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Fintech startups raised $34B in 2019
Financial services startups raised less money in 2019 than they did in 2018 as VC firms looked to back late stage firms and focused on developing markets, a new report has revealed.
According to research firm CB Insights’ annual report published this week, fintech startups across the world raised $33.9 billion* in total last year across 1,912 deals*, down from $40.8 billion they picked up by participating in 2,049 deals the year before.
It’s a comprehensive report, which we recommend you read in full here (your email is required to access it), but below are some of the key takeaways.
- Early stage startups struggled to attract money: Per the report, financing for startups looking to close Seed or Series A dropped to a five-year low in 2019. On the flip side, money pouring into Series B or beyond startups was at record five-year high.
Early-stage deals dropped to a 12-quarter low as deal share globally shifts to mid- and late-stages (CB Insights)
- Emerging and frontier markets were at the centre stage of the most of the action: South America, Africa, Australia, and Southeast Asia all topped their annual highs last year.
- Asia outpaced Europe in the second half of last year on both number of deals and bulk of capital raised. In Q3, European startups raised $1.6 billion through 95 deals, compared to $1.8 billion amassed by Asian startups across 157 deals. In Q4, a similar story was at play: European startups participated in 100 rounds to raise $1.2 billion, compared to $2.14 billion* raised by Asian startups across 125 deals*.
- Emergence of 24 new fintech unicorns in 2019: 8 fintech startups including Next Insurance, Bight Health, Flywire, High Radius, Ripple, and Figure attained the unicorn status in Q4 2019, and 16 others made it to the list throughout the rest of the last year.
The fintech market globally today has 67 unicorns as of earlier this month (CB Insights)
- Insurtech sector, or startups such as Lemonade, Hippo, Next, Wefox, Bright Health that are offering insurance services, got a major boost last year. They raised 6.2 billion last year, up from $3.2 billion in 2018.
- Startups building solutions such as invoicing and taxing services and payroll and payments solutions for small and medium businesses also received the nod of VCs. In the U.S. alone, where more than 140 startups are operating in the space, raised $4 billion. In many more markets, such startups are beginning to emerge. In India, for instance Open and NiYo are building neo-banks for small businesses and they both raised money last year.
- Nearly 50% of all funding to fintech startups was concentrated in 83-mega rounds (those of size $100 million or above.): According to the research firm, 2019 was a record year for such rounds across the globe, except in Europe.
2019 saw 83 mega-rounds totaling $17.2B, a record year in every market except Europe
- Funding of Germany-based startups reached an annual high: 65 deals in 2019 resulted in $1.79 billion raise, compared to 56 deals and raise of $757 million in 2018, and 66 deals and $622 million raise in 2017.
- Financial startups in Southeast Asia (SEA) raised $993 million across 124 rounds in 2019 in what was their best year.
*CB Insights report includes a $666 million financing round of Paytm . It was incorrectly reported by some news outlets and the $666 million raise was part of the $1 billion round the Indian startup had revealed weeks prior. We have adjusted the data accordingly.
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Investors in LatAm get bitten by the hotel investment bug as Ayenda raises $8.7 million
Some of Latin America’s leading venture capital investors are now backing hotel chains.
In fact, Ayenda, the largest hotel chain in Colombia, has raised $8.7 million in a new round of funding, according to the company.
Led by Kaszek Ventures, the round will support the continued expansion of Ayenda’s chain of hotels in Colombia and beyond. The hotel operator already has 150 hotels operating under its flag in Colombia and has recently expanded to Peru, according to a statement.
Financing came from Kaszek Ventures and strategic investors like Irelandia Aviation, Kairos, Altabix and BWG Ventures.
The company, which was founded in 2018, now has more than 4,500 rooms under its brand in Colombia and has become the biggest hotel chain in the country.
Investments in brick and mortar chains by venture firms are far more common in emerging markets than they are in North America. The investment in Ayenda mirrors big bets that SoftBank Group has made in the Indian hotel chain Oyo and an investment made by Tencent, Sequoia China, Baidu Capital and Goldman Sachs, in LvYue Group late last year, amounting to “several hundred million dollars”, according to a company statement.
“We’re seeking to invest in companies that are redefining the big industries and we found Ayenda, a team that is changing the hotel’s industry in an unprecedented way for the region”, said Nicolas Berman, Kaszek Ventures partner.
Ayenda works with independent hotels through a franchise system to help them increase their occupancy and services. The hotels have to apply to be part of the chain and go through an up to 30-day inspection process before they’re approved to open for business.
“With a broad supply of hotels with the best cost-benefit relationship, guests can travel more frequently, accelerating the economy,” says Declan Ryan, managing partner at Irelandia Aviation.
The company hopes to have more than 1 million guests in 2020 in their hotels. Rooms list at $20 per-night, including amenities and an around the clock customer support team.
Oyo’s story may be a cautionary tale for companies looking at expanding via venture investment for hotel chains. The once high-flying company has been the subject of some scathing criticism. As we wrote:
The New York Times published an in-depth report on Oyo, a tech-enabled budget hotel chain and rising star in the Indian tech community. The NYT wrote that Oyo offers unlicensed rooms and has bribed police officials to deter trouble, among other toxic practices.
Whether Oyo, backed by billions from the SoftBank Vision Fund, will become India’s WeWork is the real cause for concern. India’s startup ecosystem is likely to face a number of barriers as it grows to compete with the likes of Silicon Valley.
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Outdoor Voices founder Tyler Haney is stepping down as CEO as growth slows
Tyler Haney, the founder and chief executive of activewear label Outdoor Voices, has stepped down, the company confirmed for us this afternoon.
The Business of Fashion, which first reported the news, said the transition follows a previously unreported capital injection from Outdoor Voices’ investors at a lower valuation than previous rounds. It says the company tried raising new funding late last year but “had difficulty.”
We reached out to Haney directly earlier today, as well as board members from the venture firms that have backed the company, including General Catalyst and Forerunner Ventures. In the meantime, the company sent us the following: “As we look to grow and to scale, Tyler Haney has transitioned from her role as Chief Executive of Outdoor Voices to a new position as Founder. We have raised another round of financing from our current investor group to support our growth and expansion moving forward. Tyler will remain a member of the Board of Directors and will assist with the search for a new CEO. Until we fill that role, Cliff Moskowitz will serve as the Company’s Interim CEO.”
Moskowitz comes from InterLuxe, an online auction platform for luxury homes and real estate properties where he has served as president for the last six years, according to his LinkedIn profile.
BoF cites executive turnover as an earlier indicator that not all was well within the company, suggesting that mismanagement was one factor that Nike and Under Armour veteran Pamela Catlett joined the company a year ago as president but left months later.
Retail legend Mickey Drexler, formerly of J.Crew fame — who was named chairman of Outdoor Voices’ board in the summer of 2017 as part of a $9 million convertible debt round led by Drexler’s family office — also resigned his position last year, though he maintained a director’s seat.
Operational challenges aside, according to BoF, Outdoor Voices has had trouble replicating the kind of excitement that met its earliest offerings, including flattering, color-blocked athleisure wear, like leggings, sports bras, tees and tanks.
The company has since rolled out an exercise dress that has gained traction with some consumers, but newer offerings meant to extend the brand’s reach, including solidly colored hoodies and terrycloth jogging pants that are less distinguishable from other offerings in the market, have apparently failed to boost sales.
Indeed, according to the BoF report, the brand was losing up to $2 million per month last year on annual sales of around $40 million.
The BoF story doesn’t mention the company’s brick-and-mortar locations and how they factor into the company’s narrative. But certainly, as with a growing number of direct-to-consumer brands that have been encouraged by their backers to open real-world locations, they’ve become a major cost center for the outfit. Outdoor Voices now has 11 locations around the U.S., including in Austin, LA, Soho in New York, Boston, Nashville, Chicago and Washington, D.C.
Even with (at least) $64 million in funding that Outdoor Voices has raised from investors over the years, it’s also going head-to-head with very powerful, very entrenched and endurably popular brands, including Nike and Adidas. While Outdoor Voices is still in the fight, the shoe and apparel giants have vanquished plenty of upstarts over the years.
What happens next to Haney — a former track athlete from Boulder who first launched the business with a Parsons School of Design classmate — isn’t yet clear. Still, she isn’t going far, reportedly. BoF says she still owns 10% of Outdoor Voices and will remain engaged with the company in some capacity.
Featured above, left to right, Emily Weiss of Glossier and Tyler Haney of Outdoor Voices at a 2017 Disrupt event.
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Do AI startups have worse economics than SaaS shops?
A few days ago, Andreessen Horowitz’s Martin Casado and Matt Bornstein published an interesting piece digging into the world of artificial intelligence (AI) startups, and, more specifically, how those companies perform as businesses. Core to the argument presented is that while founders and investors are wagering “that AI businesses will resemble traditional software companies,” the well-known venture firm is “not so sure.”
Given that TechCrunch cares a lot about startup business fundamentals, the notion that one oft-discussed and well-funded category of venture-backed startup might sport materially less attractive economics than we expected captured our attention.
The Andreessen Horowitz (a16z) perspective is straightforward, arguing that AI-focused companies have lesser gross margins than software companies due to cloud compute and human-input costs, endure issues stemming from “edge-cases” and enjoy less product differentiation from competing companies when compared to software concerns. Today, we’re drilling into the gross margin point, as it’s something inherently numerical that we can get other, informed market participants to weigh in on.
If a16z is correct about AI startups having slimmer gross margins than SaaS companies, they should — all other things held equal — be worth less per dollar of revenue generated; or in simpler terms, they should trade at a revenue multiple discount to SaaS companies, leaving the latter category of technology company still atop the valuation hierarchy.
This matters, given the amount of capital that AI-focused startups have raised.
Is a16z correct about AI gross margins? I wanted to find out. So this week I spoke to a number of investors from firms that have made AI-focused bets to get a handle on their views. Read the full a16z piece, mind. It’s interesting and worth your time.
Today we’re hearing from Rohit Sharma of True Ventures, Jeremy Kaufmann of Scale Venture Partners, Nick Washburn of Intel Capital and Ben Blume of Atomico. We’ll start with a digest of their responses to our questions, with their unedited notes at the end.
AI economics and optimism
We asked our group of venture investors (selected with the help of research from TechCrunch’s Arman Tabatabai) three questions. The first dealt with margins themselves, the second dealt with resulting valuations and, finally, we asked about their current optimism interval regarding AI-focused companies.
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DSP Concepts raises $14.5M for its Audio Weaver platform
DSP Concepts — a startup whose Audio Weaver software is used by companies as varied as Tesla, Porsche, GoPro and Braun Audio — is announcing that it has raised $14.5 million in Series B funding.
The startup goal, as explained to me by CEO Chin Beckmann and CTO Paul Beckmann (yep, they’re a husband-and-wife founding team), is to create the standard framework that companies use to develop their audio processing software.
To that end, Chin told me they were “picky about who we wanted on the B round, we wanted it to represent the support and endorsement of the industry.”
So the round was led by Taiwania Capital, but it also includes investments from the strategic arms of DSP Concepts’ industry partners — BMW i Ventures (which led the Series A), the Sony Innovation Growth Fund by Innovation Growth Ventures, MediaTek Ventures, Porsche Ventures and the ARM IoT Fund.
Paul said Audio Weaver started out as the “secret weapon” of the Beckmanns’ consulting business, which he could use to “whip out” the results of an audio engineering project. At a certain point, consulting customers started asking him, “Hey, how about you teach me how to use that?,” so they decided to launch a startup focused on the Audio Weaver platform.
Paul described the software as a “graphical block diagram editor.” Basically, it provides a way for audio engineers to combine and customize different software modules for audio processing.
“Audio is still in the Stone Ages compared to other industries,” he said. “Suppose you’re building a product with a touchscreen — are you going write the graphics from scratch or use a framework like Qt?”
Similarly, he suggested that while many audio engineers are still “down in the weeds writing code,” they can take advantage of Audio Weaver’s graphical interface to piece everything together, as well as the company’s “hundreds of different modules — pre-written, pre-tested, pre-optimized functions to build up your system.”
For example, Paul said that by using the Audio Weaver platform, DSP Concepts engineers could test out “hundreds of ideas” for algorithms for reducing wind noise in the footage captured by GoPro cameras, then ultimately “hand the algorithms over to GoPro,” whose team could them plug the algorithms into their software and modify it themselves.
The Beckmanns said the company also works closely with chip manufacturers to ensure that audio software will work properly on any device powered by a given chipset.
Other modules include TalkTo, which is designed to give voice assistants like Alexa “super-hearing,” so that they can still isolate voice commands and cancel out all the other noise in loud environments, even rock concerts. (You can watch a TalkTo demo in the video below.)
DSP Concepts has now raised more than $25 million in total funding.
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EV fleet management gets another venture-backed contender as Electriphi raises $3.5 million
Electriphi, a provider of charging management and fleet monitoring software for electric vehicles, has joined the scrum of startups looking to provide services to the growing number of electric vehicle fleets in the U.S.
The San Francisco-based company has just raised $3.5 million in seed funding from investors, including Wireframe Ventures, the Urban Innovation Fund and Blackhorn Ventures. Lemnos Labs and Acario Innovation also participated in the round.
Electriphi’s pitch has resonated with school districts. It counts the Twin Rivers Unified School District in Sacramento, Calif. as one of its benchmark customers.
“Twin Rivers Unified School District has the largest fleet of electric school buses in North America, and our ambition is to transition to a fully electric fleet in the coming years,” said Tim Shannon, transportation services director, Twin Rivers Unified School District, in a statement. “This is a significant undertaking, and we needed a trusted partner that could provide us state-of-the-art charging management and help us with data collection and monitoring.”
There are several companies pursuing this market — all with either a bit of a head start, significant corporate backers or more capital. Existing offerings from EVConnect, GreenLots, GreenFlux, AmplyPower all compete with Electriphi.
The company is betting that the experience of co-founder Muffi Ghadiali, a former senior director at ChargePoint who led hardware and software development for fast charging infrastructure, can sway customers. Joining Ghadiali is Sanjay Dayal, who previously worked at Agralogics, Tibco, Xamplify, Versata and Sybase .
There’s also the sheer scale of the opportunity, which is likely to see multiple companies emerge as winners.
“There are millions of public and commercial fleet vehicles in the U.S. alone that we rely on daily for transportation, delivery and services,” said Paul Straub, managing partner, Wireframe Ventures. “Many of these are beginning to consider electrification and the opportunity is tremendous.”
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How much should a startup spend on security?
One of the questions I frequently ask startup founders is how much they’re spending on security. Unsurprisingly, everyone has a different answer.
Startups and small companies are invariably faced with the prospect that they’re either not spending enough or are spending too much on something that’s hard to quantify in terms of value. It’s a tough sell to sink money into an effort to stop something that might one day happen, particularly for bootstrapped startups that must make every cent count — yet we’re told security is a crucial investment for a company’s future.
Sorry to break it to you, but there is no easy answer.
The reality is that each company is different and there is no single recommended dollar amount to spend. But it’s absolutely certain that some investment is required. We know because we see a lot of security incidents here at TechCrunch — hacks, breaches and especially data exposures, often a result of human error.
We spoke to three security experts — a head of security, a security entrepreneur and a cybersecurity fellow — to understand the questions facing startups.
Know and understand your threat model
Every company has a different threat model — by that, we mean identifying risks and possible ways of attack before they happen. Companies that store tons of user data may be a greater target than companies that don’t. Each firm needs to evaluate which kind of risks they face and identify weaknesses.
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Network with CrunchMatch at TC Sessions: Mobility 2020
Got your sights set on attending TC Sessions: Mobility 2020 on May 14 in San Jose? Spend the day with 1,000 or more like-minded founders, makers and leaders across the startup ecosystem. It’s a day-long deep dive dedicated to current and evolving mobility and transportation tech. Think autonomous vehicles, micromobility, AI-based mobility applications, battery tech and so much more.
Hold up. Don’t have a ticket yet? Buy your early-bird pass and save $100.
In addition to taking in all the great speakers (more added every week), presentations, workshops and demos, you’ll want to meet people and build the relationships that foster startup success. Get ready for a radical network experience with CrunchMatch. TechCrunch’s free business-matching platform makes finding and connecting with the right people easier than ever. It’s both curated and automated, a potent combination that makes networking simple and productive. Hey needle, kiss that haystack goodbye.
Here’s how it works.
When CrunchMatch launches, we’ll email all registered attendees. Create a profile, identify your role and list your specific criteria, goals and interests. Whomever you want to meet — investors, founders or engineers specializing in autonomous cars or ride-hailing apps. The CrunchMatch algorithm kicks into gear and suggests matches and, subject to your approval, proposes meeting times and sends meeting requests.
CrunchMatch benefits everyone — founders looking for developers, investors in search of hot prospects, founders looking for marketing help — the list is endless, and the tool is free.
You have one programming-packed day to soak up everything this conference offers. Start strategizing now to make the most of your valuable time. CrunchMatch will help you cut through the crowd and network efficiently so that you have time to learn about the latest tech innovations and still connect with people who can help you reach the next level.
TC Sessions: Mobility 2020 takes place on May 14 in San Jose, Calif. Join, meet and learn from the industry’s mightiest minds, makers, innovators and investors. And let CrunchMatch make your time there much easier and more productive. Buy your early-bird ticket, and we’ll see you in San Jose!
Is your company interested in sponsoring or exhibiting at TC Sessions: Mobility 2020? Contact our sponsorship sales team by filling out this form.
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SpaceX alumni are helping build LA’s startup ecosystem
During the days when Snapchat’s popularity was booming, investors thought the company would become the anchor for a new Los Angeles technology scene.
Snapchat, they hoped, would spin-off entrepreneurs and angel investors who would reinvest in the local ecosystem and create new companies that would in turn foster more wealth, establishing LA as a hub for tech talent and venture dollars on par with New York and Boston.
In the ensuing years, Los Angeles and its entrepreneurial talent pool has captured more attention from local and national investors, but it’s not Snap that’s been the source for the next generation of local founders. Instead, several former SpaceX employees have launched a raft of new companies, capturing the imagination and dollars of some of the biggest names in venture capital.
“There was a buzz, but it doesn’t quite have the depth of bench of people that investors wanted it to become,” says one longtime VC based in the City of Angels. “It was a company in LA more than it was an LA company.”
Perhaps the most successful SpaceX offshoot is Relativity Space, founded by Jordan Noone and Tim Ellis. Since Noone, a former SpaceX engineer, and Ellis, a former Blue Origin engineer, founded their company, the business has been (forgive the expression) a rocket ship. Over the past four years, Relativity href=”https://techcrunch.com/2019/10/01/relativity-a-new-star-in-the-space-race-raises-160-million-for-its-3-d-printed-rockets/”> has raised $185.7 million, received special dispensations from NASA to test its rockets at a facility in Alabama, will launch vehicles from Cape Canaveral and has signed up an early customer in Momentus, which provides satellite tug services in orbit.
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Shogun raises $10M to help e-commerce brands build faster websites
Amazon may have a market cap of more than $1 trillion, but Finbarr Taylor, CEO of Y Combinator-backed startup Shogun, said the e-commerce giant is “kind of dropping the ball.”
Specifically, he argued that the experience of shopping on Amazon — not what happens after you buy something, but browsing the website itself — is pretty bad, full of sponsored results and fake products.
“What we’re seeing happen is that all this vast wave of direct-to-consumer brands is nibbling around edges of Amazon and beating them on buying experience,” Taylor said.
Shogun was designed to support those brands. Taylor and his co-founder Nick Raushenbush created the first product in 2015, and they treated it as a side project at first. But Taylor said that by May 2017, “It ate up all of our free time and it was obviously much bigger than we expected,” so they quit their jobs (Taylor was working as a software engineer at Y Combinator) and devoted themselves to it full-time.
The company now has 11,000 customers, including MVMT, K-Swiss and Leesa. And today, Shogun is announcing that it has raised a $10 million Series A, led by Initialized Capital, with participation from VMG Partners and YC. (The startup has now raised a total of $12 million.)
The company’s first product, Page Builder, offers a drag-and-drop interface to make it easier for e-commerce brands to build their storefronts on Shopify, BigCommerce, Salesforce and Magento.
And there’s a new product, Shogun Frontend, which allows brands to create a web storefront that’s entirely customized while still using one of the big commerce platforms as their back end.
Taylor pitched this as part of a broader trend toward “headless commerce,” where the e-commerce front end and back end are handled separately. He suggested that this is a “mutually beneficial” split, as Shopify and its competitors are going “super deep” on building the infrastructure needed to operate a store online, while Shogun focuses on the actual experience of the customer visiting that store.
Meanwhile, website builders like Squarespace and Weebly (owned by Square) have introduced e-commerce features, but Taylor suggested that they’re still “not really a professional choice” for most e-commerce businesses.
As one of the key features of Shogun Frontend, Taylor pointed to the fact that it creates progressive web apps that should be as fast and smooth as a native app.
Brett Gibson, general partner at Initialized Capital and a Shogun board member, made a similar point in a statement:
For DTC brands competing against goliaths like Amazon, Shogun Frontend now gives them features and capabilities once only reserved for enterprise companies. And when it comes to speed, Shogun Frontend’s sub-second load time is the critical difference between retaining or losing a customer.
Taylor added that the company will be “continuing to invest in Page Builder too,” but he suggested that Frontend is “more of an enterprise offering” that can help Shogun’s biggest customers “future proof themselves.”
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