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MG Siegler talks portfolio management and fundraising 6 months into the COVID-19 pandemic

This week, GV General Partner (and TechCrunch alum) MG Siegler joined us on Extra Crunch Live for a far-ranging chat about what it takes to foster a good relationship between investor and startup, how portfolio management and investing has changed as the COVID-19 crisis drags on, and what Siegler expects will and won’t stick around in terms of changes in behavior in investment and entrepreneurship once the pandemic passes.

We last caught up with Siegler on the heels of his investment in Universe, a mobile-focused, e-commerce business-building startup. The coronavirus pandemic was relatively new and no one was sure how long it would last or what measures to contain it would look like. Now, with a few months of experience under his belt, Siegler told me that things have relatively settled into a new normal from his perspective as an investor – sometimes for worse, sometimes for better, but mostly just resulting in differences that require adaptation.

This select transcript has been edited for length and clarity. Aside from section headers, all text below is taken from MG Siegler’s responses to my questions.

Business impacts of coping with the pandemic six months on

Just talking about the business side of the equation, I do think that things have sort of stabilized in the day-to-day world here. For us, certainly, I think it’s it’s just as much of a factor though, of just learning how to operate in this in this weird and surreal environment, and knowing how to do remote meetings better. Knowing how to hop on quick Zoom calls, Hangouts, and phone calls, with portfolio companies, to help put out fires, and doing all board meetings remotely, and all that sort of stuff.

That seems like it’s pretty straightforward on paper, but in day-to-day operations, these are all different little learning things that you have to do and come across. I do feel like things are operating in a pretty streamlined manner, or as much as they can be at this point. But, you know, there’s always going to be some more wildcards – like we’re a week away, today, from from the US election.

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Decrypted: Police hack criminal phone network; Randori raises $20M Series A

Last week was, for most Americans, a four-day work week. But a lot still happened in the security world.

The U.S. government’s cybersecurity agencies warned of two critical vulnerabilities — one in Palo Alto’s networking tech and the other in F5’s gear — that foreign, nation state-backed hackers will “likely” exploit these flaws to get access to networks, steal data or spread malware. Plus, the FCC formally declared Chinese tech giants Huawei and ZTE as threats to national security.

Here’s more from the week.


THE BIG PICTURE

How police hacked a massive criminal phone network

Last week’s takedown of EncroChat was, according to police, the “biggest and most significant” law enforcement operation against organized criminals in the history of the U.K. EncroChat sold encrypted phones with custom software akin to how BlackBerry phones used to work; you needed one to talk to other device owners.

But the phone network was used almost exclusively by criminals, allowing their illicit activities to be kept secret and go unimpeded: drug deals, violent attacks, corruption — even murders.

That is, until French police hacked into the network, broke the encryption and uncovered millions of messages, according to Vice, which covered the takedown of the network. The circumstances of the case are unique; police have not taken down a network like this before.

But technical details of the case remain under wraps, likely until criminal trials begin, at which point attorneys for the alleged criminals are likely to rest much of their defense on the means — and legality — in which the hack was carried out.

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Software will reshape our world in the next decade

As I was wrapping up a Zoom meeting with my business partners, I could hear my son joking with his classmates in his online chemistry class.

I have to say this is a very strange time for me: As much as I love my family, in normal times, we never spend this much time together. But these aren’t normal times.

In normal times, governments, businesses and schools would never agree to shut everything down. In normal times, my doctor wouldn’t agree to see me over video conferencing.

No one would stand outside a grocery store, looking down to make sure they were six feet apart from one another. In times like these, decisions that would normally take years are being made in a matter of hours. In short, the physical world — brick-and-mortar reality— has shut down. The world still functions, but now it is operating inside everyone’s own home.

This not-so-normal time reminds me of 2008, the depths of the financial crisis. I sold my company BEA Systems, which I co-founded, to Oracle for $8.6 billion in cash. This liquidity event was simultaneously the worst and most exhausting time of my career, and the best time of my career, thanks to the many inspiring entrepreneurs I was able to meet.

These were some of the brightest, hardworking, never-take-no-for-an-answer founders, and in this era, many CEOs showed their true colors. That was when Slack, Lyft, Uber, Credit Karma, Twilio, Square, Cloudera and many others got started. All of these companies now have multibillion dollar market caps. And I got to invest and partner with some of them.

Once again, I can’t help but wonder what our world will look like in 10 years. The way we live. The way we learn. The way we consume. The way we will interact with each other.

What will happen 10 years from now?

Welcome to 2030. It’s been more than two decades since the invention of the iPhone, the launch of cloud computing and one decade since the launch of widespread 5G networks. All of the technologies required to change the way we live, work, eat and play are finally here and can be distributed at an unprecedented speed.

The global population is 8.5 billion and everyone owns a smartphone with all of their daily apps running on it. That’s up from around 500 million two decades ago.

Robust internet access and communication platforms have created a new world.

The world’s largest school is a software company — its learning engine uses artificial intelligence to provide personalized learning materials anytime, anywhere, with no physical space necessary. Similar to how Apple upended the music industry with iTunes, all students can now download any information for a super-low price. Tuition fees have dropped significantly: There are no more student debts. Kids can finally focus on learning, not just getting an education. Access to a good education has been equalized.

The world’s largest bank is a software company and all financial transactions are digital. If you want to talk to a banker live, you’ll initiate a text or video conference. On top of that, embedded fintech software now powers all industries.

No more dirty physical money. All money flow is stored, traceable and secured on a blockchain ledger. The financial infrastructure platforms are able to handle customers across all geographies and jurisdictions, all exchanges of value, all types of use-cases (producers, distributors, consumers) and all from the start.

The world’s largest grocery store is a software and robotics company — groceries are delivered whenever and wherever we want as fast as possible. Food is delivered via robot or drones with no human involvement. Customers can track where, when and who is involved in growing and handling my food. Artificial intelligence tells us what we need based on past purchases and our calendars.

The world largest hospital is a software and robotics company — all initial diagnoses are performed via video conferencing. Combined with patient medical records all digitally stored, a doctor in San Francisco and her artificial intelligence assistant can provide personalized prescriptions to her patients in Hong Kong. All surgical procedures are performed by robots, with supervision by a doctor of course, we haven’t gone completely crazy. And even the doctors get to work from home.

Our entire workforce works from home: Don’t forget the main purpose of an office is to support companies’ workers in performing their jobs efficiently. Since 2020, all companies, and especially their CEOs, realized it was more efficient to let their workers work from home. Not only can they save hours of commute time, all companies get to save money on office space and shift resources toward employee benefits. I’m looking back 10 years and saying to myself, “I still remember those days when office space was a thing.”

The world’s largest entertainment company is a software company, and all the content we love is digital. All blockbuster movies are released direct-to-video. We can ask Alexa to deliver popcorn to the house and even watch the film with friends who are far away. If you see something you like in the movie, you can buy it immediately — clothing, objects, whatever you see — and have it delivered right to your house. No more standing in line. No transport time. Reduced pollution. Better planet!

These are just a few industries that have been completely transformed by 2030, but these changes will apply universally to almost anything. We were told software was eating the world.

The saying goes you are what you eat. In 2030, software is the world.

Security and protection no longer just applies to things we can touch and see. What’s valuable for each and every one of us is all stored digitally — our email account, chat history, browsing data and social media accounts. It goes on and on. We don’t need a house alarm, we need a digital alarm.

Even though this crisis makes the near future seem bleak, I am optimistic about the new world and the new companies of tomorrow. I am even more excited about our ability to change as a human race and how this crisis and technology are speeding up the way we live.

This storm shall pass. However the choices we make now will change our lives forever.

My team and I are proud to build and invest in companies that will help shape the new world; new and impactful technologies that are important for many generations to come, companies that matter to humanity, something that we can all tell our grandchildren about.

I am hopeful.

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Is Zoom the next Android or the next BlackBerry?

In business, there’s nothing so valuable as having the right product at the right time. Just ask Zoom, the hot cloud-based video conferencing platform experiencing explosive growth thanks to its sudden relevance in the age of sheltering in place.

Having worked at BlackBerry in its heyday in the early 2000s, I see a lot of parallels to what Zoom is going through right now. As Zooming into a video meeting or a classroom is today, so too was pulling out your BlackBerry to fire off an email or check your stocks circa 2002. Like Zoom, the company then known as Research in Motion had the right product for enterprise users that increasingly wanted to do business on the go.

Of course, BlackBerry’s story didn’t have a happy ending.

From 1999 to 2007, BlackBerry seemed totally unstoppable. But then Steve Jobs announced the iPhone, Google launched Android and all of the chinks in the BlackBerry armor started coming undone, one by one. How can Zoom avoid the same fate?

As someone who was at both BlackBerry and Android during their heydays, my biggest takeaway is that product experience trumps everything else. It’s more important than security (an issue Zoom is getting blasted about right now), what CIOs want, your user install base and the larger brand identity.

When the iPhone was released, many people within BlackBerry rightly pointed out that we had a technical leg up on Apple in many areas important to business and enterprise users (not to mention the physical keyboard for quickly cranking out emails)… but how much did that advantage matter in the end? If there is serious market pull, the rest eventually gets figured out… a lesson I learned from my time at BlackBerry that I was lucky enough to be able to immediately apply when I joined Google to work on Android.

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Ameelio wants to take on for-profit prison calling rackets after starting with free letters to inmates

Among the many problems with the prison system are enormous fees for things like video calls, which a handful of companies provide at grossly inflated rates. Ameelio hopes to step in and provide free communication options to inmates; Its first product, sending paper letters, is being welcomed with open arms by those with incarcerated loved ones.

Born from the minds of Yale Law students, Ameelio is their attempt to make a difference in the short term while pushing for reform in the long term, said co-founder and CEO Uzoma Orchingwa.

“I was studying mass incarceration, and the policy solutions I was writing about were going to take a long time to happen,” Orchingwa said. “It’s going to be a long battle before we can make even little inroads. So I was thinking, what can I do in the interim while I work on the longer term project of prison reform?”

He saw reports that inmates with regular communication with loved ones have better outcomes when released, but also that in many prisons, that communication was increasingly expensive and restricted. Some prisons have banned in-person meetings altogether — not surprising during a pandemic — leaving video calling at extortionate rates the only option for speaking face to face with a loved one.

Sometimes costing a dollar a minute, these fees add up quickly and, naturally, this impacts already vulnerable populations the most. Former FCC Commissioner Mignon Clyburn, for whom this was an issue of particular interest during her term, called the prison communication system “the clearest, most glaring type of market failure I’ve ever seen as a regulator.”

It’s worth noting that these private, expensive calling services weren’t always the norm, but were born fairly recently as the private prison industry has expanded and multiplied the ways it makes money off inmates. Some states ban the practice, but others have established relationships with the companies that provide these services — and a healthy kickback to the state and prison, of course.

This billion-dollar industry is dominated by two companies: Securus and Global Tel Link. The service they provide is fairly rudimentary compared with those we on the outside take for granted. Video and audio calls are scheduled, recorded, skimmed for keywords, and kept available to authorities for a few months in case they’re needed.

At a time when video calls are being provided for free to billions around the world who have also been temporarily restricted from meeting in person, charging at all for it seems wrong — and charging a dollar a minute seems monstrous.

Ameelio’s crew of do-gooder law students and developers doesn’t think they can budge the private prison system overnight, so they’re starting with a different product, but one that also presents difficulties to families trying to communicate with inmates: letters.

Written mail is a common way to keep in contact with someone in prison, but there are a few obstacles that may prevent the less savvy from doing so. Ameelio facilitates this by providing an up-to-date list of correct addresses and conventions for writing to any of the thousands of criminal justice facilities around the country, as well as the correct way to look up and identify the inmate you’re trying to contact — rarely as simple as just putting their name at the top.

“The way prison addresses work, the inmate address is different from the physical address. So we scraped addresses and built a database for that, and built a way to find the different idiosyncrasies, like how many lines are necessary, what to put on each line, etc,” said co-founder Gabe Saruhashi.

Once that’s sorted, you write your letter, attach a photo if you want, and it’s printed out and sent (via direct-mail-as-a-service startup Lob). It’s easy to see how removing the friction and cost of printing, addressing and so on would lead to more frequent communication.

Since starting a couple months ago and spreading word of the service on Facebook groups and other informal means, they’ve already sent more than 4,000 letters. But while it’s nice for people to be able to send letters, Ameelio plans to cater to larger organizations that use mail at larger scales.

“The communications challenges that families have are the same challenges that criminal justice organizations and lawyers have when communicating with their clients,” explained Orchingwa. They have to manage the addresses, letter-writing and sending, and a network of people to check on recipients and other follow-up actions. “We’re talking to them, and a lot were very interested in the service we’re offering, so we’re going to roll out a version for organizations. We’re creating a business model in which these organizations, and some of them are well funded, can pay us back but also pay it forward and help keep it free for others.”

How an organization might use and track letter-writing campaigns.

Sending letters is just the opening play for Ameelio, though, but it’s also a way to make the contacts they need and research the market. Outcry against the private calling systems has been constant but the heterogeneous nature of prisons run under state policies means “we don’t have one system, we have 51 separate systems,” as Orchingwa put it. That and the fact that it makes a fair amount of money.

“There’s a lot of movement around getting Securus and Global Tel out,” he said, “But it would shift from families to the state paying, so they need to make back the money they were making from kickbacks.”

Some states have banned paid calls or never allowed them, but others are only changing their policies now in response to external pressure. It’s with these that Ameelio hopes to succeed first.

“We can start in states where there’s no strong relationship to these companies,” said Orchingwa. “You’re going to have state and county officials being asked by their constituents, ‘why are we using them when there’s a free alternative?’ ”

You may wonder whether it’s possible for a fresh young startup to build a video calling platform ready for deployment in such a short time. The team was quick to explain that the actual video call part of the product is something that, like sending letters, can be accomplished through a third party.

“The barrier right now is not at all the video infrastructure – enterprise and APIs will provide that. We already have an MVP of how that will look,” said Saruhashi. Even the hardware is pretty standard — just regular Android tablets stuck to the wall.

“The hard part is the dashboard for the [Department of Corrections],” Saruhashi continued. “They need a way to manage connections that are coming in, schedule conversations, get logs and review them when they’re done.”

But they’re also well into the development of that part, which ultimately is also only a medium-grade engineering challenge, already solved in many other contexts.

Currently the team is evaluating participation in a number of accelerators, and is already part of Mozilla’s Spring MVP Lab, the precursor to a larger incubator effort announced earlier today. “We love them,” said Mozilla’s Bart Decrem.

Right now the company is definitely early stage, with more plans than accomplishments, and they’re well aware that this is just the start — just as establishing better communications options is just the start for more comprehensive reform of the prison and justice system.

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Elon Musk: Video conferencing is ‘definitely’ coming to Tesla vehicles

Ever since the Tesla Model 3 came to market in 2017, there’s been widespread speculation about an interior camera that’s hidden in the rearview mirror and faces into the car’s cabin.

Tesla CEO Elon Musk has said the camera is there to support the company’s eventual robotaxi plans or even record sing-along sessions with the vehicle’s Caroake feature. But there have also been hints that the camera would be used to recognize people in the vehicle and automatically deliver personalized features.

But wait. Now, it appears the cabin-facing camera could also be used for video conferencing. Sure, why not?

Video conferencing within a Tesla will be “definitely a future feature,” Musk wrote on Twitter in response to a question from the Tesla Owners Silicon Valley group.

How or when this feature might appear isn’t important. Details like whether it will be active even while someone is driving are boring.

Today, Tesla’s entertainment features, like its video games or streaming Netflix, can only be used when the vehicle is in park. The Caroake feature can be deployed while driving, although a message pops up saying that the lyrics, which are displayed on the central screen, are only for passengers. A confirmation button that reads “I am a passenger” is also displayed before launching.

But that doesn’t mean the video conferencing feature will have the same constraints. Just a few days ago, Musk talked about creating a game like a complex version of Pac-Man or Mario Kart that interacts virtually with reality. In other words, it could be played while driving on roads.

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All product creators can learn something from Jackbox Games’ user experiences

During this period of shelter-in-place, people have had to seek out new forms of entertainment and social interaction. Many have turned to a niche party series made by a company best known for an irreverent trivia game in the ’90s called “You Don’t Know Jack.”

Since 2014, the annual release of the Jackbox Party Pack has delivered 4-5 casual party games that run on desktop, mobile and consoles that can be played in groups as small as two and as large as 10. In a clever twist, players use smartphones as controllers, which is perfect for typing in prompts, selecting options, making drawings, etc.

The games are tons of fun and perfect for playing with friends over video conference, and their popularity has skyrocketed, as indicated by Google Trends. I polled my own Twitter following and found that nearly half of folks had played in the last month, though a full third hadn’t heard of Jackbox at all.

How do these games work?

There are more than 20 unique games across Jackbox Party Packs 1-6, too many to explain — but here are three of the most popular:

  • Fibbage: A twist on the traditional trivia game, players are asked to invent an answer to a question of obscure knowledge (e.g. “a Swedish man who works as a dishwasher receives disability benefits due to his unusual addiction to ____.”) Then all the invented answers are mixed in with the truth and players must select the real answer while avoiding fakes. You earn points for guessing correctly and for tricking other players (the answer is “heavy metal”).

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Spotify-owned Anchor can now turn your video chats into podcasts

Spotify is tapping into the increased usage of video conferencing during the coronavirus quarantine to grow its own podcast business. The company’s podcast creation platform Anchor, acquired for an estimated $140 million in 2019, is today introducing a new feature that will allow podcasters to turn their video chats and virtual hangouts into podcast-ready audio. The video-to-audio conversion tool works with a range of top video chat platforms, including Google Meet, Zoom, Skype, FaceTime, Twitch and Instagram Live.

It will also support any .mp4 and .mov file you upload to its service.

The process of turning the video into audio is fairly straightforward. After you record the video chat and download the resulting video file, you’ll then upload it to Anchor’s web platform.

The converted file will show up immediately as a segment in Anchor’s episode builder, allowing you to split it, trim it and add other edits. You also can add Anchor’s built-in background music, interludes, sound effects and Voice Recordings to your recording, as usual.

Anchor hosts your podcast and offers free distribution to all major podcast platforms, including of course Spotify, as well as Apple Podcasts, Google Podcasts, Overcast, Breaker, Castbox and others.

The trickier part to the process is not the video conversion, it’s recording the video file in the first place.

The process for acquiring the video of the group chat will differ depending on which platform you’re using for your video conference. Anchor has directly linked to the relevant Help documentation for a number of the top services in its announcement, but users should be aware that the video export option may require them to have a paid account on the video conferencing service, in some cases.

YouTube, however, does not offer an official way to download its videos into .mp4 or .mov format, but a Google search may point you to some alternative means of acquiring those videos.

Of course, you should to have the rights to use the video in question and the permission of all video chat attendees to use Anchor’s new feature.

The feature arrives at a critical time for the podcasting industry, which has been disrupted by the coronavirus pandemic, like so many others. Podcasters can no longer record together in studios, due to social distancing requirements and government lockdowns.

Meanwhile, podcasts had seen weeks of pandemic-driven declines as many listeners’ routines were disrupted by transitions to working from home and homeschooling their children. Others faced unemployment or were struggling to save their small business, leaving little time for podcast listening. And almost no one was commuting to work anymore.

This resulted in a decline in podcast listening in the initial weeks of the coronavirus outbreak and home quarantines. But now podcast’s numbers are inching back up, NiemanLab reports, with 4% growth last week in downloads and 2% growth in audience numbers.

In terms of podcast creation, the numbers are different. Spotify saw a sizable increase in podcast creation last month, Anchor told TechCrunch.

In March 2020, the number of new podcasts submitted to Spotify was up 69% month-over-month, reaching a total of nearly 150,000 new shows. That made it the largest organic monthly growth in Spotify’s podcast catalog.

The video-to-audio feature is live today to Anchor on the web for all users.

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6 investment trends that could emerge from the COVID-19 pandemic

While some U.S. investors might have taken comfort from China’s rebound, we still find ourselves in the early innings of this period of uncertainty.

Some epidemiologists have estimated that COVID-19 cases will peak in April, but PitchBook reports that dealmaking was down -26% in March, compared to February’s weekly average. The decline is likely to continue in coming weeks — many of the deals that closed last month were initiated before the pandemic, and there is a lag between when deals are made and when they are announced.

However, there’s still hope. A recent report concluded that because valuations are lower and there’s less competition for deals, “the best-performing vintages tend to be those that invest at the nadir of a downturn and into the early stage of recovery.” There are countless examples from the 2008 recession, including many highly valued VC-backed businesses such as WhatsApp, Venmo, Groupon, Uber, Slack and Square. Other early-stage VCs seem to have arrived at a similar conclusion.

Also, early-stage investing seems more resilient. During the last recession, angel and seed activity increased 34% as interest in the stage boomed during a period of prolonged growth.

Furthermore, there is still capital to be deployed in categories that interested investors before the pandemic, which may set the new order in a post-COVID-19 world. According to data provider Preqin Ltd., VC dry powder rose for a seventh consecutive year to roughly $276 billion in 2019, and another $21 billion were raised last quarter. And looking at the deals on the early-stage side that were made year to date, especially in March, the vertical categories that garnered the most funding were enterprise SaaS, fintech, life sciences, healthcare IT, edtech and cybersecurity.

Image Credits: PitchBook

That said, if VCs have the capital to deploy and are able to overcome the obstacle of “having never met in person,” here are six investment trends that could emerge when the pandemic is over.

1. Future of work: promoting intimacy and trust

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Verizon’s BlueJeans acquisition is about more than the work-from-home trend

It would be easy to assume that Verizon’s purchase last week of video-conferencing tool BlueJeans was an opportunistic move to capitalize on the sudden shift to remote work, but the ball began rolling last June and has implications far beyond current work-from-home requirements.

The video-chat darling of the moment is Zoom, but BlueJeans is considered by many to be the enterprise tool of choice. The problem, it seems, is that it had grown as far as it could on its own and went looking for a larger partner to help it reach the next level.

BlueJeans started working with Verizon (which owns this publication) as an authorized reseller before the talks turned toward a deeper relationship that culminated in the acquisition. Assuming the deal passes regulatory scrutiny, Verizon will use its emerging 5G technology to produce much more advanced video-conferencing scenarios.

We spoke to the principals involved in this deal and several industry experts to get a sense of where this could lead. As with any large company buying a startup, outcomes are uncertain; sometimes the acquired company gets lost in the larger corporate bureaucracy, and sometimes additional resources will help grow the company much faster than it could have on its own.

What is BlueJeans?

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