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Drew Houston on wooing Dropbox’s IPO investors: ‘We don’t fit neatly into any one mold’
Dropbox went public this morning to great fanfare, with the stock shooting up more than 40% in the initial moments of trading as the enterprise-slash-consumer company looked to convince investors that it could be a viable publicly-traded company.
And for one that Steve Jobs famously called a feature, and not a company, it certainly was an uphill battle to convince the world that it was worth even the $10 billion its last private financing round set. It’s now worth more than that, but that follows a long series of events, including an increased focus on enterprise customers and finding ways to make its business more efficient — like installing their own infrastructure. Dropbox CEO Drew Houston acknowledged a lot of this, as well as the fact that it’s going to continue to face the challenge of ensuring that its users and enterprises will trust Dropbox with some of their most sensitive files.
We spoke with Houston on the day of the IPO to talk a little bit about what it took to get here during the road show and even prior. Here’s a lightly-edited transcript of the conversation:
TC: In light of the problems that Facebook has had surrounding user data and user trust, how has that changed how you think about security and privacy as a priority?
DH: Our business is built on our customers’ trust. Whether we’re private or public, that’s super important to us. I think, to our customers, whether we’re private or public doesn’t change their view. I wouldn’t say that our philosophy changes as we get to bigger and bigger scale. As you can imagine we make big investments here. We have an awesome security team, our first cultural principle is be worthy of trust. This is existential for us.
TC: How’s the vibe now that longtime employees are going to have an opportunity to get rewarded for their work now that you’re a public company?
DH: I think everyone’s just really excited. This is the culmination of a lot of hard work by a lot of people. We’re really proud of the business we’ve built. I mean, building a great company or doing anything important takes time.
TC: Was there something that changed that convinced you to go public after more than a decade of going private, and how do you feel about the pop?
DH: We felt that we were ready. Our business was in great shape. We had a good balance of scale and profitability and growth. As a private company, there are a lot of reasons why it’s been easier to stay private for longer. We’re all proud of the business we’ve built. We see the numbers. We think we’re on to not just a great business, but pioneering a whole new model. We’re taking the best of our consumer roots, combining them with the best parts of software as a service, and it was really gratifying to see investors be excited about it and for the rest of the world to catch on.
TC: As you were on your road show, what were some of the big questions investors were asking?
DH: We don’t fit neatly into any one mold. We’re not a consumer company, and we’re not a traditional enterprise company. We’re basically taking that consumer internet playbook and applying it to business software, combining the virality and scale. Over the last couple years, as we’ve been building that engine, investors are starting to understand that we don’t fit into a traditional mold. The numbers speak to themselves, they can appreciate the unusual combination.
TC: What did you tell them to convince them?
DH: We’re just able to get adoption. Just the fact that we have hundreds of millions of users and we’ve found Dropbox is adopted in millions of companies [was enough evidence]. More than 300,000 of those users are Dropbox Business companies. We spend about half on sales of marketing as a percentage of revenue of a typical software as a service company. Efficiency and scale are the distinctive elements, and investors zero in on that. To be able to acquire customers at that scale and also really efficiently, that’s what makes us stand out. They’ve seen Atlassian be successful with self-serve products, but you can layer on top of that leveraging our freemium and viral elements and our focus on design and building great products.
TC: How do you think about deploying the capital you’ve picked up from the IPO?
DH: So, we’re public because they wanted us to be a public company. But our approach is still the same. First, it’s about getting the best talent in the building and making sure we build the best products, and if you do those things, make sure customers are happy, that’s what works.
TC: What about recruiting?
DH: It’s a big day for dropbox. We’re all really excited about it and hopefully a lot of other people are too.
TC: When you look at your customer acquisition ramp, what does that look like?
DH: I mean, we’ve been making a lot of progress in the past couple of years if you look at growth in subscribers. That will continue. We look at numbers, we have 11 million subscribers, 80% use dropbox for work. But at the same time, we look at the world, there’s 1 billion knowledge workers and growing. We’re not gonna run out of people who need Dropbox.
TC: What about convincing investors about the consumer part of the business? How did you do that?
DH: I think, when you explain that our consumer and cloud storage roots have really become a way for us to efficiently acquire business customers at scale, that helps them understand. Second, it’s easy to focus on how in the consumer realm that the business has been commoditized. There’s all this free space and all this competition. On the other hand, we’ve never lowered prices, we’ve never even given more free space, we know that what our customers really value is the sharing and collaboration, not just the storage. It’s been good to move investors beyond the 2010 understanding of our business.
TC: How did creating your own infrastructure play into your readiness to go public?
DH: When I say that today is the culmination of a lot of events, that’s a great example. We made a many-year investment to migrate off the public cloud. Certainly that was one of the more eye-popping investors watching our gross margins literally double over the last couple of years from burning cash to being cash flow positive. We’ll continue reaching larger and larger scale, and those investments will.
TC: Getting a new guitar any time soon?
DH: I probably should.
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Dropbox CEO Drew Houston emphasizes user trust on IPO day amid Facebook’s troubles
Dropbox made its public debut today, with the stock soaring nearly 40% on its first day of trading — meaning the company will now be beholden to the same shareholders that sent the company’s valuation well north of $10 billion.
As a file-sharing and collaboration service, Dropbox’s first principle is going to be user trust, CEO Drew Houston told TechCrunch after the company made its debut. This comes amid a tidal wave of information throughout the week indicating that data on 50 million Facebook users ended up in the hands of Cambridge Analytica several years ago through access gained via an app that was on the Facebook platform. While not a direct breach in the core sense of the word, the leaked data was a considerable breach of trust among Facebook’s users — and as Dropbox looks to crack into the enterprise and also continue to win over consumers, it’ll likely continue to have to increasingly emphasize security and privacy going forward.
“Our business is built on our customers’ trust,” Houston said, asked of its security. “Whether we’re private or public, that’s super important to us. I think, to our customers, whether we’re private or public doesn’t change their view. I wouldn’t say that our philosophy changes as we get to bigger and bigger scale. As you can imagine we make big investments here. We have an awesome security team, our first cultural principle is be worthy of trust. This is existential for us.”
Houston, and Dropbox, aren’t unfamiliar with some of the challenges that come into securing a service that has more than 500 million registered users. Dropbox in 2016 disclosed that it discovered a chunk of user credentials obtained in 2012 had been circulating on the Internet after an employee’s password was acquired and used to access user information. Dropbox, clearly, has recovered from that stumble and has pulled off a successful IPO, but it does underscore the challenges of not only maintaining security, but also user trust and political capital to actually get the business going.
In the end, that may come down to the trust of individual users. A large portion of Dropbox’s 11 million paying customers are, or started off as, the typical consumer. Dropbox’s playbook is a familiar one, first getting consumer adoption and using that to slowly creep into teams that use the tool because it’s easier than existing ones. Those teams adopt it, leading to further adoption, to the point that Dropbox in theory locks in a customer without having to pick up those direct partnerships or spend a ton of money on marketing. Should it stumble at step one, it would have a much steeper ramp to start acquiring the kind of enterprise companies that will help it build a much more robust business.
“We have this set of stated values in the company, and the number one value is literally, be worthy of trust,” Dropbox SVP of engineering, product, and design Quentin Clark said. I have observed and experienced that the protection of our users is very deeply woven in to the DNA of our company. This is why we encrypt the data at rest, in transit, and it’s why our user experience is designed to keep people down the path of keeping things secure by default. You see it in the tools we give admins and the events they look through. We’re very deeply committed to their privacy and security. We’ve never sold data, it’s not in our business model, it’s about the value people get in software.”
While Dropbox at its heart was born as a consumer company — and there are, indeed, hundreds of millions of consumers — it’s also morphed over time into one with an arm looking to crack big businesses. And now that it’s a public company, it will have more intense oversight from public investors who will be scrutinizing its every move and calibrating its valuation as a result of those moves. Dropbox, too, is moving onto its own infrastructure in order to improve its margins and show it can be an operationally efficient business. All this means that, if it’s going to be a successful company, it has to ensure the kinds of snafus like Cambridge Analytica, which sent Facebook’s stock off a cliff, don’t happen.
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Dropbox finishes up 36% on first day of trading
Dropbox was off to the races on its first day as a public company.
It’s surely a sign of public investor enthusiasm for the cloud storage business, which had initially hoped to price its IPO between $16 and $18, then raised it from $18 to $20.
It also means that Dropbox closed well above the $10 billion it was valued at its last private round. Its market cap is now above $12 billion, fully diluted.
Dropbox brought in $1.1 billion in revenue for the last year. This compares to $845 million in revenue the year before and $604 million for 2015.
While it’s been cash flow positive since 2016, it is not yet profitable, having lost nearly $112 million last year. But it has significantly improved margins when compared to losses of $210 million for 2016 and $326 million for 2015.
Its average revenue per paying user is $111.91.
There has been a debate about whether to value Dropbox, which has a freemium model, as a consumer company or an enterprise business. It has convinced just 11 million of its 500 million registered customers to pay for its services.
Dropbox “combines the scale and virality of a consumer company with the recurring revenue of a software company,” said Bryan Schreier, a partner at Sequoia Capital and board member at the company. He said that now was the time for Dropbox to list because “the business had reached a level of scale and also cash flow that warranted a public debut.”
He also talked about the early days of Dropbox pitching at a TechCrunch event in 2008 and how disappointed they were that the slides stopped working during the presentation. We have footage of that here.
Sequoia Capital owned 23.2 percent of the overall shares outstanding at the time of the IPO. They shared Dropbox’s original seed pitch from 2007.
Accel was the next largest shareholder, owning 5 percent overall. Sameer Gandhi made the investment at Sequoia and then invested in Dropbox again when he went over to Accel.
Founder and CEO Drew Houston owned 25.3 percent of the company.
Greylock Partners also had a small stake. John Lilly, a general partner there, said he “invested in Dropbox because Drew and the team had an exceptionally clear vision of what the future of work would look like and built a product that would meet the demands of the modern workforce.”
But there are quite a few other businesses with similar products to Dropbox. The prospectus warned of the competitive landscape.
“The market for content collaboration platforms is competitive and rapidly changing. Certain features of our platform compete in the cloud storage market with products offered by Amazon, Apple, Google, and Microsoft, and in the content collaboration market with products offered by Atlassian, Google, and Microsoft. We compete with Box on a more limited basis in the cloud storage market for deployments by large enterprises.”
Note that it downplayed its competition with Box, a company that’s often mentioned in the same sentence as Dropbox. While the products are similar, the two have different business models and Dropbox was hoping that this would be respected with a better revenue multiple. If the first day is any indication, it looks like that strategy worked.
The company listed on the Nasdaq, under the ticker “DBX.”
We talked about Dropbox’s first day and the outlook for upcoming public debuts like Spotify on our “Equity” podcast episode below. We were joined by Eric Kim, managing partner at Goodwater Capital. He authored a research report here.
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Y Combinator’s Jessica Livingston on Dropbox IPO: ‘It was just a dream of ours’
Dropbox, after more than a decade, finally went public this morning — and the stock soared more than 40% in its initial trading, making it a marquee success for one of the original Web 2.0 companies (at least for now).
While we still have to wait for the dust to settle, it’s been a very long road for Dropbox. From starting off as a file-sharing service, to hitting a $10 billion valuation in the middle of a massive hype cycle, to expectations dropping and then the announcement of a $1 billion revenue run rate. Dropbox has been a rollercoaster, but it’s another big moment this afternoon: it’s Y Combinator’s first big IPO. And Y Combinator still has a very deep bench of startups that are, thus far, obvious IPO candidates down the line like Airbnb and Stripe.
That isn’t to take away anything from the work of CEO Drew Houston and the rest of Dropbox’s team, but Y Combinator’s job is to basically take a bunch of shots in the dark based on good ideas and potentially savvy founders. Houston was one of the first of a firm that now takes in a hundred-odd founders per class. Y Combinator Founder and partner Jessica Livingston was there for the start of it, recalling back to the day that Houston rushed to her and Paul Graham to show him his little side project.
We caught up with Livingston this morning ahead of the IPO for a short interview. Here’s the conversation, which was lightly edited for clarity:
TC: Can you tell us a little bit about what it’s like to finally see the first Y Combinator company to go public?
JL: I feel like 13 years ago, it was just this dream of ours. It was this seemingly unattainable dream that goes, ‘maybe one of the startups we fund could go public someday.’ That was the holy grail. It’s an exciting day for Y Combinator. It shows what a long game investing is in early-stage startups. I do feel kind of validated.
TC: How did Y Combinator first end up in touch with Houston?
JL: He applied as a solo founder. We had met Drew the summer before. Back then, we were so small that we always encouraged people to bring friends to a Y Combinator dinner. [Xobni founder Adam Smith] brought [Houston], and we met him then and talked it through. When he applied, we invited him to come to an interview, and Paul [Graham] before the interview reached out to [Houston]. He said, “I see you’re a solo founder, and you should find a cofounder.” Three weeks later Drew showed up with [co-founder Arash Ferdowsi]. It was a great match that worked well.
TC: As Dropbox has grown, what’s stood out to you the most during changes in the market?
JL: They’re a classic example of founders who are programmers who built something to solve their own problem. Clearly, this is a perfect example of that. Drew gets on the bus, he forgets his files, and he can’t work on the whole trip down. He then creates something that will allow him to access files from everywhere. At the time, when he came on the scene with that, there were a lot of companies doing it but none were very good. I feel like Dropbox, regardless of market dynamics, from the very beginning was always dedicated to wanting to do well by building a better solution. They wanted to build one that actually works. I feel like they’ve stuck to that and that’s been driving them since. That’s been their guidepost.
TC: What was your first meeting with Houston like, and do you think he has changed in the past 10 years?
JL: When I first met him, he was young — he was very young — and he was always a good hacker, and very earnest. During Y Combinator he was very focused on building this product and was not distracted by other things. That’s when there were just two people. He’s really evolved over the years as an incredible leader. He’s grown this company and he’s navigated through all different parts of his life cycle. I’ve witnessed his growth as a leader and as a human being. He’s always been a great person. It’s sort of exciting to see where he is now that he’s come a long way, it’s really cool.
TC: Houston and Ferdowsi still own significant portions of the company even after raising a lot of venture capital. Do you think Y Combinator had any effect on companies looking for more founder friendly deals?
JL: I think when Y Combinator started, our goal in many ways was to empower founders. It was to level the playing field. You don’t have to have a connection in Silicon Valley to get funding. You just have to apply on our website. You don’t have to have gone to an Ivy League school. We [try to tell them], don’t let investors take advantage of you because you’re young and have never done this before. In general, times have changed over the past 15 years. Hopefully Y Combinator played a small role in some of those changes in making things a little more found friendly.
TC: What’s one of your favorite stories about Houston?
JL: He was always very calm, cool, and collected under pressure. I remember that was definitely a quality about him. His feathers didn’t get ruffled easily. One of the things I remember most clearly is from that summer when we had demo day. Back then it was, like, 40 people tops. Still, there was a lot of pressure. I remember Paul [Graham] came up with this idea that, ‘hey, Drew, during your demo day you should show people how well Dropbox actually works by deleting your presentation live and restoring it through Dropbox.’ That’s kind of risky, right? To delete your presentation. You’re just standing up there without anything. And he did it and he nailed the presentation. It sounds a little gimmicky, but it really worked and showed his product worked. I remember thinking, like, wow, he’s pretty calm. If it were me I don’t think I could hit the delete button in front of these people. That’s an important quality in someone, not to get flustered.
By the way, we funded them in 2007. If you asked me in 2008 how were they doing, I would say, well, they’re making progress. But it wasn’t like we funded them and we could say, ‘this is gonna be a great one.’ We just knew, yeah they’re making progress, but it’s always hard to know there.
TC: Back then, what were you just expecting? M&A? Did you even anticipate an IPO?
JL: As we were formulating the idea, the hope was rather than going to work at Microsoft — I use them as an example because that was the company back then — and rather than going to get a job out of college, why not build a company and make Microsoft acquire you to get you to work for them? We had low expectations back then. We were hoping there’d be some small acquisitions. But yes, the hope was always acquisitions, but maybe someday in our wildest dreams there’d be an IPO. We didn’t even think YC would work when we started, people didn’t believe in YC’s models for many years.
TC: Looking back, what would you say is one of the biggest things you’ve learned throughout this experience?
JL: What a long road it is for startups. When we started YC back then, it wasn’t a popular thing to do a startup. Now, thank goodness, more people are starting them, and more types of people are starting them. It’s not just super high-tech companies. That’s exciting, but what I think a lot of people don’t realize is how hard startups are. You say, yeah, I know how hard, but people don’t realize how difficult they are and how long the commitment is. If you’re successful, it takes such a long time. For [someone like Houston] to make it to that point, they’ve committed a lot of their life and energy and all their intellectual capacity to making this work. To me, that’s so exciting, but I think it would surprise people to know realistically how long that could take.
TC: What would you tell startups with the hindsight of what happened with Dropbox’s valuation hype cycle?
JL: I will say, with startups, sometimes you just have to stick to what you’re doing. There’s a lot of stuff going on around you, especially now with social media and things like that. With a startup, you just have to keep moving forward with building a company and building a great product.
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Dropbox prices above its original range at $21 as it heads toward an IPO
Dropbox today said it is pricing above the range it originally set ahead of its public listing tomorrow, handing the company a valuation inching ever-closer to its original $10 billion valuation.
Dropbox earlier this week said it would price its initial public offering in a range between $18 and $20 per share, settling on a valuation near $8 billion at the high end of the range (or closer to $8.75 billion, based on its fully-diluted share count). With the new pricing, Dropbox will be valuing itself at around $8.4 billion — or a hair above $9 billion based on its fully-diluted share count. That $18 to $20 range, too, was a step up from its original proposed range, which fell between $16 and $18. Dropbox will be raising more than $700 million in the IPO, in addition to existing shareholders selling more than 9 million shares as part of the process.
What all this means is that Dropbox initially tested the waters to gauge interest, and clearly there was a lot. Companies sometimes set conservative price ranges (though this isn’t always the case) and then revise upwards as they see how much interest there is in potential investors buying shares at that price. Dropbox will make its public debut tomorrow, and the usual process here aims to get as much value for the company as possible while still ensuring the so-called IPO “pop” — usually a jump of around 20%. We’ll probably get the formal price in the form of an SEC filing this evening as it gets ready to list tomorrow.
Should that be successful, Dropbox would fall above the valuation of its last financing round, which gave the company a $10 billion valuation amid a hype wave of consumer startups. Dropbox, one of the original pioneers of online storage, in recent years has found itself looking to slowly scoop up more and more enterprise customers as it tries to create a second lucrative line of business. The company deploys a classic playbook of attracting initial customers within teams and then growing up to the point it reaches the C-Suite of companies, though the reverse is certainly possible as Dropbox matures over time.
CNBC first reported the news.
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Ansarada gets $18M in Series A funding to help companies better prepare for major deals
Australian startup Ansarada, which provides tools for companies preparing for a major transaction, will expand in the United States, Europe, the Middle East and Africa after raising an $18 million Series A. The funding was led by Ellerston Capital, with participation from Tempus Partners, Belay Capital and Australian Ethical Investments. A noteworthy detail about the raise is that all advisory fees from the deal will be donated to Ugandan and Nepalese charities through Ansarada’s partnership with Adara Partners, a corporate advisory firm made up of financial services experts who donate their fees to help women and children living in poverty.
Ansarada provides data rooms, or secure virtual spaces that enable companies about to undergo a complex event or transaction, like a merger or fundraising, gather all relevant data and files in one place. This allows the process of performing due diligence, legal compliance, writing contracts and other tasks to go more smoothly and also lets companies track who accesses which documents. Ansarada’s clients have included some of the biggest names in tech and financial services, including Google, VMWare, Sony, Microsoft, Deloitte, PwC and KPMG. The Sydney-based company, which claims up to 80% of deals in Australia happen through its platform, will use its new funding for sales and marketing in its target countries, especially the United States, and on product development.
Other virtual data room providers include Firmex, Intralinks and Merrill Corporation, but Ansarada chief executive officer Sam Riley says one of its competitive advantages is its recently launched Material Information Platform (MIP), which serves as a complement to its data rooms. MIP uses machine learning and natural language processing algorithms trained with a dataset gathered from more than 20,000 transactions to give companies information that can potentially reduce deal risks and improve their ongoing business operations. These include an algorithm that Riley says is “up to 97% accurate by day 21 into an M&A deal at benchmarking a bidder’s behavior, scoring their engagement levels and predicting their likelihood to submit an offer and win.” It also scores the completeness of material information and tracks if risk and compliance requirements are being met.
“We’ve seen thousands of companies find out their biggest risks and opportunities too late in their life cycle, which prevents them from performing better pre-deal and ultimately getting less-than-ideal outcomes when they sell or raise capital,” Riley told TechCrunch in an email. He added “We define readiness as being able to express the value of your company very well and very fast, especially to an investor, advisor, auditor or any party that’s critical to success in your company’s most important events. Companies get control and visibility over their most important information and ensure improvement by scorecarding and assigning accountability to their management teams.”
As one would expect, Ansarada used its own products while raising its Series A.
“We eat our own ice cream, so even using the product for our own capital raise resulted in less time by our management team to prepare for the deal and more time spent executing our strategy,” said Riley. “We are now using the platform to give our board an objective score over how well our vital information and key risks are being managed. Simultaneously we are now ready for the next event on our calendar, which is likely to be a financial audit.”
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Dropbox boosts its price range for its IPO as it nears an $8B valuation
Dropbox said it would be increasing its IPO price range – the range for which it will sell its shares for its initial public offering — from $16-$18 per share to $18-$20 per share, giving the company a valuation that could reach close to $8 billion, according to an updated filing with the Securities and Exchange Commission.
Including all shares offered from stockholders selling in this offering, the “greenshoe” and the actual IPO, Dropbox will have a valuation between $7.2 billion and $7.96 billion. Based on a fully-diluted share count, Dropbox’s valuation should land between $7.8 billion to $8.75 billion. It’s below Dropbox’s previous $10 billion valuation, but it’s still a signal that investors are interested in buying up Dropbox’s IPO, which will be the most well-known enterprise name to go public this year. Cloud security company Zscaler went public earlier this month and immediately saw a massive pop, but Dropbox will probably be lumped into a similar boat as Snap as a signal to whether investors are going to be interested in hyped startups.
There will indeed be some shareholders selling stock in this offering, though it looks like for the most part the ownership is going to stay the same. There are a lot of reasons to sell a stock beyond just getting liquidation, such as paying taxes for other share options and exercises, so it’s not clear exactly what the motivations are for some employees for now.
Dropbox has more than 500 million users, 11 million of which are paying users. While originally born as a consumer service, the company has sought to crack into the enterprise in order to help build a robust second line of business to tack alongside its typical consumer operations. Dropbox at the start had the benefit of spreading via word of mouth thanks to its dead-simple interface, but since then has started building out new tools geared toward larger businesses, such as Dropbox Paper.
It’s also what’s made this IPO a somewhat tricky one. The process for this is normally the same, with the company setting a price range and then throwing it out there to see who bites. If things go well, the range goes up. If things go poorly, like the case of Blue Apron, the range is going to drop. This could always change at the last minute, but you can take this as another step toward its eventual listing, which is expected to happen later this week.
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Travis Kalanick is already back running a company with a $150M investment
Travis Kalanick, the former Uber CEO who was shown the door in June last year amid a series of major controversies, has already found his next leading role following his announcement of a new investment fund just weeks ago.
Kalanick said on Twitter that his fund would be investing $150 million to take a controlling interest in City Storage Systems, or CSS. He will also be running the company as CEO, according to Recode. It’s a holding company focused on redevelopment of distressed real estate. Kalanick resigned from Uber after facing a lawsuit with Waymo over trade secrets, an ongoing battle with existing shareholders Benchmark Capital, and the fallout from a harassment probe led by former attorney general Eric Holder. Uber brought on new CEO Dara Kosrowshahi in August last year.
Travis announced that he would be starting a new fund with his windfall from Uber shares sold in its most recent major secondary round. At the time, Kalanick said the new fund — called 10100, or “ten one hundred” — would be geared toward “large-scale job creation,” with investments in real estate, ecommerce, and “emerging innovation in India and China.” CSS has two businesses, CloudKitchens and CloudRetail, which focus on redevelopment of distressed assets in those two areas.
My new gig… pic.twitter.com/vpD528cdyf
— travis kalanick (@travisk) March 20, 2018
The former is pretty interesting given that Uber has its own food delivery service, UberEats. Should Kalanick’s new venture find ways to acquire distressed food-related real estate — kitchens around a city, for example — there may be a natural overlap with his experience at Uber as it started to explore food. Having massive operating kitchens located in one area with a delivery fleet associated with it is one thing, but having an array of smaller kitchens redeveloped through a company like CSS could provide a kind of distributed network that might make it easier to get food from one kitchen to its delivery in a shorter period of time.
It’s not that we know CSS is focusing on that explicitly, but Amazon also bought a bunch of buildings for $13.7 billion, and now it has a two-hour delivery service in major metropolitan areas. Of course, Travis was shown the door at Uber, so it remains to be seen how this one is going to play out. The Information notes that CSS was owned by a friend of Kalanick’s as well as having a loose connection with Uber.
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Mythic nets $40M to create a new breed of efficient AI-focused hardware
Another huge financing round is coming in for an AI company today, this time for a startup called Mythic getting a fresh $40 million as it appears massive deals are closing left and right in the sector.
Mythic particularly focuses on the inference side of AI operations — basically making the calculation on the spot for something based off an extensively trained model. The chips are designed to be low power, small, and achieve the same kind of performance you’d expect from a GPU in terms of the lightning-fast operations that algorithms need to perform to figure out whether or not that thing your car is about to run into is a cat or just some text on the road. SoftBank Ventures led this most-recent round of funding, with a strategic investment also coming from Lockheed Martin Ventures. ARM executive Rene Haas will also be joining the company’s board of directors.
“The key to getting really high performance and really good energy efficiency is to keep everything on the chip,” Henry said. “The minute you have to go outside the chip to memory, you lose all performance and energy. It just goes out the window. Knowing that, we found that you can actually leverage flash memory in a very special way. The limit there is, it’s for inference only, but we’re only going after the inference market — it’s gonna be huge. On top of that, the challenge is getting the processors and memory as close together as possible so you don’t have to move around the data on the chip.”
Mythic, like other startups, is looking to ease the back-and-forth trips to memory on the processors in order to speed things up and lower the power consumption, and CEO Michael Henry says the company has figured out how to essentially do the operations — based in a field of mathematics called linear algebra — on flash memory itself.
Mythic’s approach is designed to be what Henry calls more analog. To visualize how it might work, imagine a set-up in Minecraft, with a number of different strings of blocks leading to an end gate. If you flipped a switch to turn 50 of those strings on with some unit value, leaving the rest off, and joined them at the end and saw the combined final result of the power, you would have completed something similar to an addition operation leading to a sum of 50 units. Mythic’s chips are designed to do something not so dissimilar, finding ways to complete those kinds of analog operations for addition and multiplication in order to handle the computational requirements for an inference operation. The end result, Henry says, consumes less power and dissipates less heat while still getting just enough accuracy to get the right solution (more technically: the calculations are 8-bit results).
After that, the challenge is sticking a layer on top of that to make it look and behave like a normal chip to a developer. The goal is to, like other players in the AI hardware space, just plug into frameworks like TensorFlow. Those frameworks abstract out all the complicated tooling and tuning required for such a specific piece of hardware and make it very approachable and easy for developers to start building machine learning projects. Andrew Feldman, CEO of another AI hardware startup called Cerebras Systems, said at the Goldman Sachs Technology and Internet conference last month that frameworks like TensorFlow had most of the value Nvidia had building up an ecosystem for developers on its own system.
Henry, too, is a big TensorFlow fan. And for good reason: it’s because of frameworks like TensorFlow that allow next-generation chip ideas to even get off the ground in the first place. These kinds of frameworks, which have become increasingly popular with developers, have abstracted out the complexity of working with specific low-level hardware like a field programmable gate array (FPGA) or a GPU. That’s made building machine learning-based operations much easier for developers and led to an explosion of activity when it comes to machine learning, whether it’s speech or image recognition among a number of other use cases.
“Things like TensorFlow make our lives so much easier,” Henry said. “Once you have a neural network described on TensorFlow, it’s on us to take that and translate that onto our chip. We can abstract that difficulty by having an automatic compiler.”
While many of these companies are talking about getting massive performance gains over a GPU — and, to be sure, Henry hopes that’ll be the case — the near term goal for Mythic is to match the performance of a $1,000 GPU while showing it can take up less space and consume less power. There’s a market for the card that customers can hot swap in right away. Henry says the company is focused on using a PCI-E interface, a very common plug-and-play system, and that’s it.
The challenge for Mythic, however, is going to get into the actual design of some of the hardware that comes out. It’s one thing to sell a bunch of cards that companies can stick into their existing hardware, but it’s another to get embedded into the actual pieces of hardware themselves — which is what’s going to need to happen if it wants to be a true workhorse for devices on the edge, like security cameras or things handling speech recognition. That makes the buying cycle a little more difficult, but at the same time, there will be billions of devices out there that need advanced hardware to power their inference operations.
“If we can sell a PCI card, you buy it and drop it in right away, but those are usually for low-volume, high-selling price products,” Henry said. “The other customers we serve design you into the hardware products. That’s a longer cycle, that can take upwards of a year. For that, typically the volumes are much higher. The nice thing is that you’re really really sticky. If they design you into a product you’re really sticky. We can go after both, we can go after board sales, and then go after design.”
There are probably going to be two big walls to Mythic, much less any of the other players out there. The first is that none of these companies have shipped a product. While Mythic, or other companies, might have a proof-of-concept chip that can drop on the table, getting a production-ready piece of next-generation silicon is a dramatic undertaking. Then there’s the process of not only getting people to buy the hardware, but actually convincing them that they’ll have the systems in place to ensure that developers will build on that hardware. Mythic says it plans to have a sample for customers by the end of the year, with a production product by 2019.
That also explains why Mythic, along with those other startups, are able to raise enormous rounds of money — which means there’s going to be a lot of competition amongst all of them. Here’s a quick list of what fundraising has happened so far: SambaNova Systems raised $56 million last week; Graphcore raised $50 million in November last year; Cerebras Systems’s first round was $25 million in December 2016; and this isn’t even counting an increasing amount of activity happening among companies in China. There’s still definitely a segment of investors that consider the space way too hot (and there is, indeed, a ton of funding) or potentially unnecessary if you don’t need the bleeding edge efficiency or power of these products.
And there are, of course, the elephants in the room in the form of Nvidia and to a lesser extent Intel. The latter is betting big on FPGA and other products, while Nvidia has snapped up most of the market thanks to GPUs being much more efficient at the kind of math needed for AI. The play for all these startups is they can be faster, more efficient, or in the case of Mythic, cheaper than all those other options. It remains to be seen whether they’ll unseat Nvidia, but nonetheless there’s an enormous amount of funding flowing in.
“The question is, is someone going to be able to beat Nvidia when they have the valuation and cash reserves,” Henry said. “But the thing, is we’re in a different market. We’re going after the edge, we’re going after things embedded inside phones and cars and drones and robotics, for applications like AR and VR, and it’s just really a different market. When investors analyze us they have to think of us differently. They don’t think, is this the one that wins Nvidia, they think, are one or more of these powder keg markets explode. It’s a different conversation for us because we’re an edge company.”
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Qualcomm’s former exec chair will exit after exploring an acquisition bid
There’s a new twist in the BroadQualm saga this afternoon as Qualcomm has said it won’t renominate Paul Jacobs, the former executive chairman of the company, after he notified the board that he decided to explore the possibility of making a proposal to acquire Qualcomm.
The last time we saw such a huge exploration to acquire a company was circa 2013, when Dell initiated a leveraged buyout to take the company private in a deal worth $24.4 billion. This would be of a dramatically larger scale, and there’s a report by the Financial Times that Jacobs approached Softbank as a potential partner in the buyout. Jacobs is the son of Irwin Jacobs, who founded Qualcomm, and rose to run the company as CEO from 2005 to 2014. Successfully completing a buyout of this scale would, as a result, end up keeping the company that his father founded in 1985 in the family.
“I am glad the board is willing to evaluate such a proposal, consistent with its fiduciary duties to shareholders,” Jacobs said in a statement. “It is unfortunate and disappointing they are attempting to remove me from the board at this time.”
All this comes following Broadcom’s decision to drop its plans to try to complete a hostile takeover of Qualcomm, which would consolidate two of the largest semiconductor companies in the world into a single unit. Qualcomm said the board of directors would instead consist of just 10 members.
“Following the withdrawal of Broadcom’s takeover proposal, Qualcomm is focused on executing its business plan and maximizing value for shareholders as an independent company,” the company said in a statement. “There can be no assurance that Dr. Jacobs can or will make a proposal, but, if he does, the Board will of course evaluate it consistent with its fiduciary duties to shareholders.”
Broadcom dropped its attempts after the Trump administration decided to block the deal altogether. The BroadQualm deal fell into purgatory following an investigation by the Committee on Foreign Investment in the United States, or CFIUS, and then eventually led to the administration putting a stop to the deal — and potentially any of that scale — while Broadcom was still based in Singapore. Broadcom had intended to move to the United States, but the timing was such that Qualcomm would end up avoiding Broadcom’s attempts at a hostile takeover.
BroadQualm has been filled with a number of twists and turns, coming to a chaotic head this week with the end of the deal. Qualcomm removed Jacobs from his role as executive chairman and installed an independent director, and then delayed the shareholder meeting that would give Broadcom an opportunity to pick up the votes to take over control of part of Qualcomm’s board of directors. The administration then handed down its judgment, and Qualcomm pushed up its shareholder meeting as a result to ten days following the decision.
“There are real opportunities to accelerate Qualcomm’s innovation success and strengthen its position in the global marketplace,” Jacobs said in the statement. “These opportunities are challenging as a standalone public company, and there are clear merits to exploring a path to take the company private in order to maximize the company’s long-term performance, deliver superior value to all stockholders, and bolster a critical contributor to American technology.”
It’s not clear if Jacobs would be able to piece together the partnerships necessary to complete a buyout of this scale. But it’s easy to read between the lines of Qualcomm’s statement — which, as always, has to say it will fulfill its fiduciary duty to its shareholders. The former CEO and executive chairman has quietly been a curious figure to this whole process, and it looks like the BroadQualm saga is nowhere near done.
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