Goldman Sachs’s CEO just called WeWork’s pulled IPO — which Goldman was underwriting — proof that the market works

It’s hard to put a positive spin on terrible situation, but that didn’t stop Goldman Sachs CEO David Solomon earlier today. Asked during a session at the World Economic Forum in Davos about WeWork’s yanked IPO in September,  Solomon suggested it was proof that the listing process works, despite that the CFO of Goldman — one of the offering’s underwriters — disclosed last fall that the pulled deal cost the bank a whopping $80 million.

Reuters was on the scene, reporting that Solomon acknowledged the process was “not as pretty as everybody would like it to be,” while also eschewing any responsibility, telling those gathered that the “banks were not valuing [WeWork]. Banks give you a model. You say to the company, ‘Well, if you can prove to us that the model actually does what it does, then it’s possible that the company is worth this in the public markets,'” Solomon said.

Investment banks had reportedly courted WeWork’s business by discussing a variety of figures that led cofounder Adam Neumann to overestimate how it might be received by public market shareholders. According to the New York Times, in 2018, JPMorgan was telling Neumann that it could find buyers to value the company at more than $60 billion; while Goldman Sachs said $90 billion was a possibility, and Morgan Stanley — which has been assigned as lead underwriter of many of the buzziest tech offerings over the last decade — reportedly posited that even more than $100 billion was possible.

Ultimately, the IPO was canceled several weeks after Neumann was asked to resign and WeWork’s biggest investor, SoftBank — which itself nearly tripled the company’s private market valuation across funding rounds — stepped in to rescue its (at least) $18.5 billion investment in the company.

Solomon isn’t the only one defending some of the often cofounding logic of IPO pricing. This editor sat down in November with Morgan Stanley’s head tech banker Michael Grimes, who has been called “Wall Street’s Silicon Valley whisperer” for landing a seemingly endless string of coveted deals for the bank.

Because Morgan Stanley pulled out of the process of underwriting WeWork’s IPO (reportedly after WeWork rejected its pitch to be the company’s lead underwriter), we talked with Grimes instead about Uber, whose offering last year Morgan Stanley did lead. We asked how Uber could have been reportedly told by investment bankers that its valuation might be as high as $120 billion in an IPO when, as we now know, public market shareholders deemed it worth far less. (Its current market cap is roughly half that amount, at $64 billion.)

Grimes said matter-of-factly that price estimates can routinely be all over the place, explaining that “if you look at how companies are valued, at any given point of time right now, public companies with growth prospects and margins that are not yet at their mature margin, I think you’ll find on average price targets by either analysts who work at banks or buy-side investors that can be 100%, 200% and 300% different from low to high.”

He called that a “typical spread.”

The reason, he said, had to do with each bank’s or analyst’s guess at “penetration.”

“Let’s say, what, 100 million people or so [worldwide] have have been monthly active users of Uber,” said Grimes during our sit-down. “What percentage of the population is that? Less than 1% or something. Is that 1% going to be  2%, 3%, 6%, 10%, 20%? Half a percent, because people stop using it and turn instead to some flying [taxi]?

“So if you take all those variable, possible outcomes, you get huge variability in outcome. So it’s easy to say that everything should trade the same every day, but [look at what happened with Google]. You have some people saying maybe that is an outcome that can happen here for companies, or maybe it won’t. Maybe they’ll [hit their] saturation [point] or face new competitors.”

Grimes then turned the tables on reporters and others in the industry who wonder how banks could get the numbers so wrong, with Uber but also with a lot of other companies. “It’s really easy to be a pundit and say, ‘It should be higher’ or ‘It should be lower,’” Grimes said. “But investors are making decisions about that every day.”

Besides, he added, “We think our job is to be realistically optimistic” about where things will land. “If tech stops changing everything and software stops eating the world, there probably would be less of an optimistic bias.”

Israel’s cybersecurity startup scene spawned new entrants in 2019

As the global cybersecurity market becomes increasingly crowded, the Start Up Nation remains a bulwark of innovation and opportunity generation for investors and global cyber companies alike. It achieved this chiefly in 2019 by adapting to the industry’s competitive developments and pushing forward its most accomplished entrepreneurs in larger numbers to meet them.

New data illustrates how Israeli entrepreneurs have seized on the country’s reputation for building radically cutting-edge technologies as the number of new Israeli cybersecurity startups addressing nascent sectors eclipses its more traditional counterparts. Moreover, related findings highlight how cybersecurity companies looking to expand beyond their traditional offerings are entering Israel’s cybersecurity ecosystem in larger numbers through highly strategic acquisitions.

Broadly, new findings also reveal the Israeli cybersecurity market’s overall coming of age, seasoned entrepreneurial dominance and greater appetite for longer-term visions and strategies — the latter of which received record-breaking investor backing in 2019.

Breaking records

Space Angels’ Chad Anderson on entering a new decade in the ‘entrepreneurial space age’

Space as an investment target is trending upwards in the VC community, but specialist firm Space Angels has been focused on the sector longer than most. The network of angel investors just published its most recent quarterly overview of activity in the space startup industry, revealing that investors put nearly $6 billion in capital into space companies across 2019.

I spoke to Space Angels CEO Chad Anderson about what he’s seen in terms of changes in the industry since Space Angels began publishing this quarterly update in 2017, and about what’s in store for 2020 and beyond as commercial space matures and comes into its own. Informed by data released publicly, SEC filings and investor databases — as well as anonymized and aggregated info from Space Angels’ own due diligence process and portfolio company management — Anderson is among the best-positioned people on either the investment or the operator side to weigh in on the current and future state of the space startup industry.

“2019 was a record year — record number of investments, record number of companies, a record on all these fronts,” Anderson said. “2019 in its own right was a huge year, but then you look at everything that happened over the last decade. We always refer to this last decade as ‘the entrepreneurial space age’ […] and you see everything that’s happened over the last 10 years, you see it all culminating in a record year like this one.”

R.I.P. Goofy Times

A strange new sensation has settled across the tech industry, one so foreign, so alien, it’s almost hard to recognize. A sense that some great expectations are being radically revised downwards; that someone has turned down a previously unquenchable money spigot; that unit economics can matter even when you’re in growth mode. Could it be … thrift?

Well, OK, let’s not go that crazy. But we are witnessing a remarkable confluence of (relatively) parsimonious events. Last year’s high-profile tech IPOs are far from high-fliers: Uber, Lyft, Slack, Pinterest, and Peloton are all down from their IPO prices as I write this, some of them significantly so, even while the overall market has climbed to all-time highs. Those who expected immediate massive wealth six months later, even for relative recent employees, have been surprised.

Meanwhile, not-yet-public companies are tightening their belts, or taking their chances. We have seen recent waves of layoffs at a spectrum of tech unicorns. Others, i.e. Casper and One Medical, just filed for IPOs to general criticism if not outright derision of the numbers in their S-1s.

The less said about the WeWork debacle, the better, but we can’t not talk about it, as the repercussions have been significant. Both directly — SoftBank is ramping back significantly, including walking away from term sheets, prompting more layoffs — and indirectly, in that they seem to have swung the Valley’s overall mood from greed towards fear.

Towards fear, please note, not to fear; there’s a big difference. Even in the absence of SoftBank there is is still a whole lot of venture money sloshing around out there … although it seems possible that its investors are beginning to find it a little harder to spend it responsibly. VCs, correctly, are generally still extremely optimistic about the overall future of the tech industry, and still tend to focus on growth first, revenue a distant second, cash flow third, and profits maybe someday eventually depending on a lot of factors.

That said, the once-pervasive sense that everything tech touches immediately turns to gold is much diminished. It’s worth noting that many pure software companies, and their IPOs, are still very successful: Zoom, Docusign, Datadog, and a lot of other companies you’ve never heard of unless you’re an enterprise software fetishist are doing quite nicely, thanks. It’s only consumer tech which seems to be either currently disappointing or previously overvalued, depending on your point of view. Software is continuing to eat the world.

But there seems to be a growing recognition that the world is a forest, not a pizza, and there is a big difference between low-hanging fruit and eggs hidden in the high branches. Just because you use some custom software doesn’t make you a software company; it just means you’re paying today’s table stakes. So if you’re not a software company, and you’re not a hardware company … then how exactly are you a tech company?

By that rubric, which seems like a pretty reasonable one, WeWork isn’t a tech company, and never was. Casper isn’t a tech company. One Medical isn’t a tech company. (This is admittedly highly anecdotal, but judging from my own household’s recently experiences, One Medical’s new software systems seem to have degraded rather than improved their level of care.) They’ve been dressed up like tech companies to adopt the tech halo, but it looks awfully unconvincing on them — and they’ve done so just as that halo has begun to slip.

Maybe this multi-market malaise is temporary, a hangover from a few overhyped IPOs and last year’s SoftBank madness. Maybe the tech wheat will be separated from the wannabe chaff soon enough, and the former will continue to prosper. Or maybe, just maybe, we’re beginning to see the end of the golden days of low hanging fruit, and increasingly only hard science or hard software will be the paths to tech success. It’s a little unclear which way to hope.

Week in Review: The old Vision Fund heave-ho

Hey everyone, welcome back to Week in Review where I dive deep into a bit of news from the week or just share some thoughts and go over some of the more interesting stories of the week.

If you’re reading this on the TechCrunch site, you can get this in your inbox here, and follow my tweets here.


The big story

The WeWork saga already led SoftBank to make headlines months ago when CEO Masayoshi Son urged portfolio companies to chase cashflow, but this was the week that the shoe dropped for plenty of startups and the layoffs commenced.

  • Getaround let go of 150 employees according to The Information.
  • Zume is planning to fire 400 people, Business Insider reports.
  • Oyo is firing “thousands,” Bloomberg reports.
  • Rappi is laying off 6% of its workforce, the company announced.

These are just the Vision Fund portfolio companies to announce layoffs this week, in the past several months we’ve already seen restructurings at Fair, Wag, Katerra, Opendoor, Ola, Brandless, Uber and, of course, WeWork. Now, one batch of portfolio companies making a similar move does not a trend make, unless it’s SoftBank of course. It’s been a rocky year for late-stage startups chasing the public life. The less-than-rosy debuts of some of the decade’s most investor-adored startups has been embarrassing for plenty but Uber’s debut and WeWork’s near-implosion has been a pretty awful look for the Vision Fund.

On the positive side, in many ways it seems SoftBank isn’t ushering in a new ill to the world of late-stage capital, rather it’s being forced to correct a trend it helped usher in. Hyper-growth isn’t dead but there are limits in turning “Uber for X” into a universal mantra for revamping business strategies. Plenty of SoftBank’s startups are going to be stuck making on-the-move adjustments they weren’t expecting to need to make, but the move to trim the fat seems far from life-or-death for the majority of them. For the employees affected, there isn’t as much of a silver-lining.

Sonos Move 3

Trends of the week

Here are a few big news items from big companies, with green links to all the sweet, sweet added context:

  • Sonos sues Google
    An interesting lawsuit to emerge this week, Sonos is suing Google for alleged patent infringement, with the speaker company alleging that Google has stolen some of its tech and owes it cash. Google acknowledges that the two had been in talks about licensing tech but doesn’t seem stoked about the suit. Read more here.
  • Twitter rethinks replies
    Twitter banning the nazis has become an unfortunate meme of sorts that highlights how many issues Twitter has with abuse on its site. Building a comprehensive blacklist was a pretty daunting challenge for Twitter which has significantly less resources that Facebook or YouTube, its new solution is to have different types of whitelists for tweets so that the original poster can limit replies. Read more about it in our coverage.

GettyImages 535059003

GAFA Gaffes

How did the top tech companies screw up this week? This clearly needs its own section, in order of badness:

ab 5 uber lyft

Extra Crunch

Our premium subscription business had another great week of content. My colleague Megan Rose Dickey talked a bit about the fight being waged to keep contractors classified as such in the face of new legislation.

How gig economy giants are trying to keep workers classified as independent contractors

“Now that 2020 has started, Uber, DoorDash and Lyft are taking additional steps to undermine a new California law that would help more gig workers qualify as full-time employees. These moves entail product changes, lawsuits and ramped-up efforts to get a ballot initiative in front of voters that would roll back the new legislation.

Let’s start with the most recent development; yesterday, Uber  sent a note to users announcing that it’s getting rid of upfront pricing in favor of estimated prices, unless they’re Uber Pool rides…”

Sign up for more newsletters, including my colleague Darrell Etherington’s new space-focused newsletter Max Q, here.

Rappi and Oyo pare staff as Vision Fund companies trim costs, target profits

This week we’ve covered layoffs at unicorns both inside the Vision Fund and out. This afternoon we add two more to our list: Oyo and Rappi.

The staff reductions are surprising — and not. They are surprising, as Oyo (India-based, low-cost hotels) and Rappi (Latin America-focused e-commerce) were bright lights in the Vision Fund’s crown. And the layoffs are not surprising as other famous unicorns have recently cut staff in a bid to reduce costs, diminish losses and aim closer to profitability.

Our net lack of shock is underscored by the Vision Fund itself, which signaled late last year that it wants portfolio companies to get profitable and get public. The cuts are therefore a little more than unsurprising; we should have anticipated them.

Layoffs at Lime and Getaround herald rise of profit-hungry unicorns

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

A million dollars isn’t cool. You know what’s cool? Positive adjusted EBITDA, or something close to it.

That’s the message from scooter unicorn Lime, which announced this week that it was cutting about 14% of its staff and closing a dozen markets. The staff reductions, numbering about 100, come as the company has touted efforts to improve its profitability — going as far as setting targets for when it might reach capital freedom, as well as highlighting the matter in a recent corporate blog post.

(Bird, a Lime competitor, also underwent layoffs this year.)

What’s going on? Unicorns, once hungry for growth, are now hell-bent to show current (and future) investors that their businesses aren’t unprofitable quagmires. Profitability, or movement towards it, is hot, and Lime is a good example of the trend — as is Getaround, which also wrote about its own layoffs this week. Let’s dig in.

Lucky coffee, unicorn stumbles and Sam Altman’s YC wager

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

This week we had TechCrunch’s Alex Wilhelm and Danny Crichton on hand to dig into the news, with Chris Gates on the dials and more news than we could possibly cram into 30 minutes. So we went a bit over; sorry about that.

We kicked off by running through a few short-forms to get things going, including:

  • Alex wanted to talk about his recent story on Lily AI’s $12.5 million Series A. Canaan led the round into the e-commerce-focused recommendation engine that has a cool take on what people care about.
  • Danny talked about the acquisition of Armis Security by Insight for $1.1 billion, the VC round for self-driving forklift startup Vecna and an outside-the-Valley round for Houston-based HighRadius.

Turning to longer cuts, the team dug into the latest from SoftBank, its Vision Fund and the successes and struggles of its enormous startup bets. Leading the news cycle this week were layoffs at Zume, a robotic pizza delivery venture that is no longer pursuing robotic pizza delivery. Now it’s working on sustainable packaging. Cool, but it’s going to be hard for the company to grow into its valuation while pivoting.

Other issues have come up — more here — that paint some cracks onto the Vision Fund’s sunny exterior. Don’t be too beguiled by the bad news, Danny says; venture funds run like J-Curves, and there are still winners in that particular portfolio.

After that, we turned to China, in particular its venture slowdown. The bubble, in Danny’s view, has burst. The story discussed is here, if you want to read it. The short version for the lazy is that not only has China’s venture scene slowed down dramatically, but startups — even those with ample capital raised — are dying by the hundred. But one highly caffeinated Chinese startup continues to find growth in the world’s greatest tea market.

Finally we hit on the Sam Altman wager and the latest from Sisense, which is now a unicorn. All that and we had some fun.

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Paytm targets merchants to fight back Google and Walmart in India’s crowded payments field

Paytm today announced two new features for businesses as the financial services firm looks to expand its reach in the nation that has quickly become one of the world’s most crowded and competitive payments markets.

The Noida-headquartered firm, which raised $1 billion in late November, said its app for businesses now features an “all-in-one” QR code system to accept payments from multiple platforms, including mobile wallets (that act as an intermediary between a user and their bank but provide convenience) and those that are powered by UPI, a payments infrastructure built by a coalition of banks that has been widely adopted by the industry players.

Merchants had expressed an interest in having one QR code that could understand any payments app, said Vijay Shekhar Sharma, the founder and chief executive of Paytm’s parent firm One97 Communications. In addition to supporting mobile wallet apps, and UPI-powered payment apps, Paytm’s new QR codes also support payments through popular Rupay cards.

Merchants can also stick these QR codes on devices such as battery packs and chargers to enable quick transaction from users, Sharma explained at a press conference today.

Bookkeeping for merchants and small businesses

The nation’s highest-valued startup (at around $16 billion) also announced a bookkeeping feature for businesses to help them maintain their daily records. The feature is already rolling out to merchants, Sharma told TechCrunch.

Dubbed Paytm Business Khata, the feature will help merchants manage payments, record transactions and secure loans and insurance. The service will also enable them to set a reminder for credit transactions, get an audio alert when they have received new payment, and send links to their customers to easily pay their dues, said Sharma.

Hundreds of millions of Indians, many in small towns and villages, came online for the first time in the last decade thanks to the proliferation of cheap Android smartphones and the availability of some of the world’s cheapest mobile data plans.

In recent years, millions of merchants and small businesses have also started to accept digital payments and listed them on the web for the first time. But most of them are still offline. Scores of startups and heavily backed firms such as Google, Walmart and Amazon are chasing this untapped market.

Google, which has amassed more than 67 million users on its payments app in India, last year announced a range of offerings to allow businesses to easily start accepting payments online. In the past, the company also launched tools to help mom and pop stores build presence on the web.

A number of startups today, including Bangalore-based Instamojo, Khatabook (which raised $25 million in October last year and counts GGV Capital, Sequoia Capital India and Tencent among its investors) and Lightspeed-backed OkCredit, which raised $67 million in August last year, offer bookkeeping features and allow their consumers to enable easier payment options.

Google Pay or GPay sticker pasted on the glass of a car in New Delhi India on 18 September 2019 (Photo by Nasir Kachroo/NurPhoto via Getty Images)

Paytm’s Sharma claimed that his business app has already amassed more than 10 million merchant users, a number he expects to more than double by next year.

The announcements today illustrate how aggressively Paytm, which once led the mobile payments market in India, is expanding its service. Some critics have cautioned that the firm, which counts SoftBank, Alibaba and T. Rowe Price among its key investors and has raised over $3.3 billion to date, is quickly losing its market share and chasing opportunities that could significantly increase its expenses and losses. According to several industry estimates, Google Pay and Walmart’s PhonePe now lead the mobile payments market in India.

Paytm lost more than half a billion dollars in the financial year that ended in March 2019. The trouble for the company is that there is currently little money to be made in the payments market because of some of the local guidelines set by the government.

“The current Paytm’s potential is a pale shadow of its former self. And to stay relevant, the company is entering new businesses (and failing spectacularly in some) at a pace that shows both a lack of clarity and urgency. Paytm is stuck between a glorious past that was built on the back of digital payments and a future that doesn’t look anything like Jack Ma’s Alibaba, one of Paytm’s largest investors and Sharma’s inspiration,” wrote Ashish Mishra, a long-time journalist, in a scathing post (paywalled).

Sharma said today that the company plans to offer services such as stock brokerage and insurance brokerage in the coming months. At stake is India’s payments market that is estimated to be worth $1 trillion in the next four years, up from about $200 billion currently, according to Credit Suisse. And that market is only going to get more crowded when WhatsApp, which has amassed over 400 million users in India, rolls out its payments service to all its users in the country in the coming months.

Tech layoffs rise as cost-cutting comes into vogue

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today, we’re taking digging into two trends: recent layoffs at various domestic unicorns and secondly, how those layoffs match a recent uptick in austerity across the technology industry itself. It seems that some belt tightening is afoot, something that we’ll need to keep an eye on as the 2020 IPO cycle begins. There are no domestic technology IPOs scheduled yet, but there are rumblings of impending offerings. (Restaurant SaaS company Olo, for example, is expected to be among the first out of the gate.)

With news of layoffs at Zume and Getaround coming this week, 2020 is already off to a trot when it comes to publicly-known staff reductions at tech and otherwise venture-backed companies. Let’s dig in.

Downsizing

A caveat before we get any further: for most people, losing a job creates serious emotional and financial consequences. While seeing some CEOs forced to publicly admit mistakes may be pleasant, layoffs are never good; you just don’t like to see them. Nothing we discuss this morning — or yesterday, to be clear — is brought to you for reasons other than to better understand the market.

That said, there have been issues at a number of companies in the Vision Fund startup arsenal over the last 12 months. In 2019, layoffs reached a number of companies that the SoftBank -backed capital machine had invested in, including Uber, Wag, WeWork, Fair and Katerra. There’s nuance to each situation (including that Katerra laid off some staff but hired elsewhere), but seeing that many reductions was noteworthy.

That two more companies — Zume and Getaround — are undergoing cost-cutting through staff reductions in rapid succession so far this year implies that something larger is going on. There is, as it turns out.