Politico sells, Forbes SPACs and Vice cuts

The Equity crew felt that there was enough media news out recently that we simply had no choice but to fire up a Twitter Space and have a chat. The above episode is a discussion of a few things, in a loose and relaxed manner, so don’t take any of the Verizon jokes too seriously, Verizon, as we still work for you. For a few more days.

Regardless, here’s what Danny and Alex got into:

  • Politico sells for $1 billion: Its new parent company Axel Springer is also buying the rest of Politico Europe and all of Protocol at the same time. This deal exploded everyone’s Twitter feed due to its scale, and the fact that it was one heck of an exit for a media company. One billion dollars? For media? In this economy? Yes!
  • Forbes is going public via a SPAC: Yep, the venerable Forbes magazing and its enormous digital arm are taking the blank-check route to the public markets, which means that we got its numbers and time to stroll through them. Our take is that Forbes has done massive work to take its IRL brand and extend it into the digital world. The company has big plans to boot, and will be worth more than $800 million when it combines.
  • Layoffs hit Vice: As Vice turns its focus to video content — you’ve heard this story before — it is shedding some of its editorial staff. The layoffs were a stinkbomb on Media Twitter after the other news of the week, but were sadly not a huge surprise. The company’s union decried them as something of a yearly recurrence. Not good, not good at all.

And there’s more media news to come. Our parent company Verizon Media is expected to close its sale to Apollo on September 1 or sometime soon after, which means we will either be hosting Equity regularly as always, or we’ll be hosting the RUDE (Recently Unemployed Due to (Private) Equity) podcast.

Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Techstars’ Saba Karim is coming to TechCrunch Disrupt 2021

Good news, TechCrunch family, Techstars’ Saba Karim is coming to Disrupt (September 21-23) this year.

With a great vantage point from his perspective as Global Startup Pipeline Manager at Techstars, Karim will be hosting a session on the Extra Crunch stage discussing how to craft a pitch deck that cannot be ignored. It’s a popular topic not only because of how important decks remain in today’s venture capital world, but also because what they should contain slowly changes over time — what not to include, as well.

Karim has a background in making people pay attention. Before he had his current role at Techstars, he was CMO at Evolve, for example. Earlier in his career, Karim helped found and run Rawberry in Australia, before working for Telstra. He was also the marketing director at T.H. Capital Ventures in Sydney, before jetting to Boston to work as the VP of growth at StartupCMO.

And as an investor — he writes checks to startups working in the future of work sphere, for example — he has seen pitch decks good, and pitch decks bad. We’re excited to have him aboard to help save our founder-heavy audience time and effort.

In case you need a refresher, Karim is joining what could be our strongest-ever Disrupt speaking cohort. Tope Awotona, the founder and CEO of Calendly is coming. Coinbase’s Brian Armstrong is making what I think is his third appearance at Disrupt. Mercedes Bent from Lightspeed Venture partners is coming. Salesforce’s Stewart Butterfield will be there. Hell, U.S. Secretary of Transportation Pete Buttigieg is coming.

If you are in the startup world, it’s going to be a must-attend event, thanks in no small part to what Karim will be bringing to the show. And your humble servant will be hosting the Extra Crunch stage, so I will see you there! Disrupt is less than a month away and you can still get your pass to access it all for less than $100! Register today.

Picsart raises $130M from SoftBank, becomes unicorn on the back of its visual creator tools

Picsart announced this morning that it has raised a $130 million round led by SoftBank’s Vision Fund 2. The new capital infusion pushes the company’s valuation north of the $1 billion mark, though it declined to get more specific.

Per PitchBook data, the company’s preceding round of capital, in 2019, valued the company at around $600 million. We can infer from the two figures that Picsart’s valuation went up materially in its latest round.

It’s not incredibly hard to figure out why. TechCrunch chatted with the company earlier this year, noting that it was over the $50 million ARR mark, and that the company expected to crest the $100 million ARR threshold this year. The company said today it has surpassed that goal. Precisely how far? The company would not disclose.

Picsart COO Tammy Nam told TechCrunch in an interview this week that her company was now past a $100 million run rate, and that it was worth more than a flat $1.0 billion after the SoftBank round. That was the extent of our ability to mine her for details.

What we can say, then, is that the company is doing nine figures of revenue that start with one, and that it is worth ten figures that also start with a one. That gives Picsart a maximum revenue multiple of just under 20x, though we expect the correct figure is in the low tens.

What makes the Picsart news fun, apart from its constituent large numbers, is that its product is quite cool. That’s something that we can’t say about most unicorns that we write about here at TechCrunch. The company builds mobile and desktop image and video editing tools for consumers and professionals alike, which means that you have likely seen work created by its tools in the wild. And frankly, because they are something that anyone can use — unlike, say, HR-focused APIs or what have you — it’s a startup that feels more tangible than most.

Picsart provides both free and paid services. Its paid products include more images for users to work with — watermark removal and the like. The company also offers a teams-focused plan with multi-seat purchase options, though Nam said that because her team had not yet publicized the option to their user base, it’s too early to tell how the product is faring. It’s effectively in beta, she explained.

More broadly, the company’s monetization efforts are succeeding. We can tell that from Picsart’s revenue growth. Happily, Nam provided a bit more context, saying that the company had millions of subscribers today. She sees more room for growing, explaining that if her company tripled its gross subscriber number, the resulting cohort would still be a “drop in the bucket” when compared to its active user tally. There again, Picscart was somewhat coy with the data. It previously said that it had reached 100 million monthly actives in October of 2017, 130 million in 2019 and around 150 million earlier this year. Picsart would only say that it has more than 150 million today.

Turning to the company’s revenue mix between consumers and business users, Nam stressed that the dividing line between the two is especially blurry among Generation Z, which by our understanding is a key Picsart user demographic. That makes it difficult to parse the precise revenue mix at the company today. However, Nam told TechCrunch that its business revenue represented around 30% of total revenue in an interview earlier this year, which provides directional guidance for us today.

She also noted in our recent chat that business usage of Picsart was rising, as SMBs became increasingly digital in the COVID-19 era. How that shift in market demand will impact Picsart’s revenue mix over time should prove interesting.

So, what about an IPO? Sadly, that was likely just delayed. It’s great news for Picasart that it raised so much new capital, but for those of us hungry to get more S-1s, and more quickly, such large capital events can delay liquidity as the company in question wants to put the new funds to work.

Still, provided an even medium growth rate, we’d hazard that Picsart won’t struggle to match its final private valuation when it does file. We just want that to happen quickly.

D2C specs purveyor Warby Parker files to go public

Did you miss IPOs? I sure did. They could be coming back after a summer lull.

Warby Parker, a D2C glasses company backed by over a half-billion dollars of private capital, filed to go public yesterday. For investors like General Catalyst, Tiger Global and Durable Capital Partners, it’s an important debut. Having taken on equity capital since at least 2011, investors have been waiting a long time for Warby to float.


The Exchange explores startups, markets and money.

Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.


And there’s quite a lot to like about the company, the first parse of its IPO filing reveals. There are some less attractive elements to its business worth discussing, and we need to examine how COVID-19 impacted the company’s 2020 performance.

Warby last raised known private capital in August 2020, a $120 million Series G that valued the company at just over $3 billion on a post-money basis. D1 Capital Partners led that transaction, which included both Durable Capital and Baillie Gifford.

For D2C startups, the Warby IPO is something of a do-over. The Casper IPO from early 2020 is now a cautionary tale for companies employing the business model; the company reduced its IPO range, priced at $12 per share and today trades for just over $5.

But there’s more to Warby Parker’s IPO than just the D2C category. It’s a public benefit corporation, which it says in its filing means that it is “focused on positively impacting all stakeholders” as opposed to merely shareholders. And the company has a charitable bent to its efforts through a foundation and donation model of giving away eyewear when customers purchase their own set. Warby also has a hybrid sales model, leaning on both IRL and digital retail channels. There’s lots to dig into.

So let’s parse Warby’s growth history, its profitability progress over time and how the company is blending IRL shopping with digital channels. We’ll close by examining just how the company was priced last year, taking a guess at what it might be worth in today’s public markets.

Inside Warby Parker’s historical growth

Looking at Warby’s full-year results for 2020 is not inspiring. The company grew well from 2018 to 2019, expanding from $272.9 million in revenue to $370.5 million in revenue, or around 36%. That’s not an astounding pace of growth, but it’s more than respectable for a company of Warby’s age and size.

Then in 2020 the company only managed to eke out 6% growth to $393.7 million in top line. What happened to slow the company’s growth rate from Just Fine to Not Fine At All? COVID, it appears.

Future tech exits have a lot to live up to

Inflation may or may not prove transitory when it comes to consumer prices, but startup valuations are definitely rising — and noticeably so — in recent quarters.

That’s the obvious takeaway from a recent PitchBook report digging into valuation data from a host of startup funding events in the United States. While the data covers the U.S. startup market, the general trends included are likely global, given that the same venture rush that has pushed record capital into startups in the U.S. is also occurring in markets like India, Latin America, Europe and Africa.

The rapidly appreciating startup price chart is interesting, and we’ll unpack it. But the data also implies a high bar for future IPOs to not only preserve startup equity valuations at their point of exit, but exceed their private-market prices. A changing regulatory environment regarding antitrust could limit large future deals, leaving a host of startups with rich price tags and only one real path to liquidity.

Investors appear to be implicitly betting that the future IPO market will accelerate for a multiyear period at attractive prices.

That situation should be familiar: It’s the unicorn traffic jam that we’ve covered for years, in which the global startup markets create far more startups worth $1 billion and up than the public markets have historically accepted across the transom.

Let’s talk about some big numbers.

Startup valuations: Up, and going upper

To summarize what PitchBook published: Round sizes are going up as valuations go up, and with the latter rising faster than the former, we’re not seeing investors get more ownership despite them having to spend more for deal access.

In the early-stage market, deal sizes are rising as follows:

Image Credits: PitchBook

Prices are going up as well, as the following chart shows:

Image Credits: PitchBook

Which leads to the following decline in equity take rates:

Image Credits: PitchBook

Those charts belie somewhat how quickly venture capital is changing. For example, in 2020, the median early-stage value created between rounds was $16 million (or a 54% relative velocity, if you prefer). In 2021 thus far, it’s $39.4 million (120% relative velocity). And that 2020 figure was a prior record. It just got smashed.

The PitchBook dataset has other superlatives worth noting. Enterprise-focused seed pre-money valuations hit an average of $11 million in the first half of 2021, an all-time high. Early-stage valuations for enterprise-focused startups also hit fresh records — $92.7 million on average, $43 million median — this year after rising consistently since 2011.

And late-stage valuations for enterprise tech startups have gone vertical (chart on the right):

Why have the markets spurned public neoinsurance startups?

We’ve spent quite a lot of time of late wondering just what the heck is up with the valuations of insurtech startups that went public in the last year. Keep in mind that we’re discussing neoinsurance providers like MetroMile and Hippo, not insurtech marketplaces like Insurify or Zebra.

There was a stream of insurtech exits in 2020 and early 2021. After Lemonade’s firecracker IPO, MetroMile and Hippo and Root also went public. Since those debuts, we’ve seen their valuations erode significantly.


The Exchange explores startups, markets and money.

Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.


But Oscar Health got somewhat lost in our larger analysis of the space. An investor pointed out to The Exchange this weekend that we were a bit early in wondering just what investors were thinking when Oscar was going public — its IPO price range felt incredibly high, and we said so. Then, Oscar Health priced above that $32 to $34 per share interval, kicking off its life worth $39 per share.

Today’s it’s worth $13.58 per share.

We could call it another data point in our larger analysis, but it’s a bit more than that as Oscar Health expands the list of insurance types that startups tackled, scaled, took public and then saw fall out of investor favor. The companies that we are examining cover a number of industries, from auto insurance (Root, MetroMile), to home and rental insurance (Hippo, Lemonade), and, thanks to Oscar Health, health insurance as well. All are taking a whacking by the market.

Why? Happily, I think I’ve figured it out. More precisely, a CEO of a neoinsurance company in a different niche talked The Exchange through one particular hypothesis that makes rather good sense.

Show me the money metrics

Last week, I chatted with Pie Insurance co-founder CEO John Swigart. Pie sells SMB-focused insurance, with a focus on workers’ comp coverage. In Swigart’s view, small businesses have historically been overcharged and underserved for insurance. With a bit of tech, his company can offer coverage to smaller companies than many traditional insurance providers found attractive, and at better price points to boot.

Pie raised a $118 million Series C in March, with Crunchbase tallying $306 million in external capital for the company thus far. We’ll talk more about Pie at a later date.

What matters for our needs this morning is what Swigart said when I asked him what in the flying fuck was going on with public insurtech share prices. Given that he is building a related company, I was hoping that he would be both up to speed and have a take. He did.

Equity Monday: Stocks up, cryptos up, regulation up

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

This is Equity Monday, our weekly kickoff that tracks the latest private market news, talks about the coming week, digs into some recent funding rounds and mulls over a larger theme or narrative from the private markets. You can follow the show on Twitter here. I also tweet.

Today’s show was good fun to put together. Here’s what we got to:

Woo! And that’s the start to the week. Hugs from here, and we’ll chat you on Wednesday!

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 a.m. PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts!

Shelf.io closes huge $52.5M Series B after posting 4x ARR growth in the last year

Covering public companies can be a bit of a drag. They grow some modest amount each year, and their constituent analysts pester them with questions about gross margin expansion and sales rep efficiency. It can be a little dull. Then there are startups, which grow much more quickly — and are more fun to talk about.

That’s the case with Shelf.io. The company announced an impressive set of metrics this morning, including that from July 2020 to July 2021, it grew its annual recurring revenue (ARR) 4x. Shelf also disclosed that it secured a $52.5 million Series B led by Tiger Global and Insight Partners.

That’s quick growth for a post-Series A startup. Crunchbase reckons that the company raised $8.2 million before its Series B, while PitchBook pegs the number at $6.5 million. Regardless, the company was efficiently expanding from a limited capital base before its latest fundraising event.

What does the company’s software do? Shelf plugs into a company’s information systems, learns from the data and then helps employees respond to queries without forcing them to execute searches or otherwise hunt for information.

The company is starting with customer service as its target vertical. According to Shelf CEO Sedarius Perrotta, Shelf can absorb information from, say, Salesforce, SharePoint, legacy knowledge management platforms and Zendesk. Then, after training models and staff, the company’s software can begin to provide support staff with answers to customer questions as they talk to customers in real time.

The company’s tech can also power responses to customer queries not aimed at a human agent and provide a searchable database of company knowledge to help workers more quickly solve customer issues.

Per Perrotta, Shelf is targeting the sales market next, with others to follow. How might Shelf fit into sales? According to the company, its software may be able to offer staff already written proposals for similar-seeming deals and other related content. The gist is that at companies that have lots of workers doing similar tasks — clicking around in Salesforce, or answering support queries, say — Shelf can learn from the activity and get smarter in helping employees with their tasks. I presume that the software’s learning ability will improve over time, as well.

Shelf, around 100 people today, hopes to double in size by the end of the year, and then double again next year.

That’s where the new capital comes in. Hiring folks in the worlds of machine learning and data science is very expensive. And because the company wants to scale those hires quickly, it will need a large bank balance to lean on.

Quick ARR growth was not the only reason Shelf was able to secure such an outsized Series B, at least when compared to how much capital it had raised before. Per Perrotta, Shelf has 130% net dollar retention and no churn to report, meaning its customers are both sticky and expand organically.

While Shelf is interesting today and has certainly found niches it can sell into in its current form, I am more curious about how far the company can take its machine learning system, called MerlinAI. If its tech can get sufficiently smart, its ability to prompt and help employees could reduce onboarding time and the overall cost of employee training. That would be a huge market.

This is the sort of deal that we expect to see Tiger in — an outsized investment (compared to prior rounds) into a high-growth company that has lots of market room. Whatever price Tiger just paid for the company’s stock, a few years of continued growth should de-risk the investment. By our read, Tiger is really just the market-leading bull on software market growth in the long term. Shelf fits into that thesis neatly.

 

Spotify to spend $1B buying its own stock

Music streaming service Spotify today said it will spend up to $1 billion between now and April 21, 2026 to repurchase its own shares. The dollar amount represents just under 2.5% of Spotify’s market cap, with the company valued at $41.06 billion this morning as its shares rose 5.1% following the repurchase news.

The company previously executed a similar buyback program in 2018.

A public company using some of its cash to repurchase its shares is nothing new. Many public companies, including Apple, Alphabet, and Microsoft, have active share repurchase programs, and it is common to see mature or nearly-mature companies devoting a fraction of their balance sheet or a regular percentage of their free cash flow to buying back their own equity.

The goal of such efforts is to return cash to shareholders. Buybacks, along with dividends, are among the key ways that companies can use their wealth to reward shareholders. Also, by buying their own stock, companies can boost the value of their individual shares. By limiting the shares in circulation, the company’s share count declines and the value of each share consequently rises, in theory, as it represents a larger fraction of ownership in the corporation.

Spotify shares have traded as high as $387.44 apiece in the past 12 months, but are now worth just $215.84, inclusive of today’s gains. From that perspective, seeing Spotify decide to deploy some cash to repurchase its own equity makes sense — the company is buying low.

But if you ask a recently public company what it intends to do with its excess cash, buybacks are not usually the answer. For example, TechCrunch asked Root Insurance CEO Alex Timm if his company intended to use cash reserves to purchase its own equity after its recent Q2 2021 earnings report. Root’s share price has declined in recent months, perhaps making it an attractive time to reward shareholders through buybacks. Timm demurred on the idea, saying instead that his company is building for the long-term. That translates to: That cash is earmarked for growth, not shareholder return.

But isn’t Spotify still a growth company? It certainly isn’t valued on the weight of its profits. In the first half of 2021, for example, Spotify posted net profit of a mere €3 million on revenues of €4.5 billion.

If Spotify is still a growth-focused company, shouldn’t it preserve its capital to invest in exclusive podcasts and the like — efforts that may grant it pricing power in the future and allow for stronger revenue growth and gross margins over time?

To answer that, we’ll have to check the company’s balance sheet. From its Q2 2021 earnings, here are the key numbers:

  • Spotify closed out the second quarter with “€3.1 billion in cash and cash equivalents, restricted cash, and short term investments.”
  • And in the second quarter, Spotify generated free cash flow of €34 million. That figure was up €7 million from a year earlier despite “higher working capital needs arising from select licensor payments (delayed from Q1), podcast-related payments, and higher ad-receivables”.

More simply, despite paying up for efforts that are generally understood to be key to Spotify’s long-term ability to improve its gross margins — and therefore its net profitability — the company is still throwing off cash. And with a huge bank account earning little, thanks to globally low prices for cash and equivalent holdings, Spotify is using a chunk of its funds to buy back stock.

By spending $1 billion over the next few years, Spotify won’t materially harm its cash position. Indeed, it will remain incredibly cash-rich. However, the move may help defend its valuation and keep itchy investors happy. Moreover, as the company is buying its stock at a firm discount to where the market valued it recently, it could get something akin to a deal, given Spotify’s long-term faith in the value of its own business.

Perhaps the better question as this juncture is not whether Spotify is a weird company for deciding to break off a piece of its wealth for shareholders, but instead why we aren’t seeing other breakeven-ish tech companies with neutral cash flows and fat accounts doing the same.

Bird shows improving scooter economics, long march to profitability

Newly reported financial data from Bird, an American scooter sharing service, shows a company with an improving economic model, and a multi-year path to profitability. However, that path is fraught unless a number of scenarios all work out, in concert and without a glitch.

Bird, well-known for its early battles with domestic rival Lime, is pursuing a SPAC-led deal that will see it go public and raise fresh capital. The former startup is merging with Switchback II Corporation in a deal that values it at around $2.3 billion, including a $160 million PIPE (private investment in public equity) component. (Note: The group purchasing TechCrunch’s parent company from its own parent company, is part of the Bird PIPE.)


The Exchange explores startups, markets and money.

Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.


COVID-19 hasn’t been kind to Bird and similar companies around the world. As many around the world stayed home, usage of shared-asset services and ride-hail applications fell sharply. Bird saw rides decline. Airbnb took a temporary hit. Uber and Lyft saw ride demand fall.

Responses to the crisis were varied. Airbnb cut costs, and raised external capital. Lyft cut expenses and focused on its core model, while Uber grew its food delivery business, which saw transaction volume soar as demand fell for its traditional business.

Meanwhile, Bird flipped its entire business model. That decision has helped the scooter outfit improve its economics markedly, giving it a shot at generating profit in the future — provided its forecasts prove achievable.

This morning, let’s talk about how Bird has changed its business, their impacts on its operating results, and how long the company thinks its climb to profitability is.

Fleet management → Fleet managers

In their initial forms, Bird and Lime bought and deployed large fleets of electric scooters. Not only was this capital intensive, the companies also wound up with costs that were more than sticky — charging wasn’t simple or cheap, moving scooters around to balance demand took both human capital and vehicles, and the list went on.

Throw in vehicle depreciation — the pace at which scooters in the wild degraded from use or abuse — and the businesses proved excellent vehicles for raising capital and throwing that money at more scooters, costs, and, as it turned out, losses.

Results improved somewhat over time, though. As scooter-share companies increasingly built their own hardware, their economics improved. Sturdier scooters meant lower depreciation, and better battery tech could allow for more rides per charge. That sort of thing.

But the model wasn’t incredibly lucrative even before COVID-19 hit. Costs were high, and the model did not break even even on a gross margin basis, let alone when considering all corporate expenses. You can see the financial mess from that period of operations in historical Bird results.