Y Combinator
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Aquarium scores $2.6M seed to refine machine learning model data
Aquarium, a startup from two former Cruise employees, wants to help companies refine their machine learning model data more easily and move the models into production faster. Today the company announced a $2.6 million seed led by Sequoia with participation from Y Combinator and a bunch of angel investors, including Cruise co-founders Kyle Vogt and Dan Kan.
When the two co-founders, CEO Peter Gao and head of engineering Quinn Johnson, were at Cruise they learned that finding areas of weakness in the model data was often the problem that prevented it from getting into production. Aquarium aims to solve this issue.
“Aquarium is a machine learning data management system that helps people improve model performance by improving the data that it’s trained on, which is usually the most important part of making the model work in production,” Gao told me.
He says that they are seeing a lot of different models being built across a variety of industries, but teams are getting stuck because iterating on the data set and continually finding relevant data is a hard problem to solve. That’s why Aquarium’s founders decided to focus on this.
“It turns out that most of the improvement to your model, and most of the work that it takes to get it into production is about deciding, ‘Here’s what I need to go and collect next. Here’s what I need to go label. Here’s what I need to go and retrain my model on and analyze it for errors and repeat that iteration cycle,” Gao explained.
The idea is to get a model into production that outperforms humans. One customer, Sterblue, offers a good example. They provide drone inspection services for wind turbines. Their customers used to send out humans to inspect the turbines for damage, but with a set of drone data, they were able to train a machine learning model to find issues. Using Aquarium, they refined their model and improved accuracy by 13%, while cutting the cost of human reviews in half, Gao said.
The Aquarium team. Image: Aquarium
Aquarium currently has seven employees, including the founders, of which three are women. Gao says that they are being diverse by design. He understands the issues of bias inherent in machine learning model creation, and creating a diverse team for this kind of tooling is one way to help mitigate that bias.
The company launched last February and spent part of the year participating in the Y Combinator Summer 2020 cohort. They worked on refining the product throughout 2020, and recently opened it up from beta to generally available.
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Noya Labs turns cooling towers into direct air capture devices for CO2 emissions
Not every company’s founders find themselves on a first-name basis with the local bomb squad, but then again not every company is Noya Labs, which wants to turn the roughly 2 million cooling towers at industrial sites and buildings across the U.S. into CO2-sucking weapons in the fight against global climate change.
When the company first started developing prototypes of its devices that attach to water coolers, the company’s founders, Josh Santos and Daniel Cavero, did what all good founders do, they started building in their backyard.
The sight of a 55-gallon oil drum and a yellow refrigeration tank in a sous vide bath attached to red and blue cables didn’t sit so well with the neighbors, so Santos and Cavero found themselves playing host to the bomb squad multiple times, according to the company’s chief executive, Santos.
“We proved that it could capture CO2, and we achieved something that no startup should achieve,” Santos said of the dubious bomb squad distinction.
Santos and Cavero were inspired to begin their experiments with direct air capture by an article describing some research into plants’ declining ability to capture carbon dioxide that Santos read on Caltrain on his way to work back in 2019. That article spurred the would-be entrepreneur and his roommate to get to work on experimenting with carbon chemistry.
Their first product was a consumer air purifier that would pull carbon dioxide from the atmosphere in homes and capture it. Homeowners could then sell the captured gases to Santos and Cavero who would then resell it. But the two quickly realized that the business model wasn’t economical, and went back to the drawing board.
They found their eventual application in industrial cooling towers, which the company’s tech can turn into CO2-capturing devices that have the capacity to take in between half a ton and a ton of carbon dioxide per day.
Noya’s tech works by adding a blend of CO2-absorbing chemicals to the water in the cooling towers. They then add an attachment to the cooling tower that activates what Santos called a regeneration process to convert the captured CO2 back into gas. Once they have captured the CO2 the company will look to resell it to industrial CO2 consumers.
It’s not green yet, at least not exactly, because that CO2 is being recirculated instead of sequestered, but Santos said it’s greener than existing sources of the gas, which come from ammonia and ethanol plants.
Noya Labs co-founders Josh Santos and Daniel Cavero. Image Credit: Noya Labs
“Five years from now we fully intend to have vertically integrated carbon capture and sequestration. Our first step is locally produced low-cost atmospherically captured CO2,” said Santos. “If we were to go all-in on a carbon capture, that would require a lot of time for us to develop. What this initial model allows us to do is fine-tune our capture technology while building up long-term to go to market.”
Santos called it the “Tesla roadster approach” so that the company can build up capital and get revenue and prove one piece of it as an MVP so they can prove other steps of it down the line.
Noya Labs already is developing a pilot plant with the Alexandre Family Farm that should capture between the estimated half a ton and one-ton target.
To develop the initial pilot and build out its team, the company has managed to raise $1.2 million from the frontier tech investment firm Fifty Years, founded by Ela Madej and Seth Bannon, and Chris Sacca’s Lowercarbon Capital (whose mission statement to invest in companies that will buy time to “unf*ck the planet” might be one of the greatest). The company’s also in Y Combinator.
“One of the things that makes us excited about this technology is that in the U.S. alone there are 2 million cooling towers. Looking conservatively — if our initial pilot plant can capture 1 ton per day — we’re at right over half a gigaton of CO2 capture.”
And companies are already raising their hands to pick up the CO2 that Noya would sell on the market. There’s a growing collection of startups that are using CO2 to make products. These companies range from the slightly silly, like Aether Diamonds, which uses CO2 to make… diamonds; to companies like Dimensional Energy or Prometheus Fuels, which make synthetic fuels with CO2, or Opus12, which uses CO2 in its replacements for petrochemicals.
Prices for commercial CO2 range between $125 per ton to $5,000 per ton, according to Santos. And Noya would be producing at less than $100 per ton. Current Direct Air Capture companies sell their CO2 from somewhere between $600 to $700 per ton.
Stoya’s first installation could cost around $250,000, Santos said. For Bannon, that means the company passes his “Mr. Burns test.”
Introducing “the Mr Burns test” for sustainability companies.
Build a product that Mr Burns (the prototypic self-absorbed egoistic greedy capitalist) would buy not because it’s sustainable but because it’s the best / cheapest / most convenient.
That’s the
to impact at scale.
— Seth Bannon
(@sethbannon) January 6, 2020
“We’ve been digging into the DAC space but haven’t liked the techno-economics we’ve seen. Previous approaches have had too much capex and opex and not enough revenue potential,” Bannon wrote in an email. “That’s what Noya has solved. By leveraging existing industrial equipment, their model is profitable. And better yet, they make their carbon capture partners money, allowing them to scale this up fast. This creates an opportunity to profitably remove 1 gigaton-plus a year.”
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The carbon offset API developer Patch confirms a $4.5 million round led by Andreessen Horowitz
Patch, the carbon offset API developer, has raised $4.5 million in financing to build out its business selling customers a way to calculate their carbon footprint and identify and finance offset projects that capture the equivalent carbon dioxide emissions associated with that footprint.
Confirming TechCrunch reporting, Andreessen Horowitz led the round, which also included previous investors VersionOne Ventures, MapleVC and Pale Blue Dot Ventures.
Patch’s application protocol interface works for both internal and customer-facing operations. The company’s code can integrate into the user experience on a company’s internal site to track things like business flights for employees, recommending and managing the purchase of carbon credits to offset employee travel.
The software allows companies to choose which projects they’d like to finance to support the removal of carbon dioxide from the atmosphere, with projects ranging from the tried and true reforestation and conservation projects to more high-tech early-stage technologies like direct air capture and sequestration projects, the company said.
Patch founders Brennan Spellacy and Aaron Grunfeld, two former employees at the apartment rental service Sonder, stressed in an interview that the company’s offset work should not be viewed as an alternative to the decarbonization of businesses that use its service. Rather, they see Patch’s services as a complement to other work companies need to do to transition away from a reliance on fossil fuels in business operations.
Patch co-founders Brennan Spellacy and Aaron Grunfeld. Image Credit: Patch
Patch currently works with 11 carbon removal suppliers and has plans to onboard another 10 before the end of the first quarter, the company said. These are companies like CarbonCure, which injects carbon dioxide into cement and fixes it so that it’s embedded in building materials for as long as a building lasts.
“Carbon removal credits can help to dramatically accelerate the deployment of technologies like CarbonCure’s, which are absolutely critical to helping us reach our global climate targets. Demand for high-quality, permanent credits is sky-rocketing, and listing credits on Patch will help us to attract a broader range of buyers,” said Jennifer Wagner, president of CarbonCure Technologies, in a statement.
It also has around 15 customers already using its service, according to earlier TechCrunch reporting. Those buyers include companies like TripActions and the private equity firm EQT, which intends to extend the integration of Patch’s API from its own operations to those of its portfolio companies down the road, according to Spellacy.
Grunfeld said that the company would be spending the money to hire more staff and developing new products. From its current headcount of six employees, Patch intends to bring on another 24 by the end of the year.
As the company expands, it’s looking to some of the startups providing carbon emissions audit and verification services as a channel that the company’s API can integrate with and sell through. These would be businesses like CarbonChain, Persefoni and another Y Combinator graduate, SINAI Technologies.
“An increasing number of businesses are taking leadership positions in an effort to reduce emissions to try to counteract global warming,” said Jeff Jordan, managing partner at Andreessen Horowitz. “Patch makes it much easier for companies to add carbon removal to their core business processes, aggregating verified carbon-removal supply and offering turn-key access to it to companies through an easy-to-implement API.”
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With $20M A round, Promise brings financial flexibility to outdated government and utility payment systems
The last year has been one of financial hardship for billions, and among the specific hardships is the elementary one of paying for utilities, taxes and other government fees — the systems for which are rarely set up for easy or flexible payment. Promise aims to change that by integrating with official payment systems and offering more forgiving terms for fees and debts people can’t handle all at once, and has raised $20 million to do so.
When every penny is going toward rent and food, it can be hard to muster the cash to pay an irregular bill like water or electricity. They’re less likely to be shut off on short notice than a mobile plan, so it’s safer to kick the can down the road… until a few bills add up and suddenly a family is looking at hundreds of dollars of unpaid bills and no way to split them up or pay over time. Same with tickets and other fees and fines.
The CEO and co-founder of Promise, Phaedra Ellis-Lamkins, explained that this (among other places) is where current systems fall down. Unlike buying a TV or piece of furniture, where payment plans may be offered in a single click during online checkout, there frequently is no such option for municipal ticket payment sites or utilities.
“We have found that people struggling to pay their bills want to pay and will pay at extremely high rates if you offer them reminders, accessible payment options and flexibility. The systems are the problem — they are not designed for people who don’t always have a surplus of money in their bank accounts,” she told TechCrunch.
“They assume for example that if someone makes their first payment at 10 PM on the 15th, they will have the same amount of money the next month on the 15th at 10 PM,” she continued. “These systems do not recognize that most people are struggling with their basic needs. Payments may need to be weekly or split up into multiple payment types.”
Even those that do offer plans still see many failures to pay, due at least partly to a lack of flexibility on their part, said Ellis-Lamkins — failure to make a payment can lead to the whole plan being cancelled. Furthermore, it may be difficult to get enrolled in the first place.
“Some cities offer payment plans but you have to go in person to sign up, complete a multiple-page form, show proof of income and meet restrictive criteria,” she said. “We have been able to work with our partners to use self-certification to ease the process as opposed to providing tax returns or other documentation. Currently, we have over a 90% repayment rate.”
Promise acts as a sort of middleman, integrating lightly with the agency or utility, which in turn makes anyone owing money aware of the possibility of the different payment system. It’s similar to how you might see various payment options, including installments, when making a purchase at an online shop.
Image Credits: Promise
The user enrolls in a payment plan (the service is mobile-friendly because that’s the only form of internet many people have) and Promise handles that end of it, with reminders, receipts and processing, passing on the money to the agency as it comes in — the company doesn’t cover the cost up front and collect on its own terms. Essentially it’s a bolt-on flexible payment mechanism that specializes in government agencies and other public-facing fee collectors.
Promise makes money by subscription fees (i.e. SaaS) and/or through transaction fees, whichever makes more sense for the given customer. As you might imagine, it makes more sense for a utility to pay a couple bucks to be more sure of collecting $500, than to take its chance on getting none of that $500, or having to resort to more heavy-handed and expensive debt collection methods.
Lest you think this is not a big problem (and consequently not a big market), Ellis-Lamkins noted a recent study from the California Water Boards showing there are 1.6 million people with a total of $1 billion in water debt in the state — one in eight households is in arrears to an average of $500.
Those numbers are likely worse than normal, given the immense financial pressure that the pandemic has placed on nearly all households — but like payment plans in other circumstances, households of many incomes and types find their own reason to take advantage of such systems. And pretty much anyone who’s had to deal with an obtusely designed utility payment site would welcome an alternative.
The new round brings the company’s total raised to over $30 million, counting $10 million it raised immediately after leaving Y Combinator in 2018. The funding comes from existing investors Kapor Capital, XYZ, Bronze, First Round, YC, Village, and others.
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Gridware is building early-detection sensors for power grid failures and wildfires
Like corporate financial accounting, the power grid never draws headlines when things are going well. No journalist writes “The power remains on,” or discusses the extensive work it takes to maintain the grid. Instead, it takes a record-breaking ice wave to knock out power to one of the largest states in America for it to start garnering front-page coverage, or perhaps massive wildfires in America’s most populous state like the Camp Fire in California in 2018.
Power grids are going to be in the news more and more in the coming years as global climate change intensifies storm activity and grids come under increasingly harsh strain. As my colleague Jon Shieber wrote yesterday, “Whether it’s heavily regulated markets like California or a free market like Texas, current policy can’t stop the weather from wreaking havoc and putting people’s lives at risk.” The grid is at the center of one of the toughest challenges facing us this century.
What’s needed are better sensors and tech for identifying the source of outages — and also preventing them in the first place. With millions of power poles and hundreds of thousands of miles of transmission wires scattered across the United States, how can utilities reliably verify the quality of their systems? How can they do that in an efficient way to avoid rate increases on users?
Gridware, which is in the current batch of Y Combinator, is one company taking a shot at this critical need. Its approach is to use a small, sensor-laden box that can be installed to a power pole with just four screws. Gridware’s package contains microphones and other sensors to sense the ambient environment around a power pole, and it uses on-board AI/ML processing to listen for anomalies and report them to the relevant managers as appropriate.
It’s like “a guard standing next to the pole, listening to it, watching over it,” Tim Barat, CEO and co-founder, said, likening the box to a Fitbit for a power pole. When a tree branch breaks and cuts through a line, there’s “no way to detect them unless you are right next to the fault.” With Gridware, it’s “not the right place at the right time but the right place all the time,” he said.
What makes the founding team compelling here is the backgrounds of some of the company’s founders. Barat worked as a power pole worker himself in the field, evaluating equipment and searching for problems. “Every time we go up a pole, we hit it with a hammer, which tells us whether there is termite damage, etc. [ … and] that is still how inspectors investigate a pole,” he noted.
Barat eventually migrated to University of California, Berkeley, where he was mentored by Prabal Dutta, an electrical engineering professor who also joined the company early on as a co-founder. Dutta’s worked has focused on “industrial cyber-physical systems,” and he continues to research industrial control systems through digital interfaces via the iCyPhy center.
Gridware’s team clockwise from top left: Tim Barat, Abdulrahman Bin Omar, Dr. Prabal Dutta, Addison Chan, Riley Lyman, and Hall Chen. Image Credits: Gridware
Barat also met Abdulrahman Bin Omar, who had worked for a number of years in the energy sector, in a class that eventually had a one-week hiatus due to California wildfires. The two began working together in 2019, joining Berkeley’s startup incubator Citrus Foundry in 2020. The trio eventually linked up with co-founders Hall Chen and Riley Lyman as well, and snagged a $150,000 state grant from the California Energy Commission via the CalSEED program.
Today, the startup has seven employees, and it’s currently in talks with utility grids of all sizes about deploying its product. Grids can be very slow to adopt new technology with very long testing and sales cycles, but there might just be an opportunity for the company to accelerate those normal timelines given the extensive and visible power outages we have witnessed the past few years. We need to “transition our grid to face the challenges of the new century,” Barat said.
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Titan nabs $12.5M for ‘next generation’ investment management
Titan, a startup that is building a retail investment management platform aimed at millennials, has closed on $12.5 million in a Series A round led by VC heavyweight General Catalyst.
A bevy of other investors put money in the round, including Sound Ventures (actor Ashton Kutcher and Guy Oseary’s VC firm), Scribble VC, BoxGroup, Y Combinator, South Park Commons, Instagram founder Mike Krieger, Lee Fixel and others.
Titan is hoping to build on the momentum it saw in 2020, during which it grew revenue, customers and assets under management by 600%, “with effectively no marketing budget, according to co-founder Joe Percoco. The New York-based company says it’s approaching $500 million in assets under management and was cash flow positive last year.
Percoco met co-CEO Clay Gardner while the pair were at the Wharton School of the University of Pennsylvania.
“We came from two different backgrounds with respect to investing,” Percoco recalled. “He was the type that bought his first shares of stock at the ages of 11 and 12. I’m the exact opposite and couldn’t invest myself until after Goldman Sachs, where I went to work after Penn.”
Because the duo both worked in the industry, they found that friends and family were always asking them how they should manage their capital.
“We were sending them to ETFs and mutual funds in our day jobs,” Percoco said. “But we realized they did not have the same access to investing that the wealthier did.”
Frustrated with only helping the rich get richer, the pair founded Titan in 2017 with the goal of disrupting what they viewed as “an archaic industry. They’ve since built an operating system aimed at giving “everyday investors access to the types of investment products and experiences that they’ve historically been locked out of.” Or, as they describe, it a mobile version of what investment giants Fidelity and BlackRock created decades ago.
Titan’s capital management platform is designed for both accredited and unaccredited investors. The company says it provides access to services that would historically require a $1 million minimum, such as direct portfolio manager access. It charges a fee amounting to just 1% of assets, compared to the 2% – and in some cases 20% of profits – that legacy players charge.
“We believe Fidelity 2.0 will be direct-to-consumer with no walls and no black boxes,” Percoco said.
(For the unacquainted, according to Investopedia, black box accounting is the deliberate use of complex bookkeeping methodologies to make interpreting financial statements challenging and time-consuming.)
Its simplicity sets it apart. Titan chooses stocks via its “proprietary and discretionary” research process based on the principals’ previous experience.
The startup currently offers two stock-focused strategies on its platform,
One of those strategies, called Flagship, is focused on large cap growth. The other, called Opportunities, focuses on smaller, under-the-radar companies.
All clients have direct access to its investment team and investor relations via Titan’s mobile operating system. The company also offers instant deposits, personal digital vaults (or separately managed accounts), fractional share-trading, and no lock-ups.
Titan’s core customer is the young professional in the 25-35 age range.
“They’re already investing money somewhere, even if not that much of their money,” Gardner said. “But they’re well attuned to the reasons they should be… And, most asset management products remain in the Stone Age, offering 90-page prospectuses and black-box client experiences.”
As former TC editor Josh Constine explained when the company raised a $2.5 million seed round in October 2018, Titan differs from Robinhood or E*Trade, where users essentially are left to fend for themselves. But clients also have some control, unlike passive options such as Wealthfront and Betterment.
Looking ahead, Titan plans to use its new capital to scale its engineering and investment team, as well as make “significant investments” in product, marketing and operations. It also plans to launch several investment products across a variety of asset classes.
“Many legacy players are hungry to have an OS to serve more folks they historically could not,” Percoco said. “We’re getting inbounds from legacy players in the space seeking to manage capital for new generations and realizing it will shift to mobile operating systems like Titan’s. Eventually, we can enable them to build their own investment products on Titan.”
Katherine Boyle, partner at General Catalyst and Titan board member, said she was struck by Percoco and Gardner’s “deep empathy” for investors who are often overlooked — such as millennials and new investors “who have cash sitting in their checking accounts and want expert management but don’t know where to go.”
“They don’t want to be stock pickers but they don’t want a set-it-and-forget-it product,” Boyle said. “There’s another level of sophistication with actively managed products where the best managers are making investment decisions on behalf of those who can afford it. But there’s no reason why retail investors should be excluded from this model.”
She thinks Titan can capitalize on what she believes is millennials’ “deep lack of trust” in legacy institutions.
“We need new institutions like Titan to combat this lack of trust,” Boyle said. “And these new institutions need to have incentives that are aligned with their clients, not with hedge funds or banks.”
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Accord launches B2B sales platform with $6M seed
The founders of Accord, an early-stage startup focused on bringing order to B2B sales, are not your typical engineer founders. Instead, the two brothers, Ross and Ryan Rich, worked as sales reps seeing the problems unique to this kind of sale firsthand.
In November 2019, they decided to leave the comfort of their high-paying jobs at Google and Stripe to launch Accord and build what they believe is a missing platform for B2B sales, one that takes into account the needs of both the sales person and the buyer.
Today the company is launching with a $6 million seed round from former employer Stripe and Y Combinator. It should be noted that the founders applied to YC after leaving their jobs and impressed the incubator with their insight and industry experience, even though they didn’t really have a product yet. In fact, they literally drew their original idea on a piece of paper.
The original prototype was just a drawing of their idea. Image Credits: Accord
Recognizing they had the sales skills, but lacked programming chops, they quickly brought in a third partner, Wayne Pan, to bring their idea to life. Today, they have an actual working program with paying customers. They’ve created a kind of online hub for B2B salespeople and buyers to interact.
As co-founder Ross Rich points out, these kinds of sales are very different from the consumer variety, often involving as many as 14 people on average on the buyer side. With so many people involved in the decision-making process, it can become unwieldy pretty quickly.
“We provide within the application shared next steps and milestones to align on and that the buyer can track asynchronously, a resource hub to avoid sorting through those hundreds of emails and threads for a single document or presentation and stakeholder management to make sure the right people are looped in at the right time,” Rich explained.
Accord also integrates with the company CRM like Salesforce to make sure all of that juicy data is being tracked properly in the sales database. At the same time, Rich says the startup wants this platform to be a place for human interaction. Instead of an automated email or text, this provides a place where humans can actually interact with one another, and he believes that human element is important to help reduce the complexity inherent in these kinds of deals.
With $6 million in runway and a stint at Y Combinator under their belts, the founders are ready to make a more concerted go-to-market push. They are currently at nine people, mostly engineers aside from the two sales-focused founders. He figures to be bringing in some new employees this year, but doesn’t really have a sense of how many they will bring on just yet, saying that is something that they will figure out in the coming months.
As they do that, they are already thinking about being inclusive with several women on the engineering team, recognizing if they don’t start diversity early, it will be more difficult later on. “[Hiring a diverse group early] only compounds when you get to nine or 10 people and then when you’re talking to someone and they are wondering, ‘Do I trust this team and is that a culture where I want to work?’ He says if you want to build a diverse and inclusive workplace, you have to start making that investment early.
It’s early days for this team, but they are building a product to help B2B sales teams work more closely and effectively with customers, and with their background and understanding of the space, they seem well-positioned to succeed.
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Polytomic announces $2.4M seed to move business data where it’s needed
There is so much data sitting inside companies these days, but getting data to the people who need it most remains a daunting challenge. Polytomic, a graduate of the Y Combinator Winter 2020 cohort set out to solve that problem, and today the startup announced a $2.4 million seed.
Caffeinated Capital led the round with help from Bow Capital and a number of individual investors including the founders of PlanGrid, Tracy Young and Ralph Gootee, the company where Polytomic founders CEO Ghalib Suleiman and CTO Nathan Yergler both previously worked.
“We synch internal data to business systems. You can imagine your sales team living in Salesforce and would like to see who’s using your product from your customer data that lives in other internal databases. We have a no-code web app that moves internal data to the business systems of the office,” Suleiman told me.
Data lives in silos across every company, and Polytomic lets you build the connectors by dragging and dropping components in the Polytomic interface. This new data then shows up as additional fields in the target application. So you might have a usage percentage field added to Salesforce automatically if you were connecting to customer usage data.
The company actually sells the product to business operations teams, who would be charged with setting up a catalogue or menu of data sources that live in Polytomic. This is usually handled by someone like a business analyst who can configure the different sources. Once that’s done, anyone can build connectors to these data sources by selecting them from the menu and then choosing where to deliver the data.
The founders came up with the idea for the company because when they were at PlanGrid, they faced a problem getting data to the people who needed it in the company. The problem became more pronounced as the company grew and they had ever more data and more employees who needed access to it.
They left PlanGrid in 2018 and launched Polytomic a year later to begin attacking the problem. The two founders joined YC as a way to learn to refine the product, and were still working on it on Demo Day, delivering their presentation off the record because they weren’t quite done with it yet.
They released the first iteration of the product last September and report some progress getting customers and gaining revenue. Early customers include Brex, ShipBob, Sourcegraph and Vanta.
The company has no additional employees beyond the two founders as of yet, but with the seed funding in the bank, they plan to begin hiring a few people this year.
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Early-stage African VC firm Microtraction reports portfolio boom despite the weight of COVID-19
In a year marred by the coronavirus pandemic, it seems that early-stage startups on the African continent are continuing to see some notable growth, both in terms of their business and from investors looking to back them.
Microtraction, an early-stage venture capital firm based in Lagos, Nigeria, saw funding nearly quadruple for its portfolio.
In a review of the year published last week, the firm noted that 21 companies in its portfolio have raised more than $33 million in funding. This represents nearly four-fold growth over a year ago, when its portfolio raised $6 million (and just $3 million in 2018). The companies’ combined valuation stands at more than $147 million, according to the firm.
Founded by Yele Bademosi in 2017, Microtraction arrived on the continent’s early-stage investment scene with all intent to be “the most accessible and preferred source of pre-seed funding for African tech entrepreneurs.”
Bademosi, who returned to Nigeria from the U.K. in 2015, worked as the general manager for Starta Africa, an online community for African tech entrepreneurs. After his stint there, he saw the need to plug the gap of early-stage funding in Nigeria and the continent at large with Microtraction.
Microtraction does not specify the size of its fund, but what is more clear is that it has attracted a great deal of attention and has built a strong network in part because of who backs it.
Michael Seibel, the CEO of Y Combinator, is a global advisor and an investor in the firm, and so is Andy Volk, the head of ecosystem for Google Sub-Saharan Africa. Other investors include Pave Investments and U.S.-based angel investor Chris Schultz.
Being entrepreneurs in the past, some of these investors know what it takes to build a startup in the U.S. But it’s completely different in Africa. With no on the ground knowledge as to which startups to fund but an interest to do so, for portfolio diversification and other personal reasons, Microtraction and a few other early-stage investors present the best bets to accomplish this goal.
At first, Microtraction’s standard deal was to offer portfolio startups $15,000 in exchange for a 7.5% equity. But as a sign of how the market is firming up, that changed last year, and now the firm invests $25,000 for 7% equity.
Microtraction revealed that it accepted more than 500 applications from startups in Nigeria, Ghana, Zambia and Mauritius in its first full year of operation (though, just eight of those companies got investments).
The introductory batch was all Nigerian: four fintech startups — Cowrywise, Riby, Wallets Africa and ThankUCash; a crypto-exchange startup, BuyCoins; a SaaS platform, Accounteer; an edtech startup, Schoolable; and healthtech startup, 54gene.
2019 saw the local VC firm invest in six companies. This time there was a representative outside Nigeria — Ghanaian fintech startup Bitsika. The Nigerian startups included social commerce startup Sendbox; events startup Festival Coins; and communications-as-a-service platform Termii. The rest were unannounced.
Half of its portfolio companies are backed by YC and other global accelerators
Last year (the one this latest review covers), Microtraction announced seven startups. The latest selection includes Nigerian fintech startups Evolve Credit and Chaka; edtech startup Gradely; bus-hailing platform PlentyWaka; and Kenyan credit data marketplace CARMA.
Of the total investments raised in 2019 and 2020, 54gene contributed more than half of those numbers by raising $4.5 million in seed and a $15 million Series A investment. With an ingenious solution to solve the underrepresentation of African genomics data in global genomics research, 54gene got accepted into the winter batch in January 2019, the same month it officially launched.
Excluding 54gene, there were six other African-focused startups in the YC W19 batch. Two out of the six, Schoolable and Wallets Africa, were Microtraction portfolio companies. Others accepted into YC before and after include BuyCoins, Cowrywise, Termii and two unannounced startups.
Microtraction-backed ThankUCash and a second unannounced startup have also joined cohorts at 500 Startups. On the other hand, Festival Coins is the only startup to be selected into Google for Startups Accelerator. With all accounted for, 11 out of the 21 startups are either backed by Y Combinator, 500 Startups or Google for Startups.
The Microtraction team with founding partner, Yele Bademosi (far right). Image Credits: Microtraction
Getting into these global accelerators is a surefire way to receive follow-up investment, ranging from $125,000 to $150,000. From the outside in, startups see Microtraction and other early-stage VC firms like Ventures Platform as a means to that end. There have also been arguments that these firms build startups to be “YC or any global accelerator ready.”
However, Dayo Koleowo, a partner at Microtraction alongside Chidinma Iwueke, debunks it saying there’s no formula behind the numbers we see. He believes YC and other accelerators share the same fundamentals with Microtraction, which revolves around the team, the market and traction.
“We love super technical teams that understand the industry they are in and are likely to succeed without us. We are always looking for companies that are solving huge problems that a lot of people face,” he told TechCrunch. “Also, the tech and startup world moves fast, so we like teams who understand that and can show in real-time that they can execute. I believe that these global accelerators look for these same things.”
Typically, YC and other accelerators may perform extended due diligence and risk assessments before cutting cheques for any African startup without a local backer. Koleowo points out that this might be why Microtraction portfolio companies get accepted quicker. “The icing on the cake is that there is a level of de-risking that has been done by Microtraction and other local investors on the ground before these global accelerators step in,” he added.
That said, there’s no denying the significance of Microtraction’s advisory board in playing a part as to why half the firm’s portfolio are in global accelerators. Besides the names mentioned earlier, some of its past advisors included Lexi Novitske, former PIO at Singularity Investments; Dotun Olowoporoku, VC at Novastar Ventures; and Monique Woodward, ex-venture partner at 500 Startups.
And with the growing trends of globalization, plus the acceptance of a more decentralised approach to building and operations in the tech industry because of COVID-19, it’s a trend that might continue for a while.
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Curtsy, a clothing resale app aimed at Gen Z women, raises $11 million Series A
Curtsy, a clothing resale app and competitor to recently IPO’d Poshmark, announced today it has raised $11 million in Series A funding for its startup focused on the Gen Z market. The app, which evolved out of an earlier effort for renting dresses, now allows women to list their clothes, shoes and accessories for resale, while also reducing many of the frictions involved with the typical resale process.
The new round was led by Index Ventures, and included participation from Y Combinator, prior investors FJ Labs and 1984 Ventures, and angel investor Josh Breinlinger (who left Jackson Square Ventures to start his own fund).
To date, Curtsy has raised $14.5 million, including over two prior rounds, which also included investors CRV, SV Angel, Kevin Durant, Priscilla Scala and other angels.
Like other online clothing resale businesses, Curtsy aims to address the needs of a younger generation of consumers who are looking for a more sustainable alternative when shopping for clothing. Instead of constantly buying new, many Gen Z consumers will rotate their wardrobes over time, often by leveraging resale apps.
Image Credits: Curtsy
However, the current process for listing your own clothes on resale apps can be time-consuming. A recent report by Wired, for example, detailed how many women were spinning their wheels engaging with Poshmark in the hopes of making money from their closets, to little avail. The Poshmark sellers complained they had to do more than just list, sell, package and ship their items — they also had to participate in the community in order to have their items discovered.
Curtsy has an entirely different take. It wants to make it easier and faster for casual sellers to list items by reducing the amount of work involved to sell. It also doesn’t matter how many followers a seller has, which makes its marketplace more welcoming to first-time sellers.
“The big gap in the market is really for casual sellers — people who are not interested in selling professionally,” explains Curtsy CEO David Oates. “In pretty much every other app that you’ve heard about, pro sellers really crowd out everyday women. Part of that is the friction of the whole process,” he says.
On Curtsy, the listing process is far more streamlined.
The app uses a combination of machine learning and human review to help the sellers merchandise their items, which increase their chances of selling. When sellers first list their item in the app, Curtsy will recommend a price, then fill in details like the brand, category, subcategory, shipping weight and the suggested selling price, using machine learning systems training on the previous items sold on its marketplace. Human review fixes any errors in that process.
Also before items are posted, Curtsy improves and crops the images, as well as fixes any other issues with the listing, and moderates listings for spam. This process helps to standardize the listings on the app across all sellers, giving everyone a fair shot at having their items discovered and purchased.
Another unique feature is how Curtsy caters to the Gen Z to young Millennial user base (ages 15-30), who are often without shipping supplies or even a printer for producing a shipping label.
Image Credit: Curtsy / Photo credit: Brooke Ray
First-time sellers receive a free starter kit with Curtsy-branded supplies for packaging their items at home, like poly mailers in multiple sizes. As they need more supplies, the cost of those is built into the selling flow, so you don’t have to explicitly pay for it — it’s just deducted from your earnings. Curtsy also helps sellers to schedule a free USPS pickup to save a trip to the post office, and it will even send sellers a shipping label, if need be.
“One of the things we realized quickly is Gen Z does not really have printers. So we actually have a label service and we’ll send you the label in the mail for free from centers across the country,” says Oates.
Later, when a buyer of an item purchased from Curtsy is ready to resell it, they can do so with one tap — they don’t have to photograph it and describe it again. This also speeds up the selling process.
Overall, the use of technology, outsourced teams who improve listings and extra features like supplies and labels can be expensive. But Curtsy believes the end result is that they can bring more casual sellers to the resale market.
“Whatever costs we have, they should be in service of increased liquidity, so we can grow faster and add more people,” Oates says. “In case of the label service, those are people who otherwise wouldn’t be able to participate in selling online. There’s no other app that would allow them to sell without a printer.”
Image Credits: Curtsy
This system, so far, appears to be working. Curtsy now has several hundred thousand people who buy and sell on its iOS-only app, with an average transaction rates of three items bought or sold per month. When the new round closed late in 2020, the company was reporting a $25 million GMV revenue run rate, and average monthly growth of around 30%. Today, Curtsy generates revenue by taking a 20% commission on sales (or $3 for items under $15).
The team, until recently, was only five people — including co-founders David Oates, William Ault, Clara Agnes Ault and Eli Allen, plus a contract workforce. With the Series A, Curtsy will be expanding, specifically by investing in new roles within product and marketing to help it scale. It will also be focused on developing an Android version of its app in the first quarter of 2021 and further building out its web presence.
“Never before have we seen such a strong overlap between buyers and sellers on a consumer-to-consumer marketplace,” said Damir Becirovic of Index Ventures, about the firm’s investment. “We believe the incredible love for Curtsy is indicative of a large marketplace in the making,” he added.
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