Revenue-based investing: A new option for founders who care about control

Does the traditional VC financing model make sense for all companies? Absolutely not. VC Josh Kopelman makes the analogy of jet fuel vs. motorcycle fuel. VCs sell jet fuel which works well for jets; motorcycles are more common but need a different type of fuel.

A new wave of Revenue-Based Investors are emerging who are using creative investing structures with some of the upside of traditional VC, but some of the downside protection of debt. I’ve been a traditional equity VC for 8 years, and I’m now researching new business models in venture capital.

I believe that Revenue-Based Investing (“RBI”) VCs are on the forefront of what will become a major segment of the venture ecosystem. Though RBI will displace some traditional equity VC, its much bigger impact will be to expand the pool of capital available for early-stage entrepreneurs.

This guest post was written by David Teten, Venture Partner, HOF Capital. You can follow him at teten.com and @dteten. This is part of an ongoing series on Revenue-Based Investing VC that will hit on:

So what is Revenue-Based Investing? 

RBI structures have been used for many years in natural resource exploration, entertainment, real estate, and pharmaceuticals. However, only recently have early-stage companies started to use this model at any scale.

According to Lighter Capital, “the RBI market has grown rapidly, contrasting sharply with a decrease in the number of early-stage angel and VC fundings”. Lighter Capital is a RBI VC which has provided over $100 million in growth capital to over 250 companies since 2012.

Lighter reports that from 2015 to 2018, the number of VC investments under $5m dropped 23% from 6,709 to 5,139. 2018 also had the fewest number of angel-led financing rounds since before 2010. However, many industry experts question the accuracy of early-stage market data, given many startups are no longer filing their Form Ds.

John Borchers, Co-founder and Managing Partner of Decathlon Capital, claims to be the largest revenue-based financing investor in the US. He said, “We estimate that annual RBI market activity has grown 10x in the last decade, from two dozen deals a year in 2010 to upwards of 200 new company fundings completed in 2018.”

‘Breaking Into Startups’: Torch CEO and Well Clinic founder Cameron Yarbrough on mental health & coaching

There has long been a stigma associated with therapy and mental health coaching, a stigma that is even more pronounced in the business world, despite considerable evidence of the efficacy of these services. One of the organizations that has set out to change this negative association is Torch, a startup that combines the therapeutic benefits of executive coaching with data-driven analytics to track outcomes.

Yet, as Torch co-founder and CEO Cameron Yarbrough explains in this Breaking Into Startups episode, the startup wasn’t initially a tech-oriented enterprise. At first, Yarbrough drew on his years of experience as a marriage and family counselor as he made the transition into executive coaching, even referring to the early iterations of Torch as little more than “a matchmaking service between coaches and professionals.”

In time, Yarbrough identified a virtually untapped market for executive coaching — one that, by his estimate, could amount to a $15 billion industry. To demonstrate to investors the great potential of this growing market, he first built up a clientele that provided Torch with sufficient recurring revenue and low churn rate.

Only then was Yarbrough able to raise a $2.4 million seed round from Initialized Capital, Y Combinator, and other investors, convincing them that data analytics software could enhance the coaching process — as well as coach recruitment — enough to effectively “productize feedback,” as he puts it.

For Yarbrough and Torch, “productizing feedback” involves certain well-known business strategies that complement traditional coaching methods. For instance, Torch’s coaching procedure includes a “360 review,” a performance review system that incorporates feedback from all angles, including an employee’s manager, peers, and other people within an organization who have knowledge of the employee’s work.

The 360 review is coupled with an OKR platform, which provides HR departments and other interested parties with the metrics and analytics to track employee progress through the program. This combination is designed to promote the development of soft skills, which in turn drive leadership.

Torch has achieved considerable success, landing several influential clients in the tech sector through its B2B approach. But Yarbrough is clear that his goal with the company is to “democratize” access to professional coaching, in hopes of providing the same kind of mental health counseling and support to employees in all levels of an organization.

In this episode, Yarbrough discusses the history and trajectory of Torch, his experience scaling a company many considered unscalable, and the methods he uses to manage his own emotional and mental health as the CEO of an expanding startup. Yarbrough offers insights into the feelings of anxiety and dread common among entrepreneurs and provides a close look at how he has found business and personal success with Torch.


Breaking Into Startups: There’s a difference between a mentor and a coach. Today, I want to talk about that difference and in addition to the intersection between business and psychology, What Cameron Yarbrough, CEO of Torch and Founder of Well Clinic.

If you’re someone that is looking for a mentor or a coach as you break into tech, or if you just want to be surrounded by peers, make sure you download the Career Karma app by going to www.breakingintostartups.com/download.

On today’s episode, you’re going to understand the importance of therapy, mental health and coaches, as well as how historically, it has been inaccessible to people and how Cameron is using his background to democratize this for the world.

If this is your first time listening to the Breaking Startups Podcast, make sure you leave a review on iTunes and tell your friends. Listen to it on Soundcloud and talk about it on Spotify. If you have any feedback for us, positive or negative, please let us know. Without further ado, let’s break-in.

Cameron Yarbrough is the CEO of Torch. He’s one of the best executive coaches in the world. Not only are we going to be talking about coaching and mentoring for executives, but we’ll also be talking about coaching in general for everyone. We’re going to go into how he created his company.

Spotify Family Accounts are getting parental controls

Want to give your kids access to Spotify, but only the “clean” stuff? It’ll be an option soon.

Spotify’s family plan — the one that gets you six accounts for 15 bucks — is picking up a feature that the company says people have been asking about for years: parental controls.

Under the new setup, the primary Spotify account holder will be able to toggle the explicit content filter for any of their sub-accounts. Once it’s on, said sub-accounts won’t be able to turn off the filter without the account admin’s help.

While Spotify has had an explicit content filter built in for a few years now, it was just a toggle the user could flip on and off for themselves— not something that parents could set on their kid’s accounts.

Spotify is also introducing a feature it’s calling “family mix” — a custom generated playlist composed of tracks that Spotify thinks everyone in the family will be into. Going on a family road trip and didn’t have time to make a playlist? Family mix might help keep everyone happy for a few more minutes before the little one starts demanding you put on Moana again.

The company says the new family features are rolling out in Ireland first, and it’ll roll out eveywhere else they offer family plans shortly thereafter.

Elon Musk: Spotify is “coming” to Tesla vehicles in North America

Tesla owners in the U.S. and Canada may finally get that free Spotify Premium integration they’ve been asking for.

Tesla CEO Elon Musk tweeted late Wednesday night that Spotify premium integration is “coming.” Musk, who has talked about bringing Spotify to owners in North America before, did not provide a timeline. In other words, the music streaming service could be integrated next week or a six months from now.

But still, it’s a moment of celebration for many Tesla owners who have complained about Slacker Radio, the streaming music service integrated into all vehicles in the U.S. and Canada. Owners in Europe, Australia and Hong Kong have had Spotify Premium in their vehicles since late 2015.

Slacker Radio, which launched in 2007, has customizable radio stations based on the listener’s personal music tastes. The free and subscription-based service also tried to differentiate itself from the likes of Spotify and Pandora by using DJs to curate programs and at one time, even sold a portable music player. Despite its efforts, Slacker has been overshadowed by Spotify, which had 232 million monthly active users and 108 million paying subscribers at the end of June 2019.

Slacker was acquired in 2017 for $50 million in cash and stock by the LiveXLive, an entertainment and streaming service that focused on live music performances.

Last year, LiveXLive announced a partnership with Dash Radio, a digital radio broadcasting platform with more than 80 original live stations. Under the deal, Dash channels will be available across Slacker Radio a move meant to bring more live radio on the streaming service.

Spotify’s podcast dashboard comes out of beta

Over the last couple of years, Spotify has made a big push into podcasts. The tip of the spear has been major investments, including acquisitions of companies like Gimlet and Anchor. It’s all part of the company’s attempt harness a massively growing category and build an audience beyond music.

The other great thing about podcasts for a company like Spotify is the access to a tremendous amount of free content created by third-party producers. They record it, edit it and host it, and all Spotify has to do is index the stuff. Spotify for Podcasters is a new platform for the company designed to give creators more control — or at least insight — into how that content is served up.

The feature came out of beta today and is available for all users, showing key analytics like listening time, number of listeners and episode streams. “With so many podcasts out there, it’s more important than ever that you have the data you need to help you understand and grow your audience,” the company writes. “That’s exactly what your dashboard is designed to provide.”

I’ve been playing around with the feature a bit this morning and am finding some interesting bits of demographic info based on the sample. My show RiYL is a mix of different interviews with subjects across a wide variety of different mediums.

No surprise, the ones with musical guests are doing far better than any other. I suspect many or most users are discovering episodes will searching for music on the service. That will likely be the case until Spotify becomes more known for podcast offerings.

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Seems the show’s listeners are mostly male (disappointing, but perhaps not surprising), aged 35-44, located in the United States. The also listen to a lot of Beatles, Bon Iver, Velvet Underground and Radiohead. Go figure.

The feature follows the similar Spotify for Artists offering and promises additional information/insight as it matures.

How a Swedish saxophonist built Kobalt, the world’s next music unicorn

You may not have heard of Kobalt before, but you probably engage with the music it oversees every day, if not almost every hour. Combining a technology platform to better track ownership rights and royalties of songs with a new approach to representing musicians in their careers, Kobalt has risen from the ashes of the 2000 dot-com bubble to become a major player in the streaming music era. It is the leading alternative to incumbent music publishers (who represent songwriters) and is building a new model record label for the growing “middle class’ of musicians around the world who are stars within niche audiences.

Having predicted music’s digital upheaval early, Kobalt has taken off as streaming music has gone mainstream across the US, Europe, and East Asia. In the final quarter of last year, it represented the artists behind 38 of the top 100 songs on U.S. radio.

Along the way, it has secured more than $200 million in venture funding from investors like GV, Balderton, and Michael Dell, and its valuation was last pegged at $800 million. It confirmed in April that it is raising another $100 million to boot. Kobalt Music Group now employs over 700 people in 14 offices, and GV partner Avid Larizadeh Duggan even left her firm to become Kobalt’s COO.

How did a Swedish saxophonist from the 1980s transform into a leading entrepreneur in music’s digital transformation? Why are top technology VCs pouring money into a company that represents a roster of musicians? And how has the rise of music streaming created an opening for Kobalt to architect a new approach to the way the industry works?

Gaining an understanding of Kobalt and its future prospects is a vehicle for understanding the massive change underway across the global music industry right now and the opportunities that is and isn’t creating for entrepreneurs.

This article is Part 1 of the Kobalt EC-1, focused on the company’s origin story and growth. Part 2 will look at the company’s journey to create a new model for representing songwriters and tracking their ownership interests through the complex world of music royalties. Part 3 will look at Kobalt’s thesis about the rise of a massive new middle class of popular musicians and the record label alternative it is scaling to serve them.

Table of Contents

Early lessons on the tough road of entrepreneurship

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Image via Kobalt Music

It’s tough to imagine a worse year to launch a music company than 2000. Willard Ahdritz, a Swede living in London, left his corporate consulting job and sold his home for £200,000 to fully commit to his idea of a startup collecting royalties for musicians. In hindsight, his timing was less than impeccable: he launched Kobalt just as Napster and music piracy exploded onto the mainstream and mere months before the dot-com crash would wipe out much of the technology industry.

The situation was dire, and even his main seed investor told him he was doomed once the market crashed. “Eating an egg and ham sandwich…have you heard this saying? The chicken is contributing but the pig is committed,” Ahdritz said when we first spoke this past April (he has an endless supply of sayings). “I believe in that — to lose is not an option.”

Entrepreneurial hardship though is something that Ahdritz had early experience with. Born in Örebro, a city of 100,000 people in the middle of Sweden, Ahdritz spent a lot of time as a kid playing in the woods, which also holding dual interests in music and engineering. The intersection of those two converged in the synthesizer revolution of early electronic music, and he was fascinated by bands like Kraftwerk.

Startups seek sperm… And venture capital backing

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

This week we were helmed by Kate Clark and Alex Wilhelm, but those of you who love the show having guests on don’t despair. As we explain at the top, there’s a lot of folks coming on the show soon, many of whom you know by name.

But that’s to come, and we had a lot to chat through this week. Including, right from the jump, the latest gyrations in the stock market. Earlier this week tech stocks, and especially cloud and SaaS stocks, took a nosedive. Sentiment swung around later in the week when markets caught their breath and Lyft’s earnings went well. But the movement in highly-valued SaaS companies caught our eye. Perhaps if the market finally does correct, we’ll see growth stakes take the worst of it.

But it wasn’t all bad news on the show, a new app that raised $5 million caught Kate’s attention. It’s called Squad and it’s now backed by First Round Capital, the seed fund behind the likes of Uber . You can read Kate’s interview with the founder, Esther Crawford, here.

Next, we turned to two startups that are focused on male reproductive health. While we’ve covered startups focused on fertility before on the show, this is the first time we’ve delved into male-focused services that are designed to help men take part in conception. The news here is Dadi has raised another $5 million in venture capital funding. Legacy, the other male fertility company we discussed, is taking part in Y Combinator’s summer batch right now.

On the IPO-ish beat, we talked about Postmates which has a new stadium partnership, and, more importantly, permission to use cute robots to deliver things in San Francisco. After hearing about how small, rolling robots will handle last-mile deliveries for years, we’re excited for them to actually make it to market. In our view, technology of this sort won’t eliminate the need for human workers at on-demand shops, though they may replace some routine runs. Bring on the burrito robots.

We closed on Airbnb’s purchase of Urbandoor, yet another acquisition from the popular home-sharing company that will eventually go public. It has to, right? Perhaps Urbandoor will help unlock new revenues in the corporate travel space before we see an S-1. After all, Airbnb wants to debut with plenty of growth under its belt to help it meet valuation expectations. Adding revenue to its core business could be a good way to ensure that there’s new top-line to report.

More to come, including something special next week!

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

Earbuds lets audiences stream the playlists of athletes, entertainers and each other

Earbuds, a new startup from Austin founded by former Detroit Lions lineman Jason Fox, wants to bring the power of social media to your eardrums.

The company is one of a growing number of startups trying to rejuvenate the music streaming market by combining it with social networking so that audiences can listen to the playlists of their favorite athletes and entertainers… and their friends.

For Fox, the idea for Earbuds sprung from his experiences in the NFL, watching how other players interacted with crowds and hearing about the things fans wanted to know about their favorite players’ routines.

“We were playing Caroline in the first game of the season and Cam Newton was warming up right next to me,” Fox recalled. “He was jamming. Getting the crowd into it. And I was thinking there’re 85,000 people here and millions of more people watching at home…  And I thought… how many people would love to be in his headphones right now?”

Jason Fox TC

Earbuds founder Jason Fox

It wasn’t just Cam Newton who received attention. Fox said at every press conference one or two questions would be about what songs teammates played before games. On social media, players would take screenshots of their playlists and post them to platforms like Twitter or Instagram, Fox said.

The company has been out in the market in a beta version since February and has focused on lining up potential Earbuds devotees from among Fox’s friends in the NFL and entertainers from music and media.

“We made a decision to tweak something and make it very very heavily around influencers because that’s what’s really driving traffic for us,” Fox says. 

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Image courtesy of Earbuds

At its core, the app is just about making music more social, according to Fox. “There’s a social platform for everything, but in the days of terrestrial media distribution music has remain isolated,” he says. 

Logging on is easy. Users can create a login for the app or use their Google or Facebook accounts. One more step to link the Earbuds app with Spotify or Apple Music (the company offers one month free of the premium versions of either service to new users) and then a user can look for friends or browse popular playlists.

A leaderboard indicates which users on the app have streamed the most music and users can create their own streams by adding songs from their libraries to build in-app playlists.

Earbuds isn’t the first company to take a shot at socializing the music listening experience. The olds may remember services like Turntable.fm, which took a stab at making music social but shut down back in 2013. Newer services, like Playlist, are also combining social networking features with music streaming. That site focuses on connecting people with similar musical tastes.

Fox thinks that the ability to attract entertainers like Nelly (who’s on the app) and athletes could be transformative for listeners. Basically these artists and athletes can become their own online radio station, he says.

Fox spent nearly a year meeting with streaming services, music labels, athletes, artists and college students (the app’s initial target market) before even working with developers on a single line of code. The initial work was done out of Los Angeles, but after a year Fox moved the company down to Austin and rebuilt the app from the ground up to focus more on the user experience.

Early partnerships with Burton on an activation had snowboarders streaming their music as they rode a halfpipe proved that there was an audience, Fox said. Now the company is working on integrations across different sports and even esports.

Fox raised a small friends and family round of $630,000 before putting together a $1.5 million seed to get the app out into the market. Now the company is looking for $3 million to scale even more as it looks to integrations with sports teams and other streaming services like Twitch (to capture the gaming audience).

The company currently has seven employees.

Earbuds is available on iOS.

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PodcastOne is launching LaunchpadDM, a free hosting platform for independent podcasters

PodcastOne, the celebrity podcasting network from the founder of radio powerhouse WestwoodOne, is launching a free hosting platform for podcasters.

The Los Angeles-based syndicated podcasting platform, which counts athletes, politicians, talk radio, and reality television stars like Adam Carolla, Shaquille O’Neal, Steve Austin, Kaitlyn Bristowe, Dan Patrick, Spencer and Heidi Pratt, Jim Harbaugh, Ladygang, Dr. Drew, Chael Sonnen, Rich Eisen, Barbara Boxer, is angling to get insight into potential new talent through the venture. 

We will see which podcasts are performing well and offer them the opportunity to partner and grow with PodcastOne, and provide them with all the resources the network offers, including production, talent booking, promotion, a dedicated sales team and more,” said PodcastOne chief executive, Peter Morris, in a statement. “As the leading ad-supported podcast network, we are embracing the over 700,000 podcasts out there, and are here to support the long-term growth of independent podcasters.”

How I Podcast

Called Launchpad Digital Media, the new hosting service is pitching podcasters a free platform including unlimited hosting; access to analytics including listenership, geography, and device data; total ownership of direct monetization channels for a podcast’s subscriber base, and complete control over how podcasts are distributed via Apple, Spotify or other services.

The company is also billing itself as a discovery platform, offering free promotion for the services various podcasts across its own network of popular podcasting talent.

“Over the years, people have shared with us how hard it can be out there in the desert of independent podcasting: you have to pay to host and get your podcast heard; you get no help in discoverability; you’re scared to leave and stop paying your hosting platform because you might lose your subscribers; and it’s virtually impossible to get noticed by a major podcast network who can help you take your hard work to the next level,” said Morris, in a statement. “Launchpad was built with the independent podcaster in mind. We wanted to help solve these problems… for free.”

Since nothing is actually free, and since PodcastOne wants to get paid, the catch is the company’s own ability to insert pre- and mid-roll advertising into podcasts that are hosted on the new service.

So podcasters can manage their direct advertising, but they give PodcastOne the ability to slot in ads that the company chooses across any of the podcasts that agree to be hosted on the service. It gives the company access to both marquee talent for high value, big spending advertisers, and a way to flood other podcasts with whatever ads the company wants.

Ads that LaunchpadDM inserts won’t be longer than two total minutes per episode and podcasters can determine the location of the midroll spot when uploading the episode.

AT&T is offering free Spotify to select Unlimited subscribers

AT&T is sweetening the deal on its Unlimited & More Premium plan this week, with the addition of free Spotify Premium. That amounts to a $10-a-month savings for those paying the $80 a month for the wireless service. The plan offers one of seven free partner services, including HBO, Cinemax, Showtime, Starz, VRV, Pandora and now Spotify .

There’s fine print, because of course there is. The deal applies specifically to the Unlimited & More Premium plan, while other AT&T subscribers can get a six-month trial of Premium for free. After that time, things revert to the regular price.

Existing Spotify Premium subscribers, meanwhile, can keep their account but get the service for free by signing up on all of the proper places on AT&T’s site.

The deal mirrors a similar partnership between Verizon and Apple Music, the services’ largest competitors, respectively. AT&T is currently the U.S.’s largest carrier by a slight edge. Spotify, meanwhile, continues to have a sizable advantage in paid subscriber numbers at more than 100 million to Apple’s 60 million.