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VCs reload ahead of the election as unicorns power ahead

This is The TechCrunch Exchange, a newsletter that goes out on Saturdays, based on the column of the same name. You can sign up for the email here.

It was an active week in the technology world broadly, with big news from Facebook and Twitter and Apple. But past the headline-grabbing noise, there was a steady drumbeat of bullish news for unicorns, or private companies worth $1 billion or more.

A bullish week for unicorns

The Exchange spent a good chunk of the week looking into different stories from unicorns, or companies that will soon fit the bill, and it’s surprising to see how much positive financial news there was on tap even past what we got to write about.

Databricks, for example, disclosed a grip of financial data to TechCrunch ahead of regular publication, including the fact that it grew its annual run rate (not ARR) to $350 million by the end of Q3 2020, up from $200 million in Q2 2019. It’s essentially IPO ready, but is not hurrying to the public markets.

Sticking to our theme, Calm wants more money for a huge new valuation, perhaps as high as $2.2 billion which is not a surprise. That’s more good unicorn news. As was the report that “India’s Razorpay [became a] unicorn after its new $100 million funding round” that came out this week.

Razorpay is only one of a number of Indian startups that have become unicorns during COVID-19. (And here’s another digest out this week concerning a half-dozen startups that became unicorns “amidst the pandemic.”)

There was enough good unicorn news lately that we’ve lost track of it all. Things like Seismic raising $92 million, pushing its valuation up to $1.6 billion from a few weeks ago. How did that get lost in the mix?

All this matters because while the IPO market has captured much attention in the last quarter or so, the unicorn world has not sat still. Indeed, it feels that unicorn VC activity is the highest we’ve seen since 2019.

And, as we’ll see in just a moment, the grist for the unicorn mill is getting refilled as we speak. So, expect more of the same until something material breaks our current investing and exit pattern.

Market Notes

What do unicorns eat? Cash. And many, many VCs raised cash in the last seven days.

A partial list follows. It could be that investors are looking to lock in new funds before the election and whatever chaos may ensue. So, in no particular order, here’s who is newly flush:

All that capital needs to go to work, which means lots more rounds for many, many startups. The Exchange also caught up with a somewhat new firm this week: Race Capital. Helmed by Alfred Chuang, formerly or BEA who is an angel investor now in charge of his own fund, the firm has $50 million to invest.

Sticking to private investments into startups for the moment, quite a lot happened this week that we need to know more about. Like API-powered Argyle raising $20 million from Bain Capital Ventures for what FinLedger calls “unlocking and democratizing access to employment records.” TechCrunch is currently tracking the progress of API-led startups.

On the fintech side of things, M1 Finance raised $45 million for its consumer fintech platform in a Series C, while another roboadvisor, Wealthsimple, raised $87 million, becoming a unicorn at the same time. And while we’re in the fintech bucket, Stripe dropped $200 million this week for Nigerian startup Paystack. We need to pay more attention to the African startup scene. On the smaller end of fintech, Alpaca raised $10 million more to help other companies become Robinhood.

A few other notes before we change tack. Kahoot raised $215 million due to a boom in remote education, another trend that is inescapable in 2020 as part of the larger edtech boom (our own Natasha Mascarenhas has more).

Turning from the private market to the public, we have to touch on SPACs for just a moment. The Exchange got on the phone this week with Toby Russell from Shift, which is now a public company, trading after it merged with a SPAC, namely Insurance Acquisition Corp. Early trading is only going so well, but the CEO outlined for us precisely why he pursued a SPAC, which was actually interesting:

  • Shift could have gone public via an IPO, Russell said, but prioritized a SPAC-led debut because his firm wanted to optimize for a capital raise to keep the company growing.
  • How so? The private investment in public equity (PIPE) that the SPAC option came with ensured that Shift would have hundreds of millions in cash.
  • Shift also wanted to minimize what the CEO described as market risk. A SPAC deal could happen regardless of what the broader markets were up to. And as the company made the choice to debut via a SPAC in April, some caution, we reckon, may have made some sense.

So now Shift is public and newly capitalized. Let’s see what happens to its shares as it gets into the groove of reporting quarterly. (Obviously, if it flounders, it’s a bad mark for SPACs, but, conversely, successful trading could lead to a bit more momentum to SPAC-mageddon.)

A few more things and we’re done. Unicorn exits had a good week. First, Datto’s IPO continues to move forward. It set an initial price this week, which could value it above $4 billion. Also this week, Roblox announced that it has filed to go public, albeit privately. It’s worth billions as well. And finally, DoubleVerify is looking to go public for as much as $5 billion early next year.

Not all liquidity comes via the public markets, as we saw this week’s Twilio purchase of Segment, a deal that The Exchange dug into to find out if it was well-priced or not.

Various and Sundry

We’re running long naturally, so here are just a few quick things to add to your weekend mental tea-and-coffee reading!

Next week we are digging more deeply into Q3 venture capital data, a foretaste of which you can find here, regarding female founders, a topic that we returned to Friday in more depth.

Alex

Venture capital gets less diverse in 2020

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. You can subscribe here.


First, a big congrats on making it through the week. If you live in the United States, you just endured one of the wildest news weeks ever. Rapid-fire headlines and nigh-panic have been our lot since last Friday when the president announced he was COVID-19 positive. We’re all very tired. You get points for just surviving.

Second, I wanted to bring you something uplifting this weekend, as you deserve it. Sadly, that’s not what we’re going to talk about.

On Friday, The Exchange covered new data concerning the venture capital results of female founders during the third quarter. The data set was U.S.-focused, but we can presume that it is illustrative of global trends. Regardless of that nuance, the data was depressing.

In the third quarter, U.S.-based female founders and co-founders raised 136 rounds worth $434 million, per PitchBook data. That was a handful more rounds than Q2 2020, but far fewer dollars. And it was down across the board compared to Q3 2019. Even more, as we noted in the piece, the aggregate venture capital world did very well.

Here’s some PwC data making that point, and a bit more from my old employer Crunchbase. What matters is that female founders are doing worse when VCs are super active. This will only perpetuate inequalities and inequities in the startup market.

Speaking of which, here’s some more bad news. Vern Howard Jr., the co-founder and CEO of Hallo, a startup that has raised nearly $2 million, according to Crunchbase, compiled some data on Black founders’ VC performance in Q3. Here’s what he set out to do:

[W]e wanted to put hard numbers behind the promises of so many venture capitalists and create a benchmark for how we can track the investment into black founders over time. So our team pulled a list from Crunchbase of all the startups globally with a total funding amount of $500,000 — $20,000,000 and who raised a round between July 1 and October 1. There were over 1383 companies here and our team went through one by one, to see how many Black founders there were.

There were 31.

Now, you could open up the funding bands to include both smaller and larger funding events, but regardless of the data boundaries, the resulting number — just 2.2% of the total — is a disgrace.

Market Notes

Various and Sundry

  • Continuing our coverage of the savings and investing boom that fintech startups around the world have been riding this year, Freetrade, a British Robinhood if you will, told The Exchange that it crossed £1 billion in September order volume. That’s not bad!
  • Freetrade also recently launched a paid version of its service, as the payment-for-order-flow method of generating revenue that Robinhood is growing on the back of is not allowed across the pond.
  • Sticking to the fintech world, Yotta Savings is a startup that provides a savings option to its users, with the added chance of winning a big monetary prize for having stored their money with the startup. Folks have been whispering in my ear about the company for a bit, but I’ve held off writing about it until now as it was not clear to me if the model was merely a gimmick, or something that would actually attract customers.
  • Well, Yotta grew from 8,000 accounts to more than 30,000 in the past few weeks and has reached the $100 million deposit mark. So, I guess we now care.
  • Coinbase lost one in 20 employees to its new strategy of standing neutral during political times on anything that its CEO deems as unrelated to its core mission, which, as a for-profit company with tectonic financial backing, is making money.
  • On the same topic, Can from The Margins made a salient point that “no politics is a political stance.” Correct, and it is a very conservative one at that.
  • Even more, Coinbase’s CEO made noise about how his company will “work to create an environment where everyone is welcome and can do their best work, regardless of background, sexual orientation, race, gender, age, etc.” Whether he likes it or not, this is a political stance, and one that has nothing to do with the company’s stated core mission. And a political fight earned it — namely, equal access to the workplace.
  • I’ll toss in a plug for this piece on the matter from a VC that TechCrunch published, and these thoughts from a tech denizen on how to guarantee that your company lands on the wrong side of history on essentially everything.
  • Wrapping our grab-bag this week, Ping Identity bought ShoCard. Ping is now a public company, so normally its deals would land outside our wheelhouse. But we care in this case because TechCrunch has covered ShoCard (2015: “ShoCard Is A Digital Identity Card On The Blockchain”), and because the startup does crypto-related work.
  • Seeing a public company snap up a blockchain startup for real money, on purpose and out loud, doesn’t happen every day. More here if you want to read about the deal.

Wrapping, this newsletter is a lot of fun and I appreciate your reading it. It is, also, a work in progress. So feel free to hit respond to it and let me know what you want to see more of. Or hit respond and send me a cute pic of your pet. Either is fine by me.

Chat soon,

Alex

How one VC firm wound up with no-code startups as part of its investing thesis

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. 

Ready? Let’s talk money, startups and spicy IPO rumors.

How one VC firm wound up with no-code startups as part of its investing thesis

Throughout all the chaos of 2020’s economic upheaval in the startup world, I’ve worked to pay more attention to low-code and no-code services. The short gist of chats I’ve had with investors and founders and public company execs in the past few weeks is that market awareness of no-code/low-code terminology is starting to spread more broadly.

Why? Again, summarizing aggressively, it seems that the gap between what different business units need (marketing, say) and what in-house or external engineering teams are capable of providing is widening. This means there is more total pain in the market, hunting for a solution, often with a tooling budget in hand.

Enter no-code and low-code startups, and even big-company services alike that can help non-developers do more without having to beg for engineering inputs.

I spoke with Arun Mathew this week. He’s a partner at Accel, a venture firm that has invested in all sorts of companies that you’ve heard of — including Webflow, which raised a $72 million Series A last August that Mathew led for his firm. (More on the round here, and notes from TechCrunch on Webflow’s early days here, and here, if you are curious.)

More interesting than that single round is how Accel wound up building a thesis around no-code startups. According to Mathew, Accel had made large investments into companies like Qualtrics, for example, when they were already pretty big and had found product-market fit. That same general approach led to the Webflow deal last year.

At the time, Webflow “wasn’t really defining what they were doing as n- code, they just said ‘we have a very simple drag and drop UI, to build websites, and soon full web applications, very simply,’ ” he told TechCrunch. But, according to Mathew, what Webflow was doing “lined up really well” with the “rising movement of no-code.”

From there, Accel “made a couple [more no-code] investments in Europe where [it has] an early-stage team and a growth team,” along with a few more in India. In the investor’s view, some of the investing activity was “thesis driven because we think [no-code is] a really interesting theme,” but some of the deals “happened opportunistically” where Accel had found “really talented founders in the space that we thought was interesting, executing on a vision that we found appealing.”

In the “span of a year, year-and-a-half,” Accel totted up “seven or eight companies in this no-code space,” which over the last five or six quarters became “a real thesis” for the firm, Mathew said. Accel now has “a global team” of around a dozen people “spending a lot of our time in and around no-code” he added.

Apologies for the length there, but what Mathew said makes me feel a bit less behind. After dipping a toe into learning more about no-code services and tooling (and, yes, low-code as well) it felt somewhat like I was playing catch-up. But as I covered that Webflow round and have since started paying more attention to no-code as well, perhaps you and I are right on time.

(We also recently ran an investor survey on the no-code topic, so hit it up if you want more VC scribbles on the topic.)

Market Notes

For Market Notes this week, we have four things. First, riffs from chats with two public company execs about the software market, some public market stuff and then some neat Airbnb spend data by which I am confounded:

  • I spoke with Apple MDM company Jamf’s CFO Jill Putman this week, after her company reported its first set of earnings as a public company. I wanted to know a bit more about the education market — a hot topic here at TechCrunch, given outsized rounds and huge market demand — and the medical world.
  • Regarding the software market for education, Putman noted that schools are buying lots of hardware, and that software sales should follow. Our read from that is that the boom in education software is not going to slow for some time as schools work on reopening.
  • Ditto the medical market, where Jamf has found uptake as hospitals roll out hardware to patients and families thereof to facilitate all sorts of demand that COVID has engendered. (Hardware needs software, enter Jamf!)
  • Chatting with the CFO our key takeaway was that there are still sectors that could generate a continued COVID tailwind, even if not all Jamf customers fit that bill. For startups that did catch a wave, this is probably good news.
  • And then there was Yext, a company that helps other companies’ customers find accurate information about them around the Web, and has recently gotten into the search game. Yext launched at a TechCrunch conference back in 2009, which is a neat bit of history. Anyway, Yext is public company now and we wanted to chat about which industries are driving growth for the former startup, and how the general climate for software is for the company, so we got on Zoom with its CEO, Howard Lerman.
  • So, which sectors are accelerating from Yext’s perspective? Government, education (again), insurance and financial services. Let that guide your take on the health of various startups.
  • Turning to the business climate, Lerman had some notes: “I will tell you in Q2,” he said, “things came back a bit from Q1.” In what sense? Retention rates, for one, according to the CEO. A return to form is welcome, but Lerman did caution that some companies were slower to “pull the trigger on big deals.”
  • Lerman also said that his perspective on the macro-climate has bounced back as well from a local-minima set around 30 days ago.

Public company execs are pretty guarded in how they talk because they have to be. But what Putman and Lerman seemed to intimate is that economic damage — provided you are selling to business, and not individuals — seems more contained on a per-sector basis than I would have anticipated. And that there are some good things ahead, at least in a handful of hot sectors.

Opening our aperture a bit, some SaaS companies struggled this week to meet investor expectations, even as more companies added themselves to the IPO queue. It’s going to be very busy for a few quarters. (Speaking of which, you can find the good and bad from the new Sumo IPO filing here.)

The economy is still garbage for many, but at least for companies it’s improving. And on that note, some data regarding Airbnb. According to the folks over at Edison Trends, things are going better for the home-booking site than I would have guessed. Per the group:

  • Airbnb’s bookings recovery outstripped its traditional rivals, growing “32% week-over-week” from late April into early June.
  • And, most critically: “Airbnb spending in July was up 22% over the previous July, and spending the week of August 17 was 75% higher than the equivalent week in 2019.”

Wild, right? Perhaps that’s why Airbnb has filed to go public.

Various and Sundry

We’re a tiny bit short on space, so I’ll keep our V&S dose short this week to respect your time. Here’s what I couldn’t not share:

And with that, we are out of room. Hugs, fist bumps and good vibes, and thank you so much for reading this little newsletter on the weekends. It’s a treat to write, and I hope you like it.

Hit me up with notes at alex.wilhelm@techcrunch.com. (I don’t know if you reply to this email if I will get the response. But try it so that we can find out?)

Alex

Palantir and the great revenue mystery

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. You can subscribe to the newsletter here if you haven’t yet.

Ready? Let’s talk money, startups and spicy IPO rumors.

Palantir and the great revenue mystery

As I write to you on Friday afternoon, the Palantir S-1 has yet to drop, but TechCrunch did break some news regarding the impending filing and just how big the company actually is. Please forgive the block quote, but here’s our reporting:

In screenshots of a draft S-1 statement dated yesterday (August 20), Palantir is listed as generating revenues of roughly $742 million in 2019 (Palantir’s fiscal year is a calendar year). That revenue was up from $595 million in 2018, a gain of roughly 25%. […] Palantir lists a net loss of roughly $580 million for 2019, which is almost identical to its loss in 2018. The company listed a net loss percentage of 97% for 2018, improving to a loss of 78% for last year.

A few notes from this. First, those losses are flat icky. Palantir was founded in 2003 or 2004 depending on who you read, which means that it’s an old company. And it was running an effective -100% net margin in 2018? Yowza.

Second, what the flocking frack is that revenue number? Did you expect to see Palantir come in with revenues of less than $1 billion? If you did, well done. After a deluge of articles over the years discussing just how big Palantir had become, I was anticipating a bit more (more here for context). Here are two examples:

  • Reporting from TechCrunch that Palantir expected “more than $1 billion in contracts” in 2014
  • Reporting from Bloomberg that Palantir had “booked deals totaling $1.7 billion in 2015”

Notably, Palantir’s real revenue result, or one very close to it, made it into Business Insider this April. The reporting makes the company’s S-1 less of a climax and more of a denouement. But, hey, we’re still glad to have the filing.

The Exchange will have a full breakdown of Palantir’s numbers Monday morning, but I think what Palantir coverage over the years shows is that when companies decline to share specific revenue figures that are clear, just presume that what they do share is misleading. (ARR is fine, trailing revenue is fine, “contract” metrics are useless.)

Market Notes

The Exchange spent a lot of time digging into e-commerce venture capital results this week, including notes from some VCs about why e-commerce-focused startups aren’t raising as much as we might have guessed.

Overstock!

We got a chance to fire a question over to the CEO of Overstock.com on the matter, adding to what we learned from private investors on the same topic. So here’s the online retailer’s CEO Jonathan Johnson, answering our question on how many smaller vendors are signing up to sell on its platform during today’s e-comm boom:

We have had increased demand to sell on Overstock and we are adding new partners daily. To protect the customer experience, we have become more selective and have increased the requirements to become a selling partner on our site. Our customers’ experience is critical to our long-term success and if partners cannot perform to our operational standards, we do not allow them to sell on our site.

We care because Shopify and BigCommerce are stacking up new rev, and we were curious how widely the e-commerce step-change from major platforms extended. Seems like all of them are eating.

How today’s evolving economic landscape isn’t working out better for e-commerce-focused startups is still a surprise. Normally when the world changes rapidly, startups do well. This time it seems that Amazon and a few now-public unicorns are snagging most of the gains.

Airbnb!

Anyhoo, onto the Airbnb world; we have a few data points to share this week. According to Edison Trends data that was shared with us, here’s how Airbnb is doing lately:

  • Per Edison Trends, “Airbnb July spend was 22% higher than it had been in 2019” in the United States.
  • From the same source, Airbnb has seen U.S. spend rise around 10% week-over-week “increase in customer spending” since April 27th.

This explains why the company is prepping to go public sooner rather than later: The second-half of Q2 was a ramp back to normal for the company, and July was pretty good by the looks of it. If Airbnb is worth what it once was is not clear, but the company is certainly doing better than we might have expected it to. (More on the comeback here.)

For more on the big unicorn IPOs, I wrote a digest on Friday that should help ground you. I can say that with some confidence, as I wrote it to ground myself!

Various and Sundry

Finally some loose ends and other notes like an after-dinner amuse-bouche:

  • A PE deal caught our eye, namely that the Williams Formula 1 team has been sold to Dorilton Capital. We had two thoughts: First, who is that. And second, it’s all good so long as they make the car faster but still slower than Haas F1, the official team of this newsletter, I’ve just decided. (Note to F1 lawyers: I am kidding, please don’t sue.)
  • The folks at Sensor Tower sent over some fintech data this week that we tucked into our pocket for this newsletter. According to the data and analytics firm, “the five largest mobile payment apps saw their average monthly active users grow 41.5% year-over-year in 1H20 when compared to 1H19” for “Cash App, Venmo, PayPal, Zelle, and Google Pay.”
  • Now, we’ve covered fintech often on The Exchange because it matters. But we’ve mostly been covering the startup/unicorn side of things. The above growth rates for some of the incumbent-led apps was a surprise, with faster growth than we would have guessed.
  • If momentum from the majors is good or bad for startups, we leave to you to decide.
  • Robinhood raised more money on the back of its huge revenue gains.
  • Until the Palantir brouhaha, the lead story of our missive today was going to be about BlockFi, which we’re still working to understand. The crypto outfit just raised more money, so we got curious. I wound up chatting with the CEO on Twitter about, you know, what BlockFi is. Turns out it’s like a credit union, but in the crypto space. That seems fair enough. Credit unions work! Maybe this will, too! We have some questions into the company, the answers to which we might post if they are interesting. (The company has detractors, as well.)
  • made a bad bet.
  • The Exchange chatted with a number of VC firms this week, including Tribeca Venture Partners for the first time. We caught up with Brian Hirsch from the firm, who told us a bit about the SaaS market (doing better than anticipated pre-COVID thanks to “rocket fuel” from the accelerating digital transformation) and the future of New York and cities in general (going to be fine long-term). We’ll cut out the best bits from the chat for next week if we have time.

And we’ll wrap with a tiny note from Greg Warnock, managing director at Mercato via email about the late-stage venture capital market. We asked for “notes on current valuation trends, in particular re: ARR/run rate multiples.” Here’s what we heard back:

I think valuations are correlated with economic activity and certainly something like COVID would qualify, but it’s very much a lagging indicator. It takes a while for entrepreneurs’ expectations to shift. Once they feel like the economy has moved in a permanent way, they begin to rethink. The first thing that they experience a little bit more urgency. They start from a belief that they can raise money any time they want, from anyone they want. Soon they realize there are fewer investors in market, that those opportunities appear less frequently, and each one should be managed more carefully. From there they go to thinking about terms. They might have to be flexible around some terms or some construct. Finally, they go to just fundamentally thinking about valuation in terms of multiples.

Going back to my first comment about economic factors being a lagging indicator, COVID related shocks haven’t moved through the system yet. It will take something more like a year for all the expectations to shift. My experience is that a shift in the economy from an investor standpoint creates a flight to quality. Companies with lackluster performance are first to feel lack of options in fundraising and exits. High performing businesses are the last ones to experience a change in valuation multiples. It disproportionately affects average businesses more quickly and more dramatically than high quality businesses which may feel no significant effects.

Hugs, fist bumps and good vibes,

Alex