Month: November 2020

It’s no secret that a massive digital transformation is happening within financial services companies and amid the growing number of non-financial outfits that are also adding financial products to their offerings.

Still, Sheel Mohnot formerly a general partner at the fintech fund of 500 Startups, and Jake Gibson, co-founder of personal finance startup NerdWallet, were a little taken aback by investor interest in their fintech-focused early-stage venture firm, Better Tomorrow Ventures, or BTV. The outfit just closed its debut fund with $75 million in capital commitments, exceeding their original $60 million target and even surprising one of their earliest investors, Michael Kim of Cendana Capital. “Remarkably, they raised a lot of it during Covid,” says Kim.

We talked yesterday with the pair, who have already invested in 13 startups with the fund’s capital and led nine of those deals.

TC: The good news is you’re focused on fintech. The bad news is that valuations are going through the roof right now. How do you compete in this kind of environment?

SM: It’s true. Everybody decided that what we’ve been talking about all along is in line with their beliefs too, after exits like Plaid and Credit Karma. Everybody became a fintech investor. And you’re right that that has led to an increase in valuations. To some extent that’s good, though. It’s meant that one of our companies has already had a pretty massive markup in part because of this phenomenon.

I also think we’re finding we’re able to win deals at better prices because we’re both founders [Mohnot sold a company, FeeFinders, to Groupon 2012], and all we do is fintech, so we tend to understand better what founders are building than generalist investors.

JG: I do think that resonates in that we’ve been able to pay prices that we think make sense and get the ownership we want. This isn’t the 4 on 16 game that others are playing (where VCs invest $4 million at a pre-money valuation and so own 20% of the company). I think all but one or two of them were repeat founders who see the value of working with partners like us.

TC: How much ownership are you targeting for that first check — 10%?

JG: Right, 10%, though we’re really shooting for 12%.

TC: And will you turn to [special purpose vehicles] to maintain your take if certain companies begin to gain traction?

JG: Yes, I’ve done quite a bit of SPVs in the past. I’ve invested in 90 companies as an angel investor and I think we’ve probably deployed more than $40 million between the two of us over the last five years leading up to BTV, including SPVs on top of angel investments. [Editor’s note: some of those earlier deals include Chipper Cash, Albert, Clear Cover, and Hippo.]

TC: What companies are in BTV’s portfolio? 

SM: None have been announced.

TC: Not one?!

SM: Nobody announces their seed rounds anymore. When I started my company, i wanted as much coverage as possible. I thought that was great for the company. Now founders don’t feel that way, with very few wanting to announce.

TC: But there are benefits to recruiting and getting on the radar or later-stage investors. Why eschew it altogether?

JG: Competition to some extent. They don’t want people to know what they’re working on because one you see a competitive seed round, you see a lot of other startups pop up to do the same thing, I also juts think there’s not as much upside anymore to announcing, so most founders, when you’re seeing their seed round, it’s because they about to raise their Series A. The data you’re seeing in Pitchbook is typically six months [behind].

TC: Who are your investors?

SM: We have a lot of individuals — founders of fintech unicorns. We have a couple of fintech venture funds, fintech-focused GPs from later-stage funds, a few insurance companies, and a bunch of Wall Street people who help us keep track on that side of the market, as well.

JG: We’re also backed by kind of a who’s who of fund of funds that back emerging managers: Cendana, Industry Ventures, Vintage [Investment Partners], Invesco.

TC: Did you know a lot of these investors before the pandemic shut down everything?

JG: Some, but we had to sell a lot of them cold over Zoom. We held a first close last December — that capital was from Cendana and individuals. We’d started conversations with other institutions at ths point but everyone said it would take a while and that institutions won’t come until you raise your second fund, so we didn’t have high hopes that we’d get a lot of them on board.

When March and April hit, we figured we’d have to raise a smaller fund. But then things re-opened, people got back to work, and we were able to close institutions we’d started conversations with. Then people came out of the woodwork, because tech got hot fast but especially fintech, with all the IPO and M&A activity.  People said, ‘We want fintech exposure now, and we want to invest in a fintech-focused fund, and you’re the only game in town.’

TC: What do you need to see to write a check?

SM: The team is the most important thing, of course. Product and market is important, but the team is the thing that’s least likely to change and with so many past winners, the product or market changed and they found something that worked and were able to pivot and cockroach their way to success. Having a leader who is able to articulate a vision that other people want to get behind — customers, investors, future employees — is especially critical.

JG: Our thesis is that everything is fintech, so we invest across the board: payments, lending, banking, real estate, insurance, b2b, consumer — anything that’s ostensibly fintech. We think a lot of companies that aren’t typically fintech today will look like fintech later, with more and more tech platforms that get into financial services. We’re investing at the pre-seed and seed stage but also meeting with founders at the idea stage, sometimes to talk them out of starting another neobank.

TC: Do you? Every time I wonder how many neobanks make sense in this world, an investor tells me that if their company can get .00001% of the market, they’ll have a multibillion company on their hands.

JG: No. Most will never figure out how to get profitable. A lot o f investors like to argue that with neobanks, you lose money on every trade but you make it up in volume. Yet very few have a path to getting to positive economics. You need huge scale to get to profitability, and that means you have to spend a ton of venture capital on marketing. More, a lot are going after audiences that are already over-served by traditional financial products.

SM: The same is true for “Plaid for X” type companies. After the announcement of Plaid’s exit — or what we all thought was Plaid’s exit — we looked at five companies, many of them hitting on the same ideas and duking it out for the same customers.

TC: Will the fact that the DOJ is suing to block Plaid’s sale to Visa, citing Visa’s monopoly power, have a chilling effect?

JG: We haven’t seen that. A lot of people are discounting that complaint and thinking it will gets ouf this in the end via SPAC. The company was doing north of $100 million in revenue, and given where these businesses trade, Plaid could go public and see an amazingly successful outcome.

It’s not just Plaid, by the way. There are 40 SPACs that are focused on fintech alone [meaning publicly trade blank-check companies that have to merge with a target in two years’ time]. Just think about the outcomes that have to happen in the next two years.

The fate of TikTok in the United States got even more confusing this week. The U.S. Justice and Commerce Departments sent conflicting messages today about TikTok’s future, which is now up in the air with the upcoming administration transition.

The Department of Commerce said Thursday it would abide by an injunction issued October 30 by the District Court in the Eastern District of Pennsylvania that would have blocked TikTok from operating in the U.S. starting from today. In a statement, the department said it is complying with the court’s order and its prohibition against TikTok “HAS BEEN ENJOINED, and WILL NOT GO INTO EFFECT, pending further legal developments.”

But on the same day, the Justice Department appealed the Pennsylvania court’s ruling just as it was set to go into effect.

But wait! It gets even more convoluted: another court–the U.S. Court of Appeals in Washington–just set new deadlines in December for ByteDance, TikTok’s Beijing-based parent company, and the Trump administration, to file documents in a case involving a divestment order that would force ByteDance to sell TikTok to continue operating in the U.S.

ByteDance reached an agreement with Oracle and Walmart in September, but the future of the deal is also uncertain.

The Justice Department’s appeal is part of a lawsuit filed against the U.S. government on September 18 by three TikTok creators, Douglas Marland, Cosette Rinab and Alec Chambers. Each has more than a million followers on TikTok, which has about 100 million users in the U.S., and argues that a ban would impact their ability to earn a living from brand collaborations on the app.

On Oct. 30, Judge Wendy Beetlestone issued an injunction against the U.S. government’s restrictions. In her ruling, Beetlestone wrote that the “government’s own descriptions of the national security threat posted by the TikTok app are phrased in the hypothetical.”

This case is separate from the one ByteDance filed against the U.S. government in a federal appeals court in Washington D.C. Earlier this week, ByteDance asked that court to vacate the U.S. order forcing it to sell the app’s American operations. ByteDance told TechCrunch in a statement that without an extension on the November 12 deadline, it “[had] no choice but to file a petition in court to defend our rights and those of our more than 1,500 employees in the U.S.”

The Commerce Department’s statement today, along with the Justice Department’s appeal and the new deadlines in the divestment case, underscore the confusion about the future of the Trump administration’s actions against TikTok after President-Elect Joe Biden takes office on January 20.

While some analysts believe the Biden administration may give Chinese tech companies that were targeted under the current administration, including Huawei and ByteDance, a chance to re-negotiate with the government, that may take second priority as Biden deals with domestic issues, including the resurgence of COVID-19 in the U.S.

Reports that Dominion Software, which provides voting tabulation tools to about half the states in the U.S., “deleted” millions of votes have been soundly rebuffed after outgoing President Trump parroted numbers from a random internet forum.

Tweeting Thursday morning about baseless claims of election fraud, Trump cited OANN, a right wing news outlet, which itself seemed to have found its numbers in a thread on pro-Trump Reddit knockoff thedonald.win. (The tweet was quickly wrapped in a warning that the contents are disputed.)

The anonymous person posting there claimed to have compared numbers from Edison Research, a company that does exit polls and other election-related measures, to those from Dominion, and come up with very different sums. The methods are not very well explained, nor are the results. It’s not really clear what is being compared to what and why, or for what reason this alleged fraud was published publicly by the company supposedly perpetrating it. No one has verified (if that’s the word) this analysis in any way.

In a comment to Politifact, Edison President Larry Rosin wrote that “we have no evidence of any voter fraud,” and that it pretty much has no idea what the purported analysis is referring to.

Dominion attracted attention earlier in the week when it seemed that a glitch had caused a number of votes to be registered for President-elect Joe Biden instead of Trump. But the miscount was immediately caught and found to be the result of human error. The company has dedicated a page to combating the misinformation around its software.

Politifact rated Trump’s claim “Pants on Fire,” calling it “ridiculous” for good measure. It’s worth noting that the tweet didn’t even state the numbers of the supposed fraud correctly.

There doesn’t seem to be any merit to the “analysis” at all, but it provides an excellent example of how people who are unfamiliar with how the voting apparatus works — which is to say almost everyone not directly involved — tend to find the software portion inherently untrustworthy.

Yet there is no way to count, tabulate, and verify millions of ballots in hours or days after an election that does not rely heavily on private software tools, and it is in fact highly reliable and secure. The process of elections is bipartisan and extremely closely monitored.

Despite accusations from a dwindling number of highly placed individuals in the government, there has been no evidence presented that there was any significant voter fraud or other irregularities in last week’s election, which resulted in the victory of former Vice President, now President-elect Joe Biden.

The latest Mac operating system arrives, Amazon faces a lawsuit over PPE and Disney+ turns one. This is your Daily Crunch for November 12, 2020.

The big story: Apple releases macOS Big Sur

This update, which was first announced five months ago at WWDC, includes a number of design changes that continue to blur the line between macOS and iOS.

One of the big additions is the Control Center, an iOS/iPadOS feature that presents a translucent pane down the right side of the screen. Meanwhile, Safari added features like built-in translation. And app icons and sounds have been updated throughout.

Brian Heater has been using the beta since June, and he concluded that Big Sur “boasts some key upgrades to apps and the system at large, but more importantly from Apple’s perspective, it lays the groundwork for the first round of Arm-powered Macs and continues its march toward a uniformity between the company’s two primary operating systems.”

The tech giants

Facebook’s Snapchat-like ‘Vanish Mode’ feature arrives on Messenger and Instagram — The feature, meant for more casual conversations, allows users to set chats to automatically delete after the message is seen and the chat is closed.

Amazon faces lawsuit alleging failure to provide PPE to workers during pandemic — The class action suit alleges Amazon failed to properly protect its warehouse workers and violated elements of New York City’s human rights law.

Apple HomePod Mini review: Remarkably big sound — A smart speaker for the masses.

Startups, funding and venture capital

Menlo Security announces $100M Series E on $800M valuation — CEO and co-founder Amir Ben-Efraim told us the startup remains focused on web and email as major attack vectors.

Livestorm raises $30M for its browser-based meeting and webinar platform — It’s purely browser based, without requiring presenters or attendees to install any software.

Nana nabs $6M for an online academy and marketplace dedicated to appliance repair — Nana runs a free academy to teach people how to fix appliances, then gives them the option to become a part of its repair marketplace.

Advice and analysis from Extra Crunch

Are subscription services the future of fintech? — As subscriptions become an increasingly alluring business model, fintechs will have to consider whether this strategy is worth the risk.

Conflicts in California’s trade secret laws on customer lists create uncertainty — Read this before you jump ship or hire a salesperson who already has.

As public investors reprice edtech bets, what’s ahead for the hot startup sector? — Selling edtech on the vaccine news (as investors did) was a bet that growth in the sector would be constrained by a return to normalcy.

(Reminder: Extra Crunch is our membership program, which aims to democratize information about startups. You can sign up here.)

Everything else

Disney+ has more than 73M subscribers — The streaming service launched one year ago today.

L’Oréal rolls out a line of ‘virtual makeup’ — This builds on L’Oréal’s 2018 acquisition of an augmented reality filter company called Modiface.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.

Just over a week after the U.S. elections, Twitter has offered a breakdown of some of its efforts to label misleading tweets. The site says that from October 27 to November 11, it labeled some 300,000 tweets as part of its Civic Integrity Policy. That amounts to around 0.2% of the total number of election-related tweets sent during that two-week period.

Of course, not all Twitter warnings are created equal. Only 456 of those included a warning that covered the text and limited user engagement, disabling retweets, replies and likes. That specific warning did go a ways toward limited engagement, with around three-fourths of those who encountered the tweets seeing the obscured texts (by clicking through the warning). Quote tweets for those so labeled decreased by around 29%, according to Twitter’s figures.

The president of the United States received a disproportionate number of those labels, as The New York Times notes that just over a third of Trump’s tweets between November 3 and 6 were hit with such a warning. The end of the election (insofar as the election has actually ended, I suppose) appears to have slowed the site’s response time somewhat, though Trump continues to get flagged, as he continues to devote a majority of his feed to disputing the election results confirmed by nearly every major news outlet.

His latest tweet as of this writing has been labeled disputed, but not hidden, as Trump repeats claims against voting machine maker, Dominion. “We also want to be very clear that we do not see our job as done,” Legal, Policy and Trust & Safety Lead Vijaya Gadde and Product Lead Kayvon Beykpour wrote. “Our work here continues and our teams are learning and improving how we address these challenges.”

Twitter and other social media sites were subject to intense scrutiny following the 2016 election for the roles the platforms played in the spread of misinformation. Twitter sought to address the issue by tweaking recommendations and retweets, as well as individually labeling tweets that violate its policies.

Earlier today, YouTube defended its decision to keep controversial election-related videos, noting, “Like other companies, we’re allowing these videos because discussion of election results & the process of counting votes is allowed on YT. These videos are not being surfaced or recommended in any prominent way.”

Truebill, a startup offering a variety of tools to help users take control of their finances, announced today that it has raised $17 million in Series C funding.

When I first wrote about the startup in 2016, it was focused on helping users track and cancel unwanted subscriptions. Since then, it’s expanded into other financial products, like reports on your personal expenses and the ability to negotiate lower bills.

This week, Chief Revenue Officer Yahya Mokhtarzada told me that with the pandemic leading to a dramatic reduction in ad costs, Truebill was able to make TV advertising a key channel for reaching new users.

And of course, the financial uncertainty has made the product more appealing too — particularly its smart savings tool, where users can automatically set aside money for their goals.

“People became aware of the need to have some cushion,” Mokhtarzada said. “You should start saving when things are going well, before you need it, but [saving during the pandemic] is better than not doing it at all. We’ve seen a big bump in smart savings adoption, which is at an all-time high.”

The new round brings Truebill’s total funding to $40 million. It was led by Bessemer Venture Partners, with participation from Eldridge Capital, Cota Capital, Firebolt Ventures and Day One Ventures.

The startup says the round will allow it to develop new products and features, including net worth tracking, automated debt payments and shared accounts.

Mokhtarzada added that the company will be making big investments in data science to help follow its “north star” of financial health, where he said, “”The data challenge is significant.”

Sure, it’s pretty straightforward to recognize whether someone’s doing well or poorly financially, but the real goal is to “recognize trends and shortfalls before they happen.”

For example, instead of simply alerting users when they’ve been charged an overdraft fee on their account, Mokhtarzada said, “What is helpful is to predictive models analyze data to anticipate a cashflow shortage and have the right tools in place that prevent it.”

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

The full Equity crew was on hand to debate the current venture capital market, curious about how risk-on, or risk-off things really are today. Danny, Natasha and I framed the conversation around a number of news items from the week, including:

• Wrkfrce has launched, and we wanted to chat more about the future of niche media, bringing The Juggernaut’s own recent round, and the Quartz shakeup into the conversation.
• And on the media front — always a risky venture capital investing domain — Spotify has snapped up another podcasting company, this time paying $235 for Megaphone. Our take? A string of small exits probably won’t encourage VCs to take on more risk in the space (Hunter Walk said the same thing here.)
• Turning to risk more generally, I asked Natasha to weigh in on the earlier-stages of the venture market, and Danny on its later tranches. There’s still lots of money, but it appears more focused on chasing winners than bolstering or supporting less-obvious startups.
• That market is not slowing a risk-on move towards more venture capital players, as the Spearhead news showed a new focus for the firm to invest in emerging fund managers.
• And there’s still plenty of risk tolerance in remote-work solutions like Hopin, which just raised $125 million at a $2+ billion valuation. We’re torn on the round, but Danny likes it and he’s a former VC.
• And we wrapped with a chat about upcoming IPOs, and the recent SoftBank results. If DoorDash, Airbnb and others are going to go this year, they need to go soon. So far, no dice.

It was a busy week, despite the month. Expect more of the same next week.

Finally, don’t forget that our own Chris Gates is cutting Equity videos out of every episode that you can find over on YouTube. He does a great job and it’s great to be on video, as well as audio platforms.

Equity drops every Monday at 7:00 a.m. PDT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

Buying someone a gadget is a time-honored tradition, but these days it can be particularly fraught, considering you may buy them a fitness tracker that also monitors emotions, or a doorbell that snitches to the cops. Mozilla has put together a helpful list of popular gadgets with ratings on just how creepy they are.

“Privacy not included” has become an annual tradition for the internet rights advocate, and this year has an especially solid crop of creepy devices, given the uptick in smart speakers, smart security cameras, and smart litterboxes.

On the “creepy” end of the spectrum is… pretty much everything by Amazon except the Kindle. The devices in question send tons of data to Amazon by design, of course, but Mozilla feels the company hasn’t yet earned the trust to make that sort of thing acceptable. Facebook’s Portal earns a creepy spot for a similar reason.

Some random gadgets like a smart coffee maker and Moleskine smart notebook get creepy ratings because they don’t give the kinds of assurances about data and security that any company collecting that information should give. That sort of thing is common in smart gadgets — they may not be fundamentally creepy, but the company that makes them reserves the right to make it creepy at any time.

On the other end of the spectrum, Withings earns points for its smart devices with reasonable privacy policies and security. Non-Ring smart doorbells get good marks, and Garmin’s smart watches too.

These are informal rankings based on the potential for abuse or exposure of your data, and it doesn’t mean that they’re perfectly safe or private. If you’re buying one of these things, it’s best to immediately go through the settings and preferences and disable anything that smells invasive or creepy. You can always enable features again, but once you’ve put your data out there, it’s hard to get it back.

Check out the rest of the list here.

If you’re on a Mac running a relatively new version of macOS and it’s having all sorts of weird issues right now: you’re not alone.

We’re seeing a flood of reports from both users and developers of an issue preventing apps — particularly those not made by Apple — from properly launching. Most are reporting that apps they already had open are fine, but attempts to open any new apps will result in it just bouncing around in the dock for minutes at a time.

The issue first popped up this morning (curiously coinciding with the launch of macOS Big Sur) and seems to be improving for some.. but for the time being, be aware your apps might not work as expected.

It’s unclear exactly what’s happening, but the most popular theory is that there’s a server-side issue with Gatekeeper, the security feature that verifies the authenticity of macOS apps at launch.

Story developing…