Author: azeeadmin

We’re putting aside the IPO news cycle this morning to check in on the venture capital world and the fintech market in particular.

As we all know, fintech is booming: Between Robinhood and Public and M1 Finance raising competing rounds, payment-tech startup Finix moving to diversify its cap table, and ideas that work in one market finding purchase and capital in others, it’s a damn good time to build financial technology.

But perhaps even with all that recent knowledge, we’re still missing the point.

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The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.

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A provisional report from data and research group CB Insights indicates that we’re not merely in a warm period for fintech funding —we are in a period of all-time record investment for so-called mega-rounds, or investments of $100 million or more inside the fintech realm.

The first quarter of 2020 had stiff competition to overcome to set a mega-round record. The preceding period, Q4 2020, for example, saw 30 fintech rounds across the globe that were worth nine figures. But, to date, Q1 2021 is ahead and is thus guaranteed to set a new record, having already bested the preceding all-time high.

This morning we’re talking big money and fintech, with a splash of early-stage digging. I asked a CB Insights analyst about what appears to be falling fintech seed deal volume. Is this the result of data reporting delays inherent to seed data, the impact of SAFEs and other sorts of notes limiting visibility into the earliest stages of venture, or just a plain-old slowdown? Let’s find out.

Big, bigger, small, fewer

Per the interim CB Insights dataset, there have been some 33 fintech mega-rounds so far in 2021. For context, it’s more than 50% more such rounds in Q1 2020 and Q1 2019. Via the preliminary report, here’s the data:

A team of mobile app engineers and designers from companies like Rent the Runway, ClassPass, Kickstarter and others, are now launching their own startup, Runway, to address the common pain points they experienced around the mobile app release cycle. With Runway, teams can connect their existing tools to keep track of the progress of an app’s release, automate many of the manual steps along the way, and better facilitate communication among all those involved.

“Mobile app releases are exercises in herding cats, we often say. There’s a lot of moving pieces and a lot of fragmentation across tools,” explains Runway co-founder Gabriel Savit, who met his fellow co-founders — Isabel Barrera, David Filion, and Matt Varghese — when they all worked together as the first mobile app team at Rent the Runway.

“The result is a lot of overhead in terms of time spent and wasted, a lot of back and forth on Slack to make sure things are ready to ship,” he says.

Typically, interdisciplinary teams involving engineers, product, marketing, design, QA, and more, will keep each other updated on the app’s progress using things like spreadsheets and other shared documents, in addition to Slack.

Meanwhile, the actual work taking place to prepare for the release is being managed with a variety of separate tools, like GitHub, JIRA, Trello, Bitrise, CircleCI, and others.

Runway is designed to work as an integration layer across all the team’s tools. Using a simple OAuth authentication flow, the team connects whichever tools they use with Runway, then configure a few settings that allow Runway to understand their unique workflow — like what their branching strategy is, how they create release branches, how they tag releases, and so on.

In other words, teams train Runway to understand how they operate — they don’t have to change their own processes or behavior to accommodate Runway.

Once set up, Runway reads the information from the various integration points, interprets it and takes action. Everyone on the team is able to log into Runway via its web interface and see exactly where they are in the release cycle and what still needs to be done.

“We’re forming this glue, this connective tissue between all of the moving pieces and the tools, and creating a true source of truth that everybody can refer to and sync or gather around. That really facilitates and improves the level of collaboration and getting people on the same page,” Savit says.

As the work continues, Runway helps to identify problems, like missing JIRA tags, for example. It then automatically backfills those tags. It can also help prevent other mistakes, like when the incorrect build is being selected for submission.

Another automation involves Slack communication. Because Runway understands who’s responsible for what, it can direct Slack notifications and updates to specific members of the team. This reduces the noise in the Slack channel and ensures that everyone knows what they’re meant to be working on.

Currently, Runway is focused on all the parts of the mobile app release cycle from kickoff to submission to the actual app store releases. On its near-term roadmap, it plans to expand its integrations to include connections to things like bug reporting and beta testing platforms. Longer-term, the company wants to expand its workflow include launching apps on other platforms, like desktop.

The startup is currently in pilot testing with a few early customers, including ClassPass, Kickstarter, and Capsule, and a few others. These customers, though not yet paying clients, have already used the system in production for over 40 app release cycles.

The startup’s pricing will begin at $400 per app per month, which allows for unlimited release managers and unlimited apps, access to all integrations, and iOS and Android support, among other things. Custom pricing will be offered to those who want higher levels of customer support and consulting services.

The startup doesn’t have an exact ETA to when it will launch publicly as it’s working to onboard each customer and work closely with them to address their specific integration needs for now. Today, Runway supports integrations with the App Store, Google Play, GitHub, JIRA, Slack, Circle, fastlane, GitLab, Bitrise, Linear, Jenkins, and others, but may add more integrations as customers require.

Runway’s team of four is mostly New York-based, and is currently participating in Y Combinator’s Winter 2021 virtual program. The company hasn’t yet raised a seed round.

As the U.S. reportedly readies for retaliation against Russia for hacking into some of the government’s most sensitive federal networks, the U.S. is facing another old adversary in cyberspace: China.

Microsoft last week revealed a new hacking group it calls Hafnium, which operates in, and is backed by, China. Hafnium used four previously unreported vulnerabilities — or zero-days — to break into at least tens of thousands of organizations running vulnerable Microsoft Exchange email servers and steal email mailboxes and address books.

It’s not clear what Hafnium’s motives are. Some liken the activity to espionage — a nation-state gathering intelligence or industrial secrets from larger corporations and governments.

But what makes this particular hacking campaign so damaging is not only the ease with which the flaws can be exploited, but also how many — and how widespread — the victims are.

Security experts say the hackers automated their attacks by scanning the internet for vulnerable servers, hitting a broad range of targets and industries — law firms and policy think tanks, but also defense contractors and infectious disease researchers. Schools, religious institutions, and local governments are among the victims running vulnerable Exchange email servers and caught up by the Hafnium attacks.

While Microsoft has published patches, the U.S. federal cybersecurity advisory agency CISA said the patches only fix the vulnerabilities — and won’t close any backdoors left behind by the hackers.

There is little doubt that larger, well-resourced organizations have a better shot at investigating if their systems were compromised, allowing those victims to prevent further infections, like destructive malware or ransomware.

But that leaves the smaller, rural victims largely on their own to investigate if their networks were breached.

“The types of victims we have seen are quite diverse, many of whom outsource technical support to local IT providers whose expertise is in deploying and managing IT systems, not responding to cyber threats,” said Matthew Meltzer, a security analyst at Volexity, a cybersecurity firm that helped to identify Hafnium.

Without the budget for cybersecurity, victims can always assume they are compromised – but that doesn’t equate to knowing what to do next. Patching the flaws is just one part of the recovery effort. Cleaning up after the hackers will be the most challenging part for smaller businesses that may lack the cybersecurity expertise.

It’s also a race against the clock to prevent other malicious hackers from discovering or using the same vulnerabilities to spread ransomware or launch destructive attacks. Both Red Canary and Huntress said they believe hacking groups beyond Hafnium are exploiting the same vulnerabilities. ESET said at least ten groups were also exploiting the same server flaws.

Katie Nickels, director of intelligence at threat detection firm Red Canary, said there is “clearly widespread activity” exploiting these Exchange server vulnerabilities, but that the number of servers exploited further has been fewer.

“Cleaning up the initial web shells will be much easier for the average IT administrator than it would be to investigate follow-on activity,” said Nickels.

Microsoft has published guidance on what administrators can do, and CISA has both advice and a tool that helps to search server logs for evidence of a compromise. And in a rare statement, the White House’s National Security Council warned that patching alone “is not remediation,” and urged businesses to “take immediate measures.”

How that advice trickles down to smaller businesses will be watched carefully.

Cybersecurity expert Runa Sandvik said many victims, including the mom-and-pop shops, may not even know they are affected, and even if they realize they are, they’ll need step-by-step guidance on what to do next.

“Defending against a threat like this is one thing, but investigating a potential breach and evicting the actor is a larger challenge,” said Sandvik. “Companies have people who can install patches — that’s the first step — but figuring out if you’ve been breached requires time, tools, and logs.”

Security experts say Hafnium primarily targets U.S. businesses, but that the attacks are global. Europe’s banking authority is one of the largest organizations to confirm its Exchange email servers were compromised by the attack.

Norway’s national security authority said that it has “already seen exploitation of these vulnerabilities” in the country and that it would scan for vulnerable servers across Norway’s internet space to notify their owners. Slovenia’s cybersecurity response unit, known as SI-CERT, said in a tweet that it too had notified potential victims in its internet space.

Sandvik said the U.S. government and private sector could do more to better coordinate the response, given the broad reach into U.S. businesses. CISA proposed new powers in 2019 to allow the agency to subpoena internet providers to identify the owners of vulnerable and unpatched systems. The agency just received those new powers in the government’s annual defense bill in December.

“Someone needs to own it,” said Sandvik.

Korean e-commerce giant Coupang is expected to hold one of the biggest tech IPOs of the year on March 11. The company disclosed earlier this month that it is seeking up to $3.6 billion at a potential $51 billion valuation on the New York Stock Exchange. Founded in 2010, Coupang is sometimes described as the Amazon of South Korea, but for years it has managed the impressive feat of achieving an even higher dollar retention rate than Amazon, according to a report by Goodwater Capital.

Goodwater’s S-1 teardown of Coupang, released today, is based on a combination of proprietary consumer research and information from Coupang’s S-1 filing. Before launching Goodwater, co-founder Eric Kim was managing director at Maverick, an early investor in Coupang, and served on the company’s board from 2011 to 2017. Neither he nor Goodwater have holdings in Coupang, however, and are releasing the teardown as third-party research.

According to the report, Coupang is not only the current market leader in South Korea, but also “the only player making major market share gains, widening its lead over competitors” like G Market, 11 Street, Auction, WeMakePrice, Naver Shopping and TMON. In 2020, it increased its market share to 24.6%, up from 18.1% in 2019.

Notably, Goodwater’s research found that shoppers are more likely to return and spend money on Coupang than other e-commerce sites—not just compared to its South Korean competitors, but also other major e-commerce players around the world. Based on dollar retention rate (or the amount of money a group spends each year after they first use a platform), Coupang customers return and spend more money than shoppers on eBay, Etsy, Walmart or Alibaba in the U.S.

“Customers are coming back and spending at a rate that easily exceeds those platforms and closely matches the behavior on Amazon,” the report says. “But more surprising is that as early as 2017, Coupang’s performance already started to exceed Amazon, with year 3 dollar retention of 346% with Amazon at 278%. Later cohorts have already improved on that. The value of these customers are not only best-in-class in Korea, but likely the highest in the world.”

This is due in large part to Coupang’s heavy investment in logistics. When the company was founded in 2010, there were no major third-party logistics providers in South Korea comparable to UPS or FedEx in the U.S. Coupang had to build its own infrastructure and now has 100 fulfillment and logistics centers in 30 cities and 15,000 delivery drivers.

As a result of this aggressive focus, about 70% of South Korea’s population now lives within seven miles of a Coupang logistics center. This means it can offer free next-day delivery, same-day deliveries for items like groceries, and its trademark Dawn Delivery (order by midnight for packages that arrive before 7AM) for millions of products. This makes it especially attractive to shoppers in a country where “the work culture rivals that of the 996 work culture in China,” the report says.

In order to catch up, Kim told TechCrunch in an email that “a competitor would need to figure out a way to invest billions into logistical and technical infrastructure to try to compete with Coupang. Even with the necessary resourcing, you’ll notice that in South Korea, similar to other developed geographies, market leaders tend to build on their leads over time. We’ve seen this with Kakao, Naver, and now Coupang.”

“The moats from scale are quite strong in a market like South Korea because you’ve done something right to win over the South Korean consumer,” he added. 

Despite its high market penetration already, Kim said Coupang still has two main areas of growth. These are Rocket Fresh, its fresh grocery delivery business, and Coupang Eats, similar to Uber Eats. “Both leverage Coupang’s vast logistics network and Coupang has the largest directly employed delivery fleet in South Korea with over 15,000 directly employed drivers.”

Coupang was also able to grow quickly thanks to South Korea’s very high internet penetration rate of 96% and relatively high gross domestic product per capita. In addition, its logistics infrastructure benefits from the country’s geography.

“Coupang’s model is very unique because of the density of South Korea. You have 50 million+ people in the landmass the size of the state of Indiana, but when you look specifically at just inhabitable land, it’s really the size of Rhode Island, about 2,700 square kilometers,” Kim said. “This allows Coupang to innovate on delivery in a way the world has never seen before.”

Coupang’s IPO is drawing comparisons to Alibaba’s debut on the New York Stock Exchange in 2014, since both are Asian e-commerce giants. But there are also several noteworthy differences between the two companies including “the amount of capital intensity between the two at the time of the IPO, where Alibaba had a capital-light model that didn’t require having a lot of infrastructure investment at the time,” Kim said. “That shows mainly in the operating margins at the time, where it was 31% for Alibaba vs. -4% for Coupang (Coupang was still operating cash flow positive from in 2020 with $302M).”

A major commonality is that both companies became pioneers by focusing on making it easier to buy from their platforms in their respective markets, he added. “The road to solving for the consumer experience in China was different than the road for solving it in Korea, where the biggest friction points for consumers are different. This led Alibaba to embrace initiatives like digital payments early on, and why Coupang went to solve consumer logistics.”

Apple has announced that it plans to increase its corporate spendings in Germany. In particular, the company wants to set up a new facility in Munich, Germany. Called the European Silicon Design Center, the team will focus on 5G and potentially future wireless technologies.

The company said that Munich is already its largest engineering hub in Europe. There are already 1,500 engineers working there. In particular, Apple has been putting together its own team of engineers working on power management chips.

Overall, half of Apple’s engineers working on power management are located in Germany. Since then, Apple’s teams in the country have expanded beyond power management to work on other chip designs.

Now, Apple plans to invest $1.2 billion (€1 billion) over the next three years on a new building and new R&D investments. While Apple is partnering with Qualcomm for the 5G modems in the iPhone 12 lineup, the company has also acquired most of Intel’s smartphone modem business.

In addition to in-house chip development, Apple’s teams also work on integrating third-party hardware with its devices, such as the iPhone, iPad and Apple Watch.

The company is also using this announcement to remind everyone that it is investing a lot of money in Germany as a whole. Apple works with many German providers, such as DELO, Infineon and Varta. Overall, Apple has spent $17.8 billion (€15 billion) with 700 German companies over the past five years

Here’s a rendering of the new building in Munich’s Karlstrasse. It should open in late 2022:

In recent years, the tech and venture scene in Latin America has been growing at an accelerated pace. More global investors are backing startups in the region and certain sectors in particular, such as fintech, are exploding.

Global investors are not only pouring money into companies. They’re also investing in funds.

Today, Volpe Capital  announced the $80 million first close of its fund targeting high growth technology investments in Latin America. Notably, Japanese investment conglomerate SoftBank, BTG and Banco Inter affiliates are anchor investors in the new fund, which is targeting aggregate commitments of $100 million with a hard cap of $150 million.

Andre Maciel, Gregory Reider and Milena Oliveira are the fund’s founding partners, and are based in Sao Paulo, Brazil. Notably, Maciel is the former managing partner at SoftBank’s $5 billion Latin America-focused innovation fund. He launched Volpe in 2019 primarily with SoftBank’s backing. Reider formerly invested at Warburg Pincus.

Volpe Capital plans to invest in about 15 companies over a two and half year time span, according to Maciel, who expects its average check size to be around $5 billion.

So far, it’s backed Uol Edtech, a subsidiary of Grupo Uol that aims to redefine the digital learning experience in Brazil. 

“We are in no rush,” Maciel told TechCrunch. “We are happy with our first deal and will take capital preservation in consideration. We believe markets are hot now and plan on taking advantage of the cycle by being patient.”

The fund’s strategy is to go after the companies that are not actively raising capital.

“We want to invest in companies that are not necessarily raising capital when we approach them,” Maciel said.

The fund views itself as agnostic regarding stage and primary versus secondary.

It is seeking to back early-stage companies with less than $50 million in valuation as well as some later stage, high growth companies. The fund’s first investment — Uol Edtech — falls in the latter category with EBITDA margins above 30%, according to Maciel.

Volpe plans to avoid capital intensive industries, even if related to tech.

“Those are more suitable to investors with deeper pockets than Volpe,” Maciel said. 

Instead it’s eyeing edtech, healthtech, software and fintech investments (that are not credit-related).

“We like sectors that are prone for disruption in Latin America and that require local customization,” Maciel said. “Given the stage of the vc/growth industry in Latin America, we believe it is better to be a generalist.”

SoftBank International CEO Marcelo Claure describes Maciel as one of his “amazing founding partners for SoftBank in Latin America.”

“We are very happy to be one of Volpe’s anchor investors and look forward to continuing our relationship with them,” he added in a written statement.

Another anchor investor has a SoftBank tie. João Vitor Menin, CEO of Inter, a publicly traded fintech platform in Brazil with a market cap of over  $7 billion, points out that Maciel led an investment in Inter’s platform through SoftBank. He also “made valuable contributions” as a board member, according to Menin.

On January 6, America watched in horror as groups that recruited and organized on major social media sites violently attacked the seat of American democracy. Within a matter of hours, tech companies took actions they’d said we’re out of the question for years.

But real change requires thoughtful policy and a clear-eyed look at the choices that allowed dangerous extremism to thrive in the first place. We spoke with Anti-Defamation League CEO Jonathan Greenblatt on proposed policy solutions and tech’s coming era of accountability at TechCrunch Sessions: Justice 2021.

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On how the ADL ramped up its efforts in Silicon Valley:

Given the rise of online hate, harassment and dangerous misinformation, tech companies are increasingly on the radar for civil rights organizations. It’s now common to see organizations like the ADL to participate in pressure campaigns aiming to change platforms’ policies and sign onto legislation proposing regulations for the industry.

“So at the ADL, we’re the oldest anti hate organization in the world. But we deeply believe that today, the frontline and fighting hate is really on Facebook. I mean, there’s just no question that social media has become a breeding, breeding ground for kind of bigotry, that is offensive and ugly in all respects. Now, we’ve known this for years. But when I came on board, about five and a half years ago, I really wanted to focus on this, and try to get causal and right to the heart of the problem. So we could finally turn it around. So in 2017, we actually opened an office in Silicon Valley, our Center for Technology and Society, we were the first civil rights group with an actual presence in the valley. And for me, that was sort of second nature, because I had worked in the valley for years before taking this job, you know, both raising money on Sandhill road, managing teams of engineers building products.” (Timestamp: 0:53)

• Facebook, in a reversal, will now ban Holocaust denial content under its hate-speech policy
• Tech is not winning the battle against white supremacy
• With advertiser boycott growing, lawmakers press Facebook on white supremacy

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How algorithms make social media uniquely dangerous:

Algorithms are what sets social networks apart from more traditional media sources. Rather than seeking it out, the average internet user has extreme ideas served directly to them through algorithms that decide what they see. This is particularly an issue with Facebook and YouTube’s way of keeping users engaged for as long as possible.

Algorithmic amplification has a lot to do with the dilemma that we found ourselves in, and extremists are, if nothing else innovative, they exploit loopholes. And indeed, they have used the kind of libertarian laissez faire attitude of the companies to their own advantage for a number of years. And so from Facebook groups to YouTube channels to kind of accounts on Twitter, let alone all the other platforms, they’ve used them with tremendous depth, depth. So what’s interesting is, and many people that I know have seen this, I’ve seen this myself, you may have to I’m sure your audience has. It wasn’t too long ago that you might watch a YouTube video and one click or two clicks over, suddenly find yourself down the rabbit hole of some crazy QAnon or anti vaxxer you know, Boogaloo content. Same thing on Facebook.

When you search a piece of content, suddenly, you’re served up Facebook groups that may be from accelerationist, or white supremacists, or other racist and anti Semites. But the reality that we’ve got to confront is that algorithms aren’t our right, if you will, algorithmic amplification isn’t a privilege which should be accorded to everyone. It’s a responsibility that the companies have to make sure that their products give users what they want, but that they’re also not abused. And that the users themselves are not abused, to seeing the kind of things to which they might be very viable. Robots are susceptible. So we deeply believe that algorithmic amplification is very problematic. That’s why we’ve been supporting legislation on Capitol Hill that will finally address this… If you could basically turn off the algorithms for some of these worst elements, you could have curbed these issues a long time ago. (Timestamp: 13:35)

• Facebook is the recruiting tool of choice for far-right group the Proud Boys
• Facebook hits pause on algorithmic recommendations for political and social issue groups
• Facebook boots Patriot Prayer, a far-right group with a history of violence

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How social media companies failed before the Capitol attack:

In the immediate aftermath of the attack on the Capitol, social media companies suddenly made a number of changed that belied how reluctant they’d been to address the hate and extremism brewing on their platforms all along.

To those of us who’ve been tracking violent extremists for years. This was not a surprise at all, this was the most predictable terror attack in American history. Literally, these groups told us in advance what they were going to do. And the attack itself was sort of the culmination of years and in the last in the months prior intense campaigning by the President himself, to undermine the integrity of the election, to question the democratic process, to call on individuals to interrupt the certification of the election based on this big lie, this totally contrived idea that somehow the election was rigged. I mean, truly, it was bananas.

… The tech companies who for years have told us there was a political exemption, and they wouldn’t necessarily take action when presidents or other politicians said things that were outrageous, and committed slander or incited violence on the platform, suddenly, because of the public pressure from groups like Stop Hate for Profit and the ADL, from internal pressure from their own employees, and I believe, you know, their boards — suddenly they took action instantaneously, overnight. All their other concerns sort of fell by the wayside. I think it was really important that in order Facebook and Twitter and YouTube took down President Trump, that was critical, we called for them to do that. And I’m really pleased that they did. We called for them previously to take down armed militia groups, to take down QAnon content. And I’m really glad that they did and it had a huge impact.

You know, we’ve seen like on Twitter QAnon content drop 97% you know, just days after the attack, because the company actually took action. So I think it really laid bare the myth that somehow, some way the companies couldn’t do anything about this, clearly they could. And they did. And I think their services and society as a whole is better for it. (Timestamp: 7:53)

• Militia tied to plot to kidnap Gov. Whitmer was organized on Facebook
• Facebook removes ‘Kenosha Guard’ militia account after shooter kills two at protest
• Pro-Trump mob storms US Capitol touting ‘Stop the Steal’ conspiracy

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On Silicon Valley exceptionalism

The tech industry doesn’t think of itself like other traditional sectors of business, instead often casting its own grand pursuits as for the greater good — not just for profits. Those attitudes can contribute to some extraordinary innovations, but they also permeate its products and cultures in ways that create some serious problems.

I think Silicon Valley is almost like, rooted in this American tradition of like, Manifest Destiny, right? conquering the frontier. It’s, it’s ironic, but altogether appropriate, that’s happening in California, right in the land where they have the Gold Rush, right again, where people went to make their fortunes. And now they’re doing it today in Silicon Valley, in tech, and even that’s continued to evolve, right? It was the internet 15 years ago, five years ago, with social media. Today, it’s Clubhouse, and I don’t know what comes next. But I do think that the whole industry does need to undergo a serious self examination.

And I think you’ve seen people like who’ve come out of the industry, I think about Chris Sacca, the former Googler, I think about Alexis Ohanian, the Redditor, and a few others start to grapple with these issues. You know, trust, my friend, Tristan Harris, at the Center for Humane Technology has also done this in his film — The Social Dilemma really plays this out. Whereas Silicon Valley often has a very short memory, the reality is that we there will be a long road ahead of us. And if we don’t wrestle with these demons, and if we don’t sort again, through the wreckage to what they’ve wrought, I think the future is very unclear. (Timestamp: 20:15)

• Tim Cook addresses white supremacists in ADL address
• Facebook boycott leaders ‘disappointed’ after meeting with Zuckerberg, Sandberg

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On policy solutions to rein in big tech

There’s a huge swath of policy proposals on the table that could put some real restrictions on how tech companies operate.  From proposed changes to Section 230 of the Communications Decency Act to federal and state antitrust suits, tech companies are on notice in 2021.

So look, the ADL, I mean, we’ve been literally fighting for a more just country, we’ve been fighting for civil rights, we’ve been fighting hate for over 100 years. And we are fiercely, ferociously, defenders of the First Amendment. But freedom of speech isn’t the freedom to slander people, right to freedom of expression isn’t the freedom to incite violence against individuals or groups of people based on their immutable characteristics? And so I think what we’ve seen is the first amendment been warped and weaponized online in ways that are, you know, completely beyond the pale of what the founding fathers ever would have, you know, could have imagined.

Section 230 does need to be addressed. And I think that Warner Hirono bill that you pointed out is a step in the right direction, it is definitely not sufficient… It might actually not be the federal government, but the states that actually pushed the companies to do more, we’ve seen California, do some innovative stuff on privacy that’s pushed the companies and you may see, I think more state action. (Timestamp: 16:28)

• The Capitol riot and its aftermath makes the case for tech regulation more urgent, but no simpler
• The SAFE TECH Act offers Section 230 reform, but the law’s defenders warn of major side effects
• DOJ files its antitrust suit against Google
• Facebook hit with massive antitrust lawsuit from 46 states

You can read the entire transcript here and review the full lineup from Justice 2021 [here].

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

This is our Wednesday show, where we niche down and focus on a single topic, or theme. This is our sweet spot: going beyond definitions and into the dirty and deep impact of how a phenomenon could impact startups and tech. We are hoping to explore more than answer, and debate more than agree.

NFTs, or non-fungible tokens, is this week’s topic! This is something that you have nearly certainly heard of in the past few weeks but probably don’t understand with perfect clarity. While we’ve all seen the Twitter threads of basic definitions, consider this episode the appetizer to your aperitif understanding.

The Equity team put on our research caps, dug in, and found quite a lot to like. But we did not tread alone: our EIC Matthew Panzarino joined Chris and Alex and Danny and Natasha to help us out. Panzer was early to the NFT world and has contributed some of TechCrunch’s reporting on the matter.

So, what did we get into? More than a little:

We spent a few minutes on the NFT basics, including historical examples and how NFTs are minted, as well as some examples of how they have been used recently.

From there we riffed on use-cases more broadly, and where we might find NFTs in the wild. Sure, we talked about visual art, but also music, tickets and sports moments. The NFT world has the possibility of a large remit if it plays its, ahem, tokens correctly.

Then we talked culture. What could it mean that NFTs are in the market? Could residual incomes from the reselling of NFTs constitute a material revenue base for future artists, and how broad can the value-experiment go? Depending on which side of the NFT hype-cynicism divide you land, there’s plenty of room for discussion. A point made by Panzer:

NFT’s and the architecture of smart contracts and the way that social tokens work, these are all opportunities for the creators and originators of culture, to finally take part and participate in their rewards of the platforms of that culture — you know, that hosts that culture. Because we’ve seen it over and over again: Artist blows up on TikTok, and you know, somebody does a dance to them, and then that video blows up. What does the artist get out of it? Sometimes they get a recording deal. Many times they get nothing. Right? In Vine, famously built on Black creators and brown creators and Latino creators and Latino creators. You know, TikTok, very much the same. Black Twitter one of the early driving forces of engagement on Twitter and culture on Twitter — how many of them were actually able to participate in the economic rewards of Twitter as a platform selling advertising and making millions of dollars and their stock going bonkers? Besides, of course, you know, maybe they were able to purchase stock, right? So the, the remapping of how creators can participate in that economy directly by saying, “Hey, I’ve created something of value, and I’d love to connect directly with the people that enjoy that and they can provide me value back” — that’s what’s so exciting about this.

And we chatted just a minute about the weight, or carbon footprint, of different blockchains. There’s real nuance to this point of argument, but it was also something we couldn’t avoid. Panzer again:

And this is probably the biggest negative blowback on Ethereum and NFTs is that Ethereum is by nature a very heavy chain, which means that it takes a lot of work to prove that a block has been written to the chain. Not quite as heavy as Bitcoin, but it’s up there. And that energy usage that was used to mine that Ethereum that’s being spent on the chain to confirm a new transaction is being sort of credited forwards in– for lack of a better term to the artists minting on it. I don’t think that’s absolutely fair. But it’s absolutely fair to acknowledge that it does have an ecological impact.

Every week Equity will bring you something special on Wednesdays, adding to our regular Monday (weekly kickoff!) and Friday (news roundup!) shows. The world of tech is large, diverse, and variously dangerous and delightful. We’re excited to keep talking through it with you.

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday morning at 7:00 a.m. PST, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

Japan is often under discussed as an expansion target for American startups, but in the past few years it has become a top market for companies like Slack, Salesforce, Twitter and, more recently, Clubhouse. Today SIP Global Partners is announcing a new fund to invest in early-stage U.S. startups that have the potential to expand into Japan, and potentially other Asian markets, too. The fund has raised a $75 million first close of its $150 million target, and already invested in five companies.

SIP’s new fund will look at late seed to Series B-stage companies that have a product, or one about to come to market, that is ready to expand internationally. The team will work closely with portfolio companies, helping them launch operations in Japan and other Asian markets.

Managing partner Justin Turkat told TechCrunch that Japan is a promising market for foreign startups partly because an undercapitalized venture capital ecosystem means there is a smaller pool of entrepreneurs, with many of the country’s top tech talent opting to join conglomerates or the government instead.

While Japan’s startup market has a lot of potential, he added, it is still nascent. On the other hand, Japan is now the largest source of outward foreign direct investment in the world, and with about 125 million consumers and large corporations in need of scalable solutions, it’s a ripe market for new tech.

“If you look at what’s happened in the last couple of years, I think Japan is open for business with U.S. startups with an urgency that I’ve never seen before, and we think there is a lot of tailwinds around it. You look at investments and partnerships with U.S. startups, it’s at record levels over the last five years and deal counts are increasing every year,” Turkat said.

The fund is being launched by four investors, based in the U.S. and Japan. Turkat and founder and managing partner Shigeki Saitoh, former director of the Japan Venture Capital Association, are in Tokyo, while general partner Jeffrey Smith and founder and managing partner Matthew Salloway are in Boston and New York, respectively.

“The reason we started this really has to do with the team. We’ve all dedicated our careers to cross border, as both operators and investors, across the U.S. and Asia,” Turkat said. “All the four partners on average have about 20-plus years of experience doing this.”

Over the years, they’ve observed global expansion happening earlier in a startup’s life, he added. “I think it used to be an axiom that if you’re a U.S. startup and you’re venture-backed, you’re not thinking of expanding overseas until your Series D round,” but companies are now eyeing foreign markets as early as their seed rounds.

SIP’s new fund is looking for startups in three areas: creativity (augmented and extended reality, synthetic media and web-based platforms), productivity (artificial intelligence and machine learning, edge computing, the Internet of Things and semiconductors) and safety (digital health and information security).

Turkat said it is focusing on companies that provide core infrastructure or the economic layer for emerging technology.

For example, “on the infrastructure layer, we’re looking at 5G being rolled out globally simultaneously, then the edge computing, semiconductors, security and AI and machine learning, all around this infrastructure layer,” he said. Companies in the fund’s current portfolio that fit into this category include OpenRAN startup Parallel Wireless and Croquet, an ultra-low latency collaboration platform.

“Then you have the economic layer with all of these advancements, the platforms and applications sitting on top of it,” Turkat added. These include the fund’s three other investments so far: Fable, a browser-based motion design platform, Tilt Five, an AR gaming platform, and Kinetic, an industrial IoT startup focused on workplace safety.

As a strategic investor, SIP works closely with startups as they expand into new countries. This includes hiring talent and finding initial business partners, including for distribution channels or potential joint ventures. After Japan, SIP also helps startups enter other Asian markets, especially in ASEAN, including Thailand, Vietnam and Indonesia.

DataGrail, a startup that helps customers understand where their data lives in order to help comply with a growing body of privacy regulations, announced a $30 million Series B today.

Felicis Ventures led the round with help from Basis Set Ventures, Operator Collective and previous investors. One of the interesting aspects of this round was the participation from several strategic investors including HubSpot, Okta and Next47, the venture firm backed by Siemens. The company has now raised over $39 million, according to Crunchbase data.

That investor interest could stem from the fact that DataGrail helps organizations find data by building connectors to popular applications and then helps ensure that they are in compliance with customer privacy regulations such as GDPR, CCPA and similar laws.

“DataGrail [is really] the first integrated solution with over 900 integrations (up from 180 in 2019) to different apps and infrastructure platforms that allow the product to detect when new apps or new infrastructure platforms are added, and then also perform automated data discovery across those applications,” company CEO and co-founder Daniel Barber explained to me. This helps users find customer data wherever it lives and enables them to comply with legal requirements to manage and protect that data.

Victoria Treyger, general partner at lead investors Felicis Ventures says that one of the things that attracted her to DataGrail was that she had to help implement GDPR regulations at a previous venture and felt the pain first hand. She said that her firm tends to look for startups in large markets where the product or service being offered is a critical need, rather an option, and she believes that DataGrail is an example of that.

“I really liked the fact that privacy management is such a hard problem, and it is not optional. As a business, you have to manage privacy requests, which you may do manually or you may do it with a solution like DataGrail,” Treyger told me.

HubSpot’s Andrew Lindsay, who is SVP of corporate and business development, says his company is both a customer and an investor because DataGrail is helping HubSpot customers navigate the complexity of privacy regulation. “DataGrail’s unique ecosystem approach, where they are integrating with key Saas and business applications is an easy way for many of our joint customers to protect their customers’ privacy,” Lindsay said.

The company has 40 employees today with plans to grow to 90 or 100 by the end of this year. It’s worth noting that Treyger is joining the Board, which already has 3 other women. That shows shows a commitment to gender diversity at the board level that is not typical for startups.