Everlywell raises $75M from HealthQuest Capital following its recent $175M Series D round

At-home health testing kit startup Everlywell has raised $75 million, following the close of the $175 million Series D it announced in December. The new funding comes from HealthQuest Capital, and sees the fund’s founder and managing partners Dr. Garheng Kong join the company’s board of directors. The new funding is a secondary sale, with proceeds used to provide liquidity to existing investors rather than further diluting shares, so the startup’s $1.3 billion valuation from December still holds.

HealthQuest Capital’s investment portfolio has a heavy focus on commercialization of diagnostics businesses, and the company’s parent obviously has a board network of partners including hospitals, and healthcare payers, both of which are going to be very strategically useful to Everlywell as it looks to scale its business on the enterprise side.

Austin-based Everlywell develops at-home testing kits for a range of health concerns, including thyroid issues, allergies and food sensitivity. The company also added a COVID-19 home collection test kit in 2020, and that has resulted in a lot of growth – both from the COVID test itself, and for its other range of products, according to Everlywell CEO and founder Julia Cheek, who I spoke to in December for the Series D raise.

Having HealthQuest’s venture arm on board as a partner could help it take its direct-to-consumer business and further develop a complementary enterprise operation. The company already works with employers and health plans, but this should definitely help accelerate that aspect of its business as it looks towards more growth in 2021 and beyond.

12 ‘flexible VCs’ who operate where equity meets revenue share

Previously, we introduced the concept of flexible VC: structures that allow founders to access immediate risk capital while preserving exit and ownership optionality. We list here all the active flexible VCs we have identified, broken into these categories:

  • Revenue-based
  • Compensation-based
  • Blended-return streams

Revenue-based flexible VCs

These investors are paid back primarily based on a percentage of revenues.

Capacity Capital

Chattanooga, TN-based Capacity Capital was launched in 2020 with a primary focus on the southeastern U.S. Jonathan Bragdon, its CEO, describes Capacity as “a team of founders-turned-funders making non-dilutive, founder-aligned investments of $50,000-$300,000 in post-startup, post-revenue businesses planning to 2x revenues in 12-24 months. Investments are typically in exchange for a capped, single-digit revenue share and a right to equity under certain circumstances.

If the company sells or raises enough capital, the investment converts into an agreed-upon percentage of equity. If the company grows without raising additional equity funding, founders redeem most of the equity right, based on a pre-agreed return amount. With a portfolio that includes food, tech and services, the fund is industry-agnostic and focused on the overlooked and underrepresented with high-margin business models.”

Jonathan sometimes refers to their investments as “micro-mezzanine” because “mezz is typically structured as a contractual periodic payment, with some equity-like upside, but subordinate to other debt … so most lenders look at it like equity. But, it is typically shorter term with fewer control mechanisms than equity (i.e., not VC). I wanted [a term for] something similar (between debt and equity) but on an extremely small scale.”

In addition to a fund, the overall Capacity organization provides direct mentorship, consulting and connects founders to a broad network of talent, diverse forms of capital and existing resources focused on the post-startup stage of growth. The founders, LPs and venture partners have a long history in local startup ecosystems in the Southeast including LaunchTN, The Company Lab, CO.STARTERS and several other regional funds and resources.

Greater Colorado Venture Fund

Greater Colorado Venture Fund (GCVF) is a $17 million seed fund that invests in high-growth startups in rural Colorado using equity and flexible VC structuring.

A typical GCVF flexible VC investment is $100,000-$250,000 for up to 10% ownership, of which 9% is redeemable, with a sub-10% revenue share and 12-month-plus holiday period. GCVF specializes in providing critical support to founders based in small communities, while connecting them to an unfair network well-beyond their small-town headquarters.

GCVF is pioneering the future of venture capital and high-growth startups for all small communities. With Colorado as an ideal pilot community, the GCVF team (which includes Jamie Finney, a co-author of this article) has helped grow multiple staple initiatives in the rural Colorado startup ecosystem, including West Slope Startup Week, Telluride Venture Accelerator, Startup Colorado, Energize Colorado Gap Fund and the Greater Colorado Pitch Series.

Recognizing the need for creative investment structures in their Colorado market, they co-founded the Alternative Capital Summit, creating the first community of flexible VCs and alternative startup investors.

They share their learnings on flexible VC and pioneering rural startup ecosystems on the GCVF blog.

LAUNCHub Ventures heading towards a $85M fund for South Eastern European startups

LAUNCHub Ventures, an early-stage European VC which concentrates mainly on Central Eastern (CEE) and South-Eastern Europe (SEE), has completed the first closing of its new fund at €44 million ($53.5M), with an aspiration to reach a target size of €70 million. A final close is expected by Q2 2021.

Its principal backer is the European Investment Fund, corporates and a number of Bulgarian tech founders and investors.

With this new fund, LAUNCHub aims to invest in 25 startups in the next 4 years. The initial investment range will be between €500K and €2M in verticals such as B2B SaaS, Fintech, Proptech, Big Data, AI, Marketplaces, Digital Health. The fund will also actively invest in the Web 3.0 / Blockchain space, as it has done so since 2014.

LAUNCHub has also achieved a 50:50 gender split in its team, with Irina Dimitrova being promoted to operating partner while Raya Yunakova who joins as an Investor, previously working for PiLabs in London and Mirela Yordanova joins as an Associate, previously leading the startup community at Google for Startups Campus in London.

The investor is mining a rich view of highly skilled developers in the CEE countries where there are approximately 1.3 developers for every 100 people in the workforce. “Central and Eastern Europe’s rapid economic growth has caught the attention of Western investors searching for the next unicorn. The region has huge and still untapped potential with more and more local success stories, paving the way for the next generation of CEE tech founders.” said Todor Breshkov, Founding Partner at LAUNCHub Ventures .

LAUNCHub Ventures competes with other investors like Earlybird in the region, but they tend to invest at a later stage and is more typically a co-investor with LAUNCHub. Nearby Greece also features Greek funds such as Venture Friends and Marathon, but these tend to focus on their core country and diaspora entrepreneurs. Others include Speedinvest (usually focused on DACH) and Credo Ventures, more focused on the Czech Republic and CEE.

LAUNCHub partner and cofounder Stefan Grantchev told me: “Our strategy is to be regional, not to focus specifically on Bulgaria – but to look at all the opportunities in the region of South-Eastern Europe.”

LAUNCHub Ventures has backed companies including:

  • Giraffe360 (Robotic camera for real estate listing automation, co-investment with Hoxton Ventures and HCVC)

  • Fite (Premium direct to consumer digital live streaming for sports, followed-on by Earlybird)

  • GTMHub (The world’s leading and most intuitive OKR software, followed-on by CRV)

  • FintechOS (Banking and Insurance middleware for automation and digital innovation acceleration, followed-on by Earlybird and OTB)

  • Cleanshelf (Enterprise SaaS management and optimization platform, followed-on by Dawn Capital)

  • Office RnD (Co-working and flexible office space management, followed-on by Flashpoint Ventures)

  • Ferryhopper (Ferry ticketing platform for Southern Europe, co-investment with Metavallon)

Flexible VC: A new model for startups targeting profitability

Of the Inc. 5000 companies, only 6.5% raised money from VCs and 7.7% raised from angels. Where else can fast-growing companies get funding?

More and more startups are pursuing revenue-based VCs, but it’s not a good fit for everyone. A new category of investors has emerged offering a hybrid between VC and revenue-based investment (RBI), which we call “flexible VC.”

From RBI, flexible VCs borrow the ability to reap meaningful returns without demanding founders build for an exit. From traditional equity VC, flexible VC borrows the option to pursue and reap the rewards of an outsized exit. Every flexible VC structure allows founders to access immediate risk capital while preserving exit, growth trajectory and ownership optionality.

Before raising capital, we encourage founders to dig into the nuances between different flexible VC structures.

Our categorization is not a technical one. Rather, we want to accommodate the wide variety of instruments currently offered by flexible VC investors, detailed below. As two fund managers employing flexible VC, we think it is a healthy addition to the ecosystem and will yield more predictable and stable healthy returns for investors.

Flexible VC 101: Equity meets revenue share

This is currently the most common investment structure: The flexible VC investor purchases either equity ownership, or a convertible right to equity, and a right to regularly scheduled payments based on a percentage of revenues.

By tying payments to actual revenues, founders and investors remain aligned around the company’s real-time performance, good or bad.

“Too often, investment structures force the management team to make decisions between misaligned growth and investment (return) objectives. This structure allows for alignment on the front end, and real-time flexibility for performance metrics,” says Samira Salman, a family office investor and advisor.

Payments are commonly delayed for a grace period of 12-36 months. John Berger, director of Operations and Impact Solutions at Toniic, observed that this has clear investor benefits: “The grace period became a feature because it benefits investors in regions like the U.S. where there can be tax differences between short- and long-term gains. It has moved from its origins as a tax benefit and can be viewed as a feature that benefits founders.” After the grace period, the return payments begin, often lasting until a return cap is hit, such as 2-5 times the original investment.

To account for these revenue share payments, the investor’s ownership (or convertible right to ownership) is simultaneously reduced. Once the return cap is reached, the investor is typically left with a residual stake — a fraction of the pre-revenue share ownership. At any point, should the founder wish to pursue a traditional equity VC round, or get bought, the revenue share is paused, and the investor’s then-current ownership converts to equate to a traditional equity VC investor.

Flexible VC 102: Variations

Flexible VCs have created structures based on other company performance metrics than revenues, such as profits or founder salaries. These different company performance metrics provide a slight variation in how the investor and founder relationship is defined. For example, profit-sharing structures ensure payments do not begin until the company is profitable, though likely delaying returns to the investor and complicating payment calculations.

Similarly, when flexible VC structures are based off of the founder’s own compensation (often via salary or dividends), investors are specifically tying their returns to the financial success of the founder. This translates less directly to company performance compared to a revenue or profit share, but offers uniquely personal alignment. These variations in founder alignment allow flexible VCs to specialize in the types of companies they work with.

The state of flexible VC

In all these cases, capital is provided to fuel forecasted growth without creating a commitment to a particular vision for future funding rounds, exit goals and associated blitzscaling. The founder retains full control over whether they want to optimize for hypergrowth (usually at the expense of profitability) or for organic, profitable growth. Flexible VC opens up a new risk capital option for bootstrappers, minorities, family-owned and countless other founder segments left out by the traditional funding landscape.

A range of small VCs are deploying with flexible VC structures, but we believe the total amount of AUM deployed with this strategy is well under $50 million. Similar to the explosion of seed funds in the past decade, we (and some limited partners too) believe these Flexible VCs are on the forefront of what will become a major segment of the venture ecosystem.

We detail below the major categories of VC:

Funder category Equity ownership Returns primarily based on  Composition of returns Example VC
Equity VC Yes, typically preferred equity.

15%-20% sold per round. On average, founders own just 43% of equity by Series B, declining thereafter.

The value ascribed by subsequent investors (in a secondary); buyers (acquisition); or the public markets (IPO). Volatile, uncapped. Andressen Horowitz, ff Venture Capital, HOF Capital, Sequoia.
Flexible VC: Revenue-based Yes, nonvoting common shares (if converted).

5%-20% initial stake, with 50%-90% of this redeemable.

Gross revenues (generally 2%-8%). 2x-5x return cap + path to uncapped equity returns. Capacity Capital, Greater Colorado Venture Fund, Indie.VC, Reformation Partners, UP Fund, Versatile VC.
Flexible VC: Compensation-based Yes, via conversion rights at a valuation cap. “Founder earnings” (Founder salaries + dividends + retained earnings). 2x-5x return cap + path to uncapped equity returns. Chisos.
Flexible VC: Blended Return Yes, via conversion rights at a valuation cap. Profits, founder salaries, and/or dividends declared. Typically ~3x+ return cap + path to uncapped equity returns. Discretionary dividends and salary share built in. Collab Capital, Earnest Capital, TinySeed.
Revenue-share investing No. Gross revenues (generally 2%-8%). 1.35x-2.2x return cap. Novel Growth Partners, Lighter Capital, Rev Up, Corl.

Flexible VC versus other venture capital models

Flexible VC investors offer founders some of the same advantages as equity VCs:

  • Aligned incentives. Whether it is a breakout success or complete failure and loss of capital, investors are along for the ride. When the company hits potholes, flexible VC investors usually don’t have the nuclear options of firing management and/or doing a recapitalization. Their only option is to work with management to try to fix the problems.
  • Few strings attached. Founders have autonomy to spend the funds in whatever way they like.
  • Long-term alignment. Many flexible VCs retain a small residual stake in the company after the return cap is reached, driving alignment well beyond the horizon of the revenue share, similar to the long-term orientation of equity VC.
  • Seed-stage compatible. Like traditional equity VC investors, flexible VCs accommodate early-stage investment risk within their portfolios better than a traditional RBI funder.
  • Eligible for favorable treatment under qualified small business stock exemption, if structured as equity. This applies if the investment converts into common stock; details are beyond this essay’s scope.

Flexible VCs also offer investors some of the same advantages as RBI:

  • Clear return expectations. The return cap is a stated multiple of the investment, typically 2x-5x.
  • Early liquidity. Equity VC is a “get rich slow” business. Flexible VC creates early liquidity that can be either reinvested or distributed to LPs.
  • Improved financial management. All parties want the company to be able to afford the payment obligations and, ideally, deliver a quick return. As a result, unfounded hockey-stick graphs and unicorn promises give way to financial fluency, realistic expectations, frank conversations about what a business can credibly achieve and transparency.
  • Profitability is prioritized. The revenue that is going to grow the company immediately is the same revenue that is going to get investors to their return cap. If the company is profitable, the revenue share becomes increasingly affordable. This drives an earlier focus on profitability than is typical for a company backed by traditional equity VC.
  • Founder retains control. Flexible VCs typically purchase nonvoting common stock, if they purchase stock (one even assigns their voting rights to the founders). This keeps the founder in the driver’s seat of the company.
  • Attractive to women and underrepresented founders. See Why Are Revenue-Based Investors Investing in Women & Diverse Entrepreneurs?

Flexible VC also offers some unique advantages:

  • Straightforward equity interface. If an equity round is needed to fund breakout growth beyond what the flexible VC funds, the mechanics of including a flexible VC in an equity VC round are predetermined and simple.
  • Prepared for blitzscaling, but neither required nor expected. Blitzscaling typically means prioritizing user growth over revenue growth and revenue growth over profitability. Tim O’Reilly, CEO, O’Reilly Media, argues, “Blitzscaling isn’t really a recipe for success but rather survivorship bias masquerading as a strategy.” With flexible VC, not every company is expected to achieve breakout growth, but that possibility is accounted for up front.
  • Particular application in impact capital. Our research has found that impact investors appear to be particularly interested in flexible VC. An impact investor typically needs some economic return to function, but doesn’t necessarily want the company as a whole to exit, given exits often have a negative impact on the company’s founding mission. Flexible VC allows impact VCs to thread this needle.

That said, nothing is cost-free. The unique disadvantages of flexible VC include:

Kanarys raises $3 million for its data-driven platform to assess diversity and inclusion efforts

Mandy Price was already a highly successful lawyer in private practice before she took the jump into entrepreneurship alongside two co-founders to launch Kanarys a little over one year ago.

The Harvard Law School graduated didn’t have to start her company, which helps businesses measure the efficacy of their diversity and inclusion efforts using hard data, but she needed to start the company.

Now, a year after its launch, the company counts companies like Yum Brands, the Dallas Mavericks, and Neiman Marcus among the dozen or so companies using its service and has $3 million in seed funding to help it expand.

For Price, the drive to launch Kanarys came from her own experiences working in law. It wasn’t the microagressions, or the lower pay, or casually dismissive attitude of colleagues toward her well-earned success that led Price to start Kanarys, but the knowledge that her experience wasn’t unique and that thousands of other women and minorities faced the same experiences daily.

I have had many things happen to me in the workplace that is similar to what many other women and women of color have dealt with and didn’t want to have my children have to go through similar issues,” Price said. 

So alongside her husband, Bennie King (himself a serial entrepreneur in the Dallas area), and her University of Texas at Austin and Harvard classmate, Star Carter, Price launched Kanarys in late 2019.

The company uses Equal Employment Opportunity reports and assessments of various policies involving promotion, recruitment, and benefits to track how a company is performing in relation to its industry peers.

“A lot of the inequities we see are from a structural and systemic standpoint. That is where Kanarys can see how they’re perpetuating inequity,” Price said. 

Kanarys starts with an independent assessment of a company’s policies and practices and then conducts quarterly surveys with employees of its customers to see how well they are meeting their stated goals and objectives. They also integrate with existing human resources systems to track things like pay equity and promotions.

The service has attracted the attention of the Rise of the Rest fund, Morgan Stanley, Jigsaw Ventures, Segal Ventures and Zeal Capital Partners, which led the company’s $3 million seed round.

“Organizations have typically tried to address this with individual interventions,” said Price. “What we’re saying is we have to address it on both fronts. So much of the inequities that we see are based off of institutional and systemic policies and practices.”

Not only does Kanarys track information on diversity and inclusion efforts for customers, but for job seekers there’s a database of about 1,000 companies which operates like Glassdoor . The focus is not just on worker satisfaction, but on how employees view the diversity efforts their employers are undertaking.

Notably, Kanarys founders join the (far-too-few) ranks of Black entrepreneurs launching businesses and raising venture capital. In 2017, studies showed that 98 percent of venture capital raised in the U.S. went to men, according to data provided by the company. Black entrepreneurs in general receive less than one percent of venture capital, and Black women founders make up only 0.6 percent of venture capital funding raised. 

“We know that a focus on DEI in business is not just the right thing to do for employees, it also makes good business sense,” said Price, CEO and co-founder of Kanarys, in a statement. “Kanarys’ DEI data arms companies, for the first time, to make precise, immediate, and informed decisions using real, intersectional metrics around their diversity goals and inclusion programs that ultimately drive bottom-line business objectives.”

 

Why VC funding is falling out of favor with top D2C brands

In 2020, venture capitalists unceremoniously broke up with D2C brands and product-based businesses.

Many watched as the consumer brands in their portfolios rushed to make hefty layoffs and eke out more runway and grew more concerned with their business models.

Some simply monitored the “lackluster” Casper IPO or skimmed articles about Brandless and others “imploding” and started pulling a slow fade on D2C brands — not taking pitches, not following up.

Many product-based brands, as it turns out, are no longer interested in chasing venture capital.

Last year, investors adopted a wait-and-see approach to all new investments and prayed portfolio brands could cut their burn significantly enough, stay relevant and ride things out.

Product-based businesses fell out of favor and venture capitalists, if they did invest last year, mainly focused on AI startups, or companies focused on data collaboration, data privacy and healthcare (mostly founded by men, might I add).

From a distance, it sounds like direct-to-consumer founders were left destitute and desperate for financing, wounded by every slow fade or hard pass, beholden as ever to the whims of Silicon Valley.

But as Hal Koss so eloquently shared in his “DTC playbook” post-mortem, this wasn’t a one-way breakup; this parting of ways is actually mutual. Many product-based brands, as it turns out, are no longer interested in chasing venture capital, playing the “grow-at-all-costs” game and relinquishing partial control to investors, despite the pandemic and the uncertain circumstances many founders find themselves facing.

Through my work running and scaling Bulletin, I’ve followed thousands of product-based businesses ranging from indie beauty brands selling clean serums and cleansers to sex tech companies making couples’ vibrators and foreplay accessories. I’ve followed them on Instagram, in the press and across various platforms, and in many cases, I’ve spoken to their founders directly.

Over the past two years, I interviewed executives at more than 30 women-owned businesses for my upcoming book, “How to Build a Goddamn Empire,” and had long phone calls with dozens of independent brands and makers as Bulletin got a handle on how the pandemic was impacting customers. And I noticed something new and remarkable about what founders want now, in 2021, compared to what they wanted in years past.

Back then, I’d get dozens of cold emails and DMs asking how I successfully raised VC and what the unspoken rules might be. I’d hear from business owners who were considering a raise or gearing up for one. Product-based entrepreneurs approached me at panels or Bulletin events and say they wanted to be the “Glossier for X” or the “Away for Y.” Many younger founders didn’t even know what venture capital really was, but they saw it as symbolic validation for the business, or the only way to get “big.”

Now, brands would rather scrape by than pursue an injection of funding on someone else’s terms; just ask the Gorjana founders or Scott Sternberg. Many brands that saw astronomical growth in 2020, like Rosen, Golde, Entireworld and others that spurred similar growth for Etsy and Shopify are fully bootstrapped businesses, and proudly so.

Some founders I’ve spoken to have even outright rejected offers for investment. A lot of D2C brands are interested in learning about alternative forms of financing like bank loans, lines of credit and crowdfunding, and ask about iFundWomen or Kickstarter, observing the success of other fully crowdfunded brands like Dame and Pepper.

Venture capital, from my vantage point, has lost its sheen for a lot of product-based brands. They’re not destitute and desperate for financing. They’re actually scoffing at the prospect and trusting they can succeed, scale and maintain long-term profitability without swapping equity for cash. They’re tripped up by what they’ve been reading in the media, or they’ve survived or even thrived during COVID, as a fully bootstrapped company, and feel more conviction than ever that the “grow slow” approach is the right move.

They’re reading the same stories about layoffs and tenuous unit economics at massive D2C companies and agreeing with Sam Kaplan that the old playbook — pricey customer acquisition practices, rapid scale, endless rounds of funding — is out of date. It’s 2021 and we’re midpandemic. These brands want to turn a profit.

2020 was a record year for Israel’s security startup ecosystem

From COVID-19’s curve to election polls, public temperature checks to stimulus checks, 2020 was dominated by numbers — the guiding compass of any self-respecting venture capital investor.

As a VC exclusively focused on investments in Israeli cybersecurity, the numbers that guide us have become some of the most interesting to watch over the course of the past year.

The start of a new year presents the perfect opportunity to reflect on the annual performance of Israel’s cybersecurity ecosystem and prepare for what the next twelve months of innovation will bring. With the global cybersecurity market outperforming this year’s panic-stricken expectations, we carefully combed through the figures to see how Israel’s market, its strongest performer, compared — and predict what it has in store.

The cybersecurity market continues to draw the confidence of investors, who appear to recognize its heightened importance during times of crisis.

The “cyber nation” not only remained strong throughout the pandemic, but even saw a rise in fundraising, especially around application and cloud security, following the emergence of remote workflow security gaps brought on by social distancing. Encouraged by this, investors have demonstrated committed enthusiasm to its growth and M&A landscape.

Emboldened by the sector’s overall strength and new opportunities, today’s Israeli visionaries are developing stronger convictions to build larger companies; many of them, already successful entrepreneurs, are making their own bets in the industry as serial entrepreneurs and angel investors.

The numbers also reveal how investors are increasingly concentrating their funds on larger seed rounds for serial entrepreneurs and the foremost industry trends. More than $2.75 billion was poured into the industry this year to back companies across all stages, a 97% increase from last year’s $1.39 billion. If its long-term slope is any indication, we can only expect it to continue to grow.

However, though they clearly indicate progress, the numbers still make the need for a demographic reset clear. Like the rest of the industry, Israel’s cybersecurity ecosystem must adapt to the pace of change set out by this year’s social movements, and the time has long passed for true diversity and gender representation in cybersecurity leadership.

Seed rounds reveal fascinating shifts

As the market’s biggest leaders garner experience and expertise, the bar for entry to Israel’s cybersecurity startup ecosystem has gradually risen over the years. However, this did not appear to impact this year’s entrepreneurial breakthroughs. 58% of Israel’s newly founded cybersecurity companies received seed rounds this year, totaling 64 seeded companies in 2020 compared with last year’s 61. The total number of newly founded companies increased by 5%, reversing last year’s downward trend.

The amount invested at seed hit an all-time high as average deal size in 2020 increased by 11%, amounting to an average of $5.2 million per deal. This continues an upward trend in average seed rounds, which have surged over the last four years due to sizable year-on-year increases. It also provides further support for a shift toward higher caliber seed rounds with a strategically focused and “all-in” approach. In other words, founders that meet the new bar for entry are raising bigger rounds for more ambitious visions.

YL ventures seed trends 2020

Image Credits: YL Ventures

Where is the money going?

2020 proved an exceptional year for application security and cloud security startups. Perhaps the runaway successes of Snyk and Checkmarx left strong impressions. This year saw an explosive 140% increase in application security company seed investments (such as Enso Security, build.security and CloudEssence), as well as a whopping 200% increase in cloud security seed investments (like Solvo and DoControl), from last year.

Extra Crunch’s top 10 stories of 2020

I edited hundreds of stories in 2020, so choosing my favorites would be an exercise in futility.

Instead, I’ve tried to gather a sample of Extra Crunch stories that taught me something new. (Which means this top 10 list betrays my ignorance, a humbling admission for a know-it-all like myself.)

While narrowing down the field of candidates, I realized that we’re covering each of the topics on this list in greater depth next year. We already have stories in the works about no-code software, the emergence of edtech, proptech and B2B marketplaces, to name just a few.

Some readers are skeptical about paywalls, but without being boastful, Extra Crunch is a premium product, just like Netflix or Disney+. I know: We’re not as entertaining as a historical drama about the reign of Queen Elizabeth II or a space western about a bounty hunter.

But, speaking as someone who’s worked at several startups, Extra Crunch stories contain actionable information you can use to build a company and/or look smart in meetings — and that’s worth something.

Thanks for reading, and I hope you have a very happy new year.


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1. The VCs who founders love the most

Image Credits: Bryce Durbin/TechCrunch

Managing Editor Danny Crichton spearheaded the development of The TechCrunch List earlier this year to help seed-stage founders connect with VCs who write first checks.

The TechCrunch List has no paywall and contains details and recommendations about more than 400 investors across 22 verticals. Once it launched, Danny crunched the data to pick out 11 investors for which “founders were particularly effusive in their praise.”

2. API startups are so hot right now

Conceptual photo of a cup with clouds. It seems to say, take a break and dream

Image Credits: Juana Mari Moya(opens in a new window)/Getty Images (Image has been modified)

Alex Wilhelm uses his weekday column The Exchange to keep a close eye on “private companies, public markets and the gray space in between,” but one effort stood out: An overview of six API-based startups that were “raising capital in rapid-fire fashion” when many companies were trying to find their COVID-19 footing.

For me, this was particularly interesting because it helped me better understand that an optimal pricing structure can be key to a SaaS company’s initial success.

3. ‘No code’ will define the next generation of software
4. Tracking the growth of low-code/no-code startups

A green sphere stands on top of a pedestal surrounded by a crowd of multicoloured spheres

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

Two stories about the advent of no-code/low-code software that we ran in July take the third and fourth position on this list.

I have been a no-code user for some time: Using Zapier to send automated invitations via Slack for group lunches was a real time-saver in the pre-pandemic days.

“Enterprise expenditure on custom software is on track to double from $250 billion in 2015 to $500 billion in 2020,” so we’ll definitely be diving deeper into this topic in the coming months.

5. ‘Edtech is no longer optional’: Investors’ deep dive into the future of the market

Point of view, looking up ladder sticking through hole in ceiling revealing blue sky

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

Natasha Mascarenhas picked up TechCrunch’s edtech beat when she joined us just before the pandemic. Twelve months later, she’s an expert on the topic.

In July, she surveyed six edtech investors to “get into the macro-impact of rapid change on edtech as a whole.”

  • Ian Chiu, Owl Ventures
  • Shauntel Garvey and Jennifer Carolan, Reach Capital
  • Jan Lynn-Matern, Emerge Education
  • David Eichler, TCV
  • Jomayra Hererra, Cowboy Ventures

6. B2B marketplaces will be the next billion-dollar e-commerce startups

High angle view of Male warehouse worker pulling a pallet truck at distribution warehouse.

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

In 2018, B2B marketplaces saw an estimated $680 billion in sales, but that figure is expected to reach $3.6 trillion by 2024.

As companies shifted their purchasing online, these platforms are adding a range of complementary services like payment management, targeted advertising and logistics while also hardening their infrastructure.

7. Facebook’s former PR chief explains why no one is paying attention to your startup

Caryn Marooney, right, vice president of technology communications at Facebook, poses for a picture on the red carpet for the 6th annual 2018 Breakthrough Prizes at Moffett Federal Airfield, Hangar One in Mountain View, Calif., on Sunday, Dec. 3, 2017. (N

Caryn Marooney, right, vice president of technology communications at Facebook, poses for a picture on the red carpet for the 6th annual 2018 Breakthrough Prizes at Moffett Federal Airfield, Hangar One in Mountain View, Calif., on Sunday, Dec. 3, 2017. Image Credits: Nhat V. Meyer/Bay Area News Group

Reporter Lucas Matney spoke to Caryn Marooney in August at TechCrunch Early Stage about how startup founders who hope to expand their reach need to do a better job of connecting with journalists.

“People just fundamentally aren’t walking around caring about this new startup,” she said. “Actually, nobody does.”

Speaking as someone who’s been on both sides of this equation, I most appreciated her advice about focusing on “simplicity and staying consistent” when it comes to messaging.

“Don’t let the complexity of your intellect cloud what needs to be simple,” she said.

8. You need a minimum viable company, not a minimum viable product

Team of engineers working on a new mechanical model. Multi-ethnic group of young people building an new technology in office.

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

In a guest post for Extra Crunch, seed-stage VC Ann Miura-Ko shared some of what she’s learned about “the magic of product-market fit,” which she termed “the defining quality of an early-stage startup.”

According to Miura-Ko, a co-founding partner at Floodgate, startups can only reach this stage when their business model, value propositions and ecosystem are in balance.

Using lessons learned from her portfolio companies like Lyft, Refinery29 and Twitch, this article should be required reading for every founder. As one commenter posted, “I read this thinking, ‘I need to add some slides to my deck!’

9. 6 investment trends that could emerge from the COVID-19 pandemic

10 January 2020, Berlin: Doctor Olaf Göing, chief physician of the clinic for internal medicine at the Sana Klinikum Lichtenberg, tests mixed-reality 3D glasses for use in cardiology. They can thus access their patients’ medical data and visualize the finest structures for diagnostics and operation planning by hand and speech. The Sana Clinic is, according to its own statements, the first hospital in the world to use this novel technology in cardiology. Image Credits: Jens Kalaene/picture alliance via Getty Images

During “the early innings of this period of uncertainty,” an article we published offered several predictions about investor behavior in the U.S.

Although we posted this in April, each of these forecasts seem spot-on:

  1. Future of work: promoting intimacy and trust.
  2. Healthcare IT: telemedicine and remote patient monitoring.
  3. Robotics and supply chain.
  4. Cybersecurity.
  5. Education = knowledge transfer + social + signaling.
  6. Fintech.

10. Construction tech startups are poised to shake up a $1.3-trillion-dollar industry

Rebar is laid before poring a cement slab for an apartment in San Francisco CA.

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

I’ve always found the concept of total addressable market (TAM) hard to embrace fully — the arrival of a single disruptive company could change an industry’s TAM in a week.

However, several factors are combining to transform the construction industry: high fragmentation, poor communication, a skilled labor shortage and a lack of data transparency.

Startups that help builders manage aspects like pre-construction, workflow and site visualization are making huge strides, but because “construction firms spend less than 2% of annual sales volume on IT,” the size of this TAM is not at all speculative.

11. Don’t let VCs be the gatekeepers of your success

One blue ball on one right side of red line, many blue balls on left side

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

As a bonus, I’m including a TechCrunch op-ed written by insurtech founder Kevin Henderson that describes the myriad challenges he has faced as a Black entrepreneur in Silicon Valley.

Some of the discussions about the lack of diversity in tech can feel abstract, but his post describes its concrete consequences. For starters: he’s never had an opportunity to pitch at a VC firm where there was another Black person in the room.

“Black founders have a better chance playing pro sports than they do landing venture investments,” says Henderson.

4 keys to international expansion

During my five years with Global Founders Capital, Rocket Internet’s $1 billion VC arm, I saw more than a hundred of Rocket’s incubated companies attempt to internationalize. For background, Rocket Internet has helped launch some very successful businesses internationally, including HelloFresh ($12.9 billion market cap), Lazada ($1 billion exit to Alibaba), Jumia ($3.2 billion market cap), Zalando ($21.2 billion market cap) and many others. Rocket often followed the Blitzscaling model popularized by Reid Hoffman — earning them an appearance in his book of the same name.

After an initial success helping Groupon scale internationally via a merger with Rocket’s incubation firm CityDeal, Rocket’s team have aggressively scaled businesses from Algeria to Zimbabwe — sometimes in a matter of weeks. No surprise, Rocket also has a graveyard of failed companies that were victims of bad internationalization efforts.

Many companies make the costly mistake of launching abroad too soon.

My personal observations on Rocket’s successes and failures start with this crucial point: These learnings might not apply to your unique combination business model, market and timing. No matter how well you prepare and plan your internationalization, in the end you need to be agile, alert and smart as you dip your toes into your first foreign market.

Fail fast and cheaply

Internationalization can be a big driver of growth and consequently enterprise value, which is why investors always push for it. But going abroad can also destroy value just as quickly. As a founder, it’s your job to manage financial and operational risks. Finding the right balance between keeping costs in check and not underinvesting can mean doing things more slowly than your board would like. For example, you might launch new markets sequentially instead of rolling 10 out at the same time.

Adopt a “hire slow, fire fast” mentality for your expansion strategy. Don’t be afraid to pull the plug if things don’t work out.

Our team at Heartcore Capital use the following framework and learnings to guide internationalization strategies for our portfolio companies. A successful internationalization strategy needs to answer and address the “Four Ws”: When, Where, Which and With whom to internationalize. (Regarding the fifth W from journalism, you should not need to ask the “Why” question if you want to build a large business!)

1. When is the right time to start?

Many companies make the costly mistake of launching abroad too soon. They look at internationalization as a detached function, isolated from the rest of the business and then launch their second market prematurely. Follow this simple rule: Wait to internationalize until you hit product/market fit.

How do you know exactly when you’ve reached product/market fit? According to Marc Andreessen, “Product/market fit means being in a good market with a product that can satisfy that market.” He adds that experienced entrepreneurs can usually feel if they’ve reached this point.

Let’s take the man for his word and move on to the actual argument: Until you have product/market fit, you will not be able to distinguish between what you’ve learned from your business model and what you’ve learned from your in-country experience. Mistakes will compound. Complexities and costs will multiply. I contend that insufficient understanding of their business and operating model is the main reason why companies fail with their expansion strategies.

Founders should also consider the underlying costs of internationalizing before they decide to expand (more about this in the “What” section below). Some companies are global by default — think mobile gaming companies — or simply require language localization. Others need to build new warehouses, hire local teams or build entirely new products. The costs and respective risks of expanding prematurely depend heavily on the business model.

There are edge cases where companies need to move quickly to internationalize for strategic reasons — despite uncertainty about their market fit. For instance, companies like Groupon or those engaged in food delivery face winner-takes-most markets, where opportunities for product differentiation are limited. “Blitzscaling” makes sense in cases like these.

However, you should tread carefully if your only reason to start scaling abroad is a large fundraise or to match a competitor’s internationalization efforts. Scaling prematurely for the wrong reasons might just cost you your entire company.

When Rocket Internet announced it would launch the Homejoy model into European markets with Helpling, the American “original” company launched quickly in Germany in an effort to squash their new competitor. In the early days of “on-demand everything,” a managed marketplace for cleaning services sounded like the next unicorn in the making.

In 2013, Homejoy had a fresh $24 million Series A from Google Ventures and First Round — considered a huge round at a time when Instacart had just raised an $8 million Series A and Snapchat had done a $13 million Series A round. It must have seemed like a good idea to squash the German competition early.

As it turned out, Homejoy’s product was not yet ready to scale internationally. Just 13 months after launching in Germany, Homejoy had to cease operations globally, while Rocket’s Helpling is still alive and kicking. Helpling focused carefully on product, automation and making their unit economics work. A rush to crush an international competitor caused the demise of a would-be unicorn.

Homejoy expanded internationally in 2014 in a rush to squash a new German competitor Helpling. Their websites in 2020 show starkly different outcomes.

Homejoy expanded internationally in 2014 in a rush to squash a new German competitor Helpling. Their websites in 2020 show starkly different outcomes. Image Credits: Homejoy/Helpling

2. Where should you internationalize?

When deciding which new international market to tackle, it is vital to do your homework. Analyze the competitive environment, partner availability, infrastructure, culture, regulation and synergies with your home market.

In the early days of e-commerce, it was rather easy to analyze if a market was an expansion target. In the absence of professional competition, Rocket chose new countries based solely on GDP and internet penetration.

Extra Crunch roundup: ‘Nightmare’ security breach, Poshmark’s IPO, crypto boom, more

The rest of the world may be slowing down as we prepare for Christmas and the new year, but we are not taking our foot off the gas.

Alex Wilhelm keeps a close watch on the public markets in his column The Exchange, but this week, he branched out to look at some of the metrics underpinning soaring cryptocurrency prices and turned his gaze on StockX, the consumer reseller marketplace that just raised $275 million in a Series E that values the company at approximately $2.8 billion.

“Selling a tenth of your company for north of a quarter-billion may be somewhat common among late-stage software startups with tremendous growth,” he says, but “don’t laugh — the round actually makes pretty OK sense.”

Our staff continues to file their end-of-year stories: We ran a post this morning by Manish Singh that studies India’s massive total addressable market for retail. The nation has more than 60 million mom-and-pop neighborhood stores, and companies like Walmart and Amazon are eager to offer help with payments, logistics and inventory management — as are hundreds of native and foreign startups.

In an interview with author and MIT professor Sinan Aral, Managing Editor Danny Crichton discussed some of the debates currently swirling around the desire in some quarters to regulate social media platforms. In “The Hype Machine,” Aral explores topics like neuroscience, economics and misinformation before offering potential solutions for resolving what he calls “a full-blown social media crisis.”

The stories that follow are an overview of Extra Crunch from the last five days. Complete articles are only available to members, but you can use discount code ECFriday to save 20% off a one or two-year subscription. Details here.

Thank you very much for reading Extra Crunch this week; I hope you have a safe, relaxing weekend!

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist


Unpacking Poshmark’s IPO filing

How did fashion marketplace Poshmark go from posting regular losses in 2019 to generating net income in 2020?

After the company filed a public S-1 last night, Alex Wilhelm pondered the question this morning in The Exchange.

Like many e-commerce platforms, Poshmark saw a surge in activity during the COVID-19 pandemic, but it also slashed its marketing spend, which helped boost profits. As the cash-rich company prepares its road show, “Poshmark is valuable,” Alex concluded.

“How valuable the market will decide. But who will it enrich with its final pricing decision?”

Just how bad is that hack that hit US government agencies?

WASHINGTON, D.C. – APRIL 22, 2018: A statue of Albert Gallatin, a former U.S. Secretary of the Treasury, stands in front of The Treasury Building in Washington, D.C. The National Historic Landmark building is the headquarters of the United States Department of the Treasury. (Photo by Robert Alexander/Getty Images)

The breach of FireEye and SolarWinds by hackers working on behalf of Russian intelligence is “the nightmare scenario that has worried cybersecurity experts for years,” reports Zack Whittaker.

The intrusion began several months ago, but news of the breach wasn’t made public until this week.

“Given that potential victims include defense contractors, telecoms, banks, and tech companies, the implications for critical infrastructure and national security, although untold at this point, could be significant,” said Erin Kenneally, director of cyber risk analytics at Guidewire, an industry platform for insurance carriers.

In his analysis for Extra Crunch, Zack breaks down the rippling effects of supply-chain attacks that can compromise platforms like SolarWinds, which is used by more than 420 of the Fortune 500.

From startups to Starbucks: The embedded API opportunity

contactless payment with QR code

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

Embedded finance connects services like payment processing with everyday activities like grabbing a coffee before unlocking an e-scooter.

“The ability to be at the right place at the right time, supporting consumers and merchants alike, where they want it, how they want it and when they want it — cannot be understated,” says Simon Wu, an investment director with Cathay Innovation.

In a post that identifies embedded finance’s top providers and enablers, he offers advice for startups and established brands that are hoping to “earn and build customer loyalty while generating new revenue streams.”

Is rising usage driving crypto’s recent price boom?

Bitcoin is at an all-time high.

CoinMarketCap reports that crypto market values have reached almost $659 billion; that figure was just $140 billion in March 2020.

“These gains have created a huge amount of wealth for crypto holders,” Alex Wilhelm wrote yesterday.

To get a better handle on why crypto values are sky-bound, he parsed some basic industry metrics, including the number of unique bitcoin addresses, fees paid and transactions per day.

“Do the price gains make sense in the short term? Who knows,” he wrote, “but they are not based on nothing.”

2020 was a disaster, but the pandemic put security in the spotlight

Stage Light on Black. Image Credits: Fotograzia / Getty Images

For his year-end Extra Crunch story, security reporter Zack Whittaker looked back at the myriad security challenges and vulnerabilities COVID-19 brought to the fore.

The hacks of Fire Eyes and SolarWinds were just one link in the chain: How well is your company prepared to deal with file-encrypting malware, hackers backed by nation-states or employees accessing secure systems from home?

“With 2020 wrapping up, much of the security headaches exposed by the pandemic will linger into the new year,” says Zack.

Inside Zoox’s six-year ride from prototype to product

Zoox Fully Autonomous, All-electric Robotaxi

Zoox Fully Autonomous, All-electric Robotaxi. Image Credits: Zoox

After six years of research and development, autonomous vehicle company Zoox this week unveiled an electric robotaxi that can carry four people at a maximum speed of 75 miles per hour.

Automotive writer Kirsten Korosec interviewed Zoox co-founder and CTO Jesse Levinson to learn more about the vehicle’s development and how the company overcame a series of technical and legal challenges.

“I would say that if you have a big idea and you’re confident that it makes sense, you should at least explore the idea, rather than giving up because the current regulations aren’t designed for it,” said Levinson.

Kirsten only had 15 minutes to interview Levinson, but this comprehensive interview covers topics like regulatory compliance, Zoox’s relationship with parent company Amazon and the highest (and lowest) moments he experienced along the way.

Pluralsight $3.5B deal signals a matured edtech market

Fairy dust flying in gold light rays. Computer generated abstract raster illustration

Fairy dust flying in gold light rays. Computer-generated abstract raster illustration. Image Credits: gonin / Wikimedia Commons

In one of the largest enterprise acquisitions of 2020, Visa Equity Partners this week purchased Utah-based edtech startup Pluralsight for $3.5 billion.

According to the entrepreneurs and investors reporter Natasha Mascarenhas spoke to, this deal “shows the strength of edtech’s capital options as the pandemic continues.”

“What’s happening in edtech is that capital markets are liquidating,” a major change from “the old days where the options to exit were very narrow,” says Deborah Quazzo, a managing partner at GSV Advisors and seed investor in Pluralsight.

Dear Sophie: How did immigration change for startup founders in 2020?

Image Credits: Sophie Alcorn

Dear Sophie:

I’m on an F1 OPT and am about to incorporate a startup with my two American co-founders.

What were the biggest immigration changes in 2020 affecting us?

—Ambitious in Albany

How to pick an investor in good or bad times

High angle view of young man walking towards white doorways on blue background

High angle view of young man walking towards white doorways on blue background Image Credits: Klaus Vedfelt / Getty Images

Founders and the VCs who back them may not be friends, but they’re usually friendly.

Investors are on a first-name basis with entrepreneurs from their portfolio companies and frequently have candid conversations with them about life, work and the world in general. In the before times, they might even have shared a meal or attended a baseball game together.

But make no mistake, it is a top-down relationship — the investor will always have the upper hand. When an entrepreneur accepts a check, they are hiring their next boss.

In an Extra Crunch guest post, Quiq CEO and founder Mike Myer poses two questions for founders who are considering a new relationship with a VC:

  • How can the investor help the business?
  • What’s the risk that the investor will hurt the business?

From India’s richest man to Amazon and 100s of startups: The great rush to win neighborhood stores

https://techcrunch.com/2020/12/18/from-indias-richest-man-to-amazon-and-100s-of-startups-the-great-rush-to-win-neighborhood-stores/

NEW DELHI, INDIA – 2011/12/18: Rice is sold at a night market in Paharganj, the urban suburb opposite New Delhi Railway Station. (Photo by Frank Bienewald/LightRocket via Getty Images)

In India, about 90% of consumers buy their everyday goods from neighborhood-based kirana stores instead of supermarkets.

As a result, U.S. retail giants like Walmart and Amazon have adopted an “if you can’t beat them, join them” approach, offering the nation’s 60 million mom-and-pop shops software for inventory control, payments and e-commerce.

India’s retail market will be worth an estimated $1.3 trillion by 2025, but e-commerce represents just 3% of that activity today, reports Manish Singh.

For his final Extra Crunch story of 2020, he looked at the startups and major players who are hoping to carve out their niche in one of the world’s largest retail ecosystems.

ClickUp CEO talks hiring, raising and scaling in the white-hot productivity space

Line of differently sized pink ceramic piggy banks in ascending size order on white surface, green background

Image Credits: PM Images / Getty Images

Earlier this year, business productivity software startup ClickUp raised a $35 million Series A.

Now, just six months later, the company has closed a second round of $100 million that values the San Diego-based startup at $1 billion.

Lucas Matney interviewed CEO Zeb Evans this week to learn more about how the company was buoyed by pandemic-based behavior shifts that doubled its customer base and multiplied revenue by a factor of nine.

“I think that the biggest thing that we’ve always focused on is shipping a new version of ClickUp every week. That is our differentiation,” he said. “We’ve kind of created these iterative cycles called natural product-market fit and it’s been hard to keep up with that.”

2020’s top 10 enterprise M&A deals totaled a staggering $165B

Multi Colored Bling Bling Dollar Sign Shape Bokeh Backdrop on Dark Background, Finance Concept.

Multi Colored Bling Bling Dollar Sign Shape Bokeh Backdrop on Dark Background, Finance Concept. Image Credits: MirageC / Getty Images.

In 2018, the total value of the year’s 10 top enterprise mergers and acquisitions reached $87 billion; last year, that figure fell to just $40 billion.

But in 2020, 10 M&A deals accounted for $165.2 billion.

“Last year’s biggest deal — Salesforce buying Tableau for $15.7 billion — would have only been good for fifth place on this year’s list,” notes enterprise reporter Ron Miller. “And last year’s fourth largest deal, where VMware bought Pivotal for $2.7 billion, wouldn’t have even made this year’s list at all.”