Author: azeeadmin

Before kids graduate to the expansive virtual worlds in games like Roblox, Minecraft, and Fortnite, they often get their start in online social gaming with a game like Animal Jam. Here, kids learn to personalize their avatar, explore a world, chat with other players, and trade items in a safe environment with parental controls. Today, the company behind this popular title, WildWorks, is launching a new game, Fer.al, which builds on Animal Jam’s legacy while catering to a slightly older crowd of Gen Z teens.

“When we started talking about Fer.al, it was the idea of where do kids go when they age out of Animal Jam?,” explains Clark Stacey, co-founder and CEO of WildWorks. “Because there isn’t a transitional space between a completely walled garden like Animal Jam and…Instagram and the adult social networks and games that don’t have those same protections,” he continues.

“We knew we wanted to provide a place for these older kids to go where the walls are a little bit lower,” Stacey adds.

The new game is meant to cater to older kids — meaning young teens ages 13 to around 18 — who are now choosing their own games, have their own email address, and don’t need parental permission to play. The guardrails on chat also won’t be as high on Fer.al as on Animal Jam, and will focus more on preventing bullying and abuse than blocking words. Players will also be able to connect their online social accounts to their game accounts in the future.

With Fer.al, WildWorks is introducing another animal-centered title, but this time it’s moving into the fantasy realm. Players choose between bipedal humanoid creatures based on folklore and myth including a Kitsune, Senri, Dragon, Jackelope, Werewolf, Kirin, or a Shinigami, with more to come i time.

The characters’ style was inspired by Animal Jam fan art, Stacey says, where kids would create animal avatars that were sort of a mix between manga, Animal Jam’s style, and other, older animation styles.

Like its predecessor, Fer.al players will also be able to personalize their character and change their appearance, design their personal space (this time, a “sanctuary” instead of a “den,”) discover a world where they can interact with other players, collect items and trade, and venture on quests. But the storyline has also evolved to reflect teens’ interests, including their growing understanding of social media and the desire to grow an online fan base.

The larger narrative involves a reality show where two warring queens, Aradia and Delilah — each with their own Instagram account, naturally — are angling for control. The company isn’t offering a lot of details as to how this narrative plays out in the long-term, but it will involve weekly and monthly contests as the game ramps up, in addition to the everyday missions and quests which are undertaken to gain ingredients to create new clothes or a new “glamour” (a rendering effect that goes around your character.)

Much like Animal Jam — or even other virtual worlds like some Roblox games — players are meant to engage in cooperative gameplay to advance. There will be tasks you can’t complete on your own, meaning you’ll need to interact and chat. You will also be able to join factions, initially driven by the two queens, as the game advances.

Another notable aspect to Fer.al is that it’s largely designed to cater to girl gamers.

“It’s certainly not intended to be to the exclusion of boys who are in this age range,” explains Stacey. “But we recognize the fact that, among the most engaged Animal Jam players, it’s about 80% girls. We’ve leaned into that pretty heavily in Animal Jam — we’re trying to feature a lot of female scientists and working with them on causes that promote girls in STEM. So we know a lot of the built-in audience is coming from that,” he says.

“And I think the need that we recognized is that it’s not hard for adolescent boys to find online communities that jive with them. It’s pretty hard for girls to find the same thing. So, as we’re creating this this community — everything from the rules to the visuals — we are very conscious of that. And the people that we’re going to and asking for what works for you and what doesn’t, is primarily girls,” he adds.

Building off the Animal Jam fan base has been an advantage for getting Fer.al off the ground. Today, Animal Jam has anywhere between 2.5 million to 4 million monthly active users out of a total of 135 million registered accounts. The gulf between the registered and active figures is indicative of how many kids have since grew out of Animal Jam since its October 2010 launch. But Stacey admits the title has seen some decline since its peak usage, as well.

Still, there’s a lot of interest in what WildWorks does next, it seems.

Within a week of launching the Fer.al website, the game had 75,000 kids sign up to become beta testers. The testers were brought into the beta slowly, starting in April 2020, and initially on desktop only. Now, the beta version of the game sees daily actives in the low 10,000’s pre-launch. On the Apple App Store and Google Play, over 100,000 people have registered for the pre-release, as well.

Like Animal Jam, Fer.al will offer a freemium experience. But while Animal Jam generated nearly 80% of revenues through subscriptions, Fer.al will use a season pass model of monetization. Users buy the season — priced around $10 to $20 — via an in-app purchase, which will unlock unique items and experiences specific to that season. It expects to launch around 7 seasons per year.

The company didn’t offer seasons until later in the beta test, but Stacey says the conversion rate was at “the high end of our expectations so far on desktop.” If the mobile conversion rates remains as high as desktop, it will be in the range to start investing in user acquisition, he says. The company may also consider ads at a later date as well as merchandise, if all goes well.

Salt Lake City-headquartered WildWorks (formerly Smart Bomb Interactive) is majority owned by Signal Peak Ventures, which has invested $20+ million into the company over the years. The company shifted in 2008 to focus on its own IP, resulting in the launch of Animal Jam and other titles.

Over the past few years, WildWorks’ revenue — largely from Animal Jam and another game, Tag with Ryan — has ranged between $20+ million to below $30 million. If Fer.al is able to successfully capture the Animal Jam graduates who are looking to move up to “older kid” gameplay, it could grow that revenue base by a sizable amount.

Fer.al is launching publically today in all countries, and will be available initially in English. It can be played on PC, Mac, iOS and Android.

Diversity and inclusion as an idea has been on the agenda of tech companies for years now. But the industry still lacks true inclusion, despite best efforts put forth by heads of diversity, equity and inclusion at these companies.

At TC Sessions: Justice, I spoke with Uber Chief Diversity Officer Bo Young Lee, Netflix VP of Inclusion Strategy for Product Wade Davis and Facebook VP of workplace diversity and inclusion Sandra Altine about the work that still needs to be done, the effects of California’s Proposition 22 and more.

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On last summer’s racial justice uprising

Last summer, after the murder of George Floyd and the subsequent collective consciousness around racial injustice in the U.S., many tech companies spoke out about racism and equality. Davis said he was happy to see more people speaking about those issues but also a bit frustrated that “it takes something like that for folks to get truly engaged.”

Davis: And inside of Netflix, one of the things that I was really intentional about is to tell our employees who are not Black, right, to not ask our employees how they feel but for them to be much more introspective of what it felt like for them, right, as a white person, or however they identify for them to do the introspection. Because that’s what it means to be an ally — to not put the labor on the group that that is already feeling the impact and the oppression. And what we found was that many of our employees, for the first time had to wrestle with like, what it means to be white. What it means to be in a situation where you are seeing someone who looks like you take the life of someone who looks like me. So we really tried to switch the actual narrative and the conversation to not add more labor and trauma on our Black employees. (Timestamp: 1:10)

Lee said she was a bit skeptical at the time because we’ve seen this type of response before in light of the violent killings of Black people.

Lee: And then within a few weeks you see that interest and that focus wane once more. So I was skeptical that the enthusiasm would continue and enthusiasm in a way to try to solve all of our racism problems in a short period of time. I was surprised that it did continue. (Timestamp: 3:31)

In her conversations with her counterparts at Uber, Lee said she wanted to make sure that the company didn’t make such a wide commitment that “those commitments became nothing more than virtue signaling at the end of the day.”

Lee: I said to my leadership, if you really want to come out and make some bold statements about being anti-racist, I’m going to create almost a litmus test to make sure that you really understand what that means because I don’t want to go up as a company to say we’re going to be anti-racist and then do nothing about it because that just relives and rehashes the injustices that we’ve seen in the past. (Timestamp: 4:25)

So when Uber’s first post-anti-racism diversity report came out, and it showed Uber’s Black employee base declined, Lee said at the time that was not acceptable.

Lee: I think part of the commitments we made around being really anti-racist is transparency at all costs, even when we know that transparency could potentially make us look, not reflect as positively on us. So the question did go back, as you know, when we were putting together our diversity report is, ‘wow, these numbers are not where we want them to be. None of us are happy about it.’ But in our commitment of being accountable, you know, we want the public to hold us accountable. We want people to hold accountable, we want to be accountable to our workforce, we’re going to be as transparent about why that decline in black employees happened and underrepresented people happened, what the cause was and what we are doing. (Timestamp: 6:11)

• Despite commitment to anti-racism, Uber’s Black employee base has decreased

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On being early in the DEI journey

Netflix, despite having previously reported diversity numbers, only released its first official diversity report this year. That’s partly because the team has only been in place for the last three years, Davis said.

Davis: So we’re still at the awareness building phase, like from a foundational standpoint, and we’re really trying to double down so that folks know why I&D matters. Like, what it actually is, and how it impacts all of us. Because oftentimes, folks think of all of these isms and phobias as something that happens to other people. But if we can really make folks understand that there’s a cost to all these isms, and phobias to all of us individually, interpersonally, culturally, and and institutionally, then it makes it easier down the road when folks start to feel somewhat fatigued, right? Because there is always that fatigue factor. So we’re really trying to get ahead of that. And to have folks to think through like, what is in it for me, and what is in it for my colleagues. (Timestamp: 17:33)

• The future of diversity and inclusion in tech

Sharing the DEI load

Too often does the work of DEI fall on just a handful of people. At Netflix, Davis said it’s important that there is a shared load, and that all of its leaders are able to speak to the importance of diversity at the company.

Davis: And I would say our other largest goal is to make sure that all of our leaders can speak to the importance of AI and be more than just a talking point. So how do we build a model that’s a train the trainer model, where each of our leaders has a one to one inclusion coach, which requires them to have monthly sit downs with their inclusion partner, where they go on a real intensive journey, so that they can understand how does their leadership style need to evolve and adapt and expand and flex to meet the needs of a larger set of individuals and not the historical ones who folks have engaged with? And we found that to put our leaders on the spot, so that when someone calls me to give a talk, I can say ‘No, our COO Greg Peters is just as competent and capable to sit on this panel about inclusion as I am.’ And we feel that we’re modeling and signaling to our entire organization that this is not just a nice to have, but it’s part and parcel to your success as an employee, as a leader and to our success as an organization. (Timestamp: 18:26)

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On Prop 22’s impact on people of color

Prop 22 went into effect in California earlier this year after a contentious battle where one side, including Uber, Lyft and other tech companies, wanted workers to remain independent contractors and the other side wanted gig workers to be made employees and therefore entitled to more benefits. Prop 22’s passage was a win for Uber and its counterparts, which collectively spent north of $200 million on its campaign efforts.

Some have wondered how Uber can reconcile its commitment to anti-racism given that many gig workers are people of color. Lee, however, pushed back on that characterization:

Lee: I would challenge some of those that believes that Prop 22 actually disproportionately hurts people of color. If you actually look at the way the civil rights organizations that came out in support of Prop 22, the NAACP of Northern California and Hawaii came out in support of Prop 22, most of the Hispanic civil rights organizations as well. (Timestamp: 24:59)

Prop 22, of course, was in response to the passage of AB 5, which set new standards of worker classification that were designed to make it harder for companies to classify workers as independent contractors.

Lee: And you looked at the way those exceptions were being made to AB 5, you saw that the exceptions were disproportionately being made for those IC — you know, independent contractor roles that were predominantly represented by white workers. And they were all getting exceptions from AB 5. And then you look at the roles that were predominantly represented by people of color, especially underrepresented people of color, and those roles were not getting exceptions in AB 5. […] For me, how I define racism isn’t based on intent but it’s based on impact. And when I see that kind of level of disparate, disproportionate impact, that’s when I think about, you know, what is racist or not. So I would challenge this notion that [Prop 22] actually disproportionately hurt people of color, especially given that we had civil rights organizations that said we support Prop 22. So, I don’t think there’s anything that really needs to be reconciled, from my perspective and from the organization’s perspective. (Timestamp: 24:59)

• CA Supreme Court denies lawsuit challenging Prop 22’s constitutionality
• Uber lobbies for ‘Prop 22’-style gig work standards in the EU
• An even bigger battle for gig worker rights is on the horizon

You can read the entire transcript here.

Diversity and inclusion as an idea has been on the agenda of tech companies for years now. But the industry still lacks true inclusion, despite best efforts put forth by heads of diversity, equity and inclusion at these companies.

At TC Sessions: Justice, I spoke with Uber Chief Diversity Officer Bo Young Lee, Netflix VP of Inclusion Strategy for Product Wade Davis and Facebook VP of workplace diversity and inclusion Sandra Altine about the work that still needs to be done, the effects of California’s Proposition 22 and more.

---

On last summer’s racial justice uprising

Last summer, after the murder of George Floyd and the subsequent collective consciousness around racial injustice in the U.S., many tech companies spoke out about racism and equality. Davis said he was happy to see more people speaking about those issues but also a bit frustrated that “it takes something like that for folks to get truly engaged.”

Davis: And inside of Netflix, one of the things that I was really intentional about is to tell our employees who are not Black, right, to not ask our employees how they feel but for them to be much more introspective of what it felt like for them, right, as a white person, or however they identify for them to do the introspection. Because that’s what it means to be an ally — to not put the labor on the group that that is already feeling the impact and the oppression. And what we found was that many of our employees, for the first time had to wrestle with like, what it means to be white. What it means to be in a situation where you are seeing someone who looks like you take the life of someone who looks like me. So we really tried to switch the actual narrative and the conversation to not add more labor and trauma on our Black employees. (Timestamp: 1:10)

Lee said she was a bit skeptical at the time because we’ve seen this type of response before in light of the violent killings of Black people.

Lee: And then within a few weeks you see that interest and that focus wane once more. So I was skeptical that the enthusiasm would continue and enthusiasm in a way to try to solve all of our racism problems in a short period of time. I was surprised that it did continue. (Timestamp: 3:31)

In her conversations with her counterparts at Uber, Lee said she wanted to make sure that the company didn’t make such a wide commitment that “those commitments became nothing more than virtue signaling at the end of the day.”

Lee: I said to my leadership, if you really want to come out and make some bold statements about being anti-racist, I’m going to create almost a litmus test to make sure that you really understand what that means because I don’t want to go up as a company to say we’re going to be anti-racist and then do nothing about it because that just relives and rehashes the injustices that we’ve seen in the past. (Timestamp: 4:25)

So when Uber’s first post-anti-racism diversity report came out, and it showed Uber’s Black employee base declined, Lee said at the time that was not acceptable.

Lee: I think part of the commitments we made around being really anti-racist is transparency at all costs, even when we know that transparency could potentially make us look, not reflect as positively on us. So the question did go back, as you know, when we were putting together our diversity report is, ‘wow, these numbers are not where we want them to be. None of us are happy about it.’ But in our commitment of being accountable, you know, we want the public to hold us accountable. We want people to hold accountable, we want to be accountable to our workforce, we’re going to be as transparent about why that decline in black employees happened and underrepresented people happened, what the cause was and what we are doing. (Timestamp: 6:11)

• Despite commitment to anti-racism, Uber’s Black employee base has decreased

---

On being early in the DEI journey

Netflix, despite having previously reported diversity numbers, only released its first official diversity report this year. That’s partly because the team has only been in place for the last three years, Davis said.

Davis: So we’re still at the awareness building phase, like from a foundational standpoint, and we’re really trying to double down so that folks know why I&D matters. Like, what it actually is, and how it impacts all of us. Because oftentimes, folks think of all of these isms and phobias as something that happens to other people. But if we can really make folks understand that there’s a cost to all these isms, and phobias to all of us individually, interpersonally, culturally, and and institutionally, then it makes it easier down the road when folks start to feel somewhat fatigued, right? Because there is always that fatigue factor. So we’re really trying to get ahead of that. And to have folks to think through like, what is in it for me, and what is in it for my colleagues. (Timestamp: 17:33)

• The future of diversity and inclusion in tech

Sharing the DEI load

Too often does the work of DEI fall on just a handful of people. At Netflix, Davis said it’s important that there is a shared load, and that all of its leaders are able to speak to the importance of diversity at the company.

Davis: And I would say our other largest goal is to make sure that all of our leaders can speak to the importance of AI and be more than just a talking point. So how do we build a model that’s a train the trainer model, where each of our leaders has a one to one inclusion coach, which requires them to have monthly sit downs with their inclusion partner, where they go on a real intensive journey, so that they can understand how does their leadership style need to evolve and adapt and expand and flex to meet the needs of a larger set of individuals and not the historical ones who folks have engaged with? And we found that to put our leaders on the spot, so that when someone calls me to give a talk, I can say ‘No, our COO Greg Peters is just as competent and capable to sit on this panel about inclusion as I am.’ And we feel that we’re modeling and signaling to our entire organization that this is not just a nice to have, but it’s part and parcel to your success as an employee, as a leader and to our success as an organization. (Timestamp: 18:26)

---

On Prop 22’s impact on people of color

Prop 22 went into effect in California earlier this year after a contentious battle where one side, including Uber, Lyft and other tech companies, wanted workers to remain independent contractors and the other side wanted gig workers to be made employees and therefore entitled to more benefits. Prop 22’s passage was a win for Uber and its counterparts, which collectively spent north of $200 million on its campaign efforts.

Some have wondered how Uber can reconcile its commitment to anti-racism given that many gig workers are people of color. Lee, however, pushed back on that characterization:

Lee: I would challenge some of those that believes that Prop 22 actually disproportionately hurts people of color. If you actually look at the way the civil rights organizations that came out in support of Prop 22, the NAACP of Northern California and Hawaii came out in support of Prop 22, most of the Hispanic civil rights organizations as well. (Timestamp: 24:59)

Prop 22, of course, was in response to the passage of AB 5, which set new standards of worker classification that were designed to make it harder for companies to classify workers as independent contractors.

Lee: And you looked at the way those exceptions were being made to AB 5, you saw that the exceptions were disproportionately being made for those IC — you know, independent contractor roles that were predominantly represented by white workers. And they were all getting exceptions from AB 5. And then you look at the roles that were predominantly represented by people of color, especially underrepresented people of color, and those roles were not getting exceptions in AB 5. […] For me, how I define racism isn’t based on intent but it’s based on impact. And when I see that kind of level of disparate, disproportionate impact, that’s when I think about, you know, what is racist or not. So I would challenge this notion that [Prop 22] actually disproportionately hurt people of color, especially given that we had civil rights organizations that said we support Prop 22. So, I don’t think there’s anything that really needs to be reconciled, from my perspective and from the organization’s perspective. (Timestamp: 24:59)

• CA Supreme Court denies lawsuit challenging Prop 22’s constitutionality
• Uber lobbies for ‘Prop 22’-style gig work standards in the EU
• An even bigger battle for gig worker rights is on the horizon

You can read the entire transcript here.

Elon Musk is bringing his utility-scale battery ambitions to the Lone Star state. 

An under-the-radar Tesla subsidiary has been at work building a 100 MW energy storage project in Angleton, Texas, according to an application with the Public Utilities Commission of Texas and other documents. Bloomberg was the first to report on the documents and link a previously unknown subsidiary to Tesla. 

Gambit Energy Storage LLC applied for an application with the Public Utilities Commission of Texas, the regulatory body charged with overseeing the state’s electric utilities, in June of last year. Gambit said in the application, viewed by TechCrunch, that it intends to provide wholesale electricity and grid-balancing services on the Energy Reliability Council of Texas grid. The project is located in Angleton, a town about 50 miles west of Galveston near the Gulf Coast. 

The project’s proposed date of commercial operation is June 1, according to reporting from Bloomberg. 

The Texas grid has been under the microscope since mid-February, when an unprecedented blast of Arctic weather knocked 46,000 MW of power off line at its peak—more than a third of the system’s overall generation capacity. The disaster left millions of Texans in sub-freezing temperatures for days. The ERCOT Board of Directors fired its CEO and the chair of the PUCT resigned in the wake of the catastrophe, while legislators at the capital mull major changes to Texas power market operations.

Tesla already has contracts for battery storage systems with California Utilities Southern California Edison and PG&E, but this is the company’s first major project elsewhere. 

This morning Vendr announced a $60 million Series A round, a huge funding event led by Tiger Global, with participation from Y Combinator, Sound Ventures, Craft Ventures, F-Prime Capital, and Garage Capital.

The outsized Series A comes after Vendr last raised $4 million in a mid-2020 seed round, with TechCrunch reporting that the company was profitable at the time. Vendr had raised just over $6 million total before this latest round.

TechCrunch had a few questions. First, how the company had managed to attract so much capital so quickly. According to an interview with Vendr CEO Ryan Neu, his startup grew just under 5x in 2020, and was cash flow-positive last year as well. The startup’s model of standing between SaaS buyers and sellers, speeding up transactions while lowering their cost, appears to have fit well into 2020’s twin trends of rising software reliance and a focus on cost-control.

Second, how did the company manage to grow so much? Vendr charges its customers between 1% and 5% of their software spend that it manages, which can add up. Neu told TechCrunch that a somewhat standard 500 person company might spend $2 million to $3.5 million on software each year, which by our math would make that company worth no less than $20,000 to $35,000 in revenue for Vendr at 1% of spend. At Vendr’s midpoint 2.5%, those figures rise $50,000 to $87,500.

At those prices, Vendr can stack up annual revenue pretty quickly. But why would Vendr customers pay it to handle their software spend? Savings, effectively. So long as they save more than Vendr charges, they are coming out ahead. And as the startup claims that it can cut the time to buying, its own customers can reduce time spent on securing tooling.

Everyone wins, it seems, except for software sellers. After all, they are the ones losing a chance to get less-sophisticated buyers to pay more for their code, right? Neu said that his company’s model isn’t too bad for selling companies as they close deals much more quickly, at a higher rate of closure. That could save their sales team time, which might help balance the price differentia.

Pressed on what Vendr might be able to for the selling side of the software market given its present-day buyer focus, the New declined to share any possible plans.

Returning to the round, why did Vendr raise the money at all if it was doing just fine sans new external funding? The company told TechCrunch that it has scaled its staff to 60 from 10 a year ago, and that it wanted a stronger balance sheet. That’s fine. We’d be hard pressed to find the startup that wouldn’t take such a large check from Tiger, given the valuation gain the raise implies for Vendr, so there isn’t too much mystery to unpack.

A theme that TechCrunch has explored in recent weeks has been the huge depth of the software market. Given the TAM for bits and bytes, Vendr may be able to keep up the hypergrowth that its new round implies its investors will expect. Let’s see how 2021 winds up for the company.

Olo, the New York-based fintech startup that provides order processing software to restaurants, shared its initial IPO price range this morning. The company’s debut comes ahead of the expected IPO of Toast, a Boston-based unicorn with a similar market remit.

Targeting $16 to $18 per share, Olo could raise as much as $372.6 million in its public offering.

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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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Unlike most companies going public in recent quarters that we’ve tracked, Olo has a history of growth and profitability, making its impending pricing all the more interesting. It’s unknown if Toast is profitable, but as most venture-backed IPO aren’t, we’re presuming it isn’t.

This morning, we’re doing our usual work: parsing the company’s pricing interval to get a valuation range for Olo. We’ll calculate both simple and fully-diluted pricing and then do some quick work on its revenue scale to come to grips with its total scale.

Are investors willing to pay more for profits? And, if so, how much? This is a niche question, as most IPOs look a bit more like Coursera than Olo, but it’s still worth answering.

Olo’s IPO valuation range

If you’d like to follow along, you can read the new S-1 filing here. Our first look at Olo is here, and its fundraising history is here, per Crunchbase.

The company is targeting $16 to $18 per share with an expected sale of 18 million shares. The company is also reserving 2.7 million shares for its underwriters. At the upper-end of its range, not counting shares reserved for its bankers, Olo could raise $324 million in its debut.

Per the company, its total number of Class A and B shares outstanding after its IPO would come to 142,012,926, or what we calculate to be 144,712,926 shares, including its underwriters’ option. Using the latter as we tend to look for valuation extremes, Olo would be worth $2.32 billion to $2.60 billion.

But what about its fully-diluted valuation? Adding in shares that are currently tied to un-exercised but vested stock options brings Olo to around 188,085,714 shares. Add in the underwriters’ option and the total rises to 190,785,714 shares.

Using the latter figure, at $16 and $18 per share Olo could be worth $3.05 billion to $3.43 billion on a fully-diluted basis.

Is that expensive?

Let’s find out! Digging back into Olo’s growth, we can see a business with rapidly expanding software incomes. And the same software revenues are improving in quality over time. From 2019 to 2020, for example, Olo’s “platform” revenues — a mix of subscription and transaction top-line from software — grew from $45.1 million to $92.8 million. Over the same time, the company’s platform revenue saw its gross margin improve from 73.6% to 84.6%.

There are so many ways to secure capital for your startup beyond traditional venture capital, from crowdfunding to debt financings to revenue-share agreements. But is all money created equal if you are on route to becoming a billion-dollar business? Dr. Astrid Scholz, the co-founder of Zebras Unite, Sydney Thomas, a principal at Precursor Ventures, and Brian Brackeen, the founding partner of Lightship Capital, joined us as TC Sessions: Justice to discuss alternative pathways to funding, and if the democratization of capital is a facade.

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On the choice to stay away from traditional venture capital

Scholz is currently building out Zebras Unite, a founder-led cooperative that is focused on making startups more sustainable, ethical and inclusive. During the panel, she mentioned that the capital arm of Zebras Unite could have been a traditional fund, but the organization ultimately decided to pursue more creative alternatives, such as the Future Economy Lab. This lab, which focuses on helping founders find financing instruments that fit their sectors, took place in Montreal with a focus on climate tech.

Scholz shared why she went for this route, versus a traditional fund:

In the big scheme of things, [VC] really is just a tiny drop in the large capital pool of capital that’s out there. And then on the other extreme, you have bank loans. That may or may not be accessible to startup founders, especially if they’re from certain demographics in this country. Of course we have a massive racial wealth gap and access to capital.

To me, that sounds just like two flavors of capital: vanilla and chocolate. It’s not interesting, if that was an ice cream store, it was not interesting. At Zebras Unite, we’re looking to increase the diversity of capital, as well as the diversity of managers of capital. So we’re very interested in revenue based financing mechanisms. We’re very interested in non-dilutive early stage forms of support to entrepreneurs who don’t have friends and family wealth. We were looking at new sort of character-based lending instruments and a bunch of blended approaches, so there’s more room on the capital spectrum to color in, beyond the two ends of the spectrum. (Timestamp: 3:52)

• SEC loosens crowdfunding regs so small businesses can raise alternative financing in pandemic
• AngelList pioneers rolling VC funds in pivot to SaaS
• Who are the major revenue-based investing VCs?
• How to approach (and work with) the 3 types of corporate VCs

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On why venture capital paths can be formed around a more inclusive strategy

Now, venture capital isn’t the devil, and in a market as hot as right now it’s clear that there is a huge demand to back great ideas. The problem starts when you look at which ideas get backed versus which don’t, and underrepresented founders lose out at a disproportionately higher rate than white founders.

Standards help everyone get on the same page, and in venture, any clarity around how one investor cuts checks versus another can help curb signaling risk and help set expectations on early-stage founders. Lightship Capital uses traditional venture capital but applies it in a way Brackeen thinks is more inclusive to founders.

Oftentimes, VCs talk about designing your product for your customer, but then they don’t design themselves around the customer. They completely ignore what they tell people to do. And so we’re designed for the underrepresented founders. And for us, that’s women, minorities, lgbtq, plus disabled. And so the capital path for that founder is different from the white male Zuckerberg founder. Oftentimes, a Series A is very, very difficult, so we bridge that. We’ll write a smaller check – half a million dollars first – and then we’ll reserve $1.5 million so they can go out and get a Series A done. And so to do that, we don’t require board seats and things of that nature, we do require strong collaboration. (Timestamp: 7:03)

• Flexible VC: A new model for startups targeting profitability
• Venture capital gets less diverse in 2020
• If you’re not investing in diverse founders, you’re a bad investor

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On how your first check could impact your next check

Thomas noted that Indie.VC, an alternative financing program that was aimed at slow-growth, bootstrapped founders, shutting down this past week could be a lesson for founders who look to finance their companies from the plethora of programs out there.

They were at the frontiers of building access to new capital. I think one of the things that we saw when we would talk to founders who were considering Indie.vc capital versus our capital was, ‘does the investor that you would like after you get that Indie.vc funding, if you decide to go to a more traditional VC firm? Can they actually even do revenue based financing investments, some people actually legitimately can’t because of the regulatory limits of their fund.(Timestamp: 16:28)

She went on to explain how this isn’t simply a one-off problem that could happen with. Precursor founding partner Charles Hudson penned a post, months ago, about the messiness in early-stage cap tables.

I don’t want to say it’s unfair, but you have to make a pretty final decision, pretty early on in what type of company you want to build. And I don’t think that allows for a lot of the flexibility that is the reality of building a startup. When you pivot like five to 10 to 20 to 30 times before you finally get to something that, you know, matters. And so how do we also allow for more flexibility between multiple different types of revenue structures? I just don’t think that exists right now. (Timestamp: 17:12)

• A recapitalization reckoning
• Founders seeking their first check need a fundraising sales funnel

Brackeen added that his form loves non-dilutive financing before, and after, they are nicest. Pitch competitions might help a startup launch, but it won’t help founders get from stage to stage. This banter basically answers the question that I set early on: is all capital created equal in the eyes of investors? A cap table filled with different types of financing structures and notes, as Thomas mentions, could lead to your next check investor declining to invest based on a semantic versus a lack of believing in your vision. One side effect we see here is recapitalizations, an event where startups restructure their entire cap table to squeeze out old investors, bring on new ones and shift the way equity and debt is managed.

Scholz chimed in about how startups should think about capital limitations, but also other corporate structures that could shape the trajectory of a startup.

I think that point about founders basically getting locked into a corporate structure and an investment strategy before they even really know what they’re building or how it’s selling is just so important. I always joke, you know, like 99 out of 100, corporate lawyers will tell you to incorporate as a Delaware C. [But] that may or may not be the right answer. There may be a good reason to become a cooperative, and incorporating as a Delaware C will make your life very difficult. (Timestamp: 17:46)

• Should your startup take the public benefit or B corp route?
• Which types of startups are most often profitable?

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On if VC will be even more relevant five years from now

The conversation turned into a broader discussion on if venture capital will be as relevant as it is today, five years from now. While Scholz said that she doesn’t even think venture is that important today, the two venture capitalists on the panel – Brackeen and Thomas – were good sports about the future of the asset class they have bet their careers on.

Thomas: The IPOs just keep on coming, and they keep getting bigger. It’s crazy. I think that there is recreating an immense amount of wealth, and that we need to be thoughtful, we need to be careful. And we need to be just considerate of that fact. And so I plan to be in venture for the next ten years. But I Ithink, to Astrid’s point, we are not the only ones on the island. We are connected to all of these other different capital structures, and different communities. But my bet is still here. (Timestamp 25:14)

Brackeen: Capital will continue to play a large role in capitalism, because the two are hand in hand. And venture capital is a version of that. Watch what we do. To see billions of dollars go into these geographies, these communities, these groups, the value creation is outrageous. Morgan Stanley, and others say that racism and sexism cost this country somewhere between $4 trillion and $16 trillion in kind of untapped value. So venture capital can be a key lever in opening that faucet. (Timestamp: 25:52)

• Venture capital is going to get even bigger, faster and more expensive this year
• Lame LPs, founder referenceability and the future of VC signaling

You can read the entire transcript here.

 

It was only a matter of time before someone married the nascent nootropic supplements for brain health to the snack bar craze that continues to attract dollars and exits.

That time is apparently now, as Rob Dyrdek, the MTV-famous celebrity, pro-skater and entrepreneur, and Chris Bernard announce a new investment in the company they co-founded, Mindright, alongside celebrity investors including Joe Jonas, Travis Barker, and The Profit’s Marcus Lemonis. 

“When we started down the path of condition-specific food and beverage… we started doing a lot of research into the nootropics and adaptogens space,” said co-founder Bernard. Working with a food scientist who did not want to be named (which isn’t sketchy at all), Dyrdek and Bernard were introduced to several companies producing Ashwagandha, which the two had settled on as the new key ingredient in their snack bars.

Along with ginseng and cordyceps mushrooms, the company has a trifecta of new (and old) supplements that have taken the nutraceutical world by storm.

Bernard had initially approached the Dyrdek Machine group about another product, but the company was too far along and not something that Dyrdek felt passionate about backing. The story changed when Bernard returned with plans for this nootropic nosh.

“[Bernard] brought back the concept of the path of what’s evolved from functional foods and probiotics and collagen and sort of the mental health and adaptogen and the supplement world and said here’s how to merge these,” Dyrdek said of Bernard’s second pitch. “It was a home-run for us. Our process is supporting a solopreneur where we help shape and build the company together and provide the outsourced resources. We fund the development of the idea to go to the capital markets.”

So far, Drydek and his team have made 15 investments in consumer and entertainment businesses, and five of those business have since been acquired.

Most deals from Dyrdek Machine follow a similar trajectory. The firm becomes a co-founder and shares common stock and then negotiate a preferred equity investment for the capital infusion. Typically those deals will range from $250,000 to $500,000.

“We co-found it and we share that common share class and our first money is preferred and pick a valuation that balances out the deal,” Dyrdek said. “How much equity do we want to develop it with you is what we negotiate with that initial capital.”

Dyrdek describes his investment firm as founder-driven and market agnostic. “We want a well-rounded, multi-dimensional founder and then we look at the market and how do we evolve it into something that has a larger, broader appeal,” Dyrdek said. “Rather than chasing down nootropics, we found that ‘good mood’ was the important thing to the consumer base. That’s why we drove ‘Good mood superfood.'”

Bernard’s faith in Dyrdek’s ability to move the business forward has been proven in the evolution of other companies in the firm’s portfolio. Dyrdek pointed to Outstanding Foods, another investment, which he said had recently closed a $10 million round at a $100 million valuation. Another startup in the portfolio, Momentous, a supplement manufacturer, also closed on a big round recently after raising $5 million in 2019, Dyrdek said.

For Mindright, Dyrdek’s involvement brought in other celebrity names once they tried the product. The company counts Joe Jonas and Travis Barker among its seed investors.

“They were excited to get involved in this because they believed in what we took the time to create,” Bernard said. 

It was only a matter of time before someone married the nascent nootropic supplements for brain health to the snack bar craze that continues to attract dollars and exits.

That time is apparently now, as Rob Dyrdek, the MTV-famous celebrity, pro-skater and entrepreneur, and Chris Bernard announce a new investment in the company they co-founded, Mindright, alongside celebrity investors including Joe Jonas, Travis Barker, and The Profit’s Marcus Lemonis. 

“When we started down the path of condition-specific food and beverage… we started doing a lot of research into the nootropics and adaptogens space,” said co-founder Bernard. Working with a food scientist who did not want to be named (which isn’t sketchy at all), Dyrdek and Bernard were introduced to several companies producing Ashwagandha, which the two had settled on as the new key ingredient in their snack bars.

Along with ginseng and cordyceps mushrooms, the company has a trifecta of new (and old) supplements that have taken the nutraceutical world by storm.

Bernard had initially approached the Dyrdek Machine group about another product, but the company was too far along and not something that Dyrdek felt passionate about backing. The story changed when Bernard returned with plans for this nootropic nosh.

“[Bernard] brought back the concept of the path of what’s evolved from functional foods and probiotics and collagen and sort of the mental health and adaptogen and the supplement world and said here’s how to merge these,” Dyrdek said of Bernard’s second pitch. “It was a home-run for us. Our process is supporting a solopreneur where we help shape and build the company together and provide the outsourced resources. We fund the development of the idea to go to the capital markets.”

So far, Drydek and his team have made 15 investments in consumer and entertainment businesses, and five of those business have since been acquired.

Most deals from Dyrdek Machine follow a similar trajectory. The firm becomes a co-founder and shares common stock and then negotiate a preferred equity investment for the capital infusion. Typically those deals will range from $250,000 to $500,000.

“We co-found it and we share that common share class and our first money is preferred and pick a valuation that balances out the deal,” Dyrdek said. “How much equity do we want to develop it with you is what we negotiate with that initial capital.”

Dyrdek describes his investment firm as founder-driven and market agnostic. “We want a well-rounded, multi-dimensional founder and then we look at the market and how do we evolve it into something that has a larger, broader appeal,” Dyrdek said. “Rather than chasing down nootropics, we found that ‘good mood’ was the important thing to the consumer base. That’s why we drove ‘Good mood superfood.'”

Bernard’s faith in Dyrdek’s ability to move the business forward has been proven in the evolution of other companies in the firm’s portfolio. Dyrdek pointed to Outstanding Foods, another investment, which he said had recently closed a $10 million round at a $100 million valuation. Another startup in the portfolio, Momentous, a supplement manufacturer, also closed on a big round recently after raising $5 million in 2019, Dyrdek said.

For Mindright, Dyrdek’s involvement brought in other celebrity names once they tried the product. The company counts Joe Jonas and Travis Barker among its seed investors.

“They were excited to get involved in this because they believed in what we took the time to create,” Bernard said. 

Gig workers and warehouse workers have become essential in a pandemic-ravaged economy. In California, a law went into effect earlier this year that makes gig workers independent contractors. Meanwhile, Amazon warehouse workers in Alabama are actively seeking to form a union to ensure better protections at the workplace.

At TC Sessions: Justice, I spoke with Gig Workers Collective co-founder and organizer Vanessa Bain, The Congress of Essential Workers founder and former Amazon warehouse worker Christian Smalls and National Council for Occupational Safety and Health Co-Executive Director Jessica E. Martinez about what’s next for gig workers and tech’s contractor workforce, and what battles lie ahead for these essential workers.

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On the Amazon union drive

Amazon warehouse workers in Bessemer, Alabama are in the midst of a historic union drive. Smalls, who was fired from his job at an Amazon warehouse in Staten Island last year after speaking out about the lack of personal protective equipment, told me he recently spent a few days in Bessemer.

The building opened up when Coronavirus started. When New York City became the epicenter, that’s when Bessemer facility opened up. So the union got a head start on talking to workers. So that’s a gem for anybody or any union that plans on trying to unionize the building — that you have a facility in your community that’s about to open up, when opening, that’s the best time to connect with workers. That’s what happened last year. And as a result, the workers had seen what happened to the workers that were unprotected and they don’t want that. They want better for themselves. And they rightfully desrve that, especially in Alabama. It’s a right to work state, a state with no state minimum, obviously a red state. So I think it’s a lot of intangibles against them. But these workers now see the window of opportunity for change systemically. (Timestamp: 4:40)

Meanwhile, President Biden recently came out in support of the unionizing efforts in Bessemer.

I would hope that he is a man of his word. He’s a pro-union guy. He ran his campaign off of that, saying he’s a union guy and unions need to be strong, and he supports unions all the way. It was powerful to see that the President, the man, the highest plateau in the country, support the union. (Timestamp: 13:11)

[…] But once again, like Vanessa said, I don’t put all my eggs in that basket either. I just want to hold him accountable. Make sure that, you. know, we see this all the way through to the end. Even if Alabama is not successful, if we were to try again, in other locations, other parts of the country, that we have the support of the highest power in the country, that is the most powerful thing that will resonate with workers. So it’s good to see that it’s happening now. (Timestamp: 14:17)

• Amazon warehouse workers to begin historic vote to unionize
• Amazon faces lawsuit alleging failure to provide PPE to workers during pandemic
• NY AG sues Amazon over treatment of warehouse workers

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On the effects of Prop 22

Already, Prop 22 has affected industries outside of tech. In December, supermarket chain Albertsons began replacing delivery drivers with contractors and hundreds of employees in California were swapped for DoorDash workers, Bloomberg reported. Meanwhile, tech companies have spoken about implementing Prop 22-like legislation in other parts of the country. Martinez described how some California residents who voted to pass Prop 22 thought they were supporting workers for better access to rights.

And unfortunately, you have workers who have possibly died. We have a California rideshare driver who died from COVID-19 last month. His independent classification means his family will receive no workers’ compensation. That is a huge impact to workers and the reality of how it impacts day to day life for workers and in the midst of a pandemic. So I share that, because Prop 22 sets the tone, again, for what could happen nationally. (Timestamp: 17:00)

Meanwhile, Bain said she sees the passing of Prop 22 as a failure of “our entire structure of economy.”

And we have really allowed tech to run rampant under this pretense that somehow it’s innovative, and especially within the gig economy. I mean, it’s the opposite of innovative, right? Like it’s feudalism on your phone, right? It’s 1-800 dial listserv. So it’s like, they’re not doing anything new that justifies creating an entirely different classification of labor than existed before, which is what Prop 22 did, right? It literally created this category of marketplace contractor that retains neither the protections of an independent contractor nor an employee. And allowing, you know, companies to write their own laws in this way is a systemic failure. (Timestamp: 18:57)

• An even bigger battle for gig worker rights is on the horizon
• Gig workers in San Francisco are mostly people of color and many are immigrants, according to survey
• Ex-Postmates VP of global public policy on the future of gig work

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On the PRO Act

There’s legislation in the U.S. Senate right now that aims to make it easier for workers to organize and form unions in the country. The Protecting the Right to Organize Act seeks to change labor laws in favor of giving workers more power.

Bain spoke about the importance of getting the PRO Act across the line in light of the passing of Prop 22 in California.

These things shouldn’t be at the mercy of who happens to be, you know, held to a position. These are things that should be codified and enshrined really in law. And things that should be consistent and stable protections that people can rely on and count on. (Timestamp: 20:22)

Martinez explained how the PRO Act aligns with the work she’s doing at COSH. The organization recently released a national agenda for worker safety and health, along with some recommendations.

We want stronger safety laws, tougher enforcement, including a mandatory emergency standard to prevent the spread of infectious disease. And again, this is federally so if there is an ETS or an emergency [temporary] standard pass, it applies all over and impacts all kinds of workers, stronger protections against retaliation. (Timestamp: 07:53)

Martinez added:

Employers will funnel resources to try to scare tactics to scare workers from organizing, demanding safer workplaces, job security, and so forth. [The agenda] also includes workers are included in all policy decisions. We believe strongly that workers, more than anyone, understand the job, know the solutions and controls to health and safety issues, and also equity and Inclusion to end the misclassification and better protections for temporary gig workers. Paid sick and family leave for workers also worker centered health protocols, including health for high risk workers and getting access to vaccines. And we want to confront the workplace effects of climate change. Finally, also prevent chemical catastrophes and harmful exposure. […] With that said, this is not working in isolation. It works in collaboration with laws, we’re hoping that will pass, such as the PRO Act, allowing workers to gain bargaining power when organizing, essentially giving them the ability to negotiate with the employer get access to benefits again, such as some job security paid sick leave workers comp and so forth. (Timestamp: 8:23)

You can read the entire transcript here.