Precursor Ventures’ Charles Hudson on ‘the conversation no one has during an upmarket’

For pre-seed startups, precarious times are baseline until they secure their first customer, first hire and first check. But no matter how built-in turbulence might be for a pre-seed founder, we’re entering a period where stresses are amplified and outlooks are unpredictable.

In light of the new market conditions, a harder fundraising market and slower expected growth, Charles Hudson (founder and general partner of Precursor Ventures) is urging his portfolio companies to reassess their futures with a refreshingly human question: “Are you excited and prepared to run this company for the next two years?

If not, you might want to do something else. Why? Because if a super early-stage company manages to survive the COVID-19 era, making it out the other end, it’s not clear that they’ll be venture-ready when markets recover. As Hudson put it, “there’s never been a better time to maybe fold.” That’s because, he explained, startups that merely survive won’t be judged merely against their peers that also survived; they will also compete with brand-new startups for capital and companies that didn’t need to hunker down during lean times.

It’s possible to make it through, but it won’t be an easy path.

TechCrunch spoke with Hudson earlier this week as part of our ongoing Extra Crunch Live series that brings leading founders and investors to our (virtual) stage. Between our editors and journalists and the best questions from the audience, we’re working with guests to understand the new world that we find ourselves in. That we’re hosting these events virtually instead of in-person is testament to our changed reality.

But the chat was far from all gloom; Hudson is bullish on a number of things. Niche publications with subscription economics? Yes. Social services targeting particular audiences? Yep! Precursor is still cutting checks into net-new deals, and while it’s wrapping up its second main fund and first opportunity fund, the firm is also raising a new, larger capital pool.

The conversation ran the full hour we had set aside for it, meaning we had to condense some later discussions about fintech and the new trade-off between growth and profit, but we did get to diversity in venture and startups in the future, and what impact a recession might have on both (it’s a bigger possible impact than you’re considering).

Hit the jump for the best Hudson takeaways and the full audio recording from the session. Head here if you need Extra Crunch access; there are some trials for just a few bucks, so everyone can access the chat. Let’s go!

Raising a fund in the COVID-19 era

Daily Crunch: Stripe now valued at $36B

Stripe raises new funding, Uber acknowledges financial uncertainty and a controversial facial recognition startup accidentally exposes its source code.

Here’s your Daily Crunch for April 17, 2020.

1. Stripe raises $600M at $36B valuation in Series G extension, says it has $2B on its balance sheet

The economy may be contracting as a result of the COVID-19 pandemic, but promising startups are still continuing to raise money to shore up finances for whatever may lie ahead.

The latest development: Stripe, a well-known payments unicorn, announced that it had raised another $600 million in new capital, money that it plans to use to continue investing in product development, further global expansion and strategic initiatives.

2. Uber withdraws 2020 guidance

“Given the evolving nature of COVID-19 and the uncertainty it has caused for every industry in every part of the world, it is impossible to predict with precision the pandemic’s cumulative impact on our future financial results,” Uber said in a statement.

3. Security lapse exposed Clearview AI source code

The controversial facial recognition startup allows its law enforcement users to take a picture of a person, upload it and match it against its alleged database of 3 billion images, which the company scraped from public social media profiles. And for a time, a misconfigured server exposed the company’s internal files, apps and source code for anyone on the internet to find.

4. Changing policy, Y Combinator cuts its pro rata stake and makes investments case-by-case

Under its new policy, the accelerator is reducing its pro rata investment size from 7% to 4% and is only investing on a case-by-case basis going forward. Apparently the portfolio has gotten too large for blanket investments, and some of the limited partners who back the accelerator’s operations are balking at making commitments to the pro rata program.

5. Announcing the Extra Crunch Live event series

First up: We’ll be chatting with Aileen Lee (former KPCB partner, founder and managing director at Cowboy.vc and coiner of the term “Unicorn”) and Ted Wang (Cowboy.vc partner, former partner at Fenwick & West, and former outside counsel to Facebook, Twitter, Dropbox, Square and more) on Monday, April 20. And yes, you’ll need to be an Extra Crunch member to tune in.

6. NASA reveals ambitious multi-spacecraft plan to bring a piece of Mars back to Earth

NASA has said many times that it intends to collect a sample from Mars and return it to Earth. But how will the organization go about scooping up soil from the surface of a distant planet and getting it back here? With a newly-revealed plan that sounds straight out of sci-fi.

7. Facebook’s annual virtual reality conference goes virtual-only

Facebook announced that it will be shelving the in-person component of its virtual reality-focused Oculus Connect 7 conference due to COVID-19 concerns and focusing on a digital format. Although the company hadn’t announced dates for the event, the conference is typically held in late September or early October.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 9am Pacific, you can subscribe here.

Saving, not spending, is the new hotness in fintech

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

Yesterday news broke that Robinhood is on the hunt for new capital at a roughly flat valuation, per friend of the blog Katie Roof. If you are a bit confused by the news, I understand. Robinhood went through a gauntlet of bad press and user complaints after it suffered from some embarrassing downtime back in March, and isn’t the capital market for private companies in rough shape?

But the round is more reasonable than you’d think, namely because Robinhood’s revenue has reached real scale, and, like other savings and investing-focused financial applications, it’s enjoying a boom in demand. Showing that there’s buzz in helping people save, let’s talk about Robinhood briefly and dig into some other metrics from its loose cohort of companies (including M1 Finance, more about them in a moment) .

Growth

All press is good press for Robinhood

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

This week the Key Three were back with Danny Crichton, Natasha Mascarenhas, and Alex Wilhelm taking on the news while Chris Gates kept everything perfect.

Alex apologizes for the math error you’ll hear, naturally. 36 divided by four, is, of course, nine.

Turning to the show, as has been the case every single week since we cannot recall when, we had a hell of a packed agenda.; there were new funds to talk about, there were rounds aplenty. As the unicorn era hands the baton to the COVID-19 downturn, there still more than we can get through each week.

But we did manage all that follows:

And, breathing out, that was the show. Thanks for sticking with us through the pandemic and not having a commute. It’s a treat to have you here.

Equity drops every Monday at 7:00 AM PT and Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Podium rolls out payments for its customer-focused local business SaaS service

Podium, a Utah-based SaaS company focused on small business customer interactions, added payments technology to its product suite today. The move accretes a new income stream to the company’s quickly growing annual recurring revenue (ARR).

While I tend to stay away from product news, Podium’s decision to add payment technology to its service hit a number of themes that we’ve recently explored, like the rise of payments technology players (Finix, for example) and how it is increasingly common to see fintech and finservices solutions find their way into new places.

And Podium is one of SaaS’s fastest growing companies. Cribbing from some prior reporting, Podium’s ARR grew reached roughly $30 million at the end of 2017. It expected to reach $60 million by the end of 2018, and had $100 million in its sights for 2019. Those figures, collected in November, are now decidedly out of date. But they illustrate how quickly Podium was growing before it added payments to its arsenal.

I wanted to dig into the news, so I emailed with Eric Rea, the company’s CEO. What follows is an email exchange (due to scheduling difficulties). We’ll chat after about what was said.

Context

TechCrunch: Did Podium build out its own payments tech or does it employ third-party tech like Finix?

Podium: Podium has a great relationship with Stripe, a fellow Y Combinator company, which was partnered with our own technology to make it work best for our customers. This was key in order to create a payment tool that actually works in the kinds of businesses we work with. [The] majority of businesses who operate from a physical location, from dentist offices and home services companies to larger retail stores, have very specific needs that haven’t been met by traditional card present or POS systems. As a result, many of them rely on mailing paper invoices or awkward conversations where someone gives their card info over the phone. Putting Podium’s platform technology alongside Stripe’s best-in-class processing tech was able to finally meet this need for the companies that create roughly a third of the US non-farming GDP.

TechCrunch: Does the majority of the economics (profit/margin) from the payments product accrue to the Podium client, or Podium itself?

Podium: The genius behind this product is just how immense the economic impact is for these companies. For many of them, they are able to create a whole new convenient way to serve their customers through conversational commerce, and in doing so, they are able to be more successful.

One of our major furniture retailers that participated in the beta of Payments told me about how there has been a completely new selling motion that has opened up for their stores through this product. One of their biggest leaks was when customers would come in and look at a couch or dresser, but didn’t know if dimensions would work in their home. Once they left, there was a steep drop off getting them back into the store to actually make the purchase.

Now, with Payments, they are able to give all the info to their customer, have them check it out in their home and then text them if it works or not. They can then use Payments to collect payment in the very same text conversation and the delivery crew can complete the purchase all in the same day without having the customer return to the store. So it’s not just shifting where they are processing their payments, but opening up new revenue that they would never have had before they started using Payments.

Then consider the ancient process that businesses are still using who invoice for services, like a dentist or a home services provider. Majority are still using mailed statements and invoices or phone conversations. Believe it or not, the expenses for these are immense. Not only that, but the turnaround and success rates are abysmal, meaning these businesses have to wait weeks to months in order to receive payment, if at all. With Payments, it is as quick as a seamless text.

In our beta, Payments tripled the conversion rates over invoices and reduced employee workload related to payment by 80%. In healthcare, for example, 40% of customers send payment within 48 hours. To get that same level through their legacy operations, it would take 14 days to get to that point. The economic impact on that speed and completion is astounding for these businesses.

On the processing, Podium sees the profit on the transaction cost.

TechCrunch: Does Podium anticipate that payments will provide material revenue over the next 18 months? 36?

Podium: Yes. We see this as being the second major phase of the Podium platform. We have been proud to have created one of the fastest growing SaaS companies in history through our existing products. We have 43,000 businesses currently using Podium, and one of the biggest things they have all been telling us is how much they need a tool like this. Just in our existing customer base and verticals, they are creating more than $100B in gross processing volume annually in payments that are better suited to be done through this tool.

TechCrunch: How long did it take to build out the tech?

Podium: This product actually took the longest of all of our products to develop, given the unique expectations and requirements it took on the technology side. This product has been about a year in the making. When it comes to the business of making money and us being the facilitator of that, we take it very seriously to ensure the tool is secure and stable.

TechCrunch: What percent of Podium customers are good candidates to use the tech?

Podium: Almost universal. We gave a lot of intention behind making this a tool that would work across market verticals so that our customers could provide a better experience for their customers and get paid faster at the same time.

TechCrunch: What is the fee and cost structure?

Podium: We charge a flat rate for processing, which is intentional to allow transparency and consistency in their fees.

So what?

It’s not a surprise that Podium is taking the economics of the payment processing (with Stripe doing well at the same time). This means that Podium’s business itself will grow thanks to its addition.

At the same time, the clients using Podium’s platform also do well. If the feature can assist as many companies as Podium expects, then it could help a host of small, local firms boost their sales by improving their respective close rates. Even merely faster payments could help smaller shops better manage their cash flow.

So this feels a bit like a win-win. And it goes to show that the addition of payments to other bits of tech is more than hype (Finix will like that). Instead, it feels like adding the ability for transactions to flow directly through one’s platform is going to rise in popularity. Podium is not the first to the trend, and it won’t be the last. But it is a company that could accelerate the trend thanks to its scale and, so far at least, success.

What we’d love to see, frankly, is an S-1 from Podium this year; that would allow us to better dissect its business. Now at least we’ll have one more thing to look for when we do get the document.

Visa is acquiring Plaid for $5.3 billion, 2x its final private valuation

Visa announced today that it is buying financial services API startup Plaid for $5.3 billion. 

Plaid develops financial services APIs. It is akin to what Stripe does for payments, but instead of facilitating payments, it helps developers share banking and other financial information more easily. It’s the kind of service that makes sense for a company like Visa.

The startup bought Quovo two years ago to move beyond just banking, and into broader financial services and investments. The idea was to provide a more holistic platform for financial services providers. As the founders wrote in a blog post at the time of the acquisition, “Financial applications have historically used Plaid primarily to interact with checking and savings accounts. In acquiring Quovo, we are extending our capabilities to a wider class of assets.”

The Price

Plaid’s exit price is a triumph for its investors, who put a combined $353.3 million into the company, according to Crunchbase data. Most important among those rounds was a $250 million infusion that came in late 2018. Index and Kleiner led that round, valuing Plaid at $2.65 billion, or 50% of its final sale price (we doubt that that ratio is a coincidence).

At the same time, it was later revealed, Mastercard and Visa also took part in the round, with TechCrunch reporting in 2019 that the two payments giants “quietly participated in the round.” 

Whether those investments were large enough to grand Visa information rights isn’t clear, but certainly the two credit card giants had more insight into what Plaid was doing than they did before their investment. We can presume, then, that Plaid was doing well as a private company; no one pays twice a multi-billion dollar valuation for a firm unless they want to keep it away from their core business, or a key competitor. 

Or perhaps both in the case of Plaid.

The Twilio comparison

Plaid is often compared to Twilio, another API-first company that sits in the background, helping other players do business. Noyo, on the early-stage front, is doing something similar with its healthcare information and insurance APIs. Stripe, as mentioned above, is similar but in the payment space. The model has proved lucrative for Twilio, which has soared as a public company; Plaid’s huge exit will add extra shine to the startup varietal.

However, unlike Twilio, Plaid was bought while still private, depriving us of a good look into its figures. We anticipate that they would show growth in high-margin revenues. That’s something that all companies, public and private, covet.

For Visa, however, there’s likely something more to the deal. Namely it now has a view into scads of high-growth, private companies that are reinventing the world that Visa operates in. Buying Plaid is insurance against disruption for Visa, and also a way to know who to buy. 

But for today, it’s a win for Plaid shareholders (including employees).

Cross-border investments aren’t dead, they’re getting smarter