Self-driving truck startup Kodiak Robotics begin deliveries in Texas

A year after coming out of stealth mode with $40 million, self-driving truck startup Kodiak Robotics will begin making its first commercial deliveries in Texas.

Kodiak will open a new facility in North Texas to support it freight operations along with increased testing in the state. The commercial route

There are some caveats to the milestone. Kodiak’s self-driving trucks will have a human safety driver behind the wheel. And it’s unclear how significant this initial launch is; the company didn’t provide details on who its customers are or what it will be hauling.

Kodiak has eight autonomous trucks in its fleet, and according to the company it’s “growing quickly.”

Still, it does mark progress for such a young company, which co-founders Don Burnette and Paz Eshel say is due to its talented and experienced workforce. 

Burnette, who is CEO of Kodiak, was part of the Google self-driving project before leaving and co-founding Otto in early 2016, along with Anthony Levandowski, Lior Ron and Claire Delaunay. Uber would acquire Otto (and its co-founders). Burnette left Uber to launch Kodiak in April 2018 with Eshel, a former venture capitalist and now the startup’s COO.

In August 2018, the company announced it had raised $40 million in Series A financing led by Battery Ventures . CRV, Lightspeed Venture Partners and Tusk Ventures also participated in the round. Itzik Parnafes, a general partner at Battery Ventures, joined Kodiak’s board.

Kodiak is the latest autonomous vehicle company to test its technology in Texas. The state has become a magnet for autonomous vehicle startups, particularly those working on self-driving trucks. That’s largely due to the combination of a friendly regulatory environment and the state’s position as a logistics and transportation hub.

“As a region adding more than 1 million new residents each decade, it is important to develop a comprehensive strategy for the safe and reliable movement of people and goods,” Thomas Bamonte, senior program manager of Automated Vehicles for the North Central Texas Council of Governments, said in a statement. “Our policy officials on the Regional Transportation Council have been very forward-thinking in their recognition of technology as part of the answer, which is positioning our region as a leader in the automated vehicle industry.”

Self-driving truck startup TuSimple was awarded a contract this spring to complete five round trips, for a two-week pilot, hauling USPS trailers more than 1,000 miles between the postal service’s Phoenix and Dallas distribution centers. A safety engineer and driver will be on board throughout the pilot.

Other companies developing autonomous vehicle technology for trucks such as Embark and Starsky Robotics have also tested on Texas roads.

A 23-year-old B2B company has shown how keen India is for tech IPOs

Away from the limelight of the press and the frenzy of fundraising, a tech startup in India has achieved a feat that few of its peers have managed: going public.

IndiaMART, the country’s largest online platform for selling products directly to businesses, raised nearly $70 million in a rare tech IPO for India this week.

The milestone for the 23-year-old firm is so uncommon for India’s otherwise burgeoning startup ecosystem that, beyond being over-subscribed 36 times, pent up demand for IndiaMART’s stock saw its share price pop 40% on its first day of trading on National Stock Exchange on Thursday — a momentum that it sustained on Friday.

The stock ended Friday at Rs 1326 ($19.3), compared to its issue price of Rs 973 ($14.2).

IndiaMART is the first business-to-business e-commerce firm to go public in India. Its IPO also marks the first listing for a firm following the May reelection of Narendra Modi as the nation’s Prime Minister and the months-long drought that led to it.

Accounting firm EY said it expects more companies from India to follow suit and file for IPO in the coming months.

“Now that national elections are over and favorable results secured, IPO activity is expected to gain momentum in H2 2019 (second half of the year). Companies that had filed their offer documents with the Indian stock markets regulator during H2 2018 and Q1 2019 may finally come to market in the months ahead,” it said in a statement (PDF).

IndiaMART’s origin

The fireworks of the IPO are just as impressive as IndiaMART’s journey.

The startup was founded in 1996 and for the first 13 years, it focused on exports to customers abroad, but it has since modernized its business following the wave of the internet.

“The thesis was, in 1996, there were no computers or internet in India. The information about India’s market to the West was very limited,” Dinesh Agarwal, co-founder and CEO of IndiaMART, told TechCrunch in an interview.

Until 2008, IndiaMART was fully bootstrapped and profitable with $10 million in revenue, Agarwal said. But things started to dramatically change in that year.

“The Indian rupee became very strong against the dollar, which dwindled the exports business. This is also when the stock market was collapsing in the West, which further hurt the exports demand,” he explained.

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Dinesh Agarwal, founder and CEO of IndiaMart.com, poses for a profile shot on July 29, 2015 in Noida, India.

By this time, millions of people in India were on the internet and, with tens of millions of people owning a feature phone, the conditions of the market had begun to shift towards digital.

“This is when we decided to pursue a completely different path. We started to focus on the domestic market,” Agarwal said.

Over the last 10 years, IndiaMART has become the largest e-commerce platform for businesses with about 60% market share, according to research firm KPMG. It handles 97,000 product categories — ranging from machine parts, medical equipment and textile products to cranes — and has amassed 83 million buyers and 5.5 million suppliers from thousands of towns and cities of India.

According to the most recent data published by the Indian government, there are about 50 to 60 million small and medium-sized businesses in India, but only around 10 million of them have any presence on the web. Some 97% of the top 50 companies listed on National Stock Exchange use IndiaMART’s services, Agarwal said.

That’s not to say that the transition to the current day was a straightforward process for the company. IndiaMART tried to capitalize on its early mover advantage with a stream of new services which ultimately didn’t reap the desired rewards.

In 2002, it launched a travel portal for businesses. A year later, it launched a business verification service. It also unveiled a payments platform called ABCPayments. None of these services worked and the firm quickly moved on.

Part of IndiaMART’s success story is its firm leadership and how cautiously it has raised and spent its money, Rajesh Sawhney, a serial angel investor who sits on IndiaMART’s board, told TechCrunch in an interview.

IndiaMART, which employs about 4,000 people, is operationally profitable as of the financial year that ended in March this year. It clocked some $82 million in revenue in the year. It has raised about $32 million to date from Intel Capital, Amadeus Capital Partners and Quona Capital. (Notably, Agarwal said that he rejected offers from VCs for a very long time.)

The firm makes most of its revenue from subscriptions it sells to sellers. A subscription gives a seller a range of benefits including getting featured on storefronts.

Where the industry stands

There are only a handful of internet companies in India that have gone public in the last decade. Online travel service MakeMyTrip went public in 2010. Software firm Intellect Design Arena and e-commerce store Koovs listed in 2014, then travel portal Yatra and e-commerce firm Infibeam followed two years later.

India has consistently attracted billions of dollars in funding in recent years and produced many unicorns. Those include Flipkart, which was acquired by Walmart last year for $16 billion, Paytm, which has raised more than $2 billion to date, Swiggy, which has bagged $1.5 billion to date, Zomato, which has raised $750 million, and relatively new entrant Byju’s — but few of them are nearing profitability and most likely do not see an IPO in their immediate future.

In that context, IndiaMART may set a benchmark for others to follow.

“The fact that we have a homegrown digital commerce business, serving both the urban and smaller cities, and having struggled and been around for so long building a very difficult business and finally going public in the local exchange is a phenomenal story,” Ganesh Rengaswamy, a partner at Quona Capital, told TechCrunch in an interview. “It keeps the story of India tech, to the Western world, going.”

Generally, it is agreed that there are too few IPOs in India and the industry can benefit from momentum and encouragement of high profile and successful public listings.

“There is a firm consensus that in India, markets will prefer only the IPOs of companies that are profitable. And investors in India might not value those companies. Both of these issues are being addressed by IndiaMART,” said Sawhney.

“We need 30 to 40 more IPOs. This will also mean that the stock market here has matured and understands the tech stocks and how it is different from other consumer stocks they usually handle. More tech companies going public would also pave the way for many to explore stock exchanges outside of India.

“Indian market is ready for more tech stocks. We just need to get more companies to go out there,” Sawhney added, although he did predict that it will take a few years before the vast majority of leading startups are ready for the public market.

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The Indian government, for its part, this week announced a number of incentives to uplift the “entrepreneurial spirit” in the nation.

Finance minister Nirmala Sitharaman said the government would ease foreign direct investment rules for certain sectors — including e-commerce, food delivery, grocery — and improve the digital payments ecosystem. Sitharaman, who is the first woman to hold this position in India, said the government would also launch a TV program to help startups connect with venture capitalists.

The path ahead for IndiaMART

IndiaMART has managed to build a sticky business that compels more than 55% of its customers to come back to the platform and make another transaction within 90 days, Agarwal — its CEO — said. With some 3,500 of its 4,000 employees classified as sales executives, the company is aggressive in its pursuit of new customers. Moving forward, that will remain one of its biggest focuses, according to Agarwal.

“Most of our time still goes into educating MSMEs on how to use the internet. That was a challenge 20 years ago and it remains a challenge today,” he told TechCrunch.

In recent years, IndiaMART has begun to expand its suite of offerings to its business customers in a bid to increase the value they get from its platform and thus increase their reliance on its service.

IndiaMART has built a customer relationship management (CRM) tool so that customers need not rely on spreadsheets or other third-party services.

“We will continue to explore more SaaS offerings and look into solving problems in accounting, invoice management and other areas,” said Agarwal.

The firm also recently started to offer payment facilitation between buyers and sellers through a PayPal -like escrow system.

“This will bridge the trust gap between the entities and improve an MSME’s ability to accept all kinds of payment options including the new age offerings.”

There’s an elephant in the room, however.

A bigger challenge that looms for IndiaMART is the growing interest of Amazon and Walmart in the business-to-business space. Several startups including Udaan — which has raised north of $280 million from DST Global and Lightspeed Venture Partners — have risen up in recent years and are increasingly expanding their operations. Agarwal did not seem much worried, however, telling TechCrunch that he believes that his prime competition is more focused on B2C and serving niche audiences. Besides he has $100 million in the bank himself.

Indeed, as Quona Capital’s Rengaswamy astutely noted, competition is not new for IndiaMART — the company has survived and thrived more than two decades of it.

“Alibaba came and gave up,” he noted.

An important — and unanswered question — that follows the successful IPO is how IndiaMART’s stock will fare over the coming months. A glance to the U.S. — where hyped companies like Uber, Lyft and others have seen prices taper off — shows clearly that early demand and sustained stock performance are not one and the same.

Nobody knows at this point, and the added complexity at play is that the concept of a tech IPO is so uncommon in India that there is no definitive answer to it… yet. But IndiaMART’s biggest achievement may be that it sets the pathway that many others will follow.

Calm raises $27M to McConaughey you to sleep

Meditation app unicorn Calm wants you to doze off to the dulcet tones of actor Matthew McConaughey’s southern drawl or writer Stephen Fry’s english accent. Calm’s Sleep Stories feature that launched last year is a hit, with over 150 million listens from its 2 million paid subscribers and 50 million downloads. While lots of people want to meditate, they need to sleep. The 7-year-old app has finally found its must-have feature that makes it a habit rather than an aspiration.

Keen to capitalize on solving the insomnia problems plaguing people around the world, Lightspeed tells TechCrunch it has just invested $27 million into a Series B extension round in Calm alongside some celebrity angels at a $1 billion valuation. The cash will help the $70 per year subscription app further expand from guided meditations into more self-help masterclasses, stretching routines, relaxing music, breathing exercises, stories for children, and celebrity readings that lull you to sleep.

Calm App

The funding adds to Calm’s $88 million Series B led by TPG that was announced in February that was also at a $1 billion valuation, bringing the full B round to $115 million and Calm’s total funding to about $141 million. Lightspeed partner Nicole Quinn confirms the fund started talks with Calm around the same time as TPG, but took longer to finish due diligence, which is why the valuation didn’t grow despite Calm’s progress since February.

“Nicole and Lightspeed are valueable partners as we continue to double down on entertainment through our content” Calm’s head of communications Alexia Marchetti tells me. The startup plans to announce more celebrity content tie-ins later this summer.

Broadening its appeal is critical for Calm amidst a crowded meditation app market including Headspace, Simple Habit, and Insight Timer plus newer entrants like Peloton’s mindfulness sessions and Journey’s live group classes. It’s become easy to find guided meditations online for free, so Calm needs to become a holistic mental wellness hub.

While it risks diluting its message by doing so much, Calm’s plethora of services could make it a gateway to more of your personal health spend, including therapy, meditation retreats, and health merchandise from airy clothing to yoga mats. But subscription fees alone are powering a big business. Calm quadrupled revenue in 2018 to reach $150 million in ARR and hit profitability.

Calm is poised to keep up its rapid revenue growth. After the launch of Sleep Stories, “it was incredible to see the engagement spike up and also the retention” says Quinn. Users can choose from having McConaughey describe the wonders of the cosmos, John McEnroe walk them through the rules of tennis, fairy tales like The Little Mermaid, and more.

Quinn tells me “Sleep Stories is now a huge percentage of the business, and also the length of time people spend on the app has gone up dramatically.” She tells me that so many startups are “trying to invent a problem where there isn’t one.” But difficulty snoozing is so widespread and detrimental that users are eager to pay for an app instead of a sleeping pill. Having the Inception actor talk about the universe until I pass out sounds alright, alright, alright.

Alright Alright Alright

Corporate travel platform TripActions quadruples valuation with $250M Series D

Venture capital investors Andreessen Horowitz, Zeev Ventures, Lightspeed Venture Partners and SGVC have valued TripActions, a travel booking service tailored for large enterprises, at $4 billion with a $250 million Series D.

The round, announced this morning, brings the business’s total raised to $480 million.

TripActions co-founder and chief executive officer Ariel Cohen tells TechCrunch the company’s revenue is growing 5x year-over-year but declined to disclose 2018 revenues. Currently, it has more than 2,000 customers, including WeWork, Zoom, Dropbox and Robinhood.

Founded in 2015, TripActions is out to replace antiquated travel booking systems with a platform that integrates company HR and expense systems. Using TripActions, business travelers can arrange flights, hotels and transportation, with 24/7 global support from the startup’s staff.

“We are going after a really big industry,” Cohen said. “We are replacing something people don’t like. They don’t like the tools corporates are giving them today to book business trips.”

TripActions plans to use the cash to accelerate its international expansion. Only 18 months ago, it operated just one office out of its headquarters in Palo Alto. Today, the company has 700 employees with offices in London, Sydney, Amsterdam and more.

Co-founder and chief technology officer Ilan Twig says once they brought on large enterprise customers like Box, for example, they had no choice but to better craft the service for markets located outside the U.S.

“In a year we went from a startup with an office in Palo Alto to having more than 100 employees in Europe,” Twig tells TechCrunch. “We need to meet users where they are … We need agents and operations in the various [geographies] that we are serving. And then of course sales and marketing in all of these [geographies].”

With the latest round, TripActions is sitting on a mountain of cash. The founders tell us they’ve yet to spend a dime of their $154 million Series C. Closed in November, the financing valued the company at $1 billion, cementing its position in the unicorn club.

“We want to make sure we are equipped to take the market,” Cohen said. “Do we need the entire amount of money we’ve raised to date? The answer is no. But do we want the means to seize the opportunity in the long term? The answer is hell yes.”

VCs double down on data-driven investment models

Social Capital co-founder Chamath Palihapitiya is spinning out a company from his venture capital fund-turned-family-office, TechCrunch has learned. The new entity, temporarily dubbed CaaS (short for capital-as-a-service) Technologies, will focus on providing data-driven insights to VC firms.

Data informs investment decisions at VC funds more than ever, as new technologies make way for increasingly quantitative approaches to deal-making. But when it comes to third-party data analysis tools, there are few options tailored to VCs.

Palihapitiya’s latest effort will operate as a standalone business, automating the time-sucking process of evaluating a company’s health prior to investing. Zafer Younis, former partner at San Francisco accelerator 500 Startups, has been named CEO of the business, which is expected to launch this fall.

Palihapitiya did not respond to a request for comment. Younis could not be reached for comment.

According to Younis’ LinkedIn profile, which indicates he spent nine months at Social Capital in 2018, CaaS Technologies is “a collection of quantitative diligence tools developed to help VCs evaluate investment opportunities and make better data-driven decisions. CaaS reduces diligence time and offers investors insights that are otherwise a burden to the founder and investment team to process and prepare. Founders are using CaaS to improve their pitches and drive investor conviction using transparent and defendable data.”

CaaS Technologies’ approach resembles that of Social Capital’s “magic 8-ball,” a quantitative tool for due diligence built by former Social Capital partner Jonathan Hsu several years ago. The goal of 8-ball was to develop a standardized method of determining product-market fit in early-stage startups. In 2016, Social Capital decided to open-source 8-ball, granting startups access to its basic features.

Palihapitiya is choosing to monetize Social Capital’s IP shortly after Tribe Capital, a relatively new fund managed by a trio of former Social Capital data wizards including Hsu, began investing in startups using 8-ball’s methodology.

Hsu declined to comment for this story.

In addition to hiring Younis, CaaS Technologies has formed a small team complete with engineers, raised capital and formed relationships with more than a dozen institutional venture funds, sources tell TechCrunch. We have not yet identified any of the venture funds working with CaaS Technologies.

Co-founder Social Capital, Chamath Palihapitiya, speaks onstage during “The State of the Valley: Where’s the Juice?” at the Vanity Fair New Establishment Summit at Yerba Buena Center for the Arts on October 19, 2016 in San Francisco, California. (Photo by Michael Kovac/Getty Images for Vanity Fair)

‘Craftsman-at-scale’

Lightspeed Venture Partners’ Brad Twohig said he wasn’t aware of CaaS Technologies efforts to team with VCs, rather, LSVP has opted to develop a data science team in-house.

Twohig declined to disclose the size of LSVP’s data-focused team; a representative for LSVP said the size and scale of the team is part of the firm’s “secret sauce.”

“You have to strike a balance between being well-informed people with a data advantage by using all the tools and software while avoiding the temptation to go too far,” Twohig tells TechCrunch. “At the end of the day, this is still something where we are looking to take a craftsman-at-scale approach to our investing as opposed to just ‘hey, we’ve got an algorithm and it’s gonna spit out whether we fund you or not.'”

“When people are building stealth-fighter jets, they are handcrafted, they are highly informed by data and architectural drawings but they are still hand built with a lot of precision,” he added.

As data insights become an integral part of the diligence process for startup investing, firms like LSVP are tapping new talent, developing data-first investment theses or establishing funds reliant on algorithms. Tribe Capital recently launched with a data-supported strategy, for example. Spotify-backer EQT Ventures touts the success of its machine learning system Motherbrain, claiming the algorithm can identify future unicorns.

‘Augmentation of an analyst’

TruValue Labs, a startup headquartered in San Francisco, offers a third-party data analysis platform to Wall Street investors. The company sells a subscription-based AI product to investment managers at hedge and private equity funds, helping them lower the risk profile of a given investment by better understanding the health of a business using thousands of unstructured data sources.

“There’s a huge spur from large asset managers trying to build tools themselves using ML tech and AI but can all asset managers attract engineering talent to do this themselves? Absolutely not.” TruValue co-founder and CEO Hendrik Bartel tells TechCrunch. “I don’t think all asset managers have it in them to become a software company. I’ve seen more and more third party platforms come out of nowhere.”

TruValue focuses on evaluating public market investment opportunities on the basis of environmental, social and corporate governance (ESG) issues. Recently, it’s seen a greater demand for transparency in the private markets.

“Private equity investors want to have greater transparency into their investments, and from a due diligence perspective, they want to know more about these companies before they invest in them,” Bartel said.

Bartel refers to his approach — and that of CaaS Technologies — as “an augmentation of an analyst.” At venture capital firms, analysts are often charged with researching businesses and perusing available business and financial records to help a firm decide whether to move forward with a startup.

“It’s virtually impossible for an analyst or an asset manager to cover all the companies in its portfolio,” Bartel said. “To read all the information about a publicly held company, it would take an analyst six years.”

Ultimately, leveraging a thoughtful tool and the expertise of an experienced team may make a lot more sense for a VC firm than building out their own data science teams. Not only are data scientists costly and competitive, but data scientists well-versed in the venture capital asset class are fewer and farther between.

As for CaaS Technologies specifically, an attempt to monetize the features that made Social Capital one of the top venture capital funds, albeit for a short time period, is a logical path forward for the team.

Lightspeed Venture Partners doubles its growth practice

Lightspeed Venture Partners, a firm behind the likes of BetterUp, Aurora, Goop and dozens of others, will allocate more capital to mature companies with the hiring of three new partners.

Adam Smith, Amy Wu and Arsham Memarzadeh join the Menlo Park-headquartered venture capital fund’s growth practice. The team is led by longtime partner Will Kohler and Brad Twohig, who joined LSVP in 2018 to amp up the firm’s late-stage efforts, leading a $1.25 billion investment in Epic Games only months after arriving from Insight Venture Partners.

“I think we will continue to add to the team as we see the market opportunity ahead of us, so we can better understand when and where to invest,” Twohig tells TechCrunch. “They are going out and helping us identify interesting new opportunities. We are really looking for outlier businesses. We aren’t trying to invest in any company. We want outlier founders, outlying companies with outlying performance.”

The new hires double the size of LSVP’s late-stage team and come shortly after the firm closed on $1.8 billion for two new funds. Last year, LSVP announced Lightspeed Venture Partners XII, a $750 million early-stage vehicle, and Lightspeed Venture Partners Select III, a $1.05 billion fund for late-stage follow-on fundings.

Lightspeed, historically an early-stage fund, has continued to move downstream as deal sizes swell across all stages. With fresh capital to deploy, LSVP is not only continuing to invest in existing portfolio companies but also backing companies for the first time as late as the Series E.

“We still think there are great opportunities to make investments with a strong return profile even at the late-stage,” Kohler tells TechCrunch, citing the buzzworthy financial technology business Carta as an example. “[Carta is] an exceptional company even at a growth-stage investment because it has so much potential to keep growing. We are convinced there will be venture-sized returns.”

In addition to Carta, which LSVP invested in at its Series E earlier this year, Lightspeed has made late-stage bets on the B2B sales platform Seismic, employee coaching service BetterUp, Indian hotel business Oyo and Indian B2B wholesale marketplace Udon.

“Some time ago it might not have made sense for us to do this,” Kohler said. “But as we followed the growth of our early-stage companies, we’ve realized the markets are getting bigger, the global demand is impacting the size these companies can get and we can invest at an entry point that’s later on and realize a great venture return.”

Kohler emphasized the firm’s global funds — Lightspeed operates venture funds in China and India — as helpful mechanisms for late-stage deal sourcing. He also noted the firm’s expansion into late-stage is a “natural extension of its original vision.”

Founded in 2000, Lightspeed’s four founding partners — Chris Schaepe, Barry Eggers, Ravi Mhatre and Peter Nieh — “understood the boring non-sexy elements of tech,” Kohler explained.

As for the newest additions, Wu joins from Discovery Inc., where she was chief financial officer and senior vice president of the company’s global digital division. She will be focused on scaling businesses within LSVP’s portfolio.

Smith, focused on high-growth enterprise and consumer investment opportunities, previously worked as a principal at Bain Capital Ventures and a lead operations manager at Uber. Finally, Memarzadeh, who will invest in product-driven software startups, spent the last five years at OpenView, a Boston-based venture firm.

Where top VCs are investing in media, entertainment & gaming

Most of the strategy discussions and news coverage in the media and entertainment industry is concerned with the unfolding corporate mega-mergers and the political implications of social media platforms.

These are important conversations, but they’re largely a story of twentieth-century media (and broader society) finally responding to the dominance Web 2.0 companies have achieved.

To entrepreneurs and VCs, the more pressing focus is on what the next generation of companies to transform entertainment will look like. Like other sectors, the underlying force is advances in artificial intelligence and computing power.

In this context, that results in a merging of gaming and linear storytelling into new interactive media. To highlight the opportunities here, I asked nine top VCs to share where they are putting their money.

Here are the media investment theses of: Cyan Banister (Founders Fund), Alex Taussig (Lightspeed), Matt Hartman (betaworks), Stephanie Zhan (Sequoia), Jordan Fudge (Sinai), Christian Dorffer (Sweet Capital), Charles Hudson (Precursor), MG Siegler (GV), and Eric Hippeau (Lerer Hippeau).

Cyan Banister, Partner at Founders Fund

In 2018 I was obsessed with the idea of how you can bring AI and entertainment together. Having made early investments in Brud, A.I. Foundation, Artie and Fable, it became clear that the missing piece behind most AR experiences was a lack of memory.

Mutiny at HQ Trivia fails to oust CEO

This week’s banishment of host Scott Rogowsky was merely a symptom of the ongoing struggle to decide who will lead HQ Trivia. According to multiple sources, over half of the startup’s staff signed an internal petition to depose CEO Rus Yusupov who they saw as mismanaging the company. But Yusupov then fired three core supporters of the mutiny, leading to a downward spiral of morale that mirrors HQ’s plummeting App Store rank.

TechCrunch spoke to multiple sources familiar with HQ Trivia’s internal troubles to piece together how the live video mobile game went from blockbuster to nearly bust. Two sources said HQ recently only had around $6 million in the bank but was burning over $1 million per month, meaning its runway could be dwindling. But its early investors are reluctant to hand Yusupov any more cash. “

Employees petitioned to remove HQ Trivia’s CEO Rus Yusupov

HQ reimagined gaming and mobile entertainment with the launch of its 12-question trivia game in August 2017 where players all competed live in twice-daily shows with anyone who got all the answers right split a cash jackpot. The games felt urgent since you could only participate at designated times, fun to play against friends or strangers, and winning carried a significance no single-player or non-stop online game could match.

When TechCrunch wrote the first coverage of HQ Trivia in October 2017, it had just 3500 concurrent players. But by January it had climbed to the #3 game and #6 overall app in the App Store, and grown to 2.38 million players by March. Quickly, copycats from China and Facebook entered the market. But they all lacked HQ’s secret weapon — its plucky host comedian Scott Rogowsky. Affectionately awarded nicknames like Quiz Daddy, Quiz Khalifa, Host Malone, and Trap Trebek from the “HQties” who played daily, he was the de facto face of the startup.

Yet HQ had some shaky foundations. Co-founder Colin Kroll, who’d also started Vine with Yusupov and sold it to Twitter, had been fired from Twitter after 18 months for being a bad manager, Recode reported. He’d also picked up a reputation of being creepy around female employees, as well as Vine stars, TechCrunch has learned. Rapid growth and an investigation by early HQ investor Jeremy Liew that found no egregious misconduct by Kroll paved the way for a $15 million investment. The round was led by Founders Fund’s Cyan Bannister, and it valued HQ at over $100 million.

Yusupov failed to translate that cash into sustained growth and product innovation. His public behavior had already raised flags. He yelled at a Daily Beast reporter after the outlet’s Taylor Lorenz interviewed Rogowsky without Yusupov’s approval, threatening to fire the host. “You’re putting Scott’s job in jeopardy. Is that what you want? . . .  Please read me your story word for word,” Yusupov said. When he learned Rogowsky had expressed his preference for salad restaurant chain Sweetgreen, Yusupov shouted “He cannot say that! We do not have a brand deal with Sweetgreen! Under no circumstances can he say that.” The next day, Yusupov falsely claimed he’d never threatened Rogowsky’s job.

With HQ’s bank account full, sources say Yusupov was extremely slow to make decisions, allowing HQ to stagnate. The novelty of playing trivia for money via phone has begun to wear off, and people increasingly ignored HQ’s push notifications to join its next game. But beyond bringing in some guest hosts and the option to buy a second chance after a wrong answer, HQ ceased to evolve. HQ fell to the #196 game on iOS and the #585 overall app as concurrent players waned.

That’s when things started to get a bit Game Of Thrones.

Pawns In A CEO War

Liew pushed for HQ to swap Kroll into the CEO spot in September 2018 while moving Yusupov to Chief Creative Officer, which was confirmed despite an HR complaint against Kroll for aggressive management. However, three sources tell TechCrunch that Yusupov pushed that HQ employee to file the complaint against Kroll. As the WSJ reported after Kroll’s death, that employee later left the startup because they felt that they’d been exploited. “There was definitely what felt like manipulation there, and that’s also why that employee resigned from the company.” one source said. Another source said that staffer “believed Rus used their unhappiness about work to use them as a pawn in his CEO war and not because Rus actually cared about resolving things.”

Cyan of Founders Fund stepped down from HQ’s board after the decision to swap out Yusupov due to her firm’s reputation of keeping founders in control, Recode’s Kurt Wagner reported. Sources say that despite Kroll’s reputation, the staff believed in him. “Colin loved HQ and was dedicated to all the employees more than Rus. Rus cares about Rus. Colin cared about the content” a source tells me. 

Three sources say that in a desperate ploy to retain power and prevent Kroll’s rise, Yusupov suggested Rogowsky, a comedian with no tech or management experience, be made CEO of HQ Trivia. He even suggested the company film a reality show about Rogowsky taking over. That idea was quickly shot down as preposterous.

“It was a very personal desperation tactic not to have Colin be CEO. It was not a professionally thought-out idea” a source tells me, though another said it was always hard to tell if Yusupov’s crazy ideas were jokes. Both Yusupov and HQ Trivia declined to respond to multiple requests for comment, but we’ll update if we hear back.

HQ Trivia co-founder Colin Kroll passed away in December

Then tragedy struck in December. Kroll, then CEO, was found dead in his apartment from a drug overdose. Employees were distraught over what would happen next. “Colin’s plan was to ship fast, and get new things out there” a source says, noting that Kroll had pushed for the release of HQ’s first new game type HQ Words modeled after Wheel Of Fortune. “He wasn’t perfect but in the time he was in charge, the ship started to turn, but when Rus took over again it was like the 9 months where we did nothing.”

Coup d’éHQ

By February 2019, HQ’s staff was fed up. Two sources confirm that 20 of the roughly 35 employees signed a letter asking the board to remove Yusupov and establish a new CEO. With HQ’s download rate continuing to sink, they feared he’d run the startup into the ground. One source suggested Yusupov might rather have seen the whole startup come crashing down with the blame placed on the product than have it come to light that he played a large hand in the fall. The tone of the letter, which was never formally delivered but sources believe the board knew of, wasn’t accusatory but a plea for transparency about the company’s future and the staff’s job security.

At a hastily convened all-hands meeting in late February, HQ investor Liew told the company his fund Lightspeed would support a search for a new CEO to replace Yusupov, and provide that new CEO with funding for 18 more months of runway. Liew told the staff he would step down from the board once that CEO was found, but the search continues and so Liew remains on HQ’s board.

Mostly everyone was on Jeremy’s side as no one wanted to work under Rus. Jeremy wasn’t trying to screw him over the way Rus would screw other people over. He just wanted to do what was right, getting behind what everyone wanted” a source said of Liew. 

Instead, HQ’s board moved forward with instituting a new executive decision-making committee composed of Yusupov, HQ’s head of production Nick Gallo, and VP of engineering Ben Sheats. Yusupov would remain interim CEO, and he continued to cling to power and there’s been little transparency about the CEO replacement process. Until a new CEO is found, HQ must subsist on its existing funds. The staff is “always worried about running out of runway” and are given vague answers when they ask leadership about how much money is left.

On March 1st, the committee emerged from a meeting and fired three employees who had spearheaded the petition and been vocal about Yusupov’s failings.

One who wasn’t fired was Rogowsky, despite sources saying at one point he’d tried to organize the staff to go on strike. Other employees had been cautious about standing up to Yusupov. “Everyone was terrified of retaliation. Their fears have totally been validated” a source explains. Engineers and other staffers with strong employment prospects began to drain out of the company. Those left were just trying to hold onto their jobs. Without inspiring leadership or a strategy to reverse user shrinkage, recruiting replacements would prove difficult.

Yusupov remains on the board, along with Tinder CEO Elie Seidman who Yusupov appointed to his additional common seat. Liew retains his seat until the new CEO is found and given that seat. And Kroll’s seat appears to have gone to Lightspeed partner Merci Victoria Grace. Lightspeed and Cyan of Founders Fund declined to respond to requests for comment.

Losing Face

Tensions at HQ and a desire to diversify his prospects led Rogowsky to pick up a side gig hosting baseball talk show ChangeUp on the DAZN network, TMZ reported this week. He’d hoped to continue hosting HQ during its big weekend contests. But tensions with Yusupov and the CEO’s desire for the host to remain exclusively at HQ led negotiations to sour causing Rogowsky to leave the startup entirely. TechCrunch was first to report that he’s been replaced by former HQ guest host Matt Richards, who Yusupov bluntly told me Friday had polled higher than Rogowsky in a SurveyMonkey survey of HQ’s top players.

In tweets, Rogowsky revealed that that “Sadly, it won’t be possible for me to continue hosting HQ concurrently as I had hoped” noting, “I wasn’t given the courtesy of a farewell show.” Finding a way to preserve Rogowsky’s ties to HQ likely would have been best for the startup.  TechCrunch had raised the concern a year ago that unless Rogowsky was properly locked in with an adequate equity vesting schedule at HQ, he could leave. Or worse, he could be poached by Facebook, Snapchat, or YouTube to host an HQ competitor.

“Rus is a visionary but not a good leader. He is extremely manipulative in an unproductive way. He’s a dude who just cares a lot about his reputation” a source noted. “A lot of the negative sentiment amongst staff is the belief that he cares more about his reputation than the company itself.”

HQ’s next attempt to revive growth appears to be HQ Editor’s Picks, is described as “a new live show on your phone where our host shows funny viral videos and you decide on who gets paid.” Finally it seems willing to embrace the potential of interactive live video entertainment outside of trivia and puzzles. HQ Editor’s Picks will face an uphill battle, since HQ dropped out of the top 1500 iOS apps last month, according to App Annie. Sensor Tower estimates that HQ saw just 8 percent as many downloads in March 2019 as March 2018.

After the loss of its spirit animal Rogowsky, the employees’ chosen leader Kroll, the supervision of veteran investor Cyan, and its product momentum, tough questions are what remain for HQ Trivia. The company’s struggles have paralyzed its progress towards finding a new viral mechanic or game format that attracts users. While HQ Words is fun, it’s too similar to its trivia competition to change the startup’s trajectory. And all of the in-fighting could scare off any talent hoping to turn HQ around. Unfortunately, securing an extra life for the game will take a more than a $3.99 in-app purchase.

Online catering marketplace ezCater gets another $150M at a $1.25B valuation

In 2007, Stefania Mallett and Briscoe Rodgers conceived of ezCater, an online marketplace for business catering, and began building the company in Mallet’s Boston home, mostly at her kitchen table.

Recently, sitting at that same table, Mallett negotiated with Brad Twohig of Lightspeed Venture Partners the final terms of a $150 million Series D-1 at a $1.25 billion valuation. Lightspeed, alongside GIC, co-led the round, with participation from Light Street Capital, Wellington Management, ICONIQ Capital and Quadrille Capital.

“Raising money or getting to unicorn status, it’s all nice validation but that’s not the purpose, the purpose of being in business is to grow a very successful company with happy customers and happy employees,” Mallett, ezCater’s chief executive officer, told TechCrunch. “We are going to have cupcakes with unicorns on them. That will take us about a half hour, then we will get back to work.”

EzCater co-founder and CEO Stefania Mallett

Mallett compares ezCater to Expedia . The travel company doesn’t own and operate hotels, nor do they create them. EzCater, similarly, works with 60,500 restaurants and caterers around the U.S. to fulfill orders, but at no point do they work directly with food nor make any deliveries themselves.

Since its inception, the ezCater marketplace has grown considerably, expanding 100 percent annually for the last eight years, Mallett tells us. Though, like most unicorns, ezCater isn’t profitable yet.

Both Mallett and Rodgers are software industry veterans, establishing engineering careers prior to tackling business catering. The pair bootstrapped the company until 2011, when they secured a small Series A investment of $2.7 million. That same year, U.S. foodtech startups raised $176 million, per PitchBook. EzCater would go on to raise more than $300 million in equity funding, including its latest round, and VC interest in foodtech would explode. Already this year, U.S. foodtech startups have brought in $626 million after pulling in a whopping $5 billion in 2018.

EzCater has benefited from this boom. The company raised a $100 million Series D just 10 months ago.

“We really didn’t need the money, we have quite a lot of money in the bank from the last round,” Mallett said. “There was so much talk of a funding winter and a recession coming so we said maybe we should try to raise money and then people jumped on it so we thought OK, why not? If there is a funding winter, we’re set; if not, well, we are still set.”

The investment comes hot off the heels of ezCater’s acquisition of Monkey Group, a cloud platform for take-out, delivery and catering. Mallett declined to disclose terms of the deal but said the partnership makes ezCater the indisputable market leader in catering management software. The company will use its recently expanded war chest to accelerate its international expansion and, potentially, continue its M&A streak. As for the future, an initial public offering is amongst the possibilities.

“We certainly are considering it,” Mallett said. “As we’ve grown, we’ve become more sophisticated and mature; that puts us in a good position to continue operating as a successful standalone company or be acquired by a public company or go public if we see an opportunity to do that. We are not wedded to any of these outcomes.”

To fund Y Combinator’s top startups, VCs scoop them before Demo Day

Hundreds gathered this week at San Francisco’s Pier 48 to see the more than 200 companies in Y Combinator’s Winter 2019 cohort present their two-minute pitches. The audience of venture capitalists, who collectively manage hundreds of billions of dollars, noted their favorites. The very best investors, however, had already had their pick of the litter.

What many don’t realize about the Demo Day tradition is that pitching isn’t a requirement; in fact, some YC graduates skip out on their stage opportunity altogether. Why? Because they’ve already raised capital or are in the final stages of closing a deal.

ZeroDown, Overview.AI and Catch are among the startups in YC’s W19 batch that forwent Demo Day this week, having already pocketed venture capital. ZeroDown, a financing solution for real estate purchases in the Bay Area, raised a round upwards of $10 million at a $75 million valuation, sources tell TechCrunch. ZeroDown hasn’t responded to requests for comment, nor has its rumored lead investor: Goodwater Capital.

Without requiring a down payment, ZeroDown purchases homes outright for customers and helps them work toward ownership with monthly payments determined by their income. The business was founded by Zenefits co-founder and former chief technology officer Laks Srini, former Zenefits chief operating officer Abhijeet Dwivedi and Hari Viswanathan, a former Zenefits staff engineer.

The founders’ experience building Zenefits, despite its shortcomings, helped ZeroDown garner significant buzz ahead of Demo Day. Sources tell TechCrunch the startup had actually raised a small seed round ahead of YC from former YC president Sam Altman, who recently stepped down from the role to focus on OpenAI, an AI research organization. Altman is said to have encouraged ZeroDown to complete the respected Silicon Valley accelerator program, which, if nothing else, grants its companies a priceless network with which no other incubator or accelerator can compete.

Overview .AI’s founders’ resumes are impressive, too. Russell Nibbelink and Christopher Van Dyke were previously engineers at Salesforce and Tesla, respectively. An industrial automation startup, Overview is developing a smart camera capable of learning a machine’s routine to detect deviations, crashes or anomalies. TechCrunch hasn’t been able to get in touch with Overview’s team or pinpoint the size of its seed round, though sources confirm it skipped Demo Day because of a deal.

Catch, for its part, closed a $5.1 million seed round co-led by Khosla Ventures, NYCA Partners and Steve Jang prior to Demo Day. Instead of pitching their health insurance platform at the big event, Catch published a blog post announcing its first feature, The Catch Health Explorer.

“This is only the first glimpse of what we’re building this year,” Catch wrote in the blog post. “In a few months, we’ll be bringing end-to-end health insurance enrollment for individual plans into Catch to provide the best health insurance enrollment experience in the country.”

TechCrunch has more details on the healthtech startup’s funding, which included participation from Kleiner Perkins, the Urban Innovation Fund and the Graduate Fund.

Four more startups, Truora, Middesk, Glide and FlockJay had deals in the final stages when they walked onto the Demo Day stage, deciding to make their pitches rather than skip the big finale. Sources tell TechCrunch that renowned venture capital firm Accel invested in both Truora and Middesk, among other YC W19 graduates. Truora offers fast, reliable and affordable background checks for the Latin America market, while Middesk does due diligence for businesses to help them conduct risk and compliance assessments on customers.

Finally, Glide, which allows users to quickly and easily create well-designed mobile apps from Google Sheets pages, landed support from First Round Capital, and FlockJay, the operator an online sales academy that teaches job seekers from underrepresented backgrounds the skills and training they need to pursue a career in tech sales, secured investment from Lightspeed Venture Partners, according to sources familiar with the deal.

Pre-Demo Day M&A

Raising ahead of Demo Day isn’t a new phenomenon. Companies, thanks to the invaluable YC network, increase their chances at raising, as well as their valuation, the moment they enroll in the accelerator. They can begin chatting with VCs when they see fit, and they’re encouraged to mingle with YC alumni, a process that can result in pre-Demo Day acquisitions.

This year, Elph, a blockchain infrastructure startup, was bought by Brex, a buzzworthy fintech unicorn that itself graduated from YC only two years ago. The deal closed just one week before Demo Day. Brex’s head of engineering, Cosmin Nicolaescu, tells TechCrunch the Elph five-person team — including co-founders Ritik Malhotra and Tanooj Luthra, who previously founded the Box-acquired startup Steem — were being eyed by several larger companies as Brex negotiated the deal.

“For me, it was important to get them before batch day because that opens the floodgates,” Nicolaescu told TechCrunch. “The reason why I really liked them is they are very entrepreneurial, which aligns with what we want to do. Each of our products is really like its own business.”

Of course, Brex offers a credit card for startups and has no plans to dabble with blockchain or cryptocurrency. The Elph team, rather, will bring their infrastructure security know-how to Brex, helping the $1.1 billion company build its next product, a credit card for large enterprises. Brex declined to disclose the terms of its acquisition.

Hunting for the best deals

Y Combinator partners Michael Seibel and Dalton Caldwell, and moderator Josh Constine, speak onstage during TechCrunch Disrupt SF 2018. (Photo by Kimberly White/Getty Images)

Ultimately, it’s up to startups to determine the cost at which they’ll give up equity. YC companies raise capital under the SAFE model, or a simple agreement for future equity, a form of fundraising invented by YC. Basically, an investor makes a cash investment in a YC startup, then receives company stock at a later date, typically upon a Series A or post-seed deal. YC made the switch from investing in startups on a pre-money safe basis to a post-money safe in 2018 to make cap table math easier for founders.

Michael Seibel, the chief executive officer of YC, says the accelerator works with each startup to develop a personalized fundraising plan. The businesses that raise at valuations north of $10 million, he explained, do so because of high demand.

“Each company decides on the amount of money they want to raise, the valuation they want to raise at, and when they want to start fundraising,” Seibel told TechCrunch via email. “YC is only an advisor and does not dictate how our companies operate. The vast majority of companies complete fundraising in the 1 to 2 months after Demo Day. According to our data, there is little correlation between the companies who are most in demand on Demo Day and ones who go on to become extremely successful. Our advice to founders is not to over optimize the fundraising process.”

Though Seibel says the majority raise in the months following Demo Day, it seems the very best investors know to be proactive about reviewing and investing in the batch before the big event.

Khosla Ventures, like other top VC firms, meets with YC companies as early as possible, partner Kristina Simmons tells TechCrunch, even scheduling interviews with companies in the period between when a startup is accepted to YC to before they actually begin the program. Another Khosla partner, Evan Moore, echoed Seibel’s statement, claiming there isn’t a correlation between the future unicorns and those that raise capital ahead of Demo Day. Moore is a co-founder of DoorDash, a YC graduate now worth $7.1 billion. DoorDash closed its first round of capital in the weeks following Demo Day.

“I think a lot of the activity before demo day is driven by investor FOMO,” Moore wrote in an email to TechCrunch. “I’ve had investors ask me how to get into a company without even knowing what the company does! I mostly see this as a side effect of a good thing: YC has helped tip the scale toward founders by creating an environment where investors compete. This dynamic isn’t what many investors are used to, so every batch some complain about valuations and how easy the founders have it, but making it easier for ambitious entrepreneurs to get funding and pursue their vision is a good thing for the economy.”

This year, given the number of recent changes at YC — namely the size of its latest batch — there was added pressure on the accelerator to showcase its best group yet. And while some did tell TechCrunch they were especially impressed with the lineup, others indeed expressed frustration with valuations.

Many YC startups are fundraising at valuations at or higher than $10 million. For context, that’s actually perfectly in line with the median seed-stage valuation in 2018. According to PitchBook, U.S. startups raised seed rounds at a median post-valuation of $10 million last year; so far this year, companies are raising seed rounds at a slightly higher post-valuation of $11 million. With that said, many of the startups in YC’s cohorts are not as mature as the average seed-stage company. Per PitchBook, a company can be several years of age before it secures its seed round.

Nonetheless, pricey deals can come as a disappointment to the seed investors who find themselves at YC every year but because their reputations aren’t as lofty as say, Accel, aren’t able to book pre-Demo Day meetings with YC’s top of class.

The question is who is Y Combinator serving? And the answer is founders, not investors. YC is under no obligation to serve up deals of a certain valuation nor is it responsible for which investors gain access to its best companies at what time. After all, startups are raking in larger and larger rounds, earlier in their lifespans; shouldn’t YC, a microcosm for the Silicon Valley startup ecosystem, advise their startups to charge the best investors the going rate?