Tech Blog - Page 579 of 2385 - 1010Computers | Computer Repair & IT Support1010Computers

Political ‘fixer’ Bradley Tusk closes second fund on $70M

Published December 18, 2019

Tusk Venture Partners, the venture capital firm led by Bradley Tusk and managing partner Jordan Nof, has secured $70 million for its second flagship fund, the firm has confirmed to TechCrunch following a report by Fortune this morning.

Fundraising for the effort began in January, when the pair filed paperwork with the U.S. Securities Exchange Commission for Tusk Venture Partners II. The firm, and affiliated political advisory outfit Tusk Ventures, is behind a number of high-profile startups, including e-scooter “unicorn” Bird, cryptocurrency exchange Coinbase and Ro, a direct-to-consumer healthcare business best known for selling erectile dysfunction medication.

The New York-based firm, founded in 2011, previously raised $36 million for its debut fund — capital it used to back fantasy sports company Fanduel, insurtech business Lemonade and D2C vitamin seller Care/of.

Tusk, before launching Tusk Ventures, served as campaign manager for Mike Bloomberg, as deputy governor of Illinois and as communications director for Senator Chuck Schumer. He also penned the book, The Fixer: My Adventures Saving Startups from Death by Politics, released in 2018.

Naturally, Tusk Ventures provides companies more than just checks. The politically savvy team lends its expertise to support companies plagued with regulatory barriers and communications issues, as well as help with grassroots organizing, opposition research and partnerships.

Bradley Tusk on mobile voting, Uber’s IPO race with Lyft and the Dems taking over the House

Is a direct listing the right choice for your company?

Published December 18, 2019

Ran Ben-Tzur
Contributor

Ran Ben-Tzur is a corporate partner at Fenwick & West. Ran’s issuer-side initial public offerings include Facebook, Fitbit, Upwork, Zuora and Peloton Interactive.

Jamie Evans
Contributor

Jamie Evans is the co-chair of Fenwick & West’s Capital Markets & Public Companies group. Jamie’s representative initial public offerings include Smartsheet, Redfin, Fitbit and Facebook.

Spotify did it. Slack did it. Many other late-stage private technology companies are reported to be seriously considering it. Should yours?

If you are a board member of a late-stage, venture-backed company or part of its management team, you likely have heard of the term “direct listing.” Or you may have attended one or all of the slew of recent conferences being hosted by big-name investment banks and others, including tech investor guru Bill Gurley, who recently debated the pros and cons of choosing a direct listing over a traditional IPO.

Before you decide what’s right for your company, here are a few things you need to know about direct listings.

Direct listings vs. IPOs

For people not familiar with the term, a direct listing is an alternative way for a private company to “go public,” but without selling its shares directly to the public and without the traditional underwriting assistance of investment bankers.

In a traditional IPO, a company raises money and creates a public market for its shares by selling newly created stock to investors. In some instances, a select number of pre-IPO investors, usually very large stockholders or management, may also sell a portion of their holdings in the IPO. In an IPO, the company engages investment bankers to help promote, price and sell the stock to investors. The investment bankers are paid a commission for their work that is based on the size of the IPO—usually seven percent for a traditional technology company IPO.

In a direct listing, a company does not sell stock directly to investors and does not receive any new capital. Instead, it facilitates the re-sale of shares held by company insiders such as employees, executives and pre-IPO investors. Investors in a direct listing buy shares directly from these company insiders.

Does this mean that a company doing a direct listing doesn’t need investment banks? Not quite. Companies still engage investment banks to assist with a direct listing and those banks still get paid quite well (to the tune of $35 million in Spotify and $22 million in Slack).

However, the investment banks play a very different role in a direct listing. Unlike a traditional IPO, in a direct listing, investment banks are prohibited under current law from organizing or attending investor meetings and they do not sell stock to investors. Instead, they act purely in an advisory capacity helping a company to position its story to investors, draft its IPO disclosures, educate a company’s insiders on process and strategize on investor outreach and liquidity.

Understanding the current direct listings trend

The concept of a direct listing is actually not a new one. Companies in a variety of industries have used similar structures for years. However, the structure has only recently received a lot of investor and media attention because high-profile technology companies have started to use it to go public. But why have technology companies only recently started to consider direct listings?

The rise of massive pre-IPO fundraising rounds

With an abundance of investor capital, especially from institutional investors that historically hadn’t invested in private technology companies, massive pre-IPO fundraising rounds have become the norm. Slack raised over $400 million in August 2018—just over a year prior to its direct listing. Because of this widespread availability of capital, some technology companies are now able to raise sufficient capital before their actual IPO to either become profitable or put them on a path to profitability.

Criticism of current IPO process

There has been increasing negative sentiment, especially amongst well-known venture capitalists, about certain aspects of the traditional IPO process—namely IPO lock-up agreements and the pricing and allocation process.

IPO lock-up agreements. In a traditional IPO, investment bankers require pre-IPO investors, employees and the company to sign a “lock-up agreement” restricting them from selling or distributing shares for a specified period of time following the IPO—usually 180 days. The bankers put these agreements in place in order to stabilize the stock immediately after the IPO. While the merits of a lock-up agreement can certainly be debated, by the time VCs (and other insiders) are allowed to sell following an IPO, oftentimes the stock price has fallen significantly from its highs (sometimes to below the IPO price) or the post lock-up flood of selling can have an immediate negative impact on the trading price.

In a direct listing, there is no lock-up agreement, which allows for equal access to the offering to all of the company’s pre-IPO investors, including rank-and-file employees and smaller pre-IPO stockholders.

IPO pricing and allocation: In a traditional IPO, shares are often allocated directly by a company (with the assistance of its underwriters) to a small number of large, institutional investors. Traditional IPOs are often underpriced by design to provide large institutional investors the benefit of an immediate 10-15% “pop” in the stock price. Over the last few years, some of these “pops” have become more pronounced. For example, Beyond Meat’s stock soared from $25 to $73 on its first day of trading, a 163% gain. This has fueled a concern, particularly shared amongst the VC community, that investment banks improperly price and allocate shares in an IPO in order to benefit these institutional investors, which are also clients of the same investment banks that are underwriting the IPO. While the merits of this concern can also be debated, in instances where there is a large price discrepancy between the trading price of the stock following the IPO and the price of the IPO, there is often a sense that companies have left money on the table and that pre-IPO investors have suffered unnecessary dilution. If the IPO had been priced “correctly,” the company would have had to sell fewer shares to raise the same amount of proceeds.

Because a company is not selling stock in a direct listing, the trading price after listing is purely market driven and is not “set” by the company and its investment bankers. Moreover, since no new shares are issued in a direct listing, insiders do not suffer any dilution.

The Spotify effect

Before Spotify’s direct listing, technology companies hadn’t used the direct listing structure to go public. Spotify was, in many ways, the perfect test case for a direct listing. It was well known, didn’t need any additional capital and was cash flow positive. In addition, prior to its direct listing, Spotify had entered into a debt instrument that penalized the company so long as it remained private. As a result, it just needed to go public. After clearing some regulatory hurdles, Spotify successfully executed its direct listing in April 2018. After Spotify’s direct listing, Slack (relatively) quickly followed suit. Slack’s direct listing was notable because it represented the first traditional Silicon Valley-based VC-backed company to use the structure. It was also an enterprise software company, albeit one with a consumer cult following.

Is a direct listing right for my company?

While a direct listing offers many benefits, the structure does not make sense for every company. Below is a list of key benefits and drawbacks:

Huckleberry raises $18M to put small business insurance online

Published December 18, 2019

The insurance industry, sleepy and ancient, is ripe for disruption. We’ve seen companies like Lemonade, Hippo and Rhino get in on that opportunity. Today, an insurtech company focused on small business insurance has raised $18 million to keep growing.

Meet Huckleberry, whose Series A was led by Tribe Capital, with participation from Amaranthine, Crosslink Capital and Uncork Capital.

Huckleberry launched in 2017 to offer business insurance, including workers’ compensation and general liability, all through an online portal.

Small business insurance coverage is not like car insurance or renters insurance. It’s not as simple as filling out a few forms and getting a quote. Even if a few platforms do have algorithms for providing quotes, you can’t really close the deal unless you get on the phone.

It’s an incredibly tedious and stressful process. In fact, Huckleberry co-founders Bryan O’Connell and Steve Au first came up with the idea for Huckleberry when they were seeking out their own small business coverage for a previous startup idea.

The industry itself is incredibly fragmented, which is caused in part by the fact that small business coverage underwriting varies wildly from business to business. For example, the policy for three or four restaurants might look relatively similar. However, a fast food restaurant might be identified as a higher risk with regards to workers’ compensation than a Michelin-star restaurant, where workers might be more eager to get back to work and take home their tip money. These differences come in the form of location, operations and many other factors, as well as business vertical.

Huckleberry has worked to build out myriad coverage verticals, including food and beverage, fitness, retail, legal, healthcare, hair and beauty and more.

The firm offers worker’s comp, as well as a package policy that includes general liability, property and business interruption insurance. Customers also can purchase add-ons like hired and non-owned auto insurance, employment practices liability insurance (EPLI), liquor liability insurance, employee dishonesty coverage, professional liability insurance, equipment breakdown coverage and spoilage coverage.

Huckleberry isn’t itself an insurance carrier, but does have the authority to underwrite and sell policies on behalf of the carrier. That said, Huckleberry’s expansion both by vertical and geography is more difficult than your average software startup. The regulatory landscape of insurance in the U.S. goes state by state.

“Our biggest challenge is navigating 50 states’ worth of extremely complicated regulations on something that is much more complicated than a software product,” said O’Connell. “We’re trying to protect individual workers and businesses all while staying fully compliant in every market.”

SAP spinout Sapphire Ventures raises $1.4B for new investments

Published December 18, 2019

Sapphire Ventures, the former corporate venture arm of SAP, has raised $1.4 billion for growth investments, including a $150 million opportunity fund to support larger deals.

The firm, which focuses primarily on enterprise tech companies in the U.S., Europe and Israel, writes checks to Series B through pre-IPO businesses. Its portfolio includes 23andMe, Sumo Logic and TransferWise.

The new funds brings Sapphire Ventures, which became independent from the German software company SAP in 2011, assets under management to north of $4 billion. Sapphire will write checks sized between $5 million and $100 million with the new funds, allowing the team “to do any financing we need to or want to,” chief executive officer and managing director Nino Marakovic tells TechCrunch. Sapphire’s fourth growth fund is the firm’s largest to date, at more than double the size of their $700 million Fund III.

“We need this fund because companies are staying private much longer because they want to get to a $200 million revenue run rate before they go public,” Sapphire Ventures president and co-founder Jai Das (pictured) tells TechCrunch. “We want to have the capital to support these companies as they keep growing.”

News of the fund comes nearly one year after Sapphire Ventures lassoed $115 million from new limited partners to invest at the intersection of tech, sports, media and entertainment. Sapphire Sport has ties to the sports industry, from City Football Group, which owns English Premier League team Manchester City, to Adidas, the owners of the Indiana Pacers, New York Jets, San Jose Sharks and Tampa Bay Lightning, among others.

Before that, the firm closed on $1 billion for its third flagship venture fund.

With seven check writers and another seven investment professionals focused on growth-stage investments, Sapphire has had a number of recent wins, counting a total of 21 initial public offerings and 55 exits since the firm’s inception.

“We’re excited to have now reached critical mass with $4 billion under management,” Marakovic said. “We are the right size to take advantage of our target area of early and later-stage enterprise software companies. We are innovating on the model by adding value-add LPs and trying to align our whole model of services to the target companies to serve them as best as possible.”

Nigeria’s Rensource raises $20M to power African markets by solar

Published December 18, 2019

Nigerian startup Rensource Energy has raised a $20 million Series A round co-led by CRE Venture Capital and the Omidyar network.

The renewable energy company builds and operates solar-powered micro-utilities that provide electricity to commercial community structures, such as open-air trading bazaars.

Launched in 2016, the startup has shifted its operating strategy. “We’ve pivoted away from a residential focus…and we’re building much larger systems to become essentially the utility for these large urban markets we have a lot of in Nigeria,” Rensource co-founder Ademola Adesina told TechCrunch.

The company has a partnership with German manufacturer BOS AG, with whom it designs specialized panels for it use case. Rensource also has developer teams in Nigeria and Europe for its software-related programs.

In addition to becoming a micro-energy provider to Nigeria’s robust SME classes, the startup aims to offer them B2B services. With the $20 million round, Rensource is launching its Spaces Offline to Online platform for supply-chain services, including business-analytics and working capital options.

“It’s a mini-ERP tool. We’re trying to bring a universe of people who are banked, but…still offline — their products are offline, they don’t track anything, and there’s no data behind their business — online,” said Adesina.

The benefit Rensource seeks to deliver to Nigeria’s SMEs — at a profit for itself — is to lower overhead costs through better business practices and free them from the bane of generators.

Across marketplaces in West Africa, noisy, fuel-guzzling and pollution-producing generators are like an unwelcome, yet necessary business partner.

Lack of affordable and reliable electricity in Nigeria creates a massive real and opportunity cost to Africa’s largest economy.

For perspective, the West African country is roughly the size of Texas, with a 200 million population larger than Russia, and generates less gigawatt hours of electricity annually than the U.S. state of Connecticut.

Nigerian businesses (and citizens) adjust for these power deficiencies by spending on diesel fuel and generators.

The IMF’s 2019 Nigeria report quoted economic losses of $29 billion in Nigeria due to unreliable electricity supply. On global Doing Business rankings, Nigeria ranked 169 out of 190 countries in the category of “Getting Electricity.”

This difficulty and cost weighs particularly heavy on Nigeria (and the continent’s) SMEs, which often operate in Africa’s informal economy — projected to be one of the largest off-the grid commercial spaces in the world.

Rensource’s micro-utility model deploys power clusters — made up of solar-panels, batteries and a power management system — adjacent to markets and commercial hubs. The energy application isn’t totally clean, as the startup still uses its own diesel backup system.

Rensourse has used this model to become an off-grid energy provider in six states in Nigeria, and powers the Sabon Gari market — one of the country’s largest, located in northern Kano State.

The company plans to expand to 100 markets within Nigeria and to additional African countries within 24 months, according to Adesina.

Rensource generates revenue from charging merchants daily, weekly or monthly fees. “In 2017, we did a few hundred thousand dollars in revenue. Last year we did about $7 million in revenue, and this year we’ll do better than that,” Adesina said.

The company doesn’t release official financials, but generated a small profit last year, according to Adesina. He named deploying more of its micro-utilities to new markets and diversifying services as the path to long-term profitability.

Rensource differentiates itself from many home-kit solar energy startups in Africa, such as M-Kopa, by becoming a renewable energy utility at scale.

The startup’s CEO sees the model as a classic leapfrog tech business, effectively bypassing Nigeria’s deficient electricity grid and providing a less capital intensive alternative to large (and often complicated) energy infrastructure projects.

Rensource is also following a trend by some Nigeria-based startups, such as trucking-logistics company Kobo360 and motorcycle ride-hail company Gokada, to shape a suite of additional services around the needs of core clients.

In Rensource’s case, those clients are SMEs and traders in the informal economy. “This informality of theirs is what we see as an opportunity in building this new business line and bringing these [merchants] into the online world,” said Adesina.

Nigerian logistics startup Kobo360 raises $30M backed by Goldman Sachs

How startups close their first big sales

Published December 17, 2019

Joe Procopio
Contributor

Joe Procopio is a multi-exit, multi-failure entrepreneur. Joe is currently building Spiffy, and previously sold Automated Insights, sold ExitEvent and built Intrepid Media.

Aggregate value to target prospects

The process starts way before the first sales pitch. Your chances of closing your first big sale are going to be directly related to how well you’re targeting your prospective customers. So let’s begin with a discussion of aggregation and targeting.

All product and service sales come down to usage and aggregated value. It doesn’t matter if your target customer is a consumer or a business. It makes no difference if your price point is dollars or thousands of dollars. It doesn’t matter if your transaction is completely frictionless or requires a six-month hand-hold by your sales team.

If your customer is a consumer, they’re going to have limited usage with your product or service and the value needs to be tightly wound into that small usage window. If your customer is a business, they’re likely going to have multiple users and almost continuous usage of the product or service, so the value will be delivered over time.

So a “lot of customers” for your product or service might be 100, or it might be a million. Either way, you’re offering the same value per dollar based on usage. You’re aggregating that value into the sale, so you need to be targeting those customer prospects with the highest expected usage.

A classic rookie mistake made by most entrepreneurs is spraying and praying at large prospect audiences for the sake of their largeness alone, hoping that those shards of value surface for the right people at the right time.

Don’t do that. Instead, for B2C sales, you’re going to need some intelligence about your prospect list, which means more than Facebook ad demographics — it’s being able to predict the usage based on the source of the prospect. For B2B sales, you need to determine the optimum type of business to sell into: their size, their industry, their appetite for innovation, and anything else you can use to narrow your focus.

Figure out who is going to get the most aggregate value for their usage and target them.

Targeting customer prospects based on value aggregation is not only going to increase the chances of closing, it’s also going to dictate the near future in terms of the growth of your startup. A targeted, good customer is going to make your life a lot easier. A random, poor customer is going to fill your world with complaints, support requests, change requests, feature requests, and ultimately severe changes to your product roadmap.

Consolidate and find a champion

When you’re a startup, your customers are buying innovation. The tricky thing is, no one needs innovation. Rather, they need the derivatives of that innovation — time, simplification, throughput, security.

In order to close a big sale, in other words, the aggregation of many, many units of that usage and value, you’re going to have to consolidate that usage and find a champion of value on the customer side.

So the question becomes: Who benefits the most from the derivatives of innovation brought about by maximizing the usage of your product or service?

Daring Foods will offer healthy, tasty plant-based chicken

Published December 17, 2019

Anyone who wants to eat a meatless burger has plenty of options — but what if you want to be a little healthier?

Daring Foods will soon be offering an alternative, in the form of plant-based chicken made from five non-genetically modified ingredients — water, soy, sunflower oil, salt and natural flavoring (a mix of paprika, pepper, ginger, nutmeg, mace, cardamom).

“We’re not here to be a gimmick, we’re here to be part of your life every day,” said Daring Foods co-founder and CEO Ross Mackay. “There’s a big need for plant-based food that’s actually healthy.”

The company started selling the first version of its Daring Pieces product in the United Kingdom at the beginning of this year.

Today, it announced that it has the backing of Rastelli Foods Group, a major U.S. food company supplying hotels, restaurants, retail markets and other commercial customers. In fact, Rastelli has committed $10 million to Daring, an investment that combines cash with infrastructure, sales and distribution support.

With Rastelli’s backing, Daring plans to launch in the United States in February, selling directly to consumers through its website, and also to restaurants and retailers. It sounds like the startup is committed to the U.S. market, and is shifting its headquarters from Glasgow to New York.

I had a chance to try Daring Pieces for myself, when Mackay cooked a light lunch for me earlier this month. He heated them on a pan with no extra seasoning, and they were ready in about eight minutes. He even encouraged me to eat it with my hands, to feel how Daring Pieces have the texture of real chicken.

As a vegetarian, I’m not exactly an authority on chicken, but I thought it tasted pretty close to the real thing. I even brought another portion home and cooked them for dinner a couple nights later.

Mackay is vegan himself, but he said his target audience is meat-eaters who are looking to a more plant-based diet. By focusing on chicken and white meat, he’s hoping to create what he calls a “second generation” of plant-based meat products — healthier than the first, and therefore a bigger part of everyday diets.

Plus, with Daring Pieces you don’t feel like you’ve had a heavy meal, and you can be comfortable knowing that there aren’t a bunch of artificial ingredients.

Seattle Food Tech looks to replace the chicken nugget with a plant-based copycat

Why CEOs should spend up to half their time recruiting

Published December 17, 2019

Hiring the right people may be the most important thing you do when you start a new company. But how much time should founders spend on hiring when there are so many other competing demands?

Last week, we discussed team-building and several other issues during a panel on the Extra Crunch stage at Disrupt Berlin with Cloudflare CEO Matthew Prince and Red Points CEO Laura Urquizu.

“I was looking through early emails the other day,” said Prince . “I had forgotten how hard it was to hire people in the very beginning. I think that [Cloudflare co-founder] Michelle [Zatlyn] and I spent probably at least 70% of our time in the first two years just begging people to work for us.”

While it’s a hard job to get right, Prince said he didn’t believe that this was a job he should have outsourced to recruiters. “Fundamentally, as the founder and leader of an organization, your job is to attract and retain the best best possible people,” Prince argued. “And so even to this day, at least a third of my time is spent on recruiting.”

Red Points co-founder Urquizu agreed, noting that she also spends at least a third of her time on recruiting. But she also argued that as you grow as a company, your needs may change and you may need to let some people go.

“I usually say that what brought us here is not going to bring us to the next stage — and that includes people,” she said. “It’s not pleasant and it is very hard when you have to say ‘bye’ to people that have been with you in the journey for two years, or for one year, or three years, but then you need to find the next people that are gonna come along with you in the next stage.”

Extra Crunch members get free startup legal documents from Avodocs

Published December 17, 2019

We’re excited to announce a new community perk for Extra Crunch. Starting today, annual and two-year Extra Crunch members located in the United States can get free access to Avodocs from AXDRAFT.

Avodocs provides free legal documents for startups, including NDAs, privacy policies, founders’ agreements, employee onboarding documents, terms of service and more. Founders and startup teams often waste tons of time searching Google and asking friends for legal help. Avodocs provides the necessary documents for early-stage companies in minutes.

Avodocs is used by more than 4,000 startups, including alumni from Y Combinator, 500 Startups and Techstars. Users of Avodocs enjoy having documents ready for signature in less than 10 minutes, plain English description of the implications, a simple Q&A process for creating a document, the ease of editing and personalizing documents after download and the fact that Avodocs works on any device. Users of Avodocs also get access to extra content, such as a consulting agreement and advisory agreement, as well as document storage and DocuSign integration.

Extra Crunch is a membership program from TechCrunch that features how-tos and interviews on company building, intelligence on the most disruptive opportunities for startups, an experience on TechCrunch.com that’s free of banner ads, discounts on TechCrunch events and several community perks like the one mentioned in this article. Our goal is to democratize information about startups, and we’d love to have you join our community.

You can sign up for Extra Crunch here.

After signing up for an annual or two-year Extra Crunch membership (U.S. users only), you’ll receive a welcome email with a link to sign up for Avodocs. If you are already an annual or two-year Extra Crunch member, you will receive an email with the offer at some point today. If you are currently a monthly Extra Crunch subscriber and want to upgrade to annual in order to claim this deal, head over to the “my account” section on TechCrunch.com and click the “upgrade” button.

This is one of several community perks we’ve launched for Extra Crunch members. Other community perks include a 20% discount on TechCrunch events, 100,000 Brex rewards points upon credit card sign up and an opportunity to claim $1,000 in AWS credits. For a full list of community perks from partners, head here.

If there are other community perks you want to see us add, please let us know by emailing travis@techcrunch.com.

To sign up or learn more about all the benefits of Extra Crunch, head here.

Disclaimer:

Documents on Avodocs were created for startups operating in the United States. Avodocs provides self-help services at customer’s specific direction. Avodocs is not a law firm or a substitute for an attorney or law firm.

Communications between customer and Avodocs are protected by Avodocs Privacy Policy, but not by the attorney-client privilege. Avodocs does not provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defenses, options, selection of forms, or strategies.

Access to Avodocs is subject to its Terms of Service.

This offer is provided as a partnership between TechCrunch and Avodocs, but it is in no way an endorsement from the TechCrunch editorial team. TechCrunch’s business operations remain separate to ensure editorial integrity.

Why is WeWork 2.0 trying to go public?

Published December 17, 2019

In the wake of WeWork’s embarrassing IPO rout, you might imagine that startups working in similar markets would cool it for a bit. Perhaps they could work on cutting spending, improving their gross margins, and, say, shooting for profitability.

Not so, at least in one case. Instead of doing those things, China-based Ucommune filed to go public in America this month. The WeWork competitor is mostly a co-working business. It’s also a marketing company. And it has some of the worst economics we’ve seen in a company since WeWork.

Why this company is trying to go public isn’t hard to understand. It needs the cash. But at the same time, the chance of it debuting at a price it likes seems slim, given the market’s recent history — as well as Ucommune’s own.

Introductions

Before we chat about the business fundamentals of Ucommune, a primer on the company itself.

Founded in 2015, according to Crunchbase data, Ucommune has raised over hundreds of millions. In 2018 alone the company raised a venture round and its Series C and its Series D. Prior investors include Gopher Asset Management, Aikang Group, Tianhong Asset Management, All-Stars Investment and Longxi Real Estate.

TechCrunch reported that its final private round valued Ucommune at $3 billion.

All that capital was put to work. According to is F-1 filing, Ucommune operates 197 co-working facilities in 42 cities. The company also claims more than 600,000 members and nearly 73,000 workstations.

How many unicorns will exit before the market turns?

The WeWork similarities continue: While discussing itself in its IPO filing, the firm touts an “asset-light model,” which it claims helps property owners “benefit from our professional capabilities and strong brand recognition” as well as allowing its “business to scale at a cost-efficient manner.”

Let’s see.

How to lose money

As a primer for all you non-accountants, here’s how you make money as a company: First, generate some revenue. Next, deduct the direct costs that that revenue engendered. What’s left is called “gross profit,” and the relative total of gross profit generated from revenue is called gross margin. From there, subtract your operating costs. If there’s anything left over, that’s operating profit. Now take your operating profit and remove taxes and other costs. What remains is net income.

As you can quickly see, the more gross profit a business generates from its revenue, the more money is has left over to pay for operating expenses. So, revenues that generate lots of gross profit — called high-margin revenue — are better than those that don’t.

Ucommune, our IPO hopeful, is unique in that its revenue doesn’t generate any gross profit at all. Its revenue doesn’t even pay for itself. The company is gross margin negative.

Here’s what that looks like:

If your cost of revenue is higher than your revenue, your gross profit is negative. And that means that you have no gross margin available to fund operating costs. In turn, that means that your company is super unprofitable.

Ucommune is unprofitable, unsurprisingly. (If it feels like we’re overly focused on gross margins, keep in mind that software companies are worth as much as they are in part because they have very high gross margins.)

Things get a bit worse when we look further.

Yuck

Digging in, Ucommune operates two main businesses. The first enterprise is co-working, which generated just less than half of the company’s total revenue during the first three quarters of 2019. Its second largest business is a marketing effort. Ucommune acquired a company called “Shengguang Zhongshuo” in December of 2018, a deal that lets the company drive revenue by selling “branding services and online targeted marketing services.”

Ucommune is therefore a hybrid co-working and services business. Neither piece of the whole is attractive from a margin perspective. For example, the company’s $58.7 million in co-working revenue earned during the first nine months of 2019 was nearly entirely offset by lease costs ($49.6 million) alone, before the company staffed and otherwise managed the locations in question.

The company’s marketing business is slightly better. Its $56.5 million in revenue from the first three quarters of 2019 was nearly offset by $51.0 million in revenue costs. Ucommune’s services arm, therefore, was more lucrative in terms of generating gross margin for the co-working company than its actual co-working business.

(Bear in mind as we go along that this company wants to go public.)

Wrapping our discussion of yuck, let’s talk about cash. Ucommune had cash and equivalents of $23.4 million and short-term investments worth $11.0 million at the end of Q3 2019. That’s $33.4 million in total that the company can access, presuming that every short-term investment is unwindable into cash inside the window in which Ucommune would need to access it.

A window that is closing, mind. Ucommune’s operations burned through $32.4 million in the first three quarters of 2019. If the company kept consuming cash at its prior pace, we can estimate that it will not have enough cash to make it to the end of Q2 2020. Which is why Ucommune is going public.

Growth?

The only counterargument to the mess that is Ucommune’s business is that it is growing quickly. That’s true. The company’s revenue grew from ¥282.2 million in the first three quarters of 2018 to ¥874.6 million over the same time period this year. That’s quick!

But instead of demonstrating operating leverage (losing less money as its revenue grew), the company lost more money this year than the last, making its business appear likely to keep burning acres of cash while it grows. And you have to ask yourself if it is a good business, why are its private investors pushing it onto the public markets instead of giving it more of their own money?

They must have known, landing this close to WeWork, how this was going to look. And that’s not confidence-inspiring.