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Ashton Kutcher and Effie Epstein to talk Sound Ventures at Disrupt SF
While many celebrities try to invest in the world of tech, very few do so successfully. And no one has proved their worth as celebrity-turned-VC more than Ashton Kutcher .
That’s why we’re absolutely thrilled to host Ashton Kutcher and Sound Ventures partner Effie Epstein at TC Disrupt SF in September.
Kutcher first got into investing in 2011 with the launch of A-Grade Investments. The firm invested in big-name companies like DuoLingo, FlexPort, ProductHunt, Airbnb, and Uber. In 2014, Kutcher, alongside his longtime friend and partner Guy Oseary, started a new VC firm called Sound Ventures.
Since launch, Sound Ventures has made 53 investments and led six rounds of financing, with portfolio companies including Gusto, Vicarious, Robinhood, Lemonade, and Acorns.
And in 2017, Sound made another investment in the form of Effie Epstein. The firm brought on Epstein as managing partner and COO, with Kutcher telling TechCrunch: “Effie has a deep understanding of business and fiduciary responsibilities. She also has a multidisciplinary background which makes her a home run for venture. The bottom line is she is someone I want to work for.”
Before joining Sound, Epstein led global strategy at Marsh & McLennan subsidiary Marsh. Prior to Marsh, she served as SVP of planning and head of Investor Relations at iHeartMedia, and before that she worked in business development at Clear. Epstein also worked in investment banking in the energy sector and has an MBA from Harvard Business School.
In other words, Epstein brings a multi-disciplinary approach to Sound, which is venturing beyond consumer tech into financial services, insurance tech, enterprise, govtech and medtech sectors.
This won’t be Kutcher’s first go-around at Disrupt. He spoke at Disrupt NY in 2013, right as the world was first hearing about Bitcoin. We’re excited to revisit the topic of cryptocurrencies and so much more with Kutcher and Epstein, and discuss their investment thesis moving forward.
Tickets to Disrupt SF are available here.
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Here’s what you’ll learn at Atrium’s fundraising workshop
Justin Kan is qualified to teach you how to pitch, and isn’t shy about it. Having raised about $90 million for a few companies and sold his startup Twitch to Amazon for almost a billion dollars, not being shy is actually part of what Kan teaches. His legal services startup Atrium today officially launches Atrium Scale, its free Series A fundraising workshop that’s helped eight startups raise $100 million since it started in beta five months ago. The two-day in-person seminar includes pitch coaching, intros to investors and mentors, follow-up online pitch deck help, legal advice, Amazon and Google Cloud credits and tax and accounting services.
I went through Atrium Scale myself, pretending I was the founder of a hypothetical startup that replaces your phone’s contacts app. While the lectures were full of valuable tips, you can get a lot of those from instructional blog posts by Kan and other VCs. But the small group Q&A and coaching with entrepreneurs who’d successfully raised did a remarkable job of improving attendees’ pitches and the esoteric song-and-dance necessary to get investors to part with their cash.
Atrium co-founder Justin Kan
Here’s a breakdown of how Atrium Scale works:
- When: Once per quarter over a Saturday and Sunday
- Where: Atrium’s offices in downtown San Francisco
- How much: Free, but Atrium hopes you’ll end up using its legal services
- Who: Startups planning to raise their Series A in the next six months, the sooner the better, who fly themselves in from all over the world
- Who gets in: Atrium selects the 10 percent of applicants most ready for venture funding. Applications can be submitted here
- Investors involved to date: Sequoia, General Catalyst, Accel, Venrock, Social Capital, Signia, KPCB, Lightspeed
- Mentors: Justin Kan (Atrium, Twitch), Holly Liu (Kabam, Y Combinator), James Richards (Teleborder, TriNet), Andrew Trader (Zynga), Ashu Desai (Make School)
What Atrium Scale teaches
The Atrium Scale method revolves around the concepts of how to pitch and when. While there are plenty of ways to show off a business, Kan recommends a calculated approach to storytelling. “When should you raise? When you can convince investors to give you money and when cash is the constraint to scaling your business,” Kan said to kick off our program.
The song
“It all starts with a narrative — 99 percent is the work of building the business, but an important 1 percent is convincing people,” Kan relays.
First, explain how the world is a certain way. Describe the problem, why it’s big and who in the market would pay for a solution. Demonstrate that you’re an expert.
Second, explain how the world is changed by your solution to the problem. Frame what’s possible for businesses or consumers once they have your product.
Third, explain how the world is new now that your solution exists. Provide metrics on traction and mechanisms for growth, and show why your team is uniquely equipped to succeed. Identify adjacent markets your product will conquer.
Unlike the frothy days of yore, “people are no longer willing to lose money on a per-unit basis,” says Kan. VCs will demand to understand your unit economics and scalable customer acquisition strategy that turns cash invested into more cash earned.
Perhaps the most important part of the pitch is practice, though. Pitch to fellow founders, investors or angels, but explicitly tell them you want feedback, not money. Running through the pitch over and over boosts confidence, A/B tests narratives and unearths questions. Know your numbers by heart so you always seem sure of where the business is heading, and define a personal pitching style that plays to your personality strengths.
Kan says it all comes down to making investors see your vision for how you’re going to become a massive company.
Atrium Scale helps here by letting you pitch in groups, as well as one-on-one with mentors. Simply being surrounded by people all trying to improve creates an atmosphere conducive to progress rather than getting defensive about criticism. There could be better homework or takeaway materials to help startups continue to improve after the workshop ended, but I heard entrepreneurs work out kinks and trim off tangents that could have derailed their pitch during a real meeting.
The dance
Where Atrium Scale shined brightest was digging into the cadence of the fundraising process. Anyone can work out a decent pitch in their garage, but it takes special know-how to navigate turning that pitch into money in the bank. This is the kind of in-group knowledge that often makes it tough for outsiders to break into Silicon Valley.
You should pitch wide, planning to talk to at least 10 to 20 investors, but knowing it can take 100 ‘nos’ to get a ‘yes.’ Pick investors not based on their firm’s name recognition but their expertise and track record in your industry. Contact investors at least three to four weeks out and schedule meetings in as rapid succession as possible. The goal is to be able to get term sheets back at the same time so you can play firms off each other and pick the best deal.
You’ll start with single partner meetings. You’ll hear back within 24 to 48 hours if they go well, and you can assume they didn’t if you don’t hear back soon. Those that like you will set up multi-partner meetings, and you should ask them what their colleagues will want to know. If that goes well you’ll be brought in for an exhaustive full-partnership pitch where they’ll try to poke holes in your business. Lots of questions means lots of interest, while few questions and VCs bored on their phones means you’re toast.
If the partnership believes in you, you’ll quickly receive a term sheet, but you don’t have to sign it right away. Since you can’t fire your investors, be sure to call their references so you’re sure which you want to work with forever. This also gives you time to go back to other firms you’ve pitched. Don’t say who it’s from, but use your existing term sheet as leverage to get them to give you one or one with a better deal.
Aim for a lead investor that will put in at least 25 percent of the round volume and then fill it out with other firms, strategics and angels. Know that the median delay for investor due diligence is 41 days, so make sure you have enough runway to wait that long after you complete the pitch process. The fundraise should last you 12 to 18 months, but be careful because your spending will expand to take up what’s in the bank. Be ready by then to show you’ve hit new milestones that de-risk your business.
The program also reviewed more advanced topics like raising money from strategic investors, equity versus SAFE financing, crooked deal terms like ratchets and liquidation preferences and how to manage your board. That one-size-fits all info is certainly helpful, but thanks to the small class size, Atrium Scale’s Q&As let founders get answers to industry-specific questions and their own edge cases.
There are plenty of people looking to help startups in Silicon Valley, but few are giving away this high-quality of education for free. Accelerators can charge 7 percent of equity and advisors can charge a percentage point or two. That can be worth a lot if the startup does well. Consultants want cash that pre-A startups rarely have. But Atrium is merely looking for lead generation and it needs them to raise money to be able to afford its legal services. That aligns the workshop well with the outcomes for the companies.
If you have a dumb business idea, no amount of turd polishing will get you legitimate funding. But for startups on to something that just need help communicating, Atrium Scale could be a quick and cheap way to boost their chances of getting picked from the crowd.
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Background checks pay for Checkr, which just rang up $100 million in new funding
Criminal records, driving records, employment verifications. Companies that use on-demand employees need to know that all the boxes have been checked before they send workers into the world on their behalf, and they often need those boxes checked quickly.
A growing number of them use Checkr, a San Francisco-based company that says it currently runs one million background checks per month for more than 10,000 customers, including, most newly, the car-share company Lyft, the services marketplace Thumbtack, and eyewear seller Warby Parker.
Investors are betting many more customers will come aboard, too. This morning, Checkr is announcing $100 million in Series C funding led by T. Rowe Price, which was joined by earlier backers Accel and Y Combinator.
The round brings the company’s total funding to roughly $150 million altogether, which is a lot of capital in not a lot of time. Yet Checkr is very well-positioned considering the changing nature of work. The company was born when software engineers Daniel Yanisse and Jonathan Perichon worked together at same-day delivery service startup Deliv and together eyed the chance to build a faster, more efficient background check. The number of flexible workers has only exploded in the four years since.
So-called alternative employment arrangements, in the parlance of the Bureau of Labor Statistics, including gig economy jobs, have grown from representing 10.1 percent of U.S. employees in 2005 to 15.8 percent of employees in 2015. And that percentage looks to rise further still as more digital platforms provide direct connections between people needing a service and workers willing to provide it.
Meanwhile, Checkr, which has been capitalizing on this race for talent, has its sights on much more than the on-demand workforce, says Yanisse, who is Checkr’s CEO. While the 180-person company counts Uber, Instacart, and GrubHub among its base of customers, Checkr is also actively expanding outside of the tech and gig economy, he says. It recently began working with the staffing giant Adecco, for example, as well as the major insurer Allstate.
At present, all of these customers pay Checkr per background check. That may change over time, however, particularly if the company plans to go public eventually, which Yanisse suggests is the case. (Public shareholders, like private shareholders, love recurring revenue.)
“Right now, our pricing model for customers is pay-per-applicant,” says Yanisse. “But we have a whole suite of SaaS products and tools” — including an interesting new tool designed to help hiring managers eradicate their unwitting hiring biases — “so we’re becoming more like a SaaS” business.
While things are ticking along nicely, every startup has its challenges. In Checkr’s case, one of these would seem to be those high-profile cases where background checks are painted as far from foolproof. One situation that springs to mind is the individual who began driving for Uber last year, six months before intentionally plowing into a busy bike path in New York. Indeed, though Checkr claims that it can tear through a lot of information within 24 hours — including education verification, reference checks, drug screening — we wonder if it isn’t so fast that it misses red flags.
Yanisse doesn’t think so. “Overall background checks aren’t a silver bullet,” he says. “Our job is to make the process faster, more efficient, more accurate, and more fair. But past information doesn’t guarantee future performance,” he adds. “This isn’t ‘Minority Report.’”
We also ask Yanisse about Checkr’s revenue. Often, a financing round of the size that Checkr is announcing today suggests a revenue run rate of $100 million or so. Yanisse declines to say, telling us Checkr doesn’t share revenue or its valuation publicly. “It’s still a bit early,” he says. “There’s this obsession with metrics in Silicon Valley, and we just want to make sure we’re focused on the right things.”
But, he adds, “you’re in the ballpark.”
Correction: An earlier version of this story incorrectly listed Visa as a customer.
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The real threat to Facebook is the Kool-Aid turning sour
These kinds of leaks didn’t happen when I started reporting on Facebook eight years ago. It was a tight-knit cult convinced of its mission to connect everyone, but with the discipline of a military unit where everyone knew loose lips sink ships. Motivational posters with bold corporate slogans dotted its offices, rallying the troops. Employees were happy to be evangelists.
But then came the fake news, News Feed addiction, violence on Facebook Live, cyberbullying, abusive ad targeting, election interference and, most recently, the Cambridge Analytica app data privacy scandals. All the while, Facebook either willfully believed the worst case scenarios could never come true, was naive to their existence or calculated the benefits and growth outweighed the risks. And when finally confronted, Facebook often dragged its feet before admitting the extent of the issues.
Inside the social network’s offices, the bonds began to fray. An ethics problem metastisized into a morale problem. Slogans took on sinister second meanings. The Kool-Aid tasted different.
Some hoped they could right the ship but couldn’t. Some craved the influence and intellectual thrill of running one of humanity’s most popular inventions, but now question if that influence and their work is positive. Others surely just wanted to collect salaries, stock and resumé highlights, but lost the stomach for it.
Now the convergence of scandals has come to a head in the form of constant leaks.
The trouble tipping point
The more benign leaks merely cost Facebook a bit of competitive advantage. We’ve learned it’s building a smart speaker, a standalone VR headset and a Houseparty split-screen video chat clone.
Yet policy-focused leaks have exacerbated the backlash against Facebook, putting more pressure on the conscience of employees. As blame fell to Facebook for Trump’s election, word of Facebook prototyping a censorship tool for operating in China escaped, triggering questions about its respect for human rights and free speech. Facebook’s content rulebook got out alongside disturbing tales of the filth the company’s contracted moderators have to sift through. Its ad targeting was revealed to be able to pinpoint emotionally vulnerable teens.
In recent weeks, the leaks have accelerated to a maddening pace in the wake of Facebook’s soggy apologies regarding the Cambridge Analytica debacle. Its weak policy enforcement left the door open to exploitation of data users gave third-party apps, deepening the perception that Facebook doesn’t care about privacy.
And it all culminated with BuzzFeed publishing a leaked “growth at all costs” internal post from Facebook VP Andrew “Boz” Bosworth that substantiated people’s worst fears about the company’s disregard for user safety in pursuit of world domination. Even the ensuing internal discussion about the damage caused by leaks and how to prevent them…leaked.
But the leaks are not the disease, just the symptom. Sunken morale is the cause, and it’s dragging down the company. Former Facebook employee and Wired writer Antonio Garcia Martinez sums it up, saying this kind of vindictive, intentionally destructive leak fills Facebook’s leadership with “horror”:
The fact that some Facebooker would place their personal grudge and views above the interests of the company fills anyone on the home team with horror (in the same way that the current administration colluding with foreigners to secure a domestic victory does Americans).
— Antonio García Martínez (@antoniogm) March 30, 2018
And that sentiment was confirmed by Facebook’s VP of News Feed Adam Mosseri, who tweeted that leaks “create strong incentives to be less transparent internally and they certainly slow us down,” and will make it tougher to deal with the big problems.
I’m really worried about this. I worry it’ll make it much more difficult to step up to the challenges we face.
— Adam Mosseri (@mosseri) March 30, 2018
Those thoughts weigh heavy on Facebook’s team. A source close to several Facebook executives tells us they feel “embarrassed to work there” and are increasingly open to other job opportunities. One current employee told us to assume anything certain execs tell the media is “100% false.”
If Facebook can’t internally discuss the problems it faces without being exposed, how can it solve them?
Implosion
The consequences of Facebook’s failures are typically pegged as external hazards.
You might assume the government will finally step in and regulate Facebook. But the Honest Ads Act and other rules about ads transparency and data privacy could end up protecting Facebook by being simply a paperwork speed bump for it while making it tough for competitors to build a rival database of personal info. In our corporation-loving society, it seems unlikely that the administration would go so far as to split up Facebook, Instagram and WhatsApp — one of the few feasible ways to limit the company’s power.
Users have watched Facebook make misstep after misstep over the years, but can’t help but stay glued to its feed. Even those who don’t scroll rely on it as a fundamental utility for messaging and login on other sites. Privacy and transparency are too abstract for most people to care about. Hence, first-time Facebook downloads held steady and its App Store rank actually rose in the week after the Cambridge Analytica fiasco broke. In regards to the #DeleteFacebook movement, Mark Zuckerberg himself said “I don’t think we’ve seen a meaningful number of people act on that.” And as long as they’re browsing, advertisers will keep paying Facebook to reach them.
That’s why the greatest threat of the scandal convergence comes from inside. The leaks are the canary in the noxious blue coal mine.
Can Facebook survive slowing down?
If employees wake up each day unsure whether Facebook’s mission is actually harming the world, they won’t stay. Facebook doesn’t have the same internal work culture problems as some giants like Uber. But there are plenty of other tech companies with less questionable impacts. Some are still private and offer the chance to win big on an IPO or acquisition. At the very least, those in the Bay could find somewhere to work without a spending hours a day on the traffic-snarled 101 freeway.
If they do stay, they won’t work as hard. It’s tough to build if you think you’re building a weapon. Especially if you thought you were going to be making helpful tools. The melancholy and malaise set in. People go into rest-and-vest mode, living out their days at Facebook as a sentence not an opportunity. The next killer product Facebook needs a year or two from now might never coalesce.
And if they do work hard, a culture of anxiety and paralysis will work against them. No one wants to code with their hands tied, and some would prefer a less scrutinized environment. Every decision will require endless philosophizing and risk-reduction. Product changes will be reduced to the lowest common denominator, designed not to offend or appear too tyrannical.
Source: Volkan Furuncu/Anadolu Agency + David Ramos/Getty Images
In fact, that’s partly how Facebook got into this whole mess. A leak by an anonymous former contractor led Gizmodo to report Facebook was suppressing conservative news in its Trending section. Terrified of appearing liberally biased, Facebook reportedly hesitated to take decisive action against fake news. That hands-off approach led to the post-election criticism that degraded morale and pushed the growing snowball of leaks down the mountain.
It’s still rolling.
How to stop morale’s downward momentum will be one of Facebook’s greatest tests of leadership. This isn’t a bug to be squashed. It can’t just roll back a feature update. And an apology won’t suffice. It will have to expel or reeducate the leakers and those disloyal without instilling a witch hunt’s sense of dread. Compensation may have to jump upwards to keep talent aboard like Twitter did when it was floundering. Its top brass will need to show candor and accountability without fueling more indiscretion. And it may need to make a shocking, landmark act of contrition to convince employees its capable of change.
When asked how Facebook could address the morale problem, Mosseri told me “it starts with owning our mistakes and being very clear about what we’re doing now” and noted that “it took a while to get into this place and I think it’ll take a while to work our way out . . . Trust is lost quickly, and takes a long time to rebuild.”
I think it starts with owning our mistakes and being very clear about what we’re doing now. For much of the company November 2016 was their first negative cycle, so it’s also good to share old stories. And then you have to deliver, you have to make real progress on the issues.
— Adam Mosseri (@mosseri) March 30, 2018
This isn’t about whether Facebook will disappear tomorrow, but whether it will remain unconquerable for the forseeable future.
Growth has been the driving mantra for Facebook since its inception. No matter how employees are evaluated, it’s still the underlying ethos. Facebook has poised itself as a mission-driven company. The implication was always that connecting people is good so connecting more people is better. The only question was how to grow faster.
Now Zuckerberg will have to figure out how to get Facebook to cautiously foresee the consequences of what it says and does while remaining an appealing place to work. “Move slow and think things through” just doesn’t have the same ring to it.
If you’re a Facebook employee or anyone else that has information to share with TechCrunch, you can contact us at Tips@techcrunch.com or this article’s author Josh Constine’s DMs are open on Twitter. Here are some of our feature stories on Facebook’s recent issues:
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Shortly, even the CEO will be outsourced to an online labor marketplace
Over the past decade, there has been a ferocious rise in the freelance economy in the United States. Millions of people today work on platforms ranging from Uber and Lyft to Taskrabbit and Fiverr, accepting what are usually short-term tasks that can be completed efficiently and repeatedly. While these casual jobs have been the focus of intense scrutiny about their pay structures and work… Read More
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Actress Maisie Williams to launch Daisie, a social app for talent discovery and collaboration
Actress Maisie Williams, best known for her role as Arya Stark on Game of Thrones, is the latest celeb to venture into tech entrepreneurship, with the launch of a new company aimed at connecting creatives, called Daisie. Available later this summer as a mobile app, Daisie will offer a platform where creators can network, like, share and collaborate on projects within a social networking… Read More
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LinkedIn to launch Talent Insights, a new analytics tool, as it dives deeper into data
LinkedIn, the Microsoft-owned social network for the working world with some 500 million members, has made a large business out of recruitment — with some 11 million job listings on the site at any given time, and the recruitment market providing the company with its largest source of revenue. Now it is taking another step ahead in building out that business with a new product:… Read More
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OpenStack Foundation launches its first cloud admin certification exams to combat talent shortage
It’s no secret that it’s still hard to find good tech talent, and that’s definitely the case for the kind of complex and highly specialized skill set it takes to administer an OpenStack cloud. To grow this talent pool and to allow admins to show off their OpenStack skills, the OpenStack Foundation today announced the launch of its first certification program for OpenStack… Read More
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