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4 quick bites and obituaries on Quibi (RIP 2020-2020)
In memory of the death of Quibi, here’s a quick sendoff from four of our writers who came together to discuss what we can learn from Quibi’s amazing, instantaneous, billions-of-dollars failure.
Lucas Matney looks at what the potential was for Quibi and how it missed the mark in media. Danny Crichton discusses why billions of dollars in VC funding isn’t enough in competitive markets like video. Anthony Ha discusses the crazy context of Quibi and our interview with the company earlier this year. And Brian Heater looks at why constraints are not benefits in new products.
Lucas Matney: A deadpool company before it was even launched
There will be dozens of post-mortems on Quibi, but the fact is there were dozens of post-mortems written about Quibi before it even launched. The whole idea was, to be kind, audacious, though it was also clear to most people that weren’t personal friends with founder Jeffrey Katzenberg that it was doomed from the start.
Quibi’s death is an important moment for streaming, largely because it’s a pretty strong rebuke of services trying to one-up the Netflix model by solely focusing on high-dollar original content. I think Quibi made several mistakes, but its most pertinent ones can be tied to a lack of flexibility in vision.
The startup insisted that all of its titles were mobile-only, high-production value and relying on Hollywood star power when they probably could have succeeded by keeping a closer eye on what kind of quick-bite content was succeeding elsewhere. Snap has seen success with Discover after years of attempts, and there is space for a dedicated player here, but Katzenberg tried to level-up by throwing checks at his friends and not doing the hard work of scouting out rising trendsetters in the creator world.
There are other lessons here that apply to other streaming new-comers like Apple. Namely that creating a hit TV show is hard and buying a hit TV series is easier if you already have the money. Quibi and Apple TV+ both launched with plenty of new series and no back libraries of beloved legacy content for users to spend time digging into. There’s just so much good stuff out there already. Apple has shifted strategy here, but Quibi boxed itself in and probably couldn’t afford to play here once its error was made clear.
Quibi showcases how the streaming wars’ upending of Hollywood has probably eclipsed reason at this point. Players like Apple don’t belong here, and there’s just too much money pouring into original content that loosely fits the Hollywood mold.
Netflix stock is down 7% today after earnings yesterday showcased slowing growth. With HBO Max, Disney+, Peacock and Apple TV+ all launching in the last 12 months, the streaming market’s cup runneth over. And while I don’t think a Quibi death spells the end for innovation here, I think that the market is ready for some 2021 consolidation.
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Quibi is dead, reports say
Plagued with growth issues, Quibi, a short-form mobile-native video platform, is shutting down, according to multiple reports. The startup, co-founded by Jeffrey Katzenberg and Meg Whitman, had raised nearly $2 billion in its lifetime as a private company. Quibi did not respond to requests for comment from TechCrunch.
The company’s prolific fundraising efforts spanned prominent institutions in private equity, venture capital and Hollywood, all betting on Katzenberg’s ability to deliver another hit. The startup’s backers included Alibaba, Madrone Capital Partners, Goldman Sachs and JPMorgan, as well as Disney, Sony Pictures, Viacom, WarnerMedia and MGM, among others. The Information reports that Quibi will have $350 million left to return to shareholders.
Their pitch was highly produced bite-sized content, packed with Hollywood star power, and designed to be “mobile-first” entertainment. For the YouTubes and Snaps of the world, producing mainstream content on a shoestring budget, Quibi wanted to be an HBO for smartphones. Investors and pundits questioned the firm’s ability to monetize this vision, and it became clear soon after launch that the company had miscalculated.
Rumors that Quibi was shutting down began early this week. The Information wrote that Katzenberg has told people within the industry that the company might need to shut down, after unsuccessfully pitching itself as an acquisition to Apple, Facebook and Warner Media.
In its first few months, Quibi was downloaded 3.5 million times and had 1.5 million active users. While those figures aren’t too shabby, the company had to adjust its original projections, which put the service on a trajectory to reach 7 million users and $250 million in subscriber revenue in its first year. Admitting that the launch hadn’t gone as planned, Katzenberg blamed the coronavirus for the streaming app’s challenges.
The company expanded in Australia in August with a free ad-supported tier for users. It is unclear if the tweak in the business model brought Quibi success, or if the problems for the app had to do with the business model in the first place.
Netflix earnings from earlier this week suggest that the pandemic entertainment boom is slowing. The consumer video service disappointed on new paying customer numbers, and shares were down sharply yesterday after it released its earnings report. Those numbers also potentially showcase just how crowded the market for subscription video content has gotten in the past 12 months, with players like Apple, Disney, HBO and NBC each launching new services and collectively spending billions to acquire rights to past television hits.
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Datto trades modestly higher after pricing IPO at top of range
After pricing at $27 per share, Datto’s stock rose during regular trading. By mid-afternoon the data and security software company was worth $28.10 per share, up a hair over 4%.
The company’s IPO comes on the back of a rapid-fire Q3 in which a host of technology companies, particularly software, made it to the public markets. While the number of un-exited unicorns in the United States still rose in the quarter, Q3 brought with it a wave of liquidity that felt long coming.
Datto’s IPO is one among what appears set to be a smaller Q4 class, though offerings like Airbnb and Affirm are still tipped to be coming in short order. Airbnb and Affirm each announced that they have filed privately to float, though have yet to publicly drop their S-1 filings.
The Datto IPO was interesting for a few reasons, including its mix of slower growth and rising profitability, its place in the midst of the current Vista drama and how well it was priced.
While 2020 has brought with it many venture-backed IPOs, the year has also brought a nearly commensurate number of complaints about the IPO process itself. After many tech, and tech-ish, companies saw their values skyrocket after pricing and listing, vocal tech and venture figures argued that IPOs were effectively handing upside from companies to underwriting banks, and their customers.
There was some merit to the arguments. Datto, however, will not stoke similar fires. Up a mere few points from its IPO price, it was priced pretty much perfectly from the perspective of raising as much money as it could for itself in its debut.
Datto will use its IPO proceeds to pay down debts that it accrued during its takeover from Vista (private equity: a good deal for private equity). However, Datto’s CEO Tim Weller told TechCrunch in a call that the company will still be well-capitalized after the public offering, saying that it will have a very strong cash position.
The company should have places to deploy its remaining cash. In its S-1 filings, Datto highlighted a COVID-19 tailwind stemming from companies accelerating their digital transformation efforts. TechCrunch asked the company’s CEO whether there was an international component to that story, and whether digital transformation efforts are accelerating globally and not merely domestically. In a good omen for startups not based in the United States, the executive said that they were.
The company did not entertain a SPAC-led public debut, with Datto’s founder, Austin McChord, saying that his company had long planned a traditional public offering. Closing on the Vista front, McChord said that the removal of Vista’s Brian Sheth was immaterial to Datto’s IPO process.
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Dear Sophie: What visa options exist for a grad co-founding a startup?
Sophie Alcorn is the founder of Alcorn Immigration Law in Silicon Valley and 2019 Global Law Experts Awards’ “Law Firm of the Year in California for Entrepreneur Immigration Services.” She connects people with the businesses and opportunities that expand their lives.
Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.
“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”
Extra Crunch members receive access to weekly “Dear Sophie” columns; use promo code ALCORN to purchase a one- or two-year subscription for 50% off.
Dear Sophie:
What are the visa prospects for a graduate completing an advanced degree at a university in the United States who wants to co-found a startup after graduation? Can the new startup or my co-founders sponsor me for a visa?
—Brilliant in Berkeley
Dear Brilliant,
Thank you for your questions and for your contributions. The U.S. economy greatly benefits from entrepreneurial individuals like you who create companies — and jobs — in the U.S.
Let me take your second question first: Yes, it is theoretically possible for your startup to sponsor you for a visa, and for one of your co-founders to be your supervisor. Many visas and employment green cards require a company to sponsor you and for you to demonstrate that a valid employer-employee relationship exists.
Given your situation, timing will be key, particularly since one of your best visa options is the H-1B Visa for Specialty Occupations. The number of H-1B visas issued each year is typically capped at 85,000-60,000 for individuals with a bachelor’s degree and 25,000 for individuals with a master’s or higher degree. Because of the cap on H-1B visas and because the demand for them far outstrips the supply, U.S. Citizenship and Immigration Services (USCIS) holds a lottery once a year in the spring to determine who can apply for this visa.
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This serial founder is taking on Carta with cap table management software she says is better for founders
Yin Wu has co-founded several companies since graduating from Stanford in 2011, including a computer vision company called Double Labs that sold to Microsoft, where she stayed on for a couple of years as a software engineer. In fact, it was only after that sale she she says she “actually understood all of the nuances with a company’s cap table.”
Her newest company, Pulley, a 14-month-old, Mountain View, Ca.-based maker of cap table management software aims to solve that same problem and has so far raised $10 million toward that end led by the payments company Stripe, with participation from Caffeinated Capital, General Catalyst, 8VC and numerous angel investors.
Wu is going up against some pretty powerful competition. Carta was reportedly raising $200 million in fresh funding at a $3 billion valuation as of the spring (a round the company never official confirmed or announced). Last year, it raised $300 million. Morgan Stanley has meanwhile been beefing up its stock plan administration business, acquiring Solium Capital early last year and more recently purchasing Barclay’s stock plan business.
Of course, startups often manage to find a way to take down incumbents and a distraction for Carta, at least, in the form of a very public gender discrimination lawsuit by a former VP of marketing, could be the kind of opening that Pulley needs. We emailed with Yu yesterday to ask if that might be the case. She didn’t answer directly, but she did mention “values,” as well as sharing some more details about what she sees as different about the two products.
TC: Why start this company? Has Carta’s press of late created an opening for a new upstart in the space?
YW: I left Microsoft in 2018 and started Pulley a year later. We skipped the seed and raised the A because of overwhelming demand from investors. Many wanted a better product for their portfolio companies. Many founders are increasingly thinking about choosing with companies, like Pulley, that better align with their values.
TC: How many people are working for Pulley and are any folks you pulled out of Carta?
YW: We’re a team of seven and have four people on the team who are former Y Combinator founders. We attract founders to the team because they’ve experienced firsthand the difficulties of managing a cap table and want to build a better tool for other founders. We have not pulled anyone out of Carta yet.
TC: Carta has raised a lot of funding and it has long tentacles. What can Pulley offer startups that Carta cannot?
YW: We offer startups a better product compared to our competitors. We make every interaction on Pulley easier and faster. 409A valuations take five days instead of weeks, and onboarding is the same day rather than months. By analogy, this is similar to the difference between Stripe and Braintree when Stripe initially launched. There were many different payment processes when Stripe launched. They were able to capture a large portion of the market by building a better product that resonated with developers.
One of the features that stands out on Pulley is our modeling feature [which helps founders model dilution in future rounds and helps employees understand the value of their equity as the company grows]. Founders switch from our competitors to Pulley to use our modeling tool [and it works] with pre-money SAFEs, post-money SAFEs and factors in pro-ratas and discounts. To my knowledge, Pulley’s modeling tool is the most comprehensive product on the market.
TC: How does your pricing compare with Carta’s?
YW: Pulley is free for early-stage companies regardless of how much they raise. We’re price competitive with Carta on our paid plans. Part of the reason we started Pulley is because we had frustrations with other cap table management tools. When using other services, we had to regularly ping our accountants or lawyers to make edits, run reports or get data. Each time we involved the lawyers, it was an expensive legal fee. So there is easily a $2,000 hidden fee when using tools that aren’t self-serve for setting up and updating your cap table.
TC: Is there a business-to-business opportunity here, where maybe attorneys or accountants or wealth managers private label this service? Or are these industry professionals viewed as competitors?
YW: We think there are opportunities to white label the service for accountants and law firms. However, this is currently not our focus.
TC: How adaptable is the software? Can it deal with a complicated scenario, a corner case?
YW: We started Pulley one year ago and we’re launching today because we have invested in building an architecture that can support complex cap table scenarios as companies scale. There are two things that you have to get right with cap table systems, First, never lose the data and second, always make sure the numbers are correct. We haven’t lost data for any customer and we have a comprehensive system of tests that verifies the cap table numbers on Pulley remain accurate.
TC: At what stage does it make sense for a startup to work with Pulley, and do you have the tools to hang onto them and keep them from switching over to a competitor later?
YW: We work with companies past the Series A, like Fast and Clubhouse. Companies are not looking to change their cap table provider if Pulley has the tool to grow with them. We already have the features of our competitors, including electronic share issuance, ACH transfers for options, modeling tools for multiple rounds and more. We think we can win more startups because Pulley is also easier to use and faster to onboard.
TC: Regarding your paid plans, how much is Pulley charging and for what? How many tiers of service are there?
YW; Pulley is free for early-stage startups with less than 25 stakeholders. We charge $10 per stakeholder per month when companies scale beyond that. A stakeholder is any employee or investor on the cap table. Most companies upgrade to our premium plan after a seed round when they need a 409A valuation.
Cap table management is an area where companies don’t want a free product. Pulley takes our customers’ data privacy and security very seriously. We charge a flat fee for companies so they rest assured that their data will never be sold or used without their permission.
TC: What’s Pulley’s relationship to venture firms?
YW: We’re currently focused on founders rather than investors. We work with accelerators like Y Combinator to help their portfolio companies manage their cap table, but don’t have a formal relationship with any VC firms.
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Founders don’t need to be full-time to start raising venture capital
“More than 50% of our founders still are in their current jobs,” said John Vrionis, co-founder of seed-stage fund Unusual Ventures.
The fund, which closed a $400 million investment vehicle in November 2019, has noticed that more and more startup employees are thinking about entrepreneurship as the pandemic has shown how much room there is for new innovation. To gain a competitive advantage, Unusual is investing small checks into founders before they’re full-time.
Unusual, which cuts an average of eight checks per year into seed-stage companies, isn’t doling out millions to every employee who decides to leave Stripe. The firm is conservative with its spending and takes a more focused approach, often embedding a member from the firm into a portfolio company. It’s not meant to scale to dozens of portfolio companies a year, but instead requires a methodical approach.
One with a healthy pipeline of companies to choose from.
In an Extra Crunch Live chat, Vrionis and Sarah Leary, co-founder of Nextdoor and the firm’s newest partner, said lightweight investing matters in the early days of a company.
“There were a lot of teams that needed capital to start the journey, but frankly, it would have been over burdensome if they took on $2 or $3 million,” Leary said. “[New founders] want to be in a place where they have enough money to get going but not too much money that they get locked into a ladder in terms of expectations that they’re not ready to take advantage of.” The checks that Unusual cuts in pre-seed often range between $100,000 to half a million dollars.
Leary chalks up the boom to the disruption in consumer behavior, which opens up the opportunity for new companies to win.
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Rocket Lab’s Peter Beck is coming to TC Sessions: Space 2020
Over the last few years Rocket Lab has gone from its very first orbital launch to regular commercial missions, with the goal of being the most responsive launch provider on the planet. Founder and CEO Peter Beck will join us at our all virtual TC Sessions: Space event happening on December 16 & 17 to talk about the new launch ecosystem and building a company to compete with industry giants.
Rocket Lab’s 15th mission, “In Focus,” is scheduled to take off this very afternoon, with 10 Earth observation satellites from Canon Electronics and Planet. It has already put satellites in orbit for NASA, the NRO and numerous private companies. The company’s launch cadence has slowly increased, though the loss of a mission in July soured its plan to go from months to weeks between launches.
But Beck, who has led the company from its inception in 2006, saw this as just another challenge to take head-on, and within the month Rocket Lab had gotten to the bottom of the issue and was clear to fly again.
“If you’re going to own a rocket company and launch vehicles, you have to be prepared for this kind of thing,” he said at the time. And now Electron is even more reliable than it was before, he pointed out.
Now Rocket Lab is expanding into adjacent businesses as well, with the secretive launch of its First Light satellite platform, demonstrating tech that it hoped to share with customers who don’t want to build a satellite from scratch. “It’s just really painful to go from an idea to getting something in orbit,” he said, and by making it easier to actually build a spacecraft, it both democratizes space and creates customers out of thin air.
At TC Sessions: Space, Beck will discuss all of this and more. You can get early-bird tickets right now, and save $100 before prices go up on November 13 — and you can even get a fifth person free if you bring a group of four from your company. Special discounts for current members of the government/military/nonprofit and student tickets are also available directly on the website. And if you are an early-stage space startup looking to get exposure to decision makers, you can even exhibit for the day for just $360.
Is your company interested in presenting your company at TC Sessions: Space 2020? Click here to talk with us about available opportunities.
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Secureframe raises $4.5M to help businesses speed up their compliance audits
While certifications for security management practices like SOC 2 and ISO 27001 have been around for a while, the number of companies that now request that their software vendors go through (and pass) the audits to be in compliance with these continues to increase. For a lot of companies, that’s a harrowing process, so it’s maybe no surprise that we are also seeing an increase in startups that aim to make this process easier. Earlier this month, Strike Graph, which helps automate security audits, announced its $3.9 million round, and today, Secureframe, which also helps businesses get and maintain their SOC 2 and ISO 27001 certifications, is announcing a $4.5 million round.
Secureframe’s round was co-led by Base10 Partners and Google’s AI-focused Gradient Ventures fund. BoxGroup, Village Global, Soma Capital, Liquid2, Chapter One, Worklife Ventures and Backend Capital participated. Current customers include Stream, Hasura and Benepass.
Image Credits: Secureframe
Shrav Mehta, the company’s co-founder and CEO, spent time at a number of different companies, but he tells me the idea for Secureframe was mostly born during his time at direct-mail service Lob.
“When I was at Lob, we dealt with a lot of issues around security and compliance because we were sometimes dealing with very sensitive data, and we’d hop on calls with customers, had to complete thousand-line security questionnaires, do exhaustive security reviews, and this was a lot for a startup of our size at the time. But it’s just what our customers needed. So I started to see that pain,” Mehta said.
Secureframe co-founder and CEO Shrav Mehta
After stints at Pilot and Scale AI after he left Lob in 2017 — and informally helping other companies manage the certification process — he co-founded Secureframe together with the company’s CTO, Natasja Nielsen.
“Because Secureframe is basically adding a lot of automation with our software — and making the process so much simpler and easier — we’re able to bring the cost down to a point where this is something that a lot more companies can afford,” Mehta explained. “This is something that everyone can get in place from day one, and not really have to worry that, ‘hey, this is going to take all of our time, it’s going to take a year, it’s going to cost a lot of money.’ […] We’re trying to solve that problem to make it super easy for every organization to be secure from day one.”
The main idea here is to make the arcane certification process more transparent and streamline the process by automating many of the more labor-intensive tasks of getting ready for an audit (and it’s virtually always the pre-audit process that takes up most of the time). Secureframe does so by integrating with the most-often used cloud and SaaS tools (it currently connects to about 25 services) and pulling in data from them to check up on your security posture.
“It feels a lot like a QuickBooks or TurboTax-like experience, where we’ll essentially ask you to enter basic details about your business. We try to autofill as much of it as possible from third-party sources — then we ask you to connect up all the integrations your business uses,” Mehta explained.
The company plans to use much of the new funding to staff up and build out these integrations. Over time, it will also add support for other certifications like PCI, HITRUST and HIPAA.
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Contrast launches its security observability platform
Contrast, a developer-centric application security company with customers that include Liberty Mutual Insurance, NTT Data, AXA and Bandwidth, today announced the launch of its security observability platform. The idea here is to offer developers a single pane of glass to manage an application’s security across its lifecycle, combined with real-time analysis and reporting, as well as remediation tools.
“Every line of code that’s happening increases the risk to a business if it’s not secure,” said Contrast CEO and chairman Alan Naumann. “We’re focused on securing all that code that businesses are writing for both automation and digital transformation.”
Over the course of the last few years, the well-funded company, which raised a $65 million Series D round last year, launched numerous security tools that cover a wide range of use cases, from automated penetration testing to cloud application security and now DevOps — and this new platform is meant to tie them all together.
DevOps, the company argues, is really what necessitates a platform like this, given that developers now push more code into production than ever — and the onus of ensuring that this code is secure is now also often on that.
Image Credits: Contrast
Traditionally, Naumann argues, security services focused on the code itself and looking at traffic.
“We think at the application layer, the same principles of observability apply that have been used in the IT infrastructure space,” he said. “Specifically, we do instrumentation of the code and we weave security sensors into the code as it’s being developed and are looking for vulnerabilities and observing running code. […] Our view is: the world’s most complex systems are best when instrumented, whether it’s an airplane, a spacecraft, an IT infrastructure. We think the same is true for code. So our breakthrough is applying instrumentation to code and observing for security vulnerabilities.”
With this new platform, Contrast is aggregating information from its existing systems into a single dashboard. And while Contrast observes the code throughout its lifecycle, it also scans for vulnerabilities whenever a developers check code into the CI/CD pipeline, thanks to integrations with most of the standard tools like Jenkins. It’s worth noting that the service also scans for vulnerabilities in open-source libraries. Once deployed, Contrast’s new platform keeps an eye on the data that runs through the various APIs and systems the application connects to and scans for potential security issues there as well.
The platform currently supports all of the large cloud providers, like AWS, Azure and Google Cloud, and languages and frameworks, like Java, Python, .NET and Ruby.
Image Credits: Contrast
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Lessons from Datto’s IPO pricing and revenue multiple
Last night Datto priced its IPO at $27 per share, the top end of its range that TechCrunch covered last week. The data and security-focused software company had targeted a $24 to $27 per-share IPO price range, meaning that its final per-share value was at the top of its estimates.
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The Datto IPO won’t draw lots of attention; its business is somewhat dull, as selling software to managed service providers rarely excites. But, the public offering matters for a different reason: It gives us a fresh lens into today’s IPO market.
That lens is the perspective of slower, more profitable growth. What is that worth?
The value of quickly growing and unprofitable software and cloud companies is well known. Snowflake made a splash earlier this year on the back of huge growth and enormous losses. Investors ate its shares up, pushing its valuation to towering heights. This year we’ve even seen rapid growth and profits valued by public investors in the form of JFrog’s IPO.
But slower growth, software margins and profitability? Datto’s financial picture feels somewhat unique among the IPOs that TechCrunch has covered this year.
It’s a similar bet to the one that Egnyte is making; the enterprise software company crested $100 million ARR last year and announced that it grew by around 22% in the first half of 2020. And, it is profitable on an EBITDA basis. Therefore, the Datto IPO could provide a clue as to whether companies like Egnyte and the rest of the late-stage startup crop should be content to grow more slowly, but with the benefit of actually making money.
Lessons from Datto’s IPO pricing and revenue multiple
Here are the deal’s nuts and bolts:
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