Adam Neumann planned for his children and grandchildren to control WeWork

WeWork co-founder Adam Neumann didn’t plan for his family’s control of WeWork to end at his death but instead expected to pass that control to future generations of Neumanns, too, says Business Insider.

The outlet reports that in a speech Neumann gave to employees in January of this year, footage of which it says it has viewed, Neumann is seen saying that WeWork isn’t “just controlled — we’re generationally controlled.” He reportedly goes on to say that while the five children he shares with wife Rebekah Neumann “don’t have to run the company,” they “do have to stay the moral compass of the company.”

According to BI, Neumann even invoked his future grandchildren, telling those gathered: “It’s important that one day, maybe in 100 years, maybe in 300 years, a great-great-granddaughter of mine will walk into that room and say, ‘Hey, you don’t know me; I actually control the place. The way you’re acting is not how we built it,'” he said.

These may sound like more outlandish proclamations from Neumann, who has a flair for the dramatic. (Talking to Fast Company earlier this year, he compared WeWork to a rare jewel, asking, “Do you know how long it takes a diamond to be created?”)

But before WeWork began coming apart at the seams, Neumann had every reason to believe that he could pass power down to his heirs. Though many public shareholders may not realize as much, a growing number of tech founders enjoy the kind of dual-class shares that Neumann had extracted from investors, shares that don’t merely give founders more voting power for a while after their companies go public or even throughout their lifetimes, but whose power can be passed down to their children, too.

We wrote about this very issue as a kind of hypothetical last month, quoting SEC Commissioner Robert Jackson, a longtime legal scholar and law professor, who told an audience last year that nearly half of companies that went public with dual-class shares between 2004 and 2018 gave corporate insiders “outsized voting rights in perpetuity.”

Warned Jackson, “Those companies are asking shareholders to trust management’s business judgment — not just for five years, or 10 years, or even 50 years. Forever.” Such perpetual dual-class ownership “asks them to trust that founder’s kids. And their kids’ kids. And their grandkid’s kids . . . It raises the prospect that control over our public companies, and ultimately of Main Street’s retirement savings, will be forever held by a small, elite group of corporate insiders — who will pass that power down to their heirs.”

You might argue that it’s senseless to worry, that the market will speak as it did in WeWork’s case. But not every company has such apparent flaws, and Neumann could have made himself a lot harder to shake than he did. In fact, the broader question the video raises is whether anyone will step in to stop the broader trend, or if public market investors will be living with the consequences down the road instead.

Neumann wasn’t insane to imagine the scenario that he did. That doesn’t mean it’s rational. Giving founders super-voting shares for some period after transitioning onto the public market, we can understand. Giving founders so much power that their kids call the shots of these publicly traded companies? Now that is crazy.

Bloomberg Beta, now six years old, closes its third $75 million fund

Bloomberg Beta, a San Francisco-based outfit that uses Bloomberg LP’s money to make bets on startups, has closed its third fund with $75 million, according to Roy Bahat, who’d previously run the online media company IGN and who operates the fund as an equal partnership with Karin Klein and James Cham. (Klein formerly ran Bloomberg’s new initiatives; Cham was formerly a principal with Trinity Ventures.)

We talked with Bahat briefly last night about the new vehicle to ask how its capital will be deployed. Bahat stressed that the idea is to continue on the firm’s current path, which is to write checks of between $500,000 to $1 million initially; to loosely target ownership of around 10% in the startups it backs; and to fund companies that are focused on the future of work, which has long been an area of interest for Bahat and his colleagues.

That can mean an instant messaging platform like Slack, in which Bloomberg Beta had and continues to have a small stake, following its direct offering. It also can mean backing a company like Flexport, a San Francisco-based freight forwarding and customs brokerage company that appears to be among Bloomberg Beta’s biggest bets. (According to Crunchbase, the outfit has backed Flexport — valued most recently at $3.2 billion — at its seed, Series A and Series B rounds.)

Others of Bloomberg Beta’s portfolio companies include the augmented writing platform Textio; the insurance broker Newfront Insurance; the continuous delivery platform LaunchDarkly; and Netlify, a cloud computing company that sells hosting and serverless backend services for static websites.

What it won’t back: financial tech startups. Given where its money comes from, it’s “too close to home,” says Bahat.

In late August, California Governor Gavin Newsom announced that Bahat would be part of his Future of Work Commission, which will be “tasked with making recommendations to help California leaders think through how to create inclusive, long-term economic growth and ensure workers and their families share in that success.”

As part of his role on that commission, and as an investor in some companies that cater to independent contractors, we asked Bahat what he makes of AB 5, the new California law for contract workers that aims to address inequality in the workplace but has been met with resistance from numerous industries and players. Uber, Lyft and DoorDash are even preparing to file a ballot initiative to exempt themselves from the law.

Bahat suggested he’s not sure what to think quite yet, either. “How workers get classified is one of the issues” the commission will be studying, he said.

“We haven’t figured out how to make it all work; this story is still unfolding.”

Former Oracle co-CEO Mark Hurd has passed away

Mark Hurd, who until last month was one of two CEOs leading the database software giant Oracle, has passed away at age 62, one month after telling employees in a letter that he was taking a leave of absence owing to health reasons.

Staffers, who were notified that Hurd died earlier this morning, have been offering their condolences on Twitter.

Hurd joined Oracle nine years ago, after spending five years with Hewlett-Packard, where he was CEO, president and, ultimately, board chairman, all roles from which he was pressured to resign in 2010 after submitting inaccurate expense reports that concealed his personal relationship with an outside consultant to the company.

At the time, Allen Lind, a professor of leadership at Duke’s Fuqua School of Business, told Time magazine: “People don’t like their leaders to have frailties. That’s just the way it works.”

The very next month, Larry Ellison, a friend of Hurd, named him the co-president of Oracle, the company Ellison had himself founded in the summer of 1977. Said then-CEO Ellison in a statement relating to the move, “Mark did a brilliant job at H-P, and I expect he’ll do even better at Oracle. There is no executive in the I.T. world with more relevant experience than Mark.”

Indeed, when Ellison stepped down as the CEO of Oracle in 2014 to become the company’s chief technology officer, he promoted Hurd to the role of CEO, a role he had since shared with Oracle’s former CFO, Safra Catz.

When Hurd left last month, Catz, who has been an executive with Oracle since 1999, became the sole CEO of Oracle, though Ellison has indicated that she won’t be operating the company single-handedly for long. Instead, he told analysts last month that though some people find it “weird,” Oracle plans to keep its dual-CEO structure, in part owing to situations as with Hurd where life throws an executive team a curveball.

According to Business Insider, Ellison has already promised the board of directors the names of numerous internal candidates, including Don Johnson, the executive vice president of Oracle Cloud Infrastructure.

Said Ellison at Oracle’s OpenWorld event in San Francisco last month: “I believe in a dual-CEO structure. The normal case would be dual CEO here for obvious reasons. That it’s good to have capacity and good to have specialization. And then, God forbid, if something untoward should happen, you have capacity; you are not incapacitated.”

Hurd attended Baylor University in Waco, Texas on a tennis scholarship and reportedly dabbled on the professional tennis circuit immediately after graduating. He began his career at NCR Corp., where he was promoted to chief operating officer 22 years into his tenure with the company, and to the role of CEO the following year, in 2003.

Two years later, H-P brought him aboard.

Hurd is survived by his wife, Paula, and daughters Kathryn and Kelly.

Ellison released a statement just now about the development. It reads:

It is with a profound sense of sadness and loss that I tell everyone here at Oracle that Mark Hurd passed away early this morning. Mark was my close and irreplaceable friend, and trusted colleague. Oracle has lost a brilliant and beloved leader who personally touched the lives of so many of us during his decade at Oracle. All of us will miss Mark’s keen mind and rare ability to analyze, simplify and solve problems quickly. Some of us will miss his friendship and mentorship. I will miss his kindness and sense of humor. Mark leaves his beloved wife Paula, two wonderful daughters who were the joy of his life, and his much larger extended family here at Oracle who came to love him. I know that many of us are inconsolable right now, but we are left with memories and a sense of gratitude…that we had the opportunity to get know Mark, the opportunity to work with him…and become his friend.

Zubale, founded in Mexico City by two HBS grads, just raised $4.4 million to put locals to work over their phones

A year ago, at a demo day south of San Francisco, we watched a number of recently formed startups pitch investors on their companies. One that stood out to us at the time was Zubale, a Mexico City-based outfit whose founders were looking to connect big corporations with Latin Americans eager to address tasks on their behalf. A person could conduct on-the-ground market research for a brand, for example, then earn mobile phone credits or other redeemable digital rewards.

Fast-forward and Zubale, which had 10 employees at the time, now has 40 full-time employees, and has completed 170,000 tasks on behalf of the consumer brands on which it is squarely focused — and for two reasons.

First, according to Zubale co-founder Allison Campbell, the retail industry across Latin America is generating $2 trillion per year, but companies are also shelling out $40 billion on “super painful and high spend” that includes employees who complete in-store tasks like stocking shelves, checking prices and building displays.

Campbell says Zubale can save — even make — these companies money by crowdsourcing the same tasks to independent contractors who can choose from an inventory of similar jobs near them.

Campell and her co-founder, Sebastian Monroy, also know a few things about retail in emerging markets. Before heading to HBS, Campbell spent nearly eight years with Walmart, first as a merchandise manager, then as a  director of international strategic initiatives, roles that placed her in Gurgaon, India, then Shanghai and Shenzhen, China. Monroy’s path was similar; he spent more than seven years working in a variety of sales roles for Proctor & Gamble in Mexico before heading to Harvard, where he met Campbell on their first day of business school. (“We realized we were wearing the same exact glasses and took a picture together,” she says with a laugh. They decided to team up on Zubale a year later.)

Indeed, though one could see Zubale using its platform to crowdsource any number of tasks, à la TaskRabbit, the opportunity is so massive in catering to retailers that the startup plans to stay in its lane for the foreseeable future.

If anything, says Campell, Zubale — which plans to eventually expand from Mexico into other countries, including Brazil, Chile and Peru — may end up offering the contractors more in the way of financial services products, given that there remains a dearth of these and that these individuals are constantly checking the app anyway.

It makes sense. While 85% of Mexico’s population of 125 million now has a smart phone — giving rise to more app-driven startups like Zubale — only 10% have a credit card, and only 35% have a checking account. It’s for that reason that many of the people who work for Zubale still choose to earn mobile phone credit and other digital rewards that they can redeem through making online purchases.

They “love us,” too, says Campbell, because they can “increase their income by 40%” by performing work for Zubale. In fact, she suggests Zubale hasn’t had to do much in the way of marketing, thanks to Facebook Groups where the company is discussed, as well as through other word of mouth, including workers’ friends who want more jobs and find it easier to find and complete jobs in 30-minute increments at the same store location rather than run from store to store or job to job. (On average, she adds, they complete 20 jobs for the company per week.)

Certainly, investors like the company. Campbell and Monroy say they had a lot of inbound interest when they began seeking seed funding more recently. They chose the venture firm NFX to lead the $4.4 million round, given its expertise in marketplaces and network effects-driven businesses. Other participants in the round include Industry Ventures, Joe Montana’s Liquid 2 Ventures and XFactor Fund, along with individual investors Jonathan Swanson (who is the chairman of Thumbtack), Sergio Romo (the CEO of Grow Mobility) and Bob White (the founder and a former managing director of Bain Capital).

Meanwhile, the company’s very first check came from the seed-stage firm Pear, which had hosted that demo day.

Shoe companies Rothy’s and Steve Madden are at each other’s throats

In August, after receiving a cease-and-desist letter from the venture-backed shoe startup Rothy’s, shoe giant Steven Madden filed a pre-emptive lawsuit asking a federal court to rule that its Rosy Flat shoes don’t copy design elements of the Point ballet flat that Rothy’s began selling soon after its 2015 launch.

More, it asked that seven related patents that Rothy’s has been issued — and that Rothy’s has accused Madden of infringing — be declared invalid.

Now, Rothy’s is batting back again, today filing counterclaims of design patent and trade dress infringement, trademark dilution and unfair competition, while also managing to get in a sick burn, writing in its filing that instead of “pursuing independent product development, Madden has chosen to slavishly copy Rothy’s product design in violation of Rothy’s valuable intellectual property rights.”

It’s hard to argue they aren’t copycats once you see both shoes. Nearly as galling to Rothy’s, Steve Madden’s shoes retail for half the price. (Rothy’s charges $145 for its shoes. Steve Madden sells its version for $70, and, unlike Rothy’s, which are never discounted, Steve Madden’s version of the shoe is currently on sale at Nordstrom Rack for $39.99.)

Steve Madden — now a 29-year-old company that’s publicly traded, valued by investors at $3 billion and largely still run by Steve Madden himself (he’s its creative and design chief) — is known for finding inspiration in the work of other brands that wish it would not. Among a handful of companies to tangle legally with the shoe titan in recent years is venture-backed Allbirds, which accused Steve Madden of copying its wool trainer in 2017.

AllBirds soon settled its lawsuit with the company. Alas, now AllBirds is reportedly fighting an Austrian footwear company, Giesswein Walkwaren, for making and selling sneakers that are “identical in all material respects” to Allbirds’s wool runners.

Meanwhile, Rothy’s just last month settled with a company, OESH, against which it had separately filed a patent and trade dress infringement lawsuit alleging its round-toe ballet flats are too similar to Rothy’s own.

Neither is an uncommon situation. Instead, both underscore that for young retail brands, fending off competitors both big and small can prove both expensive and distracting. Indeed, the question begged is whether it’s worth engaging.

While that’s something that’s often determined in hindsight, not everyone thinks it makes sense to spend the time and resources battling knock-offs. When we talked earlier this year with the venture-backed slipper-shoe startup Birdies, co-founder Bianca Gates noted that Target had already begun offering a similar slipper at a cheaper price point. “Everybody copies everybody,” she said.

The company could use some of its funding to wage war, but she thought focusing on the company’s product made more sense. “It’s our job to create a brand beyond the silhouette of a slipper, because that can be knocked off, it’s not defensible. What is defensible is why [a customer] is buying Birdies, and why she is telling her friends to shop us.”

David Sacks’s Craft Ventures just closed its second fund with $500 million

Craft Ventures, the venture firm launched in 2017 by serial entrepreneur David Sacks, has closed its second fund with $500 million in capital commitments, an amount the firm was said to begin targeting roughly a year ago.

Craft’s debut fund had closed with $350 million.

The outfit — which Sacks runs with other serial entrepreneurs Bill Lee (Remarq, Social Concepts), Jeff Fluhr (StubHub, Spreecast), and Sky Dayton (who has founded and cofounded a lot of companies) — invests in series seed through B rounds, in a wide range of companies that neatly fit into each investor’s wheelhouse.

For his part, Sacks, who was the COO of PayPal before founding the genealogy website Geni.com, then Yammer, is focused on both consumer and enterprise startups as long as they can go viral. His signature bet at Craft is Bird, the e-scooter company whose Series A round Craft had led. (Bird founder Travis VanderZanden announced the company’s Series D round of $275 million at a $2.5 billion valuation at our recent TechCrunch Disrupt event.)

Fluhr meanwhile focuses on marketplaces and e-commerce based on his experience as Founder/CEO of Stubhub and the firm cites as one of his more prominent deals the Series A round of the nursing marketplace Trusted Health.

Lee is focused on breakthrough technologies and counts among his investments the esports company Cloud9, a company that went on to raise $50 million in Series B funding last year (and is probably due to announce yet another round soon).

And Dayton — who is very notably a cofounder with Travis Kalanick in CloudKitchens, the dark kitchen company that’s literally trying to take over the world) —  focuses on so-called hard tech, drawing on his experience with launching EarthLink (a dial-up pioneer) and the WiFi service provider Boingo Wireless.

Some of the firm’s more recent bets include Terminal, a San Francisco-based startup that helps companies to source and manage remote engineers in international locations; it raised $17 million in funding just last month. Another of its deals is Internal, a months-old, San Francisco-based startup that wants to help companies better manage their internal consoles so they can ensure that not everyone on staff has access to sensitive data. It closed on $5 million in seed funding led by Craft last month, a deal we’d written about here.

At firm’s outset, blockchain was a major theme, according to Sacks, though the firm appears to fast-evolving into an outfit that invests far more broadly. Indeed, Harbor, a decentralized compliance protocol designed to standardize the way crypto securities are issued and traded — and a deal that was among Craft’s first — saw its founders leave to start Integral (above) earlier this year.

Jackson Square Ventures just closed its third fund with $193 million; here’s how it plans to invest it

Jackson Square Ventures (JSV), an eight-year-old, San Francisco-based early-stage venture firm that takes its name from the neighborhood in San Francisco where it’s headquartered, has closed its third fund with $193 million in capital commitments — a sizable step up from its first two funds, which had both rounded up roughly $120 million from the firm’s limited partners.

The firm, whose founding partners originally spun out of Sigma Partners, invests primarily in U.S.-based software-as-a-service and marketplace companies, with occasional outliers if it can find a way to rationalize the investment. Such was the case with Cornershop, a Latin American online grocery delivery service that JSV cofounder Greg Gretsch first came to know when one of the company’s cofounders, Oskar Hjertonsson, moved in across the street from him.

Recalls Gretsch, “This ‘Swede from Chile’ had sold his earlier company, Needish, to Groupon and it later became Groupon Latin America. Afterward, I advised him a bunch and told him, ‘I’d invest in anything you do.’ Then he said he and his team were working on a group photo-sharping application, and I was like, ‘I’d invest in anything but that.'” Gretsch laughs now, but Hjertonsson and company soon realized that a much bigger opportunity was to start a kind of Instacart for Latin America.

That particular pitch resonated with Gretsch, who invested as an angel investor. A year later, he brought the team to JSV with one caveat. “I told everyone, ‘I know this is out side the norm for us. It’s outside the U.S. in Latin America. But it is a marketplace.” Soon after Gretsch’s colleagues — including fellow managing directors Pete Solvik and Josh Breinlinger — met the team and JSV led Cornershop’s Series A round.  Cornershop went on to raise roughly $32 million altogether before selling a majority stake in its business last week to Uber for undisclosed terms.

Gretsch says that Hjertonsson and his cofounders are exactly the type of founders that JSV seeks out. “They’re humble and not cocky or overly promotional.”

He says that more broadly, JSV avoids companies in hyped up spaces, sticking instead to what it knows, which includes enterprise software (DocuSign was among its portfolio companies), and network effects businesses, whether they’re business-to-business or business-to-consumer companies (Gretsch counts portfolio companies OfferUp and Strava in the latter category).

As for how much the firm puts to work, Gretsch says that its sweet spot is Series A deals and that JSV tends to write initial checks of between $4 million and $6 million, preferring a more concentrated portfolio to spreading its bets.

When it does pull the trigger, it’s typically to fund a company that’s already seeing a million dollars in annual recurring revenue, though he says marketplaces can be “pre-revenue” as long as they’re able to show traction on both the supply and demand side. For example, JSV led the Series A round last year in L.A.-based CREXi, a four-year-old, commercial real estate marketplace and technology platform for buyers, brokers, agents and tenants. At the time, it had no revenue, but it could apparently show demand for brokers to list properties on its platform.

Generally speaking, says Gretsch, JSV looks to own 15 to 20 percent of a company — which is down from 20 to 25 percent in years past, owing to companies raising larger and sometimes continuous seed rounds.

Of course, it also means that companies are further along by the time JSV seems them, and they very typically have customers using the product already. Indeed, Gretsch notes that these days, JSV spend “most of our time focusing on customer references, because if customers are singing your praises, that says a lot.”

VC Brad Feld on WeWork, SoftBank, and why venture firms may have to slow down their pacing in 2020

Yesterday, we had a chance to talk with renowned VC Brad Feld of Foundry Group, whose book “Venture Deals” was recently republished for the fourth time and that we recommend to any first-time founder, given the wealth of knowledge it imparts, from how venture funds really work to term sheet terms, from negotiation tactics to how to choose (and pay for) the right investment banker.

Feld was generous with his time and his advice to founders, many dozens of whom happened to be listening in, conference call style. In fact, you can find a full transcript of our conversation right here if you’re a member of Extra Crunch. In the meantime, we thought we’d highlight some of our favorite parts of the conversation. One of these touches on SoftBank, an organization that Feld knows a little more than many other investors, and another explores what happened at WeWork and specifically the difference between a cult-like leader and a visionary — and why it’s not always clear right away whether a founder is one or the other.  These excerpts have been edited for length and clarity.

TC: We were just talking about startups raising too much money, and speaking of which, you were involved with SoftBank long ago. Your software company had raised capital from SoftBank, then you later worked for the company as an investor. This way predates the Vision Fund, but you did know Masayoshi Son, which makes me wonder: what do you think of how they’ve been investing their capital?

BF:  Just for factual reference, I was initially affiliated with SoftBank with a couple of other VCs; Fred Wilson, Rich Levandov and at the time Jerry Colonna, who now runs a company called Reboot. During that period of time, a subset of us, a group of people that worked for SoftBank and I ended up starting a fund that eventually became called Mobius Venture Capital, but it was originally called SoftBank Venture Capital or SoftBank Technology Ventures. We were essentially a fund sponsored by SoftBank, so we had SoftBank money. The partners ran the fund, but we were a central part of the SoftBank ecosystem at the time. I’d say that was probably ’95, ’96 to ’99, 2000. We changed the name of the firm to Mobius in 2001 because it was endlessly getting confused with the other [SoftBank] fund activity.

I do know a handful of the senior principals at SoftBank today very well, and I have enormous respect for them. Ron Fisher [the vice chairman of SoftBank Group] is the person I’m closest to. I have enormous respect for Ron. He’s one of my mentors and somebody I have enormous affection for.

There are endless piles of ink spilled on SoftBank, and there are loads of perspectives on Masa and about the Vision Fund. I would make the observation that the biggest dissonance in everything that’s talked about is timeframe, because even in the 1990s, Masa was talking about a 300-year vision. Whether you take it literally or figuratively, one of Masa’s powers is this incredible long arc that he operates on. Yet the analysis that we have on a continual basis externally is very short term — it’s days, weeks, months.

What Masa and the Vision Fund conceptually are playing is a very, very long-term game. Is the strategy an effective strategy? I have no idea . . .  but when you start being a VC, it takes a long time to know whether you’re any good at it out or not. It takes maybe a decade really before you actually know. You get a signal in five or six years. The Vision Fund is very young . . . It’s [also] a different strategy than any strategy that’s ever been executed before at that magnitude, so it will take a while to know whether it’s a success or not. One of the things that could cause that success to be inhibited would be having too short a view on it.

If a brand-new VC or a brand new fund is measured two years in in terms of its performance, and investors look at that and that’s how they decide what to do with the VC going forward, there would be no VCs. They’d all be out of business because the first two years of a brand-new VC, with very few exceptions, is usually a time period that it’s completely indeterminate as to whether or not they’re going to be successful.

TC: So many funds — not just the Vision Fund — are deploying their funds in two years, where it used to be four or five years, that it’s a bit harder. When you deploy all your capital and you then need to raise funding and it’s [harder] to know how your bets are going to play out.

BF: One comment on that, Connie, because I think it’s a really good one: When I started, in the ’90s, it used to be a five-year fund cycle, which is why most LP docs have a five-year commitment period for VC funds. You literally have five years to commit the capital. In the internet bubble, it’s shortened to about three years, and in some cases it shortened to 12 months. At Mobius, we raised a fund in 1999 and a fund in 2000, so we had the experience of that compression.

When we set out the raise Foundry, we decided that our fund cycle would be three years and we would be really disciplined about that. We had a model for how we were going to deploy capital from each of our funds over that period of time. It turned out that when we look back in hindsight, we raised a new fund every three years and eventually we lost a year in that cycle. We have a 2016 vintage and a 2018 vintage and it’s because we really deployed the capital over 2.75 to three years . . .It eventually caught up with us.

I think the discipline of trying to have time diversity against the capital that you have is super important. If you talk to LPs today, there is a lot of anxiety about the increased pace at which funds have been deployed, and there has been a two year cycle in the last kind of two iterations of this. I think you’re going to start seeing that stretch back out to three years. From a time diversity perspective three years is plenty [of time] against portfolio construction. When it gets shorter, you actually don’t get enough time diversity in the portfolio and it starts to inhibit you.

TC: Very separately, you wrote a post about WeWork where you used the term cult of personality. For those who didn’t read that post — even for those who did — could you explain what you were saying?

BF: What I tried to abstract was the separation between cults of personality and thought leadership. Thought leadership is incredibly important. I think it’s important for entrepreneurs. I think it’s important for CEOs. I think it’s important for leaders, and I think it’s important for people around the system.

I’m a participant in the system, right? I’m a VC. There are lots of different ways for me to contribute, and I think personally, rather than creating a cult of personality around myself, as a contribution factor, I think it’s much better to try to provide thought leadership, including running lots of experiments, trying lots of things, being wrong a lot, and learning from it. One of the things about thought leadership that’s so powerful from my frame of reference is that people who exhibit thought leadership are truly curious, are trying to learn, are looking for data, and are building feedback loops from what they’re learning that then allows them to be more effective leaders in whatever role they have.

Cult of personality a lot of times masquerades as thought leadership . . . [but it tends] to be self-reinforcing around the awesomeness that is that person or the importance that is that person, or the correctness of the vision that person has. And what happens with cult of personality is that you very often, not always, but very often, lose the signal that allows you to iterate and change and evolve and modify so that you build something that’s stronger over time.

In some cases, it goes totally off the rails. I mean, just call it what it is: what business does a private company have, regardless of how much revenue it has, to buy a Gulfstream V or whatever [WeWork] bought? It’s crazy. ..

From an entrepreneurial perspective, I think being a leader with thought leadership and introspection around what’s working and what’s not working is much, much more powerful over a long period of time than the entrepreneur or the leader who gets wrapped in the cult of personality [and is] inhaling [his or her] own exhaust

TC: Have you been in that situation yourself as a VC? Could VCs have done something sooner in this case or is that not possible when dealing with a strong personality?

BF: One of the difficult things to do, not just as an investor, but as a board member — and it’s frankly also difficult for entrepreneurs — is to deal with the spectrum that you’re on, where one end of the spectrum as an investor or board member is dictating to the charismatic, incredibly hard-driving founder who is the CEO  what they should do, and, at the other end, letting them be unconstrained so that they do whatever they want to do.

One of the challenges of a lot of VCs is that, when things are going great, it’s hard to be internally critical about it. And so a lot of times, you don’t focus as much on the character. Every company, as it’s growing the leadership, the founders, the CEO, the other executives, have to evolve. [Yet] a lot of times for various reasons, and it’s a wide spectrum, there are moments in time where it’s easier to not pay attention to that as an investor or board member. There’s a lot of investors and board members who are afraid to confront it. And there’s a lot of situations where, because you don’t set up the governance structure of the company in a certain way, because as an investor you wanted to get into the deal or the entrepreneurs insist on [on a certain structure], or you don’t have enough influence because of when you invested, it’s very, very hard. If the entrepreneur is not willing to engage collaboratively, it’s very hard to do something about it.

Again, if you’re an Extra Crunch subscriber, you can read our unedited and wide-ranging conversation here.

Upgrade, the newest company by Renaud Laplanche, has a new credit card that it swears is good for you

Three years ago, the founder of LendingClub, Renaud Laplanche, took the wraps off his second act, a consumer lending venture called Upgrade that now employs 350 people, has lent roughly $2 billion to 200,000 people, and has raised $142 million from outside investors.

At the time, it was jumping into a crowded market that has only become more frenzied, with a growing number of fintech startups that market themselves as more thoughtful alternatives to established banks and traditional credit card companies. While giants like Visa and MasterCard charge interest and late fees for overdue payments, for example, the Swedish unicorn company Klarna —  which allows shoppers to buy now and pay later — makes money through retailer transaction fees and late fees but doesn’t charge interest fees. Similarly, Max Levchin’s lending company, Affirm, doesn’t charge late fees when its customers rack up big charges but it does charge interest rates — sometimes as high as 30 percent.

Upgrade is slightly different in that that it doesn’t invite customers to defer their payments when they buy something using dollars from Upgrade. But it still largely fits into the same mold in that it markets itself as better for lending customers and more mindful of them. Its flagship personal loans product, for example, is largely used by customers to pay off credit cards and it features credit health tools that ostensibly teach people how to improve their credit scores.

It also charges up to 35.89% interest annually.

A brand-new credit product — the Upgrade Card — takes things even further on the feel-good front. As Laplanche explains it, the card “basically combines the payments capabilities of a credit card with the low cost of a bank loan into one single product.”

Adds Laplanche of this hybrid creation: “Lending Club created a $100 billion industry with personal loans 12 years ago; I think this is 10 times bigger — and 10 times cheaper for consumers.

We’re inherently skeptical of most lending products being good — or “cheap” — for customers. But here’s how it works: instead of asking a cardholder to pay a minimum amount each month from the balance they owe on their card, Upgrade breaks down the balance into an installment plan with equal monthly payments — plus an interest payment — that can be completed in a year to three years’ time.

“It’s like a mortgage or a car loan with a clear payment schedule,” says Laplanche. “You can budget for it and it sort of forces you to pay down the balance over a reasonable period,” unlike credit cards where customers can run a balance for as long as they like —  which can wind up costing them an arm and a leg in interest payments alone over time.

There is no prepayment penalty and the card replenishes as it is paid off. More, unlike many credit cards that reward users for spending with cash back and other perks, Upgrade customers receive 1% cash back each time they make a payment toward their balance.

Still, there is an annual percentage rate as with most credit cards, and it’s not much kinder than other alternatives, with a span of 6.49% to upwards of 29.99%.

Laplanche further concedes that, as with any lending product, customers who miss payments or start with a lower credit score are more likely to confront a higher interest rate than someone who is able to pay off their card as they use it.

Upgrade partnered with Cross River Bank on its new offering. The 11-year-old, Fort Lee, N.J.-based institution has itself raised at least $128 million over the years, including via a $100 million round led by KKR that closed late last year and a $28 million round put together in 2016 with funding from Battery Ventures, Andreessen Horowitz, and Ribbit Capital, among others. In fact, Cross River has become the go-to institution for a lot of fintech startups, including Affirm, Transferwise, and Coinbase — startups that want to stay compliant with consumer protection regulations and that might have wanted to steer clear of large banks, especially when starting out.

Upgrade, which closed its last round, is probably due for a new funding round itself, having closed its $62 million Series C round in August of last year. Asked about this, however, Laplanche says only that, “We’re good.”

In the meantime, it’s planning ahead with the resources it has. Beyond the Upgrade Card, the San Francisco-based company expects to introduce a savings account in the first quarter of next year, a move similar to that which Robinhood announced earlier this week when it unveiled a high-yield cash management account.

It makes sense. If the economy turns — and it seems likely given the ongoing spat between China and the U.S., not to mention other unanswered questions — consumers are likely to look increasingly for safe havens like savings and cash management accounts.

Whether the moves are enough to insulate Upgrade (or these other fintech startups) in a serious downturn remains to be seen. But Laplanche has weathered worse before.

Though LendingClub was among the first peer-to-peer lenders and enjoyed a splashy debut on the public market in the summer of 2014, by the spring of 2016, Laplanche was asked to resign and was soon after charged by the SEC with fraudulently inflating the company’s returns.

He settled with the agency last year without admitting wrongdoing. He also paid a fine and agreed to be barred from the securities industry for three years.

SmileDirectClub’s former CEO is back with a new dental startup called Tend

A growing number of newer dental brands has been attracting money from venture investors who are still kicking themselves for missing runaway hits. Most notable among these breakout companies is newly public SmileDirectClub, which sells teeth-straightening products directly to consumers and is beloved by analysts even though its shares have slipped since its September IPO.

Among the many teeth-related startups to more recently attract private funding is Swift Health Systems, a five-year-old company that makes invisible braces under the brand INBRACE and just raised $45 million from VCs; Henry the Dentist, a two-year-old, mobile dental clinic that raised $10 million earlier this year; and Quip, a five-year-old maker of electric toothbrushes and oral care products that has garnered roughly $62 million from investors.

Still, a new company called Tend is especially notable, and not because it just raised $36 million in seed and Series A funding — which it did, led by Redpoint Ventures.

First and foremost, Tend sees an opportunity to reinvent the dentist’s office. How? Through tech-heavy dental “studios” that “prioritize” your comfort by featuring sleek waiting areas that it promises you’ll almost never need to use and by offering “Netflix in your chair” that you will enjoy while wearing the latest and greatest Bose headphones. (Tend says it will get your favorite show queued up before you arrive for your appointment, which you will breezily book online, and whose prices you can learn in advance, so you don’t suffer sticker shock later. )

A Fast Company reporter who visited the startup’s newly opened flagship space in Manhattan’s Flatiron neighborhood was even offered a selection of only the finest toothpastes, including that of Marvis, an Italian brand that comes in such distinct flavors as Amarelli licorice, cinnamon, ginger and jasmine — not to mention “classic strong,” “whitening,” and “aquatic.”

It all sounds faintly ridiculous, but also fairly nice, especially contrasted with traditional dentist offices, which tend to be both highly antiseptic and astonishingly vague about pricing.

There’s also a kind of precedent for what it’s doing. Specifically, improving on the patient experience has worked out well for One Medical, a venture-backed, tech-driven chain of 70 clinics that has become one of the largest independent groups in the U.S. (It’s also reportedly prepping an IPO.)

Little wonder that one individual participant in Tend’s new funding is Tom Lee, the physician who created One Medical in 2007 and led it as CEO until 2017. Others individual investors include Neil Blumenthal and Dave Gilboa of Warby Parker; Zach Weinberg of Flatiron Health; and Bradley Tusk of Tusk Ventures.

Meanwhile, Tend’s cofounder and CEO is also no slouch, seemingly. Doug Hudson was the CEO of SmileDirectClub for three-and-a-half years, beginning in 2013. Before that, he founded two medical care companies that were acquired: Hearing Planet and Simplex Healthcare.

Whether that pedigree is enough to get the company going will take some time to know but certainly, it’s chasing after a huge market that can very plainly be made better.  In the U.S. alone, the dental market is now a $137 billion market, according to the research group IBIS World, and as Hudson notes in a new Medium post about his latest startup, dentistry has a Net Promoter Score of 1, which is just two points higher than dreaded cable companies.

Consumers “don’t accept this level of service in any other aspect of our lives. Not when shopping for glasses. Not when exercising at home with a stationary bike,” he writes, and it’s true. If Tend can improve the experience even a little bit and its prices are competitive, we’d guess it has a shot.