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Vista acquires Gainsight for $1.1B, adding to its growing enterprise arsenal
Vista Equity Partners hasn’t been shy about scooping up enterprise companies over the years, and today it added to a growing portfolio with its purchase of Gainsight. The company’s software helps clients with customer success, meaning it helps create a positive customer experience when they interact with your brand, making them more likely to come back and recommend you to others. Sources pegged the price tag at $1.1 billion.
As you might expect, both parties are putting a happy face on the deal, talking about how they can work together to grow Gainsight further. Certainly, other companies like Ping Identity seem to have benefited from joining forces with Vista. Being part of a well-capitalized firm allowed them to make some strategic investments along the way to eventually going public last year.
Gainsight and Vista are certainly hoping for a similar outcome in this case. Monti Saroya, co-head of the Vista Flagship Fund and senior managing director at the firm, sees a company with a lot of potential that could expand and grow with help from Vista’s consulting arm, which helps portfolio companies with different aspects of their business like sales, marketing and operations.
“We are excited to partner with the Gainsight team in its next phase of growth, helping the company to expand the category it has created and deliver even more solutions that drive retention and growth to businesses across the globe,” Saroya said in a statement.
Gainsight CEO Nick Mehta likes the idea of being part of Vista’s portfolio of enterprise companies, many of whom are using his company’s products.
“We’ve known Vista for years, since 24 of their portfolio companies use Gainsight. We’ve seen Gainsight clients like JAMF and Ping Identity partner with Vista and then go public. We believe we are just getting started with customer success, so we wanted the right partner for the long term and we’re excited to work with Vista on the next phase of our journey,” Mehta told TechCrunch.
Brent Leary, principle analyst at CRM Essentials, who covers the sales and marketing space, says that it appears that Vista is piecing together a sales and marketing platform that it could flip or go public in a few years.
“It’s not only the power that’s in the platform, it’s also the money. And Vista seems to be piecing together an engagement platform based on the acquisitions of Gainsight, Pipedrive and even last year’s Acquia purchase. Vista isn’t afraid to spend big money, if they can make even bigger money in a couple years if they can make these pieces fit together,” Leary told TechCrunch.
While Gainsight exits as a unicorn, the deal might not have been the outcome it was looking for. The company raised more than $187 million, according to PitchBook data, though its fundraising had slowed in recent years. Gainsight raised $50 million in April of 2017 at a post-money valuation of $515 million, again per PitchBook. In July of 2018 it added $25 million to its coffers, and the final entry was a small debt investment raised in 2019.
It could be that the startup saw its growth slow down, leaving it somewhere between ready for new venture investment and profitability. That’s a gap that PE shops like Vista look for, write a check, shake up a company and hopefully exit at an elevated price.
Gainsight hired a new chief revenue officer last month, notably. Per Forbes, the company was on track to reach “about” $100 million ARR by the end of 2020, giving it a revenue multiple of around 11x in the deal. That’s under current market norms, which could imply that Gainsight had either lower gross margins than comparable companies, or as previously noted, that its growth had slowed.
A $1.1 billion exit is never something to bemoan — and every startup wants to become a unicorn — but Gainsight and Mehta are well known, and we were hoping for the details only an S-1 could deliver. Perhaps one day with Vista’s help that could happen.
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C3.ai’s initial IPO pricing guidance spotlights the public market’s tech appetite
On the heels of news that DoorDash is targeting an initial IPO valuation up to $27 billion, C3.ai also dropped a new S-1 filing detailing a first-draft guess of what the richly valued company might be worth after its debut.
C3.ai posted an initial IPO price range of $31 to $34 per share, with the company anticipating a sale of 15.5 million shares at that price. The enterprise-focused artificial intelligence company is also selling $100 million of stock at its IPO price to Spring Creek Capital, and another $50 million to Microsoft at the same terms. And there are 2.325 million shares reserved for its underwriters as well.
The total tally of shares that C3.ai will have outstanding after its IPO bloc is sold, Spring Creek and Microsoft buy in, and its underwriters take up their option, is 99,216,958. At the extremes of its initial IPO price range, the company would be worth between $3.08 billion and $3.37 billion using that share count.
Those numbers decline by around $70 and $80 million, respectively, if the underwriters do not purchase their option.
So is the IPO a win for the company at those prices? And is it a win for all C3.ai investors? Amazingly enough, it feels like the answers are yes and no. Let’s explore why.
Slowing growth, rising valuation
If we just look at C3.ai’s revenue history in chunks, you can argue a growth story for the company; that it grew from $73.8 million in the the two quarters of 2019 ending July 31, to $81.8 million in revenue during the same portion of 2020. That’s growth of just under 11% on a year-over-year basis. Not great, but positive.
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Materialize scores $40 million investment for SQL streaming database
Materialize, the SQL streaming database startup built on top of the open-source Timely Dataflow project, announced a $32 million Series B investment led by Kleiner Perkins, with participation from Lightspeed Ventures.
While it was at it, the company also announced a previously unannounced $8 million Series A from last year, led by Lightspeed, bringing the total raised to $40 million.
These firms see a solid founding team that includes CEO Arjun Narayan, formerly of Cockroach Labs, and chief scientist Frank McSherry, who created the Timely Dataflow project on which the company is based.
Narayan says that the company believes fundamentally that every company needs to be a real-time company, and it will take a streaming database to make that happen. Further, he says the company is built using SQL because of its ubiquity, and the founders wanted to make sure that customers could access and make use of that data quickly without learning a new query language.
“Our goal is really to help any business to understand streaming data and build intelligent applications without using or needing any specialized skills. Fundamentally what that means is that you’re going to have to go to businesses using the technologies and tools that they understand, which is standard SQL,” Narayan explained.
Bucky Moore, the partner at Kleiner Perkins leading the B round, sees this standard querying ability as a key part of the technology. “As more businesses integrate streaming data into their decision-making pipelines, the inability to ask questions of this data with ease is becoming a non-starter. Materialize’s unique ability to provide SQL over streaming data solves this problem, laying the foundation for them to build the industry’s next great data platform,” he said.
They would naturally get compared to Confluent, a streaming database built on top of the Apache Kafka open-source streaming database project, but Narayan says his company uses straight SQL for querying, while Confluent uses its own flavor.
The company still is working out the commercial side of the house and currently provides a typical service offering for paying customers with support and a service agreement (SLA). The startup is working on a SaaS version of the product, which it expects to release some time next year.
They currently have 20 employees with plans to double that number by the end of next year as they continue to build out the product. As they grow, Narayan says the company is definitely thinking about how to build a diverse organization.
He says he’s found that hiring in general has been challenging during the pandemic, and he hopes that changes in 2021, but he says that he and his co-founders are looking at the top of the hiring funnel because otherwise, as he points out, it’s easy to get complacent and rely on the same network of people you have been working with before, which tends to be less diverse.
“The KPIs and the metrics we really want to use to ensure that we really are putting in the extra effort to ensure a diverse sourcing in your hiring pipeline and then following that through all the way through the funnel. That’s I think the most important way to ensure that you have a diverse [employee base], and I think this is true for every company,” he said.
While he is working remotely now, he sees having multiple offices with a headquarters in NYC when the pandemic finally ends. Some employees will continue to work remotely, with the majority coming into one of the offices.
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Primer, the fintech helping merchants consolidate the payments stack, raises £14M Series A
Primer, the U.K. fintech that wants to help merchants consolidate their payments stack and easily support new payment methods in the future, has raised £14 million in Series A funding. The round was led by Accel, who I understand were quite proactive in persuading Primer to take the VC firm’s money.
The young company wasn’t actively fund-raising, having quietly raised £3.8 million in funding announced in May. Instead, the team was heads down building out the product and wooing potential customers by holding technical workshops and in-depth interviews over Zoom with 100 merchants — activity that didn’t go unnoticed.
Also participating in the Series A are existing investors: Balderton, SpeedInvest and Seedcamp, who were joined in the round by new backer RTP Global. Sonali De Rycker, partner at Accel, will join Primer’s board.
Founded by ex-PayPal employees – via PayPal’s acquisition of Braintree — Primer wants to offer one payments API to (hopefully) rule them all, with the explicit aim of bringing greater transparency to a merchant’s payment stack.
The thinking is that larger merchants, especially those that operate in more than one geography, have to support an array of payment methods, which brings with it significant technical overhead, a poor user experience, and lack of transparency.
Primer, now described as a “low code” platform, carries out a lot of that heavy-lifting on behalf of merchants and while remaining steadfastly payment method agnostic. By doing so, the idea is to reduce friction when adopting new payment methods as they come to market, and be able to provide better insights into things like how well each checkout option is performing.
As well as payment-service-providers (PSPs), the platform has connectors for fraud providers, chargeback services, subscription billing engines, BI tools, loyalty and rewards platforms. Both payments and non-payments services can be “seamlessly connected to the checkout experience and payments flow via workflows, enabling merchants to unify their fraud migration efforts, build sophisticated transaction routing, and solve complex flows – all with no code,” explains Primer.
Primer says the additional funding will be used for international business development and scaling its team. Billed as a remote-first company, Primer has 23 employees across six countries, and says it has already picked up traction across mid-market and large enterprise e-commerce merchants across Europe.
Comments Paul Anthony, Primer’s co-founder and head of product and engineering: “During our time at PayPal, we saw first-hand the technical burden online merchants face trying to offer the best payments experiences to their customers globally. Our low-code approach enables merchants’ payments teams to manage and expand their payments ecosystems, and maintain sophisticated payments logic with a familiar workflow UI”.
Meanwhile, the new investment brings Primer’s total funding to £17.8 million, and comes only a few weeks after the initial launch of the company’s platform.
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What to make of Stripe’s possible $100B valuation
This is The TechCrunch Exchange, a newsletter that goes out on Saturdays, based on the column of the same name. You can sign up for the email here.
Welcome to a special Thanksgiving edition of The Exchange. Today we will be brief. But not silent, as there is much to talk about.
Up top, The Exchange noodled on the Slack-Salesforce deal here, so please catch up if you missed that while eating pie for breakfast yesterday. And, sadly, I have no idea why Palantir is seeing its value skyrocket. Normally we’d discuss it, asking ourselves what its gains could mean for the lower tiers of private SaaS companies. But as its public market movement appears to be an artificial bump in value, we’ll just wait.
Here’s what I want to talk about this fine Saturday: Bloomberg reporting that Stripe is in the market for more money, at a price that could value the company at “more than $70 billion or significantly higher, at as much as $100 billion.”
Hot damn. Stripe would become the first or second most valuable startup in the world at those prices, depending on how you count. Startup is a weird word to use for a company worth that much, but as Stripe is still clinging to the private markets like some sort of liferaft, keeps raising external funds, and is presumably more focused on growth than profitability, it retains the hallmark qualities of a tech startup, so, sure, we can call it one.
Which is odd, because Stripe is a huge concern that could be worth twelve-figures, provided that gets that $100 billion price tag. It’s hard to come up with a good reason for why it’s still private, other than the fact that it can get away with it.
Anyhoo, are those reported, possible prices bonkers? Maybe. But there is some logic to them. Recall that Square and PayPal earnings pointed to strong payments volume in recent quarters, which bodes well for Stripe’s own recent growth. Also note that 14 months ago or so, Stripe was already processing “hundreds of billions of dollars of transactions a year.”
You can do fun math at this juncture. Let’s say Stripe’s processing volume was $200 billion last September, and $400 billion today, thinking of the number as an annualized metric. Stripe charges 2.9% plus $0.30 for a transaction, so let’s call it 3% for the sake of simplicity and being conservative. That math shakes out to a run rate of $12 billion.
Now, the company’s actual numbers could be closer to $100 billion, $150 billion and $4.5 billion, right? And Stripe won’t have the same gross margins as Slack .
But you can start to see why Stripe’s new rumored prices aren’t 100% wild. You can make the multiples work if you are a believer in the company’s growth story. And helping the argument are its public comps. Square’s stock has more than tripled this year. PayPal’s value has more than doubled. Adyen’s shares have almost doubled. That’s the sort of public market pull that can really help a super-late-stage startup looking to raise new capital and secure an aggressive price.
To wrap, Stripe’s possible new valuation could make some sense. The fact that it is still a private company does not.
Market Notes
- Mental health-focused startup Sesh raised money this week from Polaris Partners. The Exchange spent a bit of time on the topic recently, so the funding event caught our eye.
- Here are three more $100 million ARR companies, and a call for startups reaching $50 million ARR.
- Man, what is up at Coinbase?
- Tiger’s investment into Unacadamey also stood out. Why? Mostly because edtech is hotter than the surface of the sun in 2020. Which is wild for a startup genre that previously was a bit more akin to the far apsis of Pluto as recently as last year.
Various and Sundry
And speaking of edtech, Equity’s Natasha Mascarenhas and our intrepid producer Chris Gates put together a special ep on the education technology market. You can listen to it here. It’s good.
Hugs and let’s both go do some cardio,
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How Ryan Reynolds and Mint Mobile worked without becoming the joke
In the past decade, celebrity interest and investment in tech companies has significantly increased. But not all celebrity investments are created equally. Some investors, like Ashton Kutcher, have prioritized the VC pursuits. Some have invested casually without getting overly involved. Others have used their considerable platforms to market their portfolio to varying degrees of success.
It’s been a little over a year since Ryan Reynolds bought a majority stake in Mint Mobile, a deal that has already had a dramatic impact on the the MVNO (mobile virtual network operator).
The four-year-old company has seen a tremendous amount of growth, boosting revenue nearly 50,000% in the past three years. However, the D2C wireless carrier has seen its highest traffic days on the backs of Reynolds’ marketing initiatives and announcements.
There is a long history of celebrities getting involved with brands, either as brand ambassadors or ‘Creative Directors’ without much value other than the initial press wave.
Lenovo famously hired Ashton Kutcher as a product engineer to help develop the Yoga 2 tablet, on which I assume you are all reading this post. Alicia Keys was brought on as BlackBerry’s Global Creative Director, which felt even more convoluted a partnership than Lady Gaga’s stint as Polaroid’s Creative Director. That’s not to say that these publicity stunts necessarily hurt the brands or the products (most of the time), but they probably didn’t help much, and likely cost a fortune.
And then there are the actual financial investments, in areas where celebrities fundamentally understand the industry, that still didn’t get to ‘alpha.’
Even Jay-Z has struggled to make a music streaming service successful. Justin Bieber never really got a selfie app off the ground. Heck, not even Justin Timberlake could breathe life back into MySpace. Reynolds seemingly has an even heavier lift here. It’s hard to imagine a string of words in the English language less sexy than, “mobile virtual network operator.”
Reynolds tells TechCrunch that he viewed celebrity investments as a kind of “handicapping,” prior to the Mint acquisition.
“I’ve just sort of seen how most celebrities are doing very, very well,” he explains. “We’re generally hocking or getting behind or investing in luxury and aspirational items and projects. Then George and I had a conversation about a year-and-a-half ago, maybe longer, about what if we swerved the other way? What if he kind of got into something that was hyper practical and just forget about the sexy aspirational stuff.”
Mint isn’t Reynolds’ first entrepreneurial venture. He bought a majority stake in Portland-based Aviation Gin in 2018, which recently sold for $610 million. He also cofounded marketing agency Maximum Effort alongside George Dewey, which has made its own impact over the past several years.
Maximum Effort was founded to help promote the actor’s first Deadpool film. Reynolds and Dewey had come up with several low-budget spots to get people excited about an R-rated comic book movie. The bid appears to have worked. The film raked in $783.1 million at the box office — a record for an R-rated film that held until the 2019 release of Joker.
Maximum Effort (and Reynolds) was also behind the viral Aviation Gin spot, which poked fun at the manipulative Peloton ad that aired last year around the holidays. The same actress who portrayed a woman seemingly tortured by her holiday gift of a Peloton sits at a bar with her friends, shell-shocked, sipping a Martini.
The original ad on YouTube, not counting recirculation by the media, has more than 7 million hits. Reynolds calls it ‘fast-vertising’.
“We get to react,” he told TechCrunch. “We get to acknowledge and play with the cultural landscape in real time and react to it in real time. There isn’t any red tape to come through, because it’s just a matter of signing off on the approval. So in a way, it’s unfair, in that sense, because most big corporations, they take weeks and weeks or months to get something approved. Our budgets are down and dirty, fast and cheap.”
He explained that this type of real-time marketing is only possible because he’s the owner of Maximum Effort (and in some cases of the client businesses, as well), but because there is no red tape to cut through when a great idea presents itself.
Reynolds has brought this marketing acumen to Mint Mobile in a big way. Last year during the Super Bowl, Reynolds took out a full page ad in The New York Times, explaining that the decision to spend $125,000 on a print ad instead of $5 million+ on a Super Bowl commercial would enable the prepaid carrier to pass the savings on to consumers.
In October, Reynolds spun Mint’s 5G launch into another light-hearted spot. He brought on the head of mobile technology to explain what 5G actually is, and after hearing the technical explanation, happily said “We may never know, so we’ll just give it away for free.”
Mint also released a holiday ad just a couple of weeks ago warning of wireless promo season, wherein large wireless carriers may try to lure customers into expensive contracts using new devices. Standing over a bear trap, Reynolds dryly states: “At Mint Mobile, we don’t hate you.”
Reynolds enjoys nearly 17 million Twitter followers and more than 36 million Instagram followers. He uses both platforms to promote his various brands without alienating his followers. Moreover, he doesn’t exclusively promote his brands on social media, but weaves in his own funny personal commentary or gives followers a peek into his marriage with Blake Lively, which we can all agree is #relationshipgoals.
Mint Mobile partners exclusively with T-Mobile to provide service, and unlike some other MVNOs, it uses a direct-to-consumer model, foregoing any physical footprint. Plans start at $15/month and top out at $30/month. CMO Aron North says that Reynolds’ ownership and involvement with Mint Mobile is “absolutely critical.”
“Ryan is an A plus plus celebrity, and he’s very funny and entertaining and engaging,” said North. “His reach has given us a much bigger platform to speak on. I would say he is absolutely critical in our success and our growth.”
We asked Reynolds if he has any specific plans for further tech investment, or if there are any trends he’s keeping an eye on. He explained that his motivations are not purely capitalistic.
“I’m really focused on community and bringing people together,” said Reynolds. “We think it’s super cool to bring people together, particularly in a world that is very divisive. Even in our marketing, we try to find ways to have huge cultural moments without polarizing people without dividing people without saying one thing is wrong.”
In one of the company’s more notable recent spots, Reynolds enlisted the help of iconic comedian, Rick Moranis. It was an impressive coup, given the actor’s seeming retreat from the public eye, turning down two separate Ghostbusters film reboots.
“It’s funny what happens when you just ask,” says Reynolds. “I explained that people genuinely miss him and his performances and his energy. And he, for whatever reason, said yes, and the next thing I know, six days later, we were out of there in 15, 20 minutes and we shot our spot.”
Of course, it didn’t escape the internet’s notice that two well-known Canadian actors were standing in a field, selling a U.S.-only wireless service.
“I would love to see [Mint] in Canada,” Reynolds says. “There’s a Big Three here that’s challenging to crack. I don’t pretend to know the telecom business well enough to say why, how or what the path forward would be there. I see basically a tsunami of feedback from Canada, asking ‘why can’t we have this here?’ I think it’s sexy. It’s pragmatic and sexy. That’s why I got involved with it.”
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There’s no ‘hacker house’ geared toward undergraduate women, so they created one of their own
Hacker houses are making a comeback for entrepreneurs as remote work drags on. While founders are adapting to quarantine in style, a group of college women in their 20s aren’t waiting until they are done with undergraduate to plunge into the lifestyle themselves.
Started by college juniors Coco Sack and Kendall Titus, Womxn Ignite is a house for female and non-binary college undergraduates studying computer science. The idea was born out of Sack and Titus’s exhaustion with remote school at Yale and Stanford respectively. After too many boring Zoom lectures, they took gap semesters and searched for a productive way to spend their time off.
“There are a lot of [programs] that target younger women to get them into coding in high school, and there’s a lot of syndicates and founder groups for women late into their careers,” Titus said. “But there was nothing for anyone in the age range of 20 to 25 where you’re trying to find your way, raise your voice, and hold your ground.”
So, they started their own program. The duo rented out a wedding resort space in California and searched for other women who would experiment the lifestyle and take a gap year. As over 40% of students consider a gap year, the demand became apparent very fast: over 500 people applied for a spot in the house, and just 20 were chosen.
Womxn Ignite is organized as a live-in incubator. Participants are sorted into teams based on their interest areas, and are then pushed to solve a certain problem.
To do so, teams go through a variety of mentor sessions. On Mondays, Tuesdays, and Thursdays, Womxn Ignite sets up mentorship sessions from a revolving-base of female entrepreneurs. There are also guest speaker talks sprinkled throughout the week for high-profile entrepreneurs, including Melinda Gates and bumble’s Whitney Wolfe Herde.
At the end of each week, a team gives a presentation on their progress around problem statements, solution, customer validation, and product development.
Titus says that the goal is not for everyone to come out with a company, but instead to leave with more people in your network and ideas on how to approach starting your business. One participant is writing a TV show about being a Black woman in tech; another is creating a company meant to make programs like Womxn Ignite easier to launch at scale.
In between those sessions is largely spent on team-based collaboration and networking. There are themed-dinners and “platonic date nights” where participants are paired up and encouraged to explore the area or do an activity together to get to know one another. On weekends, women are invited to talk about their niche obsessions, whether it’s the ethical concerns of facial recognition or materials at the nanoscale.
Titus and Sack say that they charge no more than $5,000 for entrance into the program, but over half of participants are on scholarships given by unnamed investors.
Diversity of a cohort matters when trying to create a community that will systemically empower women of all backgrounds. Racial diversity of Womxn Ignite ranges from majority white, but is closely met by Black and LatinX, followed by Middle Easter and Asian Indian. The participants came from all top-tier schools, including Stanford, Yale, Georgetown, Columbia, Harvard, Dartmouth and MIT.
A team photo
The community of women, many of whom plan to return to school, aren’t focused on classic accelerator tropes like Demo Days or first checks simply because of the stage of life they are in. Instead, the program ends with an optional-ask: will each participant dedicate 1% of their annual income for the next 5 years into a syndicate fund? So far, most have signed yes, the co-founders said, even though the majority will return to school in some capacity.
The fund will be used to invest in other female founders, and grow as Womxn Ignite members grow in their careers, too.
“That number will hopefully grow,” Titus said. “We’ll have pooled what we can collectively think about how we want to spend and invest to help elevate other female founders like ourselves.”
Clara Schwab, a participant in Womxn Ignite, said that the contract will help women get more involved in venture capital, a male-dominated field, earlier in their careers.
“And I don’t know any other environment or situation in which myself and 19 other really talented and smart and ambitious women who are all interested in tech, we come together and like, discuss such a thing,” she said.
The co-founders plan to host another cohort in February, and then focus on building out a digital community for the participants.
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Bigblue wants to automate e-commerce fulfillment in Europe
Meet Bigblue, a French startup that just raised a $3.6 million seed round (€3 million) to build an end-to-end fulfillment solution in Europe. If you sell products on your own website and across multiple marketplaces, you can use Bigblue to handle everything that happens after a transaction.
Bigblue doesn’t try to reinvent the wheel. Instead, it partners with existing logistics companies so that you only have to manage one relationship with Bigblue. It means that Bigblue works with several fulfillment centers to store your products as well as multiple shipping carriers.
Essentially, Bigblue lets you improve the experience for your customers. When you start using Bigblue, you send your products to a fulfillment center and you integrate Bigblue with your online stores. The startup has integrations with Shopify, WooCommerce, Magento, Wix Store, Prestashop, Fastmag and Amazon’s marketplace.
When a client orders a product from you, it is packed and shipped directly from the fulfillment center to your customers. Bigblue customers pay a flat fee per order and don’t have to deal with anything. Some packages might be delivered through DHL, others might be sent out using Chronopost, etc. It is completely transparent as Bigblue chooses the right carrier for you.
The startup also gives you more visibility into your shipping process. Retailers get an overview of their operations and can see the inventory from Bigblue’s interface. Clients receive branded delivery emails.
While it’s hard to build a good logistics network if you’re a small e-commerce company, Bigblue lets you compete more directly with Amazon big e-commerce websites. You can level up the customer experience without putting together an in-house logistics team.
Samaipata is leading today’s funding round. Bpifrance is contributing to the round. Plug and Play, Clément Benoit, Thibaud Elziere and Olivier Bonnet are also investing.
With the new influx of funding, the startup plans to hire 50 people and improve its product. You can expect more integrations with e-commerce platforms, ERPs and marketplaces. Bigblue is also going to build out its own shipment tracking pages and email personalization toolkit. The company will also improve product returns and delivery ETAs.
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Equity Dive: Edtech’s 2020 wakeup call
Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.
This week, we’re doing a first-ever for the show and taking a deep dive into one specific sector: Edtech.
Natasha Mascarenhas has covered education technology since Stanford first closed down classes in the wake of the coronavirus pandemic. In the wake of the historic shuttering of much of the United States’ traditional institutions of education, the sector has formed new unicorns, attracted record-breaking venture capital totals, and most of all, enjoyed time in a long-overdue spotlight.
For this Equity Dive, we zero into one part of that conversation: Edtech’s impact on higher education. We brought together Udacity co-founder and Kitty Hawk CEO Sebastian Thrun, Eschaton founder and college drop-out Ian Dilick, and Cowboy Ventures investor Jomayra Herrera to answer our biggest questions.
Here’s what we got into:
- How the state of remote school is leading to gap years among students
- A framework for how to think of higher education’s main three products (including which is most defensible over time)
- What learnings we can take from this COVID-19 experiment on remote schooling to apply to the future
- Why ed-tech is flocking to the notion of life-long learning
- And the reality of who self-paced learning serves — and who it leaves out
And much, much more. If you celebrate, thank you for spending part of your Thanksgiving with the Equity crew. We’re so thankful to have this platform and audience, and it means a ton that y’all tune in each week.
Finally, if you liked this format and want to see more, feel free to tweet us your thoughts or leave us a review on Apple Podcasts. Talk soon!
Equity drops every Monday at 7:00 a.m. PDT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.
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Enterprise investor Jason Green on SPAC hopefuls versus startups bound for traditional IPOs
Jason Green has a pretty solid reputation as venture capitalists go. The enterprise-focused firm he co-founded 17 years ago, Emergence Capital, has backed Saleforce, Box and Zoom, among many other companies, and even while every firm is now investing in software-as-a-service startups, his remains a go-to for many top founders selling business products and services.
To learn more about the trends impacting Green’s slice of the investing universe, we talked with him late last week about everything from SPACs to valuations to how the firm differentiates itself from the many rivals with which it’s now competing. Below are some outtakes edited lightly for length.
TC: What do you make of the assessment that SPACs are for companies that aren’t generating enough revenue to go public the traditional route?
JG: Well, yeah, it’ll be really interesting. This has been quite a year for SPACs, right? I can’t remember the number, but it’s been something like $50 billion of capital raised this year in SPACs, and all of those have to put that money to work within the next 12 to 18 months or they give it back. So there’s this incredible pent-up demand to find opportunities for those SPACs to convert into companies. And the companies that are at the top of the charts, the ones that are the high-growth and profitable companies, will probably do a traditional IPO, I would imagine.
So [SPAC candidates are] going to be companies that are growing fast enough to be attractive as a potential public company but not top of the charts. So I do think [sponsors are] going to target companies that are probably either growing slightly slower than the top-quartile public companies but slightly profitable, or companies that are growing faster but still burning a lot of cash and might actually scare all the traditional IPO investors.
TC: Are you having conversations with CEOs about whether or not they should pursue this avenue?
JG: We just started having those conversations now. There are several companies in the portfolio that will probably be public companies in the next year or two, so it’s definitely an alternative to consider. I would say there’s nothing impending I see in the portfolio. With most entrepreneurs, there’s a little bit of this dream of going public the traditional way, where SPACs tend to be a little bit less exciting from that perspective. So for a company that maybe is thinking about another private round before going public, it’s like a private-plus round. I would say it’s a tweener, so the companies that are considering it are probably ones that are not quite ready to go public yet.
TC: A lot of the SPAC fundraising has seemed like a reaction to uncertainty around when the public window might close. With the election behind us, do you think there’s less uncertainty?
JG: I don’t think risk and uncertainty has decreased since the election. There’s still uncertainty right now politically. The pandemic has reemerged in a significant way, even though we have some really good announcements recently regarding vaccines or potential vaccines. So there’s just a lot of potential directions things could head in.
It’s an environment generally where the public markets tend to gravitate more toward higher-quality opportunities, so fewer companies but higher quality, and that’s where I think SPACs could play a role. I’d say first half of next year, I could easily see SPACs being the more likely go-to-market for a public company, then the latter half of next year, once the vaccines have kicked in and people feel like we’re returning to somewhat normal, I could see the traditional IPO coming back.
TC: When we sat down in person about a year ago, you said Emergence looks at maybe 1,000 deals a year, does deep due diligence on 25 and funds just a handful or so of these startups every year. How has that changed in 2020?
JG: I would say that over the last five years, we’ve made almost a total transition. Now we’re very much a data-driven, thesis-driven outbound firm, where we’re reaching out to entrepreneurs soon after they’ve started their companies or gotten seed financing. The last three investments that we made were all relationships that [date back] a year to 18 months before we started engaging in the actual financing process with them. I think that’s what’s required to build a relationship and the conviction, because financings are happening so fast.
I think we’re going to actually do more investments this year than we maybe have ever done in the history of the firm, which is amazing to me [considering] COVID. I think we’ve really honed our ability to build this pipeline and have conviction, and then in this market environment, Zoom is actually helping expand the landscape that we’re willing to invest in. We’re probably seeing 50% to 100% more companies and trying to whittle them down over time and really focus on the 20 to 25 that we want to dig deep on as a team.
TC: For founders trying to understand your thinking, what’s interesting to you right now?
JG: We tend to focus on three major themes at any one time as a firm, and one we’ve termed ‘coaching networks.’ This is this intersection between AI and machine learning and human interaction. Companies like [the sales engagement platform] SalesLoft or [the knowledge management system] Guru or Drishti [which sells video analytics for manual factory assembly lines] fall into this category, where it’s really intelligent software going deep into a specific functional area and unleashing data in a way that’s never been available before.
The second [theme] is going deep into more specific industry verticals. Veeva was the best example of this early on with with healthcare and life sciences, but we now have one called p44 in the transportation space that’s doing incredibly well. Doximity is in the healthcare space and going deep like a LinkedIn for physicians, with some remote health capabilities, as well. And then [lending company] Blend, which is in the financial services area. These companies are taking cloud software and just going deep into the most important problems of their industries.
The third of them [centers around] remote work. Zoom, which has obviously has been [among our] best investments is almost as a platform, just like Salesforce became a platform after many years. We just funded a company called ClassEDU, which is a Zoom-specific offering for the education market. Snowflake is becoming a platform. So another opportunity is is not just trying to come up with another collaboration tool, but really going deep into a specific use case or vertical.
TC: What’s a company you’ve missed in recent years and were any lessons learned?
JG: We have our hall of shame. [Laughs.] I do think it’s dangerous to assume that things would have turned out the same if if we had been investors in the company. I believe the kinds of investors you put around the table make a difference in terms of the outcome of your company, so I try to not beat myself up too much on the missed opportunities because maybe they found a better fit or a better investor for them to be successful.
But Rob Bernshteyn of Coupa is one where I knew Rob from SuccessFactors [where he was a product marketing VP], and I just always respected and liked him. And we were always chasing it on valuation. And I think I think we probably turned it down at an $80 million or $100 million valuation [and it’s valued at] $20 billion today. That can keep you up at night.
Sometimes, in the moment, there are some risks and concerns about the business and there are other people who are willing to be more aggressive and so you lose out on some of those opportunities. The beautiful thing about our business is that it’s not a zero-sum game.
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