Category: UNCATEGORIZED

Once upon a time, fintech founders could pitch 10 investors before closing a round in a relatively hushed way. Entrepreneurs could even ask VCs to sign nondisclosure agreements (NDAs) to keep their information confidential. Today, everyone is a fintech investor and no one signs NDAs.

This changed dynamic puts founders in a difficult position.

Nabeel Alamgir, CEO and founder of Lunchbox, struggled to raise his first institutional check for his restaurant tech startup. After searching for more than a year, Alamgir found an investor who understood his vision. Better yet, the investor had connections to restaurants in New York City that Alamgir wanted to land. So, Alamgir shared everything about Lunchbox, from the financials, to the product integration road map and go-to-market strategy.

After a month of due diligence, the investor ghosted Alamgir. Four months later, that same investor’s portfolio company launched a product mimicking Lunchbox.

“I did not do due diligence on them as they were doing on me,” he said. “And I forgot all my rules. Most rules go out the window as cash is running out.”

Alamgir’s experience is a classic case of back-channeling, a sometimes unfortunate yet uncommon occurrence for founders in Silicon Valley. It’s not a secret that investors share intel with each other as a competitive advantage; but as venture capital grows as an asset class and more investors break into the industry, the way information disseminates will become even more elusive and broad.

Alamgir advises early-stage founders who are looking to raise their first check to “contain excitement.”

Traditional roadmaps for startups center around this idea of the exit. Oftentimes, the ideal exit in the minds of startups and venture capitalists goes one of two ways: IPO or acquisition by another company.

But there are other ways for startups to exit that could potentially bring more value to a larger variety of stakeholders. Exit to Community (E2C), a collaborative working project led by the University of Colorado Boulder’s Media Enterprise Design Lab and Zebras Unite, explores ways to help startups transition investor-owned to community ownership, which could include users, customers, workers or some combination of all stakeholders. Today, the group released a digital and physical zine designed to serve as an introduction to Exit to Community.

“The purpose of the zine is to provide an initial roadmap to all of the aspects of the conversation that need to happen so we can save founders pain in recognizing and validating they’re in the wrong fit and we need to co-create what does fit,” Zebras Unite co-founder and zine co-author Mara Zepeda told TechCrunch. “It’s not a silver bullet. It’s not like there’s this other perfect thing that everyone needs to do. I describe it as running a Cambrian explosion of experiments in order to figure out what this future is. It’s not just one thing. That’s how what we’re doing is really different. Sometimes there are these niche products or movements that pop up and say, “this is the answer. There isn’t one answer for this moment.” 

These alternative exit models also have the potential to to open the door for founders in other markets, E2C co-organizer Nathan Schneider told TechCrunch. He pointed to tiphub, a company focused on Africa and the African Diaspora, that had been looking for alternative ways to support founders given there isn’t a huge mergers and acquisitions market in Africa.

“Because of the infrastructure that exists in the financial market, we don’t have the same set of realities that a very active VC industry does in Europe or the U.S.,” tiphub Partner Chika Umeadi told TechCrunch. “There’s just not as much private equity activity or M&A activity. We believe we have a strong hypothesis for how we can manufacture companies quickly, but we still need to build the other side of the market. There are companies that are valuable, but we now have to think about alternative methods of exiting.”

Already, there are a handful of examples out there of what exiting to community can look like. Buffer, a social media management platform, bought out its investors in 2018 because it became “clear that Buffer had become less of a fit for VC funding,” Buffer CEO and co-founder Joel Gascoigne wrote in a blog post at the time.

Then, in 2019, SEO and Conductor bought back its content marketing company from WeWork. Now, the company is majority employee-owned.

“It was a dream that we always had that we would own the company and we gave a huge amount of ownership to all the people and now the company is almost entirely employee-owned,” Conductor CEO Seth Besmertnik told me earlier this year. “And now we have everything we want to go and make our mission a reality.”

Outside of the tech industry, E2C points to Organically Grown Company, an organic produce distributor based in Oregon that transitioned from an employee- and grocer-owned operation into a community-owned one.

“These types of glimpses suggest that it’s possible,”Schneider said.

For investors, while IPOs and acquisitions can elicit high returns, not all of the startups in their portfolios will be candidates.

“Their current exit options limit what kind of returns and outcomes they can see for their portfolio companies,” Schneider said. “If a startup ends up not being a candidate for an IPO or acquisition, E2C can still help them get their money back, or get a decent return. There’s also a class of investors trying to thread the needle of financial return with social return, and are looking for models that can help facilitate that.”

Beyond the zine, the next step is to crate a peer learning cohort of founders who are exploring some of these options. Down the road, the hope is to create standard documents for startups that make it easy for founders to pursue these alternative paths.

RealPage, a publicly traded full-service property management technology firm with over 12,200 clients worldwide, today announced that it has acquired Stratis IoT,  a startup that provides IoT services to the real estate industry, with a focus on access and energy management tools.

“RealPage aims to become a leading provider in the burgeoning rental property automation market, and thereby create significant opportunity for operators to increase rents, improve sustainability, add operational efficiencies, reduce operating costs and enhance the customer experience for the company’s approximately 19 million units throughout the United States,” said RealPage CEO Steve Winn. “The smart building technology also provides a launching pad for expanded international operations, thanks to Stratis’ existing international presence.”

Stratis is currently installed in about 380,000 homes in the U.S., Japan, UK and several countries in Europe and Latin America. Both Stratis and RealPage target a wide range of the real estate industry, ranging from multifamily units to student housing, vacation homes and commercial real estate.

Image Credits: Stratis

Traditionally, the real estate market wasn’t always the first to adopt modern technologies. That’s quickly changing now, though, in part because of the promise of IoT, which isn’t just a boon to renters looking for modern solutions in their apartments but also represents the possibility of significant cost savings for the industry. RealPage argues that smart technology can generate a revenue lift of $55 per unit, for example, and that’s the kind of saving (and higher revenues) that will push even legacy B2B platforms to modernize.

One area where Stratis stands out is its ability to integrate with a wide variety of third-party solutions.

“Holistic building-wide access and utility management and control are integral to building optimization and the resident experience, which have become increasingly intertwined,” said Stratis IoT CEO Felicite Moorman. “RealPage and Stratis IoT combine two industry-leading, best-in-class platforms to create a powerhouse of control and single-app resident experience for multifamily, student housing, and beyond.”

The two companies did not disclose the price of the acquisition. It’s worth noting that RealPage isn’t a stranger to making acquisitions to bring its technology up to speed. A year ago, the company acquired Hipercept, for example, a firm that provided data services and data analytics to the institutional real estate market. Then, in December, it also acquired Buildium, a SaaS property management solution with over 2 million units under management. In 2019, the company said planned to spend just over $100 million on acquisitions.

Earlier this year, online marketplace OfferUp raised $120 million and acquired a top competitor, letgo as a part of the fundraise led by letgo’s majority investor, OLX Group. As a part of the deal, OfferUp said it planned to eventually combine the businesses’ respective marketplaces into one but didn’t get into specifics of how that merger would take place. Today, OfferUp says it has now combined the OfferUp and letgo marketplaces into a new app and explained how the transition will work for former letgo users.

The newly combined OfferUp and letgo application is available across both iOS and Android, and expands the number of deals, buyers and seller, by naturing of its combined communities. With the expansion and merger, users on the new marketplace will also gain access to features like nationwide shipping and OfferUp’s safety programs like TruYou and Community MeetUp Spots. In addition, the listings on the app will never expire, though letgo had expired them after 30 days.

Existing letgo users will be directed to download the new OfferUp & letgo app, then use their letgo sign-in information to create their new OfferUp account. When they sign in, their account’s reputation, including their ratings, sales and purchase history, and join date will transfer from letgo to OfferUp.

However, items users had listed on letgo will not move over to OfferUp. Instead, they’ll need to be reposted. For customers who were in the middle of transactions, the company is offering a website legacy.letgo.com where those transactions can be completed. This site will be shut down after September 21, so it’s being advised that all parties quickly complete their sales.

As a result of the merger, customers with an active subscription to Super Boost Mode on letgo will have that subscription automatically cancelled. They can choose to use OfferUp’s Promote Plus service instead, but won’t be automatically signed up or opted in.

There will be some other differences between the two marketplaces that letgo users should understand. While the merger does bring nationwide shipping to former letgo users, it also means that some of letgo’s categories are no longer supported. These include jobs, services, rental listings and gift cards.

In addition, letgo won’t be supported in Canada due to the merger and OfferUp hasn’t yet reached Canada either. That means the company will lose some number of Canadian users as a part of the deal.

At the time of the deal, letgo brought to the table an app that had over 100 million worldwide downloads, so there is potential for at least some portion of its lapsed users to reactive their accounts upon their next launch. The two apps had also been neck-and-neck in terms of their App Store category rankings before the acquisition, though the iPhone version of OfferUp had a slight lead.

As of yesterday, OfferUp was still ahead with a ranking of No. 4 in iPhone’s Shopping category, compared with letgo at No. 12, per data from Sensor Tower.

As a business model, SaaS has expanded to epic size. A number of major SaaS companies filed to go public last week, and there are now thousands of SaaS startups growing all around the world. That scale makes it easier for banks and financial institutions to offer tailored solutions to this market around everything from equity to debt.

We’ve talked a bit about SaaS securitization the last few weeks, a crop of new financial products that use the metrics of a SaaS company to underwrite its debt (e.g. better churn = more debt available and at better terms) as opposed to traditional benchmarks like total revenue and company age. We also did a deep dive with Kentik CEO Avi Freedman on how he approached his recent venture debt fundraise and the terms he got across his five term sheets.

Every SaaS company these days is considering its financial options and the tradeoffs between equity and debt. But sometimes, they just need cash, and cash as quickly as possible. Startups sign contracts with customers that might be paid over a year or more, but they want to access that cash now, and at the best terms possible. The product that solves this problem is known as an accounts receivable line, and you can go to many banks to get them, with all the drudgery of that process.

Or, four founders hope, you’ll head to Capchase.

Capchase is an online platform for rapidly getting cash from your accounts receivable. Startups upload key details of their customer contracts and financial history to Capchase, and the company uses its underwriting algorithms to quickly assess the quality of those contracts and extend a debt line. The startup calls itself part of the “non-dilutive revolution,” and it’s headquartered in Boston.

“We’re targeting B2B SaaS or ‘X-as-a-service’ companies with recurring revenue, and we’re targeting companies around the seed to Series B/C stage having more than $1 million of ARR and at least eight months of revenue generating history,” Miguel Fernández, CEO and co-founder, said.

He linked up with three other founders earlier this year to launch Capchase: Luis Basagoiti, Ignacio Moreno, and Przemek Gotfryd. Fernández and Gotfryd met while at Harvard Business School where Fernández was thinking about “working capital and cash conversion cycle optimization” after his previous experiences at SaaS companies. Gotfryd had previously worked at growth investor TCV in London, where he acutely saw the challenges of raising non-dilutive cash.

Capchase’s team. Photo via Capchase.

Despite its early operational history, the company has already raised its own cash quickly. It closed on $4.6 million in VC seed funding led by Caffeinated Capital, Bling Capital, and SciFi VC, along with a number of angels.

To get cash early today, startups often resort to negotiating terms with their customers, offering discounts — sometimes massive discounts — for them to pay an entire contract’s value upfront. Fernández saw an opportunity to arbitrage the difference between interest rates and those discounts with Capchase.

From a user’s perspective, after syncing their startup’s financial data to Capchase, they will see a projection of what their runway extension will look like after selecting a debt line, and then Capchase will extend its terms after going through an underwriting process (“which takes a couple hours now, and is very rapidly decreasing to take minutes” Fernández said). In terms of traction, he said that “we’re working with around 3-4 customers right now.”

Startups are charged a discount on their total contract value, which is where Capchase makes its money. For instance, if $100,000 is going to be paid by a customer over the next twelve months, Capchase may offer $95,000 to the startup upfront, and keep the remaining $5,000 as those payments roll in. That discount fluctuates based on the startup in question and the payment risk of the underlying customer contracts.

Fernández said that venture debt is often cheaper on a pure interest rate basis, but that once additional elements of those products are added in such as warrants, the simplicity of Capchase’s product will prove competitive for founders.

Simpler, easier, and fully digital financial products are always welcome, and Capchase hopes that it will nestle itself in a suite of new financial products for SaaS founders looking to avoid dilution and extend their cash longer.

TC Sessions: Mobility 2020 kicks off in 37 days, but the countdown clock on early-bird pricing runs out in just five. Engage with the mobility community’s brightest minds, makers, visionaries and investors from around the globe on October 6-7. Buy your early-bird pass before the bird expires September 4 at 11:59 p.m. (PDT), and you’ll save $100 over full price.

Why attend TC Sessions: Mobility 2020? It offers beaucoup benefits, but let’s start here. Whether you’re launching a mobility startup or you’re an established player, you’ll gain valuable insight to help position and grow your business.

“I learned a lot from the breakout sessions. An official from the Los Angeles DOT spoke about the city’s plan to build pathways for micro mobility vehicles. Access to experts sharing that kind of information is essential for anyone launching a micro mobility startup. — Parug Demircioglu, CEO at Invemo and partner at Nito Bikes.”

“As a mobility company, we need to stay on the cutting edge of what’s happening in the space and know what others are doing. TC Sessions: Mobility helps us tap into the latest trends, like which cities are open to new services, which ones are having a harder time and what’s going on with MDS — probably the hottest topic at this point.” — Melika Jahangiri, vice president at Wunder Mobility.

Now that you’ve heard directly from your peers, let’s talk about what’s on the mobility menu. A kickass agenda for starters. Let’s take a peek.

• Setting the Record Straight — Argo AI has gone from unknown startup to a company providing autonomous vehicle technology to Ford and VW — not to mention billions in investment from the two global automakers. Co-founder and CEO Bryan Salesky will talk about the company’s journey, what’s next and what it really takes to commercialize autonomous vehicle technology.
• The Future of Trucking — TuSimple co-founder and CTO Xiaodi Hou and Boris Sofman, former Anki Robotics founder and CEO who now leads Waymo’s trucking unit, will discuss the business and the technical challenges of autonomous trucking.

You’ll hear interviews with top founders, technologists and investors. You’ll also hear from big players, like Lyft and Uber, and household giants like Porsche and Audi who can see the mobile writing on the wall. But we also have plenty of room for newbies and upstarts. In fact, we’ve added a pitch-off to this year’s lineup. We’ll announce more details on how early-stage mobility startup founders can apply to compete, so stay tuned.

Don’t miss out on the mobility event of the year — or miss out on serious savings. You have just five days left to beat the clock and save $100. Buy your pass to TC Sessions: Mobility 2020 before September 4 at 11:59 p.m. (PDT). Don’t let the early bird flip you the worm.

Is your company interested in sponsoring or exhibiting at TC Sessions: Mobility 2020? Contact our sponsorship sales team by filling out this form.

In last week’s IPO wave, one company fell a bit by the wayside amongst filings from better-known companies like Asana and Palantir. JFrog, a company that TechCrunch reported helps allows developers and companies deliver application updates “in the background without disturbing the user experience” when it raised $165 million in 2018, is positioned for an exciting debut.

Why? The unicorn — the same 2018 round valued JFrog at around $1.2 billion according to PitchBook data — has a unique blend of growth, margins and profitability that should make its pricing cycle incredibly interesting.

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

JFrog will give us an insight into how Wall Street will value a fast-growing, managed software company that also doesn’t lose money. It’s not something we see often, and other market hopefuls like the aforementioned Asana and Palantir are far from similar levels of profitability.

Let’s take a quick look at what JFrog would be worth if it were a more normal — read: less profitable — SaaS company, and then ask what it might be worth as a cash-generating, recently profitable concern. The numbers are pretty surprising.

JFrog

If you want more on the basics of JFrog’s business and why developers and companies care about the company, head here. We’re only doing numbers today.

Back to the basics as a refresher from early last week, here’s what you need to know about JFrog’s business:

• Revenue grew from $63.5 million in 2018 to $104.7 million in 2019 and from $46.1 million to $69.2 million from the first half of 2019 to the first half of 2020. Those gains of 65% and 60.1%, respectively, put JFrog on a comfortable growth pace for a company doing nine-figure revenues.
• JFrog has lost less money as it has grown. From $1.00 per share in 2018 to $0.20 per share in 2019, and from $0.08 per-share in the first half of 2019 to just $0.02 per share in the first half of 2020.
• JFrog’s gross margins have been 81% or better in every mutliquarter period we have record of.
• JFrog’s operating cash flow has improved over time as well, rising from +$8.6 million in 2018 to $10 million in 2019, and from +$0.415 million in the first half of 2019 to +$5.9 million in the first half of 2020.
• And, after some quarters of extremely limited losses, JFrog posted its first known (since Q1 2018) GAAP profitable quarter in Q2 2020, generating $1.7 million in net income off of revenues of $36.4 million in the same period.

Now ask yourself, what is that company worth?

Amazon has been granted an approval by the U.S. Federal Aviation Administration (FAA) that will allow it to start trialling commercial deliveries via drone, Bloomberg reports. This certification is the same one granted to UPS and a handful of other companies, and while it doesn’t mean that Amazon can immediately start operating a consumer drone delivery service for everyone, it does allow them to make progress towards that goal.

Amazon has said it’ll kick off its own delivery tests, though it hasn’t shared any details on when and where exactly those will begin. The FAA clearance for these trials is adapted from the safety rules and regulations it imposes for companies operating a commercial airline service, with special exceptions allowing for companies to bypass the requirements that specifically deal with onboard crew and staff working the aircraft, since the drones don’t have any.

These guidelines are at best a patchwork solution designed by the agency and its commercial partners to help provide a way for them to get underway with crucial systems development and safety testing and design, but the FAA is working towards a more fit-for-purpose set of regulations to govern drone airline operation for later this year. That will mostly be related to authorizing flights over crowds – but any drone flights will still require constant human observation.

Ultimately, any actual viable and practical system of drone delivery will require fully autonomous operation, without direct line-of-sight observation. Amazon has plans for its MK27 drones, which have a maximum 5 lb carrying capacity, to do just that, but it’ll still likely be many years before the regulatory and air traffic control infrastructure is updated to the point where that can happen regularly.

Tired of signing up for email newsletters? Then maybe it’s time to try out The New Paper‘s news digest, which arrives in the form of a daily text message rounding up the biggest headlines.

The Indianapolis-based startup is announcing that it’s leaving private beta testing. It raised $300,000 in pre-seed funding last year, including $80,000 from a pitch competition held by Elevate Ventures (the VC fund based by Indiana State).

Founders Michael Aft and John Necef told me that they started The New Paper with the intention of creating  email newsletters at first (something Necef has experience with, having served as head of growth at The Hustle), but they decided that text messages offered the best way to, in Aft’s words, “do daily news right.”

“Think about the volume of email you get everyday,” he continued. “It’s this stressful, noisy, environment where you get spam and e-commerce messages. Text is easy, it’s clean, it’s extremely convenient, it’s intimate.”

In fact, Necef said that “a common anecdote” they’ve heard from early subscribers is the fact that they sign up for email newsletters “with the best of intentions” but then those newsletters end up sitting unread in their inboxes. (Think of it as the digital equivalent of those piles of unread New Yorkers.)

Of course, the fact that text messaging is such a personal channel also means that readers aren’t likely to stick around unless they’re actually getting what they want. But Aft said he embraces the challenge of meeting that higher bar: “You’re never going to forget that you subscribed.”

Image Credits: The New Paper

In fact, The New Paper needs to provide value not just because it’s delivered via text message, but because it’s a paid product — after a weeklong free trial, it costs $5 per month. And more than 7,000 paying subscribers have already signed up.

Currently, the digest consists of six headlines, all linking to reporting from other publications, plus a link to The Daily Dash, which provides a high-level snapshot of stock market performance, the current state of the coronavirus pandemic and more.

Both Aft and Necef emphasized that The New Paper’s approach is “fact first.” Of course, there are plenty of news organizations that tout their objectivity and devotion to accuracy, but the pair seemed particularly determined to present their readers with a “common set of facts” about a story that everyone can agree on, regardless of their political leanings.

To illustrate the company’s approach, Aft pointed to the recent report on Russian election interference by the Senate Intelligence Committee. Rather than trying to make any “second order conclusions” about the report — conclusions that could be influenced by a writer or editor’s political beliefs — he said The New Paper focused on what was factually indisputable, namely that the committee had released its report.

As soon as he said that, I imagined editors past and present tearing their hair out — not because they’re liberals determined to make the Trump Administration look bad, but because the report’s findings (that Russian intelligence worked to interfere with the election, and that members of the Trump campaign were happy to accept the help) is the real news, rather than the simple fact of the report’s release.

Image Credits: The New Paper

In other words, emphasizing objectivity and facts sounds good, but it also risks leaving out crucial context or analysis. Plus, it’s become increasingly clear that facts rarely change people’s minds.

Still, despite my quibbles with the approach, I’m happy to report that I’ve been receiving the digest for the past week, and I’ve found it to be a convenient, comprehensive catch-up on the day’s news, with links that make it easy to learn more.

For now, Aft and Necef are writing the digest themselves, though they said much of the ranking and sorting is done by algorithms. Over time, they’re hoping to hire on both the technology side and the editorial side. They also plan to expand into other channels like email and voice.

Asked whether the subscription business model means that they don’t have to pursue a mass audience, Aft replied, “We think it’s so critically important to give people a common set of information. To make this a viable business model, do we need to be 100 million strong? Of course not. Is that the goal we’re targeting? Absolutely, because we are so passionate about the problem.”