Month: August 2020

The Gillmor Gang — Frank Radice, Michael Markman, Keith Teare, Denis Pombriant, Brent Leary, and Steve Gillmor . Recorded live Tuesday, August 11, 2020. For more, subscribe to the Gillmor Gang Newsletter and join the notification feed here on Telegram.

Produced and directed by Tina Chase Gillmor @tinagillmor

@fradice, @mickeleh, @denispombriant, @kteare, @brentleary, @stevegillmor, @gillmorgang
The Gillmor Gang on Facebook
…and here’s our sister show G3 on Facebook

Source: Tech Crunch

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter for your weekend enjoyment. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend enjoyment.

Ready? Let’s talk money, upstart companies and spicy IPO rumors.

Sadly the best news of the week isn’t a fit here

So far this little newsletter has bested performance expectations, and has quickly become my favorite thing to write each week. Sadly, however, it has a theme and a genre and a remit. Which means that I will not be writing its opening column on the Epic-Apple payment brouhaha. Alas.

But don’t worry. In our world of markets and startups there was a lot to get through.

Namely that a number of unicorns that you know by name appear to be edging closer and closer to going public. There are some big names that are either about to file, or are trending in the direction of public debuts, and we’re getting more and better information than before.

I tried to summarize a bit of this on Thursday, but let’s narrow and just talk IPO mechanics:

• Palantir may direct list in September. Is it a consultancy? Is it a software company? Is it a mix of both? Don’t know? Don’t want to price it? Just direct list it! Jokes aside that we are this close to a Palantir IPO is a combination of this and exciting. (More on its growth history here.)
• Airbnb’s IPO is not only back on, it could file this month and go public before the end of the year. And its second-quarter financials leaked. The damage in perspective: After $842 million in Q1 2020 revenue, the firm had a reported $341 million Q2. And in the year-ago Q2 it did north of a flat billy in top line.
• A coda on Airbnb. Lyft and Uber have not seen their value drop as far as their revenue has in 2020. So, there is a comeback story to be made that investors are willing to buy. That Uber and Lyft are still talking about adjusted profitability, of course, has helped their case. Still, if Airbnb can chart a path back to its former financial position, investors might be willing to overlook its summer results.
• Stripe hired a CFO. That’s a game-on, though we’re not really expecting a release inside of 2020.

Adding a little more, Coinbase is still expected to debut in perhaps early 2021, and DoorDash is somewhere in the wings.

And then there are the companies that are IPO-scale and just… not going public because they are enjoying extended grand tours of the late-stage startup market funded by the largesse of wealthy relatives. Or late-stage venture funds. Whatever. You get what I mean. Snowflake has annual recurring revenue of $400 million, and it is private. Wild.

We, the S-1-reading public, are hungry for the f****** numbers. Give them to us!

Market Notes

This week’s Market Notes is a bit different than usual as we have two longer topics, instead of a number of little notable entries.

The Exchange caught up with the CEOs of Wix and Cloudinary recently, to chat about their companies (the former is public, the latter is private) and how they are faring during COVID-19.

I know we’re all a bit tired of talking about the pandemic, but how it has changed the business landscape is probably the single biggest story of the year inside of our world. So, let’s see what we learned talking to the execs.

Cloudinary

• TechCrunch spoke with media-management service Cloudinary in January of 2020 because it was a company that had reached $60 million ARR without external capital. It has sold secondary shares here and there to external parties (Bessemer, Salesforce Ventures), but has paid for its own growth. In January, CEO Itai Lahan said that his company had never lacked what it needed to keep growing and “get to the next level.”
• So, what’s happening over at Cloudinary now that we are deep in the pandemic business cycle? Likening his company to a bulldozer when discussing how Cloudinary operates compared to some startups, Lahan said that his market was varied: E-commerce as a segment is not growing as fast as the company had expected, but social customers had grown quickly in April, and so forth.
• Cloudinary itself is still growing, and its CEO stressed that it has not had to lay off staff during the pandemic. Cloudinary did burn a little cash for a few months earlier in the year, but remains self-powered with sufficient resources in the CEO’s view.
• Cloudinary’s marketing VP Sanjay Sarathy was on the call as well, so I asked him if he agreed with Lahan about having all the resources he needs. He predictably agreed, but stressed something that stayed in my head. According to Sarathy, having both self-serve and enterprise sales has been useful; with two paths to market Cloudinary can balance one with the other, making me wonder why more companies don’t do the same.
• Finally the three of us riffed on the impact that high valuations have on some startup choices. If ARR is highly valued by investors, then startups might pursue less-efficient growth than they otherwise might because they are in some way incentivized to do so. Cloudinary isn’t chasing VC markups in the same way, so it’s world is a bit different. The company remains hugely interesting, and we’ll check back in with them in a few months.

Wix

• Wix recently reported earnings, and I got on the phone with its CEO Avishai Abrahami to chat about its results, and most notably its pandemic-era marketing spend. When some companies are cutting costs and lowering spend, Wix put $119.3 million into sales and marketing in Q2, up from $95.2 million in Q1 2020 and $71.3 million in Q2 2019.
• What up with that? In short Wix caught the digital transformation acceleration tailwinds and decided instead of just enjoying a boost to invest lots in growing even faster. That cost money, but the firm is pretty stoked about how short its payback cycle is for those expenses. The company said that more than half of its Q2 marketing spend (60%) has been returned to the company in cash terms (some of the revenue is unearned, of course, and will be prorated over time).
• “We are responding to this continued heightened demand by increasing our investment in marketing, which based on our historical data, will drive continued collections and revenue growth in the near future,” the company said during its earnings cycle.
• During our conversation Abrahami said that even in places where the pandemic has settled down a bit, the world has not gone back to what it was pre-pandemic. The acceleration of the digital transformation then, is perhaps not a short-term bump, but a whole-cloth reordering of how business happens.
• Wix also launched a number of products include some ecommerce tooling towards the end of 2019, which Abrahami described as well-timed. He also stressed that COVID-19 is awful and that good business results don’t mean that he’s happy with the state of the world.

So, Cloudinary is chugging along with a slightly uneven growth profile depending on the niche in question. Wix is seeing a perhaps broader acceleration. But both companies are going to come out on the other side of COVID-19 in fine shape. We just hope that Cloudinary still goes public in due time. We want that S-1!

Various and Sundry

• On Equity this week we dug into how Gen Z is changing fundraising by making it fun and good and bringing attention into the matrix of things that prove market-fit.
• I covered Cube’s $5 million seed round, which stood out for the part of the market they are tackling, and Mux’s $37 million Series C. Mux does video APIs so that any company can bring video into their service natively. As you can imagine, it’s been busy.
• Duck Creek priced its IPO at $27 per share after raising its range earlier this week to $23  to $25 per share. The company’s stock opened at $42 per share, up 56%.
• This week The Exchange was super happy to welcome another author for the first time: Natasha Mascarenhas whom you might know from the Equity podcasting crew. You can read her first entry here, as she was kind enough to fill in for me on my day off.
• The fintech software-and-card world took a neat turn this week when Ramp added more code to its corp card business. It’s a startup we’ve kept tabs on since its launch earlier this year, and it has managed to grow during the spend-reducing pandemic, which is neat.
• The Gong round was cool, with the company valued at $2.2 billion after a fresh $200 million in capital. Oh, and it has grown 2.5x this year.

And we have to cut it there as we’re out of room. Thanks for hanging out with us today!

Hugs, fistbumps, and good vibes,

Alex

Source: Tech Crunch

Every year hackers descend on Las Vegas in the sweltering August heat to break ground on security research and the most innovative hacks. This year was no different, even if it was virtual.

To name a few: Hackers tricked an ATM to spit out cash. A duo of security researchers figured out a way to detect the latest cell site simulators. Car researchers successfully hacked into a Mercedes-Benz. A Windows bug some two decades old can be used to plant malware. Cryptocurrency exchanges were extremely vulnerable to hackers for a time. Internet satellites are more insecure than we thought and their data streams can contain sensitive, unencrypted data. Two security researchers lived to tell the tale after they were arrested for an entirely legal physical penetration test. And, a former NSA hacker revealed how to plant malware on a Mac using a booby-trapped Word document.

But with less than three months until millions of Americans go to the polls, Black Hat sharpened its focus on election security and integrity more so than any previous year.

Here’s more from the week.

THE BIG PICTURE

A major voting machine maker is finally opening up to hackers

The relationship between hackers and election machine manufacturers has been nothing short of fraught. No company wants to see their products torn apart for weaknesses that could be exploited by foreign spies. But one company, once resistant to the security community, has started to show signs of compromise.

Election equipment maker ES&S is opening up its voting machines to hackers — willingly — under a new vulnerability disclosure program. That will see the company embrace hackers for the first time, recognizing that hackers have knowledge, insight and experience — rather than pushing them away and ignoring the problems altogether. Or, as the company’s security chief told Wired: “Hackers gonna hack, researchers gonna research.”

Source: Tech Crunch

Tesla CEO Elon Musk acknowledged Friday that the company was ‘embarrassingly late’ rolling out a security layer known as two-factor authentication for its mobile app.

“Sorry, this is embarrassingly late. Two factor authentication via sms or authenticator app is going through final validation right now,” Musk wrote Friday in response to a question from a Twitter follower.

Musk said in April that the additional security layer was “coming soon.” He first mentioned that the company would add two-factor authentication back in May 2019. Tesla owners have stepped up their calls for two-factor authentication as the rest of the tech community has adopted the security feature.

Two-factor authentication — also known as two-step verification — combines something you know, like a password, with something you have, like your phone. This is a way to verify that the real account holder — or car owner — is logging in and not a hacker.

Some websites do this by sending you a code by text message. But hackers can intercept these. A more secure way of doing it is by sending a code through a phone app, often called an authenticator, which security experts prefer.

Beefing up the security on the Tesla mobile app is particularly pressing. The Tesla app is a critical tool for owners, giving them control over numerous functions on their vehicles.

When Bluetooth is enabled, the Tesla app allows drivers to use their phone as a key to Tesla’s newer vehicle models. The app also lets the user remotely lock and unlock the doors, trunk and frunk, turn on the HVAC system, monitor and control charging, locate the vehicle and schedule service — to name a few of the main capabilities.

These days, two-factor authentication is common and widely employed to stop hackers from using stolen passwords to break into users’ accounts. What’s unclear with Tesla is whether the two-factor tool will rely on SMS or a phone app. Musk said the final validation was for SMS “or” authenticator app, a statement that leaves that critical question unanswered.

Source: Tech Crunch

The controversial facial recognition software maker Clearview AI has a new contract with ICE, the most controversial U.S. government agency. Clearview was already known to work with the branch of Homeland Security fiercely criticized for implementing the Trump administration’s harsh immigration policies. The new contract makes it clear that relationship is ongoing — and that Clearview isn’t just playing a bit part in tech’s lucrative scrum for federal contracts.

First spotted by tech watchdog Tech Inquiry, the new contract is worth $224,000 and will provide the agency with what is only described as “Clearview licenses,” likely just access to the company’s software services. According to the award notice, the funding office for the contract is Homeland Security Investigations (HSI), a division within ICE that focuses on “cross-border criminal activity,” including drug and human trafficking. Four companies competed for the contract.

Clearview is no stranger to controversy. Its somewhat mysterious facial recognition software allows clients to upload a photo of anyone to cross-reference it against a massive database full of photos scraped from online sources, including social networks. Civil liberties groups see Clearview’s tech as a privacy nightmare, but for any law enforcement agency tasked with tracking down people, it’s a dream come true.

Clearview has faced near-constant scrutiny from privacy advocates and even large tech companies since the quiet company was exposed in a report this January. Facebook, Google, Linkedin, Twitter and YouTube have all denounced Clearview’s use of data scraped from their platforms, with some of those companies even authoring cease-and-desist letters for violating their terms of service.

In May, the ACLU announced that it was suing Clearview over privacy violations. That suit wields the Illinois Biometric Information Privacy Act (BIPA) against the company, the same law that previously extracted a $550 million settlement from Facebook on behalf of Illinois residents.

“Companies like Clearview will end privacy as we know it, and must be stopped,” ACLU Senior Staff Attorney Nathan Freed Wessler said of the lawsuit.

Source: Tech Crunch

In the four years since Help Lightning first began pitching its services out of its Birmingham, Ala. headquarters, the company has managed to sign up 100 customers including some large Fortune 500 companies like Cox Communications, Siemens, and Boston Scientific.

Now, with an additional $8 million in financing from Resolve Growth Partners, the company is hoping to expand its sales and marketing efforts and continue to refine its product.

The technology was initially invented by Bart Guthrie, a neurosurgeon at the University of Alabama at Birmingham, who wanted a way to improve telepresence technologies so he could assist with remote surgeries.

What Guthrie developed was a technology that could merge video streams to that experts could remotely monitor, manage, and assist in everything from service repairs to surgery.

“Think of it as a video call on steroids,” says Gary York, the company’s chief executive officer. A serial entrepreneur, York was brought on board by Guthrie to help commercialize the technology four years ago.

The technology works on any android or iOS device and is accessed through a mobile browser. The company now boasts over 100 customers including Cox, Canon, Unisys, and Boston Scientific. And its usage has soared since the advent of the pandemic, according to York.

“We saw call volume quadruple,” he said.

For instance, Cox Communications uses the technology to provide virtual trouble shooting to replace in-home service visits for customers. At Siemens, service technicians who fix medical imaging and lab diagnostic equipment can use the Help Lightning to link up with experts to troubleshoot fixes in real time. York would not comment on pricing, but said that the company provides custom quotes based on usage.

“After evaluating the virtual expertise software market for over a year, our diligence is clear that Help Lightning has built a highly differentiated solution that is valued by its customers” said Jit Sinha, co-founder and Managing Director from Resolve, in a statement earlier this week. “Help Lightning has a tremendous opportunity to power the success of this rapidly emerging market. We’re thrilled to be partnering with Gary York and his talented team.”

Source: Tech Crunch

Facebook joined the growing ranks of companies publicly complaining about the 30% fee that Apple collects on payments made through its App Store.

Those complaints came midway through a blog post about the social network’s new feature supporting paid online events. Facebook said that to support struggling businesses, it won’t be collecting any fees on those events, at least for the next year, which means that those businesses keep 100% of payments on the web and on Android.

But Facebook said that won’t be the case on iOS, due to App Store fees, and it took aim at Apple with surprisingly direct language (at least, direct for a corporate blog post):

We asked Apple to reduce its 30% App Store tax or allow us to offer Facebook Pay so we could absorb all costs for businesses struggling during COVID-19. Unfortunately, they dismissed both our requests and SMBs will only be paid 70% of their hard-earned revenue. Because this is complicated, as long as Facebook is waiving its fees, we will make all fees clear in our products.

iOS purchase flow on left, Android purchase flow on right

To that end, the post includes screenshots of how the events payment flow will look on iOS and Android. On Android, it says, “Facebook doesn’t take a fee from this purchase,” while on iOS, it says, “Apple takes 30% of this purchase.”

Facebook said this language is included in the app update “which we submitted to Apple today for approval” — suggesting that there’s a possibility that the update won’t be approved.

This comes just about 24 hours after Fortnite was removed from the App Store, after Epic Games introduced direct payments into its hit game. It seemed like Epic was intentionally trying to provoke a fight, with the company quickly announcing a lawsuit against Apple and releasing a short in-game video parodying Apple’s famous 1984 commercial, with Apple cast as the villain. (The game publisher is in a similar battle with Google and Android.)

While Apple’s 30% fee has been around for as long as the App Store, the issue came to the forefront earlier this summer after developer Basecamp got into a public feud with the company over its subscription email app Hey. Apple’s Phil Schiller told us at the time that the controversy was not prompting the company to reconsider any of its rules.

Source: Tech Crunch

Welcome back to Human Capital, where we look at all things labor and diversity, equity and inclusion. This week, Uber and Lyft’s legal battle against a California law pertaining to independent contractors continued. As of right now, it’s looking like Uber and Lyft are going to temporarily cease operations in California next week if they can’t get their way.

Meanwhile, Pinterest employees reached their breaking point when former COO Françoise Brougher sued Pinterest alleging gender discrimination and wrongful termination. Now, they’re demanding systemic change at the company in light of the latest allegation of discrimination. 

Gig Life

Uber and Lyft say they’ll have to temporarily pause operations in California

A lot happened with Uber and Lyft this week, so let’s break down exactly what transpired. But first, a quick recap of the events leading up Uber threatening to cease operations in California. 

Jan 1, 2020: Assembly Bill 5 becomes law. The bill, first introduced in December 2018, codified the ruling established in Dynamex Operations West, Inc. v Superior Court of Los Angeles. In that case, the court applied the ABC test and decided Dynamex wrongfully classified its workers as independent contractors. According to the ABC test, in order for a hiring entity to legally classify a worker as an independent contractor, it must prove (A) the worker is free from the control and direction of the hiring entity, (B) performs work outside the scope of the entity’s business and (C) is regularly engaged in an “independently established trade, occupation, or business of the same nature as the work performed.”

May 2020: CA Attorney General Xavier Becerra, along with city attorneys from Los Angeles, San Diego and San Francisco, filed a lawsuit asserting Uber and Lyft gain an unfair and unlawful competitive advantage by misclassifying workers as independent contractors.

The suit argues Uber and Lyft are depriving workers the right to minimum wage, overtime, access to paid sick leave, disability insurance and unemployment insurance. The lawsuit, filed in the Superior Court of San Francisco, seeks $2,500 in penalties for each violation, possibly per driver, under the California Unfair Competition Law, and another $2,500 for violations against senior citizens or people with disabilities. 

June 2020: Becerra and others file motion for a preliminary injunction seeking to force Uber and Lyft to immediately classify their drivers as employees.

August 6, 2020: CA Superior Court Judge Ethan P. Schulman hears arguments pertaining to the preliminary injunction. At the hearing, Uber and Lyft maintained that an injunction would require them to restructure their businesses in such a material way that it would prevent them from being able to employ many drivers on either a full-time or part-time basis. Uber and Lyft’s argument, effectively, is that classifying drivers as employees would result in job loss.

“The proposed injunction would cause irreparable injury to Lyft and Uber, and would actually cause massive harm to drivers and harm to riders,” Rohit Singla, counsel for Lyft, said at the hearing.

For example, Lyft estimates it would cost hundreds of millions of dollars simply to process the I-9 forms, which verify employment eligibility. It doesn’t cost anything to file that form, but it would require Uber and Lyft to further invest in their human resources and payroll processes.

August 9, 2020: Judge Schulman grants the preliminary injunction, which goes into effect on August 20, 2020. 

“The Court is under no illusion that implementation of its injunction will be costly,” Judge Schulman wrote in the order. “There can be no question that in order for Defendants to comply with A.B. 5, they will have to change the nature of their business practices in significant ways, such as by hiring human resources staff to hire and manage their driver workforces.”

Meanwhile, Uber and Lyft made clear their respective plans to file emergency appeals. 

August 12, 2020: Uber CEO Dara Khosrowshahi says Uber will have to temporarily shutdown in California if the court doesn’t overturn the preliminary injunction. Lyft says it, too, will be forced to temporarily cease operations in California.

August 13, 2020: Judge Schulman denies Uber and Lyft’s appeal. Uber says it plans to file another appeal while Lyft says it will seek a further stay from the state’s appellate court. 

Looking ahead

August 20, 2020: Preliminary injunction is set to go into effect and Uber and Lyft will likely be temporarily ceasing operations in California.

November 2020: Californians will vote on Prop 22, a ballot measure majorly funded by Uber, Lyft and DoorDash. Prop 22 aims to keep gig workers classified as independent contractors. The measure, if passed, would make drivers and delivery workers for said companies exempt from a new state law that classifies them as W-2 employees. 

The ballot measure looks to implement an earnings guarantee of at least 120% of minimum wage while on the job, 30 cents per mile for expenses, a healthcare stipend, occupational accident insurance for on-the-job injuries, protection against discrimination and sexual harassment and automobile accident and liability insurance.

Stay Woke

Pinterest’s fall from grace

Back in 2015, Pinterest was known as one of the companies doing some of the best work around diversity, equity and inclusion. That perception changed this year. 

Pinterest was one of the first tech companies to set concrete hiring goals. In 2015, those goals were to increase hiring rates for full-time engineering roles to 30 percent female, increase hiring rates for full-time engineers to 8 percent from underrepresented ethnic backgrounds; increase hiring rates for non-engineering roles to 12 percent from underrepresented backgrounds; and implement a Rooney Rule requirement where at least one person from an underrepresented background and one female candidate is interviewed for every open leadership position.

Pinterest was also one of the first companies to hire a head of diversity and inclusion. In 2016, Pinterest hired Candice Morgan for the role. Morgan left the company earlier this year and joined VC firm GV as its equity, diversity and inclusion partner. Still, Morgan had one of the longest stints at any tech company’s diversity and inclusion department.

In the company’s 2020 diversity report, Pinterest showed it beat all of its hiring goals but what was missing from that report was retention data. When TechCrunch asked in January if they would make the data available, a Pinterest spokesperson said, “unfortunately, we can’t share the retention metrics publicly, but it will continue to be an internal priority.”

Now, transparency about retention data is just one of a handful of demands Pinterest employees have. Two days ago, former Pinterest COO Françoise Brougher sued the company, alleging gender discrimination, retaliation and wrongful termination. Prior to that, Aerica Shimizu Banks and Ifeoma Ozoma, also accused Pinterest of discrimination.

In light of those allegations, Pinterest employees are walking out today to demand change at the company. The walkout is directly in response to recent accusations of racial and gender discrimination at Pinterest. In addition to the walkout, there’s a petition circulating throughout the company demanding systemic change. The change they seek entails full transparency about promotion levels and retention, total compensation package transparency and for the people within two layers of reporting to the CEO to be at least 25% women and 8% underrepresented employees.

Don’t Miss

Triplebyte incubates ColorStack to increase Black and Latinx representation in CS programs

A beginner’s guide to diversity, equity and inclusion

Source: Tech Crunch

Businesses will now be able to monetize online events on Facebook, thanks to a new feature that the social network is launching in the United States and 19 other countries today.

In a call with reporters, Head of Facebook App Fidji Simo said that Facebook’s Events feature was designed for in-person events, but with the COVID-19 pandemic and resulting social distancing orders, the company “really quickly pivoted” to supporting online events.

In fact, Simo said that in June of this year, live broadcasts on Facebook Pages doubled compared to the same period in 2019.

Simo also outlined the new feature in a Facebook blog post. Businesses will be able to host larger events through Facebook Live, and the company is also testing the ability to host smaller, more interactive gatherings in Messenger Rooms. The goal is to give business owners the ability to create the event, set the price, promote the event, collect the payment and host the event itself all from one place.

Apparently some of the paid events that  have already been organized during tests with early users include talks, trivia, podcast recordings, boxing matches, cooking classes, meet-and-greets and fitness classes.

iOS purchase flow on left, Android purchase flow on right

“With social distancing mandates still in place, many businesses and creators are bringing their events and services online to connect with existing customers and reach new ones,” Simo wrote. “People are also relying on live video and interactive experiences more when they can’t come together physically.”

Simo said Facebook will not be collecting any fees from paid online events for at least the next year year. So on the web and on Android “in countries where we have rolled out Facebook Pay,” businesses should be able to keep 100% of their online events revenue. That won’t, however, be the case on iOS, and Simo’s blog post includes a surprisingly direct dig at Apple:

We asked Apple to reduce its 30% App Store tax or allow us to offer Facebook Pay so we could absorb all costs for businesses struggling during COVID-19. Unfortunately, they dismissed both our requests and SMBs will only be paid 70% of their hard-earned revenue. Because this is complicated, as long as Facebook is waiving its fees, we will make all fees clear in our products.

To that end, the post also includes an iOS screenshot (“which we submitted to Apple today for approval”) showing that the purchase button will include a small text message saying “Apple takes 30% of this purchase” beneath the purchase button (vs. “Facebook doesn’t take a fee from this purchase” on Android).

Source: Tech Crunch