Google, Facebook and Twitter threaten to leave Pakistan over censorship law

Global internet companies Facebook, Google and Twitter and others have banded together and threatened to leave Pakistan after the South Asian nation granted blanket powers to local regulators to censor digital content.

Earlier this week, Pakistan Prime Minister Imran Khan granted the Pakistan Telecommunication Authority the power to remove and block digital content that pose “harms, intimidates or excites disaffection” toward the government or in other ways hurt the “integrity, security, and defence of Pakistan.”

Through a group called the Asia Internet Coalition Asia (AIC), the tech firms said that they were “alarmed” by the scope of Pakistan’s new law targeting internet firms.” In addition to Facebook, Google, and Twitter, AIC represents Apple, Amazon, LinkedIn, SAP, Expedia Group, Yahoo, Airbnb, Grab, Rakuten, Booking.com, Line, and Cloudflare.

If the message sounds familiar, it’s because this is not the first time these tech giants have publicly expressed their concerns over the new law, which was proposed by Khan’s ministry in February this year.

After the Pakistani government made the proposal earlier this year, the group had threatened to leave, a move that made the nation retreat and promise an extensive and broad-based consultation process with civil society and tech companies.

That consultation never happened, AIC said in a statement on Thursday, reiterating that its members will be unable to operate in the country with this law in place.

“The draconian data localization requirements will damage the ability of people to access a free and open internet and shut Pakistan’s digital economy off from the rest of the world. It’s chilling to see the PTA’s powers expanded, allowing them to force social media companies to violate established human rights norms on privacy and freedom of expression,” the group said in a statement.

“The Rules would make it extremely difficult for AIC Members to make their services available to Pakistani users and businesses. If Pakistan wants to be an attractive destination for technology investment and realise its goal of digital transformation, we urge the Government to work with industry on practical, clear rules that protect the benefits of the internet and keep people safe from harm.”

Under the new law, tech companies that fail to remove or block the unlawful content from their platforms within 24 hours of notice from Pakistan authorities also face a fine of up to $3.14 million. And like its neighboring nation, India, — which has also proposed a similar regulation with little to no backlash — Pakistan now also requires these companies to have local offices in the country.

The new rules comes as Pakistan has cracked down on what it deems to be inappropriate content on the internet in recent months. Earlier this year, it banned popular mobile game PUBG Mobile and last month it temporarily blocked TikTok.

Countries like Pakistan and India contribute little to the bottomline for tech companies. But India, which has proposed several protectionist laws in recent years, has largely escaped any major protest from global tech companies because of its size. Pakistan has about 75 million internet users.

By contrast, India is the biggest market for Google and Facebook by users. “Silicon Valley companies love to come to India because it’s an MAU (monthly active users) farm,” Kunal Shah, a veteran entrepreneur, said in a conference in 2018.

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What is Roblox worth?

With Roblox joining the end-of-year unicorn stampede toward the public markets, we’re set for a contentedly busy second half of November and early December. I hope you didn’t have vacation planned in the next few weeks.

This morning we need to get deeper into the Roblox S-1 so we can better understand the nature of its revenue generation. Why? Because we want to start working on what the gaming company is worth; some comparisons are being made to Unity, another unicorn that went public earlier this year with a gaming focus.

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Should we apply Unity’s revenue multiple to Roblox? Or does the company deserve a slimmer multiple based on the substance of its revenue?

We’ll also have to remind ourselves how much capital Roblox last raised while private, and at what price. Given our historical knowledge of its financial results, we might be able to nail some valuations to revenue figures, helping us understand, roughly, how the venture capital community was valuing Roblox while it was private.

If you want an overview of just the numbers, Natasha and I wrote a digest here.

Now, let’s get to work.

What’s Roblox worth as a public company?

To get a foundation, let’s recall how Roblox was valued during its last private round. According to Crunchbase data, Roblox’s $150 million Series G was raised at a $3.9 billion pre-money valuation. So, Roblox was worth $4.05 billion after the February 2020 funding event.

Roblox files to go public

Naturally there is a lag between when a deal is struck and when it is announced. So, let’s rewind the clock to Q4 2019 and ask ourselves what Roblox looked like at the time. From its S-1, here are the Q4 2019 numbers:

• Revenue of $138.3 million, +44.2% compared to the year-ago quarter
• A net loss of $39.6 million, +197.1% compared to the year-ago quarter

Annualizing that revenue figure, Roblox was on a $553.3 million run rate at around the time it raised that Series G. In revenue-multiple terms, Roblox was valued at 7.3x its top line on an annualized basis.

If you are a SaaS fan you are probably pretty shocked right now. Why the hell was Roblox, a software company, worth so little? Well let’s remind ourselves how it makes money:

We generate substantially all of our revenue through the sales of Robux to users. Users can spend Robux to purchase access to experiences, enhancements in experiences, and items in the Avatar Marketplace. Robux are available as one-time purchases or monthly subscriptions. We recognize revenue ratably over the estimated average lifetime of a paying user. […]

Other revenue streams include a minimal amount of revenue from advertising, licenses, and royalties.

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If you didn’t make $1B this week, you are not doing VC right

The only thing more rare than a unicorn is an exited unicorn.

At TechCrunch, we cover a lot of startup financings, but we rarely get the opportunity to cover exits. This week was an exception though, as it was exitpalooza as Affirm, Roblox, Airbnb, and Wish all filed to go public. With DoorDash’s IPO filing last week, this is upwards of $100 billion in potential float heading to the public markets as we make our way to the end of a tumultuous 2020.

All those exits raise a simple question – who made the money? Which VCs got in early on some of the biggest startups of the decade? Who is going to be buying a new yacht for the family for the holidays (or, like, a fancy yurt for when Burning Man restarts)? The good news is that the wealth is being spread around at least a couple of VC firms, although there are definitely a handful of partners who are looking at a very, very nice check in the mail compared to others.

So let’s dive in.

I’ve covered DoorDash’s and Airbnb’s investor returns in-depth, so if you want to know more about those individual returns, feel free to check those analyses out. But let’s take a more panoramic perspective of the returns of these five companies as a whole.
First, let’s take a look at the founders. These are among the very best startups ever built, and therefore, unsurprisingly, the founders all did pretty well for themselves. But there are pretty wide variations that are interesting to note.

First, Airbnb — by far — has the best return profile for its founders. Brian Chesky, Nathan Blecharczyk, and Joe Gebbia together own nearly 42% of their company at IPO, and that’s after raising billions in venture capital. The reason for their success is simple: Airbnb may have had some tough early innings when it was just getting started, but once it did, its valuation just skyrocketed. That helped to limit dilution in its earlier growth rounds, and ultimately protected their ownership in the company.

David Baszucki of Roblox and Peter Szulczewski of Wish both did well: they own 12% and about 19% of their companies, respectively. Szulczewski’s co-founder Sheng “Danny” Zhang, who is Wish’s CTO, owns 4.9%. Eric Cassel, the co-founder of Roblox, did not disclose ownership in the company’s S-1 filing, indicating that he doesn’t own greater than 5% (the SEC’s reporting threshold).

DoorDash’s founders own a bit less of their company, mostly owing to the money-gobbling nature of that business and the sheer number of co-founders of the company. CEO Tony Xu owns 5.2% while his two co-founders Andy Fang and Stanley Tang each have 4.7%. A fourth co-founder Evan Moore didn’t disclose his share totals in the company’s filing.

Finally, we have Affirm. Affirm didn’t provide total share counts for the company, so it’s hard right now to get a full ownership picture. It’s also particularly hard because Max Levchin, who founded Affirm, was a well-known, multi-time entrepreneur who had a unique shareholder structure from the beginning (many of the venture firms on the cap table actually have equal proportions of common and preferred shares). Levchin has more shares all together than any of his individual VC investors — 27.5 million shares, compared to the second largest investor, Jasmine Ventures (a unit of Singapore’s GIC) at 22 million shares.

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With new cash and a former Apple exec now at the helm, Connect Homes is ready to reconstruct homebuilding

Greg Leung had worked at Apple for years and was coming off a stint at the smart lock company Otto when he got the call to interview with Connect Homes.

The pitch — building a starter home for a much lower cost than other prefabricated houses on the market, and one that could be dropped in to locations in the urban core of most cities — was too good to pass up.

“Basically, it’s a beautiful product, but done in a way that disrupts and transforms the way homes are built,” said Leung.

The homes come in 15 standardized configurations and can scale from 460 square foot up to 3,200 square feet. What differentiates the company from its competitors, says Leung, is the speed with which Connect Homes can build a house, putting up a full house in six days.

Not only that, but the homes are able to use standard shipping networks and rail transit to bring their homes anywhere in the country. “We build modules the size of a shipping container, so we can connect to the regular intermodal shipping network,” Leung said.

Interior view of a Connect Homes pre-fabricated home. Image Credit: Connect Homes

The company’s smaller homes run around $174,000 all-in, while a 3,200-square-foot home costs around $825,000. That’s about half of the cost for a custom home today, Leung said.

“What we’re doing is providing a beautiful, modern, product for half the price of a traditional custom homebuilder,” he said.

Currently, Leung said, there are three types of new construction getting built — new tract homes, multi-family housing units and high rises. But, there’s an opportunity to infill housing. “Seventy percent of the Bay Area and LA were built in the 70s. That means there are millions of homes that are too small and out of date and energy inefficient,” Leung said. “It costs $1 million to $1.5 million to build a home… No one is addressing the urban infill market except for us.”

And Leung’s interest extended beyond the 88 projects that the company has completed for new homeowners. From its Los Angeles headquarters with a factory in San Bernardino, California, the company is also looking to change how municipalities and governments think about temporary shelters and living spaces for the unhoused.

Founded by Jared Levy and Gordon Stoddard, two architects who worked in the pre-fabricated building division of the firm Marmol Radziner, Connect Homes had raised $27 million to build out a vision of pre-fab future.

That capital includes a recent $5 million round that served to reboot the company and refocus it around its manufacturing technology that can create deployable shelters alongside its housing work. That was another draw for Leung, whose experience in Northern California made him acutely aware of the housing problem the nation faces.

The single module shelter that the company has developed can be transported and put on site in one day. Adding a generator to the 40 foot by eight foot module the company is building means that the shelter has the flexibility of a trailer, but can be ready for habitation in 24 hours.

“We designed this to sell to municipalities and third-party service providers to house people,” Leung said. 

Customers for the new product include the Thatcher School in Ojai and a project in Mountain View, California done in partnership with Life Moves.

Prices for the shelters range between $20,000 and $30,000 per-bed, or $80,000 per module. Those prices compare incredibly favorably to the $500,000 to $1 million communities pay for a bed in permanent supportive housing, said Leung.

Still, the company’s fancy replacements for tent cities don’t do anything to address the underlying housing crisis that plagues cities across the country.

“We’re trying to be the opposite of bespoke housing that we see as part of the problem. The shelters was a reaction to an urgent need. We had the ability to do something innovative to solve the problem,” said Leung. “I don’t see the amazing talent and innovation being applied to this problem. And it’s affecting the well-being and health of millions and millions of people… This is something that will last for possibly lifetimes.”

View of a Connect Homes house being installed. Image Credit: Connect Homes

The attempt to create a new fable for the reconstruction of the building industry is what drew Brick & Mortar Ventures back to the table to recapitalize the company with the new $5 million in cash the company recently secured, according to Darren Bechtel, the founder and managing director of the firm.

A scion of the Bechtel engineering and construction family, Bechtel has a deep knowledge of the industry and sees Connect Homes as one of the best bets to disrupt traditional construction.

“You cannot construct today cheaper than existing assets,” Bechtel said. But, the opportunity to rethink construction as manufacturing is creating an environment that can drive down costs more effectively, he said.

“It’s been a primitive form of manufacturing for some time,” Bechtel said of the housing industry. “The difference from traditional manufacturing and even automobiles, is that when you get to the scale of a house, you exceed the ability to transport that product efficiently from the manufacturing site to the end delivery site.”

That’s the key problem that Bechtel saw Connect Homes solving. “You have to standardize around intermodal shipping or you have to get permits. You are limited on which roads you use,” he said. “If you’re doing a true kit of parts, you’re requiring craft workers to do the finished work on site.”

Connect Homes, said Bechtel, is taking a different approach from the homebuilders that are looking to be mostly vertically integrated. He said Connect Homes was taking a more Apple-like approach where they oversee the product lifecycle and the customer experience. “That’s how you reach global scale and create the VW and Audi of housing,” he said. “A house is the most expensive purchase. The fact that this is still a bespoke product in the vast majority of scenarios doesn’t make sense.”

Bechtel also drew a distinction between the companies that are primarily targeting the accessory dwelling unit market in California and Connect Homes, which has broader aspirations.

“A lot of people who are buying and selling ADUs are getting an extra guest house. They want more space for themselves,” he said. “At a much larger scale if you can take existing housing stocks that are in medium or high density areas that are old properties with larger footprints and you can create two or three housing units in the same spot with new inventory, you’re drastically improving both the quality and the quantity of housing stock.”

That’s the ultimate goal for Connect Homes, Bechtel said. And it’s going to be returning to market just as that market could be poised to rebound, said Bechtel.

“We believe you’re going to see a massive rebound in the need for housing,” said Bechtel. “The single family housing market will return.” And when it does, Connect Homes will be working on scaling up to meet the new demand.

Construction tech startups are poised to shake up a $1.3-trillion-dollar industry

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Prices increase tonight for our space focused event, TC Sessions: Space

“Space, the final frontier…” You can probably recite the “Star Trek” opening monologue in your sleep. But we’re talking science fact, not fiction, and TC Sessions: Space 2020 provides real opportunity to connect with the people, information and funding you need to boldly build the future of space technology.

Go boldly, yes. But why pay full price? Early bird pricing ends — in Gene Roddenberry’s parlance — on Stardate 98489.04. (a.k.a. today, November 20 at 11:59 p.m. PST). Boldly buy your pass before the deadline and save $100.

Tune in to hear from leading space industry founders, investors and technologists from across the public, private and defense industries. When it comes to experts, TechCrunch delivers. People like Rocket Lab CEO Peter Beck, U.S. Space Force Chief of Space Operations General Jay Raymond, Lockheed Martin VP and head of civil space programs Lisa Callahan.

On the investment front we have VCs like Chris Boshuizen (Data Collective DCVC), Mike Collett (Promus Ventures) and Tess Hatch (Bessemer Venture Partners). And don’t miss out on the Fast Money breakout sessions to learn about space accelerator programs and how to access grant money.

Topics span a galaxy’s worth of technology, including 3D-printed rockets, earth observation data, orbital operations, ground station networks, launch services, broadband communications, defense operations and manufacturing in space.

Here’s a classic “but wait, there’s more” moment, because we’re not done adding opportunity. And this one’s a doozy!

Starburst x TechCrunch: Pitch Me to the Moon — Starburst Aerospace and TechCrunch are teaming up to launch a pitch competition called Pitch Me to the Moon. Think the Startup Battlefield, but for space. Ten promising early-stage space startups, selected by Starburst, will have an opportunity to present their innovations live to a panel of high-profile judges from across the industry.

Find this and all the panel discussions, interviews, fireside chats and interactive Q&As listed in the event agenda. Don’t worry about time conflicts — all sessions are available live and on-demand. Feel free to network with attendees, take care of client business or catch sessions live knowing that you can watch anything you missed later as your schedule permits.

Up your exposure game with a Space Startup Exhibitor Package ($360). It includes digital exhibition space, lead-generation capabilities and three conference passes. Bonus exposure: all exhibiting space startups get pitch live to attendees during the event.

Go boldly for $100 less. Buy your pass to TC Sessions: Space 2020 before the early bird deal ends tonight, November 20 at 11:59 p.m. PST.

Is your company interested in sponsoring TC Sessions: Space 2020? Click here to talk with us about available opportunities.

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Why is GoCardless COO Carlos Gonzalez-Cadenas pivoting to become a full-time VC?

Index Ventures, a London- and San Francisco-headquartered venture capital firm that primarily invests in Europe and the U.S., recently announced its latest partner. Carlos Gonzalez-Cadenas, currently COO of London-based fintech GoCardless and previously the chief product officer of Skyscanner, will join Index in January.

Gonzalez-Cadenas is a seasoned entrepreneur and operator, but has also become a prolific angel investor in the U.K. and Europe over the last three years, making more than 50 angel investments in total. Well-regarded by founders and co-investors, his transition to a full-time role in venture capital feels like quite a natural one.

Earlier this week, TechCrunch caught up with Gonzalez-Cadenas over Zoom to learn more about his new role at Index and how he intends to source deals and support founders. Index’s latest hire also shared his insights on Europe’s venture market, describing this era as the “best moment in entrepreneurship in Europe.”

TechCrunch: Let me start by asking, why do you want to become a VC? You’re obviously a well-established entrepreneur and operator, are you sure venture capital is the career for you?

Carlos Gonzalez-Cadenas: I’ve been an angel investor for the last three years and this is something that has basically grown for me quite organically. I started doing just a handful and seeing if this is something I like and over time it has grown quite a lot and so has the number of entrepreneurs I’m partnered with. And this is something I’ve been increasingly more excited to do. So it has grown organically and something that emotionally has been getting closer and closer as time has passed.

And the things I like more specifically are: One, I’m quite a curious person, and for me, investing gives you the possibility of learning a lot about different sectors, about different entrepreneurs, different ways of building businesses, and that is something that I enjoy a lot.

The second bit is that I care a lot about helping entrepreneurs, especially the next generation of entrepreneurs, build great businesses in Europe. I’ve been very lucky, in the past, to learn from great people, like Gareth [Williams, Skyscanner co-founder] and Hiroki [Takeuchi. CEO at GoCardless], in my journey. I feel a duty of helping the next generation of entrepreneurs and sharing all the things that I’ve learnt. I care a lot about setting up founders as much as possible for success and sharing all those experiences I’ve learned [from].

These are the key two motivations that have led me to decide that it would be a great time now to move to the investing side.

How have you managed your deal flow while having a full-time job and where is that deal flow coming from?

It is typically coming in three buckets. A part of it is coming from my entrepreneur and operator network. So there are entrepreneurs and operators I know that are referring other entrepreneurs to me. Another bucket is other investors that I typically co-invest with. Another bucket is venture capitalists. I basically tend to invest quite a lot with VCs and in some cases they are referring deals to me.

In terms of managing it alongside GoCardless, it takes quite a lot of effort. It requires a lot of dedication and time invested during evenings and weekends.

The good thing is that my network typically tends to send me quite highly curated deals so essentially the deal flow I have luckily tends to be quite high quality, which makes things a bit more manageable. But don’t get me wrong, it still takes quite a lot of effort even if the deal flow is relatively high quality.

Presumably you haven’t been able to be all that hands-on as an angel investor, so how are you going to make that transition and what is it that you think you bring with the operational side to venture?

The way I think about this is, the entrepreneurs I typically invest in and their companies tend to be quite capable in their day-to-day perspective. Where they tend to find more value in interactions with me is what I call the “moments of truth.” Those key decisions, those key points in the journey where essentially it can influence the trajectory of the business in a fundamental way. It could be things like, I am fundraising and I don’t know how to position the business. Or I’m thinking about my strategy for the next 18 months and I will basically welcome an experienced person giving me a qualified opinion.

Or I have a big people problem and I don’t know how to solve that problem and I need that third person who has been in my shoes before. Or it could be that I’m thinking about how to organize my team as I move from startup to scale-up and I need help from someone who has scaled teams before. Or could be that I’m hiring three executives and I don’t know what a great CMO looks like. It’s those high-impact, high-leverage questions that the entrepreneurs tend to find helpful engaging with me, as opposed to very detailed day-to-day things that most of the entrepreneurs I work with tend to be quite capable of doing. And so far that model is working. The other thing is that the model is quite scalable because you are engaging 2-3 times per year but those times are high quality and highly impactful for the entrepreneur.

I typically also tend to have pretty regular and frequent communication with entrepreneurs on Slack. It’s more like quick questions that can be solved, and I tend to get quite a lot of that. So I think it’s that bimodel approach of high-frequency questions that we can solve by asynchronous means or high-impact moments a few times per year where, essentially, we need to sit down and we need to think together deeply about the problem.

And I tend to do nothing in the middle, where essentially, it’s stuff that is not so impactful but takes a huge amount of time for everyone, that doesn’t tend to be the most effective way of helping entrepreneurs. Obviously, I’m guided by what entrepreneurs want from perspective, so I’m always training the models in response to what they need.

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Onit acquires legal startup McCarthyFinch to inject AI into legal workflows

Onit, a workflow software company based in Houston with a legal component, announced this week that it has acquired 2018 TechCrunch Disrupt Battlefield alum McCarthyFinch.  Onit intends to use the startup’s AI skills to beef up its legal workflow software offerings.

The companies did not share the purchase price.

After evaluating a number of companies in the space, Onit focused on McCarthyFinch, which gives it an artificial intelligence component the company’s legal workflow software had been lacking. “We evaluated about a dozen companies in the AI space and dug in deep on six of them. McCarthyFinch stood out from the pack. They had the strongest technology and the strongest team,” Eric M. Elfman, CEO and co-founder of Onit told TechCrunch.

The company intends to inject that AI into its existing Aptitude workflow platform.”Part of what really got me excited about McCarthyFinch was the very first conversation I had with their CEO, Nick Whitehouse. They considered themselves an AI platform, which complemented our approach and our workflow automation platform, Aptitude,” Elfman said.

McCarthyFinch CEO and co-founder Whitehouse says the startup was considering whether to raise more money or look at being acquired earlier this year when Onit made its interest known. At first, he wasn’t really interested in being acquired and was hoping to go the partner route, but over time that changed.

“I was very much on the partner track, and was probably quite dismissive to begin with because I was quite focused on that partner strategy. But as we talked, all egos aside, it just made sense [to move to acquisition talks],” Whitehouse said.

McCarthyFinch AI services platform automates tedious legal tasks

The talks heated up in May and the deal officially closed last week. With Onit, headquartered in Houston and McCarthyFinch in New Zealand, the negotiations and meetings all happened on Zoom. The two companies’ principals have never met in person. The plan is for McCarthyFinch to stay in place, even after the pandemic ends. Whitehouse expects to make a trip to Houston whenever it is safe to do so.

Whitehouse says his experience with Battlefield has had a huge influence on him. “Just the insights that we got through Battlefield, the coaching that we got, those things have stuck with me and they’ll stick with me for the rest of my life,” he said.

The company had 45 customers and 17 employees at the time of the acquisition. It raised $5 million US dollars along the way. Now it becomes part of Onit as the journey continues.

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Wish files to go public with 100M monthly actives, $1.75B in 2020 revenue thus far

This morning Wish, a well-known mobile ecommerce startup, filed to go public. It joins Affirm, Airbnb, and Roblox in filing this week as many well-known and valuable private companies look to debut before the year ends and the holidays start.

Wish’s S-1 (which is filed under its corporate name ContextLogic) is of particular interest given that COVID-19 and the global pandemic have changed consumer behavior around the world in 2020. As going to stores became more risky over time, many shoppers turned to buying more goods from the Internet, bolstering ecommerce players like Shopify, BigCommerce, as well as companies that facilitate online payments, like Square and PayPal.

How has the pandemic impacted Wish? It appears to have accelerated its growth.

Looking back in time, Wish saw its revenue growth slow in 2019, before expanding much more quickly in 2020. From 2017 to 2018, for example, when Wish saw revenues of $1.10 billion and $1.73 billion respectively, it grew 57%. But from 2018 to 2019, its revenue only grew to $1.90 billion, up a far-smaller 10%.

More recently, the situation has improved for the digital retailer, with Wish managing to grow more quickly in the first three months of 2020. In the first nine months of 2019, Wish racked up revenues of $1.33 billion. In the same period of 2020 the company’s top line grew to $1.75 billion, up 32% from the year-ago result.

That’s far better than the 10% growth pace that Wish showed in 2019. Wish’s growth acceleration helps explain why it is going public now: it has a growth story to tell investors.

But the company’s accelerated growth has come at a cost, namely rising losses. During the first three quarters of 2019, Wish posted net losses of just $5 million, before some preferred stock costs pushed its total deficit to $12 million. In the same period of 2020 Wish lost a far steeper $176 million.

Wish’s falling gross margins have not helped. In 2018, Wish had gross margins of 84%. That number fell to 77% in 2019, and then to just 65% in the first three quarters of 2020.

But the ecommerce player did have some more positive details to show, as this table details:

Improving free cash flow in 2020 compared to 2019? Check. Monthly active user growth rising nicely? Yes. Active buyers up compared to the year-ago period? Yep. Looking at the company’s adjusted profitability is not encouraging, but a 6% adjusted EBITDA margin won’t send investors packing for the hills if they buy Wish’s growth story.

COVID-19 was not simply a boost to Wish, its S-1 makes clear. The pandemic shut some supply hubs, slowed supply chains, and lengthened delivery times. But the company also said that it “benefited from greater mobile usage and less competition from physical retail as a result of shelter-in-place mandates” and “benefited from increased user spending due to U.S. government stimulus programs.” Noting that stimulus is fading, Wish warns investors in the document that it “cannot assure you that increased levels of mobile commerce will continue when COVID-19 has subsided or otherwise, or that the U.S. government will offer additional stimulus programs.”

Wish is wealthy, with around $1.1 billion in cash, cash equivalents, and marketable securities. It also has no long-term debts that could cause concern.

Finally, who is going to win in the deal? Most notably Peter Szulczewski, Wish’s founder and CEO. He controls 65.5% of the Company’s Class B shares and around 58% of its total voting power, pre-IPO. Major investors include DST Global, Formation8, Founder Fund, GGV Capital, and Republic Technologies.

Quite a lot of venture hopes and returns are riding on this IPO, then. More soon.

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Steve Case’s Revolution is targeting $500 million for its fourth growth fund

Revolution, the Washington, D.C.-based investment firm founded by AOL co-founder CEO Steve Case and former AOL senior exec Ted Leonsis, is raising $500 million for its fourth fund, shows a new SEC filing.

Asked about the effort earlier today, the firm declined to comment.

This new fund was expected. It has been more than four years since Revolution announced its third growth fund, a vehicle that closed with $525 million in capital commitments. That’s a longer time between funds than we’re seeing more broadly across the venture industry, where teams have tended to raise new funds approximately every two years, but Revolution’s pacing could tie to its mission. The firm tends to invest primarily in what it long ago dubbed “rise of the rest” cities, where the cost of living and talent is less extreme and where checks go a lot further as a result.

The outfit is also investing out of more than one fund at a time. In recent years, it formed a seed practice and has since raised two Rise of the Rest seed funds, the most recent of which closed last year with $150 million in capital commitments.

Orchard real estate platform raises $69 million Series C led by Revolution Growth

Presumably, the firm’s investors have further taken note of some recent exits for Revolution. Earlier this year, its Boston-based portfolio company DraftKings closed on a three-way merger and debuted on the Nasdaq. Meanwhile, BigCommerce, an Austin-based SaaS startup helping companies build, manage and market online stores, went public via a traditional IPO in early August and currently boasts a market cap of $4.2 billion. (Revolution provided the capital for the company’s Series C round in 2013 and continued to invest in subsequent rounds.)

Others of Revolution’s notable investments include Orchard, a tech platform that helps users sell their current home while simultaneously purchasing their next one and whose $69 million Series C round was led by Revolution in September; TemperPack, a maker of thermal liners meant to address the plastic waste that raised $31 million in Series C funding this past summer, including follow-on funding from Revolution; and sweetgreen, the fast-casual restaurant chain that has endured some ups and downs owing to the pandemic but that closed on $150 million in funding a year ago and which first received backing from Revolution back in 2013.

AOL founder Steve Case, involved early in Section 230, says it’s time to change it

Last month, we talked at some length with Case, including about his involvement in the creation of Section 230 of the Communications Decency Act of 1996, which helped create today’s internet giants.

We also talked at the time about whether COVID-19 will cause Silicon Valley to finally lose its gravitational pull. Said Case at the time, in comments not published previously:

Obviously the jury is out. I think a lot of people who decided to leave Silicon Valley to shelter someplace else, most of those will end up returning. I don’t think you’ll see a mass exodus from the city, whether that be Silicon Valley or New York or Boston, which some have predicted.

I do think some of the people who decided to leave at least temporarily will decide to stay, and most of them will end up still working for their current company, in part because some of the tech companies like Facebook and Square and many others have have made it easier to work remotely. But some, once they get settled in another place, and their family is settled, will likely will decide to do something different [and] I think it could be a helpful catalyst in terms of these rise-of-the-rest cities that were showing some signs of momentum. This could be an accelerant.

We had also talked with Case about data that suggests that women and other founders who are not in the networking flow of traditional venture firms are getting left behind as deals are being struck over Zoom. He’d also seen the data and was surprised by it. As he told us:

Yeah, that’s a concern. And it’s a concern about place. It’s also a concerned about people. If you just look at the the NVCA data, last year, 75% of venture capital went to just three states and more than 90% of venture capital went to men and less than 10% to women, even though women represent half our population. And last year, even though Black Americans are about 14% of the population, Black founders got less than 1% of venture capital. So if you just look at the data, it does matter where you live, it does matter what you look like, it does matter the kind of school you went to.

I would have thought that because of the pandemic and because suddenly, Zoom meetings for pitches were becoming increasingly commonplace . . .that that would open up the aperture for most venture capitalists. They would be more willing to take meetings with people in other places, and also be willing to get to reach out to some of the diverse communities that they haven’t traditionally have invested in.

Some of that has happened, for sure. We have seen more interest among coastal investors in opportunities in these in these rise-of-the-rest cities. I think the challenge more broadly, when you go beyond place toward people is what you hear from more of these venture capitalists. They say, ‘Yes, we understand that it’s a problem we need to be help solve. It’s also an opportunity we can potentially seize, because some of these entrepreneurs are going to build some really valuable companies. But we don’t really have the networks. We tend to be mostly situated where we live and have worked or went to school and also where we’ve previously made investments. So we just don’t have the networks in the middle of a country. We don’t have networks with Black founders,’ and so forth.

So that’s an area that we’re really focusing on now: how do we extend the networks. I do think most VCs realize they should be part of the solution, and not part of the problem.

Case mentioned during our call — ahead of the U.S. presidential election — his longstanding friendship with now President-elect Joseph Biden. Case isn’t the only one at Revolution with ties to Biden, however. Ron Klain, an executive vice president at Revolution, previously served as Biden’s chief of staff when he was vice president and, as the world learned last week, Klain is again heading into politics after being chosen to serve as the White House chief of staff beginning in January.

Pandemic’s impact disproportionately reduced VC funding for female founders

https://ift.tt/eA8V8J Steve Case’s Revolution is targeting $500 million for its fourth growth fund https://ift.tt/2IVQIFf

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FireEye acquires Respond Software for $186M, announces $400M investment

The security sector is ever frothy and acquisitive. Just last week Palo Alto Networks grabbed Expanse for $800 million. Today it was FireEye’s turn snagging Respond Software, a company that helps customers investigate and understand security incidents, while reducing the need for highly trained and scarce security analysts. The deal has closed, according to the company.

FireEye had its eye on Respond’s Analyst product, which it plans to fold into to its Mandiant Solutions platform. Like many companies today, FireEye is focused on using machine learning to help bolster its solutions and bring a level of automation to sorting through the data, finding real issues and weeding out false positives. The acquisition gives them a quick influx of machine learning-fueled software.

FireEye sees a product that can help add speed to its existing tooling. “With Mandiant’s position on the front lines, we know what to look for in an attack, and Respond’s cloud-based machine learning productizes our expertise to deliver faster outcomes and protect more customers,” Kevin Mandia, FireEye CEO said in a statement announcing the deal.

Palo Alto Networks to acquire Expanse in deal worth $800M

Mike Armistead, CEO at Respond, wrote in a company blog post that today’s acquisition marks the end of a 4-year journey for the startup, but it believes it has landed in a good home with FireEye. “We are proud to announce that after many months of discussion, we are becoming part of the Mandiant Solutions portfolio, a solution organization inside FireEye,” Armistead wrote.

While FireEye was at it, it also announced a $400 million investment from Blackstone Tactical Opportunities fund and ClearSky (an investor in Respond), giving the public company a new influx of cash to make additional moves like the acquisition it made today.

It didn’t come cheap. “Under the terms of its investment, Blackstone and ClearSky will purchase $400 million in shares of a newly designated 4.5% Series A Convertible Preferred Stock of FireEye (the “Series A Preferred”), with a purchase price of $1,000 per share. The Series A Preferred will be convertible into shares of FireEye’s common stock at a conversion price of $18.00 per share,” the company explained in a statement. The stock closed at $14.24 today.

Respond, which was founded in 2016, raised $32 million including a $12 million Series A in 2017 led by CRV and Foundation Capital and a $20 million Series B led by ClearSky last year, according to Crunchbase data.

FireEye snags security effectiveness testing startup Verodin for $250M

https://ift.tt/eA8V8J FireEye acquires Respond Software for $186M, announces $400M investment https://ift.tt/36STHH6

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Roblox files to go public

Roblox, the child-friendly gaming company, filed to go public today.

Its listing comes one day after the lending company Affirm initiated its own public offering and a mere two days after Airbnb’s filing.

Roblox filed confidentially to go public in mid-October, but its numbers were unreleased until today when it published its S-1 document.

The company is not the first gaming platform company to go public this year, with gaming engine Unity debuting earlier this year. After its IPO, Unity shares have rocketed, perhaps preparing the public markets for Roblox’s own debut.

This post will provide an overview of Roblox’s business results, and a quick dig into its history of raising private capital and who owns what in the company as it stands today. TechCrunch will have more on venture capital results, and the nuances of Roblox’s business model once we tease them out of its fresh SEC filing.

Unity’s IPO numbers look pretty … unreal?

Financials

Roblox is a free-to-play game and developer platform, which means users don’t pay to access its service, but there are in-game purchases through a currency called Robux and a subscription service called Roblox Premium, which comprise the bulk of the company’s revenues.

Third-party developers can create experiences on the platform that cost Robux, a model that has seen significant uptake over time. According to Roblox, its developer and creator pool earned $72.2 million in the first three quarters of 2019, a figure that soared to $209.2 million in the same period of 2020. (TechCrunch has a deep-dive into Roblox and its pre-IPO success here if you want more depth in its business mechanics. We’ve also dug into its tech stack evolution here, if that is your jam.)

Roblox has seen similar growth in its total revenues, growing 139% to $312.8 million in 2018, and 56% to $488.2 million in 2019. More recently, the company’s revenue expanded 68% in the first three quarters of 2020 from its 2019 result over the same period to $588.7 million.

The company, then, has grown more quickly in 2020 to-date than it did in 2019, an impressive acceleration at scale. A COVID-derived tailwind has helped the company, with Roblox stating in its S-1 filing that it saw enjoyed “rapid growth” in part of Q1, and all of Q2 and Q3 that it says was “due in part to the COVID-19 pandemic given our users have been online more as a result of global COVID-19 shelter-in-place policies.”

The unicorn gaming company also warned that “in future periods” it anticipates “growth rates for our revenue to decline,” going on to warn that it “may not experience any growth in bookings or our user base during periods” that are later compared to its COVID-boosted 2020 results.

How investors weigh that warning against the company’s growth remains to be seen, but Roblox has had an extraordinary 2020. For example, the company’s bookings — what it defines as “sales activity in a given period without giving effect to certain non-cash adjustments” – grew 62% in 2018 to $499.0, 39% in 2019 to $694.3 million, and 171% to $1.24 billion in the first three quarters of 2020, when compared to the same period of 2019.

That growth is downright impressive. As you’d imagine, the company’s impressive sales gains were derived from rising user interest, with Roblox averaging “31.1 million average DAUs across over 180 countries” during the first nine months of 2020, up from 17.1 million during the same portion of 2019.

Along with more consumers coming to the Roblox platform, the hours engaged also increased. Users on Roblox spent 22.2 billion hours in the first 9 months of 2020, up 122% during the same portion of 2020. Daily active users spend an average of 2.67 hours per day on the platform.

How Roblox avoided the gaming graveyard and grew into a $2.5B company

Despite its rapid growth, Roblox, like many unicorns, is still unprofitable. The company lost $97.2 million in 2018, $86.0 million in 2019. Its losses exploded in 2020, with the company posting a net loss of $203.2 million in the first three quarters of the year, compared to just $46.3 million during the same portion of 2019.

Those losses appear to be driven mainly from rising spend across its operations, and an increase in the cost of share-based compensation in 2020 compared to 2019.

However, on a cash basis Roblox appears to be in much better shape than its GAAP numbers would have you initially estimate.  The firm’s operating cash flow grew from $62.6 million in the first nine months of 2019 to $345.3 million in the same period of this year. Over the same period, the company’s free cash flow was $6.0 million and $292.6 million.

Roblox’s numbers demonstrate that its space can be large, and economically interesting. So much so that the company will make a number of VCs rich.

How Roblox completely transformed its tech stack

Who owns what?

While private, Roblox raised $335.7 million, according to Crunchbase data, with rounds led by Altos Ventures, First Round Capital, Meritech, Index, Greylock, Tiger Global, and Andreessen Horowitz powering its life until today.

Roblox has around $810 million in cash and equivalents, heading into its IPO. And once it goes public, the company’s investors will start a clock on when they can convert their formerly illiquid shares into cash.

The S-1 gives an idea of who owns how much of the gaming developer platform, and thus who might benefit the most from the IPO. Altos Ventures is the principal stockholder, holding 23.9% of the company at 114,261,961 shares. This is not surprising given how many Roblox rounds it helped lead. Right behind Altos comes Meritech Capital, which owns 11.6% of Roblox, Index Ventures, with 11.1%, Tiger Global at 8.2% and First Round Capital at 7%.

The executive team, in aggregate, holds just 6.8% of the company. David Baszucki, the co-founder and CEO of Roblox, owns 8,252,471 shares, or 1.6% of the company, indicating the true effects of dilution when you are as richly-funded a company as Roblox.

Beyond the numbers

In its S-1, Roblox did address that its success depends on its ability to “provide a safe online environment” for children, or else its “business will suffer dramatically.”

In 2018, Roblox responded to a grotesque hack that allowed a young girl’s avatar to be raped on a playground on one of its games. Other allegations continue, including that the business has offered a platform to criminal offenders to lure children into interacting with creeps off-platform, according to the S-1.

“While we devote considerable resources to prevent this from occurring, we are unable to prevent all such interactions from taking place,” the document states. However, the document does go on to say that communications on its platform are not encrypted “at this time” and that they have an “increased risk” of data security incidents around access and disclosure. With children on the platform, this is a huge weak spot for Roblox.

The business intends to list on the New York Stock Exchange under the symbol “RBLX.”

https://ift.tt/eA8V8J Roblox files to go public https://ift.tt/2IXhxJy

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Fintech unicorn Affirm has a lot of eggs in one basket

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

This week wound being incredibly busy. What else would a week that included both the Airbnb and Affirm IPO filings, a host of mega-rounds for new unicorns, some fascinating smaller funding events, and some new funds?

So we had a lot to get through, but with Chris and Danny and Natasha and your humble servant, we dove in headfirst:

• Affirm has filed to go public! The fintech unicorn is big, growing, and losing less money over time. We were pretty impressed in our first look. Then, with a bit more time, we dug deeper and found a weakness or two. Still, Affirm is heading public and not in poor shape.
• Airbnb filed, and we jumped into an Equity Shot as fast as we could on Tuesday to get our minds around the news. Since then, Danny dug through the venture capital winners circle — a surprisingly small subset of firms! — and we also got into some questions that I had about the company’s finances.
• Robinhood is said to have an IPO in the books, so we talked a bit about what we know concerning its Q3 growth.
• And then there was edtech, as always. This week we talked about Tencent backing Udemy, Duolingo raising again, and Transfr picking up a Series A that we thought was super interesting.
• Danny wanted to talk about the Trust & Will Series A. We tried to not make that many jokes.
• ZenBusiness raised $55 million as well, in an outsized Series B.
• Financial Venture Studio put together a new fund to cut small checks into Seed-stage fintech startups. We think that’s great. Especially given what we know about what is going on in the fintech venture world.
• And Natasha walked us through her latest deep-dive, a look into the world of virtual headquarters. This led to the worst joke of the show.

What a week! Three episodes, some new records, and a very tired us after all the action. More on Monday!

Equity drops every Monday at 7:00 a.m. PDT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

https://ift.tt/eA8V8J Fintech unicorn Affirm has a lot of eggs in one basket https://ift.tt/3kM6tMy

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