Year: 2020

[Editor’s note: Get this weekly recap of TechCrunch news that any startup can use every Saturday morning by email (7am PT). Just subscribe here.] 

How well is SaaS overcoming business impacts of the pandemic? First, there’s no negative impact on the revenues of big cloud infrastructure providers visible so far, according to a new research report out that we covered on TechCrunch this week. While some spending may have pulled back, growth from more remote work and other activities have maintained the overall momentum.

However, startups across the category could be “looking at around a 30% miss to plan in Q2,” Alex Wilhelm concludes based on a long interview with Mary D’Onofrio, a growth investor focused on the category at Bessemer Venture Partners. “This has tempered investor growth expectations. But even more than raw growth figures, SaaS investors are looking for efficient growth. In Bessemer’s eyes, a 1:1 ratio of ARR add to burn is the target. It won’t be easy. Startups selling to SMBs are going to hurt worse by rising churn than enterprise-focused startups, while startups selling to larger customers may struggle with new customer adds given travel restrictions. So, enterprise-focused startups will likely lean more on upsells than new logo adds. Those will also prove difficult, even if they won’t slow completely.”

She and Bessemer had already developed a series of metrics to analyze the health of cloud companies, including a ‘Cash Conversion Score‘ and a Nasdaq emerging cloud index. Check out the rest of the article on Extra Crunch for how D’Onofrio sees those numbers being affected now.

A fond farewell to Josh Constine

This newsletter focuses on key meta topics for startups, and sometimes that means getting even more meta and talking about changes at TechCrunch. Josh Constine will be leaving us for the VC world, where he’ll be investing and heading up content with SignalFire.

If you have ever thought that Josh would be the one to really get your hot new consumer product idea first, you now have a new reason to talk to him. Read his thoughts on the new job in this personal post (and ongoing newsletter).

If you’re not familiar with the name, you’ve still read Josh quite a bit this decade if you’ve been reading TechCrunch — or tech news in general. He started here with me in late 2011 writing about Facebook and social trends, and has become one of the most influential writers on social and startup topics today. In addition to his traffic stats, top journalist rankings*, etc that one can measure most easily, we have watched his analysis regularly result in major changes to the main products of leading consumer internet companies in the world today.

His repertoire expanded over the years to include huge scoops (like Bing’s child-porn problem or Facebook’s secret VPN), memes (Zoombombing) and many appearances across global stages.

He has accomplished almost all of what great tech writers can accomplish and I cannot say I’m surprised that he wanted to try his hand at investing, having known him since before we first worked together last decade. I believe he’ll succeed as an investor, and be a force for good in that role like he has been here.

There is one thing I think he should still do as a professional writer, though — write a book. About his own life in the startup world this past decade. Trust me, you’d want to read it.

*Here’s how to find other great tech reporters who cover what you do

…Besides just reading this site, of course. Josh was the #1 ranked author on Techmeme, the news aggregator of record for the tech industry, by a number of measures. Want to find the right reporter to talk to, besides him? Go to Techmeme.com/lb to find expert TechCrunch authors and some of our most worthy competitors across 43 industry categories, including AI, e-commerce, enterprise software and many more. [Note: This is an unpaid plug for a great independent tech media product, we don’t normally run third-party shoutouts in here.]

Startup fundraising updates… keep those teeth gritted

We have a few writers tracking the latest ins and outs of fundraising during pandemic, here are notable updates from this week:

“Some of our peers in the Valley have up to 40% of their companies that need an infusion or some sort of bridge to get through,” Mike Janke, co-founder of early-stage cybersecurity investment firm Datatribe, told Jon Shieber. “These companies that had higher valuations that came out of the Valley have had to do more drastic cuts.” Startups that raised cash in markets outside the Bay Area have not had as much difficulty, he says, because they’re more efficient. “When you see regions like Boston, the DC corridor, Austin and Boulder, those companies don’t raise as big a round and they’re a little more financially conservative.”

One wonders if these hubs will see comparative growth sooner and stronger than the Valley itself? Meanwhile, the screws continue to twist in today’s term sheets.

“Let’s say you were a founder and you were doing great and you were on track and you were going to start raising your Series A or Series B, you know, in May,” Freada Kapor Klein of Kapor Capital explained to Megan Rose Dickey during an EC Live interview on Tuesday. “Well, you’re screwed. And so we see VCs sitting on the sidelines, waiting for the startups to almost go under and then put the most draconian term sheet in from of them where they wipe everybody off the cap table, where if you don’t put in your pro rata — we’ve got one of these going on right now — if you don’t put in your pro rata, we’re going to lose at least 90% of our investment.”

As Alex Wilhelm noted in a separate article, even if startups can keep revenue up and burn-rate down (see first item above), investors are slowing their pace of putting money in. Companies that should have been able to raise will no longer be able to at worthwhile terms.

Kapor suggested that some companies might want to consider broader options. For example, if a company thinks it is headed towards losing control to investors who have different motives, it may be able to re-establish itself as a public benefit corporation to spell out the mission and preserve it in the charter (to a degree).

A simpler answer for many startups is to drop all fundraising goals and focus on profitability. “Genuinely, it’s not rocket science,” Bryce Roberts of Indie.vc tells Megan in an interview. “Profitability isn’t this crazy, elusive thing. It’s literally more achievable than a Series A round. It’s way more achievable than a Series B round. If you look at the kind of fall-off between those rounds, most entrepreneurs would be better off finding their path to profitability and scale.” Instead, Roberts reminds us that you do not need anyone’s permission to do a startup. You can figure out how to do it yourself like countless great founders before you.

Immigration to the US still possible

Resident immigration lawyer Sophie Alcorn does a regular Q&A column for us, responding to reader questions about the US process. A one “Scientist in South San Francisco” asked her what the impact was of a recent attempt to suspend green cards in a TechCrunch column this week. We’re highlighting the answer because we know that Scientist is far from alone:

“The proclamation that President Trump signed last Wednesday falls far short of the outright suspension of immigration he tweeted about on Monday. The order places a very limited 60-day moratorium on issuing green cards to individuals seeking to come to the U.S. from abroad. Aimed at protecting job opportunities for unemployed Americans and relieving U.S embassies and consulates of the green-card processing workload, this “temporary suspension” has already begun. It’s possible that it could be extended beyond 60 days….

What this new policy actually means is that no employment- or family-based green cards will be issued to candidates living outside of the U.S. except for spouses and dependent children of American citizens, physicians, nurses, or other healthcare professionals who are coming to the U.S to perform research or work to combat COVID-19 in the next couple of months.”

She separately breaks down immigration issues combined with PPP loans for those facing such complexities in this Extra Crunch column.

Hopefully, in any case, this country will soon return to being a place where people want to move.

VCs talk startups in gaming during the pandemic

In our investor surveys this week, media analyst Eric Peckham caught up with top investors in gaming, part of an ongoing series he’s been doing since last year. But this time around, he talked about the COVID-19 impact on social gaming and MMOs, and separately on esports. Here’s one key part from Ryann Lai of Makers Fund:

Peckham: What’s different about MMO (massively multiplayer online) game studios founded recently versus those founded three or so years ago? Any distinct change in strategies, team composition, etc.?

Lai: I like to think that every game is becoming more MMO-esque with persistent social profiles and deeper social interactions. The “traditional” MMOs themselves are seeing ever-increasing player expectations on visuals, narratives, social systems, and accessibility (e.g., less grind, shorter sessions, cross-play, etc.).

On the supply side — we’ve seen a continued democratization of multiplayer-centric development driven by a) decrease in development and operating costs, as well as b) availability of talents and specialized backend solutions providers that empower smaller (both in size and budget) and more distributed teams to have “MMO” ambition.

Around TechCrunch

Extra Crunch Live: Join Roelof Botha for a live Q&A on May 6 at 2pm ET/11am PT

Extra Crunch Live: Join Hunter Walk for a Q&A May 7th at 1 pm ET/10 am PT

Atlassian co-founder and co-CEO Mike Cannon-Brookes is coming to Disrupt SF 2020

Across the week

TechCrunch

When regulation presents a (rare) opportunity

Quarantine creates new opportunities for video makers, according to a Butter Works report

A new pro bono portal just launched for lawyers looking to help people hit hard by the pandemic

Cleo Capital’s Sarah Kunst launches a fellowship for laid-off workers

Equity Monday: Startups run low on cash, and why some Internet tailwinds are fading

Extra Crunch

5 tips for starting a business with a stranger

How this startup built and exited to Twitter in 1,219 days

Precursor Ventures’ Charles Hudson on ‘the conversation no one has during an upmarket’

A full-time VC & part-time ER doctor shares his thoughts on COVID-19

Digging for dollar signs amid edtech’s current momentum

#EquityPod

There is money in design tools, but do designers have a target on their backs?

Welcome back to This Week in Apps, the Extra Crunch series that recaps the latest OS news, the applications they support and the money that flows through it all.

The app industry is as hot as ever, with a record 204 billion downloads and $120 billion in consumer spending in 2019, according to App Annie’s “State of Mobile” annual report. People are now spending 3 hours and 40 minutes per day using apps, rivaling TV. Apps aren’t just a way to pass idle hours — they’re a big business. In 2019, mobile-first companies had a combined $544 billion valuation, 6.5x higher than those without a mobile focus.

In this Extra Crunch series, we help you keep up with the latest news from the world of apps, delivered on a weekly basis.

This week we’re continuing to look at how the coronavirus outbreak is impacting the world of mobile applications, including the latest on the U.S. and other international efforts to develop contact-tracing apps, plus the use of live-streaming apps as fundraising tools, the impact of quarantine on iPad apps and more. We’re also tracking news related to Zoom’s latest backtrack, WhatsApp’s plans to enter the credit market, the Instagram pods discovery, TikTok best quarter (better than any app… ever), Facebook’s plan for virtual dating and more.

Headlines

Apple News hits 125M monthly active users

The COVID-19 pandemic has driven a significant increase in how many people are using Apple’s News app on their mobile devices, tablets and Macs. During Apple’s earnings call this week, the company revealed Apple News now sees over 125 million monthly active users in the U.S., Canada, the U.K. and Australia, up from 100 million in January. Apple, however, did not note how many were subscribed to its $9.99/month premium news service, Apple News+.

Apple & Google release first version of the exposure notification API

Happy Saturday and welcome back to an Equity Shot, a short-form episode of Equity where we drill into one particular topic. There was so much news this week in our main areas of focus — startup funding rounds, new venture funds, that sort of thing — that we had to exclude earnings from the main show! (But really, check it out, as it was a good time.)

Sad, I know. Everyone surely noticed the loss, but we gathered once again on Friday afternoon to dig into the results all the same. A big thanks to Danny, Natasha and Chris for gathering ’round one more time to get through:

•  SaaS and enterprise earnings: We dug into Microsoft’s results (TechCrunch coverage here), along with notes on quarterly results from Atlassian, Zendesk and ServiceNow. The gist is that big corp SaaS did fine in Q1, but there are varying levels of concern regarding the future.
• Subscription content: Spotify is doing fine and Netflix smashed it, according to Danny (TechCrunch coverage here, and here, respectively). Spotify also managed to eke out the world’s funniest net income result, while Netflix shot forward like a hare from a trap. In short, we may be listening to fewer podcasts, but we sure as hell aren’t getting off the couch.
• Advertising shops: While the advertising world melts down in spectacular fashion, tech shops that are ad powered did kinda OK. Facebook did what it always does, wowing with results and this time telling investors that April was looking better than March. Snap grew like hell, surprising investors, even if its overall cost structure is broken when compared to its revenue. Twitter was the miss of the bunch, struggling the most after telling investors it was still seeing COVID-19 issues in April. And, finally, Alphabet did Google things, so its stock went up, COVID-19 be damned.

We avoided Tesla because who can be bothered, and managed the shortest note on Apple ever recorded on a business podcast. All that and we had some fun. Hugs from Equity; we’ll be right back Monday morning!

Namely, an eight-and-a-half-year-old, New York-based company that sells payroll, talent management and other HR services to mid-size businesses across the U.S. via subscription software, has let go of upwards of 40 percent of its employees. The cuts are across the board, from high-ranking staffers, including a CFO who was brought on almost exactly two years ago, and a chief security officer who has spent just the last year with the company, to its entire customer success team.

Namely CEO Larry Dunivan says the company had reduced executive pay five weeks ago, hoping to avoid layoffs, but that the coronavirus and its impact on business made that impossible.

Dunivan — who joined Namely last summer — declined to specify exactly how many employees were let go or whether the percentage was even higher than 40 percent, a number provided to us by one source familiar with the situation.  He did talk about the difficulties of running a startup right now that depends largely on small- and medium-size businesses, noting that even though Namely’s customers sign uo for between one- and three-year-long contracts — as well as pay for a minimum number of employees — many of those customers are finding it difficult to fulfill those contracts right now.

As an example, he pointed to a client that has numerous yoga studios and earlier this year employed 500 people but has laid off all but 15 of them in the shutdown. Said Dunivan, “We had a stark, painful conversation and you could tell I was one of many people she was calling that day. Because I care about that relationship, I waived that minimum for some period of time so she can conserve cash.”

Indeed, said Dunivan, a company like Namely “doesn’t get hit all at once. Because it’s subscription revenue, it happens over time.” But “underlying trends change as customer behavior changes and unemployment rises, and trying to predict future revenue is a tough job” given that no one knows exactly when the world will return to its previous, pre-Covid 19 state.

Nearly four million people filed for unemployment benefits last week, bringing to more than 30 million the nation’s number of unemployment claims.

While the deep cuts are understandable in the current context, they also represent one in a series of milestones that no startup wants to encounter. While Namely was once among New York’s most promising businesses and accordingly raised at least $217 million from investors, including Matrix Partners, True Ventures, and Sequoia Capital, it has seen more than its share of transition at the top. In the most devastating development for the company until now, Namely’s board abrupt fired  the company’s cofounder, Matt Straz, as its CEO in 2018.

Accused of actions “inconsistent with that which is expected of Namely leadership,” as the company told employees at the time, Straz has gone on to launch an employee benefits startup called Bennie, but it cast a cloud over the the company (which still isn’t talking about what happened).

Soon after, the board member who led the investigation into Straz —  longtime Silicon Valley executive Elisa Steele — was appointed as Namely’s permanent CEO, which at the time helped attract $60 million in new funding to the company led by GGV Capital.

Yet by last summer, she had also left as CEO, a decision that she made based on family commitments says one source, and owes partly to the relationship she had established with Dunivan, he says separately.

In fact, Dunivan says that in his previous role as the interim CEO of the human resources company ThinkHR, he was consulted by Steele on business and product strategy, and that “as sometimes happens, one thing led to the other and i joined” the company in her stead. (Steele remains on the company’s board.)

Certainly, he inherited a business that no longer enjoys the sheen it once did.

As says one person with a stake in the business, “I don’t think anyone is giving up on Namely but it had a modest growth plan at the start of 2020 and that’s now been made uncertain because of [COVID-19]. I think the company is just trying to control what it can and to structure itself so it can operate more efficiently with a major drop-off in revenue.” Adds this person, “It’s like a clean sheet of paper.”

It’s an optimistic perspective and surely one that remaining employees will need to embrace, at least until the fourth quarter, which is when Dunivan estimates that businesses across the board may pick up again.

“This is an extraordinarily difficult time, but we look at the world through a fairly conservative lens and we’re making certain assumptions about how new customers will buy, how existing customers will increase or decrease headcount, and how many businesses will be closed and never to come back,” said Dunivan when we spoke earlier.

“It’s my believe that the recovery will start to show signs of life in the fourth quarter and into the first quarter, and our current looks at it through that lens,” he added. “But in the meantime, employers will be paying fewer people.”

Faced with dwindling options, Namely is now among them.

New vehicles today can produce a treasure trove of data. Without the proper tools, that data will sit undisturbed, rendering it worthless.

A number of companies have sprung up to help automakers manage and use data generated from connected cars. Israeli startup Otonomo is one such player that jumped on the scene in 2015 with a cloud-based software platform that captures and anonymizes vehicle data so it can then be used to create apps to provide services such as electric vehicle management, subscription-based fueling, parking, mapping, usage-based insurance and emergency service.

The startup announced this week it has raised $46 million to take its automotive data platform further. The capital was raised in a Series C funding round that included investments from SK Holdings, Avis Budget Group and Alliance Ventures. Existing investors Bessemer Venture Partners also participated. Otonomo has raised $82 million, to date.

The funds will be used to help Otonomo scale its business,  improve its products and help it remain competitive, according to the company. Otonomo is also aiming to expand into new markets, particularly South Korea and Japan.

“We now have the expanded resources needed to deliver on our vision of making car data as valuable as possible for the entire transportation ecosystem, while adhering to the strictest privacy and security standards,” Otonomo CEO and founder Ben Volkow said in a statement.

Otonomo’s pitch focuses on creating opportunities to monetize connected car data while keeping it safe from the moment it is captured. Once the data is securely collected, the platform modifies it so companies can use it to develop apps and services for fleets, smart cities and individual customers. The platform also enables GDPR, CCPA and other privacy-regulation-compliant solutions using both personal and aggregate data.

Today, Otonomo’s platform takes in 2.6 billion data points a day from more than 20 million vehicles through partnerships with more than automakers, fleets and farm and construction manufacturers. Otonomo has more than 25 partnerships, a list that includes Daimler, BMW, Mitsubishi Motor Company and Avis Budget Group. The company said it’s preparing to bring on seven more customers.

That opportunity for Otonomo is growing based on forecasts, including one from SBD Automotive that predicts connected cars will account for more than 70% of cars sold in North American and European markets in 2020.

When we launched in 2016, we took the unusual approach of saying we’d buy common stock in startups. We believed then, and still do, that alignment with founders was more important than covering our downside in investments that didn’t work as planned. Said differently, we wanted to enhance our upside through alignment, rather than maximizing our downside through terms.

The world has changed a lot since that time. While we are actively making investments, and still buying common stock, we know that many entrepreneurs may be trying to raise money now — and it is very hard.

Fred Destin wrote a great piece about the ugly terms that can creep into term sheets during difficult times. If you have a choice between a good term sheet and a bad one, of course, you’ll take the good one. But what if you have no choice? And how can you compare term sheets in the first place?

To this end, we developed the term-sheet grader, a simple way to compare different term sheets or help characterize whether a term sheet is good or evil.

Let me first point out that none of this has anything to do with the valuation of the round (share price), the amount of capital, the likelihood of reaching a closing, the quality of the firm or the trust you have with the individual leading the investment, all absolutely critical pieces of the puzzle. Here, we are just looking at the terms and conditions, the legal structure of the investment.

We’ve listed nine key terms below — five that have to do with economics and four that relate to control and decision-making:

• Each key term can earn +1 for being friendly and -1 for being tough.
• There are a few really friendly terms that have a score of +2 each.
• Likewise, there are a few really tough ones that earn a -2.
• The best a term sheet could score is a +11, the worst is a -11.
• The “Industry Standard” deal scores a 0.

FWIW, the Pillar common stock standard deal earns a +8 (shown below).

Valve is calling it quits on macOS support for its virtual reality platform. A Valve employee posted an update to the company’s SteamVR forums noting that “SteamVR has ended macOS support so our team can focus on Windows and Linux.”

Apple introduced “Metal for VR” back in June 2017 and highlighted a partnership with Valve. At the time, Valve was pushing VR as a platform and working with HTC on its Vive system; fast forward to 2020 and Valve has its own high-end headset and has just released its highly-anticipated title Half Life: Alyx.

This impacts developers more so than actual gamers.

Almost no games supported Mac and even Apple’s highest end MacBook Pros failed to meet minimum specification requirements for Oculus or SteamVR. As the folks at Upload point out, Valve’s recent hardware survey showcases that just 4% of gamers on the platform use macOS to begin with, suggesting a pretty small sliver of actual gamers even fit in the Mac-owning VR user Venn diagram.

Game developers building VR content on Mac likely enjoyed the ability to develop and test on a single machine. As Apple aggressively chases professionals with high-priced gear like the Mac Pro and iMac Pro, it’s not a great look when a major software platform decides you’re not worth the effort.

Byju’s, an education learning startup in India that has seen a surge in its popularity in recent weeks amid the coronavirus outbreak, is in talks to raise as much as $400 million at a $10 billion valuation, said three people familiar with the matter.

The additional capital would be part of the Bangalore-based startup’s ongoing financing round that has already seen Tiger Global and General Atlantic invest between $350 million to $400 million into the firm.

That investment by the two firms though was at an $8 billion valuation, said people familiar with the matter. Byju’s was valued at $5.75 billion in July last year, when it raised $150 million from Qatar Investment Authority and Owl Ventures.

The talks haven’t finalized yet and terms could change, said one of the aforementioned people. This person, along with the other two, requested anonymity as the matter is private.

A spokesperson of Byju’s and Prosus Ventures, the largest investor in the startup, declined to comment. A spokesperson of Tiger Global did not respond to a request for comment.

Byju’s has seen a sharp surge in both its free users and paying customers in recent weeks as it looks to court students who are stuck at home because of the nationwide lockdown New Delhi ordered in late March.

The startup told TechCrunch last month that traffic on its app and website was up 150% in March and it added six million students to the platform during the month.

Other edtech startups including Unacademy, which was recently backed by Facebook, and early-stage startups such as Sequoia Capital India-backed Classplus, and Chennai-based SKILL-LYNC have also seen growth in recent weeks, they told TechCrunch last month.

Through its app, tutors on Byju’s help all school-going children understand complex subjects using real-life objects such as pizza and cake. The app also prepares students who are pursuing undergraduate and graduate-level courses. Over the years, Byju’s has invested in tweaking the English accents in its app and adapted to different education systems. It has amassed more than 35 million registered users, about 2.4 million of which are paid customers.

Byju’s, an education learning startup in India that has seen a surge in its popularity in recent weeks amid the coronavirus outbreak, is in talks to raise as much as $400 million at a $10 billion valuation, said three people familiar with the matter.

The additional capital would be part of the Bangalore-based startup’s ongoing financing round that has already seen Tiger Global and General Atlantic invest between $350 million to $400 million into the firm.

That investment by the two firms though was at an $8 billion valuation, said people familiar with the matter. Byju’s was valued at $5.75 billion in July last year, when it raised $150 million from Qatar Investment Authority and Owl Ventures.

The talks haven’t finalized yet and terms could change, said one of the aforementioned people. This person, along with the other two, requested anonymity as the matter is private.

A spokesperson of Byju’s and Prosus Ventures, the largest investor in the startup, declined to comment. A spokesperson of Tiger Global did not respond to a request for comment.

Byju’s has seen a sharp surge in both its free users and paying customers in recent weeks as it looks to court students who are stuck at home because of the nationwide lockdown New Delhi ordered in late March.

The startup told TechCrunch last month that traffic on its app and website was up 150% in March and it added six million students to the platform during the month.

Other edtech startups including Unacademy, which was recently backed by Facebook, and early-stage startups such as Sequoia Capital India-backed Classplus, and Chennai-based SKILL-LYNC have also seen growth in recent weeks, they told TechCrunch last month.

Through its app, tutors on Byju’s help all school-going children understand complex subjects using real-life objects such as pizza and cake. The app also prepares students who are pursuing undergraduate and graduate-level courses. Over the years, Byju’s has invested in tweaking the English accents in its app and adapted to different education systems. It has amassed more than 35 million registered users, about 2.4 million of which are paid customers.

The COVID-19 crisis is creating an untold amount of uncertainty through every business sector, but for cannabis startups, it’s exacerbating a critical market that was already in decline.

TechCrunch spoke to Schwazze CEO Justin Dye following his company’s recent rebrand. He joined the company when it was Colorado’s Medicine Man Technologies (MMT) in late 2019 and is revamping the organization, including changing its name to Schwazze and acquiring a handful of companies to create a healthier, vertically integrated cannabis company.

The cannabis market is experiencing a correction after a period of rapid expansion. Shops are feeling the pain, and public valuations are settling under IPO levels — and this was before a pandemic swept the world. Cannabis media outlet Leafly laid off 91 employees in late March, and Eaze, an early mover in on-demand pot delivery, is experiencing major trouble after raising serious cash and recently losing a top partner in Caliva. In several states, efforts are underway to prop up the cannabis market by asking for the federal government to allow these businesses to be eligible for federal financial relief.

According to Dye, there are several things CEOs of cannabis companies of every size should work toward. His advice echoes what TechCrunch has heard in other verticals, as well: During the COVID-19 crisis, cannabis companies must hunker down and lean on strong teams to weather the storm. Once the skies start to clear, capital will be available to the survivors.

One, the cannabis market is looking for financially sustainable companies, Dye said.

“This next reset in the cannabis industry will not only be aspirational, but it’s going to be coupled with a requirement for performance in terms of executing against a plan and driving profits — or driving it to create free cash flow to be reinvested in the business and product experiences.”