Do you need a SPAC therapist?

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

Natasha and Danny and Alex and Grace were all here to chat through the week’s biggest tech happenings. It was yet another busy week, but that just means we had a great time putting the show together and recording it. Honestly, we had a lot of fun this week, and we hope you crack a smile while we dig through the latest as a team.

Ready? Here’s the rundown:

  • The Coinbase direct listing! Here are our notes on its S-1, its direct listing reference price and its results. And we even wrote about the impact that it might have on other startup verticals!
  • Grab’s impending SPAC! As it turns out, Natasha loves SPACs now, and even Danny and Alex had very little to say that was rude about this one.
  • Degreed became a unicorn, proving yet again that education for the enterprise is a booming sub-sector.
  • Outschool also became an edtech unicorn, thanks to a new round led by Coatue and everyone’s rich cousin, Tiger Global. The conversation soon devolved into how Tiger Global is impacting the broader VC ecosystem, thanks to a fantastic analysis piece that you have to read here. 
  • Papa raised $60 million, also from Tiger Global. What do you call tech aimed at old folks? Don’t call it elder tech, we have a brand new phrase in store. Let’s see if it catches on.
  • AI chips! Danny talks the team through grokking Groq, so that we can talk about TPUs without losing our minds. He’s a good egg.
  • And, finally, Slice raised more money. Not from Tiger Global. We have good things to say about it.

And that is our show! We are back on Monday morning!

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 AM PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts!

Why expensive workout gear is actually cheap

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

For this week’s deep dive Natasha and Alex wanted to dig into the Tonal EC-1, a huge document spread across a number of posts. Our goals were pretty simple: To better understand Tonal’s journey, and also to get into the mind of its author.

So we corralled JP Mangalindan into firing up his computer, microphone, and recording software for a chat. Here’s what we covered:

  • What is Tonal, why is it interesting, and why did JP spend so much time learning about the company?
  • What did he have to leave out of the final report?
  • His views on fitness gear, and the Peloton effect more broadly
  • What was it like to write something so gosh darn long?

The Tonal EC-1 comprises four main articles representing about 10,600 words and a reading time of about 43 minutes:

As Natasha is currently — shh, it’s a secret — working on an EC-1 of her own, we had more than a usual amount of interest in the project. Use code Equity for a super sweet discount to access this story and all of our premium content.

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday morning at 7:00 a.m. PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Outschool is the newest edtech unicorn

Outschool, a marketplace providing small-group, virtual after-school activities for children has raised a $75 million Series C led by Coatue and Tiger Global Management. TechCrunch first learned of the round from sources familiar with the transaction; the company confirmed the deal to TechCrunch later today.

The new funding values Outschool’s at $1.3 billion, around 4 times higher than its roughly $320 million valuation set less than a year ago.

To date, Outschool has raised $130 million in venture capital to date, inclusive of its new round.

The company’s valuation growth curve is steep for any startup, let alone an edtech concern that saw the majority of its growth during the pandemic. But while CEO and co-founder Amir Nathoo says his company’s new valuation is partially a reflection of today’s fundraising frenzy, he thinks revenue sustainability is a key factor in his company’s recent fundraise.

The new unicorn’s core product is after school classes for entertainment or supplemental studies, on an ongoing or one-off basis. As the company has grown, ongoing classes have grown from 10% of its business to 50% of its business, implying that the startup is generating more reliable revenue over time.

The change from one-off classes to enduring engagements could be good for the company and its students. On the former, recurring revenue is music to investor ears. On the latter, students need repetition to develop close relationships with a course and a group. Ongoing classes about debate or a weekly zombie dance class makes for a stickier experience.

Nathoo says everyone always asks what the most popular classes are, but said it continues to change since its main clientele – kids – have evolving favorites. One week it might be math, the other it might be minecraft and architecture.

Its changing revenue profile helped Outschool generate more than $100 million in bookings in 2020, compared to $6 million in 2019 and just $500,000 in 2017. Nathoo declined to share the company’s expectations for 2021 beyond “projecting to grow aggressively.”

Outschool reached brief positive cash flow last year as a result of massive growth in bookings, but Nathoo shared that that has since changed.

“My goal is to always stay within touching distance of profit,” he said. “But given the fast change in the market, it makes sense to invest aggressively into opportunities that will make sense in the long-term.”

What’s next

Nathoo expects to grow Outschool’s staff from 110 people to 200 by the end of the year, with a specific focus on international growth. In 2020, Outschool launched in Canada, New Zealand, Australia and the UK, so hiring will continue there and elsewhere.

On the flip side, Outschool isn’t  teachers at the same clip it was at the height of the pandemic in the United States. When the pandemic started, Outschool had 1,000 teachers on its platform. Within months, Outschool grew to host 10,000 teachers, a screening process that the founder explained was resource-heavy but vital. Outschool makes more money if teachers join the platform full-time: teachers pocket 70% of the price they set for classes, while Outschool gets the other 30% of income. But, Nathoo views the platform as more of a supplement to traditional education. Instead of scaling revenue by convincing teachers to come on full-time, the CEO is growing by adding more part-time teachers to the platform.

Similar to how Airbnb created a host endowment fund to share its returns with the people who made its platform work, Outschool has dedicated 2% of its fundraise to creating a similar program to reward teachers on its platform in the event of liquidity.

One of Outschool’s most ambitious goals is, ironically, to go in school. While some startups have found success selling to schools amid the pandemic, district sales cycles and tight budgets continue to be a difficult challenge for scaling purposes. Still, the startup wants to make its way into students’ lives through contracts with schools and employers, which could help low income families access the platform. Nathoo says enterprise sales is a small part of its business, but the strategy began just last year as part of COVID-19 response. It is currently piloting its B2B offering with a number of schools.

Outschool will also consider acquiring early-stage startups focused on direct-to-consumer learning in international markets. While no acquisitions have been made by the startup to date, consolidation in the edtech sector broadly is heating up.

Nathoo stressed that Outschool’s continued growth, even as schools reopen, has de-risked the company from post-pandemic worries.

“There’s going to be a big spike of in-person activities because everyone is going to want to do that at once,” he said. “But then we’re going to settle at some more even distribution because the future of education is hybrid.”

He added that Outschool’s ethos around online learning hasn’t changed since conception. The company has never seen opportunity in the for-credit, subject-matter digital education sector, and instead has focused more on supplemental ways to support students after school.

“That’s the piece of the education system that is underserved and that was missing,” he said. “The advantages of online learning will remain in the convenience, the cost, and the variety of what you can get that isn’t always available locally.”

Let’s talk about gaslighting and fundraising

“Most of the startups I give advice to about how to raise venture capital shouldn’t be raising venture capital,” an investor recently told me. While the idea that every startup isn’t venture-backable might run counter to the narrative to the barrage of funding news each week, I think it’s important to double click on the topic. Plus, it keeps coming up, off the record, on phone calls with investors!

As venture grows as an asset class, the access to capital has broadened from a dollar perspective, but I do think the difficulties that remain is an important dynamic to call out (and something no one talks about during an upmarket). Beyond the fact that only a small subset of startups truly can pull off scaling to the point of venture-level returns, it is still hard for even qualified founders to raise venture capital. Venture capital is still a heavily white, male-led industry, and as a result contains bias that disproportionately limits access for underrepresented founders.

Eniac founding partner Hadley Harris applied this dynamic to the current market boom in a recent tweet: A lot of people are misunderstanding this VC funding market. More money is flowing into the market but the increase is not evenly distributed. The market believes winners can be much bigger but not necessary that there will be more winners. It’s still very hard for most to raise a VC.

To say otherwise is to gaslight the early-stage or first-time founders that have spent months and months trying to raise their first institutional dollars and failed. So ask yourself: Seed rounds have indeed grown bigger, but for who? What comes at the cost of the $30 million seed round? Are the founders that can raise overnight from diverse backgrounds? Are investors backing first-time founders as much as they are backing second- or third-time entrepreneurs?

The answers might leave you debating about the boundaries, and limitations, of the upcoming hot-deal summer.

A few weeks ago, I wrote about the disconnect between due diligence and fundraising right now. Now we’ve moved onto the disconnect, and bifurcation, within first-check fundraising itself. There is so much more we can get into about the fallacy of “democratization” in venture capital, from who gets to start a rolling fund to the lack of assurance within equity crowdfunding campaigns.

We’ll get through it all together, and in the meantime make sure to follow me on Twitter @nmasc_ for more hot takes throughout the week.

In the rest of this newsletter, we will talk about fintech politics, the Affirm model with a twist, and sneakers-as-a-service.

Ex-Coinbase talks politics

The inimitable Mary Ann Azevedo has been dominating the fintech beat for us, covering everything from the latest Uruguayan unicorn to Acorn’s scoop of a debt management startup. But the story I want to focus on this week is her interview with ex-Coinbase counsel & former Treasury official, Brian Brooks.

Here’s what to know: Coinbase CEO Brian Armstrong notoriously released a memo last year denouncing political activism at work, calling it a distraction. In this exclusive interview, Brooks spoke about how blockchain is the answer to financial inclusion, and argued why politics needs to be taken out of tech.

We don’t want bank CEOs making those decisions for us as a society, in terms of who they choose to lend money to, or not. We need to take the politics out of tech. All of us do a lot of different things, and we have no idea on a given day, whether what we’re doing is popular with our neighbors or popular with our bank president or not. I don’t want the fact that I sometimes feel Republican to be a reason why my local bank president can deny me a mortgage.

Image Credits: Bryce Durbin/TechCrunch

The Affirm for X model

While Affirm may have popularized the “buy now, pay later” model, the consumer-friendly business strategy still has room to be niched down into specific subsectors. I ran into one such startup when covering Plaid’s inaugural cohort of startups in its accelerator program.

Here’s what to know: Walnut is a new seed-stage startup that is a point-of-sale loan company with a healthcare twist. Unlike Affirm, it doesn’t make money off of fees charged to consumers.

Image Credits: Bryce Durbin/TechCrunch

Everything you could ever want to know about StockX

In our latest EC-1, reporter Rae Witte has covered a startup that leads one of the most complex and culturally relevant marketplaces in the world: sneakers.

Here’s what to know: StockX, in her words, has built a stock market of hype, and her series goes into its origin story, authentication processes and a market map.

Image Credits: Nigel Sussman

Around TechCrunch

Found, a new podcast joining the TechCrunch network, has officially launched! The Equity team got a behind-the-scenes look at what triggered the new podcast, the first guests and goals of the show. Make sure to tune into the first episode.

Also, if you run into any paywalls while browsing today’s newsletter, make sure to use discount code STARTUPSWEEKLY to get 25% off an annual or two-year Extra Crunch subscription.

Across the week

Seen on TechCrunch

Okta launches a new free developer plan

New Jersey announces $10M seed fund aimed at Black and Latinx founders

Education nonprofit Edraak ignored a student data leak for two months

6 VCs talk the future of Austin’s exploding startup ecosystem

Dear Sophie: Help! My H-1B wasn’t chosen!

Seen on Extra Crunch

5 machine learning essentials nontechnical leaders need to understand

How we dodged risks and raised millions for our open-source machine language startup

Giving EV batteries a second life for sustainability and profit

And that’s a wrap! Thanks for making it this far, and now I dare you to go make the most out of the rest of your day. And by make the most, I mean listen to Taylor’s Version.

Warmly,

N

Cleo Capital is targeting $20 million for Fund II

Cleo Capital, a venture capital firm founded in 2018 by Sarah Kunst, is raising up to $20 million for its second fund, according to a source familiar with the matter. A recent SEC filing shows that Cleo Capital has already raised $6.7 million of that goal, bringing total assets under management to around $10 million. Kunst was unable to comment on her fundraising efforts.

That new AUM number is close to what Cleo Capital initially set out to do. When Kunst first launched her firm, she targeted a $10 million close. She ended up closing $3.14 million of that goal, and now, she’s back to double down.

Fund II’s $20 million target, if closed, would allow Cleo Capital, which invests in primarily pre-seed companies, to start leading rounds. The firm has already been writing $1 million checks and targets about a 15-20% ownership in its rounds.

“One of the reasons why we are a pre-seed fund is because in seed, especially late-seed, you have everyone from family offices to TikTok stars and rolling funds competing for hot rounds,” she said. “No one is competing in pre-seed.”

There are firms such as Precursor and Hustle Fund that back pre-seed companies, and cut checks around $100,000 and $25,000 to start, respectively. Kunst sees the ability to write a $1 million pre-seed check as a “huge advantage.” Usually early-stage founders without family money or deep networks have to spend a big chunk of time raising their first round. It’s a lot of time to spend fundraising and not building a company. If a firm can cut a big pre-seed check, she thinks that Cleo is “buying back six months of a company‘s runway,” she said.

Like many firms, Cleo Capital has turned to creative measures to diversify deal flow in the era of Zoom investing and pandemic business. For example, Cleo Capital launched a fellowship program for laid off workers during COVID-19 to promote entrepreneurship.

Matt Pauker, a repeat founder who has sold companies to Coinbase and HP Enterprise, was one of the advisors of that program. Pauker has joined Cleo Capital as a general partner presumably to line up with the timing of Fund II.

While the firm has no racial or gender investment focus, about 92% of its current investments are companies started by underrepresented founders.

The firm’s portfolio includes Planet FWD, mmhmm, Lunch Club, and StyleSeat. As for new opportunities, Kunst says that Cleo Capital is looking at anything that helps the individual turn into a collective. With the growth of the creator economy and solo-entrepreneurs, people need to figure out the future of income, health care, and benefit, Kunst explained.

“All of these things are hard for people to do as an individual,” she said. The majority of Cleo Capital’s portfolio is based outside of Silicon Valley.

Cleo Capital’s raise comes just over a week after two venture capital firms founded by Black venture capitalists announced new funds, Harlem Capital and MaC Venture Capital.

Creator economy’s slow burn

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

Natasha and Danny and  and Grace were all here to chat through the week’s rigamarole of news. Alex took some well-deserved time off, but that meant we got to poke a little fun at him and create a Special Edition segment to start off the show.

Jokes aside, this week was yet another spree of creator economy, edtech, and new fund announcements, with fresh and unexpected news hailing from Natasha’s home state, New Jersey.

Here’s what we got into:

What a show! We’ll be back with the full trio next week, and until then, stay safe and thank you for listening.

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 AM PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts!

So you want to raise a Series A

During a seed funding round, a founder needs to convince a venture capital investor on a vision. But during a Series A fundraise, napkin-stage ideas don’t make the cut — a founder needs product progress, numbers, and revenue (or at least a plan to eventually generate some).

In many ways, the stakes are higher for a Series A — and Bucky Moore, a partner at Kleiner Perkins, joined TechCrunch Early Stage last week to give founders tactical advice on the process of raising one.

Moore spoke about storytelling over semantics, pricing, and where his firm sees itself “raising the bar” for startups.

Here are a few key points; a full video and a transcript of the entire conversation are linked at the bottom.


Explain to investors why you are raising now

More companies will raise seed rounds than Series A rounds, simply due to the fact that many startups fail, and venture only makes sense for a small fraction of businesses out there. Every check is a new cycle of convincing and proving that you, as a startup, will have venture-scale returns. Moore explained that startups looking to move to their next round need to explain to investors why now is their moment.

The way I think about “why now” is [that] it is an opportunity for you as a founder to convey a unique insight and understanding of your market opportunity, the history of the space that you’re in, why companies have succeeded or failed in that space, historically speaking, and what are the known challenges from a go-to-market perspective; what headwinds will you be up against at a macro level. These are all things that I think people like me get really excited about when hearing unique insight from founders, because it suggests that they’ve really studied their market opportunity, and they understand it. (Timestamp: 2:19)

Discover how Duolingo started with CEO Luis von Ahn at Disrupt 2021

Before Luis von Ahn co-founded Duolingo, a gamified language-learning app used by hundreds of millions around the world, he was fixated on squiggly letters. The entrepreneur was a co-inventor of CAPTCHA and reCAPTCHA, or those security prompts you get while browsing the web to verify if you are a human or if you are a robot.

And while von Ahn often jokes that his early inventions were considered annoying (it causes friction when consumers have to decipher letters before logging into their email) reCAPTCHA was impressive enough that Google scooped it up. Since then, von Ahn has moved on to creating another iconic company, this time, one that consumers are happy to see pop up on their screens: Duolingo.

Von Ahn is joining us at TechCrunch Disrupt 2021 this September 21-23 to talk about the making of a gamified edtech unicorn. The pre-IPO company started as a grad school project, and over the years has become a behemoth enjoyed by more than 500 million users.

We’ll get into how von Ahn leveraged crowdsourced translation to grow the app, its roller coaster route to monetization and, of course, the iconic — and often sassy — green owl, Duo. We’ll also discuss the broader edtech market for language learning, how the pandemic impacted business and why Duolingo sees opportunity in disrupting not just language, but the tests associated with it, as well.

While part of Duolingo fits into the edtech category, some see the startup as it currently stands as a consumer subscription product with a learning hook. Von Ahn can clear the air on what Duolingo is truly solving for — and what’s ahead for the business.

Von Ahn first presented Duolingo on the Disrupt stage nine years ago, with a website and goal to teach 100 million people a new language. Now, nearly a decade later, he’ll be coming back to explain what happened next. He doesn’t hold back — so you don’t want to miss this.

Disrupt 2021 runs September 21 -23 and will be 100% virtual this year. Get your front-row seat to see von Ahn and many, many more for less than $100! Secure your seat now.

Discover how Duolingo started with CEO Luis von Ahn at Disrupt 2021

Before Luis von Ahn co-founded Duolingo, a gamified language-learning app used by hundreds of millions around the world, he was fixated on squiggly letters. The entrepreneur was a co-inventor of CAPTCHA and reCAPTCHA, or those security prompts you get while browsing the web to verify if you are a human or if you are a robot.

And while von Ahn often jokes that his early inventions were considered annoying (it causes friction when consumers have to decipher letters before logging into their email) reCAPTCHA was impressive enough that Google scooped it up. Since then, von Ahn has moved on to creating another iconic company, this time, one that consumers are happy to see pop up on their screens: Duolingo.

Von Ahn is joining us at TechCrunch Disrupt 2021 this September 21-23 to talk about the making of a gamified edtech unicorn. The pre-IPO company started as a grad school project, and over the years has become a behemoth enjoyed by more than 500 million users.

We’ll get into how von Ahn leveraged crowdsourced translation to grow the app, its roller coaster route to monetization and, of course, the iconic — and often sassy — green owl, Duo. We’ll also discuss the broader edtech market for language learning, how the pandemic impacted business and why Duolingo sees opportunity in disrupting not just language, but the tests associated with it, as well.

While part of Duolingo fits into the edtech category, some see the startup as it currently stands as a consumer subscription product with a learning hook. Von Ahn can clear the air on what Duolingo is truly solving for — and what’s ahead for the business.

Von Ahn first presented Duolingo on the Disrupt stage nine years ago, with a website and goal to teach 100 million people a new language. Now, nearly a decade later, he’ll be coming back to explain what happened next. He doesn’t hold back — so you don’t want to miss this.

Disrupt 2021 runs September 21 -23 and will be 100% virtual this year. Get your front-row seat to see von Ahn and many, many more for less than $100! Secure your seat now.

Discover how Duolingo started with CEO Luis von Ahn at Disrupt 2021

Before Luis von Ahn co-founded Duolingo, a gamified language-learning app used by hundreds of millions around the world, he was fixated on squiggly letters. The entrepreneur was a co-inventor of CAPTCHA and reCAPTCHA, or those security prompts you get while browsing the web to verify if you are a human or if you are a robot.

And while von Ahn often jokes that his early inventions were considered annoying (it causes friction when consumers have to decipher letters before logging into their email) reCAPTCHA was impressive enough that Google scooped it up. Since then, von Ahn has moved on to creating another iconic company, this time, one that consumers are happy to see pop up on their screens: Duolingo.

Von Ahn is joining us at TechCrunch Disrupt 2021 this September 21-23 to talk about the making of a gamified edtech unicorn. The pre-IPO company started as a grad school project, and over the years has become a behemoth enjoyed by more than 500 million users.

We’ll get into how von Ahn leveraged crowdsourced translation to grow the app, its roller coaster route to monetization and, of course, the iconic — and often sassy — green owl, Duo. We’ll also discuss the broader edtech market for language learning, how the pandemic impacted business and why Duolingo sees opportunity in disrupting not just language, but the tests associated with it, as well.

While part of Duolingo fits into the edtech category, some see the startup as it currently stands as a consumer subscription product with a learning hook. Von Ahn can clear the air on what Duolingo is truly solving for — and what’s ahead for the business.

Von Ahn first presented Duolingo on the Disrupt stage nine years ago, with a website and goal to teach 100 million people a new language. Now, nearly a decade later, he’ll be coming back to explain what happened next. He doesn’t hold back — so you don’t want to miss this.

Disrupt 2021 runs September 21 -23 and will be 100% virtual this year. Get your front-row seat to see von Ahn and many, many more for less than $100! Secure your seat now.