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Why does TechCrunch cover so many early-stage funding rounds?
Funding-round stories are TechCrunch’s bread and butter.
For early-stage companies, the fact that an investor has put thousands, millions (or billions) into an idea that will likely fail, and might never make money, is big news. That’s a story that we can tell every day.
From time to time, a debate pops up about the role of funding-round stories: Are financings the right metric to focus on? Should the trend be scratched and reinvented? After all, raising money is not indicative of making money. Let’s be real: news needs news to be published. There needs to be a tension, or a surprise, but most of all, a reason for the reader to keep reading.
It’s a healthy conversation, and one the Equity crew decided to discuss last Friday:
- Alex Wilhelm: Funding rounds are largely rose-tinted trade journalism, but they’re worth writing
- Danny Crichton: I hate funding announcements but write them anyway
- Natasha Mascarenhas: The stories are so much more than the dollar signs
Alex: Funding rounds are rose-tinted trade journalism, but they’re worth covering
It’s easy to mock funding-round coverage: There are far more rounds than hands to write them, so the coverage is inherently partial; they are a poor milestone to use as a benchmark for growth; and coverage of the startup in question nearly always has an overly positive tilt, given that the piece in question centers around something that is a win for the company.
Yet, I still think they are worth writing and try to get to a few each week.
There are good reasons for doing so that run counter to the obvious complaints. Sure, there are more rounds than we could ever cover, but in theory we’re filtering as best we can for the most interesting, the furthest outlying and the trend-elucidating rounds that we can use as a light to better illuminate how the broader startup and technology worlds are changing.
I think TechCrunch does a reasonable job of picking the right companies to cover and we spend a good amount of time aggregating discrete funding events into trends. It’s super-hard work, as covering a single round is time-consuming and ultimately not incredibly well-read.
And yes, funding rounds are not really milestones to celebrate. The startup isn’t suddenly destined to win. Capital just means that the venture class has increased its wager on the startup generating more wealth for themselves and their backers, whom are largely already rich.
But trying to lever any information from private companies is an exercise in sadistic dentistry, and startups tend to open up the most around funding rounds. So, if you want to chat with a CEO on the record for half an hour, the next time their startup raises is probably your best chance.
And there is signal in a venture round. Someone felt strongly enough about the company’s prospects to inject it with more capital, making a funding event a reasonable signal that something is going on at the company.
Then there’s the issue of positive bias. All publications have a bias. TechCrunch has many biases, the most important and salutary of which is that we think that startups are cool. We do! Quickly-growing, private companies are inherently interesting and I came back to this publication in part so that I could keep writing about them. I am never bored.
So, yes, funding-round coverage tends to be a bit more on the positive side of balanced than I would like, but I balance that by becoming increasingly orthodox as a startup scales. When a young company raises its first few million, the chat with the CEO is her telling me about her small team, first customers and fitful progress.
By the time she raises a $50 million Series C, we’re talking gross margin expansion, YoY ARR growth and diversity metrics. Before she takes her unicorn public, I’m asking pressing questions about GAAP results, the public markets and what sort of external offers are coming in for the whole concern.
Being slightly optimistic about startups when they’re young is, then, tempered by increasing scrutiny as the company grows. That seems like a fair balance for the company and our readers.
So I won’t stop covering funding rounds. Even if I didn’t have this job I probably still would for my personal blog. I always learn something from high-growth companies; they have a window into the market that is dynamic and far from ossified. And early-stage founders tend to not be overly media-trained, so they are still interesting.
And sometimes something you write winds up changing the direction of a startup. That’s always a very weird and disconcerting feeling. But as this impact is nearly always good for the company in question, you’ve only accidentally made the lives of others a bit better for a short while. It’s not so harsh a sentence.
Danny: I hate funding announcements but write them anyway
Covering startups is one of the hardest news beats out there (trust me, I’m unbiased — I cover startups for a living).
If you cover the Senate, you report regularly on 100 individuals, their staffs and interactions. If you cover banking, you watch a handful of banks since no one gives a flying rat’s tushy about the industry’s middle market. There’s generally a limited scope in political and general business reporting where you know the key players and the key newsmakers.
In startups, you cover … everything. There are a couple of hot sectors that everyone is talking about … and then there is every other sector that might be the next hot sector, but no one has ever heard of it. It’s probably not important. But it might just be. That startup you talked to this week sounds boring. Four years later, it sells for $20 billion. The startup world is constantly changing, and unless you blow up your whole worldview on a regular basis, you’ll never keep up.
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In first IPO price range, Airbnb’s valuation recovers to pre-pandemic levels
This morning Airbnb released an S-1/A filing that details its initial IPO price range. The home-sharing unicorn intends to price its shares between $44 and $50 in its debut.
Per the company’s own accounting, it will have 596,399,007 or 601,399,007 shares outstanding, depending on whether its underwriters exercise their option. That gives the company a valuation range of $26.2 billion to $30.1 billion at the extremes.
The company’s simple share count does not include a host of other shares that have vested but not yet been exercised. Including those shares, the company’s fully diluted valuation stretches to $35 billion, by CNBC’s arithmetic.
The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
The top end of Airbnb’s simple valuation places it near its Series F valuation set in 2017. Its fully diluted valuation exceeds that $30.5 billion valuation and is far superior to the $18 billion, post-money valuation that it raised at during its troubled period early in the COVID-19 pandemic.
For those investors, Silver Lake and Sixth Street, the company’s initial IPO price range is a win. For the company’s preceding investors, to see the company appear ready to at least match its preceding private valuation is a win as well, given how much damage Airbnb’s business sustained early in the pandemic.
But how do those Airbnb valuation numbers match up against its revenues, and will public market investors value the company based on its current results, or expectations for a return-to-form once a vaccine comes to market? And if so, is Airbnb expensive or not?
Expectations, hopes and hype
Shares of Booking Holdings, which owns travel services like Kayak, Priceline, OpenTable and others, have almost doubled in value since its pandemic lows and is within spitting distance of its all-time highs. This despite its revenues falling 48% in its most recent quarter. There’s optimism in the market that travel companies are on the cusp of a return to form, buoyed — we presume — by good news regarding effective coronavirus vaccines.
My expectation is that Airbnb is enjoying a similar bump, as investors intend to buy its shares not to bask in awe of its Q4 2020 results, but instead to enjoy what happens in the back half of 2021 as vaccines roll out and the travel industry recovers.
But what happens if we stack Airbnb’s revenues against its valuation today?
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5 top investors in Dutch startups discuss trends, hopes and 2020 opportunities
The Netherlands’ ecosystem has been flourishing; more than $85 million was invested in regional startups in 2019 alone. The nation’s proximity to the U.K., Belgium, France and Germany makes Amsterdam a natural gateway to those markets. Long ago the savvy Dutch realized this, and built up Schiphol to become the world’s twelfth-busiest airport. Indeed, Amsterdam’s logistical and social connectedness is ranked number one in DHL’s Global Connectedness Index.
Plenty of good funding rounds, a highly skilled workforce and a strong entrepreneurial culture have given Amsterdam a booming startup ecosystem. And Brexit is helping: The Dutch are highly proficient in English and Dutch law is similar to English law, which means U.K.-based tech founders are welcomed with open arms.
In 2020, the venture industry continued to invest in startups, despite the COVID-19 crisis. According to a study by KPMG and and NL Times, startups raised $591.2 million in the third quarter, more than double the $252.4 million raised in the quarter before.
For obvious reasons, this year has seen more cash go into companies that were able to adapt to the pandemic. KPMG found that while the total amount of investment increased in the past six months, the number of overall investments decreased. New startups pulled in fewer investments, KPMG sees this trend continuing and likely leading to consolidation amongst startups in similar sectors.
According to a report by Dealroom.co and StartupAmsterdam, there are 1,661 tech companies in Amsterdam, while the city ranked fifteenth in Startup Genome’s 2019 report “Global Startup Ecosystem Report,” moving up four places since 2017. The median seed round is $500,000 (above the global average of $494,000) and a median Series A round for a startup is $2.4 million. The average salary for a software engineer is around €54,000.
Amsterdam has tech industry “schools” such as Growth Tribe, The Talent Institute and THNK for educational courses, as well as accelerators like Rockstart, Startupbootcamp and Fashion for Good. Co-working is well-catered for with TQ, Startup Village and B.Amsterdam, and workers can cycle everywhere in minutes.
While taxes are high, entrepreneurs won’t find the staggering income inequality so often seen in cities like San Francisco and New York. In Amsterdam, rich people take public transport, not private buses.
During COVID-19, the Dutch government has also announced support packages such as tax deferrals, temporary employment bridging schemes and other initiatives. It also launched a national program, TechLeap.NL, to boost the ecosystem with more international investor visibility. StartupDelta, a Dutch startup lobby group, keeps the pressure on the politicians.
The Netherlands’ most famous unicorns include Booking.com, Adyen, Virtuagym, MessageBird, Swapfiets, Backbase, Picnic and Takeaway, among several others.
Adyen launched in 2006, and in June 2018, it was listed as one of Europe’s largest tech IPOs with a value of €7 billion. Booking.com started in 1996 and was later acquired by Priceline Group (now called Booking Holdings) in 2005. Elastic, the provider of subscription-based data search software used by Dell, Netflix, The New York Times and others, was another gangbuster IPO in 2018.
For this survey, we interviewed the following Amsterdam-focused investors:
• Janneke Niessen, partner, CapitalT VC
• Stefan van Duin, partner, Borski Fund
• Nick Kalliagkopoulos, partner, Prime Ventures
• Bas Godska, founder, Acrobator Ventures
• Renaat Berckmoes, partner, Fortino
Janneke Niessen, partner, CapitalT VC
What trends are you most excited about investing in, generally?
Digital health, education, B2B SaaS.
What’s your latest, most exciting investment?
Wizenoze.
Are there startups that you wish you would see in the industry but don’t? What are some overlooked opportunities right now?
More overlooked founders than opportunities.
What are you looking for in your next investment, in general?
A great team.
Which areas are either oversaturated or would be too hard to compete in at this point for a new startup? What other types of products/services are you wary or concerned about?
Delivery, taxis, scooters.
How much are you focused on investing in your local ecosystem versus other startup hubs (or everywhere) in general? More than 50%? Less?
Less.
Which industries in your city and region seem well-positioned to thrive, or not, long term? What are companies you are excited about (your portfolio or not), which founders?
NL seems well-positioned for fintech, deep tech. I am really excited about Tracy Chou and Diane Janknegt, two incredible founders.
How should investors in other cities think about the overall investment climate and opportunities in your city?
Very positive. Lots of innovation, great infrastructure, good talent.
Do you expect to see a surge in more founders coming from geographies outside major cities in the years to come, with startup hubs losing people due to the pandemic and lingering concerns, plus the attraction of remote work?
I think startups have always been there, investors just don’t tend to look at them. I think the opportunity is more that they now will.
Which industry segments that you invest in look weaker or more exposed to potential shifts in consumer and business behavior because of COVID-19? What are the opportunities startups may be able to tap into during these unprecedented times?
None. We look at digital health, education and SaaS and they all thrive in this climate. Of course an economic crisis will have an impact on spending in general.
How has COVID-19 impacted your investment strategy? What are the biggest worries of the founders in your portfolio? What is your advice to startups in your portfolio right now?
It has confirmed our approach. We have a data-driven approach to teams, which is great when people cannot meet.
Are you seeing “green shoots” regarding revenue growth, retention or other momentum in your portfolio as they adapt to the pandemic?
We invest so early that companies are growing regardless.
What is a moment that has given you hope in the last month or so? This can be professional, personal or a mix of the two.
When I explained to my little boy what racism is and he answered: Mummy that is just really weird. That gives me hope that the generations after us might do better.
Stefan van Duin, partner, Borski Fund
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Extra Crunch roundup: B2B marketplaces, edtech M&A, breaking into the $1M ARR club
I’ve worked at TechCrunch for a little over a year, but this was one of the hardest weeks on the job so far.
Like many people, I’ve been distracted in recent days. As I write this, I have one eye on my keyboard and another on a TV that sporadically broadcasts election results from battleground states. Despite the background noise, I’m completely impressed with the TechCrunch staff; it takes a great deal of focus and energy to set aside the world’s top news story and concentrate on the work at hand.
Monday feels like a distant memory, so here’s an overview of top Extra Crunch stories from the last five days. These articles are only available to members, but you can use discount code ECFriday to save 20% off a one or two-year subscription. Details here.
B2B marketplaces will be the next billion-dollar e-commerce startups
Marketplaces created for B2B activity are surging in popularity. According to one report, transactions in these venues generated around $680 billion in 2018, but that figure is predicted to reach $3.6 trillion by 2024.
The COVID-19 pandemic is helping startups that innovate in areas like payments, financing, insurance and compliance.
Even so, according to Merritt Hummer, a partner at Bain Capital Ventures, “B2B marketplaces cannot simply remain stagnant, serving as simple transactional platforms.”
The startups that are first to market with innovative “adjacent services will emerge as winners in the next few years,” she advises.
Software companies are reporting a pretty good third quarter
For this morning’s edition of The Exchange, Alex Wilhelm interviewed three executives at cloud and SaaS companies to find out how well Q3 2020 has been treating them:
- Ping CFO Raj Dani
- JFrog CEO Shlomi Ben Haim
- BigCommerce CEO Brent Bellm
As one Twitter commenter noted, Alex doesn’t just talk to the best-known tech execs; he reaches out to a wide range of people, and it shows in the quality of his reporting.
Will new SEC equity crowdfunding rules encourage more founders to pass the hat?
New Regulation Crowdfunding guidelines the SEC released this week allow companies to directly raise up to $5 million each year from individual investors, an increase from the previous limit of $1.07 million.
“Life has gotten easier in other ways as well for founders pursuing this fundraising type and the platforms that seek to simplify it,” reports Lucas Matney, who interviewed Wefunder CEO Nicholas Tommarello.
Funding for seed-stage startups slumped 32% last quarter compared to 2019, so “the tide could be turning” for founders who were reluctant to raise from a giant pool of small dollars, Lucas found.
3 tips for SaaS founders hoping to join the $1 million ARR club
Reaching scale is paramount for software companies, so growth is a top priority.
In a guest post for Extra Crunch, Drift CEO David Cancel explains that too many SaaS and cloud companies waste time trying out a number of solutions before finding the right recipe.
“I can tell you that there absolutely is a repeatable process to building a successful SaaS business,” he says, “one that can reliably guide you to product-market fit and then help you quickly scale.”
Implementing a data-driven approach to guarantee fair, equitable and transparent employee pay
Companies that hope to eliminate longstanding inequities in the workplace can’t just rely on doing what they think is right. Without a data-driven approach, subjective judgments and implicit bias tend to negate good intentions.
Many startups don’t hire full-time HR managers until they’ve reached scale, but this comprehensive post lays out several critical factors for creating — and maintaining — a fair pay model.
4 questions as Airbnb’s IPO looms
News broke this week that Airbnb plans to to raise approximately $3 billion in a public filing that would allow it to reach a valuation in the $30 billion range.
Our expert unicorn wrangler Alex Wilhelm says curious investors should ask themselves the following:
- Will Airbnb be able to show a near-term path to profitability?
- How high-quality is Airbnb’s revenue after the pandemic?
- Is there anything lurking in its recent financings that public investors won’t like?
- Will Airbnb be able to show year-over-year revenue gains?
Starling Bank founder Anne Boden says new book ‘isn’t a memoir’
“People at the end of their career write memoirs,” Starling Bank founder Anne Boden told TechCrunch’s Steve O’Hear. “I’m at the beginning.”
In Boden’s new book, “Banking On It,” she shares the story of how (and why) she decided to found a challenger bank, eventually parting with colleagues who launched competitor Monzo.
“This is really putting down on paper where we are at the moment,” she said. “It’s been written over several years, and I’m hoping to use this to inspire a generation of entrepreneurs.”
Pandemic’s impact disproportionately reduced VC funding for female founders
Natasha Mascarenhas and Alex Wilhelm collaborated on Monday’s edition of The Exchange to report on how investors became less likely to fund female founders since the beginning of the COVID-19 pandemic.
Drawing on data from multiple sources, Alex and Natasha found that startups led by women and mixed-gender founding teams received 48% less VC funding in Q3 2020 than in Q2, even though overall funding bounced back.
“From fear in late Q1, to a middling Q2, to a boom in Q3,” they wrote. “It was an impressive comeback. For some.”
Booming edtech M&A activity brings consolidation to a fragmented sector
Natasha Mascarenhas has owned TechCrunch’s edtech beat since she came aboard at the start of 2020, just a few months before the pandemic led to widespread school closures.
She’s reported on countless funding rounds and interviewed founders and investors who are active in the space, but she recently spotted a new trend: “M&A activity is buzzier than usual.”
4 takeaways from fintech VC in Q3 2020
Alex Wilhelm shrugged off his Election Day distractions long enough to write a column that comprehensively examined fintech investment activity over the last quarter.
In Q3 2020, “60% of all capital raised by financial technology startups came from just 25 rounds worth $100 million or more,” he reports.
Are these mega-rounds funding “the next crop of unicorns?” It’s too early to say, but it’s clear that pandemic-fueled uncertainty is driving consumers into the arms of companies like Robinhood, Chime, Lemonade and Root.
In 1,316 words, Alex captures the state of play in insurtech, banking, wealth management and payments investing: “Now, we just want to see some ******* IPOs.”
New GV partner Terri Burns has a simple investment thesis: Gen Z
Five years ago, Terri Burns was a product manager at Twitter. Today, she’s the first Black woman — and the youngest person — to be promoted to partner at Google Ventures.
In a Q&A with Natasha Mascarenhas, Burns talked about her plans for the new role, as well as her investment thesis.
“I don’t know what it actually means to build a sustainable business and venture is a really great way to sort of learn that,” said Burns.
GV General Partner MG Siegler talks portfolio management and fundraising 6 months into the COVID-19 pandemic
Are founders and investors really leaving Silicon Valley for greener pastures? Now that investors are limited to virtual interactions, are they being more hands-on with their portfolio companies?
In an Extra Crunch Live chat hosted by Darrell Etherington, GV General Partner MG Siegler talked about how the pandemic is — and is not — shaping the way he does business.
“I do feel like things are operating in a pretty streamlined manner, or as much as they can be at this point,” he said.
“But, you know, there’s always going to be some more wildcards — like we’re a week away, today, from the U.S. election.”
Thank you very much for reading Extra Crunch; I hope you have a great weekend.
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As tech stocks rally, bring on the IPOs
During yesterday’s tense voting and this morning, shares of American-listed technology companies are shooting higher.
The tech-heavy Nasdaq composite is up around 3.35% this morning, more than double what the broad S&P 500 index is currently managing. SaaS and cloud stocks kicked off the day up a staggering 4.98%, a sharp rally in the value of smaller, more growth-oriented technology companies.
The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.
For technology companies on the wings of the IPO market, it’s great news.
In 2020 it can be easy to forget, but tech stocks do not have to rise. They merely have in recent months, perhaps warming the waters for more technology debuts as the fourth quarter races toward its midpoint. The Exchange has heard whispers from several folks that the late-November/early-December period could be active for new filings, bringing rising stocks and pent-up demand together for a possible IPO run.
We’ll see. Today’s rally — and ballot measure results in California — could be the push companies like Airbnb and DoorDash needed to stop faffing around with private filings.
In pedestrian terms, the getting is good right now for public tech companies, so if you are going to go public, go get got while the getting stays good.
Today, let’s examine recent market gains for tech stocks and remind ourselves who is expected to go public next. Then, of course, chat about all the unicorns on the unofficial IPO list who could find a greased path ahead of them toward a flotation.
Gains
Big tech stocks are gaining, small stocks are up and software companies are hot. The NASDAQ is now less than 5% away from its all-time highs, and the Bessemer Cloud Index is now just 9% down from its own, a rebound from its prior status in correction territory. (A correction occurs when an index falls 10% or more from highs.)
So, who does the rally help? Let’s rock through a list:
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Course Hero, a profitable edtech unicorn, raises rare cash
Like any successful founder, Andrew Grauer had bright, long-term ambitions for Course Hero from the moment he launched it in 2006.
He started the business to create a place where students could ask questions and get answers similar to Chegg, which launched 15 months before Course Hero . But as he slowly built it, he was tempted by a larger question: “What would a university look like if it was built by the internet?”
And so, the Redwood City-based startup itched at that nebulous goal throughout the years. Course Hero tested and failed products: free curated e-courses, in-person tutoring and teacher advice and ratings.
Clarity only came when Grauer realized that the core goal Course Hero launched with — giving students a place to ask and answer questions — wasn’t simply one product that should be fit into a broader suite of services. Instead, it was a thesis around which to build products. So, the startup began looking for different ways and formats to organize knowledge and questions and answers.
“That was a breakthrough insight,” Grauer said. The startup stopped launching other business verticals and decided to stick to Q&A as its core — and only — business. It sells Netflix -like subscriptions to students looking for access to learning and teaching content. Teachers and publishers can put course-specific study content on the platform.
Image Credits: Getty Images/manopjk
In 2020, Course Hero is a profitable business with annual run revenue upward of $100 million.
Today, Course Hero tells TechCrunch that it has raised a new tranche of capital in a Series B extension round of $70 million. The round is now totaling $80 million, bringing Course Hero’s total known venture capital to date to $95 million.
Its $80 million Series B round is one of the largest U.S. funding deals of 2020, and brings Course Hero’s valuation to $1.1 billion.
From a high level, the new raise is not surprising. Other edtech companies have also recently added on more capital to their balance sheets to meet remote learning demand amid the coronavirus pandemic.
But in Course Hero’s case, the new capital comes as a stark contrast to how the business functioned before 2020. After launching, the startup waited eight years to raise a $15 million Series A. Now, after going another nearly six years without raising venture capital, Course Hero has closed two rounds in this year alone.
Grauer tells TechCrunch that the capital will be used for operations, product innovation and feature development. It also plans to use the capital for future acquisitions (in 2012, Course Hero bought an in-person tutoring business).
Course Hero’s change of heart with venture capital boils down to the company meeting new scale demands. Last year, it passed 1 million subscribers on the platform. Now, it is eyeing “many millions” of students, the co-founder says.
Paraphrasing Bill Gates, Grauer said, “We do overestimate what we can do in just three years. And we dramatically underestimate what we can do closer to 10 years.”
Any edtech company that raises money off of current momentum in remote education will have to face the reality of what it is like to grow when remote learning is no longer a necessity. In other words, when the coronavirus pandemic ends, will these same platforms still find surges in usage?
“That’s the risk and reward of raising capital,” Grauer said. He added that “if you raise too much money early on, you can get misaligned expectations based on different time horizons set up by different terms of incoming shareholders or investors.”
Course Hero sees tailwinds in a dynamic that has been brewing since before the pandemic and will likely grow during and after: the growth of “nontraditional students” enrolling in and participating in higher education. Grauer noted that more than 40% of students work 30 hours or more per week. Over a quarter of students are parents, and of that quarter, over 70% are single moms.
“Because that’s the reality, and because we can make an affordable subscription and the economics can work, Course Hero is aligned to serving the majority, the real majority, and that’s the beauty of opportunity,” he said. There is a freemium model, but on an annual plan, a subscription costs $9.95 per month. On a monthly plan, a subscription costs $39.99 per month.
It’s not an opportunity the company hopes to expand into, it’s a reality of its diverse customer base. An internal data analytics survey of Course Hero shows that 58% of students that subscribe work at least part time. Over 25% of subscribers are 35 years old or older, and 22% of subscribers are parents.
Looking ahead, Course Hero hopes to continue to broaden its multisided marketplace.
In July, the business announced it is launching Educator Exchange, which allows college faculty to make money by uploading study materials for fellow teachers or students.
The “direct-to-faculty” relationship could pacify earlier tensions between the platform and teachers by giving the latter a way to monetize on how Course Hero “open sources” creative content on the point of copyright infringement.
Grauer compares Course Hero’s long-term vision to that of Google Maps, in that the platform can make recommendations of content based on other people’s usage.
But we’re not talking recommendations for the closest gas station. Based on how a user learns, Course Hero can recommend a specific professor who has a specific syllabus on a topic in which the user is interested.
“We’ve seen that specificity level differentiates us from others,” he said. “It helps students when they’re doing their real work, that one homework, that studying for one test. And I think that’s where the magic is for us.”
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Understanding Duolingo’s quiet $10M raise
Earlier this month, edtech unicorn Duolingo raised $10 million in new venture capital from General Atlantic, per an SEC filing. With the raise, the online language learning platform accepted its first outside investor in almost three years. General Atlantic will take a board observer seat at the company, per Duolingo.
The company, which was last valued at $1.5 billion, says the round has increased its valuation, but it declined to share by how much.
General Atlantic has invested in a number of edtech companies around the world, like OpenClassrooms, Ruangguru and Unacademy. Duolingo said that General Atlantic’s global platform and experience with online education in Asia would help guide its own growth, specifically pointing to its plans to scale up the Duolingo English test.
The e-learning company last raised $30 million in December at that $1.5 billion valuation. To raise a smaller sum a few months later is uncommon. Historically, that type of raise could happen for a number of reasons: a company is accepting a later investment as part of the same funding round, it needs more cash and this is an easy way to raise it or the company tried to raise a new large round and failed to secure past $10 million.
So where does the language learning unicorn fit?
In Duolingo’s case, it said the $10 million was raised because it wanted to bring a new investor on, but didn’t need a massive amount of primary capital. Duolingo says it is cash-flow positive.
In the past few weeks, Duolingo launched a new app to help children read and write, passed one million paying subscribers for Duolingo Plus and disclosed that its annual bookings run rate is $140 million. The company also recently hired its first CFO and general counsel.
“Because our business has been growing very fast and we have more than enough capital, there was limited need for us to raise more primary capital. However, over the last year, we developed a relationship with General Atlantic,” the company said in a statement to TechCrunch.
Tanzeen Syed, a managing director for General Atlantic, said that Duolingo is a “market leader in the language learning space. Syed also said Duolingo has a “profitable, efficient business model while maintaining hyper-growth characteristics.”
Another key factoid here is that along with the $10 million, there was a larger secondary transaction, which occurs when an existing stockholder sells their stock for cash or to a third party, or to the company itself while the company is still private.
In this case, an existing investor in Duolingo sold a small portion of their existing stake to allow General Atlantic to have a bigger stake in the company.
The company declined to share the size of the secondary market transaction.
In light of this new information, Duolingo’s expansion to Asia, which has a robust market of English learners, welcomed one investor and lessened the stake of another.
Based on what we know, the transaction signals that a preexisting investor in Duolingo was looking for liquidity at a time where the public markets are tightening and private markets are pausing. And at a time when companies are staying private longer than ever before, secondary transactions are hardly rare.
Sometimes, however, secondary transactions signal a lack of faith from a preexisting investor in the company’s current trajectory.
Duolingo is full steam ahead on its goal to expand across the world — and now has new cash in the bank, and a new observer seat on the board, to prove it.
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Digging into Europe’s Q1 venture results
Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
Today we’re taking a look at a bit of data on the European venture capital scene in Q1. As with our looks at other locales like Silicon Valley and other bits of the United States, we’re taking stock of what happened in the first quarter. Q1 2020 includes pre-COVID-19 results, though as some European countries began to lock-down before the United States, there may be more pandemic-impact in the following results than we’ve seen domestically thus far.
Today’s grip of data is via the folks over at PitchBook, who compiled a venture-focused dig through the continent’s first three months of the year. Let’s parse the top numbers, make a comparison or two and then look to what’s next.
Q1: An ok quarter
Despite COVID-19, China’s broad shuttering and an aged bull market deep, Europe’s venture capital activity in Q1 2020 was mostly fine. It wasn’t great, and there were some less-than-winsome results that could be chalked up to the pandemic, but the first quarter provided an alright start to the year.
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Unicorn layoffs keep piling up as the economy gets worse
Earlier today a grip of new data presented a sharply negative picture of the American economy. And this afternoon, news broke that a trio of well-known, heavily-backed unicorns were cutting staff.
With stocks down as well, we’ve received negative signals from the private market, the public market and the economy as a whole in the same day. Let’s take a minute to set the macro stage, and then go over the latest cuts from Carta (first reported by Bloomberg), Zume (Business Insider broke that particular story) and Opendoor (via The Information).
Economic malaise
The backdrop for today’s cuts is a faltering American economy. A glance at recent news is sufficient. In the last few hours, home builder confidence recorded the “biggest drop in history,” while retail sales fell 8.7% in March, what CNBC noted was “the most ever in government data,” and CNN Business reported that American factories’ output fell 5.4% in March, “their steepest one-month slowdown since 1946.”
It’s perhaps no surprise, then, that we’ve seen unicorn layoffs all year. In January the news was Vision Fund-backed companies cutting burn to skate closer to profitability. Then, the first round of COVID-19-forced staff cuts landed at big companies; firms like Bird and TripActions slashed staff as their companies were rent by a slowdown in their core operations by the pandemic and its related economic and social changes.
Slimmer cuts at smaller companies have happened on a nearly chronic basis, something that TechCrunch has covered, as well.
Today, however, saw three cuts from three unicorns (private companies worth $1 billion or more) that have long been objects of TechCrunch’s attention. So, let’s talk about them briefly:
- Opendoor, a San Francisco-based home sales-focused startup with backing from SoftBank, announced deep cuts to its staffing today. In a statement provided to TechCrunch, the company’s CEO Eric Wu said that 35% of its employee base would be eliminated to “ensure that we can continue to deliver on our mission.” The CEO also said that exiting staff would get paid for eight weeks and “reimbursement of 16 weeks of health insurance coverage.” Wu is also donating his 2020 salary to a fund to support staff. Opendoor was most recently valued at $3.8 billion in a $300 million funding round announced last March.
- Carta, a San Francisco-based private company equity service platform, announced cuts worth 16% of its staff, or 161 roles, according to a memo that the company shared publicly. Previously eShares, Carta has grown from a provider of equity management for small private companies into a larger, broader service and software play supporting yet-private firms. Carta most recently raised $300 million at a $1.7 billion valuation last May.
- And finally, Zume. Zume didn’t respond to a request for comment by the time of publication and did not post a public note that we could find. Still, Business Insider reports that the company is cutting 200 more staff after earlier 2020 personnel reductions. The firm will be left with around 100 employees, working on compostable boxes. Zume last raised $375 million at a valuation of just under $1.9 billion (post-money) in November 2018.
It’s getting hard to keep track of all the cuts. Heck, I helped break Modsy layoffs recently with TechCrunch’s Natasha Mascarenhas, and we were first to the BounceX cuts as well. It’s a rough, bad economy, and it’s harming growth-oriented companies that like startup unicorns.
More when we have it, probably sooner than we’d like to report.
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Airbnb is buying trust during the COVID-19 travel slowdown
Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
Airbnb’s recent moves in the wake of a global travel slowdown are interesting and worth understanding in chronological order. What it details is a company spending heavily today to keep up its future health. Demand will return to the world travel market in time — how much, no one knows — and Airbnb wants to be a well-liked participant in the return to form.
Building off our last look at the company, we should understand how Airbnb intends to not only survive, but come out the other side of the pandemic with enough user trust to get back to work.
An IPO promise
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