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How the pandemic drove the IPO wave we see today

This is The TechCrunch Exchange, a newsletter that goes out on Saturdays, based on the column of the same name. You can sign up for the email here.

I had a neat look into the world of mental health startup fundraising planned for this week, but after being slow-motion carpet-bombed by S-1s, that is now shoved off to Monday and we have to pause and talk about COVID-19.

The pandemic has been the most animating force for startups and venture capital in 2020, discounting the slow movement of global business into the digital realm. But COVID did more than that, as we all know. It crashed some companies as assuredly as it gave others a boost. For every Peloton there is probably a Toast, in other words.

Such is the case with this week’s crop of unicorn IPO candidates, though they are unsurprisingly weighted far more toward the COVID-accelerated cohort of startups instead of the group of startups that the pandemic cut off at the knees. 

More simply, COVID-19 gave most of our recent IPOs a polite shove in the back, helping them jog a bit faster toward the public-offering finish line. Let’s talk about it.

Roblox, the gaming company that targets kids, has been a beneficiary during the COVID-19 pandemic, as folks stayed home and, it appears, gave their kids money to buy in-game currency so that their parents could have some peace. Great business, even if Roblox warned that growth could slow sharply next year, when compared to its epic 2020 gains.

But Roblox is hardly the only company taking advantage of COVID-19’s impacts on the market to get public while their numbers are stellar. We saw DoorDash file last week, crowing from atop a mountain of revenue growth that came in part from you and I trying to stay home since March. As it turns out you order more delivery when you can’t leave your house.

Affirm got a COVID-19 boost as well, with not only e-commerce spend growing — Affirm provides point-of-sale loans to consumers during online shopping — but also because Peloton took off, and lots of folks chose to finance their new exercise bike with the payment service. Call it a double-boost.

The IPO is well-timed. Wish falls into the same bucket, though it did hit some supply-chain and delivery issues due to the pandemic, so you could argue it either way.

Regardless, as we have seen from global numbers, COVID-19 is very much not done wreaking havoc on our health, happiness, and ability to go about normal life. So the trends that this week’s S-1s have shown us still have some room to run.

Which is irksome for Airbnb, a unicorn that was supposed to have debuted already via a direct listing, but instead had to hit pause, borrow money, lay off staff, and now jog to the startup finish line with less revenue in this Q3 than the last. In time, Airbnb will get back to full-speed, but among our new IPO candidates it’s the only company net-harmed by COVID-19. That makes it special.

There are other trends to keep tabs on, regarding the pandemic. Not every software company that you might expect to be thriving at the moment actually is; Workday shares are off 8% today as I write to you, because the company said that COVID-19 is harming its ability to land new customers. Here’s its CFO Robynne Sisco from its earnings call

Keep in mind, however, that while we have seen some recent stability in the underlying environment, headwinds due to COVID remains particularly to net new bookings. And given our subscription model, these headwinds that have impacted us all year will be more fully evident in next year’s subscription revenue weighing on our growth in the near-term.

Yeesh. So don’t look at recent IPOs and think that all things are good for all companies, or even all software companies. (To be clear, the pandemic is a human crisis, but my job is to talk about its business impacts so here we are. Hugs, and please stay as safe as you can.)

Market Notes

There was so much news this week that we have to be annoyingly summary. 

I caught up with Brex CEO Henrique Dubugras the other day, giving The Exchange a chance to parse what happened to the company during the early COVID days when the company decided to cut staff. The short answer from the CEO is that the company went from growing 10% to 15% each month, to seeing negative growth — not a sin, Airbnb saw negative gross bookings for a few months earlier this year — and as the company had hired for a big year, it had to make cuts. Dubugras talked about how hard of a choice that was to make.

Brex’s business rebounded faster than the company expected, however, driven in part by strong new business formation — some data here — and companies rapidly moving into the digital realm and moving to finance systems like Brex’s. 

Looking forward, Dubugras wants to expand the pool of companies that Brex can underwrite, which makes sense as that would open up its market size quite a lot. And the company is as remote as companies are now, with its CEO opening up during our chat about the pros and cons of the move. Happily for the business fintech unicorn, Dubugras said that some of the negatives of companies working more remotely haven’t been as tough as expected. 

Next up: Growth metric. Verbit, a startup that uses AI to transcribe and caption videos, raised a $60 million Series C this week led by Sapphire Ventures. I couldn’t get to the round, but the company did note in its release that it has seen 400% year-over-year revenue growth, and that its “revenue run-rate [has] grown five-fold since 2019.” Nice.

Jai Das led the round for Verbit, and, in a quirk of good timing, I’m hosting an Extra Crunch Live with him in a few weeks. (Extra Crunch sub required for that, head here if you need one. The discount code ‘EQUITY’ should still be working if it helps.)

Telos, a Virginia-based cybersecurity and identity company went public this week. It fell under our radar because there is more news than we have hands to type it up. Such is the rapid-fire news cycle of late 2020. But, to catch us both up, Telos priced midrange but with an upsized offering, valuing it around $1 billion, according to MarketWatch.

After going public, Telos shares have performed well. Cybersecurity is having one hell of a year.

Turning back to our favorite topic in the world, SaaS, ProfitWell’s Patrick Campbell dropped a grip of data on the impact of COVID-19 on the B2B SaaS market. Mostly it’s positive. There was a hit early on, but then growth seems to have accelerated. Just keep in mind the Workday example from earlier; not everyone is in software growth paradise as 2020 comes to a close.

And, finally, after Affirm released its S-1 filing, competing service Klarna decided it was a good time to drop some performance data of its own. First of all, Klarna — thanks. We like data. Second of all, just go public. Klarna said that it grew from 10 million customers in the United States to 11 million in three weeks, and that the second statistic was up 106% compared to its year-ago tally. 

Affirm, you are now required by honor to update your S-1 with even more data as an arch-nerd clapback. Sorry, I don’t make the rules.

Various and Sundry

Alright, that’s enough of all that. Chat to you soon, and I hope that you are safe and well and good.

Alex

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All IPOs should be paid for in Robux

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

This is an all-time first for the show, it’s an Equity Leftovers. Which means that we’re not focusing on a single topic like we would in an Equity Shot. This is just, well, more Equity.

Danny and I and Chris got together to chat about a few things that we could not leave out:

And with this, our fourth episode in six days, we shall pause until Monday. Hugs from the Equity crew.

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 PodcastsOvercastSpotify and all the casts.

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Extra Crunch roundup: A fistful of IPOs, Affirm’s Peloton problem, Zoom Apps and more

DoorDash, Affirm, Roblox, Airbnb, C3.ai and Wish all filed to go public in recent days, which means some venture capitalists are having the best week of their lives.

Tech companies that go public capture our imagination because they are literal happy endings. An Initial Public Offering is the promised land for startup pilgrims who may wander the desert for years seeking product-market fit. After all, the “I” in “ISO” stands for “incentive.”

A flurry of new S-1s in a single week forced me to rearrange our editorial calendar, but I didn’t mind; our 360-degree coverage let some of the air out of various hype balloons and uncovered several unique angles.

For example: I was familiar with Affirm, the service that lets consumers finance purchases, but I had no idea Peloton accounted for 30% of its total revenue in the last quarter.

“What happens if Peloton puts on the brakes?” I asked Alex Wilhelm as I edited his breakdown of Affirm’s S-1. We decided to use that as the subhead for his analysis.

The stories that follow are an overview of Extra Crunch from the last five days. Full articles are only available to members, but you can use discount code ECFriday to save 20% off a one or two-year subscription. Details here.

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

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist


What is Roblox worth?

Gaming company Roblox filed to go public yesterday afternoon, so Alex Wilhelm brought out a scalpel and dissected its S-1. Using his patented mathmagic, he analyzed Roblox’s fundraising history and reported revenue to estimate where its valuation might land.

Noting that “the public markets appear to be even more risk-on than the private world in 2020,” Alex pegged the number at “just a hair under $10 billion.”

What China’s fintech can teach the world

HANGZHOU, CHINA – JULY 31: An employee uses face recognition system on a self-service check-out machine to pay for her meals in a canteen at the headquarters of Alibaba Group on July 31, 2018 in Hangzhou, Zhejiang Province of China. The self-service check-out machine can calculate the price of meals quickly to save employees’ queuing time. (Photo by Visual China Group via Getty Images)

For all the hype about new forms of payment, the way I transact hasn’t been radically transformed in recent years — even in tech-centric San Francisco.

Sure, I use NFC card readers to tap and pay and tipped a street musician using Venmo last weekend. But my landlord still demands paper checks and there’s a tattered “CASH ONLY” taped to the register at my closest coffee shop.

In China, it’s a different story: Alibaba’s employee cafeteria uses facial recognition and AI to determine which foods a worker has selected and who to charge. Many consumers there use the same app to pay for utility bills, movie tickets and hamburgers.

“Today, nobody except Chinese people outside of China uses Alipay or WeChat Pay to pay for anything,” says finance researcher Martin Chorzempa. “So that’s a big unexplored side that I think is going to come into a lot of geopolitical risks.”

Inside Affirm’s IPO filing: A look at its economics, profits and revenue concentration

Consumer lending service Affirm filed to go public on Wednesday evening, so Alex used Thursday’s column to unpack the company’s financials.

After reviewing Affirm’s profitability, revenue and the impact of COVID-19 on its bottom line, he asked (and answered) three questions:

  • What does Affirm’s loss rate on consumer loans look like?
  • Are its gross margins improving?
  • What does the unicorn have to say about contribution profit from its loans business?

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

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

“The only thing more rare than a unicorn is an exited unicorn,” observes Managing Editor Danny Crichton, who looked back at Exitpalooza 2020 to answer “a simple question — who made the money?”

Covering each exit from the perspective of founders and investors, Danny makes it clear who’ll take home the largest slice of each pie. TL;DR? “Some really colossal winners among founders, and several venture firms walking home with billions of dollars in capital.

5 questions from Airbnb’s IPO filing

The S-1 Airbnb released at the start of the week provided insight into the home-rental platform’s core financials, but it also raised several questions about the company’s health and long-term viability, according to Alex Wilhelm:

  • How far did Airbnb’s bookings fall during Q1 and Q2?
  • How far have Airbnb’s bookings come back since?
  • Did local, long-term stays save Airbnb?
  • Has Airbnb ever really made money?
  • Is the company wealthy despite the pandemic?

Autodesk CEO Andrew Anagnost explains the strategy behind acquiring Spacemaker

Andrew Anagnost, president and CEO, Autodesk.

Earlier this week, Autodesk announced its purchase of Spacemaker, a Norwegian firm that develops AI-supported software for urban development.

TechCrunch reporter Steve O’Hear interviewed Autodesk CEO Andrew Anagnost to learn more about the acquisition and asked why Autodesk paid $240 million for Spacemaker’s 115-person team and IP — especially when there were other startups closer to its Bay Area HQ.

“They’ve built a real, practical, usable application that helps a segment of our population use machine learning to really create better outcomes in a critical area, which is urban redevelopment and development,” said Anagnost.

“So it’s totally aligned with what we’re trying to do.”

Unpacking the C3.ai IPO filing

On Monday, Alex dove into the IPO filing for enterprise artificial intelligence company C3.ai.

After poring over its ownership structure, service offerings and its last two years of revenue, he asks and answers the question: “is the business itself any damn good?”

Is the internet advertising economy about to implode?

Image Credits: jayk7 / Getty Images

In his new book, “Subprime Attention Crisis,” writer/researcher Tim Hwang attempts to answer a question I’ve wondered about for years: does advertising actually work?

Managing Editor Danny Crichton interviewed Hwang to learn more about his thesis that there are parallels between today’s ad industry and the subprime mortgage crisis that helped spur the Great Recession.

So, are online ads effective?

“I think the companies are very reticent to give up the data that would allow you to find a really definitive answer to that question,” says Hwang.

Will Zoom Apps be the next hot startup platform?

Image Credits: Zoom

Even after much of the population has been vaccinated against COVID-19, we will still be using Zoom’s video-conferencing platform in great numbers.

That’s because Zoom isn’t just an app: it’s also a platform play for startups that add functionality using APIs, an SDK or chatbots that behave like smart assistants.

Enterprise reporter Ron Miller spoke to entrepreneurs and investors who are leveraging Zoom’s platform to build new applications with an eye on the future.

“By offering a platform to build applications that take advantage of the meeting software, it’s possible it could be a valuable new ecosystem for startups,” says Ron.

Will edtech empower or erase the need for higher education?

Image Credits: Bryce Durbin

Without an on-campus experience, many students (and their parents) are wondering how much value there is in attending classes via a laptop in a dormitory.

Even worse: Declining enrollment is leading many institutions to eliminate majors and find other ways to cut costs, like furloughing staff and cutting athletic programs.

Edtech solutions could fill the gap, but there’s no real consensus in higher education over which tools work best. Many colleges and universities are using a number of “third-party solutions to keep operations afloat,” reports Natasha Mascarenhas.

“It’s a stress test that could lead to a reckoning among edtech startups.”

3 growth tactics that helped us surpass Noom and Weight Watchers

3D rendering of TNT dynamite sticks in carton box on blue background. Explosive supplies. Dangerous cargo. Plotting terrorist attack. Image Credits: Gearstd / Getty Images.

I look for guest-written Extra Crunch stories that will help other entrepreneurs be more successful, which is why I routinely turn down submissions that seem overly promotional.

However, Henrik Torstensson (CEO and co-founder of Lifesum) submitted a post about the techniques he’s used to scale his nutrition app over the last three years. “It’s a strategy any startup can use, regardless of size or budget,” he writes.

According to Sensor Tower, Lifesum is growing almost twice as fast as Noon and Weight Watchers, so putting his company at the center of the story made sense.

Send in reviews of your favorite books for TechCrunch!

Image via Getty Images / Alexander Spatari

Every year, we ask TechCrunch reporters, VCs and our Extra Crunch readers to recommend their favorite books.

Have you read a book this year that you want to recommend? Send an email with the title and a brief explanation of why you enjoyed it to bookclub@techcrunch.com.

We’ll compile the suggestions and publish the list as we get closer to the holidays. These books don’t have to be published this calendar year — any book you read this year qualifies.

Please share your submissions by November 30.

Dear Sophie: Can an H-1B co-founder own a Delaware C Corp?

Image Credits: Sophie Alcorn

Dear Sophie:

My VC partner and I are working with 50/50 co-founders on their startup — let’s call it “NewCo.” We’re exploring pre-seed terms.

One founder is on a green card and already works there. The other founder is from India and is working on an H-1B at a large tech company.

Can the H-1B co-founder lead this company? What’s the timing to get everything squared away? If we make the investment we want them to hit the ground running.

— Diligent in Daly City

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Kea raises $10M to build AI that helps restaurants answer the phone

Kea is a new startup giving restaurants an opportunity to upgrade one of the more old-fashioned ways that they take orders — over the phone.

Today, Kea is announcing that it has raised a $10 million Series A led by Marbruck, with participation from Streamlined Ventures, Xfund, Heartland Ventures, DEEPCORE, Barrel Ventures and AVG Funds, as well as angel investors Raj Kapoor (chief strategy officer at Lyft), Craig Flom (who was on the founding team at Panera Bread), Wingstop franchisee Tony Lam and Five Guys franchisee Jonathan Kelly.

Founder and CEO Adam Ahmad said that with restaurants perpetually understaffed, they usually don’t have someone who can devote their attention to answering the phone. (Many of you, after all, are probably pretty familiar with the experience of calling a restaurant and being immediately placed on hold.)

At the same time, he suggested it remains an important ordering channel — especially during the pandemic, as takeout and delivery has become the biggest source of revenue for many restaurants. The New Yorker’s Helen Rosner put it succinctly when she suggested that anyone who wants to support restaurants should “pick up the damn phone.

Similarly, Ahmad said that for restaurants, paying substantial third-party ordering fees on all of their orders is “not a sustainable long-term strategy.” So Kea is offering technology that should help restaurants handle more orders over the phone, creating what Ahmad called a “virtual cashier” who can do the initial intake with customers, process most routine orders and bring in a human employee when needed.

The idea of an automated voice assistant may bring back unpleasant memories of trying to call your bank or another Byzantine customer service department. But Ahmad said that while most existing phone systems are “not smart,” Kea’s AI is very different, because it’s just focused on restaurant ordering.

“We’re doing a very closed domain,” he said. “In the pizza world, there are only a couple thousand permutations. We’re not innovating for the whole dictionary — it’s a constrained model, it’s a menu.”

In fact, the Kea team gave me a number to dial where I could try out the system for myself. It was a pretty straightforward and easy process, where I provided my address and then the details of my pizza order. And again, you can transfer to a human employee at any time. (In fact, I was accidentally transferred during my demo, leading me to quickly hang up in embarrassment.)

Kea is already live in more than 250 restaurants, including Papa John’s, Donatos and Primanti Brothers, and it says it’s saving them an average of 10 hours of labor per week, with a 23% increase in average order size. With the new funding, Ahmad’s goal is to bring Kea to 1,000 restaurants across 37 states in 2021.

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What is Roblox worth?

Public markets appear to be even more risk-on in 2020

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.


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


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.

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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Affirm files to go public

Affirm, a consumer finance business founded by PayPal mafia member Max Levchin, filed to go public this afternoon.

The company’s financial results show that Affirm, which doles out personalized loans on an installment basis to consumers at the point of sale, has an enticing combination of rapidly expanding revenues and slimming losses.

Growth and a path to profitability has been a winning duo in 2020 as a number of unicorns with similar metrics have seen strong pricing in their debuts, and winsome early trading. Affirm joins DoorDash and Airbnb in pursuing an exit before 2020 comes to a close.

Let’s get a scratch at its financial results, and what made those numbers possible.

Affirm’s financials

Affirm recorded impressive historical revenue growth. In its 2019 fiscal year, Affirm booked revenues of $264.4 million. Fast forward one year and Affirm managed top line of $509.5 million in fiscal 2020, up 93% from the year-ago period. Affirm’s fiscal year starts on July 1, a pattern that allows the consumer finance company to fully capture the U.S. end-of-year holiday season in its figures.

The San Francisco-based company’s losses have also narrowed over time. In its 2019 fiscal year, Affirm lost $120.5 million on a fully-loaded basis (GAAP). That loss slightly fell to $112.6 million in fiscal 2020.

More recently, in its first quarter ending September 30, 2020, Affirm kept up its pattern of rising revenues and falling losses. In that three-month period, Affirm’s revenue totaled $174.0 million, up 98% compared to the year-ago quarter. That pace of expansion is faster than the company managed in its most recent full fiscal year.

Accelerating revenue growth with slimming losses is investor catnip; Affirm has likely enjoyed a healthy tailwind in 2020 thanks to the COVID-19 pandemic boosting ecommerce, and thus gave the unicorn more purchase in the realm of consumer spend.

Again, comparing the company’s most recent quarter to its year-ago analog, Affirm’s net losses dipped to just $15.3 million, down from $30.8 million.

Affirm’s financials on a quarterly basis — located on page 107 of its S-1 if you want to follow along — give us a more granular understanding of how the fintech company performed amidst the global pandemic. After an enormous fourth quarter in calendar year 2019, growing its revenues to $130.0 million from $87.9 million in the previous quarter, Affirm managed to keep growing in the first, second, and third calendar quarters of 2020. In those periods, the consumer fintech unicorn recorded a top line of $138.2 million, $153.3 million, and $174 million, as we saw before.

Perhaps best of all, the firm turned a profit of $34.8 million in the quarter ending June 30, 2020. That one-time profit, along with its slim losses in its most recent period make Affirm appear to be a company that won’t hurt for future net income, provided that it can keep growing as efficiently as it has recently.

The COVID-19 angle

The pandemic has had more impact on Affirm than its raw revenue figures can detail. Luckily its S-1 filing has more notes on how the company adapted and thrived during this Black Swan year.

Certain sectors provided the company with fertile ground for its loan service. Affirm said that it saw an increase in revenue from merchants focused on home-fitness equipment, office products, and home furnishings during the pandemic. For example, its top merchant partner, Peloton, represented approximately 28% of its total revenue for the 2020 fiscal year, and 30% of its total revenue for the three months ending September 30, 2020.

Peloton is a success story in 2020, seeing its share price rise sharply as its growth accelerated across an uptick in digital fitness.

Investors, while likely content to cheer Affirm’s rapid growth, may cast a gimlet eye at the company’s dependence for such a large percentage of its revenue from a single customer; especially one that is enjoying its own pandemic-boost. If its top merchant partner losses momentum, Affirm will feel the repercussions, fast.

Regardless, Affirm’s model is resonating with customers. We can see that in its gross merchandise volume, or total dollar amount of all transactions that it processes.

GMV at the startup has grown considerably year-over-year, as you likely expected given its rapid revenue growth. On page 22 of its S-1, Affirm indicates that in its 2019 fiscal year, GMV reached $2.62 billion, which scaled to $4.64 billion in 2020.

Akin to the company’s revenue growth, its GMV did not grow by quite 100% on a year-over-year basis. What made that growth possible? Reaching new customers. As of September 30, 2020, Affirm has more than 3.88 million “active customers,” which the company defines as a “consumer who engages in at least one transaction on our platform during the 12 months prior to the measurement date.” That figure is up from 2.38 million in the September 30, 2019 quarter.

The growth is nice by itself, but Affirm customers are also becoming more active over time, which provides a modest compounding effect. In its most recent quarters, active customers executed an average of 2.2 transactions, up from 2.0 in third quarter of calendar 2019.

Also powering Affirm has been an ocean of private capital. For Affirm, having access to cash is not quite the same as a strictly-software company, as it deals with debt, which likely gives the company a slightly higher predilection for cash than other startups of similar size.

Luckily for Affirm, it has been richly funded throughout its life as a private company. The fintech unicorn has raised funds well in excess of $1 billion before its IPO, including a $500 million Series G in September of 2020, a $300 million Series F in April of 2019, and a $200 million Series E in December of 2017. Affirm also raised more than $400 million in earlier equity rounds, and a $100 million debt line in late 2016.

What to make of the filing? Our first-read take is that Affirm is coming out of the private markets as a healthier business than the average unicorn. Sure, it has a history of operating losses and not yet proven its ability to turn a sustainable profit, but its accelerating revenue growth is promising, as are its falling losses.

More tomorrow, with fresh eyes.

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Farmstead, a grocery startup with a focus on software, raises $7.9M

Farmstead, a startup that operates an online grocery business while also selling software to other grocers, is announcing that it has raised $7.9 million in Series A funding.

While there’s been plenty of demand for grocery delivery this year, the major players like Instacart are making purchases and deliveries from existing supermarkets. Farmstead co-founder and CEO Pradeep Elankumaran said that this model puts a big constraint on the number of possible deliveries, which is why you may be struggling to get a delivery slot.

There have been fewer success stories around the Farmstead approach, where a company sells groceries from its own warehouse (and in Farmstead’s case, employs its own warehouse staff and drivers).

In fact, Elankumaran said that when the company started in 2016, “The warehouse model was incredibly unattractive to everyone else,” because of the operational headaches and expenses.

To address these issues, Elankumaran said Farmstead has built software to “re-orchestrate” warehouse operations and make them more efficient. The startup says it’s been able to reduce food waste by 3-4x, while also serving thousands of orders per day across a 50-mile radius, with no delivery fees, from each warehouse “hub.” In fact, in the startup’s first market of San Francisco, Farmstead is supposedly “marching towards profitability, and we’re very close at this point.”

Image Credits: Farmstead

Next up: Geographic expansion, starting in North Carolina, with Charlotte and Raleigh-Durham (where Farmstead just opened its wait list). Elankumaran said he’s hoping to launch between 15 and 30 new markets in the next 12 months.

“A better way of putting it is: Two years ago we were not ready [to expand], and right now we are ready,” he said.

In addition, Farmstead has started selling its Grocery OS software to other grocery businesses that want to move online. Elankumaran said that in some cases, the grocer may simply buy the software, while in others, Farmstead could also work with them to operate the warehouse. Either way, he said the key is the need to “fork the demand,” so that offline shoppers are going to one store, while online orders are being fulfilled from a separate location.

“You cannot get this industry online unless the capacity increases,” he said.

Elankumaran also said that while it can cost $10 million of dollars to open a new supermarket location, Farmstead can launch a hub in four to six weeks, at a cost of $100,000.

As for whether grocery stores have any hesitation about buying software from a potential competitor, Elankumaran said that the opposite is true — they trust Farmstead more because of “the fact that we’re not a B2B software company that has not operated a grocery store.”

Farmstead has now raised a total of $14.7 million. The Series A was led by Aidenlair Capital, with participation from Y Combinator, Gelt VC, Duro, Maple VC, Heron Rock, 19 York, Red Dog Capital and others.

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Abacus.AI raises another $22M and launches new AI modules

AI startup RealityEngines.AI changed its name to Abacus.AI in July. At the same time, it announced a $13 million Series A round. Today, only a few months later, it is not changing its name again, but it is announcing a $22 million Series B round, led by Coatue, with Decibel Ventures and Index Partners participating as well. With this, the company, which was co-founded by former AWS and Google exec Bindu Reddy, has now raised a total of $40.3 million.

Abacus co-founder Bindu Reddy, Arvind Sundararajan and Siddartha Naidu. Image Credits: Abacus.AI

In addition to the new funding, Abacus.AI is also launching a new product today, which it calls Abacus.AI Deconstructed. Originally, the idea behind RealityEngines/Abacus.AI was to provide its users with a platform that would simplify building AI models by using AI to automatically train and optimize them. That hasn’t changed, but as it turns out, a lot of (potential) customers had already invested into their own workflows for building and training deep learning models but were looking for help in putting them into production and managing them throughout their lifecycle.

“One of the big pain points [businesses] had was, ‘look, I have data scientists and I have my models that I’ve built in-house. My data scientists have built them on laptops, but I don’t know how to push them to production. I don’t know how to maintain and keep models in production.’ I think pretty much every startup now is thinking of that problem,” Reddy said.

Image Credits: Abacus.AI

Since Abacus.AI had already built those tools anyway, the company decided to now also break its service down into three parts that users can adapt without relying on the full platform. That means you can now bring your model to the service and have the company host and monitor the model for you, for example. The service will manage the model in production and, for example, monitor for model drift.

Another area Abacus.AI has long focused on is model explainability and de-biasing, so it’s making that available as a module as well, as well as its real-time machine learning feature store that helps organizations create, store and share their machine learning features and deploy them into production.

As for the funding, Reddy tells me the company didn’t really have to raise a new round at this point. After the company announced its first round earlier this year, there was quite a lot of interest from others to also invest. “So we decided that we may as well raise the next round because we were seeing adoption, we felt we were ready product-wise. But we didn’t have a large enough sales team. And raising a little early made sense to build up the sales team,” she said.

Reddy also stressed that unlike some of the company’s competitors, Abacus.AI is trying to build a full-stack self-service solution that can essentially compete with the offerings of the big cloud vendors. That — and the engineering talent to build it — doesn’t come cheap.

Image Credits: Abacus.AI

It’s no surprise then that Abacus.AI plans to use the new funding to increase its R&D team, but it will also increase its go-to-market team from two to ten in the coming months. While the company is betting on a self-service model — and is seeing good traction with small- and medium-sized companies — you still need a sales team to work with large enterprises.

Come January, the company also plans to launch support for more languages and more machine vision use cases.

“We are proud to be leading the Series B investment in Abacus.AI, because we think that Abacus.AI’s unique cloud service now makes state-of-the-art AI easily accessible for organizations of all sizes, including start-ups,” Yanda Erlich, a p artner at Coatue Ventures  told me. “Abacus.AI’s end-to-end autonomous AI service powered by their Neural Architecture Search invention helps organizations with no ML expertise easily deploy deep learning systems in production.”

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Yubo could be the next big social app as it raises $47.5 million

French startup Yubo is the biggest social media app you’ve never heard of — unless you’re a teen. With a focus on young people under 25, the company has managed to attract 40 million users. A fraction of them hang out every day in live-streaming rooms, meet new people and spend money for more features.

That’s right, the company isn’t betting on ads. You can pay to unlock items or subscribe to the app. Yubo expects to generate $20 million in revenue this year — that’s twice as much revenue than it generated in 2019.

Yubo recently closed a Series C funding round of $47.5 million. Existing investors Idinvest Partners, Iris Capital, Alven and Sweet Capital are investing once again. Gaia Capital Partners is joining the round as a new investor. Jerry Murdock from Insight Partners isn’t investing in the company but he’s joining the company’s board.

So what is Yubo exactly? It’s a social media app that wants to reverse the current trend of social networks — you can’t follow other users, you can’t like content.

As we’ve seen many, many times in the past, once you introduce a following feature, the ability to like and algorithmic recommendations, your social network becomes a virtual stage. A tiny portion of your user base performs on that stage, the vast majority consumes content. Influencers emerge and monopolize your attention. We’ve seen that trend with Vine, Instagram, YouTube, Twitter, TikTok and even LinkedIn.

Yubo isn’t looking for performers. The company wants to help you meet other people, play games, hang out and create new friendships. In many ways, it feels like a way to hang out with teens that don’t attend your high school.

Image Credits: Yubo

When you open the app, you get a list of rooms that you can join. Users can live stream from their phone and chat with other users. You join rooms depending on what you’re looking for — local people, people talking about politics, people playing games, etc.

Once again, the idea isn’t to create giant room with a handful of performers and tens of thousands of viewers. There’s no tipping mechanism so it’s not like Twitch.

“In 95% of rooms, there are only streamers. Rooms have between 5 and 10 people on average,” co-founder and CEO Sacha Lazimi told me.

You can add people as friends and chat with them in the app. In addition to rooms, you can find new friends by swiping left and right on profile pages — an interaction borrowed from Tinder.

“We had 25 million registered users in December. Today, we have more than 40 million users,” Lazimi said. Most users are based in the U.S., the U.K., Canada, Australia and France.

And engagement has been going up as well. The number of hours spent in live rooms is up 400% year-over-year.

With in-app purchases and subscriptions, you get additional features. For instance, you can boost your live stream, promote your profile on the Swipe page or feature your profile at the top of the online section. It’s a way to get more people in your room, receive messages from more users and have more interactions in general.

“We think it’s the future of monetization for social platforms. If you focus on ads, you’re competing with Facebook, TikTok and Snap,” Lazimi said.

With such a young audience, moderation is extremely important. The company has been investing heavily on real-time moderation processes and it tries to enforce strict rules. When you sign up, Yubo checks your identity to put you in the right age group.

“We analyze all content both semantically and visually,” Lazimi said. The company is currently working on alert popups to tell users that they’re doing something inappropriate while it’s happening.

Yubo has in-house safety experts and also works with contractors — it can connect its users with local helplines as well. One-third of the company’s investments are focused on safety. It currently covers 36 languages.

With today’s funding round, Yubo will expand its team. There are currently 30 employees in Paris, London and Jacksonville, which is small when you think about the reach of the app. Yubo will open an office in New York.

On the product front, Yubo is working on recommendation algorithms. The company is also going to build a YouTube integration to consume YouTube content from a room directly. Yubo is also partnering with Snap to integrate Camera Kit. This way, Yubo will be able to build is own AR lenses for its users.

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Equity Shot: Airbnb’s IPO is finally here

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

Today we have an Equity Shot for you about Airbnb’s S-1 filing, as it looks to go public before the year is out.

  • First we get into Airbnb’s macro performance, which shows a stable-picture historical revenue growth. There are a ton of numbers to get to so get ready for a quick dive into net revenue, gross margins and losses.
  • Then we discuss the dramatic drop in bookings, the promising comeback and if short-term travel is Airbnb’s future.
  • There’s a weird quarter of profitability that you should all know about, and a heads-up on what to look for in Q4 numbers.
  • Finally, we talk about the bullish and bearish case on Airbnb, which poetically filed the same day that Moderna announced a promising vaccine trial. 

All that, and our trusty other host Danny Crichton was busy filing a post about the winners and losers of the Airbnb IPO. Ownership, you quiet, billionaire beast. There’s more coming from TechCrunch on the company’s IPO, and from the Equity crew on everything else we ferret out on Thursday. Stay tuned!

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 PodcastsOvercastSpotify and all the casts.

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