Kahoot acquires Clever, the US-based edtech portal, for up to $500M

Kahoot, the popular Oslo-based edtech company that has built a big business out of gamifiying education and creating a platform for users to build their own learning games, is making an acquisition to double down on K-12 education and its opportunities to grow in the U.S. It is acquiring Clever, a startup that has built a single sign-on portal for educators, students and their families to build and engage in digital learning classrooms, currently used by about 65% of all U.S. K-12 schools. Kahoot said that the deal — coming in a combination of cash and shares — gives Clever an enterprise value of between $435 million and $500 million, dependent on meeting certain performance milestones.

The plan will be to continue growing Clever’s business in the U.S. — which currently employs 175 people — as well as give it a lever for expanding globally alongside Kahoot’s wider stable of edtech software and services.

“Clever and Kahoot! are two purpose-led organizations that are equally passionate about education and unleashing the potential within every learner,” said Eilert Hanoa, CEO at Kahoot, in a statement. “Through this acquisition we see considerable potential to collaborate on education innovation to better service all our users – schools, teachers, students, parents and lifelong learners – and leveraging our global scale to offer Clever’s unique platform worldwide. I’m excited to welcome Tyler and his team to the Kahoot family.”

The news came on the same day that Kahoot, which is traded in Oslo with a market cap of $4.3 billion, also announced strong Q1 results in which it also noted it has closed its acquisition of Whiteboard.fi, a provider of whiteboard tools for teachers, for an undisclosed sum.

The same tides that have been lifting Kahoot have also been playing out for Clever and other edtech companies.

The startup was originally incubated in Y Combinator and launched with a vision to be a “Twilio for education“, which in its vision was to create a unified way of being able to tap into the myriad of student sign-on systems and educational databases to make it easier for those building edtech services to scale their products, and bring on more customers (schools, teachers, students, families) to use them. As with payments, financial services in general, and telecommunications, it turns out that education is also a pretty fragmented market, and Clever wanted to figure out a way to fix the complexity and put it behind an API to make it easier for others to tap into it.

Over time it built that out also with a marketplace (application gallery in its terminology) of some 600 software providers and application developers that integrate with its SSO, which in turn becomes a way for a school or district to subsequently expand the number of edtech tools that it can use. This has been especially critical in the last year as schools have been forced to close in-person learning and go entirely virtual to help stave off the spread of the Covid-19 pandemic.

Clever has found a lot of traction for its approach both with schools, and investors. With the former, Clever says that it’s used by 89,000 schools and some 65% of K-12 school districts (13,000 overall) in the U.S., with that figure including 95 of the 100 largest school districts in the country. This works out to 20 million students logging in monthly and 5.6 billion learning sessions.

Shift Technology raises $220M at a $1B+ valuation to fight insurance fraud with AI

While insurance providers continue to get disrupted by startups like Lemonade, Alan, Clearcover, Pie and many others applying tech to rethink how to build a business around helping people and companies mitigate against risks with some financial security, one issue that has not disappeared is fraud. Today, a startup out of France is announcing some funding for AI technology that it has built for all insurance providers, old and new, to help them detect and prevent it.

Shift Technology, which provides a set of AI-based SaaS tools to insurance companies to scan and automatically flag fraud scenarios across a range of use cases — they include claims fraud, claims automation, underwriting, subrogation detection and financial crime detection — has raised $220 million, money that it will be using both to expand in the property and casualty insurance market, the area where it is already strong, as well as to expand into health, and to double down on growing its business in the U.S. It also provides fraud detection for the travel insurance sector.

This Series D is being led Advent International, via Advent Tech, with participation from Avenir and others. Accel, Bessemer Venture Partners, General Catalyst, and Iris Capital — who were all part of Shift’s Series C led by Bessemer in 2019 — also participated. With this round, Paris and Boston-based Shift Technology has now raised some $320 million and has confirmed that it is now valued at over $1 billion.

The company currently has around 100 customers across 25 different countries — with customers including Generali France and Mitsui Sumitomo — and says that it has already analyzed nearly two billion claims, data that’s feeding its machine learning algorithms to improve how they work.

The challenge (or I suppose, opportunity) that Shift is tackling, however, is much bigger. The Coalition Against Insurance Fraud, a non-profit in the U.S., estimates that at least $80 billion of fraudulent claims are made annually in the U.S. alone, but the figure is likely significantly higher. One problem has, ironically, been the move to more virtualized processes, which open the door to malicious actors exploiting loopholes in claims filing and fudging information.

Shift is also not alone in tackling this issue: the market for insurance fraud detection globally was estimated to be worth $2.5 billion in 2019 and projected to be worth as much as $8 billion by 2024.

In addition to others in claims management tech such as Brightcore and Guidewire, many of the wave of insuretech startups are building in their own in-house AI-based fraud protection, and it’s very likely that we’ll see a rise of other fraud protection services, built out of fintech to guard against financial crime, making their way to insurance, as the mechanics of how the two work and the compliance issues both face are very closely aligned.

“The entire Shift team has worked tirelessly to build this company and provide insurers with the technology solutions they need to empower employees to best be there for their policyholders. We are thrilled to partner with Advent International, given their considerable sector expertise and global reach and are taking another giant step forward with this latest investment,” stated Jeremy Jawish, CEO and co-founder, Shift Technology, in a statement. “We have only just scratched the surface of what is possible when AI-based decision automation and optimization is applied to the critical processes that drive the insurance policy lifecycle.”

For its backers, one key point with Shift is that it’s helping older providers bring on more tools and services that can help them improve their margins as well as better compete against the technology built by newer players.

“Since its founding in 2014, Shift has made a name for itself in the complex world of insurance,” said Thomas Weisman, an Advent director, in a statement. “Shift’s advanced suite of SaaS products is helping insurers to reshape manual and often time-consuming claims processes in a safer and more automated way. We are proud to be part of this exciting company’s next wave of growth.”

Cymulate nabs $45M to test and improve cybersecurity defenses via attack simulations

With cybercrime on course to be a $6 trillion problem this year, organizations are throwing ever more resources at the issue to avoid being a target. Now, a startup that’s built a platform to help them stress-test the investments that they have made into their security IT is announcing some funding on the back of strong demand from the market for its tools.

Cymulate, which lets organizations and their partners run machine-based attack simulations on their networks to determine vulnerabilities and then automatically receive guidance around how to fix what is not working well enough, has picked up $45 million, funding that the startup — co-headquartered in Israel and New York — will be using to continue investing in its platform and to ramp up its operations after doubling its revenues last year on the back of a customer list that now numbers 300 large enterprises and mid-market companies, including the Euronext stock exchange network as well as service providers such as NTT and Telit.

London-based One Peak Partners is leading this Series C, with previous investors Susquehanna Growth Equity (SGE), Vertex Ventures Israel, Vertex Growth and Dell Technologies Capital also participating.

According to Eyal Wachsman, the CEO and co-founder, Cymulate’s technology has been built not just to improve an organization’s security, but an automated, machine-learning-based system to better understand how to get the most out of the security investments that have already been made.

“Our vision is to be the largest cybersecurity ‘consulting firm’ without consultants,” he joked.

The valuation is not being disclosed but as some measure of what is going on, David Klein, managing partner at One Peak, said in an interview that that he expects Cymulate to hit a $1 billion valuation within two years at the rate it’s growing and bringing in revenue right now. The startup has now raised $71 million, so it’s likely the valuation is in the mid-hundreds of millions. (We’ll continue trying to get a better number to have a more specific data point here.)

Cymulate — pronounced “sigh-mulate”, like the “cy” in “cyber” and a pun of “simulate”) is cloud-based but works across both cloud and on-premises environments and the idea is that it complements work done by (human) security teams both inside and outside of an organization, as well as the security IT investments — in terms of software or hardware) that they have already made.

“We do not replace — we bring back the power of the expert by validating security controls and checking whether everything is working correctly to optimize a company’s security posture,” Wachsman said. “Most of the time, we find our customers are using only 20% of the capabilities that they have. The main idea is that we have become a standard.”

The company’s tools are based in part on the MITRE ATT&CK framework, a knowledge base of threats, tactics and techniques used by a number of other cybersecurity services, including a number of others building continuous validation services that compete with Cymulate. These include the likes of FireEye, Palo Alto Networks, Randori, Khosla-backed AttackIQ and many more.

Although Cymulate is optimized to help customers better use the security tools they already have, it is not meant to replace other security apps, Wachsman noted, even if the by-product might become buying less of those apps in the future.

“I believe my message every day when talking with security experts is to stop buying more security products,” he said in an interview. “They won’t help defend you from the next attack. You can use what you’ve already purchased as long as you configure it well.”

In his words, Cymulate acts as a “black box” on the network, where it integrates with security and other software (it can also work without integrating but integrations allow for a deeper analysis). After running its simulations, it produces a map of the network and its threat profile, an executive summary of the situation that can be presented to management and a more technical rundown, which includes recommendations for mitigations and remediations.

Alongside validating and optimising existing security apps and identifying vulnerabilities in the network, Cymulate also has built special tools to fit different kinds of use cases that are particularly relevant to how businesses are operation today. They include evaluating remote working deployments, the state of a network following an M&A process, the security landscape of an organization that links up with third parties in supply chain arrangements, how well an organization’s security architecture is meeting (or potentially conflicting) with privacy and other kinds of regulatory compliance requirements, and it has built a “purple team” deployment, where in cases where security teams do not have the resources for running separate “red teams” to stress test something, blue teams at the organization can use Cymulate to build a machine learning-based “team” to do this.

The fact that Cymulate has built the infrastructure to run all of these processes speaks to a lot of potential of what more it could build, especially as our threat landscape, and how we do business, both continue to evolve. Even as it is, though, opportunity today is a massive one, with Gartner estimating that some $170 billion will be spent on information security by enterprises in 2022. That’s one reason why investors are here, too.

“The increasing pace of global cyber security attacks has resulted in a crisis of trust in the security posture of enterprises and a realization that security testing needs to be continuous as opposed to periodic, particularly in the context of an ever-changing IT infrastructure and rapidly evolving threats. Companies understand that implementing security solutions is not enough to guarantee protection against cyber threats and need to regain control,” said Klein, in a statement. “We expect Cymulate to grow very fast,” he told me more directly.

Acronis raises $250M at a $2.5B+ valuation to double down on cyber protection services

As cybersecurity continues to grow in profile amid an increasingly complex and dangerous landscape of malicious activity, a cyber security vendor that specializes in “all-in-one” services covering the many aspects of security IT has closed a big round of funding to grow.

Acronis has raised $250 million in equity, and co-founder and CEO Serguei Beloussov said in an interview the company plans to use the financing both to grow organically, as well as for acquisitions to bring more “proactive” technology into its portfolio. The funding is being led by CVC and values Acronis at over $2.5 billion.

Originally a spinoff from the parent company of virtualization giant Parallels, Acronis initially made its name in data recovery and backup but has over time, and to better differentiate itself from competitors like Commvault, Veeam and Barracuda (among others), it has expanded to provide an all-in-one package of services to include continuous data protection, patch management, anti-malware protection and more.

Integrating with a range of popular enterprise software packages and platforms and service providers, its business is now profitable, with some 10,000 managed service providers and 500,000 businesses (SMBs and bigger) among its customers.

“We didn’t need the money, but now we will invest it to grow faster and capitalise on our leadership,” Beloussov said in an interview.

New-wave revenues, based on its newer (not legacy) products such as Acronis Cyber Protect, grew 100% during the pandemic, he added. “We are spending they money on engineers and M&A to complement our cyber protection,” he said. “We have a single mission, which is to protect all data applications, providing privacy and security in one package. We protect about 10 million workloads today and we are aiming to grow that to 100x. There is a lot to do in terms of making that protection easier and deeper for our customers.”

He said that while the company is continuing to remain private, it’s also starting to think about its next steps, which could involve a public listing or a sale, in the next 12-24 months.

“With private equity investors like Goldman Sachs [which led its previous round in 2019] and CVC, they definitely expect liquidity at some point,” Beloussov said.

The funding and Acronis’s strategy to double down on growing its business comes at a key moment in the world of cybersecurity. The bigger landscape in the world of business has seen a huge shift in the last year to more people working remotely and across a wider set of geographies and devices. Although that shift was pushed along by the Covid-19 pandemic, many believe that the longer-term effect will be a very different working environment, with a greater acceptance that less people in will be spending all of their time in their offices, and that it won’t necessarily impact productivity.

What it has impacted is how IT provisions and manages networks and the device that run on them, and specifically has exposed some of the loopholes in company’s cybersecurity policies. Malicious hackers, who were hard at work well before the pandemic, have jumped on this and exploited it.

Acronis has been one of the companies that has seen a growing demand for its services as a result of all that, with   Acronis’s software sold via managed service providers seeing a particular lift.

“Last year definitely pushed customers to understand that IT is mission critical and that is for every business,” Beloussov said, with security coming along with that by association. With security, though, organizations have realized that “managing by in-house resources is not always ideal so outsourcing to special service providers can guarantee service levels. With internal IT people, you can only shout at them, and that is okay because they are used to it.” Third parties, by contrast, operate with service-level agreements that are easier to enforce if something goes wrong.

“Acronis’ talented management and R&D teams have invested significant resources developing an innovative cloud-native ‘MSP in a box’ solution, with integrated backup, disaster recovery, cybersecurity, remote management, and workflow tools,” said Leif Lindbäck, Senior Managing Director of CVC Capital Partners. “Acronis provides mission-critical solutions to more than 10,000 MSPs and half a million small and medium businesses. CVC has a strong track record in cybersecurity and partnering up with successful entrepreneurs, and we are looking forward to teaming up with Serguei Beloussov and the Acronis team to accelerate the company’s growth.”

Berlin’s Razor Group raises $400M to buy and scale Amazon Marketplace merchants

The market remains very hot for startups building e-commerce empires by consolidating independent third-party merchants that have gained traction on Amazon’s Marketplace, and in the latest development, Razor Group — a Berlin-based startup buying up promising Amazon sellers and scaling them into bigger, multi-channel businesses — has closed financing of $400 million to scale its own efforts in the space.

Around $25 million is coming in the form of equity to grow its business and $375 million is in debt to make acquisitions, with target businesses typically already pulling in between $1 million and $15 million in annual revenues.

Razor Group itself is not even a year old but has been building out its business at a fast pace. Founded in August 2020, in the last eight months, CEO Tushar Ahluwalia said the startup has grown to 107 employees across four offices and is currently on track to cross $120 million (€100 million) in sales from the 30 brands it has already amassed in its stable in categories like personal wellness, sports and home and living. Assuming the debt capital it’s now raised is put to use, Ahluwalia believes Razor Group will cross $480 million (€400 million) in sales in the next 12 to 15 months.

As a point of comparison, Thrasio, one of the older players in this current market, was founded in 2018 and has 100 brands in its stable.

Indeed, there are, as you might have seen, a lot of others in the market pursuing the “FBA rollup” model — consolidating businesses that have been built on the back of Fulfillment by Amazon, with the pitch being they can apply more sophisticated economies of scale, analytics and management to grow great cottage industries into high rises, so to speak. But Razor believes its point of differentiation is its focus on technology to improve its responsiveness to the market, both when it comes to identifying and buying brands, and then growing them.

It’s a big opportunity. By one estimate there are about 5 million third-party sellers on Amazon today, and their ranks are growing exponentially, with more than 1 million sellers joining the platform in 2020 alone. Thrasio has in the past estimated to me that there are probably 50,000 businesses selling on Amazon via FBA making $1 million or more per year in revenues.

“It’s perfectly acceptable to build an FBA-based business, but at some point you can move beyond that,” Ahluwalia said in an interview. “We want to transform what we see as the levers of business operations in this space. We don’t see ourselves as the next P&G, but a new version of it, building microchampions in micromarkets, identifying underpriced digital real estate. Just thinking about it as abritrage is not enough.”

The funding, a mixture of equity to invest in the startup itself and debt to use for acquisitions (and it is mostly debt), is being led by funds and accounts managed by BlackRock and Victory Park Capital (“VPC”) as well as its existing shareholders, a list that includes a number of individuals as well as VCs such as Redalpine, FJ Labs and Global Founders Capital, the VC firm co-founded by the Samwer Brothers, also behind the well-known Berlin e-commerce incubator Rocket Internet.

Ahluwalia and Razor’s head of finance Christoph Gamon — who together co-founded Razor with CTO Shrestha Chowdury — are both Rocket Internet alums, and Ahluwalia and Chowdury also worked on a previous e-commerce business in India called StalkBuyLove (a clone of Wanelo — short for “Want Need Love” — for India, I think) that ran out of cash and shut down.

All of that speaks to both the inroads that the founders may have had into gaining some early financing from other Rocket alums and others, as well as their experiences, both good and bad, of what it takes to grow and scale e-commerce businesses.

Including the $25 million in this latest tranche, the funding brings the total raised in equity by Razor Group to about $40 million — with the previous money being used to get the ball rolling and “validate the model”, Ahluwalia said. It’s not disclosing its valuation today but he confirmed it’s also raising another, larger equity round when it will be speaking more about that.

Meanwhile, the huge injection of debt financing it is getting for acquisitions — doubled after its original plan to raise $200 million got a lot of interest — is a sign not just of what investors and Razor Group itself see as an opportunity, but also of the encroaching competition from other roll-up players that are also well capitalized also setting their sights on buying up the most promising independent businesses selling via Amazon and other marketplace providers.

That list of competitors is getting longer by the day. It includes Thrasio, one of the first startups to identify and build out this space, which has raised very large rounds in rapid succession totaling hundreds of millions of dollars in the last year, and is profitable; Branded; Heroes; SellerX; Perch; Berlin Brands Group (X2); Benitago; and Valoreo (with its backers including Razor’s CEO).

The opportunity is also breeding other e-commerce startups like Jungle Scout, which has also raised $110 million recently, providing tools to some of those third-party sellers to help them stay, in fact, independent (or at least grow more to be more valuable to acquirers)

Razor believes that its ability to stand out in this crowd will not just be based on how much money it has to spend, but on the technology that it is using to identify the best third-party sellers faster in order to roll them up first, and then to leverage that early move by giving those companies better tools to grow faster.

Chowdhury describes the platform that she has built as “M&A 2.0”, a system that performs “massive due dilligence” at machine scale by evaluating some 1 million companies each week as they perform on platforms like Amazon’s. “Technology runs through the whole business,” she said, started with the acquisitions, where Razor is identifying the most interesting companies faster than others, she said. “We look at thousands of data points,” building algorithms, she continued, “to flag what we want to acquire. It means that our acquisitions funnel is 99% sourced directly and we don’t rely on brokers.” Brokers, she said, are something of a unspoken part of this area, but bypassing them means less competition and better pricing.

Being early also means building better relationships with the owners of these businesses, with less time pressure.

“Dealmaking is something extremely personal,” Ahluwalia said. “A seller needs to like you. Our calculations have allowed us to be the first in these deal conversations”

Further along, that data will also help Razor build those businesses and figure out where else brands can be sold beyond Amazon and how to sell them better.

That is a plan that has yet to be proven out, given the age of the company, but investors — adding up the numbers and track record of these founders, and the tech they have built — are willing to bet on this one.

“We are excited to partner with Tushar, Chris, and the rest of the Razor Group team. The ability to identify, underwrite, integrate and ultimately create tangible value across a broad suite of eCommerce assets is a real competitive advantage in the marketplace,” said Tom Welch, partner at VPC, in a statement.

“We are pleased to make this investment in Razor Group to support the company’s strong growth momentum as it continues to diversify its portfolio of brands and expand into new markets,” added Dan Worrell, MD at BlackRock.

Verizon CEO memo: Apollo to focus on commerce, content and betting with new Yahoo business

With Verizon’s long-anticipated sale of its media business now finally in progress — by way of a deal, announced earlier today, with private equity firm Apollo paying $5 billion for Yahoo, AOL, and the many various internet brands and services that are part of the operation (including us, TechCrunch) — the next very likely question is, what comes next?

Hans Vestberg, the CEO of Verizon, laid out a taste of what is to come: commerce, content and betting.

In an internal memo to employees, Vestberg said that Apollo’s “powerful vision” will be not just playing on revenue-generating businesses that have been grown out as a part of Verizon Media, but leveraging that to work with other assets that Apollo has in its portfolio, which include a pretty wide range of companies in the TMT sector such as Rackspace and Charter Communications, as well as a ton of other kinds of companies across retail, financial services, industrial and manufacturing, and more.

That could involve more advertising or sales customers — Claire’s, the accessories chain is also in the Apollo mix — or something else altogether.

“What made Apollo’s offer so appealing, is that it includes leveraging the entire Verizon Media ecosystem of adtech, affiliate relationships, data, insights, targeting and reach,” Vestberg said.

You can read a bigger analysis of the deal here. The full memo is below.

V Team,

Moments ago we made an important announcement. We’ve entered into an agreement with a leading global investment manager, Apollo, to acquire Verizon Media. While this is a bittersweet moment, Verizon will maintain a minority stake in the new company, which upon deal closing will be called Yahoo.

This is a big step forward for our Media team. A team that delivered an incredible turnaround these past 2.5 years – capped off by the last 2 quarters of double digit growth. This move will help accelerate that growth.

After a strategic review, Guru and I discussed, and believed, that the full value of Media’s offerings have yet to be unlocked. Apollo has a powerful vision that includes aggressively pursuing growth areas in commerce, content and betting. One that also features synergies with many of the traditional brick and mortar companies in their portfolio who can benefit from Media’s e-commerce platform. What made Apollo’s offer so appealing, is that it includes leveraging the entire Verizon Media ecosystem of adtech, affiliate relationships, data, insights, targeting and reach.

I believe this move is right for all of our stakeholders including the Media employees. Our purpose is to create the networks that move the world forward, and this will help us better focus all our energy and resources on our core competencies.

I couldn’t be more proud of the work that Guru, his leadership team, and the entire Media team of “Builders” has done to get to this point. In fact, it’s important to note that Guru will continue in his current leadership role.

As a reminder, as with any deal like this, the transition will take time to complete. It’s important that we continue to stay focused on our ongoing work together, across all our business units and continue to deliver the best customer experiences we are known for.

This is but one more chapter in an iconic and storied brand. I am excited about where they will take the new Yahoo.

Hans V.

Rapchat tunes into $2.3M as its music-making app hits 7M users

YouTube, Snapchat, Twitter, TikTok and Facebook’s Instagram have upended the film and TV industries, with a new wave of cinematographers, directors and actors leveraging innovations in technology to create new work and connect directly with billions of consumers to see it. Today, a startup is announcing some funding as it looks to make a similar impact in the world of music.

Rapchat, an app that lets people create music tracks — raps, as its names suggest, or something else — using a platform that crowdsources beats and lets people put vocals on top of them, has raised $2.3 million.

Co-led by Sony Music Entertainment and NYC VC firm Adjacent, this is an extension to Rapchat’s seed round of $1.7 million back in 2018, and CEO and co-founder Seth Miller tells me it’s coming as the startup is getting ready for a bigger Series A.

With no connection to Snapchat — not now at least, except that founders Seth Miller and Pat Gibson did think it was a funny pun at the time that they were first conceiving of the company as a side hustle while still in university in 2015 — Rapchat has already gone quite some way in scaling.

The company today has some 7 million registered users, and at the moment some 250,000 songs are being created around a catalog of about 100,000 beats by 500,000 active users on the platform each month. Engagement is hovering right now at 35 minutes per day on average, a mix not just of people making tunes, but through the beginnings of a social graph: people coming onto the app to discover and share those tracks.

Rapchat plans to use the funding to continue expanding the scope of what you can create on its platform, including growing the prize pools for Rapchat’s ‘Challenges’ competition series; expand to have more artists, producers, and industry executives on the platform for mentoring; and to extend that platform’s reach to integrate more deeply with the likes of TikTok, Snapchat, Spotify and Apple Music — platforms where creators are already making a lot of content, and where music is figuring strongly in that effort.

Rapchat’s growth not only speaks to how the startup has pulled off its ambition to make it easier to make music, but it also speaks to an appetite, an itch, in the creator economy: there is a big wide world of music-making out there, and more want to see if they can strike the right note.

Rapchat is definitely not the only, nor the first, company to think of how to address music creators within the bigger creator economy.

Another app called Voisey had conceived of a similar idea but focused primarily on letting people create and record shorter clips rather than full music tracks before sharing them to other platforms. It has not quite come a household name, but it did have some small success in bringing attention to new artists, and interestingly, it was quietly acquired by Snap last year (and for now Snap’s kept Voisey’s app up).

TikTok’s parent ByteDance has also made an acquisition of another music creation app, Jukedeck. As with Snap’s acquisition, so far we’re not fully clear on how and where that acquisition is going, but we’ve heard through the grapevine that TikTok is working on a new music service that sounds like it might let more content get plugged into TikTok’s music layer, so perhaps watch this space.

And in perhaps the most trend-endorsing act of all, Rapchat has been cloned — by Facebook, no less. NPE, the social networking behemoth’s in-house skunkworks team, in February rolled out BARS (all caps! stand out!) — which is, yes — an app on which you can create your own rap music.

Miller, at least for now, is about as laid back as you could be, considering all of the above, confident that at least for now, he is very happy with the engagement Rapchat is seeing, including around tests it has been running around offering new premium features — the app is free to use right now, but it has plans to offer creators more production tools and better ways of sharing their work and helping build a business out of it. Key to that will be never demanding licensing fees on music: creators keep the royalties, with Rapchat’s value lying in helping them make and track how that music gets used with the metadata that it holds on those tracks.

Some of the low-key approach might well come from the fact that Rapchat and its founders are somewhat outside of the startup fray. The idea for the app first came up in 2013, Miller said, when he and Gibson were students at Ohio University in Columbus.

“We were coming of age when everyone in college was using apps like Snapchat and Instagram,” he said. “We loved them for video, but saw there was nothing like them for creating music. So we pitched the idea during a Startup Weekend competition: snapping like Snapchat but for rap. Someone said, ‘Rapchat’ and we liked it.”

They went full-time on the idea in 2015 when they got into 500 Startups with the app, but even so it’s taken them years to build up the business, get attention from investors and raise money. Why? Partly because music is hard, and frankly the main game in town for years has been streaming services, rather than creation services.

Miller and Gibson persisted: “I knew that this market was huge. It just made so much sense to me,” he said. “The advent of the mobile devices the moment that apps like Instagram, VSCO and Snapchat have turned people into photographers and video makers, and Substack is turning people into writers.” And now Rapchat wants to tap the world for rappers.

“Rapchat has created a music studio that fits into your pocket,” said Nico Wittenborn, lead Investor at venture capital firm Adjacent, in a statement. “It decreases the friction of creativity by allowing anyone, anywhere in the world to record and publish music straight from their phones. This mobile-enabled democratization of technology is what Adjacent is all about, and I am super excited to support the team in building out this next-level music platform.”

PortalOne raises $15M from Atari and more for a new hybrid gaming/TV show app

Gaming and streamed video have been two of the biggest pastime winners during the last year+ of pandemic living. Today a startup that has created an app that brings those two entertainment formats together is announcing a notable seed round of funding as it prepares to come out of closed beta.

PortalOne, a hybrid gaming startup, is announcing a $15 million seed round of funding as it prepares to come out of closed beta with an app that lets people play on-demand games and also watch live shows in which users can play against a special guest.

The startup and its funding are notable in part because of who is doing the investing.

It includes Atari and camera maker ARRI, Founders Fund, TQ Ventures (the firm led by Scooter Braun and financiers Schuster Tanger and Andrew Marks), Coatue Management (specifically Arielle Zuckerberg), Rogue Capital Partners (Alice Lloyd George’s new fund), Signia Venture Partners (via Sunny Dhillon); Seedcamp, Talis Capital and SNÖ Ventures out of Europe.

Other investors included Kevin Lin, the co-founder of Twitch; Mike Morhaime, co-founder of Blizzard and Dreamhaven; Amy Morhaime, co-founder of Dreamhaven; Marc Merrill, co-founder of Riot Games; Xen Lategan, former CTO and executive advisor at various companies such as Hulu; and Eugene Wei, former Head of Video at Oculus and Head of Product at Hulu.

PortalOne is part tech startup, and part media company. On the one hand, it has spent the last three years building a full stack of hardware and software that can be used to build games, record live shows, and integrate the two into an experience that blends both on-demand and real-time gaming and entertainment.

“One of the benefits of building first is that what we are doing is extremely hard to do on a technical level,” said co-founder and CEO Bård Anders Kasin. “The way we do it is the key. It is our secret sauce.”

On the other, it is using that tech to create a gaming and live events platform and brand — providing a place for itself and third parties to build games and bigger live experiences around them. It believes that it’s managed to do something here that has eluded others for years.

“We come from the entertainment industry and have also been in games many years,” said Stig Olav Kasin, Bård’s brother, CXO, and the other co-founder. “We’ve talked to all the big companies and know that hybrid gaming combining games and TV is difficult,” not least because of the silos in companies where different groups “own” TV and gaming.

The Oslo-based company has so far been running a pared-down, early version of its service in the US and Norway — two games in so far, one called Blockbuster that, well, involves you throwing a massive ball and knocking over blocks, and another a reimagined version of Centipede — with corresponding talk shows set out of a living room that’s actually all computer-generated on a green screen.

Users can play and watch all this either through a VR headset or over a phone, and they win “prizes” for placing well in gaming competitions. Alongside that PortalOne will sell virtual goods much as companies like Fortnite do today.

The plan is to more widely launch the first iteration of its service — PortalOne Arcade, a selection of 80s-themed, old-school arcade games reimagined as multiplayer, immersive experiences combined with interactive talk shows — in the US and Norway later this year before extending to other markets.

Bård Anders Kasin — who previously built a VR company and worked as a technical director at Warner Brothers, making movies such as the Matrix trilogy — and Stig Olav Kasin — who worked with his brother on VR and before that was a media exec on shows like The Voice and Who Wants to Be a Millionaire — founded PortalOne back in 2018.

Between then and June 2020, when PortalOne launched its closed beta, the startup’s focus was on building out its technology and its content strategy and early partners.

From the sounds of it, it was no small task. Its tech stack incorporates virtual reality, computer vision, gaming technology, and software and hardware to capture and stream video that drastically reduces the resources required for both, among other IP. Some of it PortalOne built itself; other areas it worked with Arri, a major player in motion picture camera equipment, which built a new kind of 3D camera for PortalOne.

Part of the challenge that PortalOne has been tackling has been the very process of creating content for a hybrid platform like the one it envisioned.

Typically, recording immersive experiences is complex and expensive because of the volumetric equipment that is used, the set-up of studios necessary to capture the experiences, and more, which involve Hollywood-movie-studio size, staffing and costs.

PortalOne’s breakthrough has been to turn that process into something that can be produced more easily and at a much lower cost, necessary “since we have daily shows and we want to scale and mass produce more daily shows for each game,” said Bård.

In the PortalOne setup, in addition to the host — an affable Norwegian with a mostly American English accent called Markus Bailey — and his guest, there are only two other people involved, technician-producers triggering effects and controlling when the action switches from talk to game and back again.

From previously needing large sets and dozens of people, “now we can do all of this in a YouTube-sized studio,” said Bård.

On the content front, PortalOne is building its own games, but it is also tapping into an old-school gaming aesthetic, it said.

Atari is not only investing, but has inked a seven-year deal with PortalOne, giving the latter exclusive global distribution rights to some of its most popular arcade game franchises, which PortalOne is reimagining and rebuilding for its hybrid platform.

Bård said that the company wants to work with brands in music, sport, travel and education to build other games, too. (Braun’s reach here might not extend to Taylor Swift, but he’s pulled in Justin Bieber for the promo video, and possibly more.)

“Massive opportunities continue to emerge in the interactive entertainment space as distribution and business models evolve,” said Kirill Tasilov, a principal at Talis Capital, in a statement. “PortalOne is redefining mobile by unlocking new hybrid experiences at the intersection of games and video, and we are thrilled to be a part of their journey.”

Blurring the lines

In some ways, what PortalOne is doing is not completely new, since the lines between what is a game, what is interactive, and what is linear entertainment have been getting blurred for decades.

You could argue that even game shows, one of the earliest TV formats, was an early stage in hybrid interactivity, although more modern programs like the ones that Stig helped build out, with interactive voting from at-home audiences using phones, definitely pushed the concept in new ways.

The coronavirus pandemic and the fact that so many in-person live events were cancelled, meanwhile, definitely paved the way for content players to think outside the box when it came to building new kinds of “live” shows. With Marshmello getting a huge response to his Fortnite “show” in 2019, the game saw 12 million people flock to its Travis Scott concert last year; and Roblox said in December said its show with Lil Nas will pave the way for future events.

“When we see virtual concerts inside of TikTok, Roblox, and Fortnite, it’s great but PortalOne offers an evolution of interactive metaverse entertainment — true real-time, one-to-many interaction between gamers around the world, all in a mobile-native hybrid game format,” said Dhillon, a partner at Signia Venture Partners.

Yet if well-established platforms really pick up on this trend, that’s an endorsement of what PortalOne has built. But they could also feasibly build their own live game shows, too, and blow PortalOne out of the water just as it’s dipping its toes in.

This is also where its time spent building tech could prove either to be a boost or a bust. Gaming is a notoriously tough one to call when it comes to resonating and taking off with audiences, and so too will presumably the experiences that are built around those games.

“The next big social platform will likely be a convergence of media with gaming at its core – a truly new immersive interactive experience – and PortalOne is a major contender for becoming such a platform,” said Kevin Lin.

Indeed, if PortalOne finds an audience for what it’s making, it will have the tools to serve them more content efficiently and and cheaply. But if it doesn’t strike the right note, the question will be how and if that tech will otherwise be used.

For investors right now, it’s more about the opportunity.

“As PortalOne continues to grow, it is seamlessly integrating the gaming and entertainment worlds to create a single interactive experience and endless opportunities for content creation,” said Braun. “Creators and performers alike want new and innovative ways to bring their craft to life, and PortalOne is meeting that demand in a way that no other business has done. I’m excited to work with the entire team to realize their trailblazing vision. I have never seen anything like this before.”

Delian Asparouhov, a principal at Founders Fund — in the news today for another reason, his role in bringing a lot of attention to Miami as a new tech hot spot — also thinks that the building of infrastructure and tech combined with the media element will give the startup a lot of runway.

“We back companies that we believe have strong potential to become global category leaders,” he said in a statement. “PortalOne creates a new category and simultaneously the platform that is clearly set to dominate that new category. The market is ripe, the opportunity is clear, and the potential is unlimited. PortalOne is poised to create a before and after in the industry.”

IBM is acquiring cloud app management firm Turbonomic for up to $2B

IBM today made another acquisition to deepen its reach into providing enterprises with AI-based services to manage their networks and workloads. It announced that it is acquiring Turbonomic, a company that provides tools to manage application performance (specifically resource management), along with Kubernetes and network performance, part of its bigger strategy to bring more AI into IT ops, or as it calls it, AIOps.

Financial terms of the deal were not disclosed but according to data in PitchBook, Turbonomic was valued at nearly $1 billion — $963 million, to be exact — in its last funding round in September 2019. A report in Reuters rumoring the deal a little earlier today valued it at between $1.5 billion and $2 billion, and a source tells us the figure is accurate.

The Boston-based company’s investors included General Atlantic, Cisco, Bain, Highland Capital Partners, and Red Hat. The last of these, of course, is now a part of IBM (so it was theoretically also an investor), and together Red Hat and IBM have been developing a range of cloud-based tools addressing telco, edge and enterprise use cases.

This latest deal will help extend that further, and it has more generally been an area that IBM has been aggressive in recently. Last November IBM acquired another company called Instana to bring application performance management into its stable, and it pointed out today that the Turbonomic deal will complement that and the two technologies’ tools will be integrated together, IBM said.

Turbonomic’s tools are particularly useful in hybrid cloud architectures, which involve not just on-premise and cloud workloads, but workloads that typically are extended across multiple cloud environments. While this may be the architecture people apply for more resilience, reasons of cost, location or other practicalities, the fact of the matter is that it can be a challenge to manage. Turbonomic’s tools automate management, analyse performance, and suggest changes for network operations engineers to make to meet usage demands.

“Businesses are looking for AI-driven software to help them manage the scale and complexity challenges of running applications cross-cloud,” said Ben Nye, CEO, Turbonomic, in a statement. “Turbonomic not only prescribes actions, but allows customers to take them. The combination of IBM and Turbonomic will continuously assure target application response times even during peak demand.”

The bigger picture for IBM is that it’s another sign of how the company is continuing to move away from its legacy business based around servers and deeper into services, and specifically services on the infrastructure of the future, cloud-based networks.

“IBM continues to reshape its future as a hybrid cloud and AI company,” said Rob Thomas, SVP, IBM Cloud and Data Platform, in a statement. “The Turbonomic acquisition is yet another example of our commitment to making the most impactful investments to advance this strategy and ensure customers find the most innovative ways to fuel their digital transformations.”

A large part of the AI promise in the world of network operations and IT ops is how it will afford companies to rely more on automation, another area where IBM has been very active. (In a very different application of this technology — in business services — this month, it acquired MyInvenio in Italy to bring process mining technology in house.)

The promise of automation, meanwhile, is lower operation costs, a critical issue for managing network performance and availability in hybrid cloud deployments.

“We believe that AI-powered automation has become inevitable, helping to make all information-centric jobs more productive,” said Dinesh Nirmal, General Manager, IBM Automation, in a statement. “That’s why IBM continues to invest in providing our customers with a one-stop shop of AI-powered automation capabilities that spans business processes and IT. The addition of Turbonomic now takes our portfolio another major step forward by ensuring customers will have full visibility into what is going on throughout their hybrid cloud infrastructure, and across their entire enterprise.”

Vectra AI picks up $130M at a $1.2B valuation for its network approach to threat detection and response

Cybersecurity nightmares like the SolarWinds hack highlight how malicious hackers continue to exploit vulnerabilities in software and apps to do their dirty work. Today a startup that’s built a platform to help organizations protect themselves from this by running threat detection and response at the network level is announcing a big round of funding to continue its growth.

Vectra AI, which provides a cloud-based service that uses artificial intelligence technology to monitor both on-premise and cloud-based networks for intrusions, has closed a round of $130 million at a post-money valuation of $1.2 billion.

The challenge that Vectra is looking to address is that applications — and the people who use them — will continue to be weak links in a company’s security set-up, not least because malicious hackers are continually finding new ways to piece together small movements within them to build, lay and finally use their traps. While there will continue to be an interesting, and mostly effective, game of cat-and-mouse around those applications, a service that works at the network layer is essential as an alternative line of defense, one that can find those traps before they are used.

“Think about where the cloud is. We are in the wild west,” Hitesh Sheth, Vectra’s CEO, said in an interview. “The attack surface is so broad and attacks happen at such a rapid rate that the security concerns have never been higher at the enterprise. That is driving a lot of what we are doing.”

Sheth said that the funding will be used in two areas. First, to continue expanding its technology to meet the demands of an ever-growing threat landscape — it also has a team of researchers who work across the business to detect new activity and build algorithms to respond to it. And second, for acquisitions to bring in new technology and potentially more customers.

(Indeed, there has been a proliferation of AI-based cybersecurity startups in recent years, in areas like digital forensics, application security and specific sectors like SMBs, all of which complement the platform that Vectra has built, so you could imagine a number of interesting targets.)

The funding is being led by funds managed by Blackstone Growth, with unnamed existing investors participating (past backers include Accel, Khosla and TCV, among other financial and strategic investors). Vectra today largely focuses on enterprises, highly demanding ones with lots at stake to lose. Blackstone was initially a customer of Vectra’s, using the company’s flagship Cognito platform, Viral Patel — the senior MD who led the investment for the firm — pointed out to me.

The company has built some specific products that have been very prescient in anticipating vulnerabilities in specific applications and services. While it said that sales of its Cognito platform grew 100% last year, Cognito Detect for Microsoft Office 365 (a separate product) sales grew over 700%. Coincidentally, Microsoft’s cloud apps have faced a wave of malicious threats. Sheth said that implementing Cognito (or indeed other network security protection) “could have prevented the SolarWinds hack” for those using it.

“Through our experience as a client of Vectra, we’ve been highly impressed by their world-class technology and exceptional team,” 
John Stecher, CTO at Blackstone, said in a statement. “They have exactly the types of tools that technology leaders need to separate the signal from the noise in defending their organizations from increasingly sophisticated cyber threats. We’re excited to back Vectra and Hitesh as a strategic partner in the years ahead supporting their continued growth.”

Looking ahead, Sheth said that endpoint security will not be a focus for the moment because “in cloud there is so much open territory”. Instead it partners with the likes of CrowdStrike, SentinelOne, Carbon Black and others.

In terms of what is emerging as a stronger entry point, social media is increasingly coming to the fore, he said. “Social media tends to be an effective vector to get in and will remain to be for some time,” he said, with people impersonating others and suggesting conversations over encrypted services like WhatsApp. “The moment you move to encryption and exchange any documents, it’s game over.”