Year: 2018

12 Jul 2018

‘Airbnb mafia’ fund Wave Capital makes it official, closing its debut fund with $55 million

A couple of weeks ago, Airbnb announced some major changes to the ways it compensates employees before it goes public.

At least two former Airbnb employees and a longtime VC will be ready to fund those who leave when it does. They’ve been waiting on this moment since last summer, in fact. That’s when former Airbnb data scientist Riley Newman left the firm to start work on a venture firm, quickly enlisting the help of his colleague of several years, Sara Adler (Airbnb’s former head of corporate development) and former Madrona Venture Group principal David Rosenthal. What they set out to do with that fund, Wave Capital, is fund marketplace startups, including — especially, even — those founded by other former employees of the home-rental giant.

It’s an idea that has resonated with investors. Wave just closed its debut fund with $55 million in capital commitments, slightly more than the three were targeting. They’ve already begun putting it to work, too. To find out more about those bets, and where the three expect to shop next, we asked them for a few more details. Our chat has been edited for length.

TC: How exactly did this firm come to pass?

DR: Riley is really the hub for all of us; his wife and mine grew up together in Marin and have remained best friends since early childhood. As Riley’s career at Airbnb progressed and my career in VC progressed, we talked about doing something together at some point in time.

RN: Meanwhile, Sara and I sat beside each other and together reported to the person who was effectively Airbnb’s CTO and we were part of a number of working groups together. David and I started talking about doing something together and we quickly drew Sara into our plans.

TC: “Marketplaces” is both a huge mission for a venture fund and a narrow one. Why pursue it?

DR: For me, when I was at Madrona, we incubated the [dog services company] Rover.com and I saw the power of marketplaces and the importance of helping them get off the ground. And Riley and I talked a lot over the years about how he watched Greg McAdoo [formerly of Sequoia Capital and now of the venture firm Bolt] work with Airbnb in the early days, and the importance of a true lead board member. And we thought that between our three collective experiences, we could play that role.

SA: As a member of the corp dev team at Airbnb and at Dropbox and Facebook before that, I could also see the impact of investors even on the final stages of companies’ journeys.

TC: You’ve now fully closed the fund from institutional investors, including the fund-of-funds Cendana Capital. How many companies do you expect to support with it?

DR: We think roughly 18 to 20 companies. We intend to lead every round and to take board seats. We want to play the same role as Greg did at Airbnb.

SA: We expect for each partner to do one to two deals per year.

TC: You haven’t invested together in the past, and establishing an investing history together is usually really important to institutions that invest in venture funds. How did you persuade them that this wasn’t an issue?

RN: It was definitely a process. [Laughs.] We were told no multiple times. We had not invested together and it did come up quite a bit and was a disqualifying thing for people who care a lot about that. We underwent a monster due diligence process with [the investment consulting company] Cambridge Associates that thankfully put us on [institutional investors’] buy list. But we dealt with every flavor of [no] before that. I think what won everybody over were the skill sets that each of us have, and how well-rounded they are in combination with one other.

SA: I think our approach [appealed to investors], too. It’s kind of like what venture used to be 20 years ago, both in terms of the size of the investments we plan to make and the time and energy we intend to spend with the companies we fund.

TC: How many investments have you made so far, and how dependent on Airbnb are you for your deal flow? I know Nate Blecharczyk, Airbnb’s co-founder and chief strategy officer, is an advisor to Wave.

RN: Alma was our first investment. We spent months with [co-founder] Dan Hill [who was formerly a director of product and performance marketing at Airbnb and whose startup connect prospective donors with local philanthropies]. We helped them firm up their marketplace design and design a long-term strategy and our [check] was built around a financial model that we built for them to get them from seed to a Series A round.  We’ll have to go out and execute on that, but that process determined what they needed.

We have another investment at the finish line.

SA: Airbnb will be a big part of our network, especially with our first fund, because we know exactly who the great people are at the company, which you only know by working with them. But across my time at Airbnb and Dropbox and Facebook, I’ve been a part of acquiring 30 companies and I’ve interacted with thousands more during the evaluation process, so there’s a deep network of founders for us to draw from.

TC: There’s so much late-stage capital sloshing around. Do you think about how it will impact what you’re doing at the earliest stages of these companies’ lives?

DR: The tail is really wagging the dog in a lot of cases right now. I don’t necessarily see so much capital as good or bad; what’s important to us is that founders use their capital as a tool to accomplish their aims. When you let capital start driving your decisions, there are very real unforeseen circumstances.

TC:  Are there any sectors about which you’re particularly excited?

DR: We’re sector agnostic. We believe in the business model, whether it’s consumer or b2b or healthcare. Crypto, we’re a little scared by, but I suppose those are marketplaces, too.

11 Jul 2018

Ex-Tesla worker makes it official and blows the whistle to SEC

The former Tesla employee who was fired and then sued by the electric vehicle automaker has filed a formal whistleblower tip to the U.S. Securities and Exchange Commission alleging the company has misled investors and put its customers at risk.

Martin Tripp has retained Meissner Associates, a whistleblower, securities, investment  fraud and employment law firm to represent him before the SEC. Tesla did not respond to questions about the whistleblower tip.

The filing is the latest blow in a bout between Tesla, its CEO Elon Musk and Tripp.

Tesla filed a lawsuit on June 20 against Tripp for $1 million, alleging the man, who worked as a process technician at the massive battery factory near Reno, hacked the company’s confidential and trade secret information and transferred that information to third parties, according to court documents. The lawsuit also claims the employee leaked false information to the media.

A mere 24 hours later and a combative email exchange between Musk and Tripp emerged. Tesla also notified police based on a tip to its customer service line that Tripp had allegedly told a friend he was going to attack the company’s Gigafactory in Sparks, NevadaTripp has denied this and the Storey County Sheriff’s department, which  investigated, told TechCrunch they found no credible threat.

Tripp is turning to an attorney with a successful whistleblower track record. The firm obtained a more than $22 million judgment from the SEC on behalf of a Monsanto whistleblower in 2016.

Tripp’s whistleblower tip, which was filed July 6, alleges that Tesla knowingly manufactured batteries with punctured holes possibly impacting hundreds of cars on the road; misled the investing public as to the numbers of Model 3s actually being produced each week by as much as 44 percent; and lowered vehicle specifications and systemically used scrap and waste material in vehicles, all so as to meet production quotas, according to a statement from Meissner Associates.

Tesla has said in the past that Tripp’s allegations are false and contend that he is not a whistleblower, but someone who hacked and stole confidential information.

Tripp says he has been threatened and harassed in the days since he revealed information about Tesla to the media.

“Getting the truth out has become a nightmare. While we have had to relocate due to threats and harassment, both online and offline, making it difficult to press on, my family and I have also received a ton of support, which keeps us going,” Tripp said in a statement. “I hope that, in the end, my fight will make it easier for future whistleblowers to come forward without fear of repercussions like those I have endured.”

Meissner will not handle the federal lawsuit that Tesla filed against Tripp. He is currently looking for an attorney to represent him in the case, firm’s managing member Stuart Meissner told Techcrunch

Meissner, a former Assistant District Attorney in Manhattan and Assistant New York State Attorney General, said Tesla filed its’ lawsuit against Tripp and engaged in a PR campaign to defame him in a calculated effort to ruin his reputation and silence him and other potential Tesla whistleblowers from coming forward.

11 Jul 2018

Nurx raises $36 million and adds Chelsea Clinton to its board of directors

Telemedicine startup Nurx recently closed a $36 million funding round led by Kleiner Perkins. As part of the investment, Kleiner Perkins General Partner Noah Knauf is joining the startup’s board of directors, along with and Chelsea Clinton .

With this new funding, CEO and co-founder Hans Gangeskar told TechCrunch that the startup plans to scale its clinical teams, pharmacies and geographic reach in the coming year.

“We have a new site in Miami where we have a team of nurses being on-boarded, [we’re] building out our engineering and design teams and really just [working to] increase the pace of everything that we’re doing” Gangeskar said.

The startup launched in 2014 with the goal to make reliable access to contraceptives as easy as opening your web browser. After plugging your information into its online app, users are connected with physicians, given a prescription and Nurx prepares their product for delivery.

Since its launch, this California-based startup now operates in 17 states, and has expanded its products to include not only contraceptives (such as pills, patches, injectables and products like Nuva Ring) but the anti-HIV medication PrEP as well. Gangesker says the company is also preparing to launch an at-home lab kit soon for HIV testing.

For Gangeskar, creating affordable access to contraceptives is a first step to changing how patients interact and receive medication from their physicians.

“Birth control is one of the fundamental functions of any health care system [so] for us its a natural place to start,” said Gangeskar.

To help advance its plans to redefine this space, Gangeskar says Nurx is excited to welcome public health veteran Chelsea Clinton to its board.

“Her experience in public health and global health from the Clinton Global Initiative has been really valuable, [particularly learning about] rolling out preventative services in large scales, because really that’s the potential of our platform — [to reach] populations that can’t be reached by the conventional medical system.”

While Washington looks to make cuts to American’s health care access, startups like Nurx offer a fresh perspective on this critical space.

11 Jul 2018

Enterprise software investments may be tepid now, but they’re poised to engage

Have we reached “peak software”?

Just like the idea of “peak oil”—the hypothetical point at which global oil production could max out—you could say we’re approaching a saturation point for venture-capital investments in software companies.

Recent data from Pitchbook shows that venture investing in software companies has plateaued: The amount of VC money invested in these companies–$32 billion last year—remained roughly constant over the last four years. The actual number of venture-backed software investments, mostly for business-focused companies, has actually declined, from 4,068 in 2014 to 2,980 last year.

But software is not, in fact, a declining industry. As I explore with my colleague Neeraj Agrawal in a recent report called Software 2018, released last month, a closer look at the Pitchbook data shows that the falloff in software deal volumes is primarily in the Bay Area, where an overheated market has boosted valuations and caused some investors to temporarily pull back. Investment in other U.S. regions, and globally, is actually going up. Investment in software companies based in Europe, Canada and Australia/New Zealand, for example, was $5.4 billion in 2017, up nearly 69% from the previous year.

Perhaps more important, a number of broader, global mega trends continue to fuel software innovation today, promising more new companies and more new jobs. These trends include everything from the rise of artificial intelligence, which is pushing software into new fields like autonomous driving, to the recent corporate tax cuts in the U.S., which could free up hundreds of billions of dollars for big corporations to buy up software startups.

In Mary Meeker’s annual, consumer-focused Internet Trends report in late May. But some of the key trends we see shaping the global, mostly business-focused (or enterprise) software market may signal a rebirth.

 (Photo by Tomohiro Ohsumi/Getty Images)

Softbank: Not just for consumer companies anymore

Softbank’s new, $100 billion Vision Fund has had a huge impact on the technology industry already, given the Japanese firm’s ability to essentially play kingmaker in a given technology market by making a huge investment of hundreds of millions of dollars in one company. This, obviously, makes it extremely difficult for competitors to keep up in terms of building market share. And if a company declines Softbank’s money, there’s the potentially lethal possibility that Softbank could fund a competitor, essentially snuffing out the first company.

What’s less noticed, however, is that Softbank is investing in many business-focused software companies, not just big consumer names like Uber, FlipKart and SoFi. In the last two weeks, Softbank put $2.25 billion into GM’s Cruise business unit for autonomous driving and $250 million into secondary storage vendor Cohesity*, for example and has backed other B2B players such as construction/building-software outfit Katerra; real-estate software company Compass; and workplace chat app Slack.

With these investments and others, Softbank is accelerating the pace of growth in many key software markets and likely also dampening these companies’ IPO prospects, since companies receiving several hundred million dollars from the Japanese company face less of a financial need to go public. Softbank is essentially taking the place of an IPO.

Image: Bryce Durbin/TechCrunch

More software means less hardware, more robots

The continuing march of software innovation isn’t great for everyone—losers in this picture could include hardware vendors and people with jobs that can be automated by smart, software-powered robots. (Yes, even lawyers and doctors could be affected—it’s not just truck drivers.)

The implications of artificial intelligence on the job market, and the auto industry, have been widely discussed. Less noticed, though, are the shifting growth rates in cloud-based IT gear versus traditional IT hardware, the technology that powers large corporations and other organizations. IDC predicts that by 2020, corporate spending on cloud-infrastructure software will finally exceed spending on non-cloud IT infrastructure—meaning all those boxes inside corporate data centers from vendors like Dell, IBM, Cisco, H-P etc. Many of those companies are trying to figure out their cloud services approach to stay relevant. 

Lower taxes = more software M&A

Not everyone loves the Trump administration’s policies, but if you’re a software CEO, you might be a fan of the administration’s new tax bill. That’s because the 2017 bill could be a boon for software-industry M&A. Two key components of the new law—the reduced rate charged to companies to repatriate cash from overseas, and the lowering of the corporate tax rate to 21% from 35%–could leave many big tech acquirers with new war chests, analysts believe.

According to investment bank Qatalyst Partners, both changes could leave a group of the largest traditional tech-company acquirers with an additional $400 billion to spend, if they repatriate money from overseas. This would be enough to buy 50 leading software companies today, according to Qatalyst. We have already seen some this with the recent acquisitions of GitHub by Microsoft ($7.5B) and Adaptive Insight by Workday ($1.55B) and Q1 deals like MuleSoft by Salesforce ($6.5B) and CallidusCloud by SAP ($2.4B).

The traditional tech acquirers could be more receptive to acquisitions than ever these days, given that the easy, low-cost cloud business model has allowed a range of young tech upstarts to attack many parts of their businesses from all angles. Often, the easiest solution is for the big tech companies to buy the upstarts.

Niche is nice for software

As software transforms big, well-known corporate markets—like datacenter software, and technology for functions like human resources, sales and marketing—it is also making inroads into much more narrow industries and corporate functions. The low cost of the cloud makes it easy for every industry, from physical therapy to prison management to mortgage lending, to grow its own, customized software, usually deployed for tasks like operations and customer management. Often there are multiple firms vying for customers (and investor dollars) today in these specialized fields.

Similarly, software is fueling extremely specialized companies to serve business needs inside companies today. These include companies as varied as DocuSign, which has built a multi-billion dollar public company focusing exclusively on document signing, and Carta, which sells technology to help companies manage their financial cap tables.

Mary Meeker is right that consumer Internet trends like the rise of online wallets, subscription services for certain goods and increasing oversight of social media by regulators will have big economic implications in the years to come. But we humbly offer that business software is a pretty big economic driver too—you just have to work a little harder to figure out the implications for businesses and the markets.

11 Jul 2018

Casper opens a storefront for $25 naps

Casper is opening a storefront designed specifically for sleepy New Yorkers in need of a nap.

In The Dreamery, you can reserve nooks for 45 minutes at a time, at a cost of $25 per session. These nooks are basically giant wooden “O”s with curtains and soundproofed backing, and of course they’re stocked with Casper beds.

It’s easy to dismiss or giggle about a nap store, but it seems a lot less funny when it’s a warm afternoon and you’re having trouble keeping your eyes open at work. In fact, I will happily confess to taking advantage of the TechCrunch New York couch after a big lunch, or after a morning that started stupidly early thanks to deadlines and embargoes.

The Dreamery, of course, is a lot fancier than the office couch, as I discovered when I dropped by for a quick tour. Beyond the nooks themselves, there are also lockers to drop off your stuff, private washrooms to get cleaned up, a lounge for hanging out and drinking coffee before or after, plus additional amenities like pajamas and Heaspace “sleepcasts.” (And yes, a Casper spokesperson assured me that the sheets are changed between each session.)

The Dreamery

“The Dreamery is about making sleep and rest a part of our regular wellness routines — similar to how many people prioritize a workout class,” ​said COO Neil Parikh in a statement. ​“The concept enables us to pilot new ways of bringing better sleep to more people and to more places — whether that’s here, the workplace, airports, or beyond.”

Oh, and this new storefront is located on the same New York City block as a Casper sleep store, so it should be a pretty quick walk if love the experience so much that you want to take a mattress home.

11 Jul 2018

Uber lays off self-driving car operators in SF and Pittsburgh

Uber has let go all (about 100) of its self-driving car operators in Pittsburgh and San Francisco, Quartz reports and has been confirmed by TechCrunch. This comes after Uber officially pulled the plug on its operations in Arizona in May, following a fatal car crash involving one of its autonomous vehicles in March.

Despite how this may initially look, Uber is still working on resuming autonomous vehicle testing in Pittsburgh this summer. Those affected by the layoffs can apply for one of roughly 55 new advanced operator positions that Uber calls Mission Specialists in either San Francisco or Pittsburgh. Mission Specialists are trained for on-road and test track operations, and are responsible for giving feedback to developers. There are also other open roles that don’t involve the operation of self-driving cars.

“Our team remains committed to building safe self-driving technology, and we look forward to returning to public roads in the coming months,” an Uber spokesperson told TechCrunch.

Uber suspended its self-driving car operations in all markets following the fatal Tempe, Ariz. crash, but operators were still employed by Uber and receiving regular pay. Now, those vehicle operators get first priority at applying for a Mission Specialist role, which requires some more technical expertise.

In California, Uber decided in March not to re-apply for its self-driving car permit in the state, but Uber is still in fact intending to resume testing in the state at some point. A couple of months later, at Uber’s Elevate conference, Uber CEO Dara Khosrowshahi said he expected self-driving cars to hit the streets again within the next few months. Self-driving testing is also on hold in Toronto, but it seems that the employees behind the wheel were already in Mission Specialist-like roles.

You can read more of TechCrunch’s coverage of Uber’s autonomous driving below.

11 Jul 2018

Dirt Protocol raises $3M for a decentralized, blockchain-based approach to information vetting

The team at Dirt Protocol is using blockchain technology to create a new approach to verify information.

The startup doesn’t plan to launch its platform until later this year, but it announced today that it has raised $3 million in seed funding from General Catalyst, Greylock, Lightspeed, Pantera Capital, Digital Currency Group, SV Angel, Avichal Garg, Elad Gil, Fred Ehrsam Linda Xi and others.

Founder Yin Wu previously created lockscreen startup Echo (acquired by Microsoft in 2015) and laundry startup Prim. She told me that after becoming interested in the cryptocurrency industry, she was concerned about the fear, uncertainty and doubt around coin offerings — after all, we’ve covered several ICOs where companies appear to have disappeared with people’s money.

“The market today is still unregulated, with high incentive for people to spread misinformation for personal gain,” Wu said.

Her solution? Build databases where anyone can contribute information, but where they have “skin in the game,” so there’s a financial penalty if they’re not truthful.

Dirt Protocol isn’t trying to create a single, definitive data repository, but rather to provide the tools for developers to build their own databases. Those databases might focus on things like ICOs (providing information like the team, the investors and the number of tokens in circulation), or online publishers (to help advertisers avoid bots), or professional listings and membership lists.

dirt protocol

There will be a single token that works across the Dirt platform. Users will need to stake tokens to add new information to databases, to challenge an entry or to vote in disputes — you’ll be penalized (by losing tokens) for adding misinformation and rewarded for weeding out misinformation.

While that should create an economic incentive for people to not just avoid inaccuracies but also to actively remove them, it doesn’t fully address the question of determining the truth — who, ultimately, gets to decide whether an entry is accurate? Wu said Dirt will support a variety of different “governance structures,” whether that’s centralized moderation, free-for-all voting or a system where votes are weighted by reputation.

Wu also suggested that the system is designed in a way to discourage concerted misinformation campaigns. For one thing, hoaxers will probably want to target the more popular databases, but those are also the ones that should attract more active moderation. Plus, she said, “The more valuable the network, the more people are contributing information, the more expensive [it becomes to contribute].”

A recurring theme in our conversation is the advantage of a “decentralized” approach to data verification. Wu said that isn’t always the right way to go, but she said it makes sense when there’s a big platform with the centralized vetting that works too slowly, or in situations where “you can’t trust the curator” of information, or with data sets that are just proprietary and expensive to access — while you have to buy tokens to contribute information, Wu said that Dirt Protocol data sets should be freely accessible, and “no single party owns that information and can shut off access.”

In a similar vein, she said Dirt Protocol isn’t currently focused on making money. Ultimately, the business model will probably involve some combination of giving the software away for free and charging for additional services.

“We’re focused on creating this open data set that anyone can use,” Wu said. “If we achieve that goal, I’m confident that some monetization will arise.”

11 Jul 2018

Broadcom acquires CA Technologies for $18.9B in cash

Broadcom, the massive semiconductor supplier you may remember from its failed attempt to acquire Qualcomm, today announced that it has reached a definitive agreement with CA Technologies, a major IT management software and solutions provider. The price of the acquisition is $18.9 billion in cash. CA’s shareholders will receive $44.50 per share, a 20 percent premium over the closing price of the company’s stock today.

It’s a bit of a surprise to see chip manufacturer Broadcom acquire a major software and services company. “This transaction represents an important building block as we create one of the world’s leading infrastructure technology companies,” Broadcom CEO and president Hock Tan explains in today’s announcement. “With its sizeable installed base of customers, CA is uniquely positioned across the growing and fragmented infrastructure software market, and its mainframe and enterprise software franchises will add to our portfolio of mission critical technology businesses. We intend to continue to strengthen these franchises to meet the growing demand for infrastructure software solutions.”

This comment doesn’t exactly explain the rationale behind today’s acquisition, but Broadcom is clearly trying to diversify its offerings. Earlier this year, the company walked away from its proposed hostile takeover of Qualcomm after the Trump administration blocked it. At the time, Broadcom was willing to pay $117 billion for Qualcomm, which would have greatly extended the company’s semiconductor business. Today’s move sees Broadcom enter a completely new business.

The company expects the acquisition to close in the fourth quarter of 2018. It’s unlikely that Broadcom will face any major headwind from Washington this time around.

11 Jul 2018

Supreme Court nominee Brett Kavanaugh’s brutal education in net neutrality

DC Circuit Court Judge Brett Kavanaugh has been nominated for the position of Supreme Court Justice, and on this occasion I think it warranted that we revisit in detail the sound intellectual thrashing this man suffered at the hands of his colleagues just last year on the topic of the internet and net neutrality. Because Kavanaugh was very, very wrong then and gives every indication that he will take his ignorance unapologetically to the highest court in the land.

To set the scene: In 2015 the United States Telecom Association sued the FCC, alleging the Open Internet Order that passed earlier that year, establishing net neutrality as we know it — or rather, knew it — was illegal.

This highly watched case was heard late in 2015 and the decision was issued six months later, in June of 2016. DC Circuit Judges Srinivasan, Tatel and Williams ruled against the telecoms, essentially finding that the FCC was well within its jurisdiction in establishing net neutrality rules to begin with, and also that the rule as written was lawful.

Unsatisfied with this ruling, the USTA petitioned to have the case reheard “en banc,” meaning with all active circuit judges present. This petition was denied, primarily because the Open Internet Order was by that point in peril of replacement, and new deliberations would as likely as not soon be rendered moot.

But two judges had dissenting opinions to bruit, and so the court published them alongside the denial — though unfortunately for them Srinivasan used the same opportunity to demolish their arguments. It would have been better for them, in retrospect, if they had remained silent, rather than raising their profound ignorance like a dirty flag to be mocked and pointed at forever — as we do here today.

I covered this disaster in less detail then, because it was only one case and news story among many having to do with net neutrality, and having no official consequences (the motion, after all, was denied) it was only worth touching on in brief. But now, with Kavanaugh ascendant, I feel it is important to resurface his late folly as evidence of his unsuitability for the position to which he has been nominated. His dissent deeply misinterprets multiple Supreme Court decisions, demonstrates a profound lack of understanding about how the industry works and produces absurd results if taken to its logical conclusions.

I’ll present Kavanaugh’s arguments in good faith, since they were offered that way, and then summarize their point-by-point demolishment by Srinivasan, the FCC or common sense.

Wrong on jurisdiction

Kavanaugh’s first argument is that the FCC’s rule is illegal to begin with because it does not have authority to issue it. He cites what he calls the “major rules” doctrine, which is that an agency like the FCC requires clear and explicit permission from Congress to issue “decisions of ‘vast economic and political significance.’ ”

This makes perfect sense — there have to be limits so serious questions of policy aren’t defined by a small group of commissioners. He writes:

If an agency wants to exercise expansive regulatory authority over some major social or economic activity–regulating cigarettes, banning physician-assisted suicide, eliminating telecommunications rate-filing requirements, or regulating greenhouse gas emitters, for example–an ambiguous grant of statutory authority is not enough. Congress must clearly authorize an agency to take such a major regulatory action.

Congress has never enacted net neutrality legislation or clearly authorized the FCC to impose common-carrier obligations on Internet service providers.

As this is primarily a question of authority and precedent and not technology, I won’t go too into detail here. If you’re curious, this article goes into the various court and agency decisions that led to the 2015 rules.

In brief, however, the question comes down to whether Congress has authorized the FCC to make a decision like that made in the 2015 rules: to classify broadband providers as common carriers and exert its powerful Title II authority over them. Srinivasan explains that it most certainly is:

We have no need in this case to resolve the existence or precise contours of the major rules (or major questions) doctrine described by our colleagues. Assuming the existence of the doctrine as they have expounded it, and assuming further that the rule in this case qualifies as a major one so as to bring the doctrine into play, the question posed by the doctrine is whether the FCC has clear congressional authorization to issue the rule. The answer is yes. Indeed, we know Congress vested the agency with authority to impose obligations like the ones instituted by the Order because the Supreme Court has specifically told us so.

And it told us so in a 2005 decision known as Brand X — which Kavanaugh himself cites. In Brand X it was decided that the FCC could in fact define DSL as telecommunications but cable internet as an information service (again, the piece above has more context for these terms).

Kavanaugh argues that Brand X shows that the 1996 Telecommunications Act, from which the FCC derives its authority, is ambiguous in its definition of internet services. This ambiguity, he says, means there is no specific mandate from Congress to create a major rule such as net neutrality.

“That analysis,” Srinivasan explains in his enjoyable prose, “rests on a false equivalence: it incorrectly equates two distinct species of ambiguity.”

“Whereas Brand X found statutory ambiguity on whether ISPs are telecommunications providers, the decision found no statutory ambiguity on whether the FCC gets to answer that question,” he writes (emphasis mine). And once the Supreme Court decides something is legal, he concludes, “our inquiry is over.” Ouch.

It’s important to note here that Brand X isn’t some obscure case — it’s extremely influential and well-studied. Kavanaugh’s interpretation of it is exceptional in its backwardness, attempting to wring the complete opposite conclusion from what has been accepted for more than a decade. This kind of poor reasoning isn’t the kind you expect to find in a Supreme Court Justice.

Wrong on tech and wrong on free speech

But the question of jurisdiction is only prefatory to the main event, in which Kavanaugh truly embarrasses himself.

“Imposing common-carrier regulations on Internet service providers violates the First Amendment,” he writes. And to be clear, he’s talking about the First Amendment rights of the internet service providers. He cites the Supreme Court again, this time two cases from the ’90s involving Turner Broadcasting.

Some readers may already be exhibiting signs of skepticism. Turner Broadcasting? In the ’90s? Wasn’t that a completely different era and industry? It was, but Supreme Court decisions can be surprisingly broad and durable; precedents may stand for decades, if not centuries. So let’s hear Kavanaugh out, shall we?

The cases, he explained, had to do with Turner Broadcasting challenging “must-carry” rules that required cable operators to carry certain programming — local stations, for instance. Turner argued that the government requiring it to broadcast certain information infringed on its right to free speech. And indeed, although the court ultimately decided that the must-carry rules should be enforced, it was also acknowledged that Turner does indeed exert free speech rights when it decides what content to broadcast or not broadcast.

“The First Amendment’s basic principles ‘do not vary when a new and different medium for communication appears,’ ” he writes, “Although there of course can be some differences in how the ultimate First Amendment analysis plays out depending on the nature of (and competition in) a particular communications market.”

Starting from this solid ground, Kavanaugh immediately drifts into the hard vacuum of ignorance. Please remember that the following was written by someone nominated to be a Justice of the Supreme Court. I really can’t condense it because every sentence has, as Srinivasan might put it, a distinct species of ignorance (emphasis mine).

Here, of course, we deal with Internet service providers, not cable television operators. But Internet service providers and cable operators perform the same kinds of functions in their respective networks. Just like cable operators, Internet service providers deliver content to consumers. Internet service providers may not necessarily generate much content of their own, but they may decide what content they will transmit, just as cable operators decide what content they will transmit. Deciding whether and how to transmit ESPN and deciding whether and how to transmit ESPN.com are not meaningfully different for First Amendment purposes.

Indeed, some of the same entities that provide cable television service – colloquially known as cable companies – provide Internet access over the very same wires. If those entities receive First Amendment protection when they transmit television stations and networks, they likewise receive First Amendment protection when they transmit Internet content. It would be entirely illogical to conclude otherwise.

Setting aside the unprofessional and unjustified bravado that concludes this breathtaking little salvo, it really would take hours and thousands of words to explain satisfactorily, to Kavanaugh himself, all the different ways he is incorrect. I’ll attempt to satisfy the demands of posterity and brevity in summarizing them.

1. Packet-based internet service is fundamentally different from cable broadcasting, even if the latter has converted to packet-based transmission over the last decade. What they have in common is that they are transmitted as electrical impulses, sometimes over wires. It’s akin to the level of similarity between a telephone call (mostly also packet-based now) and a cable television signal.

2. The idea that because things are transmitted via the same medium, they are legally identical, is so mystifyingly naive and backwards that I’m surprised to see it in a legal document of any kind, let alone a judge’s official dissent in a major case. Just as a basic counter-example, what about radio waves? They are used in countless different capacities by countless different devices, many of which are differently regulated, subject to different laws, possessed of different capabilities and so on. What about DSL? It runs over telephone lines; should it be regulated like phone calls?

3. Outside some very basic and well-understood limits, internet service providers do not decide what content to deliver to users. And in many cases, thanks to encryption, they are totally unable to track (and therefore unable to control) what data they are providing. If all the traffic on the internet was encrypted and ISPs only transmitted data that was totally unintelligible to them, they would still be able to advertise and provide the exact same, highly valuable service to their users.

Kavanaugh does touch on, and dismiss, some of this as follows:

[T]he FCC argues (and the panel agreed) that Turner Broadcasting does not apply in this case because many Internet service providers do not actually exercise editorial discretion to favor some content over others… I find that argument mystifying.

It may be true that some, many, or even most Internet service providers have chosen not to exercise much editorial discretion, and instead have decided to allow most or all Internet content to be transmitted on an equal basis. But that “carry all comers” decision itself is an exercise of editorial discretion. Moreover, the fact that the Internet service providers have not been aggressively exercising their editorial discretion does not mean that they have no right to exercise their editorial discretion.

We have already established, of course, that ISPs not only do not decide what content to transmit, but that in many (approaching all) circumstances, it cannot do so. But beyond this elementary oversight, Kavanaugh has also failed to comprehend, or perhaps even to read, the rule he is railing against.

Because his exact argument is preemptively dealt with in the text of the rule itself, which in the first place defines entities affected by the rules as advertising and providing “the capability to transmit data to and receive data from all or substantially all Internet endpoints” — a definition that precludes editorial control. And if that’s too ambiguous for Kavanaugh, several paragraphs are dedicated to addressing his concerns in detail. Some excerpts:

As a factual matter, broadband Internet access services are nothing like the cable service at issue in Turner I.

Cable operators… both engage in and transmit speech with the intent to convey a message either through their own programming directly or through contracting with other programmers for placement in a cable package.

Broadband providers, however, display no such intent to convey a message in their provision of broadband Internet access services—they do not engage in speech themselves but serve as a conduit for the speech of others.

There’s more (paragraphs 544 to 549 or so) in the Open Internet Order if anyone (for instance, Judge Kavanaugh) is curious. And in case you are worried that these definitions and assertions have been found wanting by others or challenged by the parties affected, allow Srinivasan to set your mind at ease:

An ISP has no First Amendment right to engage in those kinds of practices [i.e. editorial content control]. No Supreme Court decision suggests otherwise. Indeed, although the two dissenting FCC Commissioners objected to the agency’s adoption of the rule on multiple grounds, neither suggested the rule poses any First Amendment issue. Similarly, the principal parties challenging the Order in this court, who collectively represent virtually every broadband provider—including all of the major ISPs—bring no First Amendment challenge to the rule.

Considering especially the length and thoroughness with which now-Chairman Ajit Pai excoriated the original rule, it may be expected that if there were free speech considerations, he would have brought them up. Likewise the many ISPs and trade organizations, which would have loved to have something like Constitutional grounds to challenge the order.

The only ones who bring up the issue are Kavanaugh and a tiny ISP in Texas called Alamo, which wanted to offer a “family-friendly” edited subset of the internet to its customers.

Funnily enough, this is permitted! And by publicly stating that it has no intention of providing access to “substantially all Internet endpoints,” Alamo would exempt itself from the net neutrality rules! Yes, you read that correctly — an ISP can opt out of the rules by changing its business model. They are, to Kavanaugh’s evident bafflement, essentially voluntary. But here’s Srinivasan again enlightening his colleague:

There is no need in this case to scrutinize the exact manner in which a broadband provider could render the FCC’s Order inapplicable by advertising to consumers that it offers an edited service rather than an unfiltered pathway. No party disputes that an ISP could do so if it wished, and no ISP has suggested an interest in doing so in this court.

In the event that an ISP nonetheless were to choose to hold itself out to consumers as offering them an edited service rather than indiscriminate internet access—despite the potential effect on its subscriber base—it could then bring itself outside the rule. In that sense, the rule could be characterized as “voluntary,” [as Kavanaugh describes it], but in much the same way that just about any regulation could be considered voluntary, insofar as a regulated entity could always transform its business to such an extent that it is no longer in the line of business covered by the regulation.

Wrong on the slippery slope

Lastly, not content to be wrong on several Supreme Court cases, the technical basis for the industry he is writing about or the rule itself he is suggesting is unconstitutional, Kavanaugh felt the need to offer, as a rancid cherry on top, a dose of FUD suggesting that if this rule (which as he sees it permits government tampering with free speech without evidence of monopoly) were lawful, the government could move on to regulating the speech of edge providers from Google and Facebook to this website:

If market power need not be shown, the Government could regulate the editorial decisions of Facebook and Google, of MSNBC and Fox, of NYTimes.com and WSJ.com, of YouTube and Twitter. Can the Government really force Facebook and Google and all of those other entities to operate as common carriers? Can the Government really impose forced-carriage or equal-access obligations on YouTube and Twitter? If the Government’s theory in this case were accepted, then the answers would be yes. After all, if the Government could force Internet service providers to carry unwanted content even absent a showing of market power, then it could do the same to all those other entities as well.

The vast and numerous differences between a broadband internet provider and a service like Facebook, let alone a press outlet like The New York Times, are perhaps unsurprisingly lost on Kavanaugh. Once more Srinivasan explains it concisely:

Those companies evidently do not share our colleague’s concern—all but one is a member of a group that supports the rule in this court.

That may be in part because those companies, in contrast with broadband ISPs, are not considered common carriers that hold themselves out as affording neutral, indiscriminate access to their platform without any editorial filtering.

The real slippery-slope concerns run in the reverse direction. Under our dissenting colleague’s approach, broadband ISPs would have a First Amendment entitlement to block and throttle content based on their own commercial preferences even if they had led customers to anticipate neutral and indiscriminate access to all internet content.

That’s the last thing on the long list of things about which Kavanaugh needed to be schooled in order to issue even a reasonably incorrect opinion on this subject.

This has been a rather long exposition, but I thought it was important that everyone see, in Kavanaugh’s own words, exactly how poor of a study he is, at least as far as this issue is concerned, and how little he seems to think through both his own arguments and those of others.

As Srinivasan notes, what Kavanaugh essentially suggests is that, against the explicit findings of several Supreme Court decisions, the regulators, and the regulated industry, internet providers should be granted free speech rights that allow them to arbitrarily limit the free speech of their users.

Is this the type of twisted logic, inadequate research and shallow understanding that we want in a Supreme Court Justice? I think not. Kavanaugh’s brash and embarrassing failure on this case alone is in my opinion generates sufficient doubt regarding his competence that his nomination should be denied.

11 Jul 2018

Come see Uber CEO Dara Khosrowshahi at TC Disrupt

In the days of Uber 1.0, the ethos seemed to be about doing all the wrong things. Now, with former Expedia CEO Dara Khosrowshahi at the helm, Uber is clearly on its way to becoming a sort of Expedia for transportation. Though, Khosrowshahi has previously likened Uber’s business to aligning more with the idea of an Amazon for transportation.

At TechCrunch Disrupt San Francisco in September, Khosrowshahi will join me to discuss Uber’s big plan to own the entire transportation experience for people, the highs and lows of his first year on the job, Uber’s upcoming initial public offering and much more.

Under Khosrowshahi’s leadership, Uber officially became a multi-modal transportation platform with its acquisition of JUMP Bikes for about $200 million, the launch of UberRENT and a public transportation partnership with Masabi.

Oh, and Uber is also working on electric scooters, as well as flying cars via its Elevate program. Just like residential and buildings have gone three-dimensional, Khosrowshahi said at a tech conference in May, “you’re going to have to build a third-dimension in terms of transportation.”

For Uber, Elevate is its “big bet” on that third-dimension of transportation, he said. The big plan with all of these modes of transportation — whether that’s bike sharing, electric scooter sharing, ride sharing, flight sharing or whatnot — is to become a multi-modal transportation service.

Under the leadership of Khosrowshahi, Uber also seems to be moving into an era where the company works with governments, instead of in spite of them. This is quite the 180 for Uber. Before the days of Khosrowshahi, Uber was reluctant to share data with cities. Now, Uber is expanding Movement, a platform that anonymizes and aggregates Uber data to map travel times, to 12 new cities across five continents. The intent is to help urban planners, local leaders and civic communities make more informed decisions.

While Khosrowshahi is making positive moves in a business direction, it’s worth noting the company is still in need of a chief financial officer, and there have been some high-level departures that have continued under his leadership. In June, for example, Uber’s chief brand officer, Bozoma Saint John, left a little after one year of joining the company.

At the time, Saint John told me that while “nothing horrible or terrible happened,” Uber’s corporate culture has not “righted itself 100 percent.” At Disrupt, Khosrowshahi and I will also discuss Uber’s corporate culture and what it’s going to take to fully recover from its 2017, which entailed reports of sexual harassment, mismanagement and a toxic work environment. Then, just this month, Uber’s chief people officer, Liane Hornsey, resigned following an internal racial discrimination investigation.

This should go without saying, but there will be a lot to discuss. Tickets to Disrupt SF, which runs September 5-7, are available here.