John McAfee arrested after DOJ indicts crypto millionaire for tax evasion

Cybersecurity entrepreneur and crypto personality John McAfee’s wild ride could be coming to an end after he was arrested in Spain today, and now faces extradition to the U.S. over charges spanning tax evasion and fraud.

The SEC accuses McAfee of being paid more than $23.1 million worth of cryptocurrency assets for promoting a number of ICO token sales without disclosing that he was being paid to do so. Furthermore the DOJ has levied a number of counts of tax evasion against McAfee, saying that he “willfully attempted to evade” payment of income taxes owed to the federal government.

In a brief announcing the arrest and unsealing of indictment documents, the DOJ also details that the charges are confined to McAfee the individual and that they did not find any connection with the “anti-virus company bearing his name.”

The DOJ’s charges against McAfee are a bit dry, but detail 10 counts against the entrepreneur. McAfee faced five counts of tax evasion, which each carry a maximum penalty of five years in prison, as well as five counts of “willful failure to file a tax return,” each carrying a maximum penalty of one year in prison.

The SEC filing is a much more interesting read, with 55 pages detailing a lengthy investigation into McAfee’s alleged fraudulent activity promoting a number of ICOs throughout 2017 and 2018. The report specifically notes that McAfee allegedly received more than $11.6 million worth of BTC and ETH tokens for promoting seven ICOs. Unfortunately, those offerings were not named in the suit. He additionally received $11.5 million worth of the promoted tokens, the suit alleges.

We have reached out to John McAfee for comment.

Strike Graph raises $3.9M to help automate security audits

Compliance automation isn’t exactly the most exciting topic, but security audits are big business and companies that aim to get a SOC 2, ISO 207001 or FedRamp certification can often spend six figures to get through the process with the help of an auditing service. Seattle-based Strike Graph, which is launching today and announcing a $3.9 million seed funding round, wants to automate as much of this process as possible.

The company’s funding round was led by Madrona Venture Group, with participation from Amplify.LA, Revolution’s Rise of the Rest Seed Fund and Green D Ventures.

Strike Graph co-founder and CEO Justin Beals tells me that the idea for the company came to him during his time as CTO at machine learning startup Koru (which had a bit of an odd exit last year). To get enterprise adoption for that service, the company had to get a SOC 2 security certification. “It was a real challenge, especially for a small company. In talking to my colleagues, I just recognized how much of a challenge it was across the board. And so when it was time for the next startup, I was just really curious,” he told me.

Image Credits: Strike Graph

Together with his co-founder Brian Bero, he incubated the idea at Madrona Venture Labs, where he spent some time as Entrepreneur in Residence after Koru.

Beals argues that today’s process tends to be slow, inefficient and expensive. The idea behind Strike Graph, unsurprisingly, is to remove as many of these inefficiencies as is currently possible. The company itself, it is worth noting, doesn’t provide the actual audit service. Businesses will still need to hire an auditing service for that. But Beals also argues that the bulk of what companies are paying for today is pre-audit preparation.

“We do all that preparation work and preparing you and then, after your first audit, you have to go and renew every year. So there’s an important maintenance of that information.”

Image Credits: Strike Graph

When customers come to Strike Graph, they fill out a risk assessment. The company takes that and can then provide them with controls for how to improve their security posture — both to pass the audit and to secure their data. Beals also noted that soon, Strike Graph will be able to help businesses automate the collection of evidence for the audit (say your encryption settings) and can pull that in regularly. Certifications like SOC 2, after all, require companies to have ongoing security practices in place and get re-audited every 12 months. Automated evidence collection will launch in early 2021, once the team has built out the first set of its integrations to collect that data.

That’s also where the company, which mostly targets mid-size businesses, plans to spend a lot of its new funding. In addition, the company plans to focus on its marketing efforts, mostly around content marketing and educating its potential customers.

“Every company, big or small, that sells a software solution must address a broad set of compliance requirements in regards to security and privacy. Obtaining the certifications can be a burdensome, opaque and expensive process. Strike Graph is applying intelligent technology to this problem — they help the company identify the appropriate risks, enable the audit to run smoothly and then automate the compliance and testing going forward,” said Hope Cochran, managing director at Madrona Venture Group. “These audits were a necessary pain when I was a CFO, and Strike Graph’s elegant solution brings together teams across the company to move the business forward faster.”

Strike Graph raises $3.9M to help automate security audits

Compliance automation isn’t exactly the most exciting topic, but security audits are big business and companies that aim to get a SOC 2, ISO 207001 or FedRamp certification can often spend six figures to get through the process with the help of an auditing service. Seattle-based Strike Graph, which is launching today and announcing a $3.9 million seed funding round, wants to automate as much of this process as possible.

The company’s funding round was led by Madrona Venture Group, with participation from Amplify.LA, Revolution’s Rise of the Rest Seed Fund and Green D Ventures.

Strike Graph co-founder and CEO Justin Beals tells me that the idea for the company came to him during his time as CTO at machine learning startup Koru (which had a bit of an odd exit last year). To get enterprise adoption for that service, the company had to get a SOC 2 security certification. “It was a real challenge, especially for a small company. In talking to my colleagues, I just recognized how much of a challenge it was across the board. And so when it was time for the next startup, I was just really curious,” he told me.

Image Credits: Strike Graph

Together with his co-founder Brian Bero, he incubated the idea at Madrona Venture Labs, where he spent some time as Entrepreneur in Residence after Koru.

Beals argues that today’s process tends to be slow, inefficient and expensive. The idea behind Strike Graph, unsurprisingly, is to remove as many of these inefficiencies as is currently possible. The company itself, it is worth noting, doesn’t provide the actual audit service. Businesses will still need to hire an auditing service for that. But Beals also argues that the bulk of what companies are paying for today is pre-audit preparation.

“We do all that preparation work and preparing you and then, after your first audit, you have to go and renew every year. So there’s an important maintenance of that information.”

Image Credits: Strike Graph

When customers come to Strike Graph, they fill out a risk assessment. The company takes that and can then provide them with controls for how to improve their security posture — both to pass the audit and to secure their data. Beals also noted that soon, Strike Graph will be able to help businesses automate the collection of evidence for the audit (say your encryption settings) and can pull that in regularly. Certifications like SOC 2, after all, require companies to have ongoing security practices in place and get re-audited every 12 months. Automated evidence collection will launch in early 2021, once the team has built out the first set of its integrations to collect that data.

That’s also where the company, which mostly targets mid-size businesses, plans to spend a lot of its new funding. In addition, the company plans to focus on its marketing efforts, mostly around content marketing and educating its potential customers.

“Every company, big or small, that sells a software solution must address a broad set of compliance requirements in regards to security and privacy. Obtaining the certifications can be a burdensome, opaque and expensive process. Strike Graph is applying intelligent technology to this problem — they help the company identify the appropriate risks, enable the audit to run smoothly and then automate the compliance and testing going forward,” said Hope Cochran, managing director at Madrona Venture Group. “These audits were a necessary pain when I was a CFO, and Strike Graph’s elegant solution brings together teams across the company to move the business forward faster.”

With a Warby Parker playbook, SISU raises funding from Greycroft to face-off against cosmetic clinics

With so many people getting ‘botox’ and ‘filler’ treatments to their faces these days (or are they, during the pandemic?), it’s probably no wonder that Venture Capital has decided to look at the space. In the same way that the small and scattered market of spectacle/optometrist shops were disrupted by startups like Warby Parker, so the extremely variable experience of back-street cosmetic clinics are ripe for targeting.

Step in SISU, a chain of cosmetic clinics created by a serial tech entrepreneur who will apply tech startup methodology to this relatively untapped world.

SISU has now raised a $5.5M Series A fundraise, led by Greycroft and Bullpen Capital. Mana Ventures and the Gaingels Syndicate also participated in the round, alongside angel investors, including Liam Casey, founder ans CEO of PCH, and Dan and Linda Kiely, the co-founders of Voxpro.

The funds will be used to go into the US cosmetic clinics market and standardize ‘facial feature’ pricing for things like lips, chin, under-eye, cheeks and brow. It will also offer treatments such as anti-wrinkle injections, dermal and facial fillers, laser and teeth whitening. There is even going to be a “Face as a service”. So that would be FaaS…

According to SISU, botox consumers are charged per unit, and often sold the maximum number of units, regardless of the results. SISU will set a price for what you want done, and that’s it. A web site will have “instant online evaluations”, and digital bookings.

The company will launch an e-commerce platform in the US and 20 medical-retail clinics are planned for the East Coast. It already eight now in Ireland.

Dubbed by its founders as the ‘One Medical for aesthetic treatments’, SISU is led by Dr. James Cotter, Dr. Brian Cotter, and Irish entrepreneur Pat Phelan, who previously made his name in the telecoms market. Phelan founded both Trustev, which exited to TransUnion in 2015 for $44M, and Cubic Telecom, which exited in 2012.

They are taping into to big market. The ‘medical aesthetics’ market is projected to reach $14.5B by 2023, according to some estimates.

Max Levchin is looking ahead to fintech’s next big opportunities

Max Levchin needs little introduction in the world of tech. As an entrepreneur, he’s been the co-founder of PayPal (now public), Slide (acquired by Google) and Affirm (reportedly about to go public), some of the hottest startups to have come out of Silicon Valley. And as an investor, he’s applied his power of observation and execution also towards helping many others build huge technology businesses.

We sat down with Levchin for a recent session of Extra Crunch Live, where he spoke at length about what he sees as some of the big opportunities in fintech. Here’s an edited version of the conversation. You can watch and listen to the whole discussion — which includes stories about Levchin’s coffee and cycling habits, and how many times he’s seen “The Seven Samurai” (hint: more than once) — here, also embedded below, and you can check out the rest of the pretty cool ECL program here.

How e-commerce failed to evolve since his days at PayPal

Even going as far back as PayPal I think the industry has devolved. I think fintech had the promise of really bringing simplicity, honesty and transparency to the customer. Instead, we ended up putting a really nice user interface on products that are not designed with the user’s best interest in mind. I’m a big fan of throwing shade on credit cards, because I think fundamentally, their business model is remarkably similar to that of payday loans. You are allowed to borrow some money and don’t really know exactly what the terms are. It’s all in the fine print, don’t worry about it and then you just make the minimum payments and you stay in debt. Potentially forever.

PadSplit uses the Airbnb model to tackle the country’s affordable housing crisis

The United States is currently in the middle of an affordable housing crisis that’s putting the nation’s most economically insecure citizens at risk of becoming homeless even as a pandemic continues to spread across the country.

But one Atlanta startup called PadSplit is using the same model that Airbnb created (which ultimately drove up rental and housing prices across the country) to bring down costs for subsidized housing and provide relief for some of the people most at risk.

America’s second housing crisis

Twelve years after the last housing crisis in the United States caused a global economic meltdown, the U.S. is once again on the brink of another real estate-related economic disaster.

This time, it’s not speculators and investors that will carry the weight of the coming collapse, but low income renters faced with still sky-high housing costs and no income thanks to historic unemployment caused by the nation’s COVID-19 epidemic, as Vox reported.

Before COVID-19 swept across the world, half of U.S. renters were spending roughly 30 percent of their income on apartments and homes. One fifth of the population actually spent over half of their income on rent, and now, with roughly 10 percent of the country unemployed, that population faces eviction and the prospect of homelessness.

One third of American families failed to make rent in June, and by September more than 20 million renters could be evicted by landlords.Can an Airbnb model provide relief?

To solve the problem of housing insecurity, PadSplit borrows a page from the Airbnb playbook by creating a marketplace where homeowners can list rooms for rent for long-term stays.

Each room comes furnished with wifi and includes access to laundry facilities. And the company provides access to free telemedicine services and reports weekly payments to credit agencies so renters can build their credit scores.

Currently, the company manages 1,000 units in the Atlanta area and has expanded its presence into Maryland. The company’s renters include teachers, grocery store employees, restaurant workers — all people whose services are considered essential during the COVID-19 epidemic. “40 percent of our population has been functionally homeless,” said company founder, Atticus LeBlanc. “The average income [for our renters] is $25,000 per year.”

The average age of an occupant in a PadSplit room is 39, but renters have been as young as 19 or as old as 77, according to the company.

A quick scan of PadSplit rates in the Atlanta area shows rents of roughly $140 to $250 per week for rooms in existing homes. “We are focused on longer term stays for lower income,” said LeBlanc.

The company screens tenants and landlords, including criminal background checks and employment verification. “We sit between a hotel provider and a longer term apartment,” said Leblanc. “Where we need to both be an immediate housing provider for people who are in difficult situations while also underwriting that [person].” Owners looking to rent on PadSplit also need to prove that they haven’t been convicted of a felony within the last seven years.

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

Launching PadSplit

LeBlanc, a New Orleans native turned Atlanta entrepreneur was named for Atticus Finch, the fictional lawyer whose fight for social justice in “To Kill A Mockingbird” is a staple of schoolroom lit assignments, and a model for white liberal southern gentry.

“My mother… said she wanted to give me someone to live up to,” says LeBlanc. 

With a degree in architecture from Yale University, LeBlanc has run a real estate development and construction business in Atlanta for over 12 years. He launched PadSplit in 2017, after writing up the idea for the business in response to a competition from the Atlanta housing non-profit, House ATL and the non-profit Enterprise Community Partners.

LeBlanc’s plan was selected as one of the finalists and he received a small grant from the organization and the JPMorgan Chase foundation to pursue the business.

With the help of John O’Bryan, a serial entrepreneur who had built businesses in the vacation rental industry, LeBlanc built up the marketplace that would become PadSplit, starting first in Atlanta and moving out to surrounding suburbs and into Maryland. LeBlanc later brought in Frank Furman, a Naval Academy graduate, US Marine Corps veteran and former McKinsey consultant to help grow the business. 

Now, the company, a Techstars accelerator graduate, has $10 million in new financing from Core Innovation Capital, Alate Partners, the Citi Impact Fund, Kapor Capital, Impact Engine and Cox Enterprises to expand PadSplit into Texas, starting with Houston and quickly ramp up hiring.

“PadSplit provides a truly unique solution to a complicated national problem that’s becoming more dire each day,” said Arjan Schütte, Founder and Managing Partner of Core Innovation Capital, in a statement. “We’re proud to support Atticus and the PadSplit team as they expand into new markets and introduce critical housing supply at a time when so many require affordable housing.”

Making money in affordable housing

According to LeBlanc, affordable housing is built around two things. One is the subsidy owners receive from the federal government and the second is a percentage of the cost of rentals. To convince owners that being in the affordable housing market was a good idea, LeBlanc just proved to them that they could get higher risk-adjusted returns versus other long-term rentals.

So far, that’s been proven out, he says. Through its model of fixed costs and weekly rent payments, PadSplit occupants have been able to save roughly $516 per month, according to data supplied by the company. Lowering rent has also allowed tenants to build credit, move into their own apartments and bought vehicles — or even, in some cases, houses of their own.

The company estimates it has also saved taxpayers over $203 million in subsidies by eliminating the the need to build subsidized housing units. Property owners have also benefited, the company said, increasing revenues on properties by over 60 percent.

And LeBlanc isn’t just the founder of PadSplit, he’s also a customer. “I rent a room downstairs in my personal home,” he said.

Ultimately, LeBlanc sees housing stability and a path to home ownership as one of the key tenets of economic equality in the United States.

“Every zoning law in America was based on a system that had no racial equity. We’re still battling those vestiges that exist in almost every jurisdiction,” he says.

And for LeBlanc the problem goes back to nearly 100 years. “If you acknowledge that racial inequality led to income stratification where it was impossible for returning Black GIs to get access to the same wealth building opportunities that white returning GIs had.. it’s no surprise that you have lower incomes by a substantial margin for African Americans as you do for whites.”

LeBlanc sees his business providing an additional revenue stream for the owners who rent properties, and an on-ramp to the financial system for people who are at risk or historically disenfranchised.

“We wanted to create a value proposition that is valuable to anyone in the housing space,” said LeBlanc. 

Extra Crunch Live: Join Anu Duggal for a live Q&A on August 20 at 11am PT/2pm ET

Rent the Runway and Glossier became unicorns within the same week in June 2019. That same year, only 2.7% of venture capital dollars went toward female-founded companies.

Silicon Valley’s disconnect between the monetary success of female-founded companies and funding them in the first place is disheartening. The conversation is there, but the dollar sign momentum remains missing.

Anu Duggal founded the Female Founders Fund before both were even a tangible reality. In 2014, the entrepreneur launched her first fund to invest in female-led startups. It took her 700 meetings over two years to make that first close, she said. Years later, venture capital has slightly taken note. But the Female Founders Fund, or “F Cubed,” has tracked female-led wins and bet big on the underestimated asset class.

Her early focus on female founders hasn’t evolved, but the landscape has. And in an unprecedented world of remote deals and democratization of venture capital, we’re even more excited to have Duggal join us on Extra Crunch Live this upcoming Thursday at 11 a.m. PT/2 p.m. EST/6 p.m. GMT

Those tuning in and taking notes are encouraged to ask questions, but you have to be an Extra Crunch member to access the chat. If you still haven’t signed up, now’s your chance! With the subscription, you’ll also be able to check out all of our stellar previous guests on-demand (watch those episodes here).

Female Founders Fund has provided seed institutional capital to entrepreneurs with over $3 billion in enterprise value. The firm has cut checks into women-led companies such as Rent the Runway, Billie, Tala, Peanut, Thrive Global and Zola. The fund has also attracted limited partners like Melinda Gates and Girls Who Code founder Reshma Saujani.

Duggal herself has a fascinating trajectory into technology investing. At 25, she started a wine bar in Bombay called The Tasting Room. She went on to get an MBA from London Business School, and co-founded Exclusively.in, an e-commerce company that got acquired by Indian fashion e-commerce company Myntra in 2011.

Hear from Duggal on August 20 about how the investment landscape has changed for female founders, what she thinks of as a success story and if 2020 feels different than 2014. And Extra Crunch fam, make sure to bring your thoughtful questions for me to ask her live on air.

You can find the full details of the conversation below the jump.

As threats to the company mount, TikTok pushes back

As TikTok’s existential rollercoaster ride continues to rattle on, the company is trying to sway regulators and the public with a flood of dollars and arguments wrapped in free enterprise and free speech to ensure that its parent company Bytedance can retain control of its operations.

The push to validate its business comes as reports swirl around a potential Presidential ban and bid from Microsoft to take over the company’s business in the U.S.

As it confronts domestic competitors and political attacks, TikTok and its parent company Bytedance have picked up some defenders from the American civil rights movement.

Late last night, the American Civil Liberties Union tweeted its objections to the proposed ban by President Trump.

“With any Internet platform, we should be concerned about the risk that sensitive private data will be funneled to abusive governments, including our own,” the ACLU wrote in a subsequent statement. “But shutting one platform down, even if it were legally possible to do so, harms freedom of speech online and does nothing to resolve the broader problem of unjustified government surveillance.”

Meanwhile, the sentiment in China seems resigned to the U.S. forcing Bytedance to divest of its US interests. In a survey by Sina Technology on the social media platform, Weibo asking what people think of Bytedance potentially selling TikTok to Microsoft, 36.7k of the total 75.3k respondents saw it as “a reluctant and helpless solution that’s understandable,” while 35.1k said they are “disappointed and hope [the company] can hold up for a bit more”.  https://m.weibo.cn/1642634100/4533238409991735
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Even as ownership of the service remains an open question, the company moved quickly to reassure its users that TikTok would continue to operate in the U.S.

The company is also redoubling its efforts to appeal to creators even as it faces defections over its potential mishandling of user data.

On Tuesday, a clutch of the company’s largest celebrities, with a collective audience of some 47 million viewers, abandoned the platform for its much smaller competitor, Triller.

Founded in 2015, two years before TikTok began its explosive rise to prominence, Triller is backed by some of the biggest names in American music and entertainment including Snoop Dogg, The Weeknd,  Marshmello, Lil Wayne, Juice WRLD, Young Thug, Kendrick LamarBaron Davis, Tyga, TI, Jake Paul and Troy Carter. 

Now, TikTok stars Josh Richards, Griffin Johnson, Noah Beck and Anthony Reeves are joining their ranks as investors and advisors. Richards, Johnson, Beck and Reeves are also being compensated by Triller, but the reason they cited for leaving the service are the security concerns from governments.

Triller is compensating Richards, Johnson, Beck, and Reeves, though the details of the deals are undisclosed. Despite that, the creators say they’re leaving TikTok because they’ve grown wary of the Chinese-owned company’s security practices.

“After seeing the U.S. and other countries’ governments’ concerns over TikTok—and given my responsibility to protect and lead my followers and other influencers—I followed my instincts as an entrepreneur and made it my mission to find a solution,” Richards, who’s assuming the title of chief strategy officer, told the LA Times. 

TikTok has responded by announcing a dramatic increase in the company’s creator fund. Initially set at $200 million, in a blog post earlier this week, TikTok chief executive Kevin Mayer announced that the fund would reach $1 billion over the next three years.

TikTok’s charm offensive may stave off the assaults, but the company will need to address concerns around user data. It’s the most pressing threat to the company and the one it’s least equipped to deal with.

How one moonshot VC approaches investing in the COVID-19 era 

Take one glance at Playground Global’s portfolio and a theme emerges: The firm’s investments are forward-looking, longer-term plays, a strategy that runs counter to the fast-return ethos that permeates certain Silicon Valley sectors.

The Palo Alto-based VC firm is banking on the future with investments in capital-intensive and technically complex pursuits, including robotics, autonomous driving, metallic 3D printing and infrastructure. It’s an investment strategy that isn’t for the faint of heart.

So, how does a firm that embraces futurism handle the present-day disruption of COVID-19? It looks ahead, of course.

When co-founder and CTO Peter Barrett joined TechCrunch this week for an Extra Crunch Live panel, the pandemic dominated the conversation. The executive noted that a new and common thread has emerged throughout the many discussions among Playground executives and the startups in which it has invested.

Priorities are shifting toward finding ways to be of service.

Everything feels different these days. Recent months have caused many in Silicon Valley to reconsider their investment priorities, roll up their figurative sleeves and begin the process of helping the world survive and, eventually, recover from the seemingly endless COVID-19 pandemic. Like many others, Playground finds itself at a crossroads — determining how it can be of service, while examining the ways in which a crisis like this can be addressed.

“One thing that underscores this pandemic is a realization that we need to be doing other things if we want to avoid being stuck inside for six months to a year,” Barrett said. “The biggest trend is a recognition that we need to make the investments that give us agency over our biology, and to build the tooling and infrastructure, so the parade of maladies which is behind COVID won’t have the same consequences that COVID-19 has.”

The pandemic has also driven people to reflect on what they want to do with their lives, Barrett said, suggesting that this phenomenon could influence which startups emerge from this period as well as what venture capitalists choose to invest in.

“If you’re an entrepreneur, I think a dating app looks less appealing than contributing in some way,” Barrett said, adding that entrepreneurs are looking at areas that “put us in a position where we really don’t have to be stuck inside because of a thirty kilobase virus.”

Playground has a number of startups that are in position to offer some support, though, as is the nature of the firm’s tendency toward long runways. Most, however, appear better positioned to consider how we can prepare ourselves for the inevitability of some future pandemic, rather than the one we’re currently battling. Click through to read the highlights and watch a video with our entire conversation.

Nearer term plays

Playground’s portfolio is a mix of companies that are building things on a longer timescale that have the capital and patience to weather this pandemic, Barrett said.

However, in the near term, there are categories of companies that have an opportunity to be of service and grow their business.

VC Garry Tan shares 3 ways founders screw up their startups

There are many painful ways for a startup to fail — including founders who ultimately throw in the towel and turn off the lights.

But assuming a founder intends to keeps moving forward, there are a few pitfalls that Garry Tan has seen during his career as a founder, Y Combinator partner and, lately, co-founder of venture firm Initialized Capital.

During a fun chat during last week’s TechCrunch Early Stage, he ran us through these avoidable mistakes; for those who couldn’t virtually attend, we’re sharing them with you here.

 1. Chasing the wrong problem

This sounds insane, right? How can you be blamed for wanting to solve a problem?

Tan says people choose the wrong problem for a wide variety of reasons: Founders sometimes choose a problem that isn’t problematic for enough people, he said, citing the example of a hypothetical 25-year-old San Francisco-based engineer who may be out of touch with the rest of the country. When founders target the wrong problem, it typically means that the market will be too small for a venture-like return.