Extra Crunch roundup: antitrust jitters, SPAC odyssey, white-hot IPOs, more

Some time ago, I gave up on the idea of finding a thread that connects each story in the weekly Extra Crunch roundup; there are no unified theories of technology news.

The stories that left the deepest impression were related to two news pegs that dominated the week — Visa and Plaid calling off their $5.3 billion acquisition agreement, and sizzling-hot IPOs for Affirm and Poshmark.

Watching Plaid and Visa sing “Let’s Call The Whole Thing Off” in harmony after the U.S. Department of Justice filed a lawsuit to block their deal wasn’t shocking. But I was surprised to find myself editing an interview Alex Wilhelm conducted with with Plaid CEO Zach Perret the next day in which the executive said growing the company on its own is “once again” the correct strategy.


Full Extra Crunch articles are only available to members
Use discount code ECFriday to save 20% off a one- or two-year subscription


In an analysis for Extra Crunch, Managing Editor Danny Crichton suggested that federal regulators’ new interest in antitrust enforcement will affect valuations going forward. For example, Procter & Gamble and women’s beauty D2C brand Billie also called off their planned merger last week after the Federal Trade Commission raised objections in December.

Given the FTC’s moves last year to prevent Billie and Harry’s from being acquired, “it seems clear that U.S. antitrust authorities want broad competition for consumers in household goods,” Danny concluded, and I suspect that applies to Plaid as well.

In December, C3.ai, Doordash and Airbnb burst into the public markets to much acclaim. This week, used clothing marketplace Poshmark saw a 140% pop in its first day of trading and consumer-financing company Affirm “priced its IPO above its raised range at $49 per share,” reported Alex.

In a post titled A theory about the current IPO market, he identified eight key ingredients for brewing a debut with a big first-day pop, which includes “exist in a climate of near-zero interest rates” and “keep companies private longer.” Truly, words to live by!

Come back next week for more coverage of the public markets in The Exchange, an interview with Bustle CEO Bryan Goldberg where he shares his plans for taking the company public, a comprehensive post that will unpack the regulatory hurdles facing D2C consumer brands, and much more.

If you live in the U.S., enjoy your MLK Day holiday weekend, and wherever you are: thanks very much for reading Extra Crunch.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

 

Rapid growth in 2020 reveals OKR software market’s untapped potential

After spending much of the week covering 2021’s frothy IPO market, Alex Wilhelm devoted this morning’s column to studying the OKR-focused software sector.

Measuring objectives and key results are core to every enterprise, perhaps more so these days since knowledge workers began working remotely in greater numbers last year.

A sign of the times: this week, enterprise orchestration SaaS platform Gtmhub announced that it raised a $30 million Series B.

To get a sense of how large the TAM is for OKR, Alex reached out to several companies and asked them to share new and historical growth metrics:

  • Gthmhub
  • Perdoo
  • WorkBoard
  • Ally.io
  • Koan
  • WeekDone

“Some OKR-focused startups didn’t get back to us, and some leaders wanted to share the best stuff off the record, which we grant at times for candor amongst startup executives,” he wrote.

5 consumer hardware VCs share their 2021 investment strategies

For our latest investor survey, Matt Burns interviewed five VCs who actively fund consumer electronics startups:

  • Hans Tung, managing partner, GGV Capital
  • Dayna Grayson, co-founder and general partner, Construct Capital
  • Cyril Ebersweiler, general partner, SOSV
  • Bilal Zuberi, partner, Lux Capital
  • Rob Coneybeer, managing director, Shasta Ventures

“Consumer hardware has always been a tough market to crack, but the COVID-19 crisis made it even harder,” says Matt, noting that the pandemic fueled wide interest in fitness startups like Mirror, Peloton and Tonal.

Bonus: many VCs listed the founders, investors and companies that are taking the lead in consumer hardware innovation.

A theory about the current IPO market

Digital generated image of abstract multi colored curve chart on white background.

Digital generated image of abstract multi colored curve chart on white background.

If you’re looking for insight into “why everything feels so damn silly this year” in the public markets, a post Alex wrote Thursday afternoon might offer some perspective.

As someone who pays close attention to late-stage venture markets, he’s identified eight factors that are pushing debuts for unicorns like Affirm and Poshmark into the stratosphere.

TL;DR? “Lots of demand, little supply, boom goes the price.”

Poshmark prices IPO above range as public markets continue to YOLO startups

Clothing resale marketplace Poshmark closed up more than 140% on its first trading day yesterday.

In Thursday’s edition of The Exchange, Alex noted that Poshmark boosted its valuation by selling 6.6 million shares at its IPO price, scooping up $277.2 million in the process.

Poshmark’s surge in trading is good news for its employees and stockholders, but it reflects poorly on “the venture-focused money people who we suppose know what they are talking about when it comes to equity in private companies,” he says.

Will startup valuations change given rising antitrust concerns?

GettyImages 926051128

financial stock market graph on technology abstract background represent risk of investment

This week, Visa announced it would drop its planned acquisition of Plaid after the U.S. Department of Justice filed suit to block it last fall.

Last week, Procter & Gamble called off its purchase of Billie, a women’s beauty products startup — in December, the U.S. Federal Trade Commission sued to block that deal, too.

Once upon a time, the U.S. government took an arm’s-length approach to enforcing antitrust laws, but the tide has turned, says Managing Editor Danny Crichton.

Going forward, “antitrust won’t kill acquisitions in general, but it could prevent the buyers with the highest reserve prices from entering the fray.”

Dear Sophie: What’s the new minimum salary required for H-1B visa applicants?

Image Credits: Sophie Alcorn

Dear Sophie:

I’m a grad student currently working on F-1 STEM OPT. The company I work for has indicated it will sponsor me for an H-1B visa this year.

I hear the random H-1B lottery will be replaced with a new system that selects H-1B candidates based on their salaries.

How will this new process work?

— Positive in Palo Alto

Venture capitalists react to Visa-Plaid deal meltdown

A homemade chocolate cookie with a bite and crumbs on a white background

OLYMPUS DIGITAL CAMERA

After news broke that Visa’s $5.3 billion purchase of API startup Plaid fell apart, Alex Wilhelm and Ron Miller interviewed several investors to get their reactions:

  • Anshu Sharma, co-founder and CEO, SkyflowAPI
  • Amy Cheetham, principal, Costanoa Ventures
  • Sheel Mohnot, co-founder, Better Tomorrow Ventures
  • Lucas Timberlake, partner, Fintech Ventures
  • Nico Berardi, founder and general partner, ANIMO Ventures
  • Allen Miller, VC, Oak HC/FT
  • Sri Muppidi, VC, Sierra Ventures
  • Christian Lassonde, VC, Impression Ventures

Plaid CEO touts new ‘clarity’ after failed Visa acquisition

Zach Perret, chief executive officer and co-founder of Plaid Technologies Inc., speaks during the Silicon Slopes Tech Summit in Salt Lake City, Utah, U.S., on Friday, Jan. 31, 2020. The summit brings together the leading minds in the tech industry for two-days of keynote speakers, breakout sessions, and networking opportunities. Photographer: George Frey/Bloomberg via Getty Images

Zach Perret, chief executive officer and co-founder of Plaid Technologies Inc., speaks during the Silicon Slopes Tech Summit in Salt Lake City, Utah, U.S., on Friday, Jan. 31, 2020. The summit brings together the leading minds in the tech industry for two-days of keynote speakers, breakout sessions, and networking opportunities. Photographer: George Frey/Bloomberg via Getty Images

Alex Wilhelm interviewed Plaid CEO Zach Perret after the Visa acquisition was called off to learn more about his mindset and the company’s short-term plans.

Perret, who noted that the last few years have been a “roller coaster,” said the Visa deal was the right decision at the time, but going it alone is “once again” Plaid’s best way forward.

2021: A SPAC odyssey

In Tuesday’s edition of The Exchange, Alex Wilhelm took a closer look at blank-check offerings for digital asset marketplace Bakkt and personal finance platform SoFi.

To create a detailed analysis of the investor presentations for both offerings, he tried to answer two questions:

  1. Are special purpose acquisition companies a path to public markets for “potentially-promising companies that lacked obvious, near-term growth stories?”
  2. Given the number of unicorns and the limited number of companies that can IPO at any given time, “maybe SPACS would help close the liquidity gap?”

Flexible VC: A new model for startups targeting profitability

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

Spotlit Multi Colored Coil Toy in the Dark.

Spotlit Multi Colored Coil Toy in the Dark.

Growth-stage startups in search of funding have a new option: “flexible VC” investors.

An amalgam of revenue-based investment and traditional VC, investors who fall into this category let entrepreneurs “access immediate risk capital while preserving exit, growth trajectory and ownership optionality.”

In a comprehensive explainer, fund managers David Teten and Jamie Finney present different investment structures so founders can get a clear sense of how flexible VC compares to other venture capital models. In a follow-up post, they share a list of a dozen active investors who offer funding via these non-traditional routes.

These 5 VCs have high hopes for cannabis in 2021

Marijuana leaf on a yellow background.

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

For some consumers, “cannabis has always been essential,” writes Matt Burns, but once local governments allowed dispensaries to remain open during the pandemic, it signaled a shift in the regulatory environment, and investors took notice.

Matt asked five VCs about where they think the industry is heading in 2021 and what advice they’re offering their portfolio companies:

Is there still room in the cloud-security market?

While the initial shock of the COVID-19 pandemic has subsided for businesses, one of its main legacies is how it ushered in a tidal wave of accelerated digital transformation.

A recent Twilio survey revealed that 97% of global enterprise decision-makers believe the pandemic sped up their company’s digital transformation, and on top of that, 79% of the respondents said that COVID-19 increased the budget for digital transformation.

As technology becomes the driving force of competitive differentiation, cloud plays a key role in making this a reality and impacts everything from data and analytics to the modern workplace. Cloud-based infrastructure promises more flexibility, scale and cost-effectiveness, as well as enables enterprises to have more agile application development and keep up with service demand.

What’s clear is that despite shortfalls in security, innovation in cloud and infrastructure will charge ahead.

Even with all of the hype and excitement around cloud’s potential, it is still early days. In his recent keynote at AWS re:Invent, the AWS CEO Andy Jassy mentioned that spending on cloud computing is still only 4% of the overall IT market. And a Barclays CIO survey found that enterprises have 30% of their workloads running in the public cloud, with the expectation to increase to 39% in 2021.

It’s become clear that the movement to cloud has its barriers and that large enterprises are often skittish to make the jump. Flexera’s State of the Cloud 2020 report outlined some of these top cloud challenges, citing security as #1. This has been widely apparent in conversations that I’ve had with Fortune 500 CISOs and security teams, who are wary of the shift from their current state of security operations. Some of the major concerns brought up include:

  • No longer your own master. When working with the public cloud providers, companies must relinquish control to some aspects of back-end management. This is tough for large enterprises who have a history of customizing products because you can’t completely tailor the environment to your liking and are limited to what’s on the cloud service provider’s platform.
  • Lack of standardization. Each cloud provider has their own solutions and own intricacies. Add to that other pitfalls, like an unknown cadence of updates, there is an opaqueness to interoperability and policies can’t be uniformly applied across environments.
  • Requires a new skill set. Lack of resources/expertise ranks among the top challenges for enterprises. A recent report on challenges in cloud transformation found that 86% of IT decision-makers believe shortage of talent will slow down 2020 cloud projects.

Jobandtalent tops up with $108M for its ‘workforce as a service’ platform

Madrid-based Jobandtalent, a digital temp staffing agency which operates a dual-sided platform that connects temp workers with employers needing regular casual labor in sectors like transport and logistics, has added €88 million (~$108M) to its Series C — bringing the total raised following an earlier (2019) closing of the round to €166M.

The 2009-founded startup has raised more than $290M to date over its decade+ run but describes itself as just at the beginning of a journey to make a dent in the massive and growing market for temporary work, expecting demand to keep stepping up as more sectors and processes go digital in the coming years.

Jobandtalent says more than 80,000 workers have used its platform to secure temp gigs in the last year across the seven markets where it operates in Europe and LatAm (namely: Spain, UK, Germany, France, Sweden, Mexico and Colombia); while 750+ employers are signed up to “recurrently manage a large part of their workforce”, as it puts it, including XPO, Ocado, Saint Gobain, Santander, Bayer, eBay, Huawei, Ceva Logistics and Carrefour.

It’s focused on competing with traditional staffing agencies such as Adecco and Randstad, though other similar startups are cropping up to cater to an ever more precarious temporary employment market. (And Uber, for example, launched a shift-finder app experiment called Works, back in 2019, also targeting demand for on-demand labor — but doing so in partnership with staffing agencies in its case).

Jobandtalent reports the number of workers looking for temp jobs on its platform doubling every year, while it’s grown revenue to €500M and says it’s hit positive EBITDA.

The beefed up Series C funding will be put towards expanding into more markets and doubling down on growing its existing footprint, it said today.

“We will keep expanding through Europe and will consider some additional opportunities (the US and some LatAm countries),” co-founder Juan Urdiales told us, noting that its main markets remain Spain and the UK, while its main sectors are logistics, last mile, warehousing and transport.

The lead investor in the expansion tranche of its C round is new investor InfraVia, a French private equity firm, which is putting in €30M — investing via a Growth Tech Fund it launched last year that’s focused on European b2b high-growth tech companies.

Existing Jobandtalent investors, including Atomico, Seek, DN Capital and Kibo Ventures, also participated in the Series C top-up.

Urdiales said the reason it’s taken in another chunk of funding now is because of increased opportunity for growth as the coronavirus pandemic continues to accelerate demand for temping. “The reason why we are raising more is because we are seeing a high potential now to grow even faster than expected,” he told us. “The pandemic has helped us with both workers and employers in terms of adoption of our platform.”

“Covid has accelerated the transformation of many industries. We have seen more adoption of new technologies in the last nine months than in the last five years. The staffing market is experiencing a huge transformation that will be accelerated in the upcoming years, moving from brick and mortar traditional structures to data driven platforms that will improve the experience of both workers and employers,” Urdiales went on in a statement.

“This market is really big and we are just in the beginning of our journey (even though we have been a lot of years in the market now),” he added via email, discussing whether an IPO is on the business’ roadmap in the next few years. “We think that if we continue growing at the pace that we are growing now, and we add some private investors to help us with our growth plans, we may stay private for longer.”

Jobandtalent has been through a number of pivots since kicking off more than a decade ago with the idea of using technology to streamline the messy and consummately human business of recruitment. It started out testing a number of approaches before settling on a linguistics algorithm to parse job ads and create alerts to loop in passive job seekers.

Then in 2016 it pivoted away from enterprise recruitment to focus on mobilizing hiring for SMEs — zeroing in on the growing opportunity for temp job-matching offered by the rise of gig work fuelled by smartphone apps. From there, it’s been honing tools to cater to the needs of employers that are managing large temporary workforces.

The flip side of the rapid growth of ‘flexible’ platform-based labor — and Jobandtalent says it’s eyeing a pool of some 500M temp workers globally — is something that gig platforms don’t usually like to talk about: Worker precariousness.

But that’s something this startup says it wants to help with too. A key part of the proposition Jobandtalent offers to workers is increased benefits vs what a temp might otherwise expect to get.

The average gig platform does not offer a full suite of workers rights and benefits, just as they don’t provide a contractual guarantee of future shifts, as they classify on-demand labor as ‘self-employed’ — even as, simultaneously, they apply mobile technology to tightly manage this workforce (via data, algorithms and their own devices). 

This disconnect, between the level of gig worker rights and platform control, has led to a number of legal challenges in Europe — including in several of the markets where Jobandtalent operates (such as Spain, where Glovo continues to face legal challenges over its classification of delivery couriers, for example; and France and the UK, where Uber has lost a number of employment tribunals over driver status).

EU lawmakers are also eyeing conditions for gig workers — considering whether legislation is needed to protect platform workers’ rights. While some platform giants, like Uber, have already felt politically pressured to offer a level of insurance in the region.

Jobandtalent’s promise is it’s pushing for more perks for temps — leveraging the scale of its platform to get workers a better deal, including by making precarious work more steady (by lining up the next gig) and therefore less uncertain.

“All of the workers have access to the same benefits,” said Urdiales via email when we ask about how Jobandtalent’s perks are structured. “There are benefits such as advance payroll, health insurance, training courses, etc (not all the benefits are available in all countries, it depends on the level of maturity of each country).”

“We want to give any worker that starts working through Jobandtalent access to those benefits and offer a high standard employment treatment, so they have a similar status to what a perm employee has,” he added.

In a press release trumpeting its investment in Jobandtalent, new investor, InfraVia, also suggests the platform makes “temporary work a fulfilling professional step” — by defining “career plans” for temporary workers so they can “progress towards permanent and rewarding positions”.

However when we asked Urdiales what data it has on temp-to-permanent switches that have been enabled by its platform he said this is “not a common thing”.

“Employers are not looking to add workers to their perm workforces, and Jobandtalent is precisely trying to solve that for the workers, trying to give constant employment in different work assignments at different companies so they can find more stability,” he told us, adding: “The market is moving even more into a more precarious temporary employment market, and we believe that in this context a platform like the one that we are offering makes even more sense.”.

The other big carrot for workers to plug into Jobandtalent’s temp work marketplace is convenience: It takes a mobile app-based approach — offering a one-stop-shop for giggers to find their next shift, apply for the temp job (via in-app video interview), sign the contract and get paid, as well as access the touted benefits.

Its streamlining of admin around recruitment and payroll is also of course a key carrot for employers to get on board with Jobandtalent’s ‘workforce as a service’ proposition — which claims an upgraded offer (such as a CRM that bakes in analytics for tracking workforce performance in real time) vs traditional temping agency processes, as well as lower costs and increased numbers of job offers.

Its worker-to-temp job matching tech is designed to take the (temp) recruitment strain for employer customers via a proprietary quality worker scoring algorithm which it calls a Worker Quality Score (WQS).

Urdiales told us the criteria that feeds this score include attrition rate, absenteeism rate — and “some productivity metrics of the workers that we place” — when we asked for details, having found no information about the WQS on its website.

Algorithmic scoring of workers can have obvious implications for worker agency.

Nor is it without legal risk in Europe where EU citizens have rights attached to their personal data, such as access rights, and also (under the GDPR) a right to human review of any purely automated decisions that have a legal or similarly substantial impact on them (and decisions impacting access to work would be likely to qualify).

In a recent judgement, for example, a court in Italy ruled that a reputation ranking algorithm used by on-demand delivery platform Deliveroo had discriminated against workers because the code failed to distinguish between legally protected reasons for being absent from work (such as sickness or being on strike) and more trivial reasons for not turning up for a previously booked shift. (Deliveroo no longer uses the algorithm in question.)

Uber is also facing legal challenges in the Netherlands to its use of algorithms to automatically terminate drivers and to its use of data and algorithms to profile and manage drivers. While ride-hailing company Ola is facing a similar suit over its algorithmic management of gig workers. So EU courts are certainly going to busy interrogating the intersection of app-driven algorithmic management and regional data and labor rights for the foreseeable future.

The European Commission has also proposed a sweeping reform of the regional rulebook for digital services which includes a requirement for regulatory oversight of key decision-making algorithms with the aim of shrinking the risk of negative impacts such as bias and discrimination — although any new laws are likely still years out.

Asked whether Jobandtalent’s worker users are provided with their own WQS and given the chance to appeal substantial decreases in the score — including the opportunity to request a human review of any automated decisions — Urdiales said: “The platform gives them constant feedback based on the main metrics that they can affect (voluntary attrition, absenteeism, etc) with the aim to make them improve at work and consequently improve their ability to get more jobs in the future.”

Chronosphere nabs $43M Series B to expand cloud native monitoring tool

Chronosphere, the scalable cloud native monitoring tool launched in 2019 by two former Uber engineers, announced a $43.4 million Series B today. The company also announced that their service was generally available starting today.

Greylock, Lux Capital and venture capitalist Lee Fixel, all of whom participated in the startup’s $11 million Series A in 2019, led the round with participation from new investor General Atlantic. The company has raised $54.4 million.

The two founders, CEO Martin Mao and CTO Rob Skillington, created the open-source M3 monitoring project while they were working at Uber, and left in 2019 to launch Chronosphere, a startup based on that project. As Mao told me at the time of the A round, the company wanted to simplify the management of running the open source project:

M3 itself is a fairly complex piece of technology to run. It is solving a fairly complex problem at large scale, and running it actually requires a decent amount of investment to run at large scale, so the first thing we’re doing is taking care of that management,

He said that the company spent most of last year iterating the product and working with beta customers, adding that they certainly benefited from building the commercial service on top of the open-source project.

“I think we’re lucky that we have the foundation already from the open-source project, but we really wanted to focus a lot on building a product on top of that technology and really have this product be differentiated, so that was most of the focus of 2020 for us,” he said.

Mao points out that he and Skillington weren’t looking for this new round of funding as they still had money left from the A round, but the company’s previous investors approached them and they decided to strike to add additional money to the balance sheet, which would help grow the company, attract employees and help reassure customers they had plenty of capital to continue building the product and the company.

As the company has developed over the last year, it has been adding employees at a rapid clip, growing from 13 at the time of the A round in 2019 to 50 today with plans to double that by the end of next year. Mao says the founders have been thinking about how to build a diverse company from its early days.

“So [ … ] beginning last year we were making sure we were hiring the right leaders, and the right recruiting team who also care about diversity, then following that we made company-wide goals and targets for both gender and ethnic diversity, and then [we have been] holding ourselves accountable on these particular goals and tracking against them,” Mao said.

The company has been spread out from the beginning, even before COVID, with offices in Seattle, New York and Lithuania, and that has helped in terms of having a broader base to recruit from. Mao wants to remain mostly remote whenever it’s possible to return to the office, but maintain hubs on each coast where employees can meet and see each other in person.

With the product generally available today, the company will look to expand its customer base, and with the open-source project to drive interest, they have a proven way to attract new customers to the commercial product.

How to convert customers with subscription pricing

The lure of subscription pricing is the guarantee of recurring revenue for your business. Once a customer flips the switch to turn on your subscription, it’s easy money:

  • Easy to recognize your revenue.
  • Easy to determine your margins and profits.
  • Easy to enhance your product and extend that revenue out for months, even years.

While that’s true, converting a subscription customer isn’t as simple as flipping a switch. You can build a platform, launch with fanfare, offer all sorts of incentives and trials to attract potential customers — and watch as they disengage and lapse into limbo.

Contrary to popular belief, subscription pricing doesn’t work because of the lower price point that a monthly installment allows.

That’s the actual guarantee that comes with subscription pricing, which will happen unless you cultivate a funnel that catches potential subscribers as soon as they learn about your product and follows them until their very last sign-in.

I built my first subscription-model product in 1999. I’m currently in early-access on my latest, and I’ve launched a bunch more along the way.

While the customer dynamic has changed over the last 20 years, the conversion process has not. In fact, it’s actually gotten easier to convert and retain customers through the subscription funnel.

Here’s what I’ve learned.

Why subscription pricing works

Subscription pricing is a hot trend in just about every business in every industry. Pay-as-you-go is the new normal from software to retail to service.

In my mind, the major shift occurred when mobile phones started pricing unlimited usage per period instead of fixed or cost per minute. Once usage limits were removed, use cases exploded and the promise of a truly mobile computer was finally realized.

Makers of all stripes learned that lesson: From razors to video streaming to accounting software, pricing models have emerged that focus on time periods instead of units.

But contrary to popular belief, subscription pricing doesn’t work because of the lower price point that a monthly installment allows. It’s effective because a subscription reorients each customer’s mind from product function to value proposition.

I don’t care what kind of German engineering went into my razor blades, as long as I have working blades when I need them.

As an entrepreneur, you probably use at least one digital subscription service to build your own product and company, if not several. In fact, just to get to the MVP of my new project, I subscribed to AWS, MailChimp, Zapier and Bubble. I’m still on the free tier of a few more services for some lower-priority features. There’s a few more I quit or never tried.

Thus, you know that value prop plays a big part of whether the customer will pay and stay. So reinforcing your value proposition should play a big part in every level of your customer funnel.

You must catch and track customers to be effective

A subscription-pricing model without an ability to track the steps in the conversion funnel will result in all the headaches of subscription pricing without any of the benefits.

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.


Full Extra Crunch articles are only available to members
Use discount code ECFriday to save 20% off a one- or two-year subscription


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.

Salesforce has built a deep bench of executive talent via acquisition

When Salesforce acquired Quip in 2016 for $750 million, it gained CEO and co-founder Bret Taylor as part of the deal. Taylor has since risen quickly through the ranks of the software giant to become president and COO, second in command behind CEO Marc Benioff. Taylor’s experience shows that startup founders can sometimes play a key role in the companies that acquire them.

Benioff, 56, has been running Salesforce since its founding more than 20 years ago. While he hasn’t given any public hints that he intends to leave anytime soon, if he wanted to step back from the day-to-day running of the company or even job share the role, he has a deep bench of executive talent including many experienced CEOs, who like Taylor came to the company via acquisition.

One way to step back from the enormous responsibility of running Salesforce would be by sharing the role.

He and his wife Lynne have been active in charitable giving and in 2016 signed The Giving Pledge, an initiative from the The Bill and Melinda Gates Foundation, to give a majority of their wealth to philanthropy. One could see him wanting to put more time into pursuing these charitable endeavors just as Gates did 20 years ago. As a means of comparison, Gates founded Microsoft in 1975 and stayed for 25 years until he left in 2000 to run his charitable foundation full time.

Even if this remains purely speculative for the moment, there is a group of people behind him with deep industry experience, who could be well-suited to take over should the time ever come.

Resurrecting the co-CEO role

One way to step back from the enormous responsibility of running Salesforce would be by sharing the role. In fact, for more than a year starting in 2018, Benioff actually shared the top job with Keith Block until his departure last year. When they worked together, the arrangement seemed to work out just fine with Block dealing with many larger customers and helping the software giant reach its $20 billion revenue goal.

Before Block became co-CEO, he had a myriad other high-level titles including co-chairman, president and COO — two of which, by the way, Taylor has today. That was a lot of responsibility for one person inside a company the size of Salesforce, but promoting him to co-CEO from COO gave the company a way to reward his hard work and help keep him from jumping ship (he eventually did anyway).

As Holger Mueller, an analyst at Constellation Research points out, the co-CEO concept has worked out well at major enterprise companies that have tried it in the past, and it helped with continuity. “Salesforce, SAP and Oracle all didn’t miss a beat really with the co-CEO departures,” he said.

If Benioff wanted to go back to the shared responsibility model and take some work off his plate, making Taylor (or someone else) co-CEO would be one way to achieve that. Certainly, Brent Leary, lead analyst at CRM Essentials sees Taylor gaining increasing responsibility as time goes along, giving credence to the idea.

“Ever since Quip was acquired Taylor seemed to be on the fast track, becoming president and chief product officer less than a year-and-a-half after the acquisition, and then two years later being promoted to chief operating officer,” Leary said.

Who else could be in line?

While Taylor isn’t the only person who could step into Benioff’s shoes, he looks like he has the best shot at the moment, especially in light of the $27.7 billion Slack deal he helped deliver earlier this month.

“Taylor being publicly praised by Benioff for playing a significant role in the Slack acquisition, Salesforce’s largest acquisition to date, shows how much he has solidified his place at the highest levels of influence and decision-making in the organization,” Leary pointed out.

But Mueller posits that his rapid promotions could also show something might be lacking with internal options, especially around product. “Taylor is a great, smart guy, but his rise shows more the product organization bench depth challenges that Salesforce has,” he said.

StepZen snares $8M seed to build data integration API

StepZen, a new startup from the crew who gave you Apigee (which was sold to Google in 2016 for $625 million) had a different vision for their latest company. They are building a single API that pulls data from disparate sources to help developers deliver more complex customer experiences online.

Today, the startup emerged from stealth and announced an $8 million seed investment from Neotribe Ventures and Wing Venture Capital .

With years of experience working with APIs, the founders wanted to take that a step further, says CEO and co-founder Anant Jhingran. “StepZen is a product that lets front end developers easily create and consume one API for all the data they need from the back end,” he explained.

This is all in the service of providing a smoother, more consistent customer experience. That means whether you are on an e-commerce site accessing your order history or a banking app grabbing your current balance, these scenarios require pulling data from various back-end data resources. Connecting to those resources is a time-consuming task, and StepZen wants to simplify that for developers.

“Developers spend an enormous amount of time deploying and managing code that accesses the back end, and what StepZen wants to do is to give them that time back,” he said.

Instead of manually writing code to pull this data, StepZen enables developers to simply provide configuration information and credentials to connect to these back-end data sources, and then it builds a single API that handles all of the heavy lifting of pulling that data and presenting it when needed.

Jhingran uses the example of presenting a list of open orders for a customer. It sounds simple enough, but once you consider that the data could live in several places, including the CRM system, the order system or with your courier, that means accessing at least three separate and highly disparate systems. StepZen will help pull this all together via its API and present it smoothly to the user.

Today the company has 11 employees, including the three founders, with plans to add another eight or so in 2021. As they do that, CBO and co-founder Helen Whelan says they are working to build a diverse and inclusive company. While the founding team is itself diverse, they want to hire employees with diverse backgrounds and ways of thinking to build the most complete product and company.

“For the first 10 or so employees, we tapped into the networks of the people who we’ve worked with, people who you know can do a great job. Then I think it’s about deliberately expanding from there and deliberately taking the time that you need to explore and expand your pipeline of candidates,” she said.

The company is just nine months old and has been spending most of this year building the solution and working with pre-alpha users. Today the product is in alpha, with plans to release it as a software service early next year.

As the company emerges from stealth, it’s looking to continue building the product and looking for ways to remove as much complexity as possible. “We know how to do the hard things on the back end. We’ve got the database technologies and the API technologies down, and it’s now about finding how to make all of that simple on the outside and easy for developers to use, ” Whelan said.

How should SaaS companies deliver and price professional services?

The global software as a service (SaaS) industry is sustaining its steep growth trajectory, but developing and pricing professional services is oftentimes a difficult proposition for SaaS companies.

Gartner recently forecast that SaaS revenue worldwide could surpass $140 billion by 2022, which would represent a 40% increase over 2019’s roughly $100 billion. These are heady figures for an industry that gained its footing only 20 years ago.

As someone who has led many investments in SaaS companies, there is clear consensus within boardrooms, assuming compelling sales efficiency metrics: The more ARR the better. It is also clear that looking across the SaaS industry, there is strong consistency in overall software gross margins, generally landing in the 60% to 80% range.

There is clear consensus within boardrooms, assuming compelling sales efficiency metrics: The more ARR the better.

What is much less obvious is how to charge customers for professional services, whether for implementations, consulting work or training.

While historically, in the perpetual software days, such offerings were billed on a time and materials basis or for a fixed fee with a targeted gross margin of say 10%-30%, fast-forward to the recurring revenue model today and these services can be equally profitable but also result in big losses given wide differences in how companies charge for these services.

Looking at SaaS companies, one can see 50-point margin swings, or more, on services revenue, from -30% to 20%. Why do we see such differences in margins for professional services, and what are the implications of these differing approaches for a SaaS company’s strategy?

Are professional services a profit center or a loss leader?

We can start by asking why a company would accept a single-digit or even negative margins on its professional services. For some, it’s a strategy to accelerate its ARR by covering part of that expense by foregoing, say, an implementation fee for a higher annual subscription amount. The view here is to remove some friction out of the sales process by reducing any services fees. This will accelerate new logo velocity, resulting in higher ARR, and thus stronger growth, which should translate into higher stock price appreciation.

To execute this strategy, a SaaS company may increase its subscription price, although not by much. While this allows the provider to offer such services without detailing its cost in a separate line item, is this really the right answer? As with so many questions, the answer depends on many variables, such as: Does it expedite the sales cycle? Would charging for such services make clients more responsive and result in quicker implementations? How much costs do you need to cover such services? What is the impact of doing so on the cash position, profitability and financing needs of the business?

Two professional services pricing strategies

Let’s compare the three-year impact of two professional services pricing strategies, and the resulting impact on the financing needs:

  • Company A: Provides professional services with an annual value of $10 million with a -20% gross margin, resulting in a $2 million annual loss. Total losses over the three-year period are $6 million.

AWS introduces new Chaos Engineering as a Service offering

When large companies like Netflix or Amazon want to test the resilience of their systems, they use chaos engineering tools designed to help them simulate worst-case scenarios and find potential issues before they even happen. Today at AWS re:Invent, Amazon CTO Werner Vogels introduced the company’s Chaos Engineering as a Service offering called AWS Fault Injection Simulator.

The name may lack a certain marketing panache, but Vogels said that the service is designed to help bring this capability to all companies. “We believe that chaos engineering is for everyone, not just shops running at Amazon or Netflix scale. And that’s why today I’m excited to pre-announce a new service built to simplify the process of running chaos experiments in the cloud ,” Vogels said.

As he explained, the goal of chaos engineering is to understand how your application responds to issues by injecting failures into your application, usually running these experiments against production systems. AWS Fault Injection Simulator offers a fully managed service to run these experiments on applications running on AWS hardware.

AWS Fault Injection Simulator workflow.

Image Credits: Amazon / Getty Images

“FIS makes it easy to run safe experiments. We built it to follow the typical chaos experimental workflow where you understand your steady state, set a hypothesis and inject faults into your application. When the experiment is over, FIS will tell you if your hypothesis was confirmed, and you can use the data collected by CloudWatch to decide where you need to make improvements,” he explained.

While the company was announcing the service today, Vogels indicated it won’t actually be available until some time next year.

It’s worth noting that there are other similar services out there by companies like Gremlin, who are already providing a broad Chaos Engineering Service as a Service offering.