How investors are valuing the pandemic

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. Want it in your inbox every Saturday morning? Sign up here.

Ready? Let’s talk money, startups and spicy IPO rumors.

Kicking off with a tiny bit of housekeeping: Equity is now doing more stuff. And TechCrunch has its Justice and Early-Stage events coming up. I am interviewing the CRO of Zoom for the latter. And The Exchange itself has some long-overdue stuff coming next week, including $50M and $100M ARR updates (Druva, etc.), a peek at consumption based pricing vs. traditional SaaS models (featuring Fastly, Appian, BigCommerce CEOs, etc.), and more. Woo! 

This week both DoorDash and Airbnb reported earnings for the first time as public companies, marking their real graduation into the ranks of the exited unicorns. We’re keeping our usual eye on the earnings cycle, quietly, but today we have some learnings for the startup world.

Some basics will help us get started. DoorDash beat growth expectations in Q4, reporting revenue of $970 million versus an expected $938 million. The gap between the two likely comes partially from how new the DoorDash stock is, and the pandemic making it difficult to forecast. Despite the outsized growth, DoorDash shares initially fell sharply after the report, though they largely recovered on Friday.

Why the initial dip? I reckon the company’s net loss was larger than investors hoped — though a large GAAP deficit is standard for first quarters post-debut. That concern might have been tempered by the company’s earnings call, which included a note from the company’s CFO that it is “seeing acceleration in January relative to our order growth in December as well as in Q4.” That’s encouraging. On the flip side, the company’s CFO did say “starting from Q2 onwards, we’re going to see a reversion toward pre-COVID behavior within the customer base.”

Takeaway: Big companies are anticipating a return to pre-COVID behavior, just not quite yet. Firms that benefited from COVID-19 are being heavily scrutinized. And they expect tailwinds to fade as the year progresses.

And then there’s Airbnb, which is up around 16% today. Why? It beat revenue expectations, while also losing lots of money. Airbnb’s net loss in Q4 2020 was more than 10x DoorDash’s own. So why did Airbnb get a bump while DoorDash got dinged? Its large revenue beat ($859 million, instead of an expected $748 million), and potential for future growth; investors are expecting that Airbnb’s current besting of expectations will lead to even more growth down the road.

Takeaway: Provided that you have a good story to tell regarding future growth, investors are still willing to accept sharp losses; the growth trade is alive, then, even as companies that may have already received a boost endure increased scrutiny.

For startups, valuation pressure or lift could come down to which side of the pandemic they are on; are they on the tail end of their tailwind (remote-work focused SaaS, perhaps?), or on the ascent (restaurant tech, maybe?). Something to chew on before you raise.

Market Notes

It was one blistering week for funding rounds. Crunchbase News, my former journalistic home, has a great piece out on just how many massive rounds we’re seeing so far this year. But even one or two steps down in scale, funding activity was super busy.

A few rounds that I could not get to this week that caught my eye included a $90 million round for Terminus (ABM-focused GTM juicer, I suppose), Anchorage’s $80 million Series C (cryptostorage for big money), and Foxtrot Market’s $42 million Series B (rapid delivery of yuppie and zoomer essentials).

Sitting here now, finally writing a tidbit about each, I am reminded at the sheer breadth of the tech market. Termius helps other companies sell, Anchorage wants to keep your ETH safe, while Foxtrot wants to help you replenish your breakfast rosé stock before you have to endure a dry morning. What a mix. And each must be generating venture-acceptable growth, as they have not merely raised more capital but raised rather large rounds for their purported maturity (measured by their listed Series stage, though the moniker can be more canard than guide.)

I jokingly call this little section of the newsletter Market Notes, a jest as how can you possibly note the whole market that we care about? These companies and their recent capital infusions underscore the point.

Various and Sundry

Finally, two notes from earnings calls. The first from Root, which is a head scratcher, and the second from Booking Holdings’ results.

I chatted with Alex Timm, Root Insurance’s CEO this week moments after it dropped numbers. As such I didn’t have much context in the way of investor response to its results. My read was that Root was super capitalized, and has pretty big expansion plans. Timm was upbeat about his company’s improving economics (on a loss ratio and loss-adjusted expenses basis, for the insurtech fans out there), and growth during the pandemic.

But then today its shares are off 16%. Parsing the analyst call, there’s movement in Root’s economic profile (regarding premium-ceding variance over the coming quarters) that make it hard to fully grok its full-year growth from where I sit. But it appears that Root’s business is still molting to a degree that is almost refreshing; the company could have gone public in 2022 with some of its current evolution behind it, but instead it raised a zillion dollars last year and is public now.

Sticking our neck out a bit, despite fellow neo-insurnace player Lemonade’s continued, and impressive valuation run, MetroMile’s stock is also softening, while Root’s has lost more than half its value from its IPO date. If the current repricing of some neo-insurance players continues, we could see some private investment into the space slow. (Fewer things like this?) It’s a possible trend we’ll have eyes on this year.

Next, Booking Holdings, the company that owns Priceline and other travel properties. Given that Booking might have notes regarding the future of business travel — which we care about for clues regarding what could come for remote work and office culture, things that impact everything from startup hub locations to software sales — The Exchange snagged a call slot and dialed the company up.

Booking Holdings’ CEO Glenn Fogel didn’t have a comment as to how his company is trading at all-time highs despite suffering from sharp year-over-year revenue declines. He did note that the pandemic has shaken up expectations for conversations, which could limit short-term business travel in the future for meetings that may now be conducted on video calls. He was bullish on future conference travel (good news for TechCrunch, I suppose), and future travel more generally.

So concerning the jetting perspective, we don’t know anything yet. Booking Holdings is not saying much, perhaps because it just doesn’t know when things will turn around. Fair enough. Perhaps after another three months of vaccine rollout will give us a better window into what a partial return to an old normal could look like.

And to cap off, you can read Apex Holdings’ SPAC presentation here, and Markforged’s here. Also I wrote about the buy-now-pay-later space here, riffed on the Digital Ocean IPO with Ron Miller here, and doodled on Toast’s valuation and the Olo debut here.

Hugs, and have a lovely weekend!

Alex

 

How capital-as-a-service can help you get your first check in 2021

“A lot of founders mix up raising money with making money.”

This quote, which Career Karma founder Ruben Harris mentioned off-hand on a phone call with me, has been on my mind for months. In fact, raising money can cost you money, in the form of that sweet, sweet ownership and equity.

That’s why Clearbanc, a startup I have covered for years, has always had a compelling pitch.

The company, co-founded by Michele Romanow and Andrew D’Souza, positions itself as an alternative equity-free capital solution for early-stage founders. Flexing its “20-minute term sheet” the startup uses an algorithm to shift through a startup’s data, and if it has positive ad spend and positive unit economics, they make an investment worth anything from $10,000 to over $10 million. It makes money through a revenue-share agreement versus an equity stake.

“While we’ve invested in over 4,000 businesses using this model, we’ve also turned away over 50,000 who weren’t at this scale or level of repeatability,” D’Souza tells TechCrunch. So, the startup told me this week that they have raised $10 million to create a new product: ClearAngel.

The startup is trying to back anyone with an online business that has early revenue, but pre-broad traction. Clearbanc wants to replace friends and family money, a concept that D’Souza says is “quite elitist,” with its own version of an angel check, while also offering founder services such as supply chain analysis, introductions to networks and competitive landscape analysis.

The startup just needs to make around $1,000 in monthly revenue to qualify for cash. In return for an investment between $10,000 to $50,000, founders have to pay up to 2% of their revenue over four years.

Clearbanc’s repayment works for some startups, but for others, a traditional bank loan could work better. Its biggest hurdle, I’d argue, is that if a startup has great revenue already, you might not want to take a revenue-share agreement loan.

As for if a startup takes ClearAngel capital and doesn’t make the minimum revenue?

“Then the ClearAngel product isn’t working,” he said. “There are bound to be some companies who still can’t make it, that’s the risk we take.”

Alternative capital has pros and cons, just like venture capital has pros and cons. If the end goal is to become a billion-dollar business, what’s the best route to do that? Is taking a revenue-share agreement going to hurt your chances as a pre-seed startup trying to raise capital? Does YC care at all?

Those are some of my biggest questions, and we’ll explore all (and more!) in my alternative financing panel next week for TC Sessions: Justice. It costs $5 to attend the entire conference, and speakers include Backstage Capital’s Arlan Hamilton and Congresswoman Barbara Lee.

Remember that you can get Startups Weekly in your inbox before anyone else, if you subscribe. It’s free! As always, you can find me @nmasc_ on Twitter or e-mail me at [email protected] That is free too!

Coinbase files to go public

After being valued at $100 billion in the secondary markets, Coinbase has finally filed to go public. The S-1, as Winnie founder Sara Mauskopf tweeted, is #goals. The crypto unicorn, as my colleague Alex Wilhelm notes, grew just over 139% in 2020, a massive improvement on its 2019 results.

Here’s what to know:

Other notes:

Coinbase Co-founder and CEO Brian Armstrong

SAN FRANCISCO, CA – SEPTEMBER 07: Coinbase Co-founder and CEO Brian Armstrong speaks onstage during Day 3 of TechCrunch Disrupt SF 2018 at Moscone Center on September 7, 2018 in San Francisco, California. (Photo by Steve Jennings/Getty Images for TechCrunch)

Mobility-as-a-service

I caught up with Eric Eldon, managing editor at TechCrunch and former Startups Weekly writer, about the recent work he’s been doing with Kirsten Korosec, our transportation editor.

Here’s what he had to say: Startup employees may not be going into the office as often again — or ever. But everyone will still need to go places, or at least want to! How will they do it? What will we do? How will our altered set of needs and wants reshape cities, right as new technologies are fundamentally altering transportation, too? We’re going to be covering this topic in-depth this year, as we all figure out how to go back to work.

Other reading:

TechCrunch Mobility

Crazy ride on the night by car. Image Credits: franckreporter/Getty Images.

Spain wants startups to succeed on its soil

The Spanish government, led by Prime Minister Pedro Sanchez, has announced plans to turn itself into an entrepreneurial nation. The Startup Act is the first piece of dedicated legislation meant to help create tech innovation within Spain. The goals are to promote innovation, new capital through domestic and foreign investments, and to seed the future of Spain as a hub for new companies.

Here’s what to know: Driving innovation can start with relaxing on regulatory concerns.

Among a package of some 50 support measures, the entrepreneurial strategy makes a reference to “smart regulation” and floats the idea of sandboxing for testing products publicly (i.e. without needing to worry about regulatory compliance first).

Other news this week:

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

Some personal news

As loyal Equity listeners may have already noticed, we’ve been quietly experimenting with the concept of adding on a third show to our weekly production. This week, we told the world! Along with our current shows, which help listeners start and end the week with tech news, we’re going to bring on a Wednesday deep dive into a topic, subject area or person. Our first mid-week episode went live this week, and it was all about space (so yes, expect a lot of puns and Elon jokes).

The show is about to celebrate its four-year anniversary, and I’m about to celebrate my one-year anniversary as a co-host. We’re all so thankful for your support, and can’t wait to bring you more laughs and learnings.

Our latest episodes:

Across the week

Seen on TechCrunch

The startup bootcamp you’ve always needed is finally here

Scoop: VCs are chasing Hopin upwards of $5-6B valuation

Lisbon’s startup scene rises as Portugal gears up to be a European tech tiger

Sources: Lightspeed Venture Partners is close to hiring a London-based partner to put down roots in Europe

Contra wants to be a community for independent workers

Seen on Extra Crunch

Ironclad’s Jason Boehmig: The objective of pricing is to become less wrong over time

As BNPL startups raise, a look at Klarna, Affirm and Afterpay earnings

4 essential truths about venture investing

And that’s the jam-packed week! As an insider tip to those that subscribe, I’m starting to cover health tech (along with edtech) for the TC team. So throw me the smartest person you know on the topic, and extra points if that’s you.

N

What the NFT? VC David Pakman dumbs down the digital collectibles frenzy and why it’s taking off now

Non-fungible tokens have been around for two years, but these NFTs, one-of-one digital items on the Ethereum and other blockchains, are suddenly becoming a more popular way to collect visual art, primarily, whether it’s an animated cat or an NBA clip or virtual furniture.

“Suddenly” is hardly an overstatement. According to the outlet Cointelegraph, during the second half of last year, $9 million worth of NFT goods sold to buyers; during one 24-hour window earlier this week, $60 million worth of digital goods were sold.

What’s going on? A thorough New York Times piece on the trend earlier this week likely fueled new interest, along with a separate piece in Esquire about the artist Beeple, a Wisconsin dad whose digital drawings, which he has created every single day for the last 13 years, began selling like hotcakes in December. If you need evidence of a tipping point (and it is ample right now), consider that the work of Beeple, whose real name is Mike Winkelmann, was just made available through Christie’s. It’s the venerable auction house’s first sale of exclusively digital work.

To better understand the market and why it’s blowing up in real time, we talked this week with David Pakman, a former internet entrepreneur who joined the venture firm Venrock a dozen years ago and began tracking Bitcoin soon after, even mining the cryptocurrency at his Bay Area home beginning in 2015. (“People would come over and see racks of computers, and it was like, ‘It’s sort of hard to explain.'”)

Perhaps it’s no surprise that he also became convinced early on of the promise of NFTs, persuading Venrock to lead the $15 million Series A round for a young startup, Dapper Labs, when its primary offering was CryptoKitties, limited-edition digital cats that can be bought and bred with cryptocurrency.

While the concept baffled some at the time, Pakman has long seen the day when Dapper’s offerings will be far more extensive, and indeed, a recent Dapper deal with the NBA to sell collectible highlight clips has already attracted so much interest in Dapper that it is reportedly right now raising $250 million in new funding at a post-money valuation of $2 billion. While Pakman declined to confirm or correct that figure, but he did answer our other questions in a chat that’s been edited here for length and clarity.

TC: David, dumb things down for us. Why is the world so gung-ho about NFTs right now?

DP: One of the biggest problems with crypto — the reason it scares so many people — is it uses all these really esoteric terms to explain very basic concepts, so let’s just keep it really simple. About 40% of humans collect things — baseball cards, shoes, artwork, wine. And there’s a whole bunch of psychological reasons why. Some people have a need to complete a set. Some people do it for investment reasons. Some people want an heirloom to pass down. But we could only collect things in the real world because digital collectibles were too easy to copy.

Then the blockchain came around and [it allowed us to] make digital collectibles immutable, with a record of who owns what that you can’t really copy. You can screenshot it, but you don’t really own the digital collectible, and you won’t be able to do anything with that screenshot. You won’t be able to to sell it or trade it. The proof is in the blockchain. So I was a believer that crypto-based collectibles could be really big and actually could be the thing that takes crypto mainstream and gets the normals into participating in crypto — and that’s exactly what’s happening now.

TC: You mentioned a lot of reasons that people collect items, but one you didn’t mention is status. Assuming that’s your motivation, how do you show off what you’ve amassed online? 

DP: You’re right that one of the other reasons why we collect is to show it off status, but I would actually argue it’s much easier to show off our collections in the digital world. If I’m a car collector, the only way you’re going to see my cars is to come over to the garage. Only a certain number of people can do that. But online, we can display our digital collections. NBA Top Shop, for example, makes it very easy for you to show off your moments. Everyone has a page and there’s an app that’s coming and you can just show it off to anyone in your app, and you can post it to your social networks. And it’s actually really easy to show off how big or exciting your collection is.

TC: It was back in October that Dapper rolled out these video moments, which you buy almost like a Pokemon set in that you’re buying a pack and know you’ll get something “good” but don’t know what. But while almost half it sales have come in through the last week. Why?

DP: There’s only about maybe 30,000 or 40,000 people playing right now. It’s growing 50% or 100% a day. But the growth has been completely organic. The game is actually still in beta, so we haven’t been doing any marketing other than posting some stuff on Twitter. There hasn’t been attempt to market this and get a lot of players [talking about it] because we’re still working the bugs out, and there are a lot of bugs still to be worked out.

But a couple NBA players have seen this and gotten excited about their own moments [on social media]. And there’s maybe a little bit of machismo going on where, ‘Hey, I want my moment to trade for a higher price.’ But I also think it’s the normals who are playing this. All you need to play is a credit card, and something like 65% of the people playing have never owned or traded in crypto before. So I think the thesis that crypto collectibles could be the thing that brings mainstream users into crypto is playing out before our eyes.

TC: How does Dapper get paid?

DP: We get 5% of secondary sales and 100% minus the cost of the transaction on primary sales. Of course, we have a relationship with the NBA, which collects some of that, too. But that’s the basic economics of how the system works.

TC: Does the NBA have a minimum that it has to be paid every year, and then above and beyond that it receives a cut of the action?

DP: I don’t think the company has gone public with the exact economic terms of their relationships with the NBA and the Players Association. But obviously the NBA is the IP owner, and the teams and the players have economic participation in this, which is good, because they’re the ones that are creating the intellectual property here.

But a lot of the appreciation of these moments — if you get one in a pack and you sell it for a higher price — 95% of that appreciation goes to the owner. So it’s very similar to baseball cards, but now IP owners can participate through the life of the product in the downstream economic activity of their intellectual property, which I think is super appealing whether you’re the NBA or someone like Disney, who’s been in the IP licensing business for decades.

And it’s not just major IP where this NFT space is happening. It’s individual creators, musicians, digital artists who could create a piece of digital art, make only five copies of it, and auction it off. They too can collect a little bit each time their works sell in the future.

TC: Regarding NBA Top Shot specifically, prices range massively in terms of what people are paying for the same limited-edition clip. Why?

DP: There are two reasons. One is that like scarce items, lower numbers are worth more than higher numbers, so if there’s a very particular LeBron moment, and they made 500 [copies] of them, and I own number one, and you own number 399, the marketplace is ascribing a higher value to the lower numbers, which is very typical of limited-edition collector pieces. It’s sort of a funny concept. But it is a very human concept.

The other thing is that over time there has been more and more demand to get into this game, so people are willing to pay higher and higher prices. That’s why there’s been a lot of price appreciation for these moments over time.

TC: You mentioned that some of the esoteric language around crypto scares people, but so does the fact that 20% of the world’s bitcoin is permanently inaccessible to its owners, including because of forgotten passwords. Is that a risk with these digital items, which you are essentially storing in a digital locker or wallet?

DP: It’s a complex topic,  but I will say that Dapper has tried to build this in a way where that won’t happen, where there’s effectively some type of password recovery process for people who are storing their moments in Dapper’s wallet.

You will be able to take your moments away from Dapper’s account and put it into other accounts, where you may be on your own in terms of password recovery.

TC: Why is it a complex topic?

DP: There are people who believe that even though centralized account storage is convenient for users, it’s somehow can be distrustful — that the company could de-platform you or turn your account off. And in the crypto world, there’s almost a religious ferocity about making sure that no one can de-platform you, that the things that you buy — your cryptocurrencies or your NFTs. Long term, Dapper supports that. You’ll be able to take your moments anywhere you want. But today, our customers don’t have to worry about that I-lost-my-password-and-I’ll-never-get-my-moments-again problem.

EC roundup: BNPL startups, growth marketing tips, solid state battery market map, more

When I needed a new sofa several months ago, I was pleased to find a buy now, pay later (BNPL) option during the checkout process. I had prepared myself to make a major financial outlay, but the service fees were well worth the convenience of deferring the entire payment.

Coincidentally, I was siting on said sofa this morning and considering that transaction when Alex Wilhelm submitted a column that compared recent earnings for three BNPL providers: Afterpay, Affirm and Klarna.

I asked him why he decided to dig into the sector with such gusto.


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“What struck me about the concept was that we had just seen earnings from Affirm,” he said. “So we had three BNPL players with known earnings, and I had just covered a startup funding round in the space.”

“Toss in some obvious audience interest, and it was an easy choice to write the piece. Now the question is whether I did a good job and people find value in it.”

Thanks very much for reading Extra Crunch this week! Have a great weekend.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

As BNPL startups raise, a look at Klarna, Affirm and Afterpay earnings

Pilot CEO Waseem Daher tears down his company’s $60M Series C pitch deck

Smashing brick work with hammer

Image Credits: Colin Hawkins (opens in a new window) / Getty Images

I avoid running Extra Crunch stories that focus on best practices; you can find those anywhere. Instead, we look for “here’s what worked for me” articles that give readers actionable insights.

That’s a much better use of your time and ours.

With that ethos in mind, Lucas Matney interviewed Pilot CEO Waseem Daher to deconstruct the pitch deck that helped his company land a $60M Series C round.

“If the Series A was about, ‘Do you have the right ingredients to make this work?’ then the Series B is about, ‘Is this actually working?'” Daher tells TechCrunch.

“And then the Series C is more, ‘Well, show me that the core business is really working and that you have unlocked real drivers to allow the business to continue growing.'”

Can solid state batteries power up for the next generation of EVs?

market-maps-battery-alt

Image Credits: Bryce Durbin

A global survey of automobile owners found three hurdles to overcome before consumers will widely embrace electric vehicles:

  • 30-minute charging time
  • 300-mile range
  • $36,000 maximum cost

“Theoretically, solid state batteries (SSB) could deliver all three,” but for now, lithium-ion batteries are the go-to for most EVs (along with laptops and phones).

In our latest market map, we’ve plotted the new and established players in the SSB sector and listed many of the investors who are backing them.

Although SSBs are years away from mass production, “we are on the cusp of some pretty incredible discoveries using major improvements in computational science and machine learning algorithms to accelerate that process,” says SSB startup founder Amy Prieto.

 

Dear Sophie: Which immigration options are the fastest?

lone figure at entrance to maze hedge that has an American flag at the center

Image Credits: Bryce Durbin/TechCrunch

Dear Sophie:

Help! Our startup needs to hire 50 engineers in artificial intelligence and related fields ASAP. Which visa and green card options are the quickest to get for top immigrant engineers?

And will Biden’s new immigration bill help us?

— Mesmerized in Menlo Park

 

Why F5 spent $2.2B on 3 companies to focus on cloud native applications

Dark servers data center room with computers and storage systems

Image Credits: Jasmin Merdan / Getty Images

Founded in 1996, F5 has repositioned itself in the networking market several times in its history. In the last two years, however, it spent $2.2 billion to acquire Shape Security, Volterra and NGINX.

“As large organizations age, they often need to pivot to stay relevant, and I wanted to explore one of these transformational shifts,” said enterprise reporter Ron Miller.

“I spoke to the CEO of F5 to find out the strategy behind his company’s pivot and how he leveraged three acquisitions to push his organization in a new direction.”

 

DigitalOcean’s IPO filing shows a two-class cloud market

Cloud online storage technology concept. Big data data information exchange available. Magnifying glass with analytics data

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

Cloud hosting company DigitalOcean filed to go public this week, so Ron Miller and Alex Wilhelm unpacked its financials.

“AWS and Microsoft Azure will not be losing too much sleep worrying about DigitalOcean, but it is not trying to compete head-on with them across the full spectrum of cloud infrastructure services,” said John Dinsdale, chief analyst and research director at Synergy Research.

 

Oscar Health’s initial IPO price is so high, it makes me want to swear

I asked Alex Wilhelm to dial back the profanity he used to describe Oscar Health’s proposed valuation, but perhaps I was too conservative.

In March 2018, the insurtech unicorn was valued at around $3.2 billion. Today, with the company aiming to debut at $32 to $34 per share, its fully diluted valuation is closer to $7.7 billion.

“The clear takeaway from the first Oscar Health IPO pricing interval is that public investors have lost their minds,” says Alex.

His advice for companies considering an IPO? “Go public now.”

 

If Coinbase is worth $100 billion, what’s a fair valuation for Stripe?

Last week, Alex wrote about how cryptocurrency trading platform Coinbase was being valued at $77 billion in the private markets.

As of Monday, “it’s now $100 billion, per Axios’ reporting.”

He reviewed Coinbase’s performance from 2019 through the end of Q3 2020 “to decide whether Coinbase at $100 billion makes no sense, a little sense or perfect sense.”

 

Winning enterprise sales teams know how to persuade the Chief Objection Officer

woman hand stop sign on brick wall background

Image Credits: Alla Aramyan (opens in a new window) / Getty Images

A skilled software sales team devotes a lot of resources to pinpointing potential customers.

Poring through LinkedIn and reviewing past speaker lists at industry conferences are good places to find decision-makers, for example.

Despite this detective work, GGV Capital investor Oren Yunger says sales teams still need to identify the deal-blockers who can spike a deal with a single email.

“I call this person the Chief Objection Officer.

 

3 strategies for elevating brand authority in 2021

Young woman standing on top of tall green bar graph against white background

Image Credits: Klaus Vedfelt / Getty Images

Every startup wants to raise its profile, but for many early-stage companies, marketing budgets are too small to make a meaningful difference.

Providing real value through content is an excellent way to build authority in the short and long term,” says Amanda Milligan, marketing director at growth agency Fractl.

 

RIBS: The messaging framework for every company and product

Grilled pork ribs with barbecue sauce on wooden background

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

The most effective marketing uses good storytelling, not persuasion.

According to Caryn Marooney, general partner at Coatue Management, every compelling story is relevant, inevitable, believable and simple.

“Behind most successful companies is a story that checks every one of those boxes,” says Marooney, but “this is a central challenge for every startup.”

 

Ironclad’s Jason Boehmig: The objective of pricing is to become less wrong over time

On a recent episode of Extra Crunch Live, Ironclad founder and CEO Jason Boehmig and Accel partner Steve Loughlin discussed the pitch that brought them together almost four years ago.

Since that $8 million Series A, Loughlin joined Ironclad’s board. “Both agree that the work they put in up front had paid off” when it comes to how well they work together, says Jordan Crook.

“We’ve always been up front about the fact that we consider the board a part of the company,” said Boehmig.


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At TC Early Stage, we’ll cover topics like recruiting, sales, legal, PR, marketing and brand building. Each session includes ample time for audience questions and discussion.

Use discount code ECNEWSLETTER to take 20% off the cost of your TC Early Stage ticket!

With $62.5M in debt financing, Road Runner Media puts digital ads behind commercial vehicles

If Southern California-based Road Runner Media succeeds, you’ll start seeing a lot more ads while you’re driving.

That’s because the startup is placing digital screens on the backs technicians’ vans, delivery vehicles, buses and other commercial vehicles. Those screens can show both ads and serve as a brake light — according to founder and chairman Randall Lanham, the brake light functionality is required if you’re putting a sign on the back of a vehicle.

“The way we look at it, we are a digital brake light,” Lanham said. Yes, the brake light is showing ads, but “the driver touching the brakes interrupts the ad.” (The sign can also indicate turns, reversing and emergency flashers. You can see a mock-up ad in the image above, and real footage in the video below.)

To pursue this idea, Lanham (who described himself as a “recovering attorney”) enlisted Chris Riley as CEO — Riley’s past experience includes several years as CEO of PesiCo Australia and New Zealand. And the company announced this week that it has secured $62.5 million in debt financing from Baseline Growth Capital.

The idea of putting ads on moving vehicles isn’t new. There are, of course, ads on the tops of taxis, and startups like Firefly are also putting digital signage on top of Ubers and Lyfts. But Riley said Road Runner’s ruggedized, high-resolution LCD screens are very different, due to their size, quality and placement.

“[Taxi-top ads] don’t have the color, the brilliance, the clarity,” he said. “We can run a true video ad on the screen.”

Riley also said the ads can be targeted based on GPS and time of day, and that the company eventually plans to add sensors to collect data on who’s actually seeing the ads.

As for concerns that these big, bright screens might distract drivers, Lanham argued they’re actually attracting driver’s eyes to exactly where they should be, and creating a brake light that’s much harder to ignore.

“Your eyes are affixed on the horizon, which is what the [Department of Transportation] wants — as opposed to on the floor or the radio or directly off to the left or right,” he said. “That’s where your safest driving occurs, when your eyes are up above the dashboard.”

In fact, Lanham said he’s “very passionate” about the company’s mission, which in his view will make roads safer, and is creating a platform that could also be used to spread public service messages.

“We have the ability to retrofit any vehicle and make it safer on the highways,” he added. “I really, truly believe that we will save lives, if we already haven’t.”

The company says it already has 150 screens live in Atlanta, Boulder, Chicago, Dallas and Los Angeles, with plans to launch screens in Philadelphia and Washington, D.C. in March.

 

Broaden your view of ‘best’ to make smarter, more inclusive investments

What can we learn from the best 40 venture capital investments of all time? Well, we learn to invest exclusively in men, preferably white or Asian.

We reviewed CB Insights’ global list of “40 of the Best VC Bets of all Time.” All of the 40 companies’ 92 founders were male.

  • Of the 43 U.S.-based founders, 35 were white American; four were white immigrant/first generation, from France, Ukraine, Russia and Iran; and four were Indian immigrant/first generation.
  • Of the 19 Western Europe/Israel-based founders, all were white.
  • Of the 30 Asia-based founders, all were natives of the country in which they built their businesses: 23 Chinese, three Japanese, two Korean and two Indian.

Of course, this dataset is incomplete. There are numerous examples of founders from underrepresented backgrounds who have generated extremely impressive returns. For example, Calendly’s Tope Awotona is Nigerian American; Sendgrid’s Isaac Saldana is Latinx; and Bumble’s Whitney Wolfe Herd is the second-youngest woman to take a company public.

That said, the pattern in the dataset is striking. So, why invest in anyone who’s not a white or Asian male? 

The conventional answer is that diversity pays. Research from BCG, Harvard Business Review, First Round Capital, the Kauffman Foundation and Illuminate Ventures shows that investors in diverse teams get better returns:

  • Paul Graham, cofounder of Y Combinator (2015): “Many suspect that venture capital firms are biased against female founders. This would be easy to detect: among their portfolio companies, do startups with female founders outperform those without? A couple months ago, one VC firm (almost certainly unintentionally) published a study showing bias of this type. First Round Capital found that among its portfolio companies, startups with female founders outperformed those without by 63%.”
  • Kauffman Fellows Report (2020): “Diverse Founding Teams generate higher median realized multiples (RMs) on Acquisitions and IPOs. Diverse Founding Teams returned 3.3x, while White Founding Teams returned 2.5x. The results are even more pronounced when looking at the perceived ethnicity of the executive team. Diverse Executive Teams returned 3.3x, while White Executive Teams only returned 2.0x. As mentioned above, we report realized multiples (RMs) only for successful startups that were acquired or went through the IPO process.”
  • BCG (June 2018): “Startups founded and cofounded by women actually performed better over time, generating 10% more in cumulative revenue over a five-year period: $730,000 compared with $662,000.”
  • BCG (January 2018): “Companies that reported above-average diversity on their management teams also reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity — 45% of total revenue versus just 26%.”
  • Peterson Institute for International Economics (2016): “The correlation between women at the C-suite level and firm profitability is demonstrated repeatedly, and the magnitude of the estimated effects is not small. For example, a profitable firm at which 30 percent of leaders are women could expect to add more than 1 percentage point to its net margin compared with an otherwise similar firm with no female leaders. By way of comparison, the typical profitable firm in our sample had a net profit margin of 6.4 percent, so a 1 percentage point increase represents a 15 percent boost to profitability.”

How do we reconcile these two sets of data? Research going back a decade shows that diverse teams, companies and founders pay, so why are all of the VC home runs from white men, or Asian men in Asia, plus a few Asian men in the U.S.?

First Round did not include their investment in Uber in their analysis we reference above on the grounds that it was an outlier. Of course, one could rebut that by saying traditional VC is all about investing in outliers.

  • Seth Levine analyzed data from Correlation Ventures (21,000 financings from 2004-2013) and writes that “a full 65% of financings fail to return 1x capital. And perhaps more interestingly, only 4% produce a return of 10x or more, and only 10% produce a return of 5x or more.” In Levine’s extrapolated model, he found that in a “hypothetical $100M fund with 20 investments, the total number of financings producing a return above 5x was 0.8 – producing almost $100M of proceeds. My theoretical fund actually didn’t find their purple unicorn, they found 4/5ths of that company. If they had missed it, they would have failed to return capital after fees.”
  • Benedict Evans observes that the best investors don’t seem to be better at avoiding startups that fail. “For funds with an overall return of 3-5x, which is what VC funds aim for, the overall return was 4.6x but the return of the deals that did better than 10x was actually 26.7x. For >5x funds, it was 64.3x. The best VC funds don’t just have more failures and more big wins —  they have bigger big wins.”

The first problem with the outlier model of investing in VC is that it results in, on average, poor returns and is a risker proposition compared to alternative models. The Kauffman Foundation analyzed their own investments in venture capital (100 funds) over a 20-year period and found “only 20 of the hundred venture funds generated returns that beat a public-market equivalent by more than 3% annually,” while 62 “failed to exceed returns available from the public markets, after fees and carry were paid.”

The outlier model of investing in VC also typically results in a bias toward investing in homogeneous teams. We suggest that the extremely homogeneous profiles of the big wealth creators above reflect the fact that these are people who took the biggest risks: financial, reputational and career risk. The people who can afford to take the biggest risks are also the people with the most privilege; they’re not as concerned about providing for food, shelter and healthcare as economically stressed people are. According to the Kauffman Foundation, a study of “549 company founders of successful businesses in high-growth industries, including aerospace, defense, computing, electronics and healthcare” showed that “more than 90 percent of the entrepreneurs came from middle-class or upper-lower-class backgrounds and were well-educated: 95.1 percent of those surveyed had earned bachelor’s degrees, and 47 percent had more advanced degrees.” But when you analyze the next tier down of VC success, the companies that don’t make Top 40 lists but land on Top 500 lists, you see a lot more diversity.

In VC, 100x investment opportunities only come along once every few years. If you bet your VC fund on opportunities like that, you’re relying on luck. Hope is not a strategy. There are many 3x-20x return opportunities, and if you’re incredibly lucky (or Chris Sacca), you might get one 100x in your career.

We prefer to invest based on statistics, not luck. That’s why Versatile VC provides companies with the option of an “alternative-VC” model, using a non-traditional term sheet designed to better align incentives between investors and founders. We also proactively seek to invest in diverse teams. Given the choice of running a fund with one 100x investment, or a fund with two 10x investments, we’ll take the latter. The former implies that we came perilously close to missing our one home run, and therefore we’re not doing such a great job investing.

“While we all want to have invested in those exciting home-runs/unicorns, most investors are seeking the data points to construct reliable portfolios,” Shelly Porges, co-founder and managing partner of Beyond the Billion, observed. “That’s not about aiming for the bleachers but leveraging experience to reliably deliver on the singles and doubles it takes to get to home base. A number of the institutional investors we’ve spoken to have gone so far as to say that they can no longer meet their targets without alternatives, including venture investments. “

Lastly, the data above reflects companies that typically took a decade to build. As the culture changes, we anticipate that the 2030 “Top 40” wealth creators list will include many more people with diverse backgrounds. Just in 2018, 15 unicorns were born with at least one woman founder; in 2019, 21 startups founded or co-founded by a woman became unicorns. Why?

  • “All else being equal, a larger pool of female-founded companies to select from for VC investing should increase the odds of a higher number of female-founded VC home runs,” said Michael Chow, research director for the National Venture Capital Association and Venture Forward. According to PitchBook, investments in women-led companies grew approximately 54 percent from 2015 to 2019, from 459 to 709. In the first three quarters of 2020, there have been 468 fundings of women-led companies; this figure beats 2015, 2016 and nearly 2017 total annual fundings. ProjectDiane highlights that from 2018 to 2020, the number of Black women who have raised $1 million in venture funding nearly tripled, and the number of Latinx women doubled. Their average two-year fail rate is also 13 percentage points lower than the overall average.
  • “Millennials value a diverse workforce,” Chow added, according to Gallup and Deloitte Millennial surveys. “In the battle for talent, diverse founders may have the edge in attracting the best and brightest, and talent is what is required for going from zero to one.”
  • The rise in popularity of alternative VC models, which are disproportionately attractive to women and underrepresented founders. We are in the very early days of this wave; according to research by Bootstrapp, 32 U.S. firms have launched an inaugural Revenue-Based Finance fund. Clearbanc notes on their site they have “invested in thousands of companies using data science to identify high-growth funding opportunities. This data-driven approach takes the bias out of decision making. Clearbanc has funded 8x more female founders than traditional VCs and has invested in 43 states in the U.S. in 2019.”
  • More VCs are working proactively to market to underrepresented founders. Implicit biases are robust and pervasive; it takes a proactive and intentional approach to shift the current status quo of funding,” Dreamers & Doers Founder Gesche Haas said. Holly Jacobus, an investment partner at Joyance Partners and Social Starts, noted that “we’re proud to boast a portfolio featuring ~30% female founders in core roles —  well above the industry average —  without specific targeting of any sort. However, there is still work to be done. That’s why we lean heavily on our software and CEOs to find the best tech and teams in the best segments, and we are always actively working on improving the process with new systems that remove bias from the dealflow and diligence process.”

Thanks to Janet Bannister, managing partner, Real Ventures, and Erika Cramer, co-managing member, How Women Invest, for thoughtful comments. David Teten is a past Advisor to Real Ventures.

In freemium marketing, product analytics are the difference between conversion and confusion

The freemium marketing approach has become commonplace among B2C and B2B software providers alike. Considering that most see fewer than 5% of free users move to paid plans, even a slight improvement in conversion can translate to significant revenue gains. The (multi) million-dollar question is, how do they do it?

The answer lies in product analytics, which offer teams the ability to ask and answer any number of questions about the customer journey on an ad-hoc basis. Combined with a commitment to testing, measurement and iteration, this puts data in the driver’s seat and helps teams make better decisions about what’s in the free tier and what’s behind the paywall. Successful enterprises make this evaluation an ongoing exercise.

Often, the truth of product analytics is that actionable insights come from just a fraction of the data and it can take time to understand what’s happening.

Sweat the small stuff

A freemium business model is simply a set of interconnected funnels. From leads all the way through to engagement, conversion and retention, understanding each step and making even small optimizations at any stage will have down-funnel implications. Start by using product analytics to understand the nuances of what’s working and what isn’t, and then double down on the former.

For example, identify specific personas that perform well and perform poorly. While your overall conversion average may be 5%, there can be segments converting at 10% or 1%. Understanding the difference can shine a light on where to focus. That’s where the right analytics can lead to significant results. But if you don’t understand what, why and how to improve, you’re left with guesswork. And that’s not a modern way of operating.

There’s a misconception that volume of data equals value of data. Let’s say you want to jump-start your funnel by buying pay-per-click traffic. You see a high volume of activity, with numbers going up at the beginning of your funnel and a sales team busy with calls. However, you come to learn the increased traffic, which looked so promising at the outset, results in very few users converting to paid plans.

Now, this is a story as old as PPC, but in the small percentage that do convert, there’s a lot to learn about where to focus your efforts — which product features keep users hooked and which ones go unused. Often, the truth of product analytics is that actionable insights come from just a fraction of the data and it can take time to understand what’s happening. Getting users on board the free plan is just the first step in conversion. The testing and iteration continue from there.

The dropped and the languished

Within the free tier, users may languish — satisfied with whatever features they can access. If your funnel is full of languishing users, you’ve at least solved the adoption problem, so why are they stuck? Without a testing and tracking approach, you’ll struggle to understand your users and how they respond, by segment, to changes.

How to ace the 1-hour, and ever-elusive, pitch presentation at TC Early Stage

Lisa Wu, a partner at Norwest with investments like Calm, Plaid, Opendoor and Grove Collaborative, has a message for founders: Think like a VC during your pitch presentation. After all, accepting capital isn’t simply adding more money to your balance sheet. It is about picking a venture partner who will be there with you through the highs and lows. Some even liken it to a marriage that you can’t divorce from.

No pressure, of course.

Don’t worry, we won’t leave you hanging: Wu is joining us at TechCrunch Early Stage, our annual event with content specifically tailored to first-time founders and investors, to talk about exactly this.

Before Norwest, Wu worked in Amazon’s corporate development team, Bessemer Venture Partners and founded BANZAI, which brought food focused on quality and nutrition to schools.

With experience on both sides of the investing table, Wu is going to talk about how founders can make the most out of each minute within a one-hour pitch presentation. She’ll discuss ways that founders can read the virtual room, how to take advice and how to talk big-picture ideas to convey market size and competition.

Wu joins a fantastic cast of top experts, discussing topics such as fundraising, operations and marketing. Her workshop is part of the two days of events that explore seed and Series A fundraising, recruiting and more for early-stage startups at TC Early Stage – Operations and Fundraising on April 1 & 2. Grab your ticket now before prices increase tonight!

 

Hear from Black Female Founders, Latinx founders, Startout and Socos Labs next week at TC Sessions: Justice 2021

We’re less than a week away from TC Sessions: Justice 2021, a deep, day-long exploration of diversity, inclusion and equity in tech. On Wednesday, March 3, leading experts, founders, social justice warriors will discuss topics ranging from systemic bias, essential workers’ rights and formerly incarcerated people to accountability in social media and funding for underrepresented communities. And that’s just for starters.

Pause for a cause: Tickets to this event are just $5 — we want as many diverse voices at the table as possible. Secure your seat at this event today and join this essential conversation.

In addition to panel discussions and workshops (you’ll find the agenda here), don’t miss the smaller breakout sessions where you’ll have more opportunity to ask questions and share specific challenges with our speakers, editors and each other.

The smaller breakouts at every TC Sessions — regardless of their focus — lend themselves to deeper conversations as noted by Karin Maake, senior director of communications at FlashParking, who attended TC Sessions: Mobility.

“I enjoyed the big marquee speakers, but it was the individual presentations where you really started to get into the meat of the conversation.”

There’s no shortage of fascinating presentations but be sure to leave room in your day to dig a little deeper into these breakout sessions waiting for you at TC Sessions: Justice 2021.

Black Female Unicorns in the Making: With all of the economic and racial disparities that have become so pronounced, this timely session will unpack the skills, tools and networks required along every stage of this journey. We will also share insights on what role policy, philanthropy and civic organizations might play in helping to address the systemic challenges, roadblocks and obstacles that have historically served as barriers. Brought to you by Black Female Founders.

Latinx Founders Leading with Inclusion: Hear from Latinx Founders who are leading with inclusion through diverse teams and/or supporting a diverse mission. Inclusion is a part of their DNA. Featuring William Falcon (Grid.ai), Fanny Grande and Nelson Grande (Avenida), Martha Hernandez (madeBOS), Jesse Martinez (Latinx Startup Alliance) and Federico Von Son (SOMOS). Brought to you by Latinx Founders Alliance.

The Impact of Out LGBTQ+ Entrepreneurs: StartOut and Socos Lab are excited to speak at TechCrunch Justice, and cover the Inclusion Impact Indexes. Its first iteration; the StartOut Pride Economic Impact Index quantifies the economic value of under-utilized LGBTQ+ entrepreneurs. The project looks at entrepreneurs’ economic impact in terms of job creation, patents, financings and exits in the U.S. Our agenda will be a brief introduction, a demo of the index and its current findings, and a Q&A discussion with the publishers of the index. Featuring Sarah Burgaud and Jessica Chin Foo (StartOut), and Dr. Vivienne Ming (Socos Labs). Brought to you by Startout.

TC Include Founders Pitch Feedback Sessuib: Join us for a pitch feedback session open to all startups exhibiting at TC Sessions: Justice 2021 moderated by TechCrunch staff.

Add your voice to the essential conversations taking place on March 3. Reserve your seat today and learn how to build a more diverse and just tech industry at TC Sessions: Justice 2021.

Only a few hours left to buy early bird passes to TC Early Stage 2021

By now you probably know that we’re hosting two TC Early Stage events this year — one on April 1-2 and another on July  8-9 — each with its own set of topics, speakers and content — both designed to help nascent startup founders build a better, more successful business.

What you may not know is that you have only a few hours left to take advantage of early bird pricing on a single event or dual-event pass. Beat the deadline — 11:59 p.m. (PT) tonight — score the lowest possible price and save $100.

TC Early Stage functions like a mini-bootcamp for entrepreneurs. You’ll hear from top experts, founders and investors from across the startup ecosystem. They’ll share valuable tips, advice and hard-won lessons they learned in the trenches. We’re talking issues that every startup founder needs to master or understand well enough to delegate wisely.

Our slate of experts will present workshops on subjects like operations, fundraising, pitch deck pointers, term sheet tips, product-market fit, brand building, growth marketing, recruiting, taming your tech stack and a lot more.

Here are just two examples to whet your entrepreneurial appetite. Marlon Nichols, founding managing partner of MaC Venture Capital, will discuss how to get noticed by investors, how to grow your business and how to survive in the crowded, competitive space of tech startups. He’ll offer insights on how to network, craft a great pitch and target the best investors for your success.

You’re just beginning to build your startup — what could go wrong? Plenty according to Fuel Capital’s Leah Solivan. Currently an early-stage investor, Solican founded TaskRabbit, a startup she led to a successful exit in 2017 (acquired by IKEA). She’ll share ways to avoid making big mistakes early in your founding journey.

We reserved day two of TC Early Stage for something truly exciting — the TC Early Stage Pitch Off. We sent out a call for competitors and the response was overwhelming. Narrowing the field wasn’t easy, but we chose 10 early-stage startup founders. They’ll each get five minutes to deliver their best pitch to a panel of prominent VC judges — followed by a five-minute Q&A. Those judges will pick three founders to move to the finals for a second pitch-and-Q&A to a new set of judges. The winner receives a feature article on TechCrunch.com, a free, one-year subscription to ExtraCrunch and a free Founder Pass to TechCrunch Disrupt 2021.

TC Early Stage 2021 takes place on April 1-2. Learn the best ways to build a better, more successful business from the folks who paved the way. Buy your pass before the deadline hits tonight at 11:59 pm (PT) and save up to $100.