Year: 2020

Facebook will acquire Giphy, the web-based animated gif search engine and platform provider, Facebook confirmed today, in a deal worth around $400 million, according to a report by Axios. Facebook said it isn’t disclosing terms of the deal. Giphy has grown to be a central source for shareable, high-engagement content, and its animated response gifs are available across Facebook’s platforms, as well as through other social apps and services on the web.

Most notably, Giphy provides built-in search and sticker functions for Facebook’s Instagram, and it will continue to operate in that capacity,  as well as be available to its other apps through existing and additional integrations. People will still be able to upload their own GIFs, and Facebook intends to continue to operate Giphy under its own branding and offer integration to outside developers.

Facebook says it will invest in additional tech development for Giphy, as well as build out new relationships for it on both the content side, as well as the endpoint developer side. The company says that fully 50% of traffic that Giphy receives actually already comes from Facebook’s apps, including Instagram, Messenger, the FB app itself and WhatsApp .

Giphy was founded in 2013, and was originally simply a search engine for GIFs. The website’s first major product expansion was an extension that allowed sharing via Facebook, introduced later in its founding year, and it quickly added Twitter as a second integration. According to the most recent data from Crunchbase, Giphy had raised $150.9 million across five rounds, backed by funders including DFJ Growth, Lightspeed, Betaworks, GV, Lerer Hippeau and more.

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

After spending perhaps more time than we should have recently trying to figure out what’s going on with the public markets, let’s return to the private markets this morning, focusing in on venture capital itself. New data out today details how U.S.-based VCs fared in Q1 2020, giving us a window into how flush the financial class of startup land was heading into the COVID-19 era.

The short answer is that big funds raised lots of cash, while smaller funds appear to have put in a somewhat lackluster quarter.

That big funds performed well in Q1 shouldn’t surprise. We’ve seen NEA stack $3.6 billion in March and Founders Fund raised $3 billion for its own investing work earlier in the quarter, to pick two examples TechCrunch covered.

The impact of these mega-raises, according to a report from Prequin and First Republic Bank, was to push up the total amount of capital raised by American venture capital firms in the quarter, while the decline in the number of funds that raised $50 million or less led to a slim number of total funds raised. It’s hard to call a surge in dry powder bearish, but the fall-off on smaller funds could limit seed capital in the future.

Notably, there have been warning signs since at least 2019 that seed volume was slowing; recent data from the U.S. underscores the trend. So what we’re seeing this morning in data-form is a summation of what we’ve previously reported in a more piecemeal fashion.

Let’s pick over the data to see what we can learn about how much spare capital the venture classes are sitting on today.

The rich get richer

The whole report is worth reading if you have time. Aside from the data concerning how much money VCs are raising themselves, it includes several interesting bits of information. For example, there were just 960 venture deals closed in the U.S. in Q1 — a pace that would make 2020 the slowest year since 2009 if it held steady.

Per the listed data, 83 U.S.-based venture capitalists closed (“held a final close”) a fund in Q1 2020. This was off about 24% from the Q1 2019 result of 109. However, while the number of funds raised was lackluster, they made up for it in dollar-scale. According to Preqin and First Republic Bank, the “funds that closed raised $27 [billion], a substantial total representing over half of the capital raised in 2019 ($50 [billion]).”

There has been a steady drumbeat of news on the U.S.-China trade front since the start of the Trump administration. President Trump has made decoupling from China’s economy on on-again, off-again proposition. There was the trade conflict with weekly changes in American tariff policy, the threats against ZTE and Huawei, the responses from China against Qualcomm and NXP, and the launch of new restrictions on China investment in U.S. startups and telecom infrastructure.

With COVID-19 and the ensuing global economic collapse, much of that conflict was put on the back burner. A tentative agreement between the U.S. and China — agreed to before the worst of the pandemic — seemed to get even broader support as the economic indicators from the globe’s two superpowers started to trickle out.

Then this week happened, and in almost no time at all, the U.S.-China trade detente has been torn apart.

Overnight, there were three critical stories that are going to reshape U.S.-China trade for the foreseeable future, with plenty more stories lurking beneath the surface.

First, you have the announcement this morning from the Department of Commerce that the Trump administration is going to ban Huawei from using U.S. software and hardware in certain strategic semiconductor processes, a move designed to limit the leading Chinese chip manufacturer from growing its market power and technological capabilities. Earlier yesterday, the administration also announced an extension to the government’s export ban on Huawei and ZTE.

The Trump administration has threatened moves like this since almost the president’s first day in office, and Commerce even couched the language, saying that it is “narrowly and strategically” targeting the Chinese company. Nonetheless, Huawei’s importance as one of China’s leading technology companies can’t be overstated, and the two moves combined is already being perceived as a direct assault on China’s recovering economy.

Second, you have a major announcement overnight from TSMC — the world’s largest chip foundry and one of the only foundries that can handle the manufacturing of the most advanced chips — that the Taiwanese company will invest and launch a major, $12 billion factory in Arizona. The release says that the factory will be capable of producing the world’s most advanced 5-nanometer chips when it launches in a couple of years. The announcement came after weeks of debate in Washington aimed at cutting off TSMC’s ability to build chips for mainland Chinese companies like Huawei — a move that TSMC argued would dramatically hurt its profitability and ability to invest in further R&D.

Third, you had the announcement this morning that Foxconn’s profits dived 90% due to COVID-19 and declining smartphone shipments. Foxconn, a Taiwanese hardware assembly company (among many other things), has been caught in the smoldering U.S.-China trade conflict, and even attempted at one point to build its own $10 billion manufacturing facility in Wisconsin with Trump’s felicity only to scuttle that plan entirely in an embarrassing setback.

Meanwhile, the trade deal that had calmed tensions between DC and Beijing appears increasingly in doubt.

And that’s just what happened overnight.

There are so many individual data points on U.S.-China trade that it can be hard to see the patterns. Policies have hardened, policies have softened, but at its core the U.S. and China have attempted to keep the trade flowing, if only to maintain growth in their economies. That’s what coupling has been all about: while there can be massive disagreements between the two sides, each has something the other wants. China wants to build and grow, while America wants to design and buy.

The past few months of COVID-19 have changed that calculus, as has an election year in the United States where wariness of China has hit record, bipartisan highs according to polls. The intense conflagration of the American economy, with tens of millions jobless and growth stalled for the time being, means that even more intense scrutiny is being placed on anything that might be harming the country’s financial math. We are now seeing the fruits of that new normal.

There will be more decoupling maneuvers in the coming weeks. There will also almost certainly be a renegotiation of the U.S.-China trade deal, despite comments that neither side is interested in reopening those discussions.

Yet, the real interesting dynamic to watch is going to be Taiwan, which is home to strategically critical sectors of the chip industry. TSMC’s announcement accepts the reality of decoupling, but attempts to work around it by recoupling the United States to the safety of Taiwan. Taiwanese companies and the island’s politicians have avoided ceding its technology to other countries, creating a dependence that they have hoped would protect the island in the event of a mainland Chinese invasion. After all, if the Pentagon can’t get its chips, it’s going to have to intervene, or so the thinking holds.

In this new world though, TSMC building an American factory doesn’t undermine that narrative, it actually strengthens the bonds between the U.S. and Taiwan. More jobs, more trade, more travel and ultimately, a deeper appreciation of the importance of each other. The question is how far the Trump administration is willing to go here. Taiwan is bidding to rejoin the World Health Organization, where it was an observer up to 2016. How deep are those ties? Will the U.S. go beyond its own diplomatic framework to intensely push for Taiwan’s reentry in spite of Chinese opposition?

That’s what is next, but what is clear today is that the world of semiconductors, of internet infrastructure, of the tech ties that have bound the U.S. and China together for decades — they are frayed and are almost gone. It’s a new era in supply chains and trade, and an open world for new approaches to these huge existing industries.

The way we invest is changing. Technology makes investing easy and more accessible than ever. Meanwhile, Millennials and Gen Z are gravitating away from public equity investments.

These changes have led to the rise of alternative assets. People are increasingly looking for new and innovative ways to approach investing. But are alternative assets truly the new frontier of modern investing?

What is an alternative asset?

As the name suggests, alternative assets are an alternative to traditional assets, like stock, bonds and cash. The term usually describes unconventional investments. That can include anything from a Honus Wagner baseball card to bottles of fine wine. However, it can also apply to more familiar investments, like real estate and private mortgages.

Simply put: alternative assets are the things that probably wouldn’t come up when you meet with your financial advisor. They are not easily categorizable, which makes them more difficult to manage. Often, people invest in alternative assets because of a passion for the asset rather than the immediate ROI.

What makes alternative assets an attractive investment?

Investors will go wherever there is money to be made. That includes alternative assets. In addition to higher potential returns, alternative assets have distinct characteristics from traditional assets. Here are a couple of factors to consider when looking at alternative assets:

Portfolio Diversification

The entrepreneurial and investor focus of the last decade has largely been centered on increased convenience and consumerism, and has encouraged companies to prioritize scaling, with little care for how it affects stakeholders, employees, consumers and even the environment. We have been talking about a shift for some time, but now more than ever, it has become obvious that companies have to take humanity into account as they build and scale in this new paradigm.

The last 10 years of startup growth have been about building and investing in these “nice to haves.” We believe the next 10 years will be focused on building and investing in “need to haves,” and the greatest business opportunities will be found in what we at Human Ventures call The Human Needs Economy — products and services that have material impact on basic needs and livelihoods and address a core draw on a consumer’s time, money or energy. For 2020, we are focusing on solving problems within three categories that we believe will have a huge impact on the Human Needs Economy: health and wellness, the future of work and community.

As the first category of the Human Needs Economy, we outline the opportunity within health and wellness and specific areas in which we are excited to build and invest.

Health and wellness

Looking back at a decade focused on scaling nice to haves, it shouldn’t come as a surprise that we are living with unaddressed health and wellness issues. And the statistics are staggering. In 2019, an estimated 47.6 million adults (19% of the country) had a mental illness, but only 43% received any kind of mental health care. When it comes to sexual and reproductive health, whole populations of minorities and underrepresented groups receive subpar care and face stigma around health issues. And we’re on track for a shortage of 120,000 doctors in the U.S. by 2030, a signal that these issues are set to get worse. (The United States’ response to the COVID-19 pandemic has highlighted how dangerous this is in a crisis.)

These challenges and others represent what we call the wellness deficit — the sum of the human needs that have gone unmet in the areas of health and wellness. And even though it may seem that every block has a new boutique fitness studio popping up or everyone you know has the latest wearable to measure their sleep, we believe we are just at the starting line when it comes to making up ground and building great businesses that tackle these issues.

Below are 10 areas that are poised to make up this wellness deficit:

As earnings season winds down, we’re getting a solid picture on just how profoundly the COVID-19 pandemic has impacted corporations’ bottomline. Taiwan-based manufacturing giant Foxconn is among those companies that were utterly walloped over the previous quarter. Plant shutdowns — particularly in China — lead to a 90% year-over-year drop in profits for the quarter.

Foxconn had already attempted to brace investors for bad news back in March. At the time, the company failed to give a clear indication of how its profits would look for the rest of the year, owing to the unprecedented uncertainty of the virus. “Prevention of outbreak, resumption of work and production are our top priority,” Chairman Liu Young-Way said at the time.

Two months later, uncertainty remains.  “The visibility of our outlook for the whole year is limited,” Liu added on this week’s call. “Right now, there is no way I can offer the outlook for the latter half of this year.” The executive added, however, that company expect revenue declines to be far less pronounced over the next quarter.

That’s due, in part, to the fact that it’s resumed normal production at most of its China plants following the late-January shutdown. The country comprises around three-quarters of Foxconn’s production capacity. There will, however, continue to be less than optimal numbers, as smartphone sales are expected to continue to decline or stagnate for many companies — driving down demand for Foxconn’s services.

Apple, one of Foxconn’s key clients, is believed to be delaying the release of its next flagship, over issues of consumer demand and supply chain shortages.

Chris and Alex Naoumidis came to hypnotherapy through dresses.

As The New York Times reported last year, the two brothers initially started their careers as startup entrepreneurs with a peer-to-peer dress-sharing app for women. The Australian natives, overcome with doubt, about their ability to succeed in startupland and when apps didn’t work, their father suggested they try hypnotherapy.

Those sessions led the brothers to launch Mindset Health and raise $1.1 million in funding from investors including Fifty Years, YC, Gelt VC, Giant Leap VC, and angel investors across the US and Australia

It’s a lot of backers for a small round that closed in November of 2019, but it’s indicative of the kind of bets that investors are willing to take in the mental health space these days.

A whole slew of apps have come to market to treat the mental disorders that seemingly accompany living in the modern world. There are companies that facilitate matching with therapists, companies that provide mental wellness tools in the form of cognitive behavioral therapies, billion-dollar companies that offer mindfulness and meditation, and companies that offer hypnotherapy.

The hypnotherapy sessions that Alex and his brother took gave them an idea. “Could we do this similar to meditation and bring this to market in a way that would be helpful?” Alex Naoumidis told me.

Meditation is a multi-million dollar business with apps like Calm and Headspace raking in millions of dollars in venture financing and giving them billions of dollars in perceived valuation.

Alex Naoumidis stresses that the app isn’t therapy — the company can’t pitch it that way under current regulations. “It’s more of a self-management tool,” he said. “Helping people with anxiety or [irritable bowel syndrome] to manage those symptoms at home to compliment the work they’re doing.”

The goal, according to Naoumidis, is to have a number of apps under the Mindset umbrella that deal with specific conditions. While it began as a more general mental wellness app, the company now has Nerva, its IBS focused product, alongside its general mental wellness Mindset toolkit.

Nerva’s not a cheap subscription. There’s an upfront payment of $99 and then $88 three-month subscription. The Mindset subscription service costs $11 (priced to sell in the COVID-19 era) down from $64 when the Times’ writer, Nellie Bowles first tried the product.

Here’s how she described it:

As a first step, the app suggested that I text a friend or tweet to the public the quote “He who conquers himself is the mightiest warrior.” For the next 19 minutes, a soft male voice told me that my mind can slow down. It can convert concerns to decisions. The process can even become second nature. And if it does, I can be a person of action. A person of action.

I did another module, Increase Productivity, which is voiced by a peppy younger man — a start-up bro right in my ear asking me to repeat after him: “I give myself permission to know what I want to be and what I want to do and do it efficiently.”

These mental health apps, or any app, supplement, or business that’s promoting wellness need to have some clinical studies to back up their claims and mindset is working with doctors on the products. The initial Mindset app was designed in concert with Dr. Michael Japko while the IBS app was designed with Dr. Simone Peters.

Both receive revenue share with the company for their work developing the course of therapies.

The company’s co-founder says that they’re unscientifically seeing successes come from the service. People self-report their symptoms at the start and at the end of the program. For people who complete the program, 90 percent have reduced symptoms (I’m not sure what percentage of signups complete the program).

“Our idea is we want to help researchers who develop these amazing programs deliver them digitally,” said Naoumidis. “We worked with world leading researchers to make it more accessible.”

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

Are you a regular Equity listener? Take our survey here! We talk about it on the show, and it’s embedded below in case you don’t want to click a link.

From home once again this week, Danny, Natasha, Alex, and Chris got together to pull the show together. But unlike last week’s episode (catch up here if you are behind), this week’s show features a game that actually worked. It’s at the end, as you’ll see.

But before that piece of the puzzle, there was a bunch of news to go over. We had to leave SaaS valuations, the Liftoff List, Brex, and FalconX on the floor, but there was still so much good stuff to cover:

• Slice raised $43 million from KKR, making us all rather hungry — and curious. Where does Slice fit into the food-delivery market, and does its restaurant-friendly model give it enough room to grow revenue so that its new valuation makes sense?
• The Uber Eats-Grubhub deal was an unavoidable topic this week, given that it has the chance to remake the food delivery landscape. What room would be left in the market for Postmates? And would it pass regulatory scrutiny? We’re curious.
• Sticking to the on-demand theme, Instacart has grown bonkers-quick in the last few months, even making some money in the process. We’re impressed.
• It’s not the only thing out there growing like hell — Shopify is also putting up insane numbers, as reflected in its share price. TechCrunch took a look back through its history the other day.
• The secondary markets saw some consolidation this week, which brought back some fond memories.
• Quizlet raised $30 million at a $4 billion valuation, causing some consternation amongst the hosts. And Vise raised a more modest $14.5 million in a round that Danny covered.

Then we played our game. Please hold us to account. And if you have listened to the show for a while, take our survey! It’s right after this next sentence.

Therapeutics company Sorrento has made what it believes cold be a breakthrough in potential treatment of SARS-CoV-2, the virus that leads to COVID-19. The company released details its preclinical research on Friday, announcing that it has found an antibody that provides “100% inhibition of SARS-CoV-2 virus infection of healthy cells after four days incubation.” These results are from a preclinical study that still has to undergo peer review, and in an in vitro laboratory study (meaning not in an actual human being) but still a promising development as the company continues to work on production of an antibody “cocktail” that could provide protection against SARS-CoV-2 even in case of mutations in the virus.

Sorrento says that they believe this antibody, which is labelled STI-1499, stood out among billions of candidates it has been screening from its extensive human antibody library for its ability to completely block the interaction of the SARS-CoV-2’s spike protein with a human cell target receptor. That means it prevents the virus from attaching to the host’s healthy cell, which is what leads to incubation and infection.

The nature of the antibody’s efficacy means that Sorrento currently believes it will be the first antibody to be included in the cocktail it is developing, which will be made up of a large number of different antibodies that show efficacy in blocking the attachment of the spike protein, in order to provide multiple avenues of protection that are designed to remain effective even if the virus mutates in transmission from person to person, or within the same individual. One of the big outstanding questions that researchers are working on answering currently is just how mutagenic SARS-CoV-2 actually is, since many coronaviruses like the common cold show a tendency to mutate pretty quickly, rendering long-lasting cures and treatments difficult to develop.

Sorrento’s COVID-SHIELD is meant to address this through a potent mix of different antibodies that provide protection against different strains of the virus, but the company says it will also be pursuing development of the STI-1499 antibody on its own as a dedicated, standalone therapy. The company is already in discussion with regulators about how to expedite development of that potential treatment, and is ramping its production capacity as well with the goal of producing as many as one million doses at the same time it pursues FDA approval for its use.

It’s definitely worth cautioning that no treatment or vaccine is likely to be a ‘magic bullet’ in treating SARS-CoV-2 or COVID-19, but this is still a promising development, and one to watch as it undergoes clinical trials and the therapeutic development and regulatory process.

New numbers from NPD confirm what we’ve known for a while: the first quarter of 2020 was a very good one for gaming companies. The new report notes that sales hit a record $10.86 billion in the States between January and March of this year, marking a 9% increase over a year prior. $9.58 billion of that figure was from video game content.

The primary driver is, you guessed it, COVID-19. As stay at home orders have been enacted on the federal and state levels, people are coping with the on-going daily horror that is life in 2020 by playing video games. Lots and lots of video games.

Here’s NPD’s Mat Piscatella further confirming our suspicions, “Video Games have brought comfort and connection to millions during this challenging time. As people have stayed at home more, they’ve utilized gaming not only as a diversion and an escape, but also as a means of staying connected with family and friends. Whether it was on console or mobile, PC or virtual reality, gaming experienced play and sales growth during the first quarter.”

That last bit is, in part, key to many consumers’ choice of game titles. As already noted by the firm, Animal Crossing: New Horizons had its own record setting first quarter. That, in turn, helped drive Switch sales, in spite of Nintendo’s well documented supply issues. The title arrived just in the nick of time for stay at home orders in the U.S., delivering a kind of front-facing social experience that much of the competition lacks. Also, turnips.

Matter of fact, the Switch’s success actually helped supplement losses of other platforms. Microsoft and Sony will no doubt make up gains at the end of the year with their next gen consoles. For now, however, many consumers are likely holding out until their holiday arrives to invest in Xbox or Playstation hardware, in spite of the pandemic. The U.S.’s soaring unemployment rate no doubt also had an impact on the industry’s bottom line.