Fundings & Exits
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Give us your seed round and we will send back double
Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.
This week was full of news of all sorts, but as we recorded, both Danny and Natasha “not Tash” Mascarenhas were still locked out of their Twitter accounts after a proletariat revolution on the social platform saw the ruling Blue Checkmark Class forced into silence. That’s not really what happened, but it sounds better than what actually went down at Big Social.
Anyway, Twitter accounts or not, the three of us gathered to parse through a wave of news:
- The new TechCrunch List that Danny spent a very long time compiling has arrived! It’s live! You can find it here. It is good.
- And, if you want to know which VCs were even more fêted by founders, head here. (If you are irked that you did not make either list, please email Danny, not the show!)
- Moving on, Google is putting billions into Reliance Jio after every other company in the world did the same. Google is buying a bit less of the Indian telecom than the search giant, but between the two of them it’s been more than $10 billion in dealmaking. Perhaps Reliance Jio is done raising money? At last?
- Udemy is hunting up more capital at a higher valuation, reports say, providing Natasha with the perfect moment to let us know what is going with edtech.
- Turning to funding rounds, I was hyped about the Macro round that TechCrunch covered this week, Danny wanted to chat about The Browser Company’s similarly sized $5 million round and Natasha talked us through LiteBoxer’s combined $6 million in new capital.
- Closing, we talked about IPOs for a hot second. The IPO window is open, and now that nCino and GoHealth have gone public, we want to know who is next.
It was a lovely time and there is a bit of show news. Namely that Equity is coming back to YouTube either this week or the next. So if you want to see us talk, soon you will be able to! Again!
Oh, and follow the show on Twitter. If you can, that is.
Equity drops every Monday at 7:00 a.m. PT and Friday at 6:00 a.m. PT, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.
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In the cloud era, building on platforms you don’t own is normal
When Salesforce launched Force.com in 2007, it was the culmination of years of work to bring together a way to customize Salesforce and eventually to build applications on top of the platform. By using a set of Salesforce services, companies could take advantage of work that SFDC had already done, speeding up building time and reducing time to market. Today, the successor of Force.com is called Salesforce Platform.
But going that route didn’t come without some risk, because back in 2007 building atop a Platform as a Service (PaaS) wasn’t a common way of developing software. Even by 2012 when nCino launched its banking software solutions on Force.com, it likely raised some eyebrows by using a cloud platform as the backbone of its fintech offering.
Even though it probably took resolve, the approach worked, as evidenced this week when nCino went public — a debut that was met with a strong investor response. And nCino is notably not the first time that a company built atop Salesforce’s PaaS has gone public; nCino’s own IPO follows Veeva’s 2013 debut.
But astute observers for the Salesforce ecosystem will note that other successful companies have been built on the Salesforce cloud. As you will see, many successful companies have benefited from building on top of Salesforce.
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As VCs favor B2B startups, B2C upstarts’ venture activity falls
The Q2 2020 venture capital market did not bring a catastrophic slowdown to either the global private investment scene or the U.S.’s own VC scene. But inside the rosier-than-anticipated private capital results of the second quarter, there were pockets of weakness, and strength, that we should understand as we look to the rest of 2020 and the continuance of the pandemic-driven economy.
The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, and you can now receive it in your inbox. Sign up for The Exchange newsletter, which will drop Saturdays starting July 25.
This morning we’re exploring trends detailed in the PitchBook-NVCA Q2 venture report, adding to our coverage of similar data sets produced by competing venture and private business information sources CB Insights and Crunchbase.
The NVCA data provides a useful cross section of venture activity beyond the usual quarterly totals, allowing us to better understand the diverging fortunes of domestic venture investment into business-serving startups (which appear strong), and investments into consumer-serving startups (which appear weak).
It also provides a peek into AI/ML-focused investing, a topic that TechCrunch has covered extensively this year. And, finally, we have a lens into recent U.S. VC results for startups that have at least one female founder, or were founded by all-women teams.
Some of the news is positive, and some of it is less so. But we owe it to ourselves to understand all of it. So to wrap up our week’s dive into Q2 VC activity, let’s get into our final look at the data, focusing today on the nuances of the United States’s own venture results.
B2B’s rise continues
As 2019 came to a close, TechCrunch wrote about a notable trend: Seed investors shifted their attention from consumer-focused startups to business-focused startups. Seed deals had moved from majority-B2C to majority-B2B, in other words.
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Uber acquires Routematch as it drives deeper into public transit in hunt for SaaS revenue
Uber said Thursday it has acquired Routematch, an Atlanta-based company that provides software to transit agencies as the ride-hailing company looks to offer more SaaS-related services to cities.
Uber did not share terms of the deal. However, it doesn’t appear to be a minor “acqui-hire,” in which a company is purchased to land a few talented employees. Instead, Uber is making a strategic acquisition for a company that has developed software used by more than 500 transit agencies.
The operations of the 170-person company will continue and CEO Pepper Harward will remain.
The acquisition marks Uber’s push to become a Software-as-a-Service (SaaS) provider to public transit agencies. Routematch’s software provides trip planning, vehicle tracking, payment and tools for fixed route transit like buses as well as paratransit services. The 20-year-old company has a wide range of customers, including rural and suburban enclaves.
Last month, Uber locked in a deal to manage with a SaaS product an on-demand service for Marin County in the San Francisco Bay area. It was Uber’s first software partnership with a public transit agency.
Uber’s foray into SaaS has been years in the making, David Reich, head of Uber Transit, said in a recent interview.
“Uber knows that for cities to thrive, public transit has to thrive,” Reich said.
Uber has been developing services related to public transit since 2015, first with a planning feature and then ticketing, Reich noted. The public transit feature called Journey Planning is available in more than 15 cities around the world, including the Marin area since 2019. The company has also worked with Denver and Las Vegas. In 2018, Uber partnered with mobile ticketing platform Masabi to let people book and use transit tickets from within the Uber app.
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GoHealth’s shares dip after upsized IPO
On the heels of nCino’s blockbuster debut, GoHealth’s public offering proved a more sedate affair, at least when comparing the two companies’ initial trading days.
GoHealth priced above its anticipated IPO range, selling more shares than initially planned in the process. By vending 43.5 million shares at $21 apiece — $1 per share more than the top of its preceding $18 to $20 range, and four million shares more than its target of 39.5 million — the insurance technology company put more than $900 million onto its balance sheet this week.
The debut is a win for Chicago’s industry and tech scenes. GoHealth was worth a little less than $6.7 billion at its IPO price, not counting shares that may be sold to its underwriters, which would boost its valuation.
Despite its better-than-anticipated pricing, however, GoHealth shares sagged in afternoon trading, slipping to $19.00 per share, down 9.5% as of the time of writing. The declines stand in contrast to the recent debuts of nCino, Lemonade and others, which saw their shares instantly gain value after going public.
GoHealth’s CEO, however, stressed the long-term vision of his company in an interview with TechCrunch. Speaking with Clint Jones during GoHealth’s first trading day, the executive told TechCrunch that his company’s offering was oversubscribed, and had met its goal of accumulating long-term investors during its IPO process.
The company intends to hire with its new funds, including 1,000 more licensed insurance agents, the CEO said.
Asked whether the company has plans to acquire smaller companies with its IPO funds, Jones told TechCrunch that it could be “opportunistic” regarding buying tech platforms, or smaller teams with particular talent. For the many startups competing in other parts of the insurance marketplace world — TechCrunch has covered the space extensively, including a bevy of funding rounds for insurtech startups — a newly wealthy public company could provide an interesting exit opportunity.
The company’s strong IPO pricing, if somewhat slack first-day’s trading, feels akin to a wash for related, smaller firms watching its public offering with interest; how GoHealth trades moving forward could help set the tone for select insurtech startup valuations.
For today, however, we have yet another unicorn tech-ish offering all wrapped up. GoHealth’s path to the public market’s wasn’t as straightforward as some, but it got there all the same.
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As companies accelerate their digital transitions, employees detail a changed workplace
The U.S.’s COVID-19 caseload continues to set records as major states move to re-shutter their economies in hopes of stemming its spread. For many workers the situation means more time in the home office and less time in their traditional workplace. My colleague Greg Kumparak spent some time talking to companies about how best to work remotely. You can read that on Extra Crunch here.
What the world will look like when safety eventually returns is not clear, but it’s becoming plain that the workplace will not revert to its old normal. New data details changed employee sentiment, showing that a good portion of the working world doesn’t want to get back to its pre-COVID commute, and, in many cases, is eyeing a move to a different city or state in the wake of the pandemic and its economic disruptions.
The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, and now you can receive it in your inbox. Sign up for The Exchange newsletter, which will drop every Saturday starting July 25.
The changing workplace has shifted — accelerated, you could say — demand for all sorts of products and services, from grocery delivery to software. The latter category of tools has seen quickening demand as the world moves to support newly remote workforces, helping keep them both productive and secure.
TechCrunch has covered the accelerating digital transformation — industry slang for companies moving to a more software-and-cloud world — before, noting that investors are making big bets on companies that might benefit from its ramping pace. Thanks to new data from a Twilio-led survey, we have a fresh look at that trend.
Undergirding the digital transformation is how today’s workers are adapting to remote work. If many workers don’t want to stop working from home, the gains that companies serving the digital transformation are seeing could prove permanent. New data from a Qualtrics -led survey may help us understand the new mindset of the domestic and global worker.
At the union of the two datasets is a lens into the future of not only how many information workers, to borrow an old phrase, will labor in the future, but how they’ll feel about it. So, this morning let’s explore the world through two data-driven lenses, helped as we go with notes from interviews with Qualtrics’ CEO Ryan Smith and Twilio’s chief customer officer, Glenn Weinstein.
What workers want
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BigCommerce files to go public
As expected, BigCommerce has filed to go public. The Austin, Texas, based e-commerce company raised over $200 million while private. The company’s IPO filing lists a $100 million placeholder figure for its IPO raise, giving us directional indication that this IPO will be in the lower, and not upper, nine-figure range.
BigCommerce, similar to public market darling Shopify, provides e-commerce services to merchants. Given how enamored public investors are with its Canadian rival, the timing of BigCommerce’s debut is utterly unsurprising and is prima facie intelligent.
Of course, we’ll know more when it prices. Today, however, the timing appears fortuitous.
The numbers
BigCommerce is a SaaS business, meaning that it sells a digital service for a recurring payment. For more on how it derives revenue from customers, head here. For our purposes what matters is that public investors will classify it along with a very popular — today’s trading notwithstanding — market segment.
Starting with broad strokes, here’s how the company performed in 2019 compared to 2018, and Q1 2020 in contrast to Q1 2019:
- In 2019, BigCommerce’s revenue grew to $112.1 million, a gain of around 22% from its 2018 result of $91.9 million.
- In Q1 2020, BigCommerce’s revenue grew to $33.2 million, up around 30% from its Q1 2019 result of $25.6 million.
BigCommerce didn’t grow too quickly in 2019, but its Q1 2020 expansion pace is much better. BigCommerce will file an S-1/A with more information in Q2 2020, we expect; it can’t go public without sharing more about its recent financial performance.
If the company’s revenue growth acceleration continues in the most recent period — bearing in mind that e-commerce as a segment has proven attractive to many businesses during the COVID-19 pandemic — BigCommerce’s IPO timing would appear even more intelligent than it did at first blush. Investors love growth acceleration.
Moving from revenue growth to revenue quality, BigCommerce’s Q1 2020 gross margins came in at 77.5%, a solid SaaS result. In Q1 2019 its gross margin was 76.8%, a slightly worse figure. Still, improving gross margins are popular as they indicate that future cash flows will grow at a faster clip than revenues, all else held equal.
In 2018 BigCommerce lost $38.9 million on a GAAP basis. Its net loss expanded modestly to $42.6 million in 2020, a larger dollar figure in gross terms, but a slimmer percent of its yearly top line. You can read those results however you’d like. In Q1 2020, however, things got better, as the company’s GAAP net loss fell to $4 million from its year-ago Q1 result of $10.5 million.
The BigCommerce big commerce business is growing more slowly than I had anticipated, but its overall operational health is better than I expected.
A few other notes, before we tear deeper into its S-1 filing tomorrow morning. BigCommerce’s adjusted EBITDA, a metric that gives a distorted, partial view of a company’s profitability, improved along similar lines to its net income, falling from -$9.2 million in Q1 2019 to -$5.7 million in Q1 2020.
The company’s cash flow is, akin to its adjusted EBITDA, worse than its net loss figures would have you guess. BigCommerce’s operating activities consumed $10 million in Q1 2020, an improvement from its Q1 2019 operating cash burn of $11.1 million.
The company is further in debt than many SaaS companies, but not so far as to be a problem. BigCommerce’s long-term debt, net of its current portion, was just over $69 million at the end of Q1 2020. It’s not a nice figure, per se, but it is one small enough that a good IPO haul could sharply reduce while still providing good amounts of working capital for the business.
Investors listed in its IPO document include Revolution, General Catalyst, GGV Capital, and SoftBank.
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SaaS and cloud stocks finally give back ground
After a heated run, SaaS and cloud stocks dipped sharply during regular trading on Monday.
According to the category-tracking Bessemer cloud index, public SaaS and cloud stocks dropped around 6.5% today, a material blow to the value of some of the world’s most highly valued companies, measured by sector-averaged revenue multiples.
After recovering all their COVID-19-related losses earlier this year, SaaS and cloud stocks kept on rising, reaching new all-time highs with regularity. But earnings season is starting, meaning that the value of modern software and digital infrastructure companies will soon be tested against Q2 results — results that were recorded fully during the global pandemic.
To hear bulls — both private and public — tell the story, COVID-19 and its ensuing workplace disruptions have provided software companies with a huge boon. Namely, that customers current and future have radically changed their procurement models and will need more software solutions, more quickly, than they previously anticipated. (Stay tuned to The Exchange for more on this later in the week.)
The thought that there are more and better customers coming for SaaS and cloud companies made them relative safe havens in otherwise turbulent public markets; while other industries had uncertain demand curves, the thinking went, software companies were being pushed forward by an accelerating secular shift.
Today, however, the broader markets slipped from early-day positions of strength while SaaS and cloud shares dropped sharply. Prior patterns in investor behavior didn’t hold up, in other words.
Why today brought such sharp selling is not clear. No more, really, than reasons for prior days’ gains were clear at the time. Profit taking? Rotation to other sectors? Whatever you want to ascribe to the day’s declines you can make stick.
For our purposes here at TechCrunch, the dropping share prices of public software companies serves as an anti-signal for late-stage valuations in SaaS startups, and a general headwind toward venture investors making more early-stage bets in the sector. Of course, one day doesn’t change the game. But several days of sharp losses could begin to change sentiment, and days when shares of modern software companies drop by 6% are few and far between.
Earnings are next, but for many companies in the SaaS and cloud world, reporting their results just got easier. When expectations drop, everyone loses a bit of worry, right?
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Robinhood raises $320M more, bringing its latest round to $600M at an $8.6B valuation
The stakes keep getting higher for American discount brokerage Robinhood, which today disclosed that it has added hundreds of millions of dollars to its previously disclosed funding round.
Including the $280 million that the company had already announced, Robinhood said that it was “pleased to share” that it “raised an additional $320 million in subsequent closings.” Its now $600 million funding round brings its post-money valuation to $8.6 billion. Fortune first reported the news.
(A detail, but the new capital is part of the same round as it was raised at the same price. TechCrunch reported when the company’s $280 million round was announced, the fintech company was worth $8.3 billion. Another $300 million in capital at a flat share price means that the company’s valuation should have risen by only the dollar amount added. As it did.)
Robinhood’s new capital was as unsurprising as its first tranche of this megaround; the former startup is seeing demand for its product surge as investors of all sizes take part in the year’s huge equity volatility. Many investing-and-savings-focused fintech companies are enjoying a huge year, as consumers look to hoard and employ their cash.
Robinhood has had a good business year, even if some of its practices have come under fire. The company pledged to tighten up parts of its platform relating to more exotic trading after the suicide of one of its users, for example; a topic that TechCrunch discussed at length last week.
What is inescapable is that Robinhood is having one hell of a year. When it might go public isn’t clear, especially as the private company is having no problem raising capital without an IPO. But as its value continues to rise, it becomes an increasingly remote acquisition target.
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Second-quarter VC investing totals appear lackluster
The second quarter’s venture capital results are coming into focus.
The Exchange will have more notes on Q2’s venture results this week, but this morning we’re digging into our first dataset concerning what happened in the world of private capital from April through June.
Crunchbase News — a place I used to work, it feels fair to note — ran its usual dig through the quarter’s venture results, effectively coming up with two answers to the question of what happened in Q2 VC. As it turns out, a single company’s fundraising made the quarter’s results look far better than they really were. Once we strip out that firm’s nonventure funding rounds, a clearer picture emerges.
The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, and now you can receive it in your inbox. Sign up for The Exchange newsletter, which will drop every Saturday starting July 25.
If you discount Reliance Jio’s epic — and continuing — ability to attract billions of dollars, the private investment market was slack in the second quarter. Per Crunchbase News, including the Reliance Jio deals, “Crunchbase recorded $69.5 billion invested across all funding stages for the second quarter specifically. This is up 17% quarter-over-quarter and down 2% year-over-year.” (Crunchbase has moved away from making projections, notably, and now discloses reported data in its quarterly results).
A gain of about one-sixth from Q1 2020 results was probably not what you expected, given the quarter’s nearly comical turbulence. But, with Reliance Jio’s fundraising bacchanal stripped out, results are much worse.
Let’s talk about whether it’s fair to lean more on Reliance Jio-free data, and dig into what the data means for startups around the globe. We’ll also look at a few other megarounds from the period to see if there are any other distortive funding events lurking in the data.
The bad news
Final global Q2 data exclusive of Reliance Jio’s Q2 deals, per Crunchbase data, shows investment declines in the period of -9% compared to Q1 2020, and -23% compared to the year-ago quarter. While some of that will be due to reporting lag — the thing that projections were initially built to countermand — the dips are still stark.
Global Q2 VC does not look strong from this perspective.
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