates 10x more comments than text — and is emerging as a necessity for B2B media. But putting video out if you are a B2B marketer normally requires using agencies that charge hefty fees. FirstCut wants to disrupt the agencies with software and marketplaces. They use software automation and an on-demand talent marketplace to offer a fixed price product for video content. They are at $180k revenue, and most of it is moving to recurring subscriptions.
LynxCare – LynxCare claims that 90% of healthcare data goes untapped when doctors make critical decisions about your life. Further, they claim the average person’s life could be extended by 4 years if that data can be converted into insights. Their team of clinicians and data scientists aims to do just that — building a data platform that aggregates disparate data sets and drive insight for better clinical outcomes. And it looks like their platform has fans: they are active in 9 hospitals, count Pharma companies like Pfizer as Partners, and grew 4x over the past year and now are at $800K ARR.
ADIAN – Adian is a B2B SaaS product that digitizes the complex agrochemical supply chain in order to improve the sales process between manufacturers and distributors. The company claims manufacturers reduce costs by 20% and increase sales by 4% by using their online framework. $1.5 Billion and 70,000 orders have gone through the platform to date.
Hardin Scientific – Hardin is building IoT-enabled, Smart Lab Equipment. The hardware becomes a gateway to become the hub for monitoring, controlling, and sharing scientific data across teams. They’ve closed over $1.5m in revenue, and raised $15m in equity and debt financing. One of their smart devices is being used to 3D print bio-tissues and human organs in space.
ZaiNar – This team of 5 Stanford grads — 3 PhD’s and 2 MBAs — joined up with the Co-Founder of BlueKai to build the world’s best time synchronization technology. ZaiNar claims their ability to wirelessly synchronize and distribute time between networked devices is a thousand times better than existing technologies. This enables them to locate RF-emitting devices (i.e. phones, cars, drones, & RFID) at long distances with sub-meter accuracy. Beyond location, this technology has applications across data transmission, 5G communications, and energy grids. ZaiNar has raised a $1.7 million seed from AME Cloud and Softbank, and has built an extensive patent portfolio.
SMART Brain Aging – This startup claims to reduce the onset of dementia by 2.25 years with software. They are the only company approved by Medicare to get reimbursed on a preventative basis for the treatment of dementia. In conjunction with Harvard University, they have developed 20,000 exercises that are clinically proven to reduce the onset of dementia and, they claim, help build neurotransmitters. The company works with 300 patients per week ($2.2 million annual revenue) and is building to a goal of helping 22,000 people in 24 months.
Phoneic – Phoneic believes the data trapped in voice calls from cellphones is a gold mine waiting to be unleashed. Their app records and transcribes cell phones conversations, and the company has built an integration layer to enterprise AI and CRM systems that traditionally didn’t have access to voice data. The team is led by the co-founder of 3jam, one of the first group SMS and virtual number companies, which was acquired by Skype in 2011. He is keenly aware of the power of virality — and like Skype, the use of Phoneic spreads its adoption. The company has already raised $800,000 in seed funding.
Arkose Labs – Whether or not you think Russia interfered with the 2016 election, it’s no secret that bots are having significant impact on society. Arkose Labs wants to fight fraud, without adding friction to legit users. Most fraud prevention platforms today focus on gathering info from the user and providing a probability score that the traffic is good or bad. This leaves companies with a difficult decision where they may be blocking revenue generating users. Arkose has a different approach, and uses a bilateral approach that doesn’t force this tradeoff. They claim to be the only solution to offer a 100% SLA on fraud prevention. Big companies like Singapore Airlines and Electronic Arts are customers. USVP led a $6 million investment into the company.
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The ambitious real estate ‘unicorn’ Opendoor just made its first acquisition, snapping up Open Listings
Opendoor, a four year-old, San Francisco-based company, has from the outset intended to make it possible to buy and sell residential real estate with a few key strokes. It seemingly gets closer to that audacious vision by the day. The company closed on $325 million in new funding in June in a round that brought its total equity funding to $645 million to date — and its valuation to more than $2 billion. The company has also raised $1.75 billion in debt, and two sources tell us more funding from SoftBank is imminent.
Opendoor’s cofounder and CEO, Eric Wu, who previously cofounded two other companies, won’t answer questions about SoftBank when asked. But there’s no question the company is one of the most capital-intensive startups on the scene currently. Opendoor bids on homes sight unseen, agrees to buy them, then — contingent on an inspection to verify the quality of the home (“sometimes customers aren’t aware of things like foundation issues,” explains Wu) — it sells them, charging a fee of “about 6 percent,” he says. (Recent reports claim this number can reach as high as 13 percent.)
To date, the company has largely been working with people who need to sell their homes quickly because of a new job or other life event. By using Opendoor, goes the pitch, they don’t get stuck paying for two mortgages when they can’t afford it. Yet Opendoor increasingly wants to help them buy that next house, too. Toward that end, the company has just acquired Open Listings, a four-year-old, L.A.-based startup that has aimed to make it easier and cheaper for buyers to purchase homes by automating much of what an agent would do, thus reducing the fee an agent would traditionally take.
Opendoor isn’t saying what it’s paying for Open Listings, which had raised $7.6 million from investors over the years, including Y Combinator, Matrix Partners, Arena Ventures, and Initialized Capital. But all of Open Listings’ 45 employees will join the 900 employees of Opendoor, and the move gets Opendoor into a handful of new cities in which it wasn’t already operating, including San Francisco, Seattle, Austin, L.A., and Chicago.
The deal was also a very natural fit, suggests Wu. He says he met Open Listings cofounder and CEO Judd Schoenholtz in 2015, when Schoenholtz — through YC’s alumni network — approached Wu, whose last company had passed through YC’s program. Schoenholtz “reached out and wanted to share what they were trying to solve in real estate, so we met up and talked about problems we saw and our respective approaches . . . Judd was starting with the buyer side, and we were starting with the sales side, and we continued to share notes on how we were solving both.”
The acquisition is the very first for Opendoor, though one senses it’s just the beginning of similar tie-ups. In a call yesterday, Wu referred to other initiatives that Opendoors is exploring, including a kind of financing business, which Wu has been talking about for years but that sounds closer now to fruition. “We’re doing some things around mortgages that will integrated into the shopping experience,” says Wu, without wanting to elaborate further. Home improvement loans may also be on the horizon. (Wu says Opendoor “also wants to enable home buyers to personalize their experience.”)
Opendoor is also working more closely with developers, forming partnerships with “19 of the 25 largest home builders in the country over the last 18 months,” says Wu. The idea is for Opendoor’s customers to put down a deposit on a new home, with Opendoor operating quietly in the background to both help choose a closing date, as well as to sell those customers’ previous homes.
The big question, as always, is what Opendoor does in a sustained market downturn. The company is reportedly on pace to spend more than $2.5 billion on home purchases over the next year. Yet buying homes is a complicated affair. For starters, after Opendoor acquires each home, it has to ensure the home is up to code in order to resell it. Indeed, though the company is willing to buy homes built after 1960, Wu says a growing amount of its inventory was built no earlier than 1990.
Hanging on to its inventory, which Opendoor does for 90 days on average, would seem to pose an equally big risk, particularly given that the housing market is highly sensitive to interest rates and other macroeconomic factors that could prompt a market cool-off. We may even be seeing early signs of one right now.
Wu doesn’t seem concerned, focused as he is on creating a kind of virtuous cycle of home buying. Asked about housing market slowdowns, he shrugs off the question. Maybe he needs to operate that way, given the ambitious vision of Opendoor.
Says Wu when talk turns to rising mortgage rates and growing new home inventory, “We have a world-class pricing team to track data on a national and subdivision level that informs [what we do].” As for the condition of the housing market, “we aren’t commenting,” he says.
Pictured above, left to right: Eric Wu and Judd Schoenholtz.
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Xiaomi CDRs, SoftBank’s successors and China’s Samsung investigation
The weekend provided no rest to news-wary reporters, with major announcements coming from Xiaomi, SoftBank and the Chinese government the past few days that will continue to change the global tech landscape.
Xiaomi Chinese Depository Receipts
One of the most important yet underreported stories of 2018 has been the development of Chinese Depository Receipts (known as CDRs). I wrote a comprehensive primer on the investment mechanism a few weeks ago, but the summary is that CDRs will give mainland Chinese investors access to overseas-listed stocks that set up the right custodian accounts. Due to domestic capital controls and relatively weak stock exchange rules in China, many Chinese tech giants are listed on overseas stock exchanges in New York and Hong Kong.
Beijing-based Xiaomi, which produces a line of phones and offers mobile software services, is launching one of the most anticipated IPOs of the year, with a valuation expected to top tens of billions of dollars. In its official filing, the company targeted a fundraise of $10 billion. While Xiaomi is a sterling example of the potential success of Chinese entrepreneurs, local retail buyers would likely have had no access to buy the stock, which will be listed in Hong Kong.
Fiona Lau and Julie Zhu at Reuters are now reporting that Xiaomi could be one of the first companies to take advantage of the new CDR mechanism, potentially reserving 30 percent of its new issue for CDR buyers. That would be about $3 billion if the assumptions of the fundraise play out.
If the CDR mechanism works as expected, Chinese companies and potentially many others could suddenly tap a vast new pool of capital, either in the IPO process or more generally. That could push valuations for many of these issues higher than they might otherwise go, since Chinese mainland investors have limited ability to invest in overseas stocks due to capital controls. A valuation that might cause a New York-based money manager to flee might be more than palatable to a Chinese investor.
While Chinese tech giants are likely to quickly offer CDR options to take advantage of their local brand power and increase upward pressure on their stock prices, the bigger question in my mind is how long it will take overseas companies to offer similar measures and get access to this capital market. While companies like Facebook and Google are blocked or mostly blocked from mainland China, other companies like Apple have strong brand presence in the country, and could theoretically offer a CDR as it strives for a $1 trillion valuation. There are huge legal and policy roadblocks to overcome of course, but such a debut would be a major milestone in China’s financial development.
SoftBank executive changes
Japan’s SoftBank Group, which owns a set of major tech and finance companies, announced a new group of senior execs late on Friday that sets up something of a leadership contest to succeed the group’s founder, Masayoshi Son.
Several years ago, Son had indicated that Nikesh Arora, who had spent a decade at Google and eventually rose to be the company’s chief business officer, would succeed him. Arora became president and chief operating officer of SoftBank, but would last less than two years before heading out from the role. As a sort of coda to that chapter, we learned late last week that Arora has joined Palo Alto Networks as its CEO.
Now, SoftBank has announced that three people will take leadership roles in the company, and all three will join its board of directors. Rajeev Misra, who runs the $100 billion SoftBank Vision Fund, will become an executive vice president (EVP) while maintaining his duties to the fund.
Katsunori Sago, who until recently was the chief investment officer of Japan Post, Japan’s largest savings bank with a $1.9 trillion portfolio, will join SoftBank as an EVP and chief strategy officer. Sago had been rumored to be considering leaving Japan Post just a few weeks ago. Finally, former Sprint CEO Marcelo Claure was named an EVP and SoftBank’s new chief operating officer. Claure was elevated to executive chairman of Sprint last month, while stepping down as CEO.
Each of the three are positioned around the key tentpoles of SoftBank. SoftBank’s core business remains telecom, on which Claure will presumably spend significant time. The group’s financial interests, which includes a 100 percent stake in Fortress Investment Group, will likely get significant attention from Sago. And the SoftBank Vision Fund, which has received splashy headlines with its massive investments in global unicorn startups, is obviously a key future pillar of the company, giving Misra a powerful perch in the group.
Masayoshi Son is 60 years old today. While retirement seems to be the least likely course of action for the energetic entrepreneur, clearly he is starting to think through succession in a more robust way than he did before with Arora. That should make SoftBank investors far more content, and also provide a little bit of a competitive dynamic at the top of the organization to drive the group’s results in the years to come.
China initiates investigation into Samsung and other chip companies
The chip wars between China and the rest of the world continue to heat up. Now, it looks like Samsung, the world’s largest chipmaker, is in the crosshairs of Beijing, according to a Wall Street Journal report by Yoko Kubota. In addition to Samsung, Micron and SK Hynix were also ensnared in the investigation.
China has made building a strong indigenous chip industry a core pillar of its economic development strategy. In addition to a comprehensive plan known as Made in China 2025, the country has also been attempting to put together the world’s largest semiconductor venture capital investment fund, which in aggregate could have tens of billions of dollars in capital at its disposal.
The investigations against Samsung and the two chipmakers comes at the same time that China has also once again delayed the close of Qualcomm’s acquisition of NXP Semiconductors. Qualcomm has been waiting for months to get Beijing’s approval on that deal, which would provide the company a fresh source of revenue and a renewed product mix in strategic areas like automotive.
The use of economic investigations to help and hurt Chinese companies and their competitors is starting to become a mainstay. The United States used the negative conclusions of its investigation into Chinese telecommunications company ZTE in order to cut off its export licenses, practically killing the company. While the U.S. has now started to walk back that threat by floating the option of a large fine, it is clear that these sorts of tit-for-tat investigations are going to continue into the future.
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SoftBank buys into Line’s mobile service in Japan
SoftBank is partnering up with messaging app Line to help develop its Line Mobile telecom service. Line announced that it has agreed to allow SoftBank to take a 51 percent in the business via an issuance of new shares. The deal is expected to close by March. From the documents, its mobile business is valued at around $15 million (1.7 billion JPY) but a company spokesperson told TechCrunch… Read More
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Benchmark’s lawsuit against former Uber CEO Kalanick dismissed
It’s over. Benchmark’s lawsuit against former Uber CEO Travis Kalanick has now been dropped, ending one of the biggest VC-founder disputes in history. It was dismissed as a condition of the SoftBank investment in Uber getting done. The deal was completed earlier this month, giving both Benchmark and Kalanick an opportunity to sell a significant Uber stake. Read More
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Construction startup Katerra gets $865M in Softbank’s latest mega-round
There’s another big financing round led by Softbank’s mammoth vision fund today, with the firm this time pouring $865 million into a construction startup called Katerra that’s a one-stop shop for getting a building up off the ground. Katerra is creating a full-stack provider for, well, buildings. The company runs the process of getting a building up and people inside it from… Read More
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