Year: 2020

Ravi Viswanathan has been an investor long enough to see some serious ups and downs.

Viswanathan most recently founded NewView Capital a couple of years ago — a firm that launched with $1.35 billion from investors, largely to acquire the stakes of 31 companies that had been funded by New Enterprise Associates.

But before NewView, Viswanathan spent nearly 15 years with NEA, co-leading its growth investments. It’s how he knew which companies to take with him to NewView, which, by the way, largely shares the same investors as NEA.

Because he has seen the business world come to a stop a couple of times in his career — and because he has a lot of insight into the later-stage market — we talked with Viswanathan yesterday about the impact the massive public market meltdown could have on his piece of the startup world — and for how long. Our chat has been edited for length.

TechCrunch: You’re pretty much focused on late-stage companies, correct?

Ravi Viswanathan: We’re mid- to later-stage growth. It accounts for 70% to 80% [of the portfolio] and the balance is earlier-stage companies where I have a lot of conviction based on where I’ve invested previously, including in fintech and SaaS.

NewView Capital founder Ravi Viswanathan

What are some of the companies in your portfolio that are entirely new deals, meaning they were not part of the package of companies you took to spin out NewView from NEA?

Plaid was a new deal. Course Hero. Hims. Scopely. Heap, which is a product analytics company.

Y Combinator’s Demo Day is a key soirée on the startup calendar. This year, however, instead of a packed room replete with short pitches and lackluster catering, Demo Day has gone virtual. Even more, it was moved up by a week, pushing the public debut of a host of companies to this coming Monday.

TechCrunch will be covering it closely, so make sure to stick around the site for notes and interviews. But who wants to wait that long? I’ve gotten to know one of the pitching startups, FitnessAI, over the past few weeks. Let’s take a look at its business.

FitnessAI

FitnessAI is a mobile application that helps users lift weights, helping them set new goals, gain strength over time and avoid frustration while dodging burnout.

The company was founded by Jake Mor in 2019, leveraging a workout data set that Mor had previously collected. Mor told TechCrunch that in college he built a tool called Lift Log (you can find it on the App Store here). That app was “just a very simple weightlifting tracking tool,” Mor said, but “over the course of three years over 40,000 users logged 6 million workouts.”

That huge set of workout data points helped Mor construct FitnessAI’s core weight-lifting algorithm.

Peering through his mountain of data, Mor said that he was able to discern “the perfect rate of progression for each exercise.” Regular progression isn’t a nice to have, according to Mor, but a key way to keep people in the gym (and using his service), saying that he’s found that breaking personal records “makes working out a little bit more addicting, and more motivating to keep going back to the gym.”

But data isn’t the full story to FitnessAI, despite it featuring “AI” in its name. During the life of his company, Mor found that a human touch was key to keeping users engaged. He told TechCrunch that lots of folks are self-conscious about going to the gym and working out in its environment, so while he was “so busy working on [the] algorithm” that powers the company’s service, “what users cared most about was tutorials.”

The helping hand of crafted guides and human outreach work together with the app’s code to keep people engaged. According to Mor, his team “will reach out to every single user if you don’t go to the gym,” adding that “half of fitness AI is the human touch.”

So from a data set to an algorithm to a mobile app to a guided weight-lifting experience, FitnessAI has gotten a lot done in the last year or so. And it has done so while largely self-funding.

Money

To date, the company told TechCrunch that it has bootstrapped, apart from its standard Y Combinator check. That said, it’s looking to raise during the Demo Day cycle.

How has it gotten to where it is today on such little capital? By growing its revenues and paying for its own development. Indeed, the mobile app company is now north of $100,000 monthly recurring revenue (MRR), giving it annual recurring revenue (ARR) of more than $1.2 million. For a team of four today that was 1.5 not too long ago, that’s lots of cash.

But with more money comes more opportunities for product improvements, and go-to-market work. What FitnessAI has shown so far is that people need help lifting, and they are willing to pay for assistance. (FitnessAI has a number of price points, but costs a little less than $100 yearly, looking at its App Store listing today.)

More after Demo Day if FitnessAI raises the round it’s hunting for.

We’ve had a great decade-long run in SaaS — abundant capital, a thriving economy and a massive existing market shift from on-premise to cloud.

But the good times will end and challenges are coming.

I’m not predicting when it will happen — maybe it’s the spread of COVID-19, or perhaps the market recovers and goes on to set new records — but one thing is for sure, recession will come, it always does.

Because a lot of SaaS leaders have never run a business through one, it might be helpful to share some ideas on how to be ready for the inevitable slump. One of the greatest assets a SaaS business has is high-margin, recurring revenue — that should provide more leeway in making changes to get through a downturn than many other types of businesses.

I’ve broken this guide into the macro — things that happen to you, the levers you can impact in your business and some notes on how to keep your stakeholders supportive.

Funding environment

Credit tends to dry up in a recession, but luckily for SaaS, bank debt has never really been available, so it’s unlikely this makes much difference! The new breed of SaaS debt providers should be able to keep providing credit through a recession, as they understand the real asset of recurring revenue. They may get more conservative in the amount of money they will loan, especially if signups are down and churn is up, but debt should be more available for SaaS than in other sectors. Make sure you know your funnel and install base metrics — these should provide confidence to a lender.

Who knows what’ll happen with VC. There has been so much money raised by new and ever-expanding funds that they may keep investing. Valuations are likely to drop and the world will move more investor-friendly than founder-friendly, and check sizes will drop in line with valuation for VCs to get the same equity for less money. Good business is good business in theory, but “growth at all costs” is harder and more expensive in a recession. Where FOMO (fear of missing out) drives VC in good times, plain-old fear holds them back in bad ones.

Customers and the addressable market

This is nuanced, depending on from where you win customers. Do you save them money over their existing solution? Or cost them more money than how they do it today? Even if their current solution isn’t a good one, the sales pitch for change is much harder in a “batten down the hatches” world than a “shoot for the stars” one.

If your customers are moving from old-world on-premise software, you should be in good shape, or even in better shape as they accelerate the move to SaaS, which saves them money and reduces overhead and capital.

Customers who do what you offer in-house could be a slower, harder sell. This model is already tough — it’s all about customer timing and being front-of-mind when they are ready — but you can be sure most projects will get shelved or postponed by customers who are reacting to the downturn and its effects on their business. You’ll have to work extra-hard on white-glove onboarding to remove cost and hassle and make sure you have a credible ROI narrative that will rank your product highly on the new short-list of projects that stay approved.

If you’re winning business from customers moving between SaaS tools — like someone swapping out Jira (a SaaS project management tool) in favor of Asana (another SaaS project management tool), just make sure you are the clear “recession-choice” provider, otherwise the flow might go the other way and not only will new sales drop, churn will increase.

Then there’s the new project sale — selling a solution that doesn’t currently exist inside your target customer.

Maybe it’s a new way of doing things, or a product built for an emerging market with low competition (but low awareness, too). Think recurring revenue billing for SaaS: This problem is SaaS-only, and SaaS is still relatively new — it’s unlikely a customer is using QuickBooks! Or remote team management software — remote teams working on computers all day is a new phenomenon. In a recession, all new projects are going to get ranked by must-do and optional, and the must-do list by impact and speed of impact to the bottom-line. Be able to 100% prove you can deliver value quickly.

Infrastructure costs and credit cards

There’s always some room in the hosting and DevOps setup — you don’t want to take risks — but if you’re like most SaaS companies, cost optimization hasn’t been the top priority because you’re growing and gross margins are already so high. Optimize AWS (or whomever you use) — make sure spot and reserved instances are used where possible, you’re running the appropriate instance sizes and all running instances are actually utilized. Reduce or cut optional monitoring and DevOps tools — there’s always a little overlap here.

Audit your credit card statement — do you really need all those SaaS tools? Or better yet, cancel your credit card and get a new one — only re-add the tools you want as the dunning emails come on. I guarantee you’ll find things you’ve been paying for that you didn’t even know about.

In fact, consider getting rid of company credit cards; they get overused and bad habits seep in. When expenses have to be justified to get reimbursed, the number seems to magically drop a little. The burden of proof makes people act more frugally.

Cash and finance

Know your cash. A simple statement, but unfortunately, it’s rarely the case. You can’t rely on stories, promises and spreadsheets — you need to log in to your bank account multiple times a week. This isn’t hard and you’ll build a gut feel for your cash position and its movements quickly.

Know your cash revenue. Annual and Monthly Run Rate (ARR/MRR) matters, the Profit and Loss account matters, but in tough times, cash is king. If you get low on cash, and think you’re profitable because your P&L says so, you run a serious risk of going out of business.

Cash forecasting is essential — your run rate and your cash often don’t correlate — any pre-payments show up in revenue, but you don’t get that cash every month, so it may already be gone. The same goes for booked revenue that hasn’t paid and sits in aged accounts receivable (AR) — again, revenue but no cash.

Optimize your Deferred Revenue and Accounts Receivable. Try to get more pre-payments without giving too steep a discount — bolstering your cash position. Who owes you money? Chase it. You can’t afford to have a system on — regardless of the margins — if a customer isn’t paying for it.

You must take the “no-surprises” approach to running finance. Any payments above a (low-dollar value in recession world) threshold — the CEO should approve.

People

The team is the most expensive and important asset in every SaaS company. But, if you go out of business, you’ll lose all of these assets, so it’s essential to make the hard choices in time.

That might mean voluntary or involuntary exits. You could literally ask those who believe in the vision and long-term to raise their hands and tell you who they are. It might mean the end of a bonus structure. It might mean asking people to take salary reductions (it’s pay cuts or headcount reductions — depending on the team, the leaders need to figure out which puts the business in better shape).

Assess your cultural norms — do people really value free snacks, lunches, a book allowance and so on? You don’t have to zero-out your culture, but there’s lots of things you can do (like a potluck where everyone brings in food and cooks for each other) that are great fun, build camaraderie and are cheap or don’t cost anything.

Existing customer base

In a recession, these are your most prized assets. You need to show them you are here for the long-haul and are still investing in providing the best product, service and support. Start customer advocacy programs, share more customer success stories and connect groups of like-minded customers together. When new sales drop, retaining existing customers is absolutely essential for the survival of your business. Invest more here during a recession.

Pricing

Many people’s first reaction in a downturn is to reduce price. Resist this! First off — it instantly reduces your margins and your free cash flow. Then, if you don’t reduce price for existing customers, you’ve frustrated your install base as well as hurt your bottom line.

Price is a signal — to customers, the market and your team. Businesses that price-cut send a signal that they are in trouble, need cash and are prepared to take a hit to get it. This is not a strategy to attract long-term customers!

Additionally, it’s damaging to a business to attempt one-off “recession pricing,” because once you come out of it, it’s nearly impossible to regain the premium brand and price you once commanded. Price decreasing is a one-way street.

You do have levers — work with customers on payment plans, on ramp-ups or regular usage audits and on pre-payment discounts. You can tweak your pricing model to keep prices where they should be while reducing the burden on your customers — a policy that can easily be retracted post-recession.

Communicate

With customers, with stakeholders, with employees.

Lots of companies are so focused on building the business that they forget to give “business updates” to their community. That’s okay when the updates are great and everything is praiseworthy. But when the world is shaky — regardless of whether your business is or not — all your stakeholders will be nervous. Tell them what’s happening, give them confidence that you’re in the details and have a plan to address every area of concern and risk.

Do this early — not when you’re already in trouble — and your community will realize you’re one of the few solid companies with your heads firmly fixed to your shoulders.

Summary

Recessions come and go. This is the first test of the durability and resilience of SaaS companies — but there are sources of power with recurring high-margin revenue. Be conservative. Increase transparent communication. You can, and should, think long-term during a recession: make it through the short-term but don’t destroy your brand, community and company cultural equity to do it.

Whatever you do — remember your customers and employees will remember it when the economy starts growing again. Act responsibly.

This is by no means intended to be an exhaustive list or complete plan — I’d love any recommendations to other articles and guides that might be helpful for our SaaS community in Scaleworks — message me @edbyrne or email ed@scaleworks.com. Thanks!

President Donald Trump’s national emergency declaration, which began just a half hour before the market closed, pushed stocks higher Friday, providing at least temporary relief to shares that have been throttled this week on fears of the COVID-19 pandemic.

Trump several measures under the national emergency declaration, including freeing up federal resources that states can access as they respond to the novel coronavirus outbreak. COVID-19 is a disease caused by a new virus that is a member of the coronavirus family and a close cousin to the SARS and MERS viruses that have caused outbreaks in the past. The spread of the disease globally has prompted governments and  companies to cancel tech, business and automotive events around the world.

All major indices and bitcoin were up earlier today on speculation that the Trump Administration would declare a national emergency. The Dow Jones Industrial Average, which had jumped by 1,200 earlier in the day, fell some 500 points by the afternoon. It then rebounded as Trump, along with other health officials and the CEOs of private companies, including Target, Walgreens, Walmart and CVS, outlined plans under the emergency declaration.

Stock markets yesterday recorded their worst day in over 30 years.

At the close markets went up:

• The Dow Jones was up 1,980, or 9.4%, to 23,182 at the close
• The Nasdaq was up 673 points, or 9.35%, to 7,873.59 at the close
• The S&P 500 was up 230 points, or 9.2%, to 2,674 at the close

Companies that were mentioned during the president’s address saw shares rise inline with the major indices and in some cases out pacing them.

During his address in the Rose Garden at the White House, Trump praised the work being done by corporations like Roche, which has developed a diagnostic tool that can more quickly identify infections. Roche shares rose 13% to close at $40.30.

Shares of Alphabet, the parent company of Google, also spiked more than 9% to close at $1,214.27. Trump announced during his address that Google will be bringing a new pre-screening website online that anyone can access to check their symptoms and be directed to testing locations around the country.

Shares of Walmart, Target, CVS and Walgreens were all higher. The companies are partnering with the federal government’s plan to open up drive-thru testing sites for COVID-19. Walmart shares closed 9.66% higher to $114.10, Target shares closed more than 9% higher to $101.02 and Walgreens was up 12.6% to close at $46.19.

In an announcement from the White House Friday afternoon, President Donald Trump said that he has announced an emergency declaration to free up more federal resources that states can access as they respond to the novel coronavirus outbreak.

“I am officially declaring a national emergency. Two very big words,” said Trump.

The order also breaks some of the logjam that had stymied the ability of local and state health care organizations to conduct testing for the novel coronavirus.

Typically the powers authorized in the Act are used to offer assistance during terrorist attacks and natural disasters. During the H1N1 swine flu pandemic in 2009, then-President Obama signed a national emergency declaration that allowed healthcare systems to implement disaster plans in case they became overwhelmed.

That declaration allowed the Department of Health and Human Services to waive certain regulatory requirements for healthcare facilities in response to the pandemic. Specifically, healthcare was able to submit waivers to establish alternate care sites and modify patient triage protocols, patient transfer procedures and other actions when they implement disaster plans, according to a government statement at the time.

The Trump administration had come under fire for not allowing states like California to access Medicaid in an effort to expand coverage. However, the authorization opens up state access to Medicaid more quickly than had happened under the Obama administration during its response to the swine flu outbreak. President Obama waited until October to issue an Emergency

On Thursday, the American Medical Association, the American Hospital Association, and the American Nurses Association jointly sent a letter to Vice President Mike Pence, who heads the Coronavirus Task Force, urging the administration to issue an emergency declaration.

Now the President has responded with just such an initiative. In his Rose Garden address the President also said he was “urging every state to set up emergency operation centers effective immediately.”

The President also praised the work being done by corporations like Roche, which has developed a new diagnostic tool to market that can more quickly identify infections, and Google, which is bringing a new pre-screening website online that anyone can access to check their symptoms and be directed to testing locations around the country.

The emergency declaration also included waivers on interest payments for student loans and a bulk purchase of oil to stock the oil reserve and bail out oil companies hit by the ongoing price war between Russia and Saudi Arabia.

“We had some very old and obsolete rules,” the President said of the regulations that have been circumvented byt the excecutive order.

These rules will allow testing to ramp up across the country in state labs and private facilities.

By using the Stafford Act, the President allows the Small Business Administration to make disaster loans available to eligible businesses and households. It also will allow states to tap Medicaid to finance and expand their capabilities to respond to the spreading COVID-19 epidemic.

At the same time the White House moved forward with an emergency declaration, it had stalled negotiations on the approval of a broad aid package negotiated between Democratic and Republican leadership.

Democrats in the House of Representatives led by Nancy Pelosi negotiated with U.S. Treasury Secretary Steve Mnuchin and White House reps until 4 a.m. on Friday to come up with an agreement. Voting on the deal has been delayed as Republican leadership waits for approval from the White House, according to a report in Reuters.

The House bill would provide free coronavirus testing and two weeks of paid sick leave for workers affected by the virus.

While the bill doesn’t need the support of Republicans in the House, given the Democratic majority, without the support of Senate Republicans, who are in the majority in that chamber, the bill would fail.

Additional economic aid is at the heart of the debate with Democrats hoping to expand coverage for workers who may not have access to corporate-funded safety nets and Republicans looking to provide tax cuts and financial support to businesses. The President has called for a $1 trillion payroll tax cut, which isn’t supported by congressional membership in either party, according to Reuters.

Stimulus is going to be a necessity if the U.S. is to withstand the economic blows a prolonged outbreak and botched response could bring and calm nervous investors.

“The financial markets and the coronavirus gave us advance warning. We really got a month’s notice on what was coming at us, and we just ignored it,” Claudia Sahm, a former Federal Reserve economist now at the Washington Center for Equitable Growth, told Barrons. “They’re looking ahead and they’re scared. I’m scared.”

During a press conference at the White House, President Trump today announced that the government is working with Google to build an online screening website for COVID-19.

The announcement was short on details, but the idea, it seems, is to give users the ability to enter their symptoms and see if they need additional testing. None of this sounds extremely complicated, but according to Trump, Google has 1,700 engineers working on this.

According to Debbie Birx, the White House Coronavirus Response Coordinator, users will have to log into this new screening website, fill out a screening questionnaire and risk factor questionnaire and then directed to a “drive through” testing facility.

The partnership with Google is part of a larger private sector partnership the White House has set up that also includes Walmart, CVS, Walgreens and others.

We have asked Google for more details and will update this post once we hear more.

Updating…

Industries across the spectrum are struggling to meet the challenges that the current Coronavirus outbreak presents. Few, though, are as immediately impacted as the airlines (and all the third-party companies that provide services to them), which have seen an immediate and drastic reduction in demand.

As Delta CEO Ed Bastian noted in a letter to the company’s staff today, the company is now seeing more cancellations than new bookings over the next month. And as a result of this, Delta now expects a capacity reduction of 40 percent in the next few months, “the largest capacity reduction in Delta’s history, including 2001.” Only a few days ago, Delta was looking at a 15 percent capacity cut.

Unlike some of its competitors, including United and American, Delta says it is also eliminating all of its flights to continental Europe for the next 30 days (and that could still be extended). For Delta, this means parking 300 aircraft. The company has also announced a hiring freeze and is now offering voluntary unpaid leaves, too.

“We’ll be making more critical decisions on our response in days to come,” Bastian writes. “The situation is fluid and likely to be getting worse. But what hasn’t changed is this: Delta remains better-positioned to weather a storm of this magnitude than ever before in our history. We’ve spent a decade building a strong, resilient airline powered by the best professionals in the business. We will get through this, and taking strong, decisive action now will ensure that we are properly positioned to recover our business when customers start to travel again.”

Delta isn’t alone in this move. American Airlines has reduced its international capacity by 34 percent. Lufthansa already said it’s planning to reduce capacity by 50 percent and potentially grounding all of its A380s. Discounter Norwegian has furloughed half of its staff and grounded 40 percent of its long-haul fleet. The way things are going, the airline industry will look quite different once this crisis ends.

Instagram is embracing its potential as a news source, employing its ubiquity to distribute Coronavirus prevention techniques through a new call-out at the top of its homescreen feed. In some countries, Instagram will show a link to information from the World Health Organization and local health ministries along with a message like this: “Help Prevent the Spread of Coronavirus: See the latest information from the World Health Organization so you can help prevent the spread of COVID-19. — Go to who.int”

An Instagram spokesperson tells TechCrunch that the notice will start appearing in countries that have seen significant impact from the virus.

Additionally, Instagram is preventing users from searching for COVID-19-related augmented reality effects unless they were made in partnership with legitimate health organizations. This could limit the spread of disinformation or insensitive jokes about the virus. Instagram was already sending false information to fact checkers and listing official health sources atop the search results for coronavirus-related queries.

Meanwhile, on Snapchat, the company prohibits partners from sharing misinformation, relying on its closed platform to prevent the false news hoaxes that have plagued open platforms like Facebook. Snapchat is also highlighting health information shared by its Discover partners including NBC’s Stay Tuned, Sky News, the Wall Street Journal, The Washington Post, CNN, and NowThis. Those include

• • Washington Post explained the proper way to wash your hands 

  • WSJ looked at how COVID-19 spread across the world 

  • SkyNews Explains (UK) breaks down how to self-isolate 

These are smart efforts by social platforms that know they might get opened by more people more often than some traditional news sources. With over 1 billion monthly users on Instagram and over 200 million daily users on Snapchat, they have the power to spread vital information and act as a new form of the emergency broadcast system.

An Apple Store employee who was on leave from the Third St. Promenade store in Santa Monica, California tested positive for COVID-19 late yesterday. The employee had been on leave to care for a relative since March 2nd.

Apple consulted health experts and deep cleaned the Third St. store which remains open. Apple says that it has also instituted additional deep cleaning protocols and taken measures to reduce density by cancelling Today at Apple sessions and spacing out Genius Bar appointments.

Santa Clara County had announced 66 total confirmed cases of coronavirus as of yesterday and issued an order to cancel mass gatherings over 1,000 people for three weeks. Yesterday’s biggest closure news, though, came from Disney, which announced that Walt Disney World, Disneyland in California and Disneyland Paris would all close for several weeks.

We received a full statement from Apple regarding the employee as follows:

“Apple’s first priority — now and always — is the health and safety of our employees, customers and the communities we serve. An employee at our Third St. Promenade store in Santa Monica informed us they had tested positive for COVID-19 late yesterday. The employee has not been to the store since taking leave on March 2 to care for a relative.

In consultation with health experts, we’ve taken a number of steps to protect our teams and customers. All our stores around the world have increased deep cleaning protocols and we have actively reduced customer density in all stores worldwide by cancelling Today at Apple sessions and creating extra space for Genius Bar appointments. As a precaution, we also undertook an additional extensive deep clean overnight before reopening the Third St. Promenade store.

We recognize this is a challenging and ever changing time for our global community and our thoughts are with those around the world personally affected by COVID-19 and the heroic medical professionals and researchers fighting it.”

Many Apple Stores around the world remain open, while others have been closed in alignment with local regulations amid coronavirus concerns. The additional cleaning protocols have been in use since February at Apple Stores worldwide. In addition, Apple has closed its stores in Italy, which remains on lockdown. The last of Apple’s 42 stores in mainland China re-opened today with limited hours after closures.

Apple has extended additional sick time to all employees and any employee with symptoms similar to COVID-19 will be paid for sick time as long as they are out. I also understand that Apple Store managers are being as flexible as possible with concerned employees who are not yet sick though no official policies have been issued.

I asked Apple for comment on whether it was considering closing any retail stores in the US but it would not comment at this time. One would absolutely have to imagine that it was monitoring all of this very closely though. And given that it has proven willing to close every store in China and Italy due to conditions, it would probably do the same in the US.

When concerns about the novel coronavirus — and subsequent changes in activity — are not bringing productivity to a halt (and perhaps especially in times of needing to be as efficient as possible), one of the bigger IT trends has been a push to streamline how people work by creating better integrations between the different apps that they use. Today, a startup out of Berlin, Germany is announcing seed funding to help it enter the fray of those that are helping make those integrations happen seamlessly and more reliably.

n8n, a Berlin-based company that has built a “fair code” workflow automation platform to let developers quickly integrate any of the apps that they use to work together automatically — from standard third-party APIs to internal tools created by developers themselves — has picked up a seed round of $1.5 million to continue building out its service, and specifically to introduce its first commercial elements after announcing its existence last October and meeting an unexpected surge of interest.

“I was surprised, but it seems like people were waiting for me,” Jan Oberhauser, n8n’s founder and CEO, said in an interview, who added that n8n has picked up “a lot of traction” so far.

The investment is being co-led by UK’s firstminute Capital and Sequoia, with participation also from Runa Capital, Obvious Ventures, Tiny VC and System.One, as well as Kevin Hartz, co-founder of Eventbrite & Xoom, and Ilkka Paananen, co-founder of Supercell.

Within that pretty impressive list, investment represents a significant step in particular for Sequoia, as it is the storied firm’s first seed investment in Germany amid a much bigger push into the region. The Silicon Valley VC has been quietly putting down roots in the European market over the last several months, including scouting for talent and local deals. The first hire in that process was announced this week: Luciana Lixandru, poached after years at Accel, is the firm’s first European partner, but for now this isn’t extending to raising a local fund.

“We’re not launching any funds in Europe at this time,” a source close to Sequoia told TechCrunch. “We are continuing to invest [in Europe] out of the US fund.”

There are a number of other firms, startups as well as much bigger outfits, that have identified the opportunity for making tools to help developers and others who are less technical to stitch together disparate apps. They include other startups like Zapier, RapidAPI, and Tray.io, as well as companies that have well and truly transitioned out of the startup phase of life, such as MuleSoft (acquired by Salesforce for the princely sum of $6.5 billion).

Oberhauser is well aware of all of these, because he is a developer himself who has tried them all — and found them all lacking, for a number of reasons. Either they were too pricey, or not flexible or robust enough to use in the wide variety of niche applications that he was using in his previous life in film production, or required a ton of reading of arcane documentation, or lacked the ability to scale or operate on his own company’s infrastructure rather than in the cloud. His answer was to build n8n, first for his own purposes and then to consider how it might be something that could be turned into a service for others.

[gallery ids="1958986,1958987,1958989"]

One of the unique things about n8n is that it’s not “open source” per se, but is built on a model that is somewhat akin to it that is referred to as “fair code”.

The idea here, as laid out in this essay, is to take some of the free and flexible aspects of building (and third-party developers building upon) open source, while also trying to create a model that lets the original developer of the code make money off of it — either by offering services around it (similar to the kind of integration and other work that has sprouted around open source) — or, indeed, by charging for it when the user passes a certain size, or wants to use it in a different format, such as on a SaaS model.

Oberhauser is not only a user of fair code, but has become something of a pioneering entrepreneur in the space, also helping to run a site, appropriately called Fair-Code.io to encourage more fair code developers.

“Free and sustainable; open but pragmatic; community oriented; meritocratic and fair” is how n8n describes it, although there are definitely plans for n8n to bring in monetising elements into the mix.

The current version is one that can be hosted by a user locally — which in itself is a key part of the proposition for companies to meet certain data protection compliance, or to ensure themselves against any changes that might happen with n8n over time — and that will remain free to use.

“If the company goes bust or changes policy, you are in trouble,” Oberhauser said of platforms that don’t freely share their code. “That means they can never go to insurance or government organizations, for example. And people really like and care about data privacy, and are getting like that more every day. They want to own it and change it. Developers want to have access to the the code that is underlying and extend it really easily. What we have built you can integrate and use forever.”

But n8n also plans to launch a version under a SaaS model that be charged on a typical SaaS subscription model, which is due to launch next month. “If you want to run it on our cloud, you pay a fee,” Oberhauser said.

The second way it plans to make money is through consulting, support and integration services, which will take another year likely to launch (remember the startup is only five months old).

The third area for making money will be through licensing fees for larger users (a size which it has yet to determine) but even now the service as it stands “can be deployed to 1 million people” and still be free, Oberhauser said.

Right place, right time

Oberhauser, pictured here, said his startup came to the attention of Sequoia and London firm firstminute (the London VC co-founded by Brent Hoberman, Spencer Crawley and Henry Lane-Fox that specialises in early stage investments and counts VCs like Atomico as partners) through the responses that he got to his short post on HackerNews, and then subsequent hunt on Product Hunt.

n8n had been invited to Y Combinator to be a part of its cohort but declined because Oberhauser didn’t want to relocate from Berlin, where he has a young family to help support and where he intended to found the company (joining YC would have included incorporation in Delaware, which also didn’t interest Oberhauser). In fact, he built all of n8n bootstrapped as a side hustle while working part-time at other places, such was the need for income before this seed round.

That kind of grit, combined with identifying and fixing a clear gap in the market addressing what a defined audience (in this case, developers) needs, in a scalable way, with the proof being immediate interest and take-up from said target market, seemed to make the startup a no-brainer for funding.

“As talent is becoming more scarce, every organization is looking to get more from the great people they have,” Matthew Miller, a partner at Sequoia who has also worked closely with Docker, Confluent, Tessian, and Graphcore, said in a statement. “This is driving a surge in automation solutions in every industry. We were impressed by n8n’s early adoption in the open source community and Jan’s vision to build an open and flexible solution in this space, and we’re thrilled to have n8n as our first seed investment in Germany.”

Although Sequoia has yet to set up a full-fledged outpost here, sources have told us (and there have been reports) that this is intention, with the timeline being to set it up later this year. This is with the caveat of recent events related to the Novel Coronavirus pandemic, which have included a huge drop in the stock market and a major reassessment of business activities, which could materially change that course.

But more generally, having Sequoia — which has been involved some of the most high-profile startup exits of recent years, perhaps most famously Facebook’s $19 billion acquisition of WhatsApp — operating a bigger office in Europe would represent a big vote of confidence in the region. European VC firm Atomico projected in November 2019 that there would be $35 billion of investment this year in European technology, a high water mark for the region. That represents an opportunity both in terms simply more startups but also later rounds for the biggest of these, both areas where Sequoia would want to be more active, is my guess.

Although Sequoia hasn’t announced any Europe-specific fund yet, the firm seems to currently have no shortage in raising money. It was reported last month that the VC is currently raising a fresh $1.3 billion, earmarked for Asia. And as recently as late December, it filed papers to raise $1 billion for US growth rounds and $2.4 billion for China.

Without committing (‘at this time’) to any region-specific funds, Sequoia is getting increasingly active in Europe anyway.

Even before hiring Lixandru (a hire it had been working on since last year, we understand), the firm had been making later-stage investments in Europe for years, including investments in Skyscanner (acquired by Ctrip), Wunderlist (acquired by Microsoft) and more recently Tessian.

This latest funding in n8n signals how now it is diversifying into a wider set of investment opportunities. These include not just earlier rounds like this first seed investment in Germany. But also newer technologies: for example, as part of the investor group putting $12 million into cryptocurrency wallet Argent earlier this week.