As China shakes up regulations, tech companies suffer

The Exchange spent a little time on Friday ruminating on the impact of then-rumored regulation in China targeting its edtech sector. News that the Chinese government intended to crack down further on the education technology market hit shares of public, China-based edtech companies. It was a mess.

Then over the weekend, the rumors became reality, and the impact is still being felt today in the global markets.

But there’s more. China is also bringing new regulatory pressure on food-delivery companies and Tencent Music. More precisely, we’ve seen successive market-dynamic-changing moves from the Chinese government in the last few days, coming as 2021 had already proved to be a turbulent environment for China-based technology companies.


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Today we have to do a little bit of work to understand precisely what is going on with the various regulatory changes. Why? Because the Chinese venture capital market is a key player in the global venture scene. And Chinese startups have gone public on both Chinese, Hong Kong and U.S. exchanges; there’s a lot of capital tied up in companies impacted today — and possibly tomorrow.

For startups, the regulatory changes aren’t a death blow; indeed, many Chinese tech startups won’t be affected by what we’ve seen thus far. And upstart tech companies in sectors less likely to be targeted by central authorities may become more attractive to investors than they were before the regulatory onslaught kicked off. But on the whole, it feels like the risk profile of doing business in China has risen. That could curb the pace at which capital is invested, cut valuations and lower interest in the Chinese startup market from private-market investors able to invest globally.

Let’s parse what’s changed, examine market reactions and then consider what could be next. We want to better understand today’s Chinese startup market and what its new form could mean for existing players and future performance.

Changes

The edtech clampdown did not start last week. China’s edtech sector started to rack up penalties and fines in June, which led to what the Asia Times called “warning bells” in the sector. From there, things went from penalties to punishing regulatory changes.

Equity Monday: China boosts pressure on its tech sector as Duolingo’s IPO looks to raise a few more bucks

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 and myself here.

Ever wake up to just a massive wall of news? That was us this morning, so we had to pick and choose. But since this show is about getting you caught up, we decided to focus on the largest, broadest new information that we could:

  • Asian stocks were down, European shares are lower, and American equities are set to open underwater. Bitcoin had a great weekend, however.
  • China’s edtech crackdown continued over the weekend, with the country’s ruling party setting new rules for online tutoring companies; they can no longer go public and will be forced to become non-profit entities. Chinese edtech stocks around the world fell.
  • China’s larger tech crackdown continued over the weekend and into the week, with new moves against the present-day business models of both food delivery companies, and Tencent Music. The former must ensure minimum incomes, while the latter must give up exclusive rights deals. Shares fell.
  • The Jam City SPAC is kaput. It will not be the last similar deal to fall apart.
  • And we chatted about this bit of Rivian news, as it stood out to us.

All that and we had a good time. Hugs and love from the Equity crew, chat 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!

Equity Monday: China boosts pressure on its tech sector as Duolingo’s IPO looks to raise a few more bucks

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 and myself here.

Ever wake up to just a massive wall of news? That was us this morning, so we had to pick and choose. But since this show is about getting you caught up, we decided to focus on the largest, broadest new information that we could:

  • Asian stocks were down, European shares are lower, and American equities are set to open underwater. Bitcoin had a great weekend, however.
  • China’s edtech crackdown continued over the weekend, with the country’s ruling party setting new rules for online tutoring companies; they can no longer go public and will be forced to become non-profit entities. Chinese edtech stocks around the world fell.
  • China’s larger tech crackdown continued over the weekend and into the week, with new moves against the present-day business models of both food delivery companies, and Tencent Music. The former must ensure minimum incomes, while the latter must give up exclusive rights deals. Shares fell.
  • The Jam City SPAC is kaput. It will not be the last similar deal to fall apart.
  • And we chatted about this bit of Rivian news, as it stood out to us.

All that and we had a good time. Hugs and love from the Equity crew, chat 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!

NotCo gets its horn following $235M round to expand plant-based food products

NotCo, a food technology company making plant-based milk and meat replacements, wrapped up another funding round this year, a $235 million Series D round that gives it a $1.5 billion valuation.

Tiger Global led the round and was joined by new investors, including DFJ Growth Fund, the social impact foundation, ZOMA Lab; athletes Lewis Hamilton and Roger Federer; and musician and DJ Questlove. Follow-on investors included Bezos Expeditions, Enlightened Hospitality Investments, Future Positive, L Catterton and Kaszek Ventures.

This funding round follows an undisclosed investment in June from Shake Shack founder Danny Meyer through his firm EHI. In total, NotCo, with roots in both Chile and New York, has raised more than $350 million, founder and CEO Matias Muchnick told TechCrunch.

Currently, the company has four product lines: NotMilk, NotBurger and NotMeat, NoticeCream and NotMayo, which are available in the five countries of the U.S., Brazil, Argentina, Chile and Colombia.

The company is operating in the middle of a trend toward eating healthier food, as more consumers also question how their food is made, resulting in demand for alternative proteins. In fact, the market for alternative meat, eggs, dairy and seafood products is predicted to reach $290 billion by 2035, according to research by Boston Consulting Group and Blue Horizon Corp.

NotCo’s proprietary artificial intelligence technology, Giuseppe, matches animal proteins to their ideal replacements among thousands of plant-based ingredients. It is working to crack the code in understanding the molecular components and food characteristics in the combination of two ingredients that could mimic milk, but in a more sustainable and resourceful way — and that also tastes good, which is the biggest barrier to adoption, Muchnick said.

“Our theory is that there is a crazy dynamic among people: 60% who are already eating plant-based are not happy with the taste, and 30% of those who drink cow’s milk are waiting to change if there is a similar taste,” he added. “Our technology is based in AI so that we can create a different food system, as well as products faster and better than others in the space. There are 300,000 plant species, and we still have no idea what 99% of them can do.”

In addition to a flow of investments this year, the company launched its NotMilk brand in the United States seven months ago and is on track to be in 8,000 locations across retailers like Whole Foods Market, Sprouts and Wegmans by the end of 2021.

Muchnick plans to allocate some of the new funding to establish markets in Mexico and Canada and add market share in the U.S. and Chile. He expects to have 50% of its business coming from the U.S. over the next three years. He is also eyeing an expansion into Asia and Europe in the next year.

NotCo also intends to add more products, like chicken and other white meats and seafood, and to invest in technology and R&D. He expects to do that by doubling the company’s current headcount of 100 in the next two years. Muchnick also wants to establish more patents in food science — the company already has five — and to explore a potential intelligence side of the business.

Though NotCo reached unicorn status, Muchnick said the real prize is the brand awareness and subsequent sales boost, as well as opening doors for quick-service restaurant deals. NotBurger went into Burger King restaurants in Chile 11 months ago, and now has 5% of the market there, he added.

Sales overall have grown three times annually over the past four years, something Muchnick said was attractive to Tiger Global. He is equally happy to work with Tiger, especially as the company prepares to go public in the next two or three years. He said Tiger’s expertise will get NotCo there in a more prepared manner.

“NotCo has created world class plant-based food products that are rapidly gaining market share,” said Scott Shleifer, partner at Tiger Global, in a written statement. “We are excited to partner with Matias and his team. We expect continued product innovation and expansion into new geographies and food categories will fuel high and sustainable growth for years to come.”

 

One of Nigeria’s high profile angel investors is launching a fund for African startups

Olumide Soyombo is one of the well-known active angel investors in Nigeria tech startups and Africa at large. Since he began angel investing in 2014, Soyombo has invested in 33 startups, including Stripe-owned Paystack, PiggyVest, and TeamApt.

Today, the investor is announcing the launch of Voltron Capital, a Pan-African venture capital firm he co-founded with Abe Choi, a U.S.-based entrepreneur and investor.

Voltron will be deploying capital to roughly 30 startups, mostly in pre-seed and seed-stage across Africa, in a bid to “address the severe lack of access to early-stage funding for African tech companies.” The ticket sizes will range from $20,000 to $100,000, focusing on startups in Nigeria, Kenya, South Africa, and North Africa.

Soyombo is one of the few founder-cum-investors on the continent, despite his company not being the traditional VC-backed startup the world has become accustomed to. In 2008, he started Bluechip Technologies with a friend, Kazeem Tewogbade as an enterprise company that provides data warehousing solutions and enterprise applications to banks, telcos, insurance firms. Some of its biggest clients include OEMs like Oracle.

Non-traditional startup founder to an angel investor

Six years later, the pair decided to venture into tech, a relatively nascent industry in Nigeria at the time and began investing in startups via LeadPath, an early-stage firm they launched in Lagos, Nigeria. The idea was to invest $25,000 and take the startups through a three-month accelerator program culminating in a Demo Day. The plan was to run LeadPath like Y Combinator but it didn’t take off as planned.

“In 2014, three months after we found out that there was no investor to put them in front of. So you’d have to write another check yourself,” Soyombo said humorously over the phone. “We quickly saw that the accelerator model didn’t work, so we started investing individually. It’s funny how things have changed since then.”

LeadPath became a special purpose vehicle (SPV) for the pair to carry out their angel investing deals. And over the years, Soyombo has launched several SPVs for the same purpose. So, why do things differently now by creating a fund? Soyombo walks me through one of the processes he has used to fund deals over the years to answer this question.

As an influential figure in Nigeria’s tech ecosystem, Soyombo has access to almost any important deal in the market. “I get the privilege of seeing many deals before most people see them. I’ve built that network within the startup ecosystem and reputation as an angel always ready to help. So obviously, that helped me see many deals very quickly,” he said. Often, his deal flows are filled with startups seeking six-figure pre-seed to seed investments. Say, for instance, a founder is looking to raise $300,000, Soyombo can typically invest $50,000 of his own money. And based on his perception of the startup’s growth prospects, he can choose to bring his friends and acquaintances on board to fill the round.

This informal approach is what Soyombo wants to make formal via a structured format where each individual or organisational LPs gets access to his deal flow simultaneously. The investor believes companies will get capital quicker this way. And the interesting bit is that his work in corporate Nigeria has allowed him to access non-traditional capital which means some of the investors that use Soyombo’s deal flows are outside the typical Nigerian tech investing landscape. 

He sees his job as someone bridging the gap of angel investing between his corporate friends and colleagues who have not typically invested in tech and startups that need their money. 

“There’s a bit of FOMO now,” he said. “People, including high net worth individuals, tell me to carry them along anytime I’m investing, and then I have startups looking for capital as well. But then again, I’m not trying to get a full job by managing a full fund which is why we’ve structured it this way.”

Anyone familiar with the happenings in African tech these past few months knows the two events that have caused this FOMO: Paystack’s exit to Stripe and Flutterwave’s unicorn status. Soyombo was an early investor in the former, marking his solitary primary exit alongside two secondaries within a portfolio that have cumulatively raised over $70 million. Thus, it’s not hard to see why Soyombo isn’t having a hard time convincing non-traditional investors, including HNIs (who are notoriously risk-averse when it comes to tech investing), to write checks in startups.

All of a sudden, everyone is interested in what’s happening in the space. The HNIs that would’ve thrown money into real estate are looking for startups. We even see older HNIs telling their children to invest on their behalf, so it’s an easier conversation to have. Most of them want to diversify their portfolio by having a piece of that pie,” he said, pointing to Paystack and Flutterwave successes.

Abe Choi (Co-founder, Voltron)

Voltron Capital will be managed on AngelList. Its investors cut across HNIs and executives from banks, telcos, among other sectors, each investing a minimum of $10,000. Voltron is similar to a typical seven-figure fund targeting pre-seed and seed-stage startups in Africa, yet it’s quite different in the way it chooses to back founders. The fund remains an embodiment of Soyombo’s investment stance, which is “founders-first regardless of the industry.”

“I’m going to continue backing interesting entrepreneurs. If Odunayo of PiggyVest was building a healthtech or edtech company, I’ll still back that company,” he said, referring to the $1 million investment he made three years ago in one of Nigeria’s widely celebrated fintechs. “So I think the investability of sectors, for me, is driven by quality entrepreneurs that are going to solve problems in that area.”

Early-stage investing needs more work

In 2019, African tech startups raised a record $2 billion, according to Partech Africa. They have raised half that number already this year, and some publications predict these startups will break 2019’s record.

A large chunk of these investments goes into late-stage deals, which is typical of most tech ecosystems globally. But Africa stands out because early-stage startups find it more difficult to raise investments compared to other regions. For instance, IFC reported that 82% of African tech startups cite access to seed funding and a lack of angel investors as major problems they face. Without early-stage funding, many of the startups primed to drive this growth are missing out on vital capital to support their early operations and generate revenue, which is a key requirement for securing later rounds of funding and a larger scale.

Voltron, in its little capacity, wants to fill this gap in the best way it can. Besides listing local investors as LPs, Soyombo says startups will be able to access foreign capital too. Choi is the key to making that happen. Personally, Choi has invested in 15 startups (exiting two); therefore, his experience and network in the U.S. will be crucial in sourcing foreign capital into the continent

Soyombo believes Stripe acquisition of Paystack has made foreign investors take notice of African startups. He humorously references Paul Graham’s tweet after the acquisition as another reason why foreign investors’ interests have also piqued. The tweet from the Y Combinator co-founder read: “Investors who ignore Nigeria now have to ask themselves: What do I know that Patrick Collision doesn’t?”

That said, the investor holds that the pace at which the African tech ecosystem is maturing should excite anyone. The quality of founders on the continent is improving and will continue in that manner because there are more problems to solve, he continued.

“Also, as our startups mature, we’ll see people leaving to set up theirs. We want the next wave of African tech success stories to not only make an impact on the continent but to be truly global; through Abe’s strategic connections to the USA, we’re confident we can provide our portfolio with the best possible opportunities to achieve this through our US and global network.”

Sproutl is an online marketplace for gardeners founded by former Farfetch executives

Meet Sproutl, a marketplace for gardeners living in the U.K. The startup founded by former Farfetch executives has raised a $9 million seed round. It wants to make gardening more accessible by providing a curated list of items, relevant advice as well as inspiration.

Index Ventures is leading the round in the startup with Ada Ventures and several business angels also participating. The funding round originally closed in April of this year.

“A few years ago, we bought a flat in London with a tiny little garden. We were both working full time in quite intense jobs with young kids. I went online assuming that I would be able to sort out this garden space. And I didn’t know a lot about gardening. And I just didn’t find anything that spoke to me as a new gardener. It felt like what was available was more for more knowledgeable people,” co-founder and CEO Anni Noel-Johnson told me.

If you’ve ever tried to search for gardening videos on YouTube, you may have end up on long-winded videos with instructions that don’t make any sense to you. Similarly, there are not a lot of e-commerce websites focused on gardening specifically.

And yet, the market opportunity is quite big. There are millions of gardeners in the U.K. There are also quite a few independent garden centers, nurseries and shops with a turnover of several millions of pounds per year. More importantly, they generate the vast majority of their sales in store. Some of them have never sold anything online.

Sproutl is teaming up with those businesses so that they can find new customers across the U.K. Those third-party sellers list their items on Sproutl while the startup takes care of logistics, packaging sourcing and delivery.

On the marketplace, customers can buy indoor and outdoor plants, pots, gardening essentials and outdoor living products. Partners currently include Rosebourne, Polhill, Millbrook, Middleton, Bellr, Fertile Fibre and Horticus.

Anni Noel-Johnson, the CEO of the company, was the VP of Trading and Strategy at Farfetch. Sproutl CTO Andy Done also worked at Farfetch at some point as Director of Data Engineering.

Hollie Newton is also going to be a key team member at Sproutl. She previously wrote a best-selling gardening book called ‘How to Grow’. She’s now the Chief Creative Officer at Sproutl.

This is key to understanding Sproutl’s growth strategy. The company plans to provide a ton of content on all things related to your garden — the startup has already released a jargon buster. You might end up on Sproutl the next time you’re looking for gardening advice on Google.

And it’s also going to differentiate the platform from all-encompassing e-commerce platforms, such as Amazon. Other e-commerce companies focused on one vertical in particular, such as ManoMano, have been quite successful. With the right focus, Sproutl could quickly build a loyal customer base as well.

Data-driven iteration helped China’s Genki Forest become a $6B beverage giant in 5 years

China’s e-commerce and industrial ecosystem is as different from the Western world as its culture. The country took decades to earn its reputation as the Factory of the World, but it now boasts a supply chain and manufacturing ability that few countries can match.

Creative use of the country’s networked manufacturing and logistics hubs make mass production both cheap and easy. Clothing, electronics, toys, automobiles, musical instruments, furniture — you name it and you’ll find a manufacturer in China who can turn your intangible concept into mass-manufacturable reality in mere days. And they’ll do it for cheaper than anywhere else in the world.

It was just a matter of time until an intrepid Chinese entrepreneur with a tech background decided to take on Coca-Cola and PepsiCo.

China is also home to one of the world’s largest e-commerce and tech ecosystems. Hundreds of startups dot the landscape, and the amount of money being raised and spent on innovating around the country’s industrial heft is mind-boggling.

So it was just a matter of time until an intrepid Chinese entrepreneur with a tech background decided to take on Coca-Cola and PepsiCo. The tech revolution hasn’t yet affected the bottled beverage industry quite as much as it has others. Incumbent giants therefore could lose a sizable chunk of market share if a company could just manage to weave together China’s manufacturing proficiency and agility with the modern tech startup philosophy of “moving fast and breaking stuff.”

Genki Forest, a Chinese direct-to-consumer (D2C) bottled beverage startup, is one such contender. A philosophy centered around iteration informed by data, quick turnarounds and a laser focus on taking advantage of China’s huge e-commerce ecosystem has helped this company’s revenues rise rapidly since it started five years ago. Its sugar-free sodas, milk teas and energy drinks sell in 40 countries and generated revenue of about $450 million in 2020. The company aims to reach $1.2 billion this year.

If anything, Genki Forest’s valuation has shot up even faster. It recently completed its fourth VC round that values it at a whopping $6 billion, triple the price it fetched a year earlier, and it has so far raised at least half a billion dollars.

It’s striking how closely Genki Forest’s operations resemble that of a tech startup. So we thought we should take a closer look and see what this company’s graph can tell us about the new wave of Chinese D2C entrepreneurship looking to take over the globe.

Finding a bigger wave to ride

The bottled beverage industry wasn’t what Genki Forest’s founder, Binsen Tang, initially set out to tackle. His first startup was a successful casual, mostly mobile gaming outfit known as ELEX Technology. It was nowhere near record-breaking, though — some 50 million users logged on to a few popular games in over 40 countries worldwide, including one of the first versions of Happy Farm, a predecessor to Zynga’s Farmville. But Tang wasn’t satisfied and eventually sold ELEX Technology to a publicly listed company for about $400 million in 2014.

Tang would walk away with a few important lessons. He’d learned by now that Chinese products were already competitive globally, whether people realized it or not, and that and geographic arbitrage was real, Happy Farm being the perfect example of this. Lastly, he now knew that it was far more important to choose the right “racetrack” (as Chinese investors and entrepreneurs like to put it) than to have a great product.

Picking the right race to win was perhaps the most important takeaway. It’s also an idea that sets Chinese entrepreneurs apart from their Western counterparts — the most worthwhile endeavors are in identifying the largest and most rewarding market at hand, regardless of one’s previous expertise. It was what led Zhang Yiming to create ByteDance, and Lei Jun to found Xiaomi.

That very philosophy led Tang to build Genki Forest. After selling ELEX Technology, Tang didn’t go back to the business that netted him his first pot of gold. As much as he had benefited from the rise of the mobile internet, he thought there was a far bigger opportunity building a consumer brand and applying the lessons he learned from programming to the manufacture of tangible products.

He soon set up his own investment fund, Challenjers Capital, convinced that the next big tech opportunity in China was in tech’s application to everyday consumer products. He soon began to invest in everything from ramen and hotpots to bottled beverages.

China’s quickly expanding e-commerce ecosystem and the plethora of D2C businesses flourishing on Alibaba and JD.com would also influence his decision to sell directly to his target audience rather than take the traditional route. But to truly understand his motivations, we need to take a look at the extremely unique D2C environment in China and how it has changed over the years.

What’s different about Chinese D2C?

“China doesn’t need any more good platforms,” Tang told his team in an internal email in 2015, “but it does need good products.” Tang was talking about how the age of building infrastructure for e-commerce in China was largely over; it was now time to create brands that could take advantage of the advanced distribution network that had been laid out.

Other investors noticed as well. Albus Yu, principal at China Growth Capital, told me that his fund had stopped making investments in independent consumer-facing platforms or marketplaces for a while. “2014 might have been the last year it was economically feasible to start such a business due to the soaring cost of acquiring customers and the strength of incumbents,” he said.

Indeed, 2015 was the year when CACs began to exceed or at least rival ARPUs for Alibaba and JD.com.

In China, that distribution network was present across the digital and physical worlds. Online, there was immense market power concentrated in the hands of just two players: Alibaba and JD.com, which used to have, and still maintain, 80% or above in market share.

In fact, the dominance of Alibaba, in particular, was so overwhelming that for years, VCs invested not in D2C, but in “Taobao brands,” since that was the only channel one needed to conquer in order to make it.

Customer acquisition was therefore straightforward — throw everything into advertising on Alibaba’s Tmall platform, especially during its annual flagship shopping festival, Singles’ Day. Even today, garnering a top spot in one of the category leaderboards remains a surefire way to build brand awareness, investor interest, as well as sales records.

Physically, the Chinese market also differs greatly from much of the developed West. Years of heavy investment in logistics by the private sector, accelerated by government support and infrastructure buildout, means that delivery costs have come down significantly over the years, even dipping below $0.40 per package wholesale as of this year. Innovations such as return insurance have also sped up customer adoption.

By 2016, China was shipping 30 billion packages a year, already accounting for 44% of global shipments. That number has been doubling every three years and is expected to exceed 100 billion this year. And the low cost of delivery is one of the biggest reasons for China’s outsized e-commerce market — the largest globally and estimated to reach $2.8 trillion in 2021, more than triple that of the No. 2, the U.S.

Express parcels sit stacked at a logistic base of e-commerce giant Suning before the 618 Shopping Festival

Express parcels sit stacked at a logistic base of e-commerce giant Suning before the 618 Shopping Festival. Image Credits: VCG

Present-day China also presents another edge: Proximity to an advanced, flexible manufacturing network and supply chain for the vast majority of consumer products, and the ability to outsource almost everything to them.

The original equipment manufacturers of years past have long since evolved into original design manufacturers. An expected consequence of being “the Factory of the World” for so many years, making goods for some of the best brands in the world, is that some of the knowledge was bound to transfer.

It may be difficult for outsiders to understand just how strong China’s networked manufacturing hubs are these days. What used to take weeks now takes mere days, the lead times shortened drastically by software, robots and other advancements. For example, Chinese cross-border ultra-fast-fashion company Shein has compressed design-to-ship timelines to as little as seven days.

And it’s definitely not just for making crop tops. The turnaround can be astonishingly fast even when manufacturing completely unfamiliar goods, such as when electric vehicle maker BYD turned its factory into the world’s largest face mask plant in just two weeks when the COVID-19 pandemic struck last year.

Companies leverage this manufacturing flexibility and agility for more than just speed. Chinese cosmetics upstart Perfect Diary uses it to launch twice as many SKUs as foreign competitors. In addition, the quick turnaround allows agile brands to take advantage of that most ephemeral of IP, memes.

It’s not to say that the Chinese supply chain is inaccessible to foreign entrepreneurs. Best-selling mattress maker Zinus, for example, is founded by a South Korean, but its products are manufactured in China and sold mostly on Amazon to U.S. customers.

It’s just that very few non-Chinese companies have figured out how to tap as deeply into the supply chain as this new crop of Chinese D2C brands, which can require years of working not just alongside but physically inside the factories, building trust and know-how. Shein, for example, watches carefully what other brands are making by staying close to the factories.

The China opportunity

Before global sensations such as TikTok weakened the mantra, “copy to China” used to be a dominant characterization of Chinese startups. In December 2015, when Tang registered the Genki Forest trademark, that was still very much a relevant strategy.

Hear Startup Alley companies pitch expert VC judges on the next episode of Extra Crunch Live

We know how much you love a good startup pitch-off. Who doesn’t? It combines the thrill of live, high-stakes entertainment with learning about the hottest new thing. Plus, you get to hear feedback from some of the smartest folks in the industry, thus learning how to absolutely crush it at your next pitch meeting with a VC.

With all that in mind, we’re introducing a special summer edition of Extra Crunch Live that’s all pitch-off, all the time.

On August 4, Extra Crunch Live will feature startups exhibiting in the Startup Alley at TechCrunch Disrupt 2021 in September. Those startups will pitch their products/businesses to a pair of expert VC judges, who will then give their live feedback.

Extra Crunch Live is usually a combination of an interview with a founder/investor duo and an audience pitch-off. But as it’s summer, and Disrupt is right around the corner, we thought it would be fun to bring you even more pitches and even more feedback.

On August 4, our expert VC judges will be Edith Yeung from Race Capital and Laela Sturdy of CapitalG. Register here for free!

Edith Yeung started out as an investor at 500 Startups and is now a general partner at Race Capital. She’s an expert on both the China and Silicon Valley investment landscape and has made more than 50 investments, with a portfolio that includes 50 startups, including Lightyear/Stellar (valued $1.2 billion), Silk Labs (acquired by Apple), Chirp (acquired by Apple), Fleksy (acquired by Pinterest), Human (acquired by Mapbox), Solana, Oasis Labs, Nebulas, Hooked, DayDayCook, AISense and many more.

Laela Sturdy is a 10x unicorn operator-turned-investor whose investments are worth nearly $200 billion. She joined CapitalG, the investment arm of Alphabet, in 2013, and her portfolio includes Stripe, UiPath, Duolingo, Gusto, Webflow and Unqork, among many others.

As a special thank you, all attendees of this episode of Extra Crunch Live will be entered into a random drawing for a chance to win one of three free tickets to TechCrunch Disrupt 2021. Following the event, we’ll randomly select three winners and send details on how to redeem their passes. Do you need to submit any additional information to enter the drawing? Nope. All you need to do is register for Extra Crunch Live by clicking here and attend the event on August 4.

Extra Crunch roundup: finding GTM, China’s edtech clampdown and how to define growth

Early-stage startups tend to claim that their go-to-market strategy is fully operational. In reality, GTM is a stark numbers game, and even with a solid plan in place, it can be easily foiled by common problems like turf battles and poor communication.

Finding GTM fit is a milestone for any startup that includes everything from expanding the engineering team to launching your first media buy. But how do you know when you’ve reached that magic moment?

“You have to consider three metrics: gross churn rate, the magic number and gross margin,” says Tae Hea Nahm, co-founder and managing director of Storm Ventures.

High churn means customers aren’t delighted, low gross margins mean poor unit economics, and that so-called magic number?

“You can calculate it by taking new ARR divided by your marketing and sales spending,” Nahm writes. “But keep in mind that the magic number is a lagging indicator, and it may take you a few quarters to see a positive result.”


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Use discount code ECFriday to save 20% off a one- or two-year subscription


If you are methodical in your approach to building a larger customer base, it is not difficult to foster steady growth.

Marketers who shift with whichever way the wind is blowing — or blindly follow someone else’s idea of best practices — are less likely to be successful.

“The not-so-secret secret here is that the key to great retention is really simple,” said growth expert Susan Su recently at TechCrunch Early Stage: Marketing and Fundraising. “It is building a product that solves a real and especially persistent problem for people.”

In conversation with Managing Editor Eric Eldon, Su delved into several issues, including tips on how founders should discuss growth with investors, and her methods for developing a sample qualitative growth model.

“I firmly believe that every founder should try their hand at growth,” said Su.

Thanks very much for reading Extra Crunch this week!

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

How we built an AI unicorn in 6 years

An adult wearing a unicorn mask leaps over a chain-link fence

Image Credits: Lucas Knappe/EyeEm (opens in a new window)/ Getty Images

Few startups go to market with the exact product their founders first envisioned.

Today, Tractable is known for developing tech that allows drivers to upload photos of their vehicles after a collision so its AI can assess the damage. Its first paying customer, however, used Tractable to inspect plastic pipe welds.

And as fate would have it, that customer also fired them just as the founders were raising their first round.

“We struck gold with car insurance,” says co-founder Alex Dalyac, as it was “a huge and inefficient market in desperate need of modernization.”

In an Extra Crunch guest post, he shares several takeaways from the last six years spent scaling a unicorn that have value for founders of all stripes. Step one?

“Search for complementary co-founders who will become your best friends,” advises Dalyac.

 

The European VC market is so hot it may skip its summer holiday

Alex Wilhelm and Anna Heim continued their exploration of the scorching global VC market, this time taking a look at Europe.

For perspective, they analyzed data from Dealroom and spoke to four VCs about the continent’s investment climate:

  • Diana Koziarska, SMOK Ventures
  • Vinoth Jayakumar, Draper Esprit
  • Simon Schmincke, Creandum
  • Javier Santiso, Mundi Ventures

“There’s little indication that what we’ve seen thus far from Europe in 2021 will slow in Q3 or Q4,” Alex and Anna write.

“Even though Europe has a reputation for lengthy summer vacations, investors don’t expect much — if any — slowdown to come in Europe during this sun-drenched quarter.”

Startups and investors are turning to micromobility subscriptions

Image Credits: Bryce Durbin

“Amid the chaos of the COVID-19 pandemic and the murky path to profitability for shared electric micromobility, an increasing number of companies have turned to subscriptions,” Rebecca Bellan writes in a roundup about the future of micromobility.

“It’s a business model that some founders and investors argue hits the profit center sweet spot — an approach that appeals to customers who are wary of sharing as well as paying upfront to own a scooter or e-bike, all while minimizing overhead costs and depreciation of assets.”

What Robinhood’s warnings about crypto trading say about Coinbase’s near-term future

After noting that Robinhood anticipates a decline in revenue in the third quarter as a result of slowing crypto trading, Alex Wilhelm got to thinking about what that forecast means for Coinbase.

“The now-public unicorn has lived through crypto ups and crypto downs,” he writes. “A decline in consumer interest in the next few months or quarters is not a huge deal, assuming one keeps a long enough perspective and the crypto-infused future that its fans expect comes to pass.”

But will it?

Dear Sophie: Should we look to Canada to retain international talent?

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

Image Credits: Bryce Durbin/TechCrunch

Dear Sophie,

I handle people ops as a consultant at several different tech startups. Many have employees on OPT or STEM OPT who didn’t get selected in this year’s H-1B lottery.

The companies want to retain these individuals, but they’re running out of options. Some companies will try again in next year’s H-1B lottery, even though they face long odds, particularly if the H-1B lottery becomes a wage-based selection process next year.

Others are looking into O-1A visas, but find that many employees don’t yet have the experience to meet the qualifications. Should we look at Canada?

— Specialist in Silicon Valley

Silicon Valley comms expert Caryn Marooney shares how to nail the narrative

Caryn Marooney, right, vice president of technology communications at Facebook, poses for a picture on the red carpet for the 6th annual 2018 Breakthrough Prizes at Moffett Federal Airfield, Hangar One in Mountain View, Calif., on Sunday, Dec. 3, 2017. (N

Image Credits: MediaNews Group/Bay Area News via Getty Images (opens in a new window)/ Getty Images(Image has been modified)

Caryn Marooney, a Silicon Valley communications professional turned venture capitalist, spoke extensively on storytelling at TechCrunch Early Stage: Marketing and Fundraising.

Throughout her time in Silicon Valley, she helped companies like Salesforce, Amazon, Facebook and more launch products and sharpen their messaging. In 2019, she left Facebook, where she was VP of technology communication, and joined Coatue Management as a general partner.

Marooney uses the acronym RIBS to describe her basic strategy for startup messaging: Relevance, Inevitability, Believability and keeping it Simple.

Canada’s startup market booms alongside hot global VC investment

For The Exchange, Alex Wilhelm and Anna Heim looked at Canada’s VC market in the first half of 2021, and if you’ve been reading their work, you know what’s coming.

Canada, like the rest of the globe, was absolutely scorching in the first half.

“Canada’s venture capital results now rival those of the entire Latin American region, with exits and mega-deals coming in roughly on par in the second quarter, and a similar number of total venture capital rounds in the period,” they write.

“That caught our attention.”

Greylock’s Mike Duboe explains how to define growth and build your team

With more venture funding flowing into the startup ecosystem than ever before, there’s never been a better time to be a growth expert.

At TechCrunch Early Stage: Marketing and Fundraising earlier this month, Greylock Partners’ Mike Duboe dug into a number of lessons and pieces of wisdom he’s picked up leading growth at a number of high-growth startups, including StitchFix. His advice spanned hiring, structure and analysis, with plenty of recommendations for where growth teams should be focusing their attention and resources.

Last-mile delivery in Latin America is ready to take off

Thanks to sprawling fulfillment centers, seamless logistics networks and ubiquitous internet access, consumers in many regions can now order groceries and a new set of cookware during breakfast and reasonably expect everything to arrive in time for dinner.

In Latin America, a lack of technology infrastructure makes delivery operations complex, and these supply chains are often managed with spreadsheets, paper and pen.

Algorithms that manage delivery routes or automatically dispatch drivers “are almost unheard of in the Latin America retail logistics sector,” says Bob Ma, an investor at WIND Ventures.

But thanks to growing consumer demand and expanding investment in last-mile delivery startups, Ma says the region is at a turning point.

Since Latin America’s middle class has grown 50% in the last decade and e-commerce constitutes just 6% of all retail, several unicorns have emerged in recent years, with more waiting in the wings.

China’s expected edtech clampdown may chill a key startup sector

China’s edtech industry is estimated to be worth $100 billion, but its leaders are reportedly considering a plan that would require these firms to operate as non-profits.

“When it comes to control, the Chinese government doesn’t mind wiping out a few dozen billion dollars in market cap here and there,” writes Alex Wilhelm in this morning’s edition of The Exchange.

“That’s not a great system.”

Pro tips from the team behind Kickstarter’s most funded app

Here at memoryOS, we have a saying we repeat often: “Most of the Kickstarter happens before the actual Kickstarter.”

Preparation is the key. But even if you understand that most of the work is done in advance, you should still prepare yourself for some sleepless nights after the launch date. The usual startup mantra will apply to your crowdfunding campaign just as well: Measure, analyze and adjust along the way.

As you may know, crowdfunding fits some B2C products better than it does others. So to give you our product context here, memoryOS is a gamified app that teaches memorization skills with the help of virtual mind palaces and interactive microlessons taught by our co-founder, two-time World Memory Champion, Jonas von Essen.

Before becoming the most funded app on Kickstarter and getting it 6,400% funded (and carrying it further to the Indiegogo platform right after), we spent countless hours researching down the rabbit hole of crowdfunding tips and tricks. We also had calls with several top-tier crowdfunding project creators who were kind enough to answer our questions and share bits of knowledge from their experience.

We’re sharing our approach (and secrets) to building a successful crowdfunding campaign because we know just how tough it can be to launch your own product. So here is a complete 10-step guide:

Find a unique idea

You should have a unique idea for a product that would solve at least one problem for your target audience. The proven approach is to set two major hypotheses right at the start and then work on getting them tested:

  1. Does your product work and solve the problem as intended, and is it better than what’s out there? This is usually referred to as the “proof of concept” stage.
  2. Are there enough people who are willing to pay for your product for you to build a sustainable business?

You will need to build a base prototype to test the first hypothesis and, if it works, you can then work on turning it into an MVP or a short demo version for your future commercial product. You can then get people to test it for free and prepay for the full version.

Getting people to actually back their interest with their wallet means you already have customers, not merely enthusiasts, and it significantly increases the chances of a successful project.

Yes, it’s important that you get people to pay a minimum reservation deposit at this point and receive their commitment to pay the remaining amount for the full product later on. Getting people to actually back their interest with their wallet means you already have customers, not merely enthusiasts, and it significantly increases the chances of a successful project.

Get user feedback

As soon as you have something to test, conduct short surveys to better understand your customers by gathering and analyzing the reasons why and for what purpose(s) they would want your product.

Here at memoryOS, we called the first couple thousand of our leads and had many insightful conversations to help us connect to our audience on a more personal and emotional level.

Once you have a demo or prototype for the users to test, make sure to add a feedback form right at the end of their experience (or gather feedback using Google Forms for surveys, or via email inquiries).