What are these rich people doing pumping crappy assets?

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. Want it in your inbox every Saturday morning? Sign up here. 

Ready? Let’s talk money, startups and spicy IPO rumors.

It’s been a bizarre few weeks, with Robinhood raising a torrent of new funds to keep its zero-cost trading model afloat during turbulent market conditions, other neo-trading houses changing up their business model and more. But amidst all the moves in startup-land, something has been itching in the back of my head: Why are several rich people pumping crappy assets?

It’s fine for a retail investor to share trading ideas amongst themselves; it has happened, will happen, and will always happen. But we’ve seen folks like Elon Musk and Chamath Palihapitiya use their broad market imprint to encourage regular folks — directly and indirectly — to buy into some pretty silly trades that could lose the retail crowd lots of money that they may not be able to afford.

Think of Elon coming back to Twitter to pump Doge, a joke of a cryptocurrency that is highly volatile and mostly useless. Or Chamath putting money into GameStop publicly, a move that he is better equipped than most to get into and out of. Which he did. And made money. Most folks that played the GameStop casino have not been as lucky, and many have lost more than they can afford.

Caveat emptor and all that, but I do not love folks with savvy and capital leading regular people into risky trades or into assets that are not backed by long-term fundamentals, but instead a small shot at near-term returns. Yoof.

Finally, keeping up the theme of general annoyance, Senator Hawley is back in the news this week with an attention-focused announcement of an idea to block big tech companies from buying smaller companies. As you would expect from the insurrection-friendly Senator, it’s not an incredibly serious proposal, and it’s written so vaguely as to be nearly humorous.

But as I wrote here on my personal blog about all of this, what does matter out of the generally irksome pol is that there is bipartisan interest in limiting the ability of big tech companies to buy smaller companies. For startups, that is not good news; M&A exits are critical liquidity events for startups, and big companies have the most money.

It’s no sauté of my onions if startup valuations fall, but I think there’s been plenty of attention noting that some Democrats and some Republicans in the U.S want to undercut top-down tech M&A, and not nearly enough notice concerning what the effort might do to startup valuations and funding. And if those metrics dip, there could be fewer upstarts in the market actually working to take on the giants.

Food for thought.

Market Notes

The Exchange caught up once again with Unity CFO Kim Jabal. We did so not merely to make jokes with her about games that we like or don’t like, but to keep tabs on how Jabal thinks as the financial head of a company that was private when she joined, and public now. A few observations:

• GAAP v. Non-GAAP: I asked about Unity’s recent Q4 net income, measured using generally accepted accounting principles, or GAAP. It was impacted by some share-based comp numbers. Jabal was clear that her team and investors are more focused on non-GAAP numbers. Why? They strip out non-cash charges like share-based comp and provide a different perspective into corporate performance. This is standard startup practice, but her comment shows how if your company is growing quickly post-IPO, you can stick to adjusted metrics and have no issue. If growth slows, I bet that changes.
• COVID: Will the COVID bump to gaming stick? Per Jabal, when her company has seen a bump in engagement historically, results don’t tend to fall back to prior plateaus. I wonder if this will be the case for all COVID-boosted parts of the startup and big-tech landscape. If so, it’s very good news.
• Know your metrics: Jabal said that her key metrics are non-GAAP operating margin and free cash flow — apart from growth, I’d add. That’s super clear and easy to grok. Startup CEOs, please have a similar distillation ready when we chat about your latest round.

And speaking of startups, let’s talk about a company that I’ve had my eye on that recently raised more capital: Deepgram. I covered the company’s Series A, a $12 million round in March 2020. Now it has raised $25 million more, led by Tiger, so this is a fun case of big money investing early-stage, I think. Regardless, Deepgram was a bet on a particular model for speech recognition, and, then, its market. its new investment implies that both wagers came out the right way up.

And I was chatting with the CEO of Databricks recently (more here on its latest megaround), who mentioned the huge gains made in AI, and more specifically around generative adversarial networks (GANs) NLP, and more. Our read is that we should expect to see more Deepgram-ish rounds in the future as AI and similar methods of approaching data make their way into workflows.

And fintech player Payoneer is going public. Via a SPAC. You can read the investor presentation here. Payoneer is not a pre-revenue firm going out via a blank check; it did an expected $346 million in 2020 rev. I’m bringing it to you for two reasons. One, read the deck, and then ask yourself why all SPAC decks are so ugly. I don’t get it. And then ask yourself why isn’t it pursuing a traditional IPO? Numbers are on pages 32 and 40. I can’t figure it out. Let me know if you have a take. Best response gets Elon’s dogecoin.

Various and Sundry

Wrapping up this week, TechCrunch has a new newsletter coming out on apps that is going to rule. Sarah Perez is writing it. You can sign up here, it’s free!

And if you need a new tune, you could do worse than this one. Have a great weekend!

Alex

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Minneapolis police used geofence warrant at George Floyd protests

{rss:content:encoded} Minneapolis police used geofence warrant at George Floyd protests https://ift.tt/2My38Wo https://ift.tt/3oR6GQl February 06, 2021 at 05:00PM

Police in Minneapolis obtained a search warrant ordering Google to turn over sets of account data on vandals accused of sparking violence in the wake of the police killing of George Floyd last year, TechCrunch has learned.

The death of Floyd, a Black man killed by a white police officer in May 2020, prompted thousands to peacefully protest across the city. But violence soon erupted, which police say began with a masked man seen in a viral video using an umbrella to smash windows of an auto-parts store in south Minneapolis. The AutoZone store was the first among dozens of buildings across the city set on fire in the days following.

The search warrant compelled Google to provide police with the account data on anyone who was “within the geographical region” of the AutoZone store when the violence began on May 27, two days after Floyd’s death.

These so-called geofence warrants — or reverse-location warrants — are frequently directed at Google in large part because the search and advertising giant collects and stores vast databases of geolocation data on billions of account holders who have “location history” turned on. Geofence warrants allow police to cast a digital dragnet over a crime scene and ask tech companies for records on anyone who entered a geographic area at a particular time. But critics say these warrants are unconstitutional as they also gather the account information on innocent passers-by.

TechCrunch learned of the search warrant from Minneapolis resident Said Abdullahi, who received an email from Google stating that his account information was subject to the warrant, and would be given to the police.

But Abdullahi said he had no part in the violence and was only in the area to video the protests when the violence began at the AutoZone store.

The warrant said police sought “anonymized” account data from Google on any phone or device that was close to the AutoZone store and the parking lot between 5:20pm and 5:40pm (CST) on May 27, where dozens of the people in the area had gathered.

When reached, Minneapolis police spokesperson John Elder, citing an ongoing investigation, would not answer specific questions about the warrant, including for what reason the warrant was issued.

According to a police affidavit, police said the protests had been relatively peaceful until the afternoon of May 27, when a masked umbrella-wielding man began smashing the windows of the AutoZone store, located across the street from a Minneapolis police precinct where hundreds of protesters had gathered. Several videos show protesters confronting the masked man.

Police said they spent significant resources on trying to identify the so-called “Umbrella Man,” who they say was the catalyst for widespread violence across the city.

“This was the first fire that set off a string of fires and looting throughout the precinct and the rest of the city,” the affidavit read. At least two people were killed in the unrest. (Erika Christensen, a Minneapolis police investigator who filed the affidavit, was not made available for an interview.)

Police accuse the Umbrella Man of creating an “atmosphere of hostility and tension” whose sole aim was to “incite violence.” (TechCrunch is not linking to the affidavit as the police would not say if the suspect had been charged with a crime.) The affidavit also links the suspect to a white supremacist group called the Aryan Cowboys, and to an incident weeks later where a Muslim woman was harassed.

Multiple videos of the protests around the time listed on the warrant appear to line up with the window-smashing incident. Other videos of the scene at the time of the warrant show hundreds of other people in the vicinity. Police were positioned on rooftops and used tear gas and rubber bullets to control the crowds.

Law enforcement across the U.S. are increasingly relying on geofence warrants to solve crimes where a suspect is not known. Police have defended the use of these warrants because they can help identify potential suspects who entered a certain geographic region where a crime was committed. The warrants typically ask for “anonymized information,” but allow police to go back and narrow their requests on potential suspects of interest.

When allowed by law, Google notifies account holders of when law enforcement demands access to the user’s data. According to a court filing in 2019, Google said the number of geofence warrants it received went up by 1,500% between 2017 and 2018, and more than 500% between 2018 and 2019, but has yet to provide a specific number of warrants

Google reportedly received over 180 geofence warrants in a single week in 2019. When asked about more recent figures, a Google spokesperson declined to comment on the record.

Read more on TechCrunch

• NSO used real people’s location data to pitch its contact-tracing tech
• Dozens of journalists’ iPhones hacked with NSO ‘zero-click’ spyware
• Location broker X-Mode continues to track users despite app store bans
• Got a tip? Contact us securely with SecureDrop.

Civil liberties groups have criticized the use of dragnet search warrants. The American Civil Liberties Union said that geofence warrants “circumvent constitutional checks on police surveillance.” One district court in Virginia said geofence warrants violated the constitution because the majority of individuals whose data is collected will have “nothing whatsoever” to do with the crimes under investigation.

Reports in the past year have implicated people whose only connection to a crime is simply being nearby.

NBC News reported the case of one Gainesville, Fla. resident, who was told by Google that his account information would be given to police investigating a burglary. But the resident was able to prove that he had no connection to the burglary, thanks to an app on his phone that tracked his activity.

In 2019, Google gave federal agents investigating several arson attacks in Milwaukee, Wis. close to 1,500 user records in response to geofence warrant, thought to be one of the largest grabs of account data to date.

But lawmakers are beginning to push back. New York state lawmakers introduced a bill last year that would, if passed, ban geofence warrants across the state, citing the risk of police targeting protesters. Rep. Kelly Armstrong (R-ND) grilled Google chief executive Sundar Pichai at a House Judiciary subcommittee hearing last year. “People would be terrified to know that law enforcement could grab general warrants and get everyone’s information everywhere,” said Armstrong.

Abdullahi told TechCrunch that he had several videos documenting the protests on the day and that he has retained a lawyer to try to prevent Google from giving his account information to Minneapolis police.

“Police assumed everybody in that area that day is guilty,” he said. “If one person did something criminal, [the police] should not go after the whole block of people,” he said.

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Will the Clubhouse model work in China?

On Friday just past midnight, I stumbled across a Clubhouse room hosted by a well-known figure in the Chinese startup community, Feng Dahui. At half-past midnight, the room still had nearly 500 listeners, many of whom were engineers, product managers, and entrepreneurs from China.

The discussion centered around whether Clubhouse, an app that lets people join pop-up voice chats in virtual rooms, will succeed in China. That’s a question I have been asking myself in recent weeks. Given the current hype swirling in Silicon Valley about the audio social network, it’s unsurprising to see well-informed, tech-savvy Chinese users start flocking to the platform. Demand for invitations in China runs high, with people paying as much as $100 to buy one from scalpers.

Many users I talked to believe the app won’t reach its full potential or even just find product-market fit in China before it gets banned. Indeed, a handful of well-attended Chinese-language rooms touch on topics that are normally censored in China, from crypto trading to protests in Hong Kong.

If it’s of any consolation, Clubhouse clones and derivatives are already in the making in China. A Chinese entrepreneur and blogger who goes by the nickname Herock told me he is aware of at least “dozens of local teams” that are working on something similar. Moreover, voice-based networking has been around in China for years, albeit in different forms. If Clubhouse is blocked, will any of its alternatives go on to succeed?

Information control

A direct Clubhouse clone probably won’t work in China.

A few factors dim its prospects in the country, which has nearly one billion internet users. The major appeal of Clubhouse is the organic flow of conversations in real time. But “how could the Chinese government allow free-flowing discussions to happen and spread without control,” a founder of a Chinese audio app rhetorically asked, declining to be named for this story. Video live streaming in China, for example, is under close regulatory oversight limiting who can speak and what they can say.

The founder then cited a famous online protest back in 2011. Thousands of small vendors launched a cyber attack on Alibaba’s online mall over a proposed fee hike. The tool they used to coordinate with one another was YY, which started out as a voice-based chatting software for gamers and later became known for video live streaming.

“The authorities dread the power of real-time audio communication,” the founder added.

There are signs that Clubhouse may already be the target of censorship. While Clubhouse works perfectly in China without the need for a virtual private network (VPN) or other censorship-circumvention tools (at least for the moment), the iOS-exclusive app is unavailable on China’s App Store. Clubhouse was removed there shortly after its global release in late September, app analytics firm Sensor Tower said.

Currently, in order to install Clubhouse, Chinese users need to install the app by switching to an App Store located in another country, which further limits the product’s reach to users who have the means of using a non-local store.

It’s unclear whether Apple preemptively delisted Clubhouse in anticipation of government action, given that any later removal of a major foreign app in China could stir up accusations of censorship. Alternatively, Clubhouse might have voluntarily pulled the app itself knowing that any form of real-time broadcasting won’t go unchecked by Chinese regulators, which would inevitably compromise user experience.

Entering China could be way down on Clubhouse’s to-do list given the traction it is gaining elsewhere. The app has seen about 3.6 million worldwide installs so far, according to Sensor Tower estimates. The majority of its lifetime installs originate in the United States, where the app has seen nearly 2 million first-time downloads, followed by Japan and Germany both with over 400,000 downloads.

Clubhouse elites

Clubhouse room hosted by Feng Dahui, a respected figure in China’s startup world. (Screenshot by TechCrunch)

The improbability of uncensored and open discussions on the Chinese internet may explain why the market hasn’t seen its own Clubhouse. But even if an app like Clubhouse is allowed to exist in China, it may not reach the same massive scale across the country as Douyin (TikTok’s Chinese version) and WeChat did.

The app is “elitist,” sort of like a voice version of Twitter, said Marco Lai, CEO and founder of Lizhi, a NASDAQ-listed Chinese audio platform. So far, Clubhouse’s invite-only model has confined its American user base largely to the tech, arts and celebrity circles. Herock observed that its Chinese demographics mirror the trend, with users concentrated in fields like finance, startup and product management, as well as crypto traders.

Even among these users though, there is the question of free time. The other night, I was up at midnight eavesdropping on a group of ByteDance employees. In fact, I’ve mostly been on Clubhouse in the late evenings after work, because that’s when user activity in China appears to peak. “Who in China has that much time?” said Zhou Lingyu, founder of Rainmaker, a Chinese networking community for professionals, when I asked whether she thinks Clubhouse will attract the masses in China.

While her remark may not apply to everyone, the tech-centric, educated crowds in China — the demographic that Clubhouse appears to be targeting or at least attracting — are also those most likely to work the notorious “996” schedule, the long hours practice common in Chinese tech companies. The type of “meaningful conversations” that Clubhouse encourages is desirable, but the app’s real-time, spontaneous nature is also a lot to ask of 996 workers, who likely prefer more efficient and manageable use of time.

China’s startup ecosystem is hitting back at demanding working hours

Moderators may also need material incentives to remain active aside from the pure passion in connecting with other human beings. One potential solution is to turn quality conversations into podcast episodes. “Clubhouse is for one-off, casual conversations. Those who produce high-quality content would want to record the conversation so it could be for repeatable consumption later on,” said Zhou.

Chinese counterparts

In China, audio networking has played out in slightly different shapes. Some companies place a great deal of focus on gamification, filling their apps with playful, interactive features.

Lizhi’s social podcast app, for example, is not just about listening. It also lets listeners message hosts, tip them through virtual gifts, record themselves shadowing a host who is reading a poem, compete in online karaoke contests, and more.

Podcast is social: How China’s Lizhi makes audio interactive

Interaction between hosts and listeners happens in a relatively orchestrated way, as Lizhi’s operational staff design campaigns and work with content creators behind the scenes to ensure content quality and user engagement. Clubhouse growth, in comparison, is more organic.

“The Chinese products focus more on spectatorship and performance, not so much translating natural social behavior in real life into a product. Clubhouse features are simple. It’s more like a coffee shop,” Lai said.

Lizhi’s other voice product Tiya is considered a close answer to Clubhouse, but Tiya’s users are young — the majority of whom are 15-22 years old — and it focuses on entertainment, letting users chat via audio while they play games and watch sports. That also feeds the need for companionship.

Dizhua, which launched in 2019, is another Chinese app that’s been compared to Clubhouse. Unlike Clubhouse, which relies on people’s existing networks for room discovery, Dizhua matches anonymous users based on their declared interests. Clubhouse conversations can start and die off casually. Dizhua encourages users to pick a theme and stay engaged.

“Clubhouse is a pure audio app, with no timeline, no comment, et cetera,” said Armin Li, an expert in residence with a venture capital firm in China. “It’s a kind of casual and drop-in style for the scenarios where user needs are not clear like hangout or multitasking … Its high community participation, content quality, and user quality are unseen in Chinese voice products.”

The bottom line is: The conversations that happen on Chinese platforms are monitored by content auditors. User registration requires real-name verification on internet platforms in China, so there’s no real anonymity online. The topics that users can discuss are limited, often leaning towards the fun and innocuous.

Why do people in China join Clubhouse anyway? Some, like me, joined out of FOMO. Entrepreneurs are always scouring for the next market opportunity, and product managers from internet giants hope to learn a thing or two from Clubhouse that they could apply to their own products. Bitcoin traders and activists, on the other hand, see Clubhouse as a haven outside the purview of Chinese regulators.

Technical support

One thing I find impressive about Clubhouse is how smoothly it works in China. Even when a foreign app isn’t banned in China, it often loads slowly due to its servers’ distance from China.

Clubhouse doesn’t actually build the technology supporting its enormous chat groups that sometimes reach thousands of participants. Instead, it uses a real-time audio SDK from Agora, two sources told me. The South China Morning Post also reported that. When asked to verify the partnership, Agora CEO Tony Zhao said via email he can’t confirm or deny any engagement between his company and Clubhouse.

Rather, he emphasized Agora’s “virtual network,” which overlays on top of the public internet running on more than 200 co-located data centers worldwide. The company then uses algorithms to plan traffic and optimize routing.

Noticeably, Agora’s operations teams are mainly in China and the U.S., a setup that inevitably raises questions about whether Clubhouse data are within the scope of Chinese regulations.

With real-time voice technology providers like Agora, opportunists are able to build Clubhouse clones quickly at low costs, Herock said. Chinese entrepreneurs are unlikely to copy Clubhouse directly due to local regulatory challenges and different user behavior, but they will race to crank out their own interpretations of voice networking before the hype around Clubhouse fades away.

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5 creator economy VCs see startup opportunities in monetization, discovery and much more

Everyone knows YouTubers and other creators are popular with internet users of all ages. But today, these influencers also have real businesses powered by a range of software tools and service providers who help weave videos, pictures, clips, memes and other types of content into sustainable success.

The pandemic added fuel to existing trends pushing growth in this category. Today, the platforms are bigger and more diverse than ever and many creators have years of experience growing audiences and monetizing online. Parallel to this industry, the rapid overall growth of enterprise technologies allow for many new types of creator-focused products to be built. Top investors in the space are seeing new opportunities for startups to build tools that help creators monetize and grow or solve needs that are specific to creator subverticals like gaming or coaching/education. 

For this particular investor survey, we dug through notes from the following:

• Benjamin Grubbs, founder, Next10 Ventures
• Li Jin, founder, Atelier Ventures
• Brian O’Malley, general partner, Forerunner Ventures
• Eze Vidra, managing partner, Reimagine Ventures
• Josh Constine, principal, SignalFire

The blank spaces in the creator economy

As with many industries that fall under the broad banner of tech, digital creators saw an acceleration from COVID-19, investors said. The simple fact that millions of us are inside and on our phones a lot has helped creators expand their audiences. (More on this in our digital media investor survey from the other week.)

More people also became creators. Jin noted that the pandemic has led to “people experimenting with creative hobbies and passions,” which smells like rising creator TAM from our perspective.

A broader definition of what constitutes a creator means more potential customers for startups looking to serve them, and perhaps a greater total revenue in the market could be an impact of COVID.

There are ample places for building in the creator economy, including discovery, which O’Malley cited as a key issue. “The best content doesn’t always rise to the top,” he said, adding that “incentives remain to create content that will be viral and get eyeballs” and to nab the content of others over creating net-new material.

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Daily Crunch: Myanmar blocks Twitter and Instagram

Myanmar’s government extends its internet crackdown, Microsoft’s lobbying arm blacklists presidential election objectors and Dublin’s Frontline Ventures raises a new fund. This is your Daily Crunch for February 5, 2021.

The big story: Myanmar blocks Twitter and Instagram

The military government in Myanmar recently told telecom operators and internet service providers to block access to Facebook. Now it’s doing the same thing to Twitter and Instagram.

This comes after the military staged a coup in Myanmar to take power from the civilian government. The new government claims that Twitter and Instagram were being abused to spread propaganda and misinformation, posing a threat to the country’s stability.

Telenor Group, one of the country’s largest telecom providers, said in a statement that it is “gravely concerned with this development in Myanmar” and that “freedom of expression through access to communication services should be maintained at all times, especially during times of conflict.”

The tech giants

Microsoft PAC blacklists election objectors and shifts lobbying weight towards progressive organizations — After “pausing” political giving to any politician who voted to overturn the 2020 election, Microsoft has clarified changes to the lobbying policy of its employee-funded PAC.

Peloton will pump $100M into delivery logistics to ease supply concerns — Peloton has announced that it will invest more than $100 million in air and ocean freight deliveries due to “longer-than-acceptable wait times for the delivery of our products.”

PayPal is shutting down domestic payments business in India — It’s been less than four years since PayPal kickstarted local operations in the world’s second-largest internet market.

Startups, funding and venture capital

Dublin’s Frontline Ventures raises new $83.8M seed fund for European B2B startups — The firm is aiming to invest in up to 45 companies over the next four years.

BeGreatTV to offer MasterClass-like courses taught by Black and brown innovators — The courses are designed to teach folks how to execute and succeed in a particular industry.

Why these co-founders turned their sustainability podcast into a VC-backed business — These podcast co-hosts are turning validation from listeners into the blueprint for a standalone business called Brightly.

Advice and analysis from Extra Crunch

Lightspeed’s Gaurav Gupta and Grafana’s Raj Dutt discuss pitch decks, pricing and how to nail the narrative — The duo explained how they came together for Grafana’s Series A … and eventually, its Series B.

How the GameStop stonkathon helped Robinhood raise $3.4B last week — Robinhood has shown an impressive ability to raise enormous amounts of capital.

TechCrunch’s favorite companies from 500 Startups’ latest demo day — Startup picks from Alex Wilhelm and Jonathan Shieber.

(Extra Crunch is our membership program, which helps founders and startup teams get ahead. You can sign up here.)

Everything else

House punishes Republican lawmaker who promoted violent conspiracy theories — As the House moved to vote on the highly unusual resolution, Marjorie Taylor Greene claimed that her embrace of QAnon was in the past.

‘Orwellian’ AI lie detector project challenged in EU court — This suit highlights questions of ethics and efficacy attached to the bloc’s flagship R&D program.

Learn about the importance of accessible product design at TechCrunch Sessions: Justice — At our event on March 3, we will examine the importance of ensuring accessible product design from the beginning.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.

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Extra Crunch roundup: 500 Startups’ demo day, smart SaaS pricing and much more

Demo days at startup accelerators are a pretty big deal around here.

These events aren’t just a chance to review the latest cohort of hopeful entrepreneurs — they also showcase the technology, products and services that will compete for VC and consumer attention over the next few years.

You never know where a hit will come from, which is why these events capture our attention. Here’s just one example from Y Combinator’s Summer 2013 Demo Day:

Positioning itself as the “FedEx of today,” it hopes to provide a logistics framework that goes beyond food and can be used for any type of on-demand order.

That startup was DoorDash, by the way.

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Full disclosure: In 2016, I was 500 Startups’ Journalist-in-residence. I covered one demo day in person, spending most of my time backstage where founder teams practiced their pitches.

It was quite a scene: Several people literally jumped up and down to shake off their nervous energy, but I also recall one who calmly recited their lines while gazing through a window.

Yesterday, Jon Shieber and Alex Wilhelm covered 500 Startups’ 27th virtual demo day and selected eight companies as their favorites:

• Stack
• Adapty
• MightyFly
• Omnitron Sensors
• AWSM
• Memechat
• Ryu Games
• Apothecary

Thank you very much for reading Extra Crunch this week! I hope you have a safe, relaxing weekend.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

TechCrunch’s favorite companies from 500 Startups’ latest demo day

Image Credits: David Malan (opens in a new window) / Getty Images

TechCrunch’s favorite companies from 500 Startups’ latest demo day

How the GameStop stonkathon helped Robinhood raise $3.4B last week

Image Credits: Nigel Sussman (opens in a new window)

I’ve never used “stonkathon” in a headline before, but it’s been that kind of week.

The war between hedge funds and day traders over GameStop vaulted discount trader Robinhood into the headlines for days.

But how did it affect the company’s financial health?

This morning, Alex Wilhelm examined why Robinhood’s investors were willing to inject $3.4 billion more into the company in just one week.

“More trades means more PFOF (payment for order flow) revenue,” says Alex. “And Robinhood effectively doubled in size.”

How the GameStop stonkathon helped Robinhood raise $3.4B last week

Udemy’s new president discusses the reskilling company’s future

Image Credits: Andrew_Rybalko / Getty Images

Reporter Natasha Mascarenhas interviewed Greg Brown, new president of digital learning platform Udemy, after his company announced that it surpassed $100 million ARR.

A new arm of the company, Udemy for Business, just secured a 100,000-employee contract with Cisco Systems to offer software, business and technology courses.

“The opportunity that the company sees has really forced us to reallocate resources and strategy,” said Brown.

Udemy’s new president discusses the reskilling company’s future

Why one Databricks investor thinks the company may be undervalued

Image Credits: Nigel Sussman (opens in a new window)

After scaling its ARR to $425 million and reaching a valuation of $28 billion, data analytics company Databricks is clearly IPO-ready.

Battery Ventures has backed Databricks since 2017, so Alex Wilhelm interviewed General Partner Dharmesh Thakker to understand why he thinks the company may be undervalued.

“Whether it’s digital transformation, whether it’s analytics, data is everywhere,” said Thakker. “So the TAM is massive.”

Why one Databricks investor thinks the company may be undervalued

4 strategies for deep tech founders who are fundraising

Image Credits: MirageC (opens in a new window) / Getty Images

Deep tech founders face special challenges when pitching investors: they usually don’t have a product, customers or revenue.

It’s difficult enough to ask a stranger for a check when there’s a beta product, but how do you drum up interest in an unproven idea that may exist largely in your imagination?

“Early-stage investors are in the business of funding dreams,” says angel investor Jessica Li.

“Investors are less interested in the intricacies of your technology and more interested in what impact it can create.”

Step one: use storytelling to highlight your big vision.

4 strategies for deep tech founders who are fundraising

Edtech valuations aren’t skyrocketing, but investors see more exit opportunities

Image Credits: Images by Tang Ming Tung (opens in a new window) / Getty Images

Investors funded edtech startups with $10 billion last year as the pandemic forced widespread adoption of remote learning.

The valuations of these companies aren’t rising at the same rate as SaaS or fintech startups, but “where edtech lacks in impressive valuations, investors see it gaining in exit opportunities,” writes Natasha Mascarenhas.

For this edtech investor survey, she interviewed:

• Deborah Quazzo, managing partner, GSV Ventures (an education fund backing ClassDojo, Degreed and Clever)
• Ashley Bittner, founding partner, Firework Ventures (a future-of-work fund with portfolio companies LearnIn and TransfrVR)
• Jomayra Herrera, principal, Cowboy Ventures (a generalist fund with portfolio companies Hone and Guild Education)
• John Danner, managing partner, Dunce Capital (an edtech and future-of-work fund with portfolio companies Lambda School and Outschool)
• Mercedes Bent and Bradley Twohig, partners, Lightspeed Venture Partners (a multistage generalist fund with investments including Forage, Clever and Outschool)
• Ian Chiu, managing director, Owl Ventures (a large edtech-focused fund backing highly valued companies including BYJU’s, Newsela and MasterClass)
• Jan Lynn-Matern, founder and partner, Emerge Education (a leading edtech seed fund in Europe with portfolio companies like Aula, Unibuddy and BibliU)
• Benoit Wirz, partner, Brighteye Ventures (an active edtech-focused venture capital fund in Europe that backs YouSchool, Lightneer and Aula)
• Charles Birnbaum, partner, Bessemer Venture Partners (a generalist fund with portfolio companies including Guild Education and Brightwheel)
• Daniel Pianko, co-founder and managing director, University Ventures (a higher-ed and future-of-work fund that is backing Imbellus and AdmitHub)
• Rebecca Kaden, managing partner, Union Square Ventures (a generalist fund with portfolio companies including TopHat, Quizlet and Duolingo)
• Andreata Muforo, partner, TLcom Capital (a generalist fund backing uLesson)

Edtech valuations aren’t skyrocketing, but investors see more exit opportunities

Deep Science: AIs with high class and higher altitudes

Image Credits: MF3d (opens in a new window) / Getty Images

In his latest recap of recent breakthroughs in applied science, Devin Coldewey looked at how researchers are using AI to:

• Categorize thousands of pieces of classical music
• Read MRIs to spot patients with schizophrenia
• Track elephant herds via satellite
• Improve accessibility on mobile phones

Deep Science: AIs with high class and higher altitudes

Spotify Group Session UX teardown: the fails and their fixes

Image Credits: Getty Images

In the latest of a series of articles that examines user experiences for consumer apps, UX expert Peter Ramsey and TechCrunch reporter Steve O’Hear studied Spotify Group Session, the shared-queue feature that permits users to create playlists collaboratively.

“Many of these lessons can be applied to other existing digital products or ones you are currently building,” such as the need to add context for important decisions and how to best use “react and explain” prompts.

Spotify Group Session UX teardown: The fails and their fixes

Lightspeed’s Gaurav Gupta and Grafana’s Raj Dutt discuss pitch decks, pricing and how to nail the narrative

Extra Crunch Live returned this week with two guests: Lightspeed Venture Partners’ Gaurav Gupta and Raj Dutt, co-founder and CEO of Grafana Labs.

In addition to walking us through the presentation that encouraged Lightspeed to invest in Grafana’s Series A, the duo also gave direct feedback to audience members about their pitch decks.

Watch a video with our complete episode, or read highlights from the chat to get Gupta and Dutt’s insights on what goes into a successful pitch deck.

New episodes of Extra Crunch Live drop each Wednesday at 12 p.m. PST/3 p.m. EST/8 p.m. GMT.

Here’s a breakdown of the complete episode with Gaurav Gupta and Raj Dutt:

• How they met — 2:00
• Grafana’s early pitch deck — 12:00
• The enterprise ecosystem — 25:00
• The pitch deck teardown — 32:00

Lightspeed’s Gaurav Gupta and Grafana’s Raj Dutt discuss pitch decks, pricing and how to nail the narrative

Subscription-based pricing is dead: Smart SaaS companies are shifting to usage-based models

Paper plane made from a ten-dollar bill. Image Credits: LockieCurrie (opens in a new window)/ Getty Images

Some IT managers may still be debating the merits of usage-based pricing versus subscription-based models, but SaaS investors have made up their minds.

Compared to their rivals, companies that employ usage-based pricing trade at a 50% revenue multiple premium. You can argue with success, but seven out of the nine IPOs since 2018 with the best net dollar retention offer usage-based models.

If you’re a founder who hopes to break into the $100M ARR club, this guest post can help you identify the right usage metrics for creating a sustainable customer journey.

For more actionable advice regarding SaaS pricing and sales, see these previously published Extra Crunch stories:

• Should your SaaS startup embrace a bottom-up GTM strategy?
• How should SaaS companies deliver and price professional services?

Subscription-based pricing is dead: Smart SaaS companies are shifting to usage-based models

Bumble IPO could raise more than $1B for dating service

Image Credits: Nigel Sussman (opens in a new window)

How many dating networks can the public market support?

In Tuesday’s column, Alex Wilhelm examined the latest IPO filing from relationship-finding service Bumble.

The company set a range of $28 – $30 per share, so Alex set out to find its simple and diluted valuations, how much it expects investors to pay and “how those stack up compared to Match Group’s own numbers.”

Bumble IPO could raise more than $1B for dating service

Robinhood’s Q4 2020 revenue shows a return to growth

Image Credits: Nigel Sussman (opens in a new window)

Discount brokerage Robinhood stayed in the news last week as it became a proxy battlefield for institutional and retail investors, but its backers “put in another billion just last week,” says Alex Wilhelm.

Why were investors so bullish after days of screaming headlines?

In yesterday’s column, Alex unpacked Robinhood’s Q4 2020 numbers, “which shows a return to sequential-quarterly growth at the trading upstart.”

Robinhood’s Q4 2020 revenue shows a return to growth

Trading app Public drops payment for order flow in favor of tips

Image Credits: Towfiqu Photography / Getty Images

Before Redditors came after GameStop, zero-cost trading service Public says it was seeing “steady ~30%” month-over-month growth.

Last week, however, “new user signups went up 20x,” founders Leif Abraham and Jannick Malling told TechCrunch.

After closing a $65 million Series C, Public announced yesterday that it would “stop participating in the practice of Payment for Order Flow,” replacing PFOF with an “optional tipping feature.”

Trading app Public drops payment for order flow in favor of tips

Customer advisory boards are a gold mine for startup brand champions

Image Credits: Andrii Yalanskyi (opens in a new window) / Getty Images

Startups that don’t directly engage their earliest customers with purpose and intention are leaving money on the table.

Creating a Customer Advisory Board (CAB) is a proven method for soliciting product ideas, testing marketing plans and turning early users into loyal brand advocates.

Before you call a CAB, read this post to find out how to identify customers who’ll contribute real insights, establish goals and “pick members who play well together.”

Customer advisory boards are a gold mine for startup brand champions

Best practices as a service is a key investment theme to watch in 2021

Red and white stop sign on the wall. Image Credits: Karl Tapales (opens in a new window)/ Getty Images

Identity and access management company Okta announced in a study last week that its largest customers use an average of 175 different applications to manage their operations.

Managing Editor Danny Crichton says this “explosion of creativity and expressiveness and operational latitude” offers widespread benefits, but it’s “also a recipe for disaster,” since many end users aren’t well-trained when it comes to using these tools.

This enterprise version of the Tower of Babel creates an opening for companies that offer “best practices as a service,” says Danny. “The next generation of SaaS software has to take those abecedarian building blocks and forcibly guide users to using those tools in the best possible way.”

Best practices as a service is a key investment theme to watch in 2021

https://ift.tt/3rsdOo0 Extra Crunch roundup: 500 Startups’ demo day, smart SaaS pricing and much more https://ift.tt/2YMRQjt

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A look at how proptech startup Knotel went from a $1.6B valuation to filing for bankruptcy

This week, flexible workspace operator (and one-time unicorn) Knotel announced it had filed for bankruptcy and that its assets were being acquired by investor and commercial real estate brokerage Newmark for a reported $70 million.

Knotel designed, built and ran custom headquarters for companies. It then managed the spaces with “flexible” terms. In March 2020, it was reportedly valued at $1.6 billion.

At first glance, one might think that the WeWork rival, which had raised about $560 million since its 2016 inception, was another casualty of the COVID-19 pandemic. 

But New York-based Knotel was reportedly in trouble – facing a number of lawsuits and evictions – before the pandemic had even hit, according to multiple reports, such as this one in The Real Deal.

Jonathan Pasternak, a partner in the bankruptcy, restructuring and creditor rights group at New York-based Davidoff Hutcher & Citron, believes the company’s Chapter 11 filing was inevitable despite it reaching unicorn status after raising $400 million in Series C funding in August 2019.

“In addition to being grossly overvalued on the market, the company overextended itself with long term leases and lavish build-outs, leaving the company in significant debt while failing to ever turn a profit,” Pasternak wrote via email. “The pandemic exacerbated their vacancy situation, resulting in more than 35% vacancies in their 2.4 million square-foot NYC portfolio. The company overextended and likely ran out of cash.”

Newmark’s purchase of Knotel’s assets is an effort to recoup some of its investment, according to Pasternak.

Anytime a company that has raised more than half a billion dollars basically implodes, it’s worth taking a look at the roller coaster ride it was on before it got to that point.

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2016

Virgin Mobile co-founder Amol Sarva and former VC Edward Shenderovich founded Knotel, essentially reversing the WeWork model. There’s hype around the company in its early days.

2017

Knotel raised a Series A round of $25 million in February from investors such as Peak State Ventures, Invest AG, Bloomberg Beta and 500 startups. It marketed its offering as “headquarters as a service” — or a flexible office space that could be customized for each tenant while also growing or shrinking as needed. 

2018

In April, Knotel announced the close of a $70 million Series B financing led by Newmark Knight Frank and The Sapir Organization. In August, the company told me that it was operating over 1 million square feet across 60 locations in New York, London, San Francisco and Berlin, and that it was on track to reach 2.5 million square feet and $100 million in revenue by year’s end. Revenue growth had increased by 300 percent year over year, according to the company. Customers and users and clients ranged from VC-backed startups Stash and HotelTonight to enterprise customers such as The Body Shop. 

“What they’re doing is different,” said Barry Gosin, CEO of Newmark Knight Frank, in a press release, at the time of the round. “It’s a new category the industry hasn’t seen and is rapidly adopting. We’ve watched their ascent from a distance and are now thrilled to join them on the journey. It marks a shift in how owners and tenants are coming together.”

2019

In August, Knotel announced the completion of a $400 million financing, led by Wafra, an investment arm of the Sovereign Wealth Fund of Kuwait. With the round, the company had achieved unicorn status and was being touted as a formidable WeWork competitor. At the time, Knotel said it operated more than 4 million square feet across more than 200 locations in New York, San Francisco, London, Los Angeles, Washington, D.C., Paris, Berlin, Toronto, Boston, São Paulo and Rio de Janeiro. 

In a statement at the time, CEO Sarva said: “Knotel is building the future of the workplace, and we are excited to welcome a group of investors who believe passionately in our product, vision and ability to execute. Wafra will help us continue our rapid global expansion and solidify our position as the leader in a fast-growing, trillion-dollar flexible office market.”

2020

In late March, Forbes reported that Knotel had laid off 30% of its workforce and furloughed another 20%, due to the impact of the coronavirus. At the time, it was valued at about $1.6 billion. 

The company had started the year with about 500 employees. By the third week of March, it had a headcount of 400. With the cuts, about 200 employees remained with the other 200 having either lost their jobs or on unpaid leave, according to Forbes. 

“Business as usual is over,” Amol Sarva, Knotel’s CEO and co-founder, said in a statement to Forbes. “Knotel has decided to take sharp action to prepare for the worst case — a long health and economic crisis.”

In the second quarter, Knotel’s revenue slipped by about 20% to about $59 million compared to the first quarter, reported Forbes. Multiple landlords had filed lawsuits against the company.

By July, Forbes had reported that Knotel was attempting to raise as much as $100 million, according to various sources “familiar with the matter.”

2021

Knotel filed for bankruptcy, agrees to sell assets to investor Newmark for a reported $70 million after being valued at $1.6 billion less than one year prior.

“Newmark’s commitment offers a path forward amidst this challenging climate,” CEO Sarva said in a statement. “We are optimistic that, through a successful restructuring, we can refocus on our mission of providing state-of-the-art, tailored flex space in key U.S. and international markets.”

To facilitate the transaction under Section 363 of the United States Bankruptcy Code, an affiliate of Newmark agreed to provide Knotel with about $20 million in cash as DIP financing to support Knotel through the bankruptcy process.

Just as the startup and VC world watched as WeWork lost a significant amount of value over the past two years, we’re paying attention to the demise of Knotel and wondering what this means for the flexible workspace sector. As much of the world continues to work from home and office buildings remain mostly vacant as this pandemic rages, our guess is that things will only get worse before they get better.

https://ift.tt/eA8V8J A look at how proptech startup Knotel went from a $1.6B valuation to filing for bankruptcy https://ift.tt/3aHHt5S

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