Caterina Fake is known for her trend-spotting; here’s some of what she’s chasing now

Roughly a year ago, entrepreneurs Caterina Fake and Jyri Engeström decided to form a traditional venture outfit called Yes VC. Fast forward, and the duo has nearly closed on $50 million for their debut fund, including backing from Supercell founder Ilkka Paananen, former Etsy CEO Chad Dickerson and the family office of Nokia Chairman Risto Siilasmaa.

That investors would want to invest alongside them isn’t surprising. Fake famously co-founded the photo-sharing site Flickr, which sold to Yahoo, before co-founding Hunch, which sold to eBay. Engeström co-founded Jaiku, a mobile social network that sold to Google, before co-founding Ditto, a mobile local recommendations app that was acquired by Groupon. They’ve also written early checks as angel investors to a wide number of companies. Fake backed Kickstarter and Etsy, among tens of others; Engeström’s various bets include the popular clothing label Betabrand, and startups like Applifier (acquired by Unity Technologies) and Moves (acquired by Facebook).

Now, investing on behalf of San Francisco-based Yes VC, Fake and Engeström have invested in a dozen more startups, including a clothing retailer that we reported on earlier this week called Kids on 45th that’s not in Silicon Valley and doesn’t photograph what it sells to customers online — which is a big departure from nearly every other e-commerce concept we’ve covered. In fact, because we thought it was so interesting, we asked Fake to hop on the phone with us and share what else she’s seeing — and funding. Unfortunately, one of the most intriguing investments that we wound up discussing we can’t include (the founders would not be pleased), but we can share it soon. Our conversation has otherwise been lightly edited for length.

TC: Kids on 45th seems very unique in that it caters to those willing to buy kids clothing sight unseen in exchange for affordability and time savings. It’s rare to see an e-commerce company that’s not catering to status-conscious consumers.

CF: They are rare, my goodness. It’s a severely under-addressed market. Its [customers] tend to be middle-class and lower-income moms who are super busy working and don’t care about brands or or have a lot of time to select kids’ clothing. So many Silicon Valley startups cater to college dudes who are trying to get out of doing their chores, I find it kind of offensive. This is a company that supports moms who really need the support, who can’t afford to have their groceries delivered or their packages dropped off and picked up — who are really pulling their weight, and everyone else’s.

TC: It’s in Seattle. How did you meet the company?

CF: We met [founder] Elise [Worthy] through [the consumer VC firm] Maveron. It was a little early for them so they introduced us. We often get referrals from Series A firms and from founders who know what we look for and what we like, and Maveron knew Elise was perfect for us.

Only three [of our new portfolio companies] are in the Bay Area, by the way. We have one in Portland, Maine; in Boise; in Vancouver. Silicon Valley is still Rome, but other places are becoming much stronger.

We’re also seeing a lot of stuff from women, partly because it’s a 50-percent female partnership here. There are so many awesome companies led by women and female entrepreneur networks. Our secret sauce is that we see a lot of these opportunities. Etsy I took all around the Valley for a seed round and everyone pooh-poohed it because they had this blind spot of not understanding businesses that cater to women. But there are huge opportunities all over the place.

TC: We talked when you were launching Yes VC and you were really enthusiastic about decentralization. Are you investing in blockchain startups?

CF: There isn’t a lot of compelling blockchain stuff that we’ve seen, though I do believe that the massive consolidation of power in the top five companies is not good for tech industry, startups or the broader ‘innovation ecosystem.’ What I find interesting lately is all the stuff going on in social platforms and online communities that are fine grained, meaning networks for specific or narrower communities, of developers, of women, of people dealing with a certain problem.

When Flickr started a year or two after Facebook, the Internet was so huge [and open] that it could serve these faceted networks. I think we’ve since seen the results of trying to be all things too all people —  nuns, white supremacists, truck drivers — [and] you shouldn’t serving all those people.

TC: You clearly think about these things a lot. You started a podcast this year, “Should This Exist,” about technologies that affect humanity. 

CF: It’s stuff I’ve been talking about all along and conversations I’ve been having online for a long time. In recent years, we’ve seen the effect of blitzscaling, and ‘move fast and break things,’ and development principles that the Valley has been flaming the flames of, so we ask [on the podcast]: Can this exist? Can it get funding? And should this exist? We’re putting out an episode every couple of weeks, and we’re halfway through this first season, with a plan to put out 10 episodes altogether.

We did one episode on ‘neuropriming,’ or zapping your brain to make it learn faster; another on AI therapy, with AI replacing people in the form of therapists and teachers and surgeons in diagnosing brain tumors. We’ve also talked about facial recognition and drones and supersonic flight, and stuff coming up in genetics — scary things with both huge potential to serve humanity and also to go really, terribly wrong. It’s important to [ask more questions] at the beginning of these industries rather than later, when we’re making a last-ditch effort to [solve the problems they’ve created].

TC: What are your theses right now when it comes to investing?

CF: All of our confreres in VC are like, ‘You got to have a thesis.’ It all sounds kind of like crap. What we did was retrospected all the stuff that has done really well [that we’ve helped fund], including Etsy and Cloudera, and what they had in common. One is a marketplace for handmade goods, the other an open-source tech platform, but what they have in common is that they were both at the vanguard of movements. Etsy became the vanguard of the DIY movement. Kickstarter [another early angel investment] became the vanguard of crowdfunding. Blue Bottle Coffee was the vanguard of the artisanal coffee movement. Public Goods [a membership club for natural and sustainable bathroom products] is in the vanguard [away from this] glut of marketing where you’re being constantly bombarded with messaging. It’s about simplification. Sometimes, you just want shampoo without being assaulted by branding first.

TC: What size checks are you writing?

CF: Typically, it’s a $500,000 check into a pre-seed deal, or we’ve gone as high as $1.5 million, writing follow-on checks selectively.

TC: Biggest investment out of the new fund?

CF: It may be either Kids on 45th or Public Goods.

TC: Are you seeing less frothy valuations in other markets?

CF: That’s true to some extent, but Valley fever is a contagion that takes hold as much in Indiana as California. It really is the case that the price is whatever the market will bear.

Prosper is the latest Silicon Valley company to get dinged by, and settle charges with, the SEC

Another Silicon Valley company is settling with the SEC: the online lending company Prosper, which the SEC had accused of “miscalculating and materially overstating annualized net returns to retail and other investors.” Prosper has agreed to pay $3 million as part of the settlement, in which it has neither admitted nor denied the agency’s allegations.

According to a new release from the SEC: “For almost two years, Prosper told tens of thousands of investors that their returns were higher than they actually were despite warning signs that should have alerted Prosper that it was miscalculating those returns.” The 14-year-old, San Francisco-based company “excluded certain non-performing charged off loans from its calculation of annualized net returns” that it communicated to investors from around July 2015 through May 2017.

The mistake owed to a coding error that excluded the defaulted loans from its computations, the SEC said, causing Prosper to overstate its annualized net returns to more than 30,000 investors on individual account pages on its site and in emails soliciting additional investments from investors.

The SEC added that “many” investors decided to make additional investments based on the overstated annualized net returns and the “Prosper failed to identify and correct the error despite [its] knowledge that it no longer understood how annualized net returns were calculated and despite investor complaints about the calculation.”

The settlement is the second for the SEC in two week’s time. On April 2, the SEC announced that the founder and former chief executive of Jumio has agree to pay the agency $17.4 million to settle charges that he defrauded investors in the mobile payments and identity verification start-up before it went bankrupt.

Kids on 45th just raised millions in seed funding to sell lightly used kids clothes — sight unseen

A seemingly endless number of startups has attracted funding in recent years to make life easier for people with money to spend. They’re sold sell nice clothes, chic shoes, cool office space, on-demand car services, on-demand laundry services, on-demand cleaning services, anti-aging therapies. It goes on and on.

Overlooked in the process is the overwhelmingly majority of Americans. In 2015, the top 1 percent of U.S. made more than 25 times what families in the bottom 99 percent did, a gap that has been growing. Most families aren’t spending money on making life easier or more glamorous for themselves because they can’t afford it. More, they’re often too busy to think much about it.

There are rare exceptions to startups that cater to more affluent populations. One company that comes to mind is Propel, a New York-based startup whose app helps food stamp recipients improve their financial health. Another is Yenko, a for-profit outfit committed to improving graduation outcomes.

Now, an even newer player has entered onto the scene whose proposition makes all the sense in the world for the many harried, overworked, and budget-conscious families out there. Called Kids on 45th, the nearly two-year-old, Seattle-based startup bundles up what it describes as nearly new clothing that suits the current season, and it sends it to customers sight unseen for far less than they would pay elsewhere, and requiring a lot less of their time.

The company ties back to a Seattle consignment store of the same name that’s been up and running since 1989. Entrepreneur Elise Worthy describes it as a “cornerstone” of the local parenting community, and she would know. She decided to buy the business two year ago, not only to save it when it teetered on the brink of closure, but to better understand how she might turn it to a scalable enterprise.  She learned plenty, too, including that when moms came into the store because their children had outgrown their clothes, they weren’t looking for anything specific. “They were just trying to solve a problem. They didn’t care if it was this pair or that pair; they just needed pants.”

The observation led to a revelation that Worthy could build an online business without creating an elaborate website with photos and clothing descriptions. In fact, she decided to build an anti-browsing experience that allows a shopper to say what sizes are needed, and what types of items (coats, pants, shirts), one sentence about his her kid’s style, and that’s it. It’s highly counterintuitive for today’s e-commerce landscape. But a customer mostly clicks a few boxes, then waits for however many items were ordered to arrive. Because each item is priced at between $3 and $4, what that shopper doesn’t like, he or she can just donate.

Indeed, part of what makes Kids on 45th work as a business is that it’s saving on a lot of fronts. Aside from not creating and maintaining a sophisticated, content-rich website, the company doesn’t accept returns, which can prove a crushing expense for other e-commerce concerns. According to the National Retail Federation, return rates on clothing are close to 40 percent when the merchandise is bought online.

The startup, which is bundling clothes for newborns to kids up to age 16, also has systems in place that should enable it to scale, including an exclusive fulfillment relationship with one of the country’s few aggregators of thrift clothing. After paying for clothes that this partner deems to be in high-quality condition — it has plenty of options, thanks to the more than 20 billion pounds of clothing that Americans donate each year — Kids on 45th puts its staff of 15 stylists to work. “We optimize for the mom who is holding both her cell phone and her kid,” explains Worthy. “We want her to be able to check out in less than two minutes, then hand over that hunting experience to us.”

Kids on 45th has a few other things going for it, as well. First, it doesn’t charge on a subscription basis, unlike some other startups boxing up kids’ clothing, like Rockets of Awesome and Kidbox, and it insists that it doesn’t need to. “We don’t want to trap moms,” says Worthy. “We’ll send them reminder emails,” she says, and they come right back. “Our retention is on a par with companies that charge subscriptions. Moms return at the same rate on their own.”

The idea of ordering bundles of kids clothing is also catching on fast. Just yesterday, Walmart announced that it’s partnering with Kidbox to enable shoppers to purchase up to six different boxes from Walmart each year. Each will include four to five items and cost $48, said the company. That’s roughly the same average order size at Kids on 45th, says Worthy — though the startup sends off between 12 to 15 items for the same amount.

Not last, while Kids on 45th is decidedly unflashy, it’s capitalizing on one of of the biggest trends in the world right now: growing awareness about landfills throughout the U.S. that are teeming with textiles that could easily be recycled, if only there were more places for it to go.

Certainly, the young company has momentum. It says has already shipped more than half a million items just a year after launching its online business. It also just raised $3.3 million in seed funding. Its backers include Yes VC, Maveron, SoGal Ventures, Sesame Street Ventures & Collaborative Fund, Liquid 2 VC, and Brand Foundry Ventures. No doubt they’re looking for returns, as VCs do. But it’s also an investment about which they can feel good. After all, if Kids on 45th can intercept more of the lightly used goods in the world and put them to smart use, more power to it.

Billionaire François-Henri Pinault just pledged more than 100 million euros to rebuild the Notre Dame Cathedral

The Notre Dame Cathedral in Paris has been saved after fire broke out in the early hours of Monday evening, but not before extensive damage was inflicted on the 856-year-old building, with much of its roof collapsing into itself, along with its main spire.

The fire had blazed for for eight hours before firefighters were able to largely contain it, including saving its two iconic rectangular towers and many of its precious relics, including the Crown of Thorns, said to have been worn by Jesus Christ before the crucifixion. Still, as French President Emmanual Macron said outside the cathedral once the fire was nearly extinguished, “The worst has been avoided, but the battle isn’t fully won yet.” Macron continued on to say that France planned to start an international fundraising campaign to raise money for the renovations.

He may have a major head start on that campaign, thanks to billionaire François-Henri Pinault, who has already pledged more than 100 million euro to rebuild the cathedral. According to the AFP, Pinault said in a statement that he plans to provide the money through his family’s investment firm, Artemis, funding that he hopes will help church officials “completely rebuild Notre Dame.”

Pinault owns the French luxury group Kering, which oversees the luxury fashion brands Gucci and Saint Laurent, among others. Lesser known is that he’s a bit of a geek, or was once. In fact, Pinault talked with TechCrunch about his early love of computer science and about having interned at Hewlett Packard as a software developer.

At the time, he also said he helped start Soft Computing, a company that was founded in Paris in 1984 by fellow students of Pinault, Eric Fischmeister and Gilles Venturi. They later took the company public and, in December of last year, sold a majority stake in the business to ad giant Publicis.

An active philanthropist, Pinault has seemingly steered around much of the startup world, though he has made very occasional investments, including writing an early check to the online shopping platform Fancy. and more recently providing funding to Muzik, an L.A.-based maker of so-called smart headphones that raised $70 million from investors last May.

CEO Jennifer Tejada just took PagerDuty public; we talked now about the roadshow, the IPO, and what comes next

PagerDuty debuted on the New York Stock Exchange today, and as we type, shares of the nine-year-old, San Francisco-based incident response software company are trading at nearly $39.

That’s up more than 60 percent above their IPO range of $24 per share, which was itself adjusted from the range of $21 to $23 that had been expected earlier and gives the company a valuation of close to $3 billion. That’s an awful lot for a company whose software helps technical teams at 11,000 companies spot problems with applications and respond to incidents. Though it’s growing quickly — revenue was up 48 percent last year  — it still pulled in just $117.8 million in 2018. Meanwhile, its net loss widened last year to $40.7 million from $38.1 million in 2017.

Certainly, its performance has to make the company’s investors —  who last assigned the company a valuation of $1.3 billion back in September — very happy. Some of the VCs poised to win big if PagerDuty’s shares continue flying high include Andreessen Horowitz, which owned 18.4 percent of PagerDuty’s shares sailing into the IPO; Accel, which owned 12.3 recent; and Bessemer, which owned 12.2 percent. Other winners include Baseline Ventures (6.7 percent) and Harrison Metal (5.3 percent).

It’s also exciting for CEO Jennifer Tejada, a proven operator who was brought in to lead PagerDuty in 2016 and now becomes part of a small — but growing — club of women CEOs to take their tech companies public, including Katrina Lake of Stitch Fix and Julia Hartz of Eventbrite.

We talked with Tejada earlier today about the company’s big day. In addition to crediting company cofounders (and shareholders) Andrew Miklas and Baskar Puvanathasan, both of whom have since left the company, Tejada thanked PagerDuty cofounder Alex Solomon, who remains the company’s CTO. She also told us a little bit about what today has been like and how the IPO changes things — and doesn’t. Our chat has been edited for length.

TC: First and foremost, how are you feeling?

JT: It’s been an incredible day. It’s been an incredible several months. You have to enjoy it when it’s going well.

TC: How does the vision for the company change now that it’s public? Have you been thinking ahead to possible acquisitions?

JT:  The vision doesn’t change. We intend to do exactly what we’ve been doing, which is to provide the best real-time operations platform available to companies as they undergo digital transformation to meet the growing demands of their customers. We think we’re [facing] an early and very large opportunity that will be available to us for a long time. So our job continues to be to build great products, stay close to our customers, expand regionally, and continue doing what has allowed us to be a successful private company.

TC: You and I had talked about the challenges of retaining employees in San Francisco when we sat down together in November. It’s a battle for every local company. How do you keep employees beyond the lock-up period?  How do you ensure they stay focused on performance and not your share price?

JT: I think that mindset of, ‘It’s all over when you go public,’ is kind of a Silicon Valley fable. If you look at the most successful SaaS companies on the planet, they’ve gained 10x, 20x, 30x their value post their IPO. I also think what employees look for ahead of their financial success is career success. Am I being developed and recognized and can I build my career at this company? And we’ve worked really hard to create those career opportunities for our employees who [I think see, as I do] the IPO like a racing boat pushing off the dock, across the starting line, and into the open ocean, where the next adventure awaits.

In the meantime, we’ve already lessened our reliance on [overheated job markets] by opening offices in Toronto and Atlanta and Seattle and London and Sydney, even while we’re still hiring in San Francisco and Seattle.

TC: Obviously, Lyft’s shares have been up and down, owing to short sellers. Have you been monitoring short interest? Are you at all concerned about investors driving the price sky high, then selling it on the way down?

JT: I haven’t even looked at the stock price in the last several hours .  .  . There are a lot of things outside of my control, and the free market is one of them.

TC: PagerDuty is rare in that is doesn’t have a dual-class structure, when can greatly empower leaders over everyone else associated with a company. Presumably, this is a great relief to your investors;  I just wonder whether it was ever a consideration.

JT: I’m a little bit of a traditionalist. I’ve been around long enough to know how checks and balances work, and a single-class structure made sense for PagerDuty. Also, dual-class structures tend to emerge more when you have deeply involved founders, and though Alex is still very much a part of the business, PagerDuty’s other two founders have worked outside of the business for some time.

TC: You have plenty of operating experience, including previously running Keynote Systems, but you’ve never taken a company public. Were there ways in which you found the roadshow experience surprising?

JT: I was surprised by how fun it was! [Laughs.] When you have a great story, and a great partner helping you tell it —  in my case that’s [PagerDuty CFO] Howard Wilson, who I’ve worked with for 10 years- – it’s great. We had a great reception from investors. I loved our IPO team;  our [top bank underwriting teams] were both led by women and whenever I had a question, they [had the answer]. I also had this cocoon of experience surrounding me thanks to our board.  If anyone tells you that [in this position] they are super comfortable, they’re either lying or [clueless] but I was very lucky. I also have a whole bunch of buddies who are CEOs [and other executives] in SaaS and I’ve been shaking them down for advice for months so I felt well-prepared.

TC: What was some of the advice you received from those friends about how your life is about to change?

JT:  Some of it was about the need to keep people focused and not get distracted, to remind everyone that this is a milestone, not the goal. [Some centered on] surrounding yourself with a great team and the importance of great investor relations, a function you don’t have as a private company but that can create huge value and provide support and understanding of the market.

One CEO said to just make sure you keep having fun, to try and stay “you,” to find joy in the same things as before.  There will be stressful moments and tough questions — that’s true of any company that scaling —  but I heard a lot of advice about just taking care of myself, including on the roadshow. In fact, there were a lot of really supportive notes and private tweets that, in a job that can feel lonely, made me feel not alone, and I’m very appreciative of that.

TC: People calls IPOs just another funding event, but that’s kind of baloney, isn’t it?  If you had to list the most meaningful moments in your life on a scale from 1 to 10,  1 being the most important, where might today fall? Would today be up there on that list?

JT: When I think of most meaningful moments, I think of the day my daughter was born, and my wedding. Another day that was very meaningful to me was when I approved our pledge to donate one percent [of PagerDuty’s equity, one percent of its product, and one percent of employees’ time] to social impact.  We did it a lot later in the game than some companies; our equity was already valuable. But we knew that it was going to create meaningful impact over time.

But yes, it is a gratifying day, especially for the cofounders who were pulling the idea together for PagerDuty a couple of years before they even launched it, and for employees who’ve been with the company for nearly as long and who turned down safer and higher-paying jobs along the way. Seeing their joy today — that is a memory that will be in my top 10 for sure.

A fight is brewing between two machine intelligence startups, and neither side looks all that smart

Sometimes, reading a lawsuit, it’s tempting to pick sides, to judge who is more right than wrong based on its contents. But a new lawsuit involving two venture-backed companies — both of which are rooted in machine intelligence — makes both sides sound surprisingly careless given their line of work.

The plaintiff is Quid, a now 12-year-old company that has raised roughly $108 million from investors, shows Crunchbase. Its newest, $38 million round closed in October, led by REV Ventures, the investment arm of LexisNexis owner RELX Group, and it included participation from some very heavy hitters, including Tiger Global founder Julian Robertson and KKR cofounder Henry Kravis.

Quid calls itself a “platform that searches, analyzes and visualizes the world’s collective intelligence to help answer strategic questions.” As company cofounder Bob Goodson has described the company, its software scours the internet, including company websites, news databases and social media postings to help its clients understand how their industries are changing.

What has Quid convening with lawyers —  including powerhouse attorney Patty Glaser (she has represented Harvey Weinstein, Kirk Kerkorian, and Conan O’Brien, among many others) — is a small group of former employees who Quid says stole from the company to create a rival startup. That company, Primer.ai, says it “builds machines that can read and write, automating the analysis of very large datasets” in order to “accelerate” its understanding of the world, then sell those insights to clients in government, in finance, and to other companies.

It sounds similar, but Primer.ai – – founded four years ago in San Francisco and now venture-backed with $54.7 million, including from Lux Capital, Data Collective, and Avalon Ventures —  says it is fundamentally different than Quid. It says Quid’s product is a network-based data visualization and exploration tool, while it instead focuses on text-generation technologies using deep neural networks.

If there are actual trade secrets employed by Primer.ai that belong to Quid, it’s now for a judge to decide. In the meantime, we rule the battle ridiculous sounding.

It’s a lot to read through, so we’ll just highlight some of the parts of this back and forth that we find particularly strange, starting at the very beginning.

What we mean: Quid alleges corporate espionage that dates back to August 2014, saying the company told its then CTO — now Primer.ai founder – – Sean Gourley, that it wanted to let him go, but rather than terminate him,  it let him know he was going to be fired, then it asked him to stay with the company for five more months until it could close its next round of funding. On its face, that sounds not smart, but Quid also insults Gourley’s intelligence in its legal complaint, which reads:

On June 23, 2008, Gourley joined [Quid precursor] You-Noodle pursuant to a consulting agreement where Gourley provided research, development and strategic advice to assist with creation of an earlier . iteration of the Quid platform known at “Startup Predictor.” After completion of this .consulting assignment, Gourley was offered and accepted a full-time position as Director of Data Tools, relocated to San Francisco and started employment in this capacity on November 1, 2009. On the same day, he executed his Confidentiality Agreement.

In September 2010, following the name change to Quid, Gourley was promoted to Chief Technology Officer and given the responsibility to direct a team of software engineers in the development of Quid’s next-generation platform. In January 2012, Gourley announced the new product ready for demonstration to Quid’s Board of Directors, but his presentation failed as the platform did not work as intended, and Gourley seemed to not comprehend its basic functionality. In the wake of this failed presentation, the Board demanded that changes in leadership and direction be made at the Company. Goodson stepped down as CEO and was tasked with sales and helping to reengineer the platform to get it back on track. With the benefit of new funding and the full-time efforts of a new Vice President of Engineering (who took over Gourley’s engineering responsibilities), the product deficiencies were corrected and Quid was able to release the product for commercial testing and use by late 2013.

By early August 2014, Quid’s new CEO, Kevin Freedman, saw no need to keep Gourley as a Quid employee but decided to maintain continuity by retaining Gourley until new investor funding—expected to be in place by mid-January 2015—could be secured. Accordingly, on or about August 8, 2014, Freedman proposed an arrangement to Gourley whereby he would be relieved of his position as CTO and would act as “Advisor to the CEO” until his effective termination date of January 15, 2015. Gourley accepted.

In short, Quid says, in its own complaint, that its cofounder and CEO, Bob Goodson, was demoted, then a new CEO who was brought in fired Gourley, the company’s CTO, in what sounds like a knuckle-headed way.

Unsurprisingly, a legal response since filed by Gourley — who, it’s probably worth noting, has a PhD in physics from Oxford — makes Gourley sound highly capable while painting the same picture of disorganization in Quid’s filing. Here’s Gourley version of events of that same period, taken from his response to Quid’s filing:

The board blamed CEO Bob Goodson for the lack of budgeting and demanded monthly financial reports. This was one of the primary topics in the January 16, 2012 board meeting where the consensus was that the business side of the company needed to be reformed. It was during this same meeting that Dr. Gourley demonstrated the functioning of Quid’s new software to the board. After the meeting, Mr. Goodson was demoted and relieved of his duties as CEO. The board then began the search
for a new CEO. Id. They located Kevin Freedman in February and he took the position in March 2014. Mr. Goodson was demoted to Chief Revenue Officer.

As for Dr. Gourley, far from “fail[ing]” as Quid suggests, on March 20, 2012 he presented the same technology he had presented to the board publicly at a “Data Driven NYC” event. The technology, which largely mirrors Quid’s functionality today, worked. Moreover, after Mr. Freedman was named CEO, Quid awarded Dr. Gourley a significant bonus and pay increase.

Despite the technical successes, Quid’s management remained a problem. Dr. Gourley decided to take action and in June 2014 met with the Chairman of the Board Charles Lho to discuss his concerns. While the board reviewed Mr. Freedman’s performance, Mr. Freedman decided to terminate Dr. Gourley. However, because Dr. Gourley was such an integral member of the company, they decided that the termination would be gradual so that he could continue to help Quid with sales and fundraising while seeking new projects.

Freeman was apparently fired eight weeks after firing Gourley and Neville Crawley, the company’s COO, was named CEO.

But whether Gourley is brilliant or was incapable of comprehending Quid’s technology seven years ago isn’t what’s really central to this fight anyway. Neither does it matter how Freeman handled the situation. The bigger question is whether Gourley, as Quid asserts, violated a confidentiality agreement with Quid by gathering up information, including Quid’s proprietary code, in the time after he was alerted he would be terminated. Quid’s big concern is that Gourley took and used it at Primer.ai, which also employs some former Quid employees who joined Gourley.

In fact, it’s out of fear that these trade secrets inform some of Primer.ai’s technology that Quid is asking a judge to put Primer.ai in a deep freeze until it can know for certain. It says it only recently began suspecting Gourley after an IT manager at Quid last October discovered that Gourley- – over the four years following his Quid termination —  had repeatedly logged into the Quid computer network to “access Quid confidential data and use his Quid email address.”

From Quid’s filing:

This application is made on the grounds that Defendants —  all former employees of Plaintiff –accessed, copied, downloaded and made active use of trade secret and highly confidential  computer data of Plaintiff – both during and subsequent to their employment with plaintiff – all for  the purpose of benefitting their directly competing company Primer Technologies, Inc. (“Primer”) in the computer-generated analysis of large data collections. As set forth in the accompanying Ex  Parte Application, direct evidence confirms that Defendant Gourley – while still an employee of  Quid – repeatedly downloaded from Quid’s computer network a complete Google data archive of  his entire “Google Suite” of Quid accessible computer data including both his email and Google  drive, amounting to over 100,000 separate highly proprietary items at Quid, including source code  Thereafter, direct evidence also demonstrates that, during and subsequent to his Quid  employment, Defendant Gourley with the active assistance of the other Individual Defendants used his Quid email address for the purpose of soliciting and diverting business opportunities intended  for Quid to his new directly competing entity thereby enabling Primer to receive funding and  customers otherwise intended for Quid’s benefit. All of this conduct occurred in direct violation of  each of the Individual Defendants’ contractual commitments – – continuously in place until this very  day – – to preserve during employment and immediately return upon employment termination all Proprietary Information at Quid.

Here’s the thing, though: Quid — which, again, is an machine intelligence company — says it only stumbled into this discovery after Gourley was finally cut off from his Quid email account and asked Goodson (who was reinstated as CEO in late 2016) if he could continue to access it.

According to Quid’s complaint, Gourley told Goodson that he had personal communications and photos stored with the account, among other things. Goodson didn’t direct that the account be reinstated, however, and this January, according to Quid’s complaint, a forensic team discovered “Gourley’s downloads of the 86 python source code files,” adding that “Quid continues to investigate the full scope of Gourley’s source code theft.”

We don’t have a horse in this race, and obviously, if Quid is proven right in its allegations that Gourley stole from the company while an employee of afterward, there should be appropriate consequences. We appreciate that there’s much on line for both parties, particularly given the opportunity ahead of each.

Still, Quid’s own complaint reveals much about how little the company had buttoned down over the years. In the meantime, Gourley insists that he has done nothing wrong and that Primer.ai is currently in the middle of its own forensic analysis to ensure as much. Relatedly, he says it was known to Quid management for years that he . was still accessing his Quid email, including because he was working for them on commission and communicating with them on it.

Here are all the filings we’ve seen thus far. We’ll keep an eye out and let you know how this story develops.

Quid Motion by TechCrunch on Scribd

Primer Corrected PI Opp (004) by TechCrunch on Scribd

4. Gourley Declaration by TechCrunch on Scribd

Expanse, which offers real-time visibility into the ways its customers’ digital assets aren’t safe, has raised $70 million in new funding

Expanse, a six-year-old, San Francisco-based company that helps its clients understand and monitor what it calls their “global internet attack surface,” has received a $70 million vote of confidence from its earlier backers, as well as some notable individual investors.

Previous investor TPG Growth led the Series C round, with participation from other earlier investors that include NEA, IVP and Founders Fund. But the company also drew checks directly from Founders Fund cofounder Peter Thiel, Michael Dell, Former IBM CEO Sam Palmisano, media entrepreneur Arianna Huffington, and Turner Enterprise CEO Taylor Glover.

What they find so interesting about Expanse, which was formerly known as Qadium? Its traction, for starters. It turns out that when you start indexing global internet protocol addresses before everyone else — meaning the numerical labels assigned to each device connected to a computer network — it’s hard for competitors to catch up.

Indeed, numerous big organizations, including CVS and PayPal are among others that now use the company’s software-as-a-service to help manage their far flung digital assets connected to the public internet. According to cofounder and CEO Tim Junio, Expanse has been tripling its sales year over year —  and quadrupling the terms of its contracts. Toward that end, he says it now has more than 10 customers that have signed up for $1 million-plus contracts. “VCs like to look at how long it takes to go from $1 million to $10 million in [annual recurring revenue].  It took us 22 months,” he says, “about as fast as [the now-public cloud-storage company] Box.”

Much of that revenue is also coming from U.S. federal agencies, including the U.S. Army, the U.S. Navy,  the U.S. Air Force, along with the State Department, the Defense Department, and the Department of Energy, which collectively account for more than $100 million in contracts with Expanse, it says.

Asked if Thiel – – who advised Donald Trump leading up to his election as president, and whose former chief of staff, Michael Kratsios, is now the country’s chief technology officer — has played a role in making introductions, Junio says that all of Expanse’s investors have helped in making customer introductions and pours water on any suggestion that Thiel has done special favors for the company.

Meanwhile, though the company is known for its work in helping customers identify security risks they don’t know about on their networks —  like an IoT device that hasn’t been patched —  it’s now going after adjacent problems that are bigger-spend problems, including looking at its customers’ critical suppliers to sure that they aren’t introducing vulnerabilities, including across their commercial cloud providers and cohosting facilities.

Eventually, it’s easy to see a day when Expanse sells some of the aggregated data it’s seeing, perhaps on a sector by sector basis, though Junio says that Expanse “isn’t going in that direction” currently.  For now, he says, the biggest trend that’s driving the business today is the digital transformation of every type of company, which is resulting in plenty of insecurity.  As more businesses move to the cloud, there is always the danger that employees — their own or those acquired through mergers — won’t always know or follow policies, and that they’ll move sensitive data where they should not.

It’s a trend with no end sight, too, which goes a long way in explaining the momentum of Expanse. Already, the company has 150 employees across offices in San Francisco, Washington, D.C., New York, and Atlanta. With its newest round – –  a sum that brings Expanse’s total funding to $135 million altogether —  the plan is partly to move into new international markets beyond where it already operates.  Those market include the U.K., Canada, Australia, and Japan.

The Lone Star State has more capital, as LiveOak – – focused only on Texas — closes its newest fund with $105 million

Texas may have suffered a heartbreaking defeat during last night’s NCAA men’s championship game, but the state does have something to celebrate today. Local outfit LiveOak Venture Partners, a venture firm focused exclusively on Texas-based startups, has closed a new fund with $105 million in capital commitments.

It’s the second vehicle for the firm, formed in 2013 by longtime investors Venu Shamapant, Krishna Srinivasan, and Ben Scott, all of whom met while working together at Austin Ventures in 2000 — and who seem to know what they’re doing a team.

LiveOak has already seen two of its portfolio companies sell for meaningful amounts (Digital Pharmacists sold last month to K1 Investment Management for more than $100 million; Opcity was snatched up last summer by News Corp for $210 million). They also have at least two portfolio companies whose valuations have risen considerably since LiveOak funded them, including CS Disco, which raised $83 million in January, and OJO Labs, which raised $45 million just a few weeks ago.

We were in touch with the trio late last week to learn more about what they are seeing on the local startup scene.

TC:  You’ve all been based in Austin for a very long time. What are the biggest shifts you’ve seen since meeting each other 19 years ago, during the peak of the dot.com bubble?

KS: There are three primary dimensions where Texas has evolved since 2000. Talent is perhaps the most significant improvement since 2000. There’s been a massive inflow of strong talent —  in particular from the coasts  — and we also have a maturation of locally cultivated talent. [Both have created a] critical mass of people across functions and industries that have been through a startup cycle.

While, like any other market, Texas had plenty of local capital in 2000, that quickly dried up, leaving Austin Ventures, where we worked at the time, as the only really meaningful source of local capital in Texas. [After the more recent financial crisis], between 2009 and 2012, all local early-stage capital really dried up, in contrast with the continued growth in the talent. But that created the opportunity for us to start LiveOak and today, there’s strong capital availability locally and from outside, setting up a really vibrant entrepreneurial scene in town.

I’d also say that while Texas is certainly more skewed toward the enterprise / B2B market, it has become much more diversified than in 2000. We have completely [moved] away from semiconductors and hardware and heavily accelerated into verticalized software and tech-enabled services. Some of the leaders in our portfolio are players in legal tech, real estate tech, health tech. We’re also seeing some early growth in consumer, but that’s an area where we’ll need to import talent heavily.

TC: How has the founder profile changed, if at all?

KS: While we haven’t reached peak Texas by any means, we have seen a tipping point in terms of cost-of-living factors in coastal states bringing in serial entrepreneurs to start and scale companies that would have otherwise been founded in other parts of the country in past years. In fact, over half of the six investments we’ve already made out of our new fund were founded by entrepreneurs who moved to Texas in the past five years.

TC: And what’s happening in terms of valuations? Any trends you’ve observed over the last year or two?

VS; Valuations in Texas companies are very dependent on the stage of the company. For early-stage companies, while there has been some uptick in valuations, on average, they continue to be at a discount to national valuation trends. For later-stage capital, where these companies target the same national investor base, the valuations tend to converge towards national levels of valuations.

TC: What size checks are you writing, and has that changed with this new fund? 

KS:  Our strategy is to be one of the first institutional investors in a company. For post seed-stage companies that are raising their first institutional round of financing, our first check can range from $1.5 million to $4 million. Over the life cycle of a company, we’re comfortable investing from $8 million to $10 million [altogether].

Lime just pulled its scooters out of Lubbock ahead of tonight’s NCAA game

Fans attending tonight’s NCAA Men’s National Championship basketball game between the University of Virginia and Texas Tech will have numerous ways to get back to their homes and hotels when one team or the other has won, but Lime -branded electric scooters will not be among them.

Six months after Lime rolled out its motorized vehicles in Lubbock — the city in Northwest Texas that Texas Tech calls home — Lime has pulled them from city streets for today and tonight, because overzealous fans who gathered near the school after its win over Michigan State on Saturday night reportedly began tearing down street signs, throwing glass bottles in the air, tipping over at least one car and, yes, setting scooters on fire.

It was an embarrassment for the school, which proudly calls Chiefs quarterback Patrick Mahomes an alum (he was at Saturday’s game). It was an embarrassment for the broader city, too, with Lubbock police quickly issuing a statement that read: “After the Texas Tech Men’s Basketball team defeated Michigan State in a NCAA Championship Final Four game, hundreds of fans gathered on Broadway, near University. The crowd engaged in extremely dangerous, and disappointing, behavior including vandalizing property. We are proud, and excited, for Texas Tech, but behavior like this will not be tolerated. We want Red Raider fans to support the team and celebrate lawfully and responsibly. We are on the national stage so make Lubbock proud.”

Still, Lime clearly didn’t want to take any chances with its scooters, which reportedly cost anywhere from $100 to $500 at retail. Neither does it want someone getting killed on one before or after the big game later.  Said Lime in a statement sent to TechCrunch a bit ago, “While we too are excited and proud of Texas Tech’s victory and tournament run, we also share the city of Lubbock’s concerns for public safety. In anticipation of tonight’s big game, we have pulled our fleet from the streets before it commences, and will re-deploy scooters after activities subside early Tuesday morning.”

Lime didn’t answer questions today, including how many scooters are currently in Lubbock on a daily basis, whether the company consulted first with city officials and if this is the first decision of its kind. Rival Bird has also not responded to related questions. But Thom Rickert, a Dallas-based risk specialist focused on both traditional and emerging trends that impact public entities — from scooters to drones to automated vehicles — says he is not aware of any scooter company previously yanking its fleet out of crowd-control concerns and that it may well become the norm.

It should, in his view. For one thing, Rickert, like others of us, has seen scooters abused in settings involving large numbers of people and alcohol. He points to Dallas’s Saint Patrick’s Day parade, which attracted more than 100,000 people this year. “I saw some pretty bad behavior” as it relates to scooters, Rickert recounts with a stifled laugh.

Rickert, who works for the specialty insurance company Argo Group, further notes that there’s plenty of data that’s available to Lime and anyone else who wants a better understanding of incident patterns, including when and where and under what conditions vandalism tends to take place. It’s the same kind of data that informs a lot of things to which Americans are accustomed, including parks that close at sundown, and pools rendered inaccessible after Labor Day. “Communities make certain decisions about facilities and equipment based on risk assessment to lessen the impact of certain behaviors,” he says.

It’s conceivable, in fact, that armed with such information, scooter companies may ultimately have no choice but to sweep their products off city streets in advance of certain happenings, that with knowledge comes greater liability. Only time will tell, but don’t be surprised. It would be a pretty natural evolution for the companies. Most already have their wares collected at sundown owing to similar safety, liability and expense-related concerns — because, in short, people sometimes act dumb.

Morgan Stanley — which is underwriting Uber’s IPO — is denying reports that it marketed a short-selling product to Lyft investors

It’s getting low down and dirty out there again in the ride-hailing wars.

According to a new report from The Information, newly public Lyft threatened Morgan Stanley with legal action earlier this week, demanding in a letter that the bank stop marketing a short-selling product that it believed was disrupting trading in its stock.

It says Lyft learned about the product through the New York Post, which reported in its own, separate story early this week that Morgan Stanley — the lead underwriter for Uber’s IPO –had been calling pre-IPO investors in Lyft’s offering and pitching them on a way to lock in gains, regardless of the lockup.

It all sounds like the dirty pool we’ve grown accustomed to seeing between the rival companies and their associates. But Morgan Stanley spokesman Mark Lake tells TechCrunch that the New York Post report was flat-out wrong, providing us with the following statement: “Morgan Stanley did not market or execute, directly or indirectly, a sale, short sale, hedge, swap, or transfer of risk or value associated with Lyft’s stock for any Lyft shareholder identified by the company or otherwise known to us to be the subject of a Lyft lock-up agreement.

Our firm’s activities have been in the normal course of market making, and any suggestion that Morgan Stanley engaged in an effort to apply short pressure to Lyft is false.”

What went wrong is hard to know, given that the Post shielded its sources. But it was highly descriptive in how it characterized the purported short-selling scheme. From its story:

Driving the unusual bets is language in Lyft’s lock-up agreements that has hedge funds and other early Lyft investors giving themselves a green light to make limited “short” bets, which make money on a stock’s decline. The goal is to position the bets in such a way that investors don’t benefit from a decline or a rise in the stock, but simply to lock in their IPO gains, which were significant.

“If I can lock in $70 now, I’m going to do that,” said an investor.

“Lyft made a mistake,” one investor who bought into Lyft shares prior to the IPO told The Post. “People who own the stock are allowed to hedge their positions. You are not allowed to reduce your economic interest.”

The investor was referring to a recent e-mail Lyft sent to investors reminding them that they are not allowed to engage in any transactions that might affect a holder’s “economic interest ” in the stock. This — and other “lock-up” language around the IPO — has Lyft investors protecting against a decline in an amount identical to their stock holdings, rather than betting on the stock’s decline.

We’ve reached out to Lyft for comment, which has yet to respond.

A source familiar with the situation confirms that Lyft’s ire with Morgan Stanley rests entirely on that Post piece, as noted in The Information. We’re told the no further action has been taken, beyond the letter sent to the bank by Lyft’s attorneys.

Whether the story ends here remains to be seen. Assuming Morgan Stanley is telling the truth, there’s still the question of who floated misinformation about the short-selling product in the first place. Stay tuned.