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Rebooted startup program WeWork Labs celebrates its one-year anniversary
It has been just about a year since the relaunch of WeWork Labs, an accelerator-type program operating under the WeWork umbrella. Since then, it has grown to 37 locations in 22 cities. And it’s truly international, operating in 12 countries, including Brazil, China, Germany and India.
These Labs offices are often — but not always — housed within a larger WeWork space, and, like an accelerator, they offer mentorship and programming. However, WeWork doesn’t take any equity; instead, it simply makes money by charging rent. (In New York, a desk costs between $450 and $550 a month, but the price varies by location.)
I spoke to Roee Adler, the program’s global head, about how Labs has evolved over the past year. Adler actually has a long history with startups — in fact, his company Soluto won the very first Startup Battlefield at TechCrunch Disrupt. He’s held a number of positions at WeWork, including chief product officer, and he said that as his role was evolving, he found himself asking, “What is the next startup we can build inside WeWork?”
The answer: “We decided to reevaluate our level of commitment and investment with the earliest of stages for startups.”
WeWork actually had a startup program called WeWork Labs back in 2011, but it languished in the years since. Adler relaunched the program with its first New York space in January of last year, and he’s been opening locations at a furious pace since then.
Roee Adler
Each Labs office is supervised by a Labs manager, who Adler said is usually “a former entrepreneur whose life’s mission is to manage startups.” For example, before Mor Barak joined the program last year to launch Labs in Tel Aviv, she was the general manager of Israel’s oldest accelerator program, The Junction.
“I got to a point where I felt like I finally found what I loved to do, which is to work with startups and to support startups and understand how our connections and our network can help them move forward,” Barak said. “And then I wanted to take that and do that on a bigger scale, as part of a company that can reach new geographies and bring forward local entrepreneurs.”
As a Labs manager, Barak said her main role is to “be that business connector for the startups,” which means meeting with the entrepreneurs on a weekly basis to understand their needs and challenges. At the same time, she emphasized that Labs is a global program: “As a Labs manager in Tel Aviv, I can quite easily connect to my colleagues around the world to find the people that I need to get to in order to help the startup.”
Adler made a similar point about sharing resources between the different locations.
“A lecture that is at our Najing Xi Lu Road space in Shanghai will get captured, summarized, translated and become available to all of the entrepreneurs around the world,” he said. “Does that mean every piece of information is relevant for everyone? No. But truthfully, who knows?”
Adriana Vazquez of Lilu
To celebrate the one-year anniversary, WeWork Labs held a pitch competition at the company’s New York City headquarters last week, with $250,000 in funding distributed among the winners. The $150,000 grand prize went to Lilu, a startup making a compression bra that helps mothers pump milk. (It’s another Startup Battlefield alum.)
CEO and co-founder Adriana Vazquez told me that Lilu has been working out of the WeWork Labs in Dumbo since August. Vazquez has participated in other accelerator programs and worked out of other co-working spaces, and she said Labs is something else — it allows you to “get the community of an accelerator without the prescribed schedule,” and it offers a very different feeling from a co-working space.
“There is that understanding and respect that everyone’s really busy and has fires to put out,” she said. “We had a brief stay at another co-working space with creatives and small businesses, and there wasn’t that camaraderie, where you see someone that’s working on a weekend and you know you’re not here because they want to hang out on a Friday. It’s almost an unspoken understanding: Yeah, I know what you’re going through.”
As for what Adler has planned for Labs’ second year, he said he wants to do more work connecting startups with larger corporations: “WeWork has really become the only natural nexus in the world where you can have a three-month-old startup entrepreneur bumping shoulders with a senior vice president of Microsoft going to get coffee from the same machine and engaging in a conversation about the future.”
WeWork Labs Dumbo
And of course, he plans to open more offices, with the goal of reaching 100 locations by the end of 2019.
“The three of us are sitting in Manhattan right now, one of the wealthiest cities in the world … but it’s not about here,” Adler said. “It’s about the people who aren’t sitting in the big tech hubs or bubbles. That is exciting.”
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Cosmic JS wants to simplify web development so you can focus on content
If you are a web developer, you know how complex many of the traditional web content management systems have been. One of the big problems has been managing the underlying infrastructure for the system. Cosmic JS, a member of the Winter 2019 Y Combinator class, wants to simplify that by taking care of the infrastructure part for you, while providing a flexible front end for content creators.
“Our customers benefit from using Cosmic because they can avoid the pain of building and maintaining their own CMS infrastructure. For a monthly service fee, we provide a seamless infrastructure for them, and it allows them to focus on what really matters, building great products and user experiences,” Cosmic JS CEO and co-founder Tony Spiro told TechCrunch.
As with so many YC companies, this one started with a pain point the founders were feeling in their jobs developing websites in an agency setting in 2014. Spiro was building the websites and CMO and co-founder Carson Gibbons was servicing accounts, and they saw a problem with the infrastructure piece.
“We found that there was a huge bottleneck just installing and maintaining our own backend infrastructure management. So around that time, I began building out Cosmic on the side. I thought it would be great if there was just a web dashboard and an API to deliver content as a service. And so that’s how it all got started,” Spiro explained. By removing infrastructure management from the equation, Cosmic was freeing developers to concentrate solely on the customer-facing bits.
Cosmic JS content edit view. Screenshot: Cosmic JS
Spiro and Gibbons left their jobs to concentrate on Cosmic full time after the release of the initial version in 2016. They aim the product at web development teams with between 5 and 100 members. The product has three main user types: developers, site managers and content producers. So far, it has attracted 250 customers in 100 countries.
While it’s not open source, it does rely on community members to build extensions and apps. “We have hundreds of apps (ready-made websites and applications) and extensions built by our community,” Spiro said. These tools enable Cosmic to connect to best of breed services and tools like photos, videos or search without having to create them from scratch.
Cosmic JS website templates and apps. Screenshot: Cosmic JS
Spiro says that they joined Y Combinator at the behest of their advisors and investors and it has been a formative experience. “We applied and got in, and and now we’re surrounded by just some of the most impressive and intelligent people in technology.” Spiro said.
So far Cosmic JS includes the two co-founders with some contractors and freelancers helping out along with the extended development community. The company has received some funding, but the founders weren’t ready to share the amount just yet.
Their goal is to continue building the paid user base, and increase community participation through outreach and events.
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How business-to-business startups reduce inequality
Sib Mahapatra is a writer and co-founder of Bureau, an end-to-end office furniture startup in NYC.
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When considering the structural impact of technology companies on our economy and society, we tend to focus on questions of scale and monopoly.
It’s true that the FAANG companies and more recent winners (Airbnb, Uber) have surfed a combination of network effects, preferential access to capital and classic efficiencies of scale to generate tremendous value for their shareholders — to the detriment of new entrants who attempt to unseat them.
At their high water mark in mid-2018, FAANG alone made up 11 percent of the total market cap of the S&P 500 and 38 percent of the index’s year-to-date gain, representing a doubling in their influence in only five years. The question of regulating technology companies — to the point of instituting anti-trust actions — has even become a rare point of relative concord between Democrats and Republicans in Congress.
But is the narrative of tech companies in the 2010s only a story of economic consolidation and growing inequality? Many of the most successful B2B startups of the last decade are aligned by a theme that paints a different picture. By transforming the nature of the costs required to start a business, these startups are reducing the influence of capital and leveling the playing field for new entrants to share in the surplus generated by the secular shift to a tech-mediated economy.
Source: Getty Images/MIKIEKWOODS
A path to equal opportunity: Turning fixed costs into variable costs
What do AWS, WeWork, Stord, Gusto
But they are alike in the economic purpose they serve for their customers. Each of these services takes a fixed cost — a bank of servers, a lease, a legal retainer — and transforms it into a variable cost. As a refresher, a fixed cost stays constant regardless of output, and variable costs scale with the output of a business.
When my father started his software consulting business in the early 1990s, I remember the giant boxes of AIX servers that arrived at our apartment, and tagging along to office tours in central New Jersey before he decided to run the company out of our spare bedroom. Back then, starting almost any kind of business was hard because of high fixed costs. Without AWS or WeWork, you shelled out upfront for hardware and a lease.
Access to capital, whether in the form of a bank loan, savings or friends and family was a prerequisite for entrepreneurship.
Today, startups make it possible to start and scale almost any kind of business while incurring few fixed costs. Want to found an e-commerce store? Start with a free Shopify account and dropship your inventory. Want to become a freelance designer? Put a shingle up on Fiverr and meet clients at a Breather you rent by the hour.
Whether software or hardware or labor, building a business is way easier when overhead is transformed into a string of flexible microservices that you only pay for as you grow.
Image courtesy of Getty Images
Lower fixed costs means capital matters less
Taken together, startups that turn fixed costs into variable costs make it less capital-intensive to start a business. This decreases the influence of gatekeepers and aggregators of capital — an impact evident in the way entrepreneurs think about starting businesses today.
It’s no coincidence that the rise of B2B startups fitting this theme has coincided with the bootstrap movement, in which tech entrepreneurs with major ambitions demur from raising venture funding because — well, they don’t need the money anymore.
It has also coincided with a renaissance in freelance entrepreneurship: 56.7 million Americans freelanced in 2018. Beyond the economic benefits of working for yourself — the fastest growing segment of freelancers earns more than $75,000 a year — freelancers can access the lifestyle and health benefits of owning their destiny, which aren’t directly captured but play a role in the economic picture. Indeed, 51 percent of freelancers said no amount of money would lure them into a traditional job, and 64 percent reported feeling healthier and happier.
When capital plays a reduced role in new business formation, access to capital plays a smaller role in determining who will succeed. More companies are founded, and the economy becomes more likely to birth new Davids that will unseat the Goliaths. Economics 101: lower barriers to entry create markets that converge on perfect competition instead of oligarchic concentration.
Source: Getty Images/ERHUI1979
Variable costs don’t scale, but that’s OK
Variable costs have their downsides. A startup with a relatively higher proportion of fixed costs — the profile of the classic high-tech software business — can achieve higher profit margins as it scales. Compare Microsoft or Google, which pay high fixed costs in the form of salaries and servers but few costs in delivering their services and achieve operating margins of 25-30 percent, to Costco, which takes in more than $100 billion of annual revenue but earns an operating margin in the single digits.
That’s OK. Neither type of cost is “better” or “worse,” but having the option to decide how to structure costs through a company’s life cycle can meaningfully impact an entrepreneur’s ability to execute a business idea.
Founders investigating startup ideas — and politicians debating the impact of technology — would do well to pay attention to how B2B companies have democratized access to entrepreneurship.
Equality of outcome arrives from equality of opportunity — and a future where millions of people can start businesses, differentiate and succeed on the basis of their ability and value proposition, rather than their access to capital, sounds like a promising representation of the egalitarian ethos Silicon Valley wants to bring to pass.
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FabFitFun raises $80 million for its growing lifestyle brand
Nine years after launching its online magazine, and three years after diversifying into the subscription box business, FabFitFun has raised $80 million in a growth round of funding, led by Kleiner Perkins, with participation from its previous investors Upfront Ventures and NEA.
The Los Angeles-based company has steadily expanded its retail and lifestyle empire through subscription boxes, video… and even an augmented reality app.
Last year the company crossed $200 million in revenue and managed to net more than 1 million subscribers for the service.
In a statement the company said the new financing would be used to expand FabFitFun membership offerings and consolidate its position as a marketing partner and platform for brands.
As a result of the investment, Kleiner Perkins general partners Mood Rowghani and Mary Meeker will join as board member and observer, respectively.
It’s been a long ride for co-founders Daniel and Michael Broukhim and Katie Rosen Kitchens. From a newsletter and blog to the subscription box to the launch of live programming last year.
For brands, the pitch is a new way to find customers and engage with them. The seasonally curated boxes and special exclusive co-branded box opportunities with Los Angeles’ pool of influencers results in hundreds of millions of targeted impressions, according to the company.
“FabFitFun has emerged into an exciting and entirely new distribution channel that brings retail to the platforms where consumers are most engaged,” said Mood Rowghani, a general partner at Kleiner Perkins, in a statement. “The company’s personalized connection with its community allows brands to better understand and interact with consumers – establishing a long-term relationship rather than simply a transaction.”
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Amex blocks Curve as the fintech startup vows to fight ‘anti-competitive’ decision
Well, that was short-lived: Just 36 hours after Curve, the London fintech that lets you consolidate all of your bank cards into a single Curve card, re-instated support for Amex, the feature has once again been unceremoniously blocked by American Express. This time, however, the context feels very different from 2016, when the startup was barely off the ground, with Curve telling customers in an email this morning that it intends to “fight Amex’s decision with our full might.”
Going up against the deep pockets and dominant market position of American Express will undoubtedly be a “David and Goliath” battle, although, unlike two years ago, Curve is now backed by an array of investors that includes Connect Ventures and Santander. Arguably, the startup will have U.K. and EU payments and competition regulations on its side, too, although it is hard to predict with certainty if the U.K. regulators will use their full teeth in a situation like this and how they will interpret those existing U.K. and EU regulations.
Curve’s position, however, is clear: In the same email to customers, the company has called the move “anti-competitive” and says it is “entirely disproportionate and discriminatory” to Curve. “U.K. payment regulations clearly state that Curve should be allowed to access the Amex payment network on a level-playing field with every other fee-paying and legitimate merchant,” writes the startup.
However, American Express disputes this, telling TechCrunch it doesn’t have regulatory obligations to work “with Curve or any individual merchants.”
Meanwhile, the credit card giant has been busy briefing journalists that it ended its merchant contract with Curve for business reasons, following what looked like a successful beta test with a small number of joint customers. Perhaps the trial was too successful, with American Express telling me Curve customers were using Amex added to Curve in ways that were different to its regular customers, which, one could argue, is the whole point. To truly innovate, you have to offer something new. Something truly new, has to be different.
With that said, the method with which Curve was accessing the Amex network is a well-established one. Technically, Curve had signed a “merchant” contract with American Express, just like any other merchant and many existing e-wallet products, such as PayPal or YoYo Wallet, which, notably, haven’t been blocked. As part of the trial period, the fintech also made changes to its own product to accommodate Amex, requiring customers to top up their Curve card in advance if they wanted to spend from their Curve-Amex wallet.
In other words, this was definitely not a “don’t ask for permission, ask for forgiveness” situation on Curve’s part. The two companies had been working together for months, and in talks for even longer, to get Curve back on the Amex network. A merchant contract had been signed. What changed at the 11th hour is unclear, although we can be sure this one has a long way to play out just yet.
American Express provided TechCrunch with the following statement:
We participated in a limited Curve beta test in which we explored enabling Card Members to load funds onto an e-wallet using their Amex Card in the Curve app. A very small number of Amex Card Members participated in the test. Based on the results, we communicated to Curve that we would not participate in the further roll out of Curve because of concerns related to the overall American Express Card Member experience. Subsequently we terminated our contract with them.
And here’s the full email sent out by Curve to customers, myself included:
Dear Steve,
We are extremely sorry that the top-up functionality of your Amex wallet is currently disabled.
Like thousands of other UK merchants, Curve has a valid merchant agreement to accept Amex payments into its e-wallet. However, on Tuesday evening, Amex decided to terminate this agreement and block all Amex transactions to Curve with immediate effect.
Amex has given no good or fair reason for their decision and we believe it is entirely disproportionate and discriminatory to Curve and all our (joint) customers. UK payment regulations clearly state that Curve should be allowed to access the Amex payment network on a level-playing field with every other fee-paying and legitimate merchant.
Rest assured that you can still spend the funds that you have already topped up to your existing Amex Wallets. If you have contacted us for support, we apologise for the delay in response and will endeavour to do so as soon as possible. We will update you as soon as we have any further information.
With your interests in mind, and our mission to deliver a truly innovative product, we intend to fight Amex’s decision with our full might. We believe financial freedom is the future and we are prepared to fight for yours.
Team Curve
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Wanna Kicks, a new AR app from Wannaby, lets you virtually ‘try on’ your next pair of kicks
Wannaby, a startup out of Belarus that is building “AR commerce” experiences, has launched a beta of its latest app, which aims to make it easier to find the perfect sneakers.
Dubbed “Wanna Kicks,” the iOS app uses augmented reality to let you “try on” various pairs of sneakers. You simply choose a pair of kicks from the list of 3D models, point your camera at your feet and — bingo — you’re now virtually wearing your chosen footwear.
The effect is pretty instant and tracks reasonably well as you move and rotate your feet or change camera angle. You can even try walking and the AR app will follow your footsteps. It doesn’t work quite as well standing in front of a mirror, which would be more useful, but that is something Wanna Kicks’ makers say they are working on.
Ultimately, however, Wannaby believes its technology can help both customers and retailers. The premise is simple: The better idea you have of how a pair of sneakers will look when you’re actually wearing them, the more likely you are to make the right purchase and the less likely you are to return an item. Online retailers spend a lot of their margins trying to get customers to convert, and arguably even more servicing returns.
“Our mission is to break online shopping barriers,” Wannaby CEO and ex-Googler Sergey Arkhangelskiy tells me. “We believe that AR try-on can help customers to shop online and will wash away the difference between online and offline shopping. We see two major problems in the shoe market. Online conversions are quite low, and returns are quite high, in comparison to traditional ‘brick-and-mortar’ shopping. The ability to try sneakers with your phone before buying online should shift conversions, engagement and returns.”
Arkhangelskiy argues that AR is also a great marketing tool. Unsurprisingly, Wanna Kicks lets you save a photo of your feed clad in new virtual sneakers, which you can then share on social media. Video sharing is in the pipeline, too.
“Many shoe brands are presenting their new releases both online and offline,” he says. “Lots of customers are eager to know more about new sneaker releases, and AR is a great new way for people to experience sneakers that are new to the market or are about to get to the market. Essentially, this is the main idea behind Wanna Kicks: allowing users to choose and decide whether they like a shoe or not without visiting a physical store.”
Under the hood, Wannaby says it uses sophisticated “3D geometry algorithms” together with neural networks to identify the position of the shoe in space. It’s these algorithms that the startup says are its secret sauce and the company’s main innovation. To onboard sneakers into the app, Wannaby utilises its own studio to create bespoke 3D models.
“We’ve built Wanna Kicks for Gen Z and millennials who are interested in buying sneakers and eager to know whether they will fit their style or not,” adds Arkhangelskiy. “The AR and AI community will love our launch as well — we’ve accomplished a really difficult task in computer vision and rendering.”
Meanwhile, Wannaby is backed by Bulba Ventures and Haxus. The startup has raised $2 million in seed funding to date.
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Altice to acquire majority stake in OTT startup Molotov
Telecom company Altice is about to close a significant investment in French startup Molotov — the two companies have entered into exclusive negotiations. While terms of the deal are undisclosed, Altice is investing a large sum of money and should end up with a majority stake in Molotov — it’s more like a fundraising round than a traditional acquisition.
“We’re doing a 60/40 deal,” Molotov co-founder and CEO Jean-David Blanc told me. “Altice is taking 60 percent of Molotov. Existing investors remain shareholders and are even putting more money for some.”
Molotov had raised around $35 million from Idinvest (Benoist Grossmann), Sky, TDF, Cherry Tree Invest and others. This is an interesting move as it greatly increases the reach of Molotov and opens up some new opportunities when it comes to internationalization, content and more.
“Altice is also bringing access to cash, content, marketing and countries,” Blanc said.
Molotov is an over-the-top streaming platform in France. You can find all major TV channels, stream live content and watch replays for free. There are optional subscriptions to unlock more features, such as cloud recordings and premium channels.
The service is available on all major platforms — desktop, mobile, tablet, Apple TV, Android TV, Amazon Fire TV, smart TVs from Samsung, LG, Panasonic, etc. It is one of the most popular apps on tvOS and Android TV, always at the top of the stores with Netflix and myCanal.
When I last covered Molotov, the company told me that it has 7 million users in France. Every day, 1.2 million users watch something on Molotov. They stream a total of 1.1 million hours of content. As you can see, those Molotov sessions can be quite long.
Altice currently operates in France under the name SFR, Israel, Portugal and Dominican Republic. Like many telecom companies, Altice and its founder Patrick Drahi also has invested in content and media.
The company owns NextRadioTV (BFM TV, BFM Business, BFM Paris, RMC Story and RMC Découverte). It operates premium sports channels, as the company currently has the distribution rights of the Premier League in France. It owns different newspapers and magazines, such as Libération and L’Express.
Interestingly, Altice has also acquired video adtech company Teads. You could already imagine new monetization opportunities for Molotov and Teads.
As Altice has already negotiated distribution rights with every TV network in France for its own set-top boxes, you can imagine a better offering on Molotov in the coming months. For instance, you could imagine being able to subscribe to Canal+ or BeIN Sports from Molotov. Restrictions on some channels, such as TF1 and M6, will likely disappear, as well.
Molotov is already thinking about new products. For instance, hotel chains have been asking for a special version of Molotov so that they can get rid of their complicated TV setup. Now, Molotov can collaborate with Altice’s B2B division to sell a software-as-a-service version of Molotov.
While the service will remain available to everyone even, if you’re an Orange subscriber for instance, SFR customers will get an extended version of Molotov for free. Altice will keep the name Molotov.
Blanc will remain at the helm of Molotov and the company will remain more or less the same for now. “We won’t have employees moving from one company to the other. Obviously there will be interactions between the companies, but they’ll remain autonomous,” Blanc said.
With this open approach, Altice doesn’t just want to integrate the service into its offering. Molotov will remain an independent service and grow independently from Altice’s telecom operations.
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Pinterest puts an IPO on its pinboard, hiring Goldman Sachs and JPMorgan to lead an offering this year
Pinterest, the 11-year-old, San Francisco-based site known for the photos its users post about everything from wedding to beauty trends, has hired Goldman Sachs and JPMorgan Chase as lead underwriters for an IPO that it’s planning to stage later this year.
Reuters first reported the news. TechCrunch sources have since confirmed the development. A Pinterest spokesperson declined to “comment on rumors and speculation” when asked this afternoon for more information.
Pinterest has raised roughly $1.5 billion over the years and was valued at $12 billion by its private investors during its last fundraising round in 2017. Notably, its backers include Goldman Sachs Investment Partners, among many other investment firms, both early and later-stage, like Valiant Capital Partners, Wellington Management, Andreessen Horowitz and Bessemer Venture Partners.
The company’s revenue last year was $700 million, more than double what the company generated in revenue in 2017.
It has 250 million monthly active users, compared with the 200 million monthly active users who were on the platform as of mid 2017.
Whether Pinterest has ever been profitable, we couldn’t learn this afternoon. But the company employs 1,600 people across 13 cities globally, including Chicago, London, Paris, São Paulo, Berlin, and Tokyo, and half its users now live outside the U.S., with the international market its fastest-growing segment.
Perhaps unsurprisingly, more than 80 percent of people access the service via its mobile app.
Assessing how Pinterest’s shares might be received by public market shareholders has become a favorite parlor game for Silicon Valley denizens. In a recent report, the outlet The Information posited that Pinterest’s offering could suffer because it’s a social media company that’s frequently lumped together with companies like Facebook and Twitter that have repeatedly raised concerns about users’ privacy and have faced a nearly year-long backlash as a result.
Yet Pinterest is far afield from what most users think of as social media and more akin to a visual search and discovery platform, with people looking for ideas and inspiration rather than to reach other people. So thinks venture capitalist Venky Ganesan of Menlo Ventures, who noted on a recent TechCrunch podcast that “there are no Russian trolls” on Pinterest. More, he’d said, “I haven’t seen Pinterest sell [users’] data. They’re using data to [figure out] advertising on Pinterest; they aren’t brokering [that information] to others.”
Another potential concern for Pinterest is its reliance advertising, which is often the easiest expense for companies to slash when an economy begins to cool, as may be happening here in the U.S. Ads make up 100 percent of the company’s revenue. Here, too, however, Pinterest could prove more durable than some of its competitors. While brand-image driven advertising often gets cut when budgets tighten, direct response advertising often does even better in down markets, as companies seek out clearer returns on their investment, and much of Pinterest’s revenue is driven by direct response advertising. Users see, they click, and they buy. As Ganesan offered during that same podcast visit, “I’ve got three daughters at home, and they spend a lot of time on Pinterest, and they buy stuff.” (Ganesan isn’t an investor in the company; neither is the broader Menlo Ventures team.)
Pinterest could reportedly seek to raise up to $1.5 billion in an offering, according to past media reports. Whether it targets more or less, we’re likely to learn soon, but an IPO has been expected for some time, in part because the company is now getting up there in years as startups go, in part because of its continued growth, and in part because of some new hires that seemed to suggest the company has been gearing up to become publicly traded.
In November, for example, Pinterest brought aboard its first-ever chief marketing officer in Andréa Mallard, who joined the company from Athleta, Gap’s activewear brand, and who now oversees its global marketing and creative teams.
Roughly a year ago, Pinterest also recruited its first COO, hiring Francoise Brougher, who was previously a business lead at Square and a VP of SMB global sales and operations at Google before that.
In fact, unlike many of today’s buzziest companies, Pinterest seems to have retained almost all of the executives who work at the company with one notable exception, In late 2017, it parted ways with its then president, Tim Kendall, who’d been with Pinterest for more than five years at the time and who left to start his own health wellness company.
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Knotch raises $25M to help marketers collect data about their content
Knotch announced yesterday that it has raised $25 million in Series B funding.
The round was led by New Enterprise Associates, with NEA’s Hilarie Koplow-McAdams joining the Knotch board of directors. Rob Norman, the former chief digital officer of ad giant GroupM is also joining the board.
“Brands have a desire to understand the effectiveness of their digital content across all channels, a gap that hadn’t been filled before Knotch,” Koplow-McAdams said in a statement. “Our conviction around the Knotch platform and team is driven by their impressive traction and comprehensive product offerings. We’re thrilled to partner with Knotch as they continue their growth trajectory, providing transformative marketing intelligence at scale.”
When we first wrote about Knotch back in 2012, it was a consumer product where people could share their opinions using a color scale. It might seem like a stretch go from that to a marketing and data company, but in fact Knotch still collects data using its color-based feedback system — now, it’s using that system to ask consumers about their response to sponsored content.
In addition, Knotch offers a competitive intelligence product, as well as Blueprint, which helps marketers find the best publishers for their sponsored content.
“As [brands are building] their own content hubs and recognizing content as a really key piece of their marketing stack, as they’re turning to this space, there’s not a lot of great options for them to turn to and say, ‘Here’s a way to know in advance which creative themes and topics and formats [are going to resonate].’ Here’s how we optimize this content, here’s a way to benchmark what you’re doing,” founder and CEO Anda Gansca told me.
And it sounds like Gansca’s vision goes beyond sponsored content.
“In this convoluted landscape, you need a partner that is going to be your Switzerland of data, who’s aligned with you, collecting transparent digital performance data across paid and own channels,” she said.
Knotch has now raised a total of $34 million. Customers include JP Morgan Chase, AT&T, Ally Bank, Ford, Calvin Klein and Salesforce.
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Startup investors should consider revenue share when equity is a bad fit
Allie Burns is managing director of Village Capital, and co-author of a recent report, “Capital Evolving: Alternative Investment Strategies to Drive Inclusive Innovation.”
There is plenty of blame to go around for tech’s monoculture of thought and ideas: VC firms stacked with Ivy League-educated white male partners; a reluctance by investors to seed businesses outside a few major cities on the U.S. coasts; investors’ obsession with a narrow set of capital structures.
The most common option for funding early-stage ventures in the U.S. is equity. But stepping back to take a look at the bigger picture of American entrepreneurship, it becomes apparent that equity is not the right fit for many businesses.
In July 2018, the Kauffman Foundation found that at least 81 percent of American entrepreneurs do not access venture capital — or, for that matter, a bank loan. This reflects not only the obstacles founders face when trying to access financing — debt often requires significant collateral, for example — but also the fact that not every company’s business model provides the scale and quick exit that investors expect with an equity investment.
But what alternatives are out there?
Quite a few, actually.
Over the course of 2018, we interviewed more than 200 investors and asset managers to gauge their interest in various alternative capital strategies. We looked at everything from new fund vehicles to alternative decision-making processes, but the one option that received the most interest from investors — with 63.1 percent willing to explore or co-create such a structure — was revenue-based financing.
What is revenue-based financing?
Revenue-based financing isn’t some groundbreaking new idea, at least outside of the venture world. A revenue-share deal typically involves a capital investment that is later repaid from a share in the revenue of a growing business. It has historically been used to invest in businesses with potentially predictable cash flow and high profit margins, from Hollywood movies to high-margin service businesses.
But the concept has been gaining steam in the venture capital industry. An increasing number of venture funds are actively deploying revenue-share tools. Novel GP has a $12 million fund focused on revenue-share investments in software-as-a-service companies. Indie.vc recently raised their second $30 million fund that invests through a “profit-sharing” structure by which the fund receives disbursements based on net revenue or net income, depending on which is greater. Candide Group, Adobe Capital and our affiliated fund VilCap Investments are a few more examples.
Why now? The past few years have seen a swell of criticisms of Silicon Valley’s insular culture and broken power dynamics, as well as several high-profile disasters, from Theranos to Bodega. There’s been a welcome uptick in investors looking to branch out to overlooked and under-capitalized communities and industries.
Revenue share is not a silver bullet for all investment opportunities.
These investors will soon find that equity can often be a square peg for a round hole. Equity investments can work quite well for businesses that have a clear path to scale and exit. But many investors told us they see a gap in the market for companies that do not meet the requirements for traditional financing structures, but do reach profitability faster and grow revenue more quickly. The main benefit of a revenue-based financing vehicle is that it can provide a risk/return profile in “the middle” of traditional debt or equity.
This could mean better returns. A recent Cambridge Associates report found that, over a 10-year period, the stock market yields slightly higher return on capital than the average (equity-dominant) venture capital fund.
How would a revenue-share fund perform? After backdating a hypothetical revenue-share investment in the 30 companies, we found that, on average, it would take around 4.4 years to realize a 3x return on the initial investment amount, which ranged from $20,000 to $100,000.
Revenue share is not a silver bullet for all investment opportunities. Any revenue-share fund will face challenges in implementation. And investors are taking on the risk that the companies they support will gain traction in the market; if the companies fail to generate revenue, positive cash flow or profit (depending on the structure), the investors may not be able to recover any capital at all.
The structure also presents some challenges to entrepreneurs. The repayment obligation of revenue-share agreements can prevent startups from reinvesting revenue back into the company’s growth. This obligation could also scare away investors who are unfamiliar with revenue share and reluctant to invest in companies with outstanding commitments on their capitalization tables — which includes several of the investors we interviewed.
Finally, based on the experience of VilCap Investments and other practitioners like Candide Group, we’ve found that revenue-share financing is generally only appropriate up to a certain size of investment, generally between $50,000 and $500,000, depending on the expected return multiple and timeline, and the company’s annual growth rate and traction at time of investment.
When we talk about innovation in venture capital, it’s generally in the context of the new and transformative products and services that the companies we support are building. But as those of us in the investment community branch out to support businesses that are more reflective of the diversity of American entrepreneurship, we need to start innovating in investment structures and processes themselves.
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