Spotify’s founding story is going to be a Netflix series

Facebook’s founding got the movie treatment with Aaron Sorkin’s “The Social Network.” The story of how Snapchat came to be will be a flagship series on the upcoming streaming service, Quibi. Today, Spotify is the latest startup to get its story told on screen — this time, as a new Netflix show.

Netflix says it’s developing a scripted series inspired by the book “Spotify Untold” by business reports at Swedish Dagens Industri, Sven Carlsson and Jonas Leijonhufvud. The story will focus on Spotify’s founding and how it changed the way people listen to music over the past decade.

“The founding tale of Spotify is a great example of how a local story can have a global impact,” said Tesha Crawford, Director of International Originals Northern Europe at Netflix. “We are really excited about bringing this success story to life and we look forward to continuing our great collaboration with director Per-Olav Sørensen and the team at Yellow Bird UK.”

Banijay Group company, Yellow Bird UK, is also the production company behind the upcoming Netflix crime series “Young Wallander.” Yellow Bird UK will produce this new and yet-to-be-titled Spotify show and Per-Olav Sørensen will direct. Berna Levin (“Young Wallander,” “Hidden,” and “The Girl in the Spider’s Web”) will serve as executive producer.

The series itself will center around Swedish tech entrepreneur, Daniel Ek, and his partner Martin Lorentzon, who created the free and legal music service at a time when music piracy was at its height. Netflix describes the show as one about “how hard convictions, unrelenting will, access, and big dreams can help small players challenge the status quo.”

Netflix says the series will be available in both English and Swedish languages.

“I’m thrilled to be making this timely and entertaining series for Netflix. The story of how a small band of Swedish tech industry insiders transformed music – how we listen to it and how it’s made – is truly a tale for our time. Not only is this a story about the way all our lives have changed in the last decade, it’s about the battle for cultural and financial influence in a globalized, digitized world,” says Berna Levin, Executive Producer, Yellow Bird.

As Netflix’s announcement also notes, telling the story of a tech startup can be difficult because things move and change quickly. Spotify, after all, is still around and growing. It’s likely that by the time the show goes to air, it will have undergone many more transformations.

“I am excited to bring the story of Sweden based Spotify to life on the screen. It is an ongoing fairytale in modern history about how Swedish wiz kids changed the music industry forever. The story is truly exciting and challenging,” added Per-Olav Sørensen. “Challenging because the Spotify story has not ended yet – it is still running with high speed and will probably change while we work on the project.”

Netflix did not share a release date for the series.

Apple Music dives deeper into concert streaming with Billie Eilish

As music streaming apps struggle to differentiate, Apple is making concert video a more central part of its strategy with tonight’s big Billie Eilish show at its HQ’s Steve Jobs Theater. The Apple Music Awards concert will be streaming live and then on-demand to Apple Music’s 60 million subscribers. Apple would like to do more of these streamed concerts in the near future.

You can stream Apple’s Billie Eilish concert here

Beyond the concert streaming, Apple is looking to strengthen its perception as an ally to art and artists. Given Apple Music is just a tiny fraction of the iPhone maker’s massive revenues, it can look overly corporate and capitalistic compared to music-only competitors like Spotify that some see as more aligned with the success of musicians.

To grow its subscriber count amongst serious listeners and earn points with creators, Apple Music can’t look like it’s just designed to sell more Apple hardware. So tonight Apple is hoping to show its respect for artists, handing out its first Apple Music Awards. Billie Eilish has won artist of the year and Songwriter Of The Year (with her brother Finneas), while Lizzo is taking home Breakthrough Artist Of The Year. Additionally, based on Apple Music streaming counts, Eilish’s ‘When We All Fall Asleep, Where Do We Go?” has won Album Of The Year, and Lil Was X’s ‘Old Town Road’ is the Song Of The Year.

The award statues themselves are specially-crafted Apple artifacts, featuring overwrought design like you see in those WWDC videos of robots making gadgets. They start with a single 12-inch disc of nanometer-level flat silicon wafer — the same kind used to power Apple’s iPhones. Copper layers are patterned with ultraviolet lithography to etch connections between the billions of transistors on the wafer. It’s then sliced into hundreds of individual chips and lined up during the months-long process to create a reflective trophy suspended between glass and anodized aluminum. In what’s sure to become a kooky collector’s item, each award is packaged with its own special Apple spirit level and mounting screws for classy installation.

The hope seems to be that both the winners and their fellow artists will come away with the perception that Apple truly cares about music. That, plus Apple Music’s scale, could help convince them to share more links to their songs on the streaming service and feature their profile there ahead of their presences on competing listening apps.

On the concert front, Apple started holding its yearly Apple Music Festival, formerly the iTunes Festival, back in 2007. But after a blow-out 10th year where Apple streamed shows from Britney Spears, Elton John, and Chance the Rapper, it discontinued the event in 2017. Apple Music launched a dedicated Music Videos tab last year, but has done less recently with concert streaming other than a few events with Tyler, The Creator and Shawn Mendes. These concert videos can be tough to find inside Apple Music.

Yet this represents a massive opportunity for Apple. Across music streaming services, catalogs are becoming more uniform, everyone is copying each other’s personalized playlists and discovery mechanisms, and many are embracing radio and podcasts. Meanwhile, paying for exclusive music or whole artists has fallen out of fashion compared to a few years ago. Fragmenting the music catalog is hostile towards listeners, can be harmful for artists who lose out on mass distribution, and it can engender backlash from artists fans’ who don’t want to pay for multiple redundant streaming services.

Streaming concert videos, which typically aren’t available beyond shaky camera phone footage, feel additive to the music ecosystem. If platforms are willing to pay to shoot and produce the videos, they can be powerful differentiators. And if the recorded shows look unique from the typical tours, as with the tree-covered stage for tonight’s Billie Eilish show at Apple headquarters, they keep fans glued to their screens. Video viewing can lead users to develop more affinity for whichever company is broadcasting the shows compared to multi-tasking while they merely listen to a generic app.

Apple is already ahead of competitors like Spotify that do very little on the concert video front. Streaming more shows like tonight’s could help it better rival YouTube Music, which integrates traditional music streaming with a broad array of rarities, music videos, and streamed concerts like Coachella. Apple is also fortunate to have a global retail and office footprint that could help it throw and record more shows with fewer logistical headaches.

To date, Apple Music has leaned on its pre-installations on the company’s phones, tablets, and computers plus its free trial system to drive growth. But if it can spot holes in the industry’s content offering, leverage its deep pockets to invest in premium video, and prove to artists that it cares, Apple Music could build a brand separate from and with more street cred than Apple itself.

Atomico Partner Tom Wehmeier reviews ‘The State of European Tech’ 2019 report

Atomico, the European venture capital firm founded by Skype’s Niklas Zennström, has released its latest annual The State of European Tech report, published in partnership with Slush and Orrick.

As part of the report, the authors surveyed 5,000 members of the ecosystem — including 1,000 founders — as well as pulling in robust data from other sources, such as Dealroom and the London Stock Exchange .

This year, the report reveals that the European tech ecosystem continues to mature and shows no sign of slowing — particularly highlighting the contrast from five years ago when the The State of European Tech report made its debut. Almost every key indicator is up and to the right, except, rather depressingly, diversity.

The data shows, for example, that competition for talent and access to the best founders has increased ferociously. And from a funding perspective, European founders have more choice than ever, especially with U.S. and Asian VC firms investing more and more in the region. Progress with gender diversity stalled, however, such as 92% of funding going to all-male teams.

I caught up with the report’s author Tom Wehmeier, Partner and Head of Insights at Atomico (also sometimes jokingly referred to as the “Mary Meeker of Europe”), where we discuss in more detail some of the key findings and why, it seems, that the rest of the world has finally woken up to Europe’s tech potential.

But first, a few headlines from the report:

  • European technology companies are on track to raise a record 30$B+ in funding in 2019, up from $25B the year before. (Source: Dealroom)
  • Despite failing to match the level of venture-backed exits of 2018, there was a record number of 40 $100M-plus deals as of September 2019, a size that many European tech sceptics did not believe was possible. (Source: Dealroom)
  • A number of multi-billion-dollar non-venture backed companies like Nexi and Trainline made their debut on the public markets.
  • European tech policymaking remains a mystery to many European founders.
  • When asked to describe the top priority of the European Commission in terms of tech policy, 40% of founders and startup employees say they don’t feel informed enough to comment. (Source: survey)
  • Despite this reported lack of awareness on policy issues, all respondents voted EU competition commissioner Margrethe Vestager as the person who had the most influence on European tech in 2019, good or bad. (Source: survey)
  • European parliamentarians aren’t talking about fintech and digital health, two sectors which investors poured a combined $12.7bn into last year (Source: Politico and Dealroom)
  • Europe’s diversity figures are still grim reading.
  • In 2019, 92% of funding went to all-male teams, a similar level to 2018. (Source: Dealroom)
  • There is still only one woman CTO in the 119 companies (<1%) based on a sample of executives in CxO positions at 251 European VC-backed tech companies that raised a Series A or B round between 1 October 2018 and 30 September 2019 with more than $10M funding, even though 7.5% of software engineers are women. (Source: Stack Overflow, Craft, Dealroom)
  • Looking beyond gender diversity, ethnic minorities in tech experienced discrimination at a much high rate than white peers. (Source: survey)
  • At least 80% of Black/African/Caribbean respondents who reported experiencing discrimination linked it to their ethnicity. (Source: survey)
  • 63% of women VCs reported increased focus on attending events with stronger participation from diverse founders. The corresponding number for men VCs was only 33% of female respondents suggested that their male counterparts are leaving female VCs to fix Europe’s diversity problem. (Source: survey)
  • European founders aren’t just aiming for commercial success — they are trying to solve some of the world’s largest problems.
  • One in five European founders states that their company is already measuring its societal and/or environmental impact. (Source: survey)
  • Only 14% of founders don’t believe it’s relevant for their company. Founders that are women are much more likely to be advanced in their approach to measuring impact. (Source: survey)
  • Employees are placing a greater emphasis on corporate social responsibility, with 57% citing its importance in the State of European Tech survey. (Source: survey)

Extra Crunch: It is 5 years since Atomico published the first The State of European Tech report, which really attempted to capture a data-driven snapshot of the entire ecosystem. What are some of the biggest changes you’ve seen within European tech in the intertwining years or in this year in particular?

Tom Wehmeier: If I think back to when we did the first report, people who believe that Europe could actually be an interesting player in global technology, were largely limited to people who were in the tech industry in Europe itself. If you then fast forward to today, what has clearly happened — and I think 2019 was the year where this really materialized and became part of the narrative — was that belief translating from people on the inside to a bunch of people that were on the outside.

Most obviously has been the strength of interest from from the U.S. and the number of top-tier U.S. funds that are not just increasing their level of investment activity but committing to spending more and more time here on the ground, hiring people, building teams, building a network, and getting to know companies. I think it probably surprises people to know that 19% of all rounds this year will involve at least one U.S. investor in Europe, which is more than double since since the first year we did the report.

I think the other thing, where I come back to this idea that now we have finally convinced a certain group of people about the role that Europe can play, is mainstream institutional investors. I know it is not going to be lost on you, [but] this is going to be another record year for VC fund raising from Europe. And whilst the headline numbers might not be a surprise, I think what should catch people’s attention is that the composition of the LP base here in Europe is now shifting. And finally, there’s an unlocking of institutional investors, [by which] I mean pension funds, funds of funds, insurance companies, sovereign wealth funds, who are committing to European VC at levels that are significantly increased and elevated from where they had been in the past. So, if you just take pension funds, we’re going to see close to a billion dollars invested which is up nearly three fold.

It’s a validation of what’s happening around European tech to see that now coming through and I think is ultimately something that helps to build a foundation for the next five years of success. As much as this is a report that’s looking back, it’s also about trying to understand where things go from here.

With regards to the pension funds, do you think that is driven by the general bullishness towards European tech, or do you think it’s more the macro economic reality that maybe other places where they could put their money aren’t very attractive at the moment?

I think it’s really a reflection that there’s a strong level of belief that European venture as an asset class is an attractive investment opportunity. And that is reflected by the numbers. One of the charts that we’ve got in the report is from Cambridge Associates who do the benchmarking for the VC indices… And when you look back over a 1, 3, 5, or even a 10 year horizon, the performance from European VC is demonstrating that this is a place where for anyone building a diversified portfolio, they should have some allocation. I think it’s fundamentally the strength of the investment opportunity. That is the single biggest driver for why you’re seeing this happen.

I think the biggest thing that Europe has been able to prove is that it can take a great idea and turn it into a great company and that company can scale to not just a billion dollar outcome but to a multi-billion dollar outcome and go all the way through into an IPO or into a large scale acquisition. What you’ve seen happen in 2019 is in part A reflection of what happened last year where it was obviously this record year with Spotify, Adyen, Farfetch, Elastic and others that really showed you can go full cycle from start all the way to finish. And that the magnitude of those outcomes can be at a scale that makes them globally relevant.

Are the pension funds shifting their allocation of VC away from other geographies or are they just doing more VC as a whole?

Startups Weekly: Chinese investors double down on African startups

Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about Airbnb’s issues. Before that, I noted Uber’s new “money” team.

Remember, you can send me tips, suggestions and feedback to [email protected] or on Twitter @KateClarkTweets. If you’re new, you can subscribe to Startups Weekly here.


China’s pivot to Africa

Three African fintech startups; OPay, PalmPay and East African trucking logistics company Lori Systems, closed large fundraises this year. On their own, the deals aren’t particularly notable, but together, they expose a new trend within the African startup ecosystem.

This year, those three companies brought in a total of $240 million in venture capital funding from 15 different Chinese investors, who’ve become increasingly active in Africa’s tech scene. TechCrunch reporter Jake Bright, who covers African tech, writes that 2019 marks “the year Chinese investors went all in on the continent’s startup scene” — particularly its fintech projects. Why?

“The continent’s 1.2 billion people represent the largest share of the world’s unbanked and underbanked population — which makes fintech Africa’s most promising digital sector,” Bright notes. “In previous years, the country’s interactions with African startups were relatively light compared to deal-making on infrastructure and commodities. Chinese actors investing heavily in African mobile consumer platforms lends to looking at new data-privacy and security issues for the continent.”

Active Chinese investors in Africa include Hillhouse Capital, Meituan-Dianping, GaoRong, Source Code Capital, SoftBank Ventures Asia, BAI, Redpoint, IDG Capital, Sequoia China, Crystal Stream Capital, GSR Ventures, Chinese mobile-phone maker Transsion and NetEase .

Here’s more of TechCrunch’s recent coverage of Africa startup activity:


VC Deals

It was a short week (Happy Thanksgiving, by the way). But here’s a quick look at the top deals of the last few days.


M&A (VR edition)

Last week, Facebook announced it was buying Beat Games, the game studio behind Beat Saber, a rhythm game that’s equal parts Fruit Ninja and Guitar Hero. Heard of the company? Maybe if you’re a gamer, but if you’re readying this newsletter because of your interest in VC, this company may not have come across your radar.

Why? It’s one of virtual reality’s biggest successes today, but it’s just an eight-person team with no funding.

“I’m really proud that we were able to build the company with this mindset of making decisions based on what is good for the game and not what is the most profitable thing,” Beat Games CEO told TechCrunch earlier this year. Read about Facebook’s acquisition here and an in-depth profile of the small team here.


Equity

If you like this newsletter, you will definitely enjoy Equity, which brings the content of this newsletter to life — in podcast form! Join myself and Equity co-host Alex Wilhelm every Friday for a quick breakdown of the week’s biggest news in venture capital and startups.

This week, we discussed Weekend Fund’s new vehicle, Cocoon’s new friend-tracking app and the unfortunate demise of a startup called Omni. You can listen here.

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

Equity Dive: Poshmark’s origin story with co-founder & CEO Manish Chandra

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

We have something a bit different for you this week. Equity co-host Kate Clark recently sat down with Manish Chandra, the co-founder and chief executive officer of Poshmark, and one of his earliest investors, NFX managing partner James Currier.

If you haven’t heard of Poshmark, it’s an online platform for buying and selling clothes. Basically, it’s the thrift shop of the 21st century. We asked Chandra how he and co-founders Tracy Sun, Gautam Golwala and Chetan Pungaliya cooked up the idea for Poshmark, what bumps they faced along the way, how they raised venture capital and, of course, what details of their upcoming initial public offering he could share with us. Meanwhile, Currier dished about the company’s early days, when the Poshmark team worked hard on the floor of Currier’s office.

Unfortunately, neither Chandra or Currier were willing to share deets about Poshmark’s IPO, reportedly expected soon. But they both shared interesting insights into building a successful venture-backed company, battling competition and putting your best foot forward.

Glad you guys came back for another episode, we’ll see you soon.

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

Morgan Stanley’s ‘Teflon banker’ talks direct listings (and much more)

After landing a seemingly endless string of coveted deals for his bank, Morgan Stanley, Michael Grimes has been dubbed “Wall Street’s Silicon Valley whisperer.”

Morgan Stanley has served as the lead underwriter for Facebook, Spotify and Slack. Grimes, a banker for 32 years — 25 of them with Morgan Stanley — has also played a role in the IPOs of Salesforce, LinkedIn, Workday and hundreds of other companies.

Because some of these offerings have gone better than others, buzzy startups and their investors are asking Morgan Stanley and other investment banks to embrace more direct listings, a maneuver pioneered by Spotify and copied by Slack — rather than sell a percentage of shares to the public in a fundraising event, companies essentially move all their stock from the private markets to public ones in one fell swoop.

In a rare public appearance last week, Grimes told us why he supports direct listings and answered questions about other offerings in which Morgan Stanley has been involved, including as a lead underwriter for both Uber and Google. (He was less talkative about WeWork, a company that Morgan Stanley managed to distance itself from at exactly the right time.) If you care about how the process of taking private companies public may be changing, it’s worth the time. Our conversation has been edited lightly for length.

TechCrunch: Tell us about yourself. You were born in East L.A.; you studied computer programming and electrical engineering at UC Berkeley, then you became a banker, and you’ve remained one. Did you always want to be a banker?

Michael Grimes: I’ve only ever done this since i was 20. I’d joined Solomon Brothers, which later became part of Citigroup. They had a tech group where they wanted somebody in tech. I didn’t know banking or business or finance, because I had studied engineering and that made me not well-suited, to some degree, [for a bank] other than for a tech bank. Mary Meeker also started in ’87 at Solomon and [we then worked together for 20 years at Morgan Stanley until she left].

The work you’ve done with a lot of these amazing companies that you’ve helped take public has earned you a lot of nicknames — the ‘Teflon banker,’ the ‘kingpin’ banker. How do you feel when you see yourself described in those terms?

It may sound boring but may be similar to the way venture capitalist serve founders. Besides capital, they’re giving advice. We think of it as giving advice: that decision to file, do you or don’t you, how will it be received. That decision may work out for the best. There’s a lot of volatility in the market and it may not. But we want to stick with clients through thick and thin and help them navigate really volatile markets.

When a company is [at an] emerging growth [phase] but hasn’t reached a mature business model, you can have a really wide variety of fair cases for, is this going to be worth $30 billion in five years? $3 billion? $200 billion? Those could are all possible if something is growing 100 percent per year and the margins are increasing and you can do the math. [Remember that] Google has gone from $30 billion when we took it public to $800 billion or $900 billion or whatever is it [now]. So is this going to be that, or is this going to grow and peak and recede? There’s a huge amount of volatility inherent in tech investing, and that kind of comes with the territory in our business.

People seem to speak in hushed tones about you the way they earlier spoke about [earlier Silicon Valley banker] Frank Quattrone, but Frank Quattrone had a reputation for taking on deals that others wouldn’t take; you have a reputation for saying no to deals when they don’t feel right. When is a company in shape to go public?

We try to predict the receptivity of the public markets, which does change. There were times in 1999, 2007, maybe 2015 until recently, where institutional investors were taking more risk, then there are other times when they’re taking less risk: 2001, 2002, maybe now to an extent; they’re taking less risk than they were a year ago.

The institutional investors are the price setters; if they’re eager to invest in a company, then we try to predict that and get behind the companies that we think will work well there, or [else] give the company advice that this maybe isn’t the right time or maybe this won’t be well-received. We aren’t perfect at this but we kind of obsess about it.

You’ve told me that you think the more established the company, the more observable its metrics, the less volatile the offering in all likelihood. But can a company stay private too long?

It depends on what you mean by “too long.” If they run out of capital because they aren’t financeable, you could argue that’s probably a good thing that they never went public, because investor protection matters. Healthy markets depend upon investors, on balance, earning a return — not just institutions but retail investors, the ordinary investor. So if it turns out it’s a company that thrives but went public later, there’s no real harm there… I haven’t really bought into the theory of companies waiting too long to go public. That’s their choice. They have to decide based on their capital. Going back to the late ’80s or ’90s, I’ve worked with companies that have gone out with $300 million, $400 million, $500 million valuations; I’ve worked with ones that have gone out at $30 billion, $40 billion, $100 billion valuations. In all cases, it really depends on the company’s fundamentals and performance as opposed to its stage.

You mention companies that aren’t financeable. It brings to mind WeWork. Obviously its S-1 was disaster, but it also really needed the money from an offering. Could things have gone another way for the company? Was there a way for it to go public?

We weren’t involved in that filing so I’m probably not the right guy to opine on that situation.

Do you think JPMorgan deserves all the heat it’s gotten for that situation?

Michael Grimes, “Wall Street’s Silicon Valley whisperer,” says direct listings are “absolutely” more efficient than IPOs

Michael Grimes has been called “Wall Street’s Silicon Valley whisperer” for landing a seemingly endless string of coveted deals for his bank, Morgan Stanley. In more recent years, it has served as the lead underwriter for Facebook, Uber, Spotify and Slack. Grimes, who has been a banker for 32 years — 25 of them at Morgan Stanley —  has also played a role in the IPOs of Google, Salesforce, LinkedIn, Workday and hundreds of other companies.

Because some of these offerings have gone better than others, Morgan Stanley and other investment banks are now being asked by buzzy startups and their investors to embrace more direct listings, a maneuver pioneered by Spotify and copied by Slack wherein rather than sell a percentage of shares to the public in a fundraising event, companies are essentially moving all their stock from the private markets to public ones in one fell swoop.

They cost the companies less money in banking fees. They also immediately free everyone on a company’s cap table to share their shares if they so choose, which has made the concept especially popular with VCs like BIll Gurley and Michael Moritz — though investors also cite the money that companies have been leaving on the table with traditional IPOs. Gurley specifically has talked publicly about underpriced offerings costing newly public outfits $170 billion over the last 30 years.

Grimes, in a rare public appearance last week at a StrictlyVC event, said he supports direct listings completely, calling the “pricing mechanism” more efficient, “absolutely.” He has reason to be a proponent of this new “product.” Both Spotify and Slack turned to Morgan Stanley to organize their direct listings — a process that involves running simultaneous auctions to determine the price at which demand and supply meet — and to ensure there would be enough liquidity for the listings to go smoothly.

Given the success of both, the bank is now better positioned than any to continue orchestrating direct listings for potential issuers, including, reportedly, Airbnb and DoorDash. (Grimes wouldn’t confirm the plans of any companies with which Morgan Stanley plans to work.)

Still, during last week’s sit-down, we wanted to know more about how they work and whether there’s a chance that banks will eventually try to thwart the process, given that they require just as much work, are potentially less lucrative, and keep banks from rewarding some of their best customers — meaning the institutions that are accustomed to being funneled IPO shares ahead of retail investors in traditional offerings.

Grimes patiently sat through roughly 40 minutes of questions, all of which you can read tomorrow if you’re a subscriber of Extra Crunch, where much more of the transcript is being published. In the meantime, here are some highlights from our conversation:

Morgan Stanley was the lead underwriter for Uber. You don’t think Uber went public too late? It seems like it was enjoying a lot of momentum last year, so much so that it was reportedly told by bankers that it could be valued at $120 billion in an IPO — which is nearly triple where it’s valued right now. Did you think it would go out at that number?

MG: 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. That’s a typical spread. You can have somebody believe a company will be worth $30, $60 or $80 per share three years out. That’s a huge amount of variability.

So that variability isn’t based on different timelines?

MG: It’s based on penetration. Let’s say, what, 100 million people or so [worldwide] have have been monthly active users of Uber, somewhere in that range. So 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 an outcome that can happen here for companies, or maybe it won’t. Maybe they’ll [hit their] saturation [point] or face new competitors.

It’s really easy to be a pundit and say, ‘It should be higher’ or ‘It should be lower,’ but investors are making decisions about that every day.

Is it your job to be as optimistic as possible about the pricing? How are you coming up with the number, given all these variables?

MG: We think our job is to be realistically optimistic. If tech stops changing everything and software stops eating the world, there probably would be less of an optimistic bias. But fundamentally — it sounds obvious but sometimes people forget — you can only lose 100 percent of your money, and you can make multiples of your money. I don’t think VCs are as risk-averse as they say, by the way. Some 80% or 90% of investments end up under water, and 5% or 10% produce 10 or 20 or 30x and so that’s the portfolio approach. It’s not as pronounced with institutional investors investing at IPOs, but it’s the same concept: you can only lose 100 percent of your money.

Let’s say you put five equal quantums of investment out to work in five different companies and one of them grows tenfold. Do I even need to tell you what happened with the other four to know you made money? Worst case, you’ve more than doubled your money, and therefore you’re probably going to lean into that again. So generally speaking, there’s an upward bias, but our job is to be realistic and to try to get that right. We view it as a sacred obligation. There’s variability and volatility within that. We try to give really good advice on receptivity. And when the process works as intended, we have predicted it as well as you can within a range of high variability.

StrictlyVC

This summer on CNBC, Bill Gurley told viewers that banks, including the top banks, have mispriced IPOs to the tune of $170 billion over the last three years, meaning that’s the amount of money that companies left on the table. Do you think we need direct listings and can you explain why they could potentially be better?

MG: Sure. We think Bill has done a great service by focusing a spotlight on the product, which we innovated with Spotify and then later with Slack . We do love the product, we’re bullish on it.

You’re asking how they work?

TC: Yes, as it relates to price discovery. So in a direct offering, you’re talking to people who own the stock and people who might want to buy the stock to figure out where they meet, which doesn’t sound that different than what goes on with a traditional IPO.

MG: It’s actually different in a technical way. In a traditional IPO, there’s a range, let’s say $8 to $10. And the orders we’re taking every day for two weeks, let’s say, while the prospectus is filed, we’re taking orders from institutions [regarding] how many shares they want to buy within that range. That means generally within that range, they’re buying. It’s not binding but generally speaking, they’re going to follow through. If it’s outside of that range, we have to go back and ask them again. So if there’s a whole lot of demand and the number of shares being sold is fixed so that supply is fixed . . . the company’s goal is for oversubscription because they want an upward bias. They don’t want to trade up too much [and leave] money on the table and they don’t want to trade down at all — even a little bit — and they don’t want to trade flat because that could be [perceived] to be down; they want to trade up modestly. An exception was the Google IPO, which was designed to trade flat and traded up modestly, 14% or something like that.

The range might be moved once, maybe twice — because there’s not a lot of time because there’s a regulatory review to turn it around — so [let’s say] it’s moved from $8 to 10 to $10 to $12 and there’s still much more demand than supply; it’s a judgment call as to, is that going to price at $14? $15? $12? Some investors might think it should trade at $25 while others think it should trade at $12. So there could be real variability there, and when trading opens, only the shares that were sold the night before in the IPO, some subset of them are trading and that’s it, everything else is locked up —  the whole cap table. So for six months, it’s those same shares trading over and over, other than maybe [a small sampling] or investors of former employees who weren’t locked up.

TC: Okay, so let’s switch now to a direct listing.

MG: So with a direct listing, the company is not issuing any shares. There is no underwriting where the banks buy the shares and sell them immediately to institutional and retail investors. But there is market making and the way the trading opens is similar but the size is totally flexible. There’s no lock-up. The whole cap table can essentially sell shares, versus the average IPO right now where I think it’s 16 percent of the cap table is sold in an IPO, and that’s down by half, by the way, from 15 years ago.

TC: So everyone can sell on day one, but are there handshake deals to ensure that not everyone dumps the shares on day one?

MG: No, there’s no hidden agreement. They can sell as many shares as they want, but it’s going to depend on the price. The way a direct listing opens trading is a critical function because there’s no order book. No one has been taking orders for two weeks. The company has met with investors and done investor education. We’ve helped them write a prospectus, etcetera, but there are no orders, there’s no price range, and off we go. With Slack and Spotify, we were the bank responsible for the trading. What that means is on our trading floor in Times Square, our head trader, John Paci, and his team are in touch with anyone on the cap table who might want to sell and institutional investors who might want to buy, and what’s happening are two auctions at the same time.

So in the traditional IPO, we were taking orders for size within a range that might move a little bit, [but] this is now any price. So take the buyers. [We’re trying to find out] who will pay $8 who will pay $12. Will anyone pay $16? So you’re taking that demand and sorting it by price. At the same time, you’re taking that supply, asking, ‘VC No. 1, is there a price at which you would sell shares?’ If this person says, ‘Yes, but at $20’ and we don’t have any demand at that price, then we figure out: who would sell at $18? Maybe VC No. 2 says they would sell 5 percent of their shares at $18. So we have some buyers, but it’s not enough to open trading with enough liquidity, which is key to all this. If you had one VC and one buyer, the buyer would go away. They’d say, ‘You didn’t tell me I was going to be trading with myself.’ So we have to figure out where a simultaneous demand auction for the highest price, and a supply reverse auction for the lowest price clears and meets. If you can move a billion dollars worth of stock at $14 and get demand for a billion worth of stock, then that’s the price.

That’s then sent to the exchange where the exchange can take and add any other market maker or bank that has another seller or a buyer — so they add in, call it, another 30 percent from other brokers — and that produces the opening transaction.

Stay tuned tomorrow for much more from that interview, where other discussion areas included whether lock-up periods might eventually be done away with in traditional IPOs, why VCs are suddenly so motivated to bang the drum on direct listings, and what really went wrong with Google’s auction-style offering back in 2004.

Spotify turns its personalization technology to podcasts with launch of Your Daily Podcasts

Spotify is taking the personalization technology that powers its music playlists, like Discover Weekly and Daily Mix, and turning it to podcasts. The company announced this morning the launch of a new podcast playlist called Your Daily Podcasts, that allows users to discover new shows and keep up with their favorites. In other words, it’s a discovery mechanism for finding new podcasts — similar to how Discovery Weekly will recommend new music.

The playlist will only appear when you’ve listened to at least four podcasts in the past 90 days, Spotify says. It will be available in the “Your Top Podcasts” shelf in the Home tab or in the “Made for You” hub in the app.

As with Spotify’s music playlists, algorithms will be used to analyze your podcast listening behavior like what’s you’ve recently streamed and what you follow. It will then recommend what episode to listen to next based on this history and what sort of podcasts you like. This could be the next episode in something you’re already listening to, a standalone evergreen episode from a popular podcast, or a more timely episode from a daily updating podcast, the company says. It also promises it won’t skip ahead if you’re listening to a story-driven sequential series.

After a few recommended episodes from your own subscriptions or history, Spotify will suggest new shows and begin playing their episodes after a brief intro that says, “And now, something new based on your listening.”

But unlike Discover Weekly, where the main goal is to keep users engaged and subscribed to Spotify’s service, Your Daily Podcasts has a secondary motive as well — to point users to Spotify’s own, in-house programs. While the new playlist at launch doesn’t appear to be favoring Spotify’s shows over others, it certainly is including them.

Over time, Spotify’s playlist could help grow the fan bases for its own programming, which listeners can’t get elsewhere. That also keeps them subscribed. Plus, podcasts are another surface against which Spotify can advertise, and they don’t have the hefty licensing fees associated with streaming music — especially when their creation is handled in-house.

In the third quarter, Spotify launched 22 original and exclusive titles from Spotify Studios, including The Ringer: The Hottest Take and The Conversation with Amanda de Cadenet in the U.S. It also launched a number of originals from the studios it recently acquired, Gimlet and Parcast, the company said. As a result of its efforts, it’s seeing exponential growth in podcast hours streamed (up 39% from the prior quarter).

However, podcast adoption among the overall user base lags…just under 14% of users are listening to the audio programs. A new playlist like this could help, but it also misunderstands how some people listen to audio shows. They don’t necessarily want to hear any ol’ program they like at any time. Much like selecting something to watch on TV, people will be in the “mood” for one type of podcast over another at different times. Sometimes, it may be true crime, sometimes news, sometimes pop culture, sometimes comedy, etc. Throwing all those genres into the same mix is a disjointed experience.

If anything, Spotify should be trying to design a podcast experience that looks more like Netflix than a music app. Perhaps with rows where there are different grouping by genre or topic, or rows featuring short-form quick bites or longer, in-depth shows. A row with clips where you could check out new shows then click “subscribe” to keep following them. It could even put easy-to-access buttons next to these rows in order to launch a stream of favorites from a given genre. Basically, personalize the whole podcast interface so it feels like your own rather than trying to do that within a single playlist.

This is not Spotify’s first attempt at a podcast playlist. It also recently launched “Your Daily Drive” which combines music and podcasts. And it now allows users to create their own playlists using podcasts.

Spotify says the new playlist is available free and Premium users in U.S., U.K., Germany, Sweden, Mexico, Brazil, Canada, Australia, and New Zealand.

 

Sam Altman’s bet against Slack

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

This week Kate and Alex broke the discussion into two main themes. The first dealt with early-stage companies, and the second, as you can imagine, later-stage affairs. Don’t worry, we don’t get to SoftBank for quite some time.

Up top, we dug into Kate’s story about Quill, a formerly stealthy company that could be taking on Slack. That or something similar to Slack . Next, we turned to ManiMe, a startup in the beauty space that raised a smaller $2.6 million round to take on a market that is valued in the billions.

After that it was time to leave the auspices of the early-stage market and move to, of all things, a public company. Grubhub reported earnings this week. It went poorly. Alex wanted to riff over the company’s earnings report and what it could mean for startups that are competing with Grubhub, a leader in the food delivery space that DoorDash and Postmates would prefer to lead themselves.

What impact Grubhub may have on the highly valued on-demand companies isn’t clear yet, but will be pretty damn interesting to see when it does land.

Sticking to the later-stage markets, Alex dug into the problems at Wag, which is struggling and looking for a sale despite raising a castle of cash from the Vision Fund. Kate followed that up with notes on problems at Katerra. The Information is reporting this week that the business is going through a number of layoffs, and we’re wondering if it will suffer the same fate of some of SoftBank’s other investments.

And, finally, the changing face of things at SoftBank itself. The great money spigot is slowly cutting flow. How many unicorns that will strand isn’t yet clear. But surely it can’t be zero.

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

Growth is out, profitability is in

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

This week Kate and Alex held the reins as a duo (check out our chat with Greylock’s Sarah Guo from last week here) to dig into an enormous raft of news. And don’t worry, it’s not all late-stage happenings. We’re discussing early-stage news every week because that’s what the listeners want!

Up top we dug into Kate’s excellent work covering the Superhuman founder’s new micro fund, or at least his attempt at raising such a fund. Our main question is how can he be a good VC and a good executive at the same time? Folks don’t tend to do both at the same time because they’re each more than full-time jobs. Having two such gigs sounds hard.

But hey, it’s not just athletes and musicians who can bring outsized interest to deals. In-demand founders can have a similar effect. We’ll be keeping a close eye on the upcoming fun. Moving on. 

Next, we turned to the other end of the venture landscape, looking at Founders Fund’s new capital vehicles. With a combined $2.7 billion in eventual capital, FF is hoping to build a financial redoubt from which they can rain capital down on late-stage targets, wherever they may be.

Is it a bit late in the cycle to cut late-stage checks to companies that might otherwise go public? That’s the gamble so far, as we can see it, but perhaps with WeWork’s IPO dreams turned to nightmares, there’s demand among a group of companies for another 12 months in the private markets. And that means more money is required.

On the theme of more money, Lime is raising some more and we were treated to new financial results from The Information’s great work getting the figures. Our discussion asked the question of how far the company’s unit economics could improve. Kate said that Lime is investing a lot now in developing better hardware so their scooters can last more than five minutes on the roads before breaking down. She thinks things will start looking up when it’s deploying only new, fancy, good scooters. Alex is bearish.

Before we could turn back to the early-stage market and wrap up, we had to cover the latest from WeWork. SoftBank did, in the end, come and save the day (at least for now) for the company, meaning that WeWork lives on, though layoffs are expected sooner rather than later. Who knows what the future holds…

And finally, Vendr, a company that is profitable, raised a $2 million round. This is interesting because, again, it’s profitable! And the startup willingly shared some financial data with us — a rarity. Read more about the recent Y Combinator graduate here.

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