Author: folgado

The Wall Street Journal published a thought-provoking story this week, highlighting limited partners’ concerns with the SoftBank Vision Fund’s investment strategy. The fund’s “decision-making process is chaotic,” it’s over-paying for equity in top tech startups and it’s encouraging inflated valuations, sources told the WSJ.

The report emerged during a particularly busy time for the Vision Fund, which this week led two notable VC deals in Clutter and Flexport, as well as participated in DoorDash’s $400 million round; more on all those below. So given all this SoftBank news, let us remind you that given its $45 billion commitment, Saudi Arabia’s Public Investment Fund (PIF) is the Vision Fund’s largest investor. Saudi Arabia is responsible for the planned killing of dissident journalist Jamal Khashoggi.

Here’s what I’m wondering this week: Do CEOs of companies like Flexport and Clutter have a responsibility to address the source of their capital? Should they be more transparent to their customers about whose money they are spending to achieve rapid scale? Send me your thoughts. And thanks to those who wrote me last week re: At what point is a Y Combinator cohort too big? The general consensus was this: the size of the cohort is irrelevant, all that matters is the quality. We’ll have more to say on quality soon enough, as YC demo days begin on March 18.

Anyways…

• Pinterest is going public!

Surprise! Sort of. Not really. Pinterest has joined a growing list of tech unicorns planning to go public in 2019. The visual search engine filed confidentially to go public on Thursday. Reports indicate the business will float at a $12 billion valuation by June. Pinterest’s key backers — which will make lots of money when it goes public — include Bessemer Venture Partners, Andreessen Horowitz, FirstMark Capital, Fidelity and SV Angel.

• Lyft’s IPO is imminent 

Ride-hailing company Lyft plans to go public on the Nasdaq in March, likely beating rival Uber to the milestone. Lyft’s S-1 will be made public as soon as next week; its roadshow will begin the week of March 18. The nuts and bolts: JPMorgan Chase has been hired to lead the offering; Lyft was last valued at more than $15 billion, while competitor Uber is valued north of $100 billion.

• Deal of the week: DoorDash

Despite scrutiny for subsidizing its drivers’ wages with customer tips, venture capitalists plowed another $400 million into food delivery platform DoorDash at a whopping $7.1 billion valuation, up considerably from a previous valuation of $3.75 billion. The round, led by Temasek and Dragoneer Investment Group, with participation from previous investors SoftBank Vision Fund, DST Global, Coatue Management, GIC, Sequoia Capital and Y Combinator, will help DoorDash compete with Uber Eats. The company is currently seeing 325 percent growth, year-over-year.

• Clutter & Flexport

Here are some more details on those big Vision Fund Deals: Clutter, an LA-based on-demand storage startup, closed a $200 million SoftBank-led round this week at a valuation between $400 million and $500 million, according to TechCrunch’s Ingrid Lunden’s reporting. Meanwhile, Flexport, a five-year-old, San Francisco-based full-service air and ocean freight forwarder, raised $1 billion in fresh funding led by the SoftBank Vision Fund at a $3.2 billion valuation. Earlier backers of the company, including Founders Fund, DST Global, Cherubic Ventures, Susa Ventures and SF Express all participated in the round.

Here’s your weekly reminder to send me tips, suggestions and more to kate.clark@techcrunch.com or @KateClarkTweets. 

• Fresh funds

Menlo Ventures has a new $500 million late-stage fund. Dubbed its “inflection” fund, it will be investing between $20 million and $40 million in companies that are seeing at least $5 million in annual recurring revenue, growth of 100 percent year-over-year, early signs of retention and are operating in areas like cloud infrastructure, fintech, marketplaces, mobility and SaaS. Plus, Allianz X, the venture capital arm attached to German insurance giant Allianz, has increased the size of its fund to $1.1 billion and London’s Entrepreneur First brought in $115 million for what is one of the largest “pre-seed” funds ever raised.

• Startup cash

Flipkart co-founder invests $92M in Ola
Redis Labs raises a $60M Series E round
Chinese startup Panda Selected nabs $50M from Tiger Global
Image recognition startup ViSenze raises $20M Series C
Circle raises $20M Series B to help even more parents limit screen time
Showfields announces $9M seed funding for a flexible approach to brick-and-mortar retail
Podcasting startup WaitWhat raises $4.3M
Zoba raises $3M to help mobility companies predict demand

• Uber Eats India may sell to Swiggy

According to Indian media reports, Uber is in the final stages of selling its Indian food delivery business to local player Swiggy, a food delivery service that recently raised $1 billion in venture capital funding. Uber Eats plans to sell its Indian food delivery unit in exchange for a 10 percent share of Swiggy’s business. Swiggy was most recently said to be valued at $3.3 billion following that billion-dollar round, which was led by Naspers and included new backers Tencent and Uber investor Coatue.

• New unicorn

Lalamove, a Hong Kong-based on-demand logistics startup, is the latest venture-backed business to enter the unicorn club with the close of a $300 million Series D round this week. The latest round is split into two, with Hillhouse Capital leading the “D1” tranche and Sequoia China heading up the “D2” portion. New backers Eastern Bell Venture Capital and PV Capital and returning investors ShunWei Capital, Xiang He Capital and MindWorks Ventures also participated.

• Founders Fund gets Keith Rabois

Longtime investor Keith Rabois is joining Founders Fund as a general partner. Here’s more from TechCrunch’s Connie Loizos: “The move is wholly unsurprising in ways, though the timing seems to suggest that another big fund from Founders Fund is around the corner, as the firm is also bringing aboard a new principal at the same time — Delian Asparouhov — and firms tend to bulk up as they’re meeting with investors. It’s also kind of time, as these things go. Founders Fund closed its last flagship fund with $1.3 billion in 2016.”

• Listen to me talk

If you enjoy this newsletter, be sure to check out TechCrunch’s venture capital-focused podcast, Equity. In this week’s episode, available here, Crunchbase News editor-in-chief Alex Wilhelm and I discuss Pinterest’s IPO, DoorDash’s big round and SoftBank’s upset LPs.

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Source: Tech Crunch

“I’m a fighter. I believe in our people, I believe in our mission, and I believe that it should exist and must exist.”

Sebastian Thrun is talking animatedly about Udacity, the $1 billion online education startup that he co-founded nearly eight years ago. His tone is buoyant and hopeful. He’s encouraged, he says over an occasionally crackly phone call, about the progress the company has made in such a short time. There’s even a new interim COO, former HP and GE executive Lalit Singh, who joined just days ago to help Thrun execute this newly formed strategy.

That wasn’t the case four weeks ago.

In a lengthy email, obtained by TechCrunch, Thrun lobbed an impassioned missive to the entire company, which specializes in “nanodegrees” on a range of technical subjects that include AI, deep learning, digital marketing, VR and computer vision.

It was, at times, raw, personal and heartfelt, with Thrun accepting blame for missteps or admitting he was sleeping less than four hours a night; in other spots the email felt like a pep talk delivered by a coach, encouraging his team by noting their spirit and tenacity. There were moments when he exhibited frustration for the company’s timidness, declaring “our plans are ridden of fear, of trepidation, we truly suck!” And moments just as conciliatory, where he noted that “I know every one of you wants to double down on student success. I love this about us.”

Thrun has sent spirited emails before. Insiders say it’s not uncommon and that as a mission-driven guy he often calls on employees to take risks and be creative. But this one stood out for its underlying message.

If there was a theme in the email, it was an existential one: We must act, and act now or face annihilation.

“It was a rallying cry, to be honest,” Thrun told TechCrunch. “When I wrote this email, I really wanted to wake up people to the fact that our trajectory was not long-term tenable.”

“I can tell you that I woke up the troops, that is absolutely sure,” he said later. “Whether my strategy is sound, only time can tell.”

Thrun said the past month has been transformative for the company. “It was a tough moment when I had to look at the business, look at the financials, look at the people in the company,” Thrun said, adding, “And the people in the company are amazing. I really believe in them, and I believe that they’re all behind the mission.”

A tough year

Part of Udacity’s struggles were borne out of its last funding round in 2015, when it raised $105 million and became a unicorn. That round and the valuation set high expectations for growth and revenue.

But the company started hitting those targets and 2017 became a breakout year.

After a booming 2017 — with revenue growing 100 percent year-over-year thanks to some popular programs like its self-driving car and deep learning nanodegrees and the culmination of a previous turnaround plan architected by former CMO Shernaz Daver — the following year fizzled. Its consumer business began to shrink, and while the production quality of its educational videos increased, the volume slowed.

“In 2018, we didn’t have a single a blockbuster,” Thrun said. “There’s nothing you can point to and say, ‘Wow, Udacity had a blockbuster.’ “

By comparison, the self-driving car engineering nanodegree not only was a hit, it produced a successful new company. Udacity vice president Oliver Cameron spun out an autonomous vehicle company called Voyage.

Udacity CEO Vishal Makhijani left in October and Thrun stepped in. He took over as chief executive and the head of content on an interim basis. Thrun, who founded X, Google’s moonshot factory, is also CEO of Kitty Hawk Corp., a flying-car startup.

His first impression upon his return was a company that had grown too quickly and was burdened by its own self-inflicted red tape. Staff reductions soon followed. About 130 people were laid off and other open positions were left vacant, Thrun said.

Udacity now has 350 full-time employees and another 200 full-time contractors. The company also has about 1,000 people contracted as graders or reviewers.

“An emphasis, when I rejoined, was to cut complexity and focus the company on the things that are working,” he said. 

One area where Udacity seemed to excel had also created an impediment. The quality of Udacity’s video production resulted in Hollywood-quality programming, Thrun said. But that created a bottleneck in the amount of educational content Udacity could produce.

Udacity’s content makers — a staff of about 140 people — released nearly 10 nanodegrees in 2018. Today, as a result of cuts, only 40 content creators remain. That smaller team completed about five nanodegrees in the first quarter of 2019, Thrun said.

Last year, it took between 10 to 12 people, and more than $1 million, to build one nanodegree, Thrun said. “Now it’s less than 10 percent of that.”

The company was able to accomplish this, he said, by changing its whole approach to video with taping, edits and student assessments happening in real time.

Udacity, under Thrun’s direction, has also doubled down on a technical mentorship program that will now match every new student with a mentor. Udacity has hired about 278 mentors who will work between 15 and 20 hours a week on a contract basis. The company is targeting about 349 mentors in all.

Students are also assigned a cohort that is required to meet (virtually) once a week.

Thrun described the new mentor program as the biggest change in service in the entire history of Udacity. “And we literally did this in two weeks,” he said. 

The strategy has met with some resistance. Some employees wanted to test the mentorship program on one cohort, or group of students, and expand from there. Even since these recent changes, some employees have expressed doubts that it will be enough, according to unnamed sources connected to or within the company.

Even Thrun admits that the “fruit remains to be seen,” although he’s confident that they’ve landed on the right approach, and one that will boost student graduation rates and eventually make the company profitable.

“If you give any student a personalized mentor that fights for them, and that’s the language I usually use, then we can bring our graduation rate, which is at about 34 percent to 60 percent or so,” he said. “And for online institutions 34 percent is high. But we have programs in that graduate more than 90 percent of our students.”

Udacity doesn’t share exact numbers on post-graduation hiring rates. But the company did say thousands of Udacity alumni have been hired by companies like Google, AT&T, Nvidia and others in the U.S., Europe, India and China.

In the U.S. and Canada, graduates with new jobs reported an annual salary increase of 38 percent, a Udacity spokesperson shared.

Indeed, Udacity has had some successes despite its many challenges.

Bright spots

Udacity has continued to increase revenue, although at a slower rate than the previous year-over-year time period. Udacity said it generated $90 million in revenue in 2018, a 25 percent year-over-year increase from 2017.

Udacity had informally offered enterprise programs to clients like AT&T. But in September, the company made enterprise a dedicated product and hired a VP of sales to bring in new customers.

Udacity has added 20 new enterprise clients from the banking, insurance, telecom and retail sectors, according to the company. There are now 70 enterprise customers globally that send employees through Udacity programs to gain new skills.

It continues to expand its career services and launched 12 free courses, built in collaboration with Google, with nearly 100,000 enrollments. It has also funded more than 1.1 million new partial and full scholarships to its programs for students across North America, Europe, the Middle East and Asia. About 21% of all Udacity Nanodegree students in the Grow with Google program in Europe have received job offers, according to Google.

The company also has a new initiative in the Middle East, where it teaches almost a million young Arab people how to code, Thrun said, an accomplishment he says is core to his mission.

Udacity isn’t profitable yet on an EBITDA basis, Thrun shared, but the “unit economics per students, and on a gross margin basis, are good.”

Now, it comes down to whether Thrun’s push to become faster, more efficient and nimble, all while investing in student services and its enterprise product, will be enough to right the ship.

“I really believe if you can get to the point that students come to us and we bend over backwards to ensure their success, we will be a company that has a really good chance of lasting for a lifetime,” he said. 

“And if it doesn’t work, then we’ll adjust, like any other company. We can always shift.”

Source: Tech Crunch

José Ancer is first of all a startup lawyer, with a client portfolio of startups of various stages based around Texas and other similar ecosystems outside of Silicon Valley. He’s also the CTO of Egan Nelson LLP, a boutique firm, where he actively is also building automation software to help the firm compete against larger firms. He also writes on his blog “Silicon Hills Lawyer” publicly and pointedly about his profession — and often takes shots at certain practices common among startup law firms, including Silicon Valley firms. You can get a sense of what’s in the full interview via these excerpts.

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On not being “owned” by VCs and repeat players

“I believe, and our clients would confirm, that independence from the VC/repeat player community, combined with deep knowledge of startup financing and high-stakes corporate governance (board issues), allows us to say things, do things, and even write things (on my blog) that the startup community absolutely needs to see and hear, but that “captive” lawyers have been unwilling to offer because of the very real risk of retaliation from influential money players who refer them business. I’ve become a bit of a bête noire of lawyers who’ve built their practices by flouting conflicts of interest and working as company counsel despite being “owned” by VCs across the table.”

On early-stage and being “right-sized”

“I wrote a blog post called ‘The Problem With Chasing Whales.’ It talks about this problem of entrepreneurs hiring law firms that are overkill for what they’re building. We’ve had a lot of clients switch to us from the marquee law firm names, and while the largest complaint is cost — our rates are hundreds of dollars an hour lower because we keep our overhead very lean, while still having top-tier lawyers and lean infrastructure for scalability — another common complaint is responsiveness. You’ve got a million dollar convertible note deal that you need to get done, and to you and your employees, that deal is the world, but the BigLaw lawyer you’re working with has IPOs and unicorn deals pushing your deal to the back of the line. It’s a real problem. Our target profile client exits under $300M in a private deal; which is a type of startup that we think has been very underserved by the traditional hyper-growth oriented law firms in the market.”

On legal technology and automation

“I spend a lot of time talking to legal tech entrepreneurs, because efficiency via legal tech has always been a core value proposition of our firm. As I’ve reviewed and contemplated various tools, one thing I’ve always come back to is this unavoidable tension between flexibility and automation. Software, even cutting edge machine learning, can only handle a minimal level of variation before it breaks down and becomes more hassle (and cost) than it’s worth… Some firms have opted to lean very heavily on the fast automation and standardization side, and accept the rigidity that it inevitably introduces into their workflows… We’ve consciously gone a different direction… Our clients tend to think that constraining the advice startups get by boxing it into inflexible software (and pricing) is not only a penny-wise, pound-foolish confusion of priorities; it’s also exactly the kind of approach that benefits investors at the expense of one-shot common stockholders.”

Below, you’ll find the rest of the founder reviews, the full interview, and more details like their pricing and fee structures.

This article is part of our ongoing series covering the early-stage startup lawyers who founders love to work with, based on this survey we have open and our own research. If you’re a founder trying to navigate the early-stage legal landmines, be sure to check out our ongoing series lawyer interviews, plus in-depth articles like this checklist of what you need to get done on the corporate side in your first years as a company.

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The Interview

Eric Eldon: You’re pretty outspoken about the state of startup law these days. Break it down for me: what is Egan Nelson doing differently from the other law firms out there?

José Ancer: If you look at the startup legal market, everyone knows the marquee, high priced firms. They represent Facebook, Uber, Palantir, Apple, etc. But when you pay those firms $700 an hour, as an example, 25% ballpark is going to compensation for the lawyers doing the main work. 75% is paying for other stuff. So then the question obviously becomes, how much of that other stuff is really necessary?

Our view is that there’s this segment of the startup market, and I call them non-unicorns, that is far more serious and scaled than what a tiny firm or solo lawyer can handle, but for whom BigLaw is completely overkill. We see these companies a lot more in places like Austin, Denver, Seattle, New York, etc., and it’s why our focus is on those markets. 

If you look at our lawyers’ credentials, you’ll see a whole lot of Stanford, Yale, Harvard, etc., as well as marquee firm alumni. What you won’t find at our firm is ludicrously expensive office space, cute events that have nothing to do with legal counsel, or armies of staff that don’t deliver real value to the end-service for clients.

Our legal talent is paid very well, but our overhead infrastructure is designed for companies that sell as a private company for under $300 million, or perhaps operate indefinitely as profitable companies. These are “startups” that might be derisively labeled as “doubles” or “singles” in parts of Silicon Valley, but we think have been substantially underserved by the market.

Source: Tech Crunch

Stephane Levy got his start in the days of Silicon Alley almost two decades ago, and built up his practice with New York startups and beyond through all the ups and downs since then.

Today, as a partner at Cooley LLP, he works with a wide range of companies, from company formation, seed and later stage rounds, all the way through to M&A transactions and IPOs. He also teaches at Cornell University Law School as an adjunct professor, on legal matters affecting emerging companies and venture capital transactions.

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On the New York startup scene

“I was probably one of a handful of tech lawyers in NY, at least of my vintage, working with startups and venture funds in the early and mid 2000s, so I kind of grew up doing that stuff in New York when most of the other corporate lawyers in the city were focused on more traditional M&A, private equity, capital markets, etc.”

When a client is having a rough time

“I’m not going to drop a company just because they are going through hard times or treat them any different. It’s a mixed bag out there, and at the end of the day you’ll have some really successful companies and some that are having a tougher time, but you have to take a long view. If a company is going through a really tough time — for example, they’re having trouble raising money — them not getting any attention from their lawyer will really compound some of the issues.”

What makes startup lawyers good

“The key is to try to bring your judgment to bare and say, “Listen, there’s going to be some risk. I’m not going to advocate you do everything on my punch list of ideal things you can be doing from a legal perspective, but if you have to focus on a few things to stay out of trouble for now, these would be them.” Not every lawyer is able to give that type of guidance or has, I guess, the experience or the judgment to be able to do that, but that’s something that entrepreneurs really value.”

Sample horror story

“Let’s say three founders take a third each and they don’t impose vesting. A year later, one of the founders leaves to go get a job somewhere and doesn’t want to give a portion of the equity back. Those are potentially really significant errors that could cost the company and the founders.  I just feel bad because the reality is we’ve automated a lot of our formation processes up front such that it really doesn’t cost much for founders to get state of the art documents in place from the get go.”

Below, you’ll find the rest of the founder reviews, the full interview, and more details like pricing and fee structures. This article is part of our ongoing series covering great lawyers and other experts who founders love to work with. More details here.

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Source: Tech Crunch