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5 unicorns that will probably go public in 2019 (besides Uber and Lyft)

Published December 23, 2018

There’s been plenty of fanfare surrounding Uber and Lyft’s initial public offerings — slated for early 2019 — since the two companies filed confidential IPO paperwork with the U.S. Securities and Exchange Commission in early December. On top of that, public and private investors have had plenty to say about Slack and Pinterest’s rumored 2019 IPOs but those aren’t the only “unicorn” exits we should expect to witness in the year ahead.

Using its proprietary company rating algorithm, data provider CB Insights ranked five billion dollar companies most likely to perform IPOs next year in its latest tech IPO report. The algorithm analyzes non-traditional public signals, including hiring activity, web traffic and mobile app data to make its predictions. These are the startups that topped their list.

Peloton

Peloton Co-Founder and CEO John Foley speaks onstage during TechCrunch Disrupt SF 2018 on September 6, 2018 in San Francisco, California. (Photo by Kimberly White/Getty Images for TechCrunch).

Peloton, dubbed the “Netflix of fitness,” has raised nearly $1 billion in venture capital funding in the six years since it was founded by John Foley, most recently raising $550 million at a $4 billion valuation. The manufacturer of tech-enabled exercise equipment is more than doubling in size every year and is “weirdly profitable,” an unusual characteristic for a venture-backed business of its age. Headquartered in New York, Peloton doesn’t have any public IPO plans, though Foley recently told The Wall Street Journal that 2019 “makes a lot of sense” for its stock market debut.

Select investors: L Catterton, True Ventures, Tiger Global

Cloudflare

Cloudflare co-founder and CEO Matthew Prince appears on stage at the 2014 TechCrunch Disrupt Europe/London. (Photo by Anthony Harvey/Getty Images for TechCrunch)

Cybersecurity unicorn Cloudflare is likely to transition to the public markets in the first half of 2019 in what is poised to be a strong year for IPOs in the security industry. The web performance and security platform is said to be preparing for an IPO at a potential valuation of more than $3.5 billion after last raising capital in 2015 at a $1.8 billion valuation. Since it was founded in 2009, the San Francisco-based company has raised just north of $250 million in VC funding. CrowdStrike, another security unicorn, is also on track to go public next year and it wouldn’t be surprising to see Illumio and Lookout make the jump to the public markets as well.

Select investors: Pelion Venture Partners, NEA, Venrock

Zoom

San Jose-based Zoom Video Communications has reportedly tapped Morgan Stanley to lead its upcoming IPO.

Zoom, a provider of video conferencing services, online meeting and group messaging tools that’s raised $160 million in VC cash to date, is eyeing a multi-billion IPO in 2019 and has reportedly hired Morgan Stanley to lead the offering. Founded in 2011, the company most recently brought in a $100 million Series D financing, entirely funded by Sequoia, at a $1 billion valuation in early 2017. Based in San Jose, Zoom is hoping to garner a valuation significantly larger than $1 billion when it IPOs, according to Reuters.

Select investors: Sequoia, Emergence Capital Partners, Horizons Ventures

Rubrik

Data management company Rubrik co-founder and CEO Bipul Sinha.

Data management company Rubrik has quietly made moves indicative of an impending IPO. The startup, which provides data backup and recovery services for businesses across cloud and on-premises environments, hired former Atlassian chief financial officer Murray Demo as its CFO earlier this year, as well as its first chief legal officer, Peter McGoff. Palo Alto-based Rubrik was valued at over of $1 billion with a $180 million funding round in 2017. The company has raised nearly $300 million to date.

Select investors: Lightspeed Venture Partners, Greylock, Khosla Ventures

Medallia

Medallia, a customer experience management platform that’s nearly two decades old, may finally become a public company in 2019. The San Mateo-based company, which has been rumored to be planning an IPO for several years, hired a new CEO this year and reported $250 million in GAAP revenue for the year ending Jan. 31, 2018, according to Forbes. Medallia hasn’t raised capital since 2015, when it secured a $150 million funding deal at a $1.2 billion valuation. It has raised a total of just over $250 million.

Select investor: Sequoia

Did unicorns like Lyft and Uber wait too long?

HQ Trivia launches HQ Words tonight under reinstalled CEO

Published December 23, 2018

HQ’s expansion beyond trivia emerges from beta tonight, but the question is whether it’s different and accessible enough to revive the startup’s growth. HQ Words opens to everyone with today’s 6:30pm pacific broadcast within the HQ Trivia app after several weeks of closed beta testing of the Wheel Of Fortune-style game. The launch will be the first big move of Rus Yusupov now that’s been officially renamed CEO a week after the tragic death of fellow co-founder and former CEO Colin Kroll, HQ confirms to TechCrunch.

“Intermedia Labs introduced the world to a category defining product, HQ Trivia. Once again, with HQ Words, Intermedia Labs is poised to captivate the world with a revolutionary experience that will bring people together in new ways around live mobile video” Yusupov tells us. “HQ Words is the most interactive experience we’ve ever made.”

Kroll’s passing comes at a tough time for HQ. Its daily player count has declined since it became a phenomenon a year ago. The novelty has begun to wear off, and with so many experienced trivia whizzes, cash jackpots are often split between enough people that winners only get a few bucks. Interrupting your days or nights to play at a particular time can be inconvenient compared to the legions of always-available other games. Yusupov, who was HQ’s CEO until Kroll took over in September, will have to figure out what will attract casual crosswords players and those who flocked to Zynga’s Words With Friends — the kind of disruptive thinking Kroll excelled at.

“Colin and I shared many incredible life moments over the last 7 years. We embarked on an incredible journey co-founding two breakthrough companies together – and the lessons we learned at Vine and HQ will continue to have a big impact on me. Like many relationships, we’ve also had our challenges – but it was during these challenging times that Colin’s kind soul and big heart would truly shine” Yusupov wrote in a statement about his co-founder that was originally published by Digiday in a touching memorial post. Between building Vine and HQ together, the pair have reimagined mobile entertainment, giving millions a chance to show off their wits and creativity. “He had this incredible ability to make everyone feel special. He listened well. He thought deeply. But above all, he cared about people more than work. The driving force behind his innovations was the positive impact they would have on people and world. Colin’s innovations and inventions have changed many people’s lives for the better and will continue to impact the world for years to come.”

HQ Trivia’s co-founder and former CEO Colin Kroll passed away earlier this month

How To Play HQ Words

In HQ Words, players compete live to solve word puzzles by correctly choosing what letters are hidden. You can find the game inside the existing HQ Trivia iOS and Android apps. Host Anna Roisman pluckily provides a clue and then dispenses hints as the 25-second timer for each puzzle counts down. If the clue is “gemstone” and you’re shown “_ _ _ m _ _ _”, you’ll have to tap D, I, A, O, and N in any order. Choose three wrong letters or fail to fill out the words and you lose. You’ll spin a wheel before the game starts to get one letter that’s automatically revealed each round.

Make it through ten rounds and you and other winners get a cut of the cash prize, with the three who solved the puzzles fastest scoring a bigger chunk of the jackpot. The startup earns money through selling you extra lives inside Words, though it will probably feature sponsored games and product placement like Trivia does to pull in marketing dollars. Words will go live daily at 6:30pm pacific after Trivia’s 6:00 game, so you can turn it into HQ hour with family and friends.

HQ Words is much more frenetic than Trivia. Rather than picking a single answer, you have to rapidly tap letters through a combination of educated and uneducated guesses. That means it really does feel more interactive since you’re not sitting for minutes with just a sole answer tap to keep you awake. And because it doesn’t require deep and broad trivia knowledge, Words could appeal to a wider audience. The spinner also adds an element of pure luck, as a weaker player who gets to auto-reveal a vowel might fare better than a wiser player who gets stuck with a “Z” like I always seem to.

Fill In The Blank

The concern is that at its core, Words is still quite similar to Trivia. They’re both real-time, elimination round-based knowledge games played against everyone for money. Both at times feel like they use cheap tricks to eliminate you. A recent Words puzzle asked you to name a noisy instrument, but the answer wasn’t “kazoo” but “buzzing kazoo” — something I’m not sure anyone has ever formally called it. Given the faster pace of interaction, even tiny glitches or moments of lag can be enough to make you lose a round. An HQ Words beta game earlier this week failed to show some users the keyboard, causing mass elimination. The pressure to get HQ’s engineering working flawlessly has never been higher.

The phrasing of some HQ Words answers seems like a stretch

HQ originally agreed to let TechCrunch interview Kroll about what makes Words different enough to change the startup’s momentum. Yusupov was supposed to fill in after Kroll was sadly found dead last Friday of an apparent drug overdose. He later declined to talk or provide written responses. That’s understandable during this time of mourning and transition. But HQ will still need to build an answer into its app. Meanwhile, Chinese clones and US competitors have begun co-opting the live video quiz idea. Facebook has even built a game show platform for content makers to create their own.

HQ could benefit from a better onboarding experience that lets people play a sample game solo to get them hooked and tide them over until the next scheduled broadcast. Mini-games or ways to play along after you’re eliminated could boost total view time and the value of brand sponsorships. A “quiet mode” that silences the between-round chatter and distills HQ to just the questions and puzzles might make it easier to play while multi-tasking. Head-to-head versions of Trivia and Words might help HQ feel more intimate, and there’s an opportunity to integrate peer-to-peer gambling like ProveIt trivia. And branching out beyond knowledge games into more social or arcade-style titles would counter the idea that HQ is just for brainiacs.

Around the height of HQ’s popularity it raised a $15 million funding round at a $100 million valuation. That seems justified given HQ will reportedly earn around $10 million in revenue this year. Gamers are fickle, though, and today’s Fortnite can wind up tomorrow’s Pokemon Go — a flash in the pan that fizzles out. Words is a great bridge to a world outside of Trivia, but HQ must evolve not just iterate.

How Juul made vaping viral to become worth a dirty $38 billion

Published December 22, 2018

A Juul is not a cigarette. It’s much easier than that. Through devilishly slick product design I’ll discuss here, the startup has massively lowered the barrier to getting hooked on nicotine. Juul has dismantled every deterrent to taking a puff.

The result is both a new $38 billion valuation thanks to a $12.8 billion investment from Marlboro Cigarettes-maker Altria this week, and an explosion in popularity of vaping amongst teenagers and the rest of the population. Game recognize game, and Altria’s game is nicotine addiction. It knows it’s been one-upped by Juul’s tactics, so it’s hedged its own success by handing the startup over a tenth of the public corporation’s market cap in cash.

Juul argues it can help people switch from obviously dangerous smoking to supposedly healthier vaping. But in reality, the tiny aluminum device helps people switch from nothing to vaping…which can lead some to start smoking the real thing. A study found it causes more people to pick up cigarettes than put them down.

Photographer: Gabby Jones/Bloomberg via Getty Images

How fast has Juul swept the nation? Nielsen says it controls 75 percent of the U.S. e-cigarette market up from 27 percent in September last year. In the year since then, the CDC says the percentage of high school students who’ve used an e-cigarette in the last 30 days has grown 75 percent. That’s 3 million teens or roughly 20 percent of all high school kids. CNBC reports that Juul 2018 revenue could be around $1.5 billion.

The health consequences aside, Juul makes it radically simple to pick up a lifelong vice. Parents, regulators, and potential vapers need to understand why Juul works so well if they’ll have any hope of suppressing its temptations.

Shareable

It’s tough to try a cigarette for the first time. The heat and smoke burn your throat. The taste is harsh and overwhelming. The smell coats your fingers and clothes, marking you as smoker. There’s pressure to smoke a whole one lest you waste the tobacco. Even if you want to try a friend’s, they have to ignite one first. And unlike bigger box mod vaporizers where you customize the temperature and e-juice, Juul doesn’t make you look like some dorky hardcore vapelord.

Juul is much more gentle on your throat. The taste is more mild and can be masked with flavors. The vapor doesn’t stain you with a smell as quickly. You can try just a single puff from a friend’s at a bar or during a smoking break with no pressure to inhale more. The elegant, discrete form factor doesn’t brand you as a serious vape users. It’s casual. Yet the public gesture and clouds people exhale are still eye catching enough to trigger the questions, “What’s that? Can I try?” There’s a whole other article to be written about how Juul memes and Instagram Stories that glamorized the nicotine dispensers contributed to the device’s spread.

And perhaps most insidiously, vaping seems healthier. A lifetime of anti-smoking ads and warning labels drilled the dangers into our heads. But how much harm could a little vapor do?

Juul Labs gets $12.8 billion investment from Marlboro maker Altria Group

A friend who had never smoked tells me they burn through a full Juul pod per day now. Someone got him to try a single puff at a nightclub. Soon he was asking for drag off of strangers’ Juuls. Then he bought one and never looked back. He’d been around cigarettes at parties his whole life but never got into them. Juul made it too effortless to resist.

Concealable

Lighting up a cigarette is a garish activity prohibited in many places. Not so with discretely sipping from a Juul.

Cigarettes often aren’t allowed to be smoked inside. Hiding it is no easy feat and can get you kicked out. You need to have a lighter and play with fire to get one started. They can get crushed or damp in your pocket. The burning tip makes them unruly in tight quarters, and the bud or falling ash can damage clothing and make a mess. You smoke a cigarette because you really want to smoke a cigarette.

Public establishments are still figuring out how to handle Juuls and other vaporizers. Many places that ban smoking don’t explicitly do the same for vaping. The less stinky vapor and more discrete motion makes it easy to hide. Beyond airplanes, you could probably play dumb and say you didn’t know the rules if you did get caught. The metal stick is hard to break. You won’t singe anyone. There’s no mess, need for an ashtray, or holes in your jackets or couches.

As long as your battery is charged, there’s no need for extra equipment and you won’t draw attention like with a lighter. Battery life is a major concern for heavy Juulers that smokers don’t have worry about, but I know people who now carry a giant portable charger just to keep their Juul alive. But there’s also a network effect that’s developing. Similar to iPhone cords, Juuls are becoming common enough that you can often conveniently borrow a battery stick or charger from another user.

And again, the modular ability to take as few or as many puffs as you want lets you absent-mindedly Juul at any moment. At your desk, on the dance floor, as you drive, or even in bed. A friend’s nieces and nephews say that they see fellow teens Juul in class by concealing it in the cuff of their sleeve. No kid would be so brazen as to try smoke in cigarette in the middle of a math lesson.

Distributable

Gillette pioneered the brilliant razor and blade business model. Buy the sometimes-discounted razor, and you’re compelled to keep buying the expensive proprietary blades. Dollar Shave Club leveled up the strategy by offering a subscription that delivers the consumable blades to your door. Juul combines both with a product that’s physically addictive.

When you finish a pack of cigarettes, you could be done smoking. There’s nothing left. But with Juul you’ve still got the $35 battery pack when you finish vaping a pod. There’s a sunk cost fallacy goading you to keep buying the pods to get the most out of your investment and stay locked into the Juul ecosystem.

(Photo by Scott Olson/Getty Images)

One of Juul’s sole virality disadvantages compared to cigarettes is that they’re not as ubiquitously available. Some stores that sells cigs just don’t carry them yet. But more and more shops are picking them up, which will continue with Altria’s help. And Juul offers an “auto-ship” delivery option that knocks $2 off the $16 pack of four pods so you don’t even have to think about buying more. Catch the urge to quit? Well you’ve got pods on the way so you might as well use them. Whether due to regulation or a lack of innovation, I couldn’t find subscription delivery options for traditional cigarettes.

And for minors that want to buy Juuls or Juul pods illegally, their tiny size makes them easy to smuggle and resell. A recent South Park episode featured warring syndicates of fourth-graders selling Juul pods to even younger kids.

Dishonorable

Juul co-founder James Monsees told the San Jose Mercury News that “The first phase is proving the value and creating a product that makes cigarettes obsolete.” But notice he didn’t say Juul wants to make nicotine obsolete or reduce the number of people addicted to it.

Juul co-founder James Monsees

If Juul actually cared about fighting addiction, it’d offer a regimen for weaning yourself off of nicotine. Yet it doesn’t sell low-dose or no-dose pods that could help people quit entirely. In the US it only sells 5% and 3% nicotine versions. It does make 1.7% pods for foreign markets like Israel where that’s the maximum legal strengths, though refuses to sell them in the States. Along with taking over $12 billion from one of the largest cigarette companies, that makes the mission statement ring hollow.

Juul is the death stick business as usual, but strengthened by the product design and virality typically reserved for Apple and Facebook.

The top smartphone trends to watch in 2019

Published December 22, 2018

This was a bad year for the smartphone. For the first time, its seemingly unstoppable growth began to slow.

Things started off on a bad note in February, when Gartner recorded its first year-over-year decline since it began tracking the category. Not even the mighty Apple was immune from the trend. Last week, stocks took a hit as influential analyst Ming-Chi Kuo downgraded sales expectations for 2019.

People simply aren’t upgrading as fast as they used to. This is due in part to the fact that flagship phones are pretty good across the board. Manufacturers have painted themselves into a corner as they’ve battled it out over specs. There just aren’t as many compelling reasons to continually upgrade.

Of course, that’s not going to stop them from trying. Along with the standard upgrades to things like cameras, you can expect some radical rethinks of smartphone form factors, along with the first few pushes into 5G in the next calendar year.

If we’re lucky, there will be a few surprises along the way as well, but the following trends all look like no-brainers for 2019.

5G

Attendees look at 5G mobile phones at the Qualcomm stand during China Mobile Global Partner Conference 2018 at Poly World Trade Center Exhibition Hall on December 6, 2018 in Guangzhou, Guangdong Province of China.

GUANGZHOU, CHINA – DECEMBER 06: Attendees look at 5G mobile phones at the Qualcomm stand during China Mobile Global Partner Conference 2018 at Poly World Trade Center Exhibition Hall on December 6, 2018 in Guangzhou, Guangdong Province of China. The three-day conference opened on Thursday, with the theme of 5G network. (Photo by VCG/VCG via Getty Images)

Let’s get this one out of the way, shall we? It’s a bit tricky — after all, plenty of publications are going to claim 2019 as “The Year of 5G,” but they’re all jumping the gun. It’s true that we’re going to see the first wave of 5G handsets appearing next year.

OnePlus and LG have committed to a handset and Samsung, being Samsung, has since committed to two. We’ve also seen promises of a Verizon 5G MiFi and whatever the hell this thing is from HTC and Sprint.

Others, most notably Apple, are absent from the list. The company is not expected to release a 5G handset until 2020. While that’s going to put it behind the curve, the truth of the matter is that 5G will arrive into this world as a marketing gimmick. When it does fully roll out, 5G has the potential to be a great, gaming-changing technology for smartphones and beyond. And while carriers have promised to begin rolling out the technology in the States early next year (AT&T even got a jump start), the fact of the matter is that your handset will likely spend a lot more time using 4G.

That is to say, until 5G becomes more ubiquitous, you’re going to be paying a hefty premium for a feature you barely use. Of course, that’s not going to stop hardware makers, component manufacturers and their carrier partners from rushing these devices to market as quickly as possible. Just be aware of your chosen carrier’s coverage map before shelling out that extra cash.

Foldables

We’ve already seen two — well, one-and-a-half, really. And you can be sure we’ll see even more as smartphone manufacturers scramble to figure out the next big thing. After years of waiting, we’ve been pretty unimpressed with the foldable smartphone we’ve seen so far.

The Royole is fascinating, but its execution leaves something to be desired. Samsung’s prototype, meanwhile, is just that. The company made it the centerpiece of its recent developer conference, but didn’t really step out of the shadows with the product — almost certainly because they’re not ready to show off the full product.

Now that the long-promised technology is ready in consumer form, it’s a safe bet we’ll be seeing a number of companies exploring the form factor. That will no doubt be helped along by the fact that Google partnered with Samsung to create a version of Android tailored to the form factor — similar to its embrace of the top notch with Android Pie.

Of course, like 5G, these designs are going to come at a major premium. Once the initial novelty has worn off, the hardest task of all will be convincing consumers they need one in their life.

Pinholes

Bezels be damned. For better or worse, the notch has been a mainstay of flagship smartphones. Practically everyone (save for Samsung) has embraced the cutout in an attempt to go edge to edge. Even Google made it a part of Android (while giving the world a notch you can see from space with the Pixel 3 XL).

We’ve already seen (and will continue to see) a number of clever workarounds like Oppo’s pop-up. The pin hole/hole punch design found on the Huawei Nova 4 seems like a more reasonable route for a majority of camera manufacturers.

Embedded Fingerprint Readers

The flip side of the race to infinite displays is what to do with the fingerprint reader. Some moved it to the rear, while others, like Apple, did away with it in favor of face scanning. Of course, for those unable to register a full 3D face scan, that tech is pretty easy to spoof. For that reason, fingerprint scanners aren’t going away any time soon.

OnePlus’ 6T was among the first to bring the in-display fingerprint scanner to market, and it works like a charm. Here’s how the tech works (quoting from my own writeup from a few months ago):

When the screen is locked, a fingerprint icon pops up, showing you where to press. When the finger is in the right spot, the AMOLED display flashes a bright light to capture a scan of the surface from the reflected light. The company says it takes around a third of a second, though in my own testing, that number was closer to one second or sometimes longer as I negotiated my thumb into the right spot.

Samsung’s S10 is expected to bring that technology when it arrives around the February time frame, and I wouldn’t be surprised to see a lot of other manufacturers follow suit.

Cameras, cameras, cameras (also, cameras)

What’s the reasonable limit for rear-facing cameras? Two? Three? What about the five cameras on that leaked Nokia from a few months back? When does it stop being a phone back and start being a camera front? These are the sorts of existential crises we’ll have to grapple with as manufacturers continue to attempt differentiation through imagining.

Smartphone cameras are pretty good across the board these days, so one of the simple solutions has been simply adding more to the equation. LG’s latest offers a pretty reasonable example of how this will play out for many. The V40 ThinQ has two front and three rear-facing cameras. The three on the back are standard, super wide-angle and 2x optical zoom, offering a way to capture different types of images when a smartphone camera isn’t really capable of that kind of optical zoom in a thin form factor.

On the flip side, companies will also be investing a fair deal in software to help bring better shots to existing components. Apple and Google both demonstrated how a little AI and ML can go a long way toward improving image capture on their last handsets. Expect much of that to be focused on ultra-low light and zoom.

Crowdfunded developer of space sim Star Citizen takes on $46M in funding at nearly $500M valuation

Published December 21, 2018

The story of the game Star Citizen and Cloud Imperium, the company developing it, is almost too ludicrous to believe: a crowdfunding effort to create a space sim of unparalleled size and realism, raising hundreds of millions, with backers paying thousands for ships and gear in a game that’s years from release. Yet it’s real enough that it just pulled in $42 million in private funding to help bring it closer to release.

Star Citizen began as the brainchild of Chris Roberts, architect of the Wing Commander series and other well-received space games. His idea was to crowdfund the team’s next game, and did so in 2012; the money started rolling in, and it never really stopped. Nor has the game ceased to grow in its ambitions, adding things like entire planets to the lineup that seem, on their face, somewhat insane.

There’s no shortage of histories of the game and its developers out there, so for our purposes let it suffice to say that over the last six years the company has raised $211 million, the vast majority of which comes from gamers “pledging” anywhere from a few bucks to thousands of dollars for all manner of things related to the title. Early access to builds, exclusive ships, testing new content, etc.

A huge amount of work has been done on the game, so this isn’t just a colossal con, though there are plenty who think the game, and its first-person shooter counterpart Squadron 42, can’t possibly ever fulfill its ambitions and justify the money people have put into it.

That doesn’t seem to be the opinion of Clive Calder, founder of Zomba and producer in a variety of entertainment formats, whom Roberts met during a clandestine campaign to solicit funding.

Roberts, who writes the story in one of his candid messages to the project’s fanbase, had decided a while back that he didn’t want to use pledged funds for marketing purposes — at least not the kind of marketing blitz AAA games tend to require for a successful global release. So he went looking for investment, and found Calder, with whom he “got on like a house on fire.”

Calder’s family office agreed to invest $46 million for a 10 percent stake in Cloud Imperium, which all told puts it near a half-billion valuation. One may very well question the sanity of such a valuation for a company that has not yet shipped an actual product — working prototypes, sure, but not a completed game — but hell, at least they’re making something people are excited about. That’s got to be worth a couple bucks.

Cloud Imperium gains two new board members from outside, though Roberts, who commands the kind of loyalty that only decades in an industry can create, was quick to point out that “control of the company and the board still firmly stays with myself as chairman, CEO and majority shareholder.”

In another act of not exactly radical but not legally required transparency, the company also posted an outline of the company’s financials over the last six years. Unsurprisingly, the company has been investing most of its cash into game development in the form of salaries, contracts and overhead; a non-trivial amount has gone toward “publishing operations, community, events and marketing,” which with a game as community-focused as Star Citizen is not surprising.

The company has grown steadily, adding a hundred people a year or so to a present size of 464 — which is the kind of size you’d expect on a AAA game like Assassin’s Creed or Red Dead Redemption. Even more would be added on as temporary artists, actors and so on.

I’m sure it has escaped no one that pledges appear to have peaked, though if they remain steady the company clearly will have enough to continue operations if it doesn’t expand. But one does also see perhaps a secondary motive in seeking investment from outside the community. At some point people are going to want a game.

To that end, Squadron 42, at least, is scheduled for release in Q2 2020 — though backers and critics will both chuckle a little at the idea that Cloud Imperium will be able to hit those goals. The games, infamously, were originally slated for release long ago. But the scope of the project has grown since its conception and although some no doubt would rather be playing the completed game today, they may very well find that good things come to those who wait. And wait. And wait…

Bounce raises $1.2M to tap local retailers for short-term storage

Published December 21, 2018

If you’ve ever found yourself lugging a big suitcase from meeting to meeting, a startup called Bounce could make your life easier. Using Bounce, you’ll be able to pay for short-term storage at hotels, dry cleaners and other local businesses.

The San Francisco-based startup is announcing that it has raised $1.2 million in seed funding from investors including Structured Capital managing partner Jillian Manus, Seabed VC, Airbnb general counsel Rob Chesnut and Canadian entrepreneur Michael Hyatt.

CEO Cody Candee (pictured above with his co-founder and CTO Aleksander Rendtslev) said he’s actually not someone who owns a lot of stuff himself, but he realized that “people are constantly planning their days and planning their lives around the things that they own,” whether that’s running home to drop something off or heading straight to your hotel from the airport because you need to get rid of your luggage.

So Bounce has already signed up more than 100 locations across New York, San Francisco, Washington, DC and Chicago, and it says they’ve been used to store tens of thousands of bags. You currently browse these locations through the Bounce website, but Candee said an iOS app launch is imminent. Bounce Apparently Bounce vets its locations, partly to ensure that they have secure storage areas and that their posted store hours are accurate — so that you don’t rush to the store to pick something up before closing, only to discover that everyone left early. Candee added that the most common use cases include travelers who have checked out of their hotels, people attending events (I once tried to carry my gym bag into Madison Square Garden and I will never do that again) and salespeople who are hopping from meeting to meeting.

There are other companies that appear to have a similar idea — for example, Vertoe was part of winter class at Techstars NYC — but Candee said that competitors are mostly “attacking just the luggage storage space,” which he suggested is “relatively easy to build.”

In contrast, he said, “The way we see it is, we’re really building a tech platform and basically thinking about these broader use cases.” In fact, he said Bounce is already testing out a system where items are transported by local couriers between different storage locations.

“We’re thinking about what could be built on top of that platform,” Candee said. “A drycleaner could come on our platform and they could basically say, ‘Hey, drop your clothes off’ and then Bounce it back to wherever that user is.”

Layer1 wants to thrive in the age of the crypto crash

Published December 21, 2018

A year ago, crypto was reaching ever new highs, and I was talking about whether ICOs would supplant the VC funding round and warning about Kim Jong Un’s crypto trading operations.

And then the world turned upside down.

Crypto prices are near rock-bottom prices, with Bitcoin hanging around $4,000 and Ethereum around $113, down from their highs earlier this year of around $16,600 and $1,400, respectively.

While that has put a dampener on the enthusiasm of a lot of cryptocurrency retail investors, the bigger question is how do institutional players work through this market? What’s the strategy for finding value in this technology sector long-term?

I chatted with Alexander Liegl, who may just have at least part of the answer. He’s the founder of Layer1, which announced a $2.1 million fundraise this week from Peter Thiel, Digital Currency Group and Jeffrey Tarrant.

Liegl saw a huge challenge in the blockchain and cryptocurrency spaces: too many good ideas and not enough developers working on product development work. So he decided to create an “activist fund for cryptocurrencies” that would “take concentrated bets on protocols that we think have a need in this world.” Layer1 then supplies developers and other experts to provide “infrastructure and support,” he explained. “An operating entity like us can have a lot of influence in moving the needle.” He describes Layer1 as “a combination of Polychain and Blockstreet” and “the Rocket Internet of crypto.”

That might sound vaguely similar to ConsenSys, the loosely coupled group of startups and infrastructure engineers trying to build out Ethereum, which has run into very hard times recently. Unlike ConsenSys, which was founded by Ethereum co-founder Joe Lubin and is directly focused on that ecosystem, Layer1 isn’t wedded to one blockchain or ecosystem, and instead selects a single project at a time through a mix of financial analysis and thesis development.

With capital in the bank, Layer1 has backed Grin as its first cryptocurrency. Grin is designed to be a completely private and censorship-resistant transaction medium, and Liegl says that “conceptually it really reconciles with our view in the space.” He particularly liked that Grin has an anonymous founder like Bitcoin, as no founder controls the governance of the project. Grin is intending to publicly launch in mid-January.

I asked Liegl how he was responding to the crypto crunch this year in the markets, and he considered it far more of an opportunity than a detriment to his work. “I’m really pumped about all of this,” he explained. “A lot of the bad actors have to be flushed out.” He noted that the low of the bear market may not be reached yet, but that Layer1 was in a good position to take advantage of the timing. “We raised the newest dollars, so we are not suffering from any of these ICO-induced problems,” he said.

Liegl, who graduated from Stanford in 2015 and briefly worked at Stanford’s endowment, has certainly seen the vagaries of the cryptocurrency markets. He learned about Bitcoin during its first popular run-up in 2013, even convincing his parents to invest in the budding project.

Now, he has his eyes set on Grin, and then additional projects. He thinks Layer1 will invest in a new project roughly every six to nine months, which will accelerate over time with additional capital.

While these “platform” models have struggled a bit in the venture world, I think it’s reasonable that blockchain projects, which often suffer from a lack of attention from developers and end uses, could use a strong engineering and popularization boost. Layer1 isn’t the first in the blockchain world to take this approach nor I am sure will it be the last, but it might be just the ticket forward for a world that has struggled to pay its employees and bills in a crash.

Spot is a cryptocurrency app to control all your wallets and exchange accounts

Published December 21, 2018

Meet Spot, a beautifully designed mobile app to control your cryptocurrencies. Spot looks like a portfolio-tracking app. But the company has built a strong foundation to add more features in the coming months. Spot wants to be your unique gateway to the world of cryptocurrencies.

“Spot’s vision isn’t to build a portfolio tracker — we went a bit overboard with this feature,” co-founder and CEO Edouard Steegmann told me. “Eventually, we want to become the app to manage all your cryptos, a sort of Revolut but with a crypto DNA.”

When you first install the app, you can connect it to your existing wallets by adding public addresses. Even if you store your tokens on a hardware wallet, Spot can read the public details of your wallet to show them in the app.

“We have our own nodes on Ethereum, Bitcoin, Litecoin, Stellar and others to recover the amount on your wallet,” Steegmann said. Data is also cross-checked with third-party services to make sure that everything is fine.

Spot also lets you connect to an exchange account using API keys. Right now, the app supports Binance, Kraken, Bitfinex and Poloniex, but the company already plans to add more exchanges.

The app then gives you a detailed overview of your holdings across all services and wallets. You can see detailed charts, and discover which token is performing better than the rest. It’s also one of the most well-designed mobile apps I’ve seen this year — the animations and interactions are gorgeous.

But Spot doesn’t rely on an API to get pricing information for each token. “We’ve rebuilt CoinMarketCap from the ground up, and we’re one of the few companies that have done it,” Steegmann said. The company stores pricing information for dozens of tokens across 150 exchanges. That’s a lot of pairings.

If you tap on the Spot logo at the top of the app, you can see the maximum value of your portfolio if you cash out on exchanges with the highest prices for your tokens. The company makes sure that there’s enough volume to show you coherent prices.

Spot thinks that controlling your own data is too important to rely on API calls. When you have your own data, you don’t have any API rate limits, you don’t have a major dependency and you can scale more calmly.

Up next, you’ll be able to trade directly in the app. The company isn’t going to build its own exchange, but you can expect to buy and sell tokens on a third-party exchange without having to visit the website.

“We think that many things will be tokenized and that there’s no user-friendly interface to transfer, receive, buy and sell,” Steegmann said.

The company raised a $1.2 million round (€1.056 million to be exact) from Kima Ventures and business angels, including Eric Larchevêque and Thomas France from Ledger, Jean-Daniel Guyot, Thibaud Elzière, Eduardo Ronzano, Nicolas Steegmann, Sébastien Lucas and Nicolas Debock.

Disclosure: I own small amounts of various cryptocurrencies.

Zynga to acquire Small Giant Games, the maker of Empires & Puzzles, for $700M

Published December 20, 2018

Social game developer Zynga has entered into an agreement to acquire Small Giant Games, the startup behind the popular mobile game Empires & Puzzles, in a deal expected to total $700 million.

Zynga, which has tumbled since its 2011 Nasdaq initial public offering, will initially acquire 80 percent of Small Giant Games for $560 million, composed of $330 million in cash and $230 million of unregistered Zynga common stock. Zynga will fund part of the transaction with a $200 million credit facility.

“We’ve been impressed by the quality and momentum of Empires & Puzzles as we add another Forever Franchise into Zynga’s portfolio,” Zynga chief executive officer Frank Gibeau said in a statement. “Small Giant has created an innovative game that delivers a unique player experience that engages over the long term.”

The deal is expected to close on January 1. Zynga will purchase the remaining 20 percent of Small Giant over the next three years “at valuations based on specified profitability goals.”

Helsinki-based Small Giant Games had raised $52 million in equity funding from EQT Ventures, Creandum, Spintop Ventures, Profounders and others since it was founded in 2013. The company reported $33 million of revenue for Empires & Puzzles, its most popular game, 10 months after its launch in 2017. Small Giant, which is also behind Alliance Wars and Season 2: Atlantis, says they exceeded 2017’s revenue just four months into 2018.

“Our studio was founded on the idea that small, skillful teams can accomplish giant things, and I am confident that partnering with Zynga is the right next step in our evolution,” Small Giant CEO Timo Soininen said in a statement. “We will now operate as a separate studio within Zynga, maintaining our identity, culture and creative independence. By leveraging the expertise and support from the wider Zynga team, we will amplify the reach of Empires & Puzzles and the new games in our development pipeline.”

Zynga, founded in 2007, is the developer of FarmVille, Zynga Poker, Words with Friends and several other mobile games. The company reported revenues of $248.88 million for the quarter ended September 2018, failing to meet analyst estimates.

Zynga expects to bring in $243 million in revenue in the fourth quarter of 2018.

How Fortnite’s dance moves sparked new lawsuits against Epic Games

WhatsApp has an encrypted child porn problem

Published December 20, 2018

WhatsApp chat groups are being used to spread illegal child pornography, cloaked by the app’s end-to-end encryption. Without the necessary number of human moderators, the disturbing content is slipping by WhatsApp’s automated systems. A report from two Israeli NGOs reviewed by TechCrunch details how third-party apps for discovering WhatsApp groups include “Adult” sections that offer invite links to join rings of users trading images of child exploitation. TechCrunch has reviewed materials showing many of these groups are currently active.

TechCrunch’s investigation shows that Facebook could do more to police WhatsApp and remove this kind of content. Even without technical solutions that would require a weakening of encryption, WhatsApp’s moderators should have been able to find these groups and put a stop to them. Groups with names like “child porn only no adv” and “child porn xvideos” found on the group discovery app “Group Links For Whats” by Lisa Studio don’t even attempt to hide their nature. And a screenshot provided by anti-exploitation startup AntiToxin reveals active WhatsApp groups with names like “Children ” or “videos cp” — a known abbreviation for ‘child pornography’.

A screenshot from today of active child exploitation groups on WhatsApp. Phone numbers and photos redacted. Provided by AntiToxin.

Better manual investigation of these group discovery apps and WhatsApp itself should have immediately led these groups to be deleted and their members banned. While Facebook doubled its moderation staff from 10,000 to 20,000 in 2018 to crack down on election interference, bullying and other policy violations, that staff does not moderate WhatsApp content. With just 300 employees, WhatsApp runs semi-independently, and the company confirms it handles its own moderation efforts. That’s proving inadequate for policing a 1.5 billion-user community.

The findings from the NGOs Screen Savers and Netivei Reshe were written about today by Financial Times, but TechCrunch is publishing the full report, their translated letter to Facebook, translated emails with Facebook, their police report, plus the names of child pornography groups on WhatsApp and group discovery apps listed above. A startup called AntiToxin Technologies that researches the topic has backed up the report, providing the screenshot above and saying it’s identified more than 1,300 videos and photographs of minors involved in sexual acts on WhatsApp groups. Given that Tumblr’s app was recently temporarily removed from the Apple App Store for allegedly harboring child pornography, we’ve asked Apple if it will temporarily suspend WhatsApp, but have not heard back.

View this document on Scribd

Uncovering a nightmare

In July 2018, the NGOs became aware of the issue after a man reported to one of their hotlines that he’d seen hardcore pornography on WhatsApp. In October, they spent 20 days cataloging more than 10 of the child pornography groups, their content and the apps that allow people to find them.

The NGOs began contacting Facebook’s head of Policy, Jordana Cutler, starting September 4th. They requested a meeting four times to discuss their findings. Cutler asked for email evidence but did not agree to a meeting, instead following Israeli law enforcement’s guidance to instruct researchers to contact the authorities. The NGO reported their findings to Israeli police but declined to provide Facebook with their research. WhatsApp only received their report and the screenshot of active child pornography groups today from TechCrunch.

Listings from a group discovery app of child exploitation groups on WhatsApp. URLs and photos have been redacted.

WhatsApp tells me it’s now investigating the groups visible from the research we provided. A Facebook spokesperson tells TechCrunch, “Keeping people safe on Facebook is fundamental to the work of our teams around the world. We offered to work together with police in Israel to launch an investigation to stop this abuse.” A statement from the Israeli Police’s head of the Child Online Protection Bureau, Meir Hayoun, notes that: “In past meetings with Jordana, I instructed her to always tell anyone who wanted to report any pedophile content to contact the Israeli police to report a complaint.”

A WhatsApp spokesperson tells me that while legal adult pornography is allowed on WhatsApp, it banned 130,000 accounts in a recent 10-day period for violating its policies against child exploitation. In a statement, WhatsApp wrote that:

WhatsApp has a zero-tolerance policy around child sexual abuse. We deploy our most advanced technology, including artificial intelligence, to scan profile photos and images in reported content, and actively ban accounts suspected of sharing this vile content. We also respond to law enforcement requests around the world and immediately report abuse to the National Center for Missing and Exploited Children. Sadly, because both app stores and communications services are being misused to spread abusive content, technology companies must work together to stop it.

But it’s that over-reliance on technology and subsequent under-staffing that seems to have allowed the problem to fester. AntiToxin’s CEO Zohar Levkovitz tells me, “Can it be argued that Facebook has unwittingly growth-hacked pedophilia? Yes. As parents and tech executives we cannot remain complacent to that.”

Automated moderation doesn’t cut it

WhatsApp introduced an invite link feature for groups in late 2016, making it much easier to discover and join groups without knowing any members. Competitors like Telegram had benefited as engagement in their public group chats rose. WhatsApp likely saw group invite links as an opportunity for growth, but didn’t allocate enough resources to monitor groups of strangers assembling around different topics. Apps sprung up to allow people to browse different groups by category. Some usage of these apps is legitimate, as people seek communities to discuss sports or entertainment. But many of these apps now feature “Adult” sections that can include invite links to both legal pornography-sharing groups as well as illegal child exploitation content.

A WhatsApp spokesperson tells me that it scans all unencrypted information on its network — basically anything outside of chat threads themselves — including user profile photos, group profile photos and group information. It seeks to match content against the PhotoDNA banks of indexed child pornography that many tech companies use to identify previously reported inappropriate imagery. If it finds a match, that account, or that group and all of its members, receive a lifetime ban from WhatsApp.

A WhatsApp group discovery app’s listings of child exploitation groups on WhatsApp

If imagery doesn’t match the database but is suspected of showing child exploitation, it’s manually reviewed. If found to be illegal, WhatsApp bans the accounts and/or groups, prevents it from being uploaded in the future and reports the content and accounts to the National Center for Missing and Exploited Children. The one example group reported to WhatsApp by Financial Times was already flagged for human review by its automated system, and was then banned along with all 256 members.

To discourage abuse, WhatsApp says it limits groups to 256 members and purposefully does not provide a search function for people or groups within its app. It does not encourage the publication of group invite links and the vast majority of groups have six or fewer members. It’s already working with Google and Apple to enforce its terms of service against apps like the child exploitation group discovery apps that abuse WhatsApp. Those kind of groups already can’t be found in Apple’s App Store, but remain available on Google Play. We’ve contacted Google Play to ask how it addresses illegal content discovery apps and whether Group Links For Whats by Lisa Studio will remain available, and will update if we hear back. [Update 3pm PT: Google has not provided a comment but the Group Links For Whats app by Lisa Studio has been removed from Google Play. That’s a step in the right direction.]

But the larger question is that if WhatsApp was already aware of these group discovery apps, why wasn’t it using them to track down and ban groups that violate its policies. A spokesperson claimed that group names with “CP” or other indicators of child exploitation are some of the signals it uses to hunt these groups, and that names in group discovery apps don’t necessarily correlate to the group names on WhatsApp. But TechCrunch then provided a screenshot showing active groups within WhatsApp as of this morning, with names like “Children ” or “videos cp”. That shows that WhatsApp’s automated systems and lean staff are not enough to prevent the spread of illegal imagery.

The situation also raises questions about the trade-offs of encryption as some governments like Australia seek to prevent its usage by messaging apps. The technology can protect free speech, improve the safety of political dissidents and prevent censorship by both governments and tech platforms. However, it also can make detecting crime more difficult, exacerbating the harm caused to victims.

WhatsApp’s spokesperson tells me that it stands behind strong end-to-end encryption that protects conversations with loved ones, doctors and more. They said there are plenty of good reasons for end-to-end encryption and it will continue to support it. Changing that in any way, even to aid catching those that exploit children, would require a significant change to the privacy guarantees it’s given users. They suggested that on-device scanning for illegal content would have to be implemented by phone makers to prevent its spread without hampering encryption.

But for now, WhatsApp needs more human moderators willing to use proactive and unscalable manual investigation to address its child pornography problem. With Facebook earning billions in profit per quarter and staffing up its own moderation ranks, there’s no reason WhatsApp’s supposed autonomy should prevent it from applying adequate resources to the issue. WhatsApp sought to grow through big public groups, but failed to implement the necessary precautions to ensure they didn’t become havens for child exploitation. Tech companies like WhatsApp need to stop assuming cheap and efficient technological solutions are sufficient. If they want to make money off huge user bases, they must be willing to pay to protect and police them.