Sequoia’s Mike Vernal will share how to iterate with tempo at TC Early Stage in July

TC Early Stage is back in July and we have a fantastic lineup in store that’s laser-focused on marketing and fundraising. That includes, but is not limited to, Sequoia’s Mike Vernal, whose portfolio companies include Citizen, PicsArt, Whisper, Threads, Houseparty and more.

Vernal will be leading a discussion on tempo and product-market fit. The chat stems from Vernal’s experience as an investor, sharing the lesser-known keys to success to not only secure early investment, but to use it to secure a later-stage investment.

In essence, tempo is everything. At the earliest stage, investors are looking more at the team than the product, knowing that the likelihood of the product changing and evolving is high. That means that the ability to adapt — including the systems in place to collect feedback and willingness to continue iterating — are incredibly important factors.

Vernal will not only stress the importance of tempo and product iteration (and how it relates to fundraising success), he’ll also share how both enterprise and consumer companies should go about creating these feedback loops with customers and how to iterate quickly.

Vernal joined Sequoia as a partner in 2016. He currently sits on the boards of Citizen, Jumpstart, rideOS, PicsArt, Rockset, Threads and Whisper. Before Sequoia, Mike was VP at Facebook, where he led a variety of product and engineering teams. He co-created Facebook Login and the Graph API.

In other words, he’s seen and participated in success, and has done the work of product iteration himself.

Vernal joins a stellar lineup of speakers at TC Early Stage in July, including Norwest Venture Partners’ Lisa Wu, Greylock’s Mike Duboe and Cleo Capital’s Sarah Kunst, among many others that are soon to be announced.

One of the great things about TC Early Stage is that the show is designed around breakout sessions, with each speaker leading a chat around a specific startup core competency (like fundraising, designing a brand, mastering the art of PR and more). Moreover, there is plenty of time for audience Q&A in each session.

Pick up your ticket for the event, which goes down July 8 and 9, right here. And if you do it before the end of the day today, you’ll save a cool $100 off of your registration.

 

Norwest Venture Partners’ Lisa Wu to teach founders how to think like a VC at TC Early Stage

The best venture capitalists take moonshot risks based on due diligence, support portfolio companies through ups and downs and find focus through noise.

When you look at the job description of the best founder, you’ll find nearly the exact same list of characteristics (except, of course, instead of a portfolio, the founder is supporting a team of employees). The shared ethos is almost uncanny — and includes a slew of strategic synergies both sides of the table can exploit.

That’s why we’re excited to announce that Lisa Wu, a partner at Norwest, is joining us at TechCrunch Early Stage in July to talk tactics, and how founders can think like a VC in all facets of their business.

Wu focuses on seed to late-stage companies with a specific interest in consumer internet, digital commerce and next-generation marketplaces. Her portfolio includes Calm, Ritual, Plaid and the recently public Opendoor.

With the inside scoop on these iconic companies, Wu will use her experience to illustrate how the best founders can leverage the language of venture capital in the pitch and beyond. The goal is to give the audience a list of actionable insights to implement immediately — and lean heavily on anecdotes found in Wu’s impressive work in the industry.

Tickets for TC Early Stage: Marketing & Fundraising are available at the early-bird rate, which gives you an instant $100 savings if you book before next week!

 

Outschool is the newest edtech unicorn

Outschool, a marketplace providing small-group, virtual after-school activities for children has raised a $75 million Series C led by Coatue and Tiger Global Management. TechCrunch first learned of the round from sources familiar with the transaction; the company confirmed the deal to TechCrunch later today.

The new funding values Outschool’s at $1.3 billion, around 4 times higher than its roughly $320 million valuation set less than a year ago.

To date, Outschool has raised $130 million in venture capital to date, inclusive of its new round.

The company’s valuation growth curve is steep for any startup, let alone an edtech concern that saw the majority of its growth during the pandemic. But while CEO and co-founder Amir Nathoo says his company’s new valuation is partially a reflection of today’s fundraising frenzy, he thinks revenue sustainability is a key factor in his company’s recent fundraise.

The new unicorn’s core product is after school classes for entertainment or supplemental studies, on an ongoing or one-off basis. As the company has grown, ongoing classes have grown from 10% of its business to 50% of its business, implying that the startup is generating more reliable revenue over time.

The change from one-off classes to enduring engagements could be good for the company and its students. On the former, recurring revenue is music to investor ears. On the latter, students need repetition to develop close relationships with a course and a group. Ongoing classes about debate or a weekly zombie dance class makes for a stickier experience.

Nathoo says everyone always asks what the most popular classes are, but said it continues to change since its main clientele – kids – have evolving favorites. One week it might be math, the other it might be minecraft and architecture.

Its changing revenue profile helped Outschool generate more than $100 million in bookings in 2020, compared to $6 million in 2019 and just $500,000 in 2017. Nathoo declined to share the company’s expectations for 2021 beyond “projecting to grow aggressively.”

Outschool reached brief positive cash flow last year as a result of massive growth in bookings, but Nathoo shared that that has since changed.

“My goal is to always stay within touching distance of profit,” he said. “But given the fast change in the market, it makes sense to invest aggressively into opportunities that will make sense in the long-term.”

What’s next

Nathoo expects to grow Outschool’s staff from 110 people to 200 by the end of the year, with a specific focus on international growth. In 2020, Outschool launched in Canada, New Zealand, Australia and the UK, so hiring will continue there and elsewhere.

On the flip side, Outschool isn’t  teachers at the same clip it was at the height of the pandemic in the United States. When the pandemic started, Outschool had 1,000 teachers on its platform. Within months, Outschool grew to host 10,000 teachers, a screening process that the founder explained was resource-heavy but vital. Outschool makes more money if teachers join the platform full-time: teachers pocket 70% of the price they set for classes, while Outschool gets the other 30% of income. But, Nathoo views the platform as more of a supplement to traditional education. Instead of scaling revenue by convincing teachers to come on full-time, the CEO is growing by adding more part-time teachers to the platform.

Similar to how Airbnb created a host endowment fund to share its returns with the people who made its platform work, Outschool has dedicated 2% of its fundraise to creating a similar program to reward teachers on its platform in the event of liquidity.

One of Outschool’s most ambitious goals is, ironically, to go in school. While some startups have found success selling to schools amid the pandemic, district sales cycles and tight budgets continue to be a difficult challenge for scaling purposes. Still, the startup wants to make its way into students’ lives through contracts with schools and employers, which could help low income families access the platform. Nathoo says enterprise sales is a small part of its business, but the strategy began just last year as part of COVID-19 response. It is currently piloting its B2B offering with a number of schools.

Outschool will also consider acquiring early-stage startups focused on direct-to-consumer learning in international markets. While no acquisitions have been made by the startup to date, consolidation in the edtech sector broadly is heating up.

Nathoo stressed that Outschool’s continued growth, even as schools reopen, has de-risked the company from post-pandemic worries.

“There’s going to be a big spike of in-person activities because everyone is going to want to do that at once,” he said. “But then we’re going to settle at some more even distribution because the future of education is hybrid.”

He added that Outschool’s ethos around online learning hasn’t changed since conception. The company has never seen opportunity in the for-credit, subject-matter digital education sector, and instead has focused more on supplemental ways to support students after school.

“That’s the piece of the education system that is underserved and that was missing,” he said. “The advantages of online learning will remain in the convenience, the cost, and the variety of what you can get that isn’t always available locally.”

Let’s talk about gaslighting and fundraising

“Most of the startups I give advice to about how to raise venture capital shouldn’t be raising venture capital,” an investor recently told me. While the idea that every startup isn’t venture-backable might run counter to the narrative to the barrage of funding news each week, I think it’s important to double click on the topic. Plus, it keeps coming up, off the record, on phone calls with investors!

As venture grows as an asset class, the access to capital has broadened from a dollar perspective, but I do think the difficulties that remain is an important dynamic to call out (and something no one talks about during an upmarket). Beyond the fact that only a small subset of startups truly can pull off scaling to the point of venture-level returns, it is still hard for even qualified founders to raise venture capital. Venture capital is still a heavily white, male-led industry, and as a result contains bias that disproportionately limits access for underrepresented founders.

Eniac founding partner Hadley Harris applied this dynamic to the current market boom in a recent tweet: A lot of people are misunderstanding this VC funding market. More money is flowing into the market but the increase is not evenly distributed. The market believes winners can be much bigger but not necessary that there will be more winners. It’s still very hard for most to raise a VC.

To say otherwise is to gaslight the early-stage or first-time founders that have spent months and months trying to raise their first institutional dollars and failed. So ask yourself: Seed rounds have indeed grown bigger, but for who? What comes at the cost of the $30 million seed round? Are the founders that can raise overnight from diverse backgrounds? Are investors backing first-time founders as much as they are backing second- or third-time entrepreneurs?

The answers might leave you debating about the boundaries, and limitations, of the upcoming hot-deal summer.

A few weeks ago, I wrote about the disconnect between due diligence and fundraising right now. Now we’ve moved onto the disconnect, and bifurcation, within first-check fundraising itself. There is so much more we can get into about the fallacy of “democratization” in venture capital, from who gets to start a rolling fund to the lack of assurance within equity crowdfunding campaigns.

We’ll get through it all together, and in the meantime make sure to follow me on Twitter @nmasc_ for more hot takes throughout the week.

In the rest of this newsletter, we will talk about fintech politics, the Affirm model with a twist, and sneakers-as-a-service.

Ex-Coinbase talks politics

The inimitable Mary Ann Azevedo has been dominating the fintech beat for us, covering everything from the latest Uruguayan unicorn to Acorn’s scoop of a debt management startup. But the story I want to focus on this week is her interview with ex-Coinbase counsel & former Treasury official, Brian Brooks.

Here’s what to know: Coinbase CEO Brian Armstrong notoriously released a memo last year denouncing political activism at work, calling it a distraction. In this exclusive interview, Brooks spoke about how blockchain is the answer to financial inclusion, and argued why politics needs to be taken out of tech.

We don’t want bank CEOs making those decisions for us as a society, in terms of who they choose to lend money to, or not. We need to take the politics out of tech. All of us do a lot of different things, and we have no idea on a given day, whether what we’re doing is popular with our neighbors or popular with our bank president or not. I don’t want the fact that I sometimes feel Republican to be a reason why my local bank president can deny me a mortgage.

Image Credits: Bryce Durbin/TechCrunch

The Affirm for X model

While Affirm may have popularized the “buy now, pay later” model, the consumer-friendly business strategy still has room to be niched down into specific subsectors. I ran into one such startup when covering Plaid’s inaugural cohort of startups in its accelerator program.

Here’s what to know: Walnut is a new seed-stage startup that is a point-of-sale loan company with a healthcare twist. Unlike Affirm, it doesn’t make money off of fees charged to consumers.

Image Credits: Bryce Durbin/TechCrunch

Everything you could ever want to know about StockX

In our latest EC-1, reporter Rae Witte has covered a startup that leads one of the most complex and culturally relevant marketplaces in the world: sneakers.

Here’s what to know: StockX, in her words, has built a stock market of hype, and her series goes into its origin story, authentication processes and a market map.

Image Credits: Nigel Sussman

Around TechCrunch

Found, a new podcast joining the TechCrunch network, has officially launched! The Equity team got a behind-the-scenes look at what triggered the new podcast, the first guests and goals of the show. Make sure to tune into the first episode.

Also, if you run into any paywalls while browsing today’s newsletter, make sure to use discount code STARTUPSWEEKLY to get 25% off an annual or two-year Extra Crunch subscription.

Across the week

Seen on TechCrunch

Okta launches a new free developer plan

New Jersey announces $10M seed fund aimed at Black and Latinx founders

Education nonprofit Edraak ignored a student data leak for two months

6 VCs talk the future of Austin’s exploding startup ecosystem

Dear Sophie: Help! My H-1B wasn’t chosen!

Seen on Extra Crunch

5 machine learning essentials nontechnical leaders need to understand

How we dodged risks and raised millions for our open-source machine language startup

Giving EV batteries a second life for sustainability and profit

And that’s a wrap! Thanks for making it this far, and now I dare you to go make the most out of the rest of your day. And by make the most, I mean listen to Taylor’s Version.

Warmly,

N

Cleo Capital is targeting $20 million for Fund II

Cleo Capital, a venture capital firm founded in 2018 by Sarah Kunst, is raising up to $20 million for its second fund, according to a source familiar with the matter. A recent SEC filing shows that Cleo Capital has already raised $6.7 million of that goal, bringing total assets under management to around $10 million. Kunst was unable to comment on her fundraising efforts.

That new AUM number is close to what Cleo Capital initially set out to do. When Kunst first launched her firm, she targeted a $10 million close. She ended up closing $3.14 million of that goal, and now, she’s back to double down.

Fund II’s $20 million target, if closed, would allow Cleo Capital, which invests in primarily pre-seed companies, to start leading rounds. The firm has already been writing $1 million checks and targets about a 15-20% ownership in its rounds.

“One of the reasons why we are a pre-seed fund is because in seed, especially late-seed, you have everyone from family offices to TikTok stars and rolling funds competing for hot rounds,” she said. “No one is competing in pre-seed.”

There are firms such as Precursor and Hustle Fund that back pre-seed companies, and cut checks around $100,000 and $25,000 to start, respectively. Kunst sees the ability to write a $1 million pre-seed check as a “huge advantage.” Usually early-stage founders without family money or deep networks have to spend a big chunk of time raising their first round. It’s a lot of time to spend fundraising and not building a company. If a firm can cut a big pre-seed check, she thinks that Cleo is “buying back six months of a company‘s runway,” she said.

Like many firms, Cleo Capital has turned to creative measures to diversify deal flow in the era of Zoom investing and pandemic business. For example, Cleo Capital launched a fellowship program for laid off workers during COVID-19 to promote entrepreneurship.

Matt Pauker, a repeat founder who has sold companies to Coinbase and HP Enterprise, was one of the advisors of that program. Pauker has joined Cleo Capital as a general partner presumably to line up with the timing of Fund II.

While the firm has no racial or gender investment focus, about 92% of its current investments are companies started by underrepresented founders.

The firm’s portfolio includes Planet FWD, mmhmm, Lunch Club, and StyleSeat. As for new opportunities, Kunst says that Cleo Capital is looking at anything that helps the individual turn into a collective. With the growth of the creator economy and solo-entrepreneurs, people need to figure out the future of income, health care, and benefit, Kunst explained.

“All of these things are hard for people to do as an individual,” she said. The majority of Cleo Capital’s portfolio is based outside of Silicon Valley.

Cleo Capital’s raise comes just over a week after two venture capital firms founded by Black venture capitalists announced new funds, Harlem Capital and MaC Venture Capital.

Creator economy’s slow burn

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

Natasha and Danny and  and Grace were all here to chat through the week’s rigamarole of news. Alex took some well-deserved time off, but that meant we got to poke a little fun at him and create a Special Edition segment to start off the show.

Jokes aside, this week was yet another spree of creator economy, edtech, and new fund announcements, with fresh and unexpected news hailing from Natasha’s home state, New Jersey.

Here’s what we got into:

What a show! We’ll be back with the full trio next week, and until then, stay safe and thank you for listening.

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

Setting up a management board for success with Dave Easton

Viewed from the outside, board selection and corporate governance can seem like a bit of a black box — particularly at a startup. Generation Investment Management partner Dave Easton spoke at TechCrunch Early Stage about how to build a board as a founder, and specifically how to build a board you can live with. Easton’s own ample experience serving on boards as both a full member and as an observer, as well as Generation’s focus on building sustainable, ethically managed, mission-driven businesses helped peel back the curtain on the murky topic of good governance.


On the composition of boards

Easton noted that many boards end up overcrowded — in terms of both the number of people and also the background of those present. Mixing up the type of board members you have managing your corporate governance is key, he said, especially as a company grows in size and maturity.

In terms of fields, the sorts of things that we find that often go wrong is when your board is stacked full of investors. I think investors are great — I’m an investor. I think there are super useful things investors do. But five investors is not very useful, right — it’s just more people who will generally think the same. So a typical thing that we’re doing when we come in is, we’re saying we’re not taking a board seat, we’re gonna give our board seats to an operator — someone who actually knows what they’re doing. When you’re in the earliest stages it’s probably fine to avoid operators and just have one or two investors. Particularly operators who come from, like bigger company backgrounds, they’re not necessarily so helpful when you’re getting product-market fit. But as you get bigger and bigger, you know, operators start to trump investors, and we think boards need to move more heavily in that direction. (Time stamp: 09:34)


Don’t put settled topics up for debate

On the subject of what should actually take place at well-run board meetings, Easton said that one of the most common pitfalls he’s encountered is when management sort of performatively offers up subjects for debate. It’s something that’s easy to do, but it also ends up not only being wasteful of the time of those present, it also leaves a bad taste in basically everyone’s mouths.

Applications for Startup Battlefield at TC Disrupt 2021 are now open

Applications for Startup Battlefield are now open! Founders, this past year has been challenging in ways words can’t encompass. But you are persevering and now is the time to show the world what you have been working on. TechCrunch is on the hunt for game-changing and ground breaking startups from around the globe, to feature in Startup Battlefield during TechCrunch Disrupt 2021 this fall. Startups will be competing for a $100,000 equity-free prize, the eyes of investors from around the world and global media coverage on the most famous stage in tech media.

Eligibility & Application. Startup Battlefield highlights early stage companies from all geographies, in any industry. Startups should have an MVP. Founders simply need to apply here. Every application is reviewed by a member of the TechCrunch editorial team. TechCrunch takes ZERO fees – the application and participation/training program for selected companies is free. TC does not take equity any company.

Training. Startups selected to pitch will engage in an intensive training over several weeks with the Startup Battlefield team. Founders will perfect their pitches, finesse their business models and hone their presentation skills. Founders will have access to masterclasses from experts on how to build, market and scale the startups.

Pitch. About 25 startups will be selected to pitch on the main stage at TechCrunch Disrupt 2021. Each founder will present for six minutes, with a live demo, followed by a Q&A with our esteemed panel of judges. Judges like Kristin Green, Aileen Lee, Alfred Lin, Susan Lyne and more. After the first round, the top set of companies will pitch again in the final round in front of a fresh panel of judges. The judges will pick the winner who will receive the Disrupt cup and the $100,000 equity-free prize money.

Disrupt. Startup Battlefield founders are the VIPs of TC Disrupt. Founders get access to private events, complimentary event tickets, exhibition space on the virtual show floor, access to CrunchMatch, and a private Startup Battlefield Reception with members of the Startup Battlefield Alumni community. Battlefield founders will also get access to future TC events and a free subscription to Extra Crunch.

Launch your startup this September. Step into the spotlight. Apply now.

Applications for Startup Battlefield at TC Disrupt 2021 are now open

Applications for Startup Battlefield are now open! Founders, this past year has been challenging in ways words can’t encompass. But you are persevering and now is the time to show the world what you have been working on. TechCrunch is on the hunt for game-changing and ground breaking startups from around the globe, to feature in Startup Battlefield during TechCrunch Disrupt 2021 this fall. Startups will be competing for a $100,000 equity-free prize, the eyes of investors from around the world and global media coverage on the most famous stage in tech media.

Eligibility & Application. Startup Battlefield highlights early stage companies from all geographies, in any industry. Startups should have an MVP. Founders simply need to apply here. Every application is reviewed by a member of the TechCrunch editorial team. TechCrunch takes ZERO fees – the application and participation/training program for selected companies is free. TC does not take equity any company.

Training. Startups selected to pitch will engage in an intensive training over several weeks with the Startup Battlefield team. Founders will perfect their pitches, finesse their business models and hone their presentation skills. Founders will have access to masterclasses from experts on how to build, market and scale the startups.

Pitch. About 25 startups will be selected to pitch on the main stage at TechCrunch Disrupt 2021. Each founder will present for six minutes, with a live demo, followed by a Q&A with our esteemed panel of judges. Judges like Kristin Green, Aileen Lee, Alfred Lin, Susan Lyne and more. After the first round, the top set of companies will pitch again in the final round in front of a fresh panel of judges. The judges will pick the winner who will receive the Disrupt cup and the $100,000 equity-free prize money.

Disrupt. Startup Battlefield founders are the VIPs of TC Disrupt. Founders get access to private events, complimentary event tickets, exhibition space on the virtual show floor, access to CrunchMatch, and a private Startup Battlefield Reception with members of the Startup Battlefield Alumni community. Battlefield founders will also get access to future TC events and a free subscription to Extra Crunch.

Launch your startup this September. Step into the spotlight. Apply now.

TC Early Stage will dive deep on how to fundraise for your startup

Despite the fact that capital is abundant and dozens of startups get funding every day, the process of raising institutional capital is anything but simple.

From getting an investor’s attention to nailing your virtual pitch meeting to the legal aspects of your term sheet, there is plenty to navigate.

Luckily, TechCrunch Early Stage is bringing together some of the biggest VCs to share how to manage the process proactively and successfully secure capital from the right VCs.

Just take a look at the fundraising sessions going down at TC Early Stage, which takes place later this week on April 1 – 2.

How to Get an Investor’s Attention – Marlon Nichols, MaC Venture Capital

Marlon Nichols is an expert in early-stage investments, having invested in countless successful ventures such as Gimlet Media, MongoDB, Thrive Market, PlayVS, Fair, Wonderschool and Finesse. Right now, there is more seed-stage fundraising than ever before, and Marlon will speak on how to get noticed by investors, how to grow your business and how to survive in the crowded, competitive space of tech startups. He will provide insights on how to network, craft a great pitch and target the best investors for your success.

How to Nail Your Virtual Pitch Meeting – Melissa Bradley, Ureeka

The rules of the pitch meeting have changed. Instead of traveling across the country, wasting time in planes, trains and automobiles, founders can take upwards of 30 meetings in a day from the comfort of their home. Entrepreneur and VC Melissa Bradley will outline how to make the most of that half hour on Zoom and lock in the next one.

How to Kick the 10 Worst Startup Habits – Leah Solivan, Fuel Capital

With voices across the internet giving their two-cents on how to run a great business, Fuel Capital’s Leah Solivan will share a list of things that a founder should NOT do. Avoid the pitfalls that could break your momentum, or worst case, your company, and ask Solivan your own questions.

Bootstrapping and the Power of Product-Led Growth – Tope Awotona, Calendly and Blake Bartlett, OpenView

Building a bootstrapped company forces you to be creative. For Calendly, it pointed the company toward a product-led growth model built on virality. Hear from Calendly’s Tope Awotona and OpenView’s Blake Bartlett as they cover pro tips on bootstrapping, PLG and when a profitable company should consider raising capital.

Four Things to Think About Before Raising a Series A – Bucky Moore, Kleiner Perkins

Founders looking to raise Series A capital know that it’s an entirely different ball game than seed-stage funding. Hear Kleiner Perkins partner Bucky Moore outline the most important ways to mentally prepare for heading into Series A fundraising.

Fundraising Terms That Affect Your Business – Dawn Belt, Fenwick & West

With each funding round, there is an exciting opportunity for growth, but it’s important to fully understand the implications of those terms. Fenwick partner Dawn Belt will discuss the key legal terms to focus on in your seed and Series A rounds and how they affect the control and operational freedom of your company.

TC Early Stage takes place on April 1 – 2 and is jam-packed with breakout sessions led by tech leaders, from VCs to operators. Each session will include audience Q&A so founders can get answers to their specific questions. On Day 2, we’ll be holding a pitch-off with some fantastic companies.

All in all, it’ll be a fantastic event. You should def come hang out! Get a ticket here.