Welcome back to ThisWeek in Apps, the Extra Crunch series that recaps the latest OS news, the applications they support and the money that flows through it all.

The app industry is as hot as ever with a record 204 billion downloads in 2019 and $120 billion in consumer spending in 2019, according to App Annie’s recently released “State of Mobile” annual report. People are now spending 3 hours and 40 minutes per day using apps, rivaling TV. Apps aren’t just a way to pass idle hours — they’re a big business. In 2019, mobile-first companies had a combined $544 billion valuation, 6.5x higher than those without a mobile focus.

In this Extra Crunch series, we help you keep up with the latest news from the world of apps, delivered on a weekly basis.

This week, there was a ton of app news. We’re digging into the latest with Apple’s antitrust issues, Tencent’s plan to leverage WeChat to fend off the TikTok threat, AppsFlyer’s massive new round, the booming subscription economy, Disney’s mobile game studio sale, Pokémon GO’s boost to tourism, Match Group’s latest investment and much more. And did you see the app that lets you use your phone from within a paper envelope? Or the new AR social network? It’s Weird App Week, apparently.

Headlines

Source: Tech Crunch

The startup community has lost another moral leader today.

Leila Janah, a serial entrepreneur who was the CEO and founder of machine learning training data company Samasource, passed away at the age of 37 due to complications from Epithelioid Sarcoma, a form of cancer, according to a statement from the company.

She focused her career on social and ethical entrepreneurship with the goal of ending global poverty, founding three distinct organizations over her career spanning the for-profit and non-profit worlds. She was most well-known for Samasource, which was founded a little more than a decade ago to help machine learning specialists develop better ML models through more complete and ethical training data-sets.

The company is distinct for delivering AI-driven services to Fortune 100 companies with a global workforce of data specialists, a large number of whom are located in East Africa.

Janah and her company were well ahead of their time, as issues related to bias in ML models have become top-of-mind for many product leaders in Silicon Valley today.

My TechCrunch colleague Jake Bright had just interviewed Janah several weeks ago, after Samasource raised more than $15 million in venture capital, according to Crunchbase.

In that interview Janah spoke of what inspired her to form an AI company in Africa. “I saw huge opportunity for tapping into the incredible depth of … talent in East Africa in the tech world,” she said of Samasource’s origins.

Michael Stewart/WireImage

The company has a global staff of 2,900 and is the largest AI and data annotation employer in East Africa, Janah told TechCrunch.

She discussed taking Samasource, and its largely African workforce, from non-profit to for-profit status. “As a CEO I need to make it clear to investors that this is an investible entity,” she said. Janah shared her view that providing for-profit AI training data to global companies can be done while improving lives in East Africa. “I strongly believe you can combine the highest quality of service with the core mission of altruism,” she said.

“A big part of our values is offering living wages and creating dignified technology work for people. We hire people from low-income backgrounds and offer them training in AI and machine learning. And our teams achieve above the industry standard.”

In an unpublished segment of her last TechCrunch interview, Janah underscored her commitment to gender diversity in tech. “We are probably the only firm in our space that has a female CEO, a female COO … and over 60% of our management and are women. That’s highly unusual in the tech world,” she said.

In a statement on Janah’s passing, Samasource said:

We are all committed to continuing Leila’s work, and to ensuring her legacy and vision is carried out for years to come. To accomplish this, Wendy Gonzalez, longtime business partner and friend to Leila, will take the helm as interim CEO of Samasource. Previously the organization’s COO, Wendy has spent the past five years working alongside Leila to craft Samasource’s vision and strategy.

In addition to Samasource, Janah founded SF-based Samaschool, a 501(c)(3) nonprofit dedicated to helping low-income workers learn critical freelancing skills by helping them negotiate the changing dynamics in the freelance economy. The organization has built partnerships with groups like Goodwill to empower them to offer additional curricular resources within their own existing programs and initiatives.

Photo by Marla Aufmuth/Getty Images for Watermark Conference for Women 2016

Janah also founded LXMI, a skin-care brand that emphasized organic and fair-trade ingredients, with a focus on sourcing from low-income women’s cooperatives in East Africa. Founded three years ago, the company raised a seed round from the likes of NEA, Sherpa, and Reid Hoffman according to Crunchbase.

Across all of her initiatives, Janah consistently put the concerns of under-represented people at the forefront, and designed organizations to empower such people in their daily lives. Her entrepreneurial spirit, commitment, and integrity will be sorely missed in the startup community.

TechCrunch editor-at-large Josh Constine had this to say of Janah’s impact:

Leila was propulsive. Being around her, you’d swear there were suddenly more hours in the day just based on how much she could accomplish. Yet rather than conjuring that energy through ruthless efficiency, she carried on with grace and boundless empathy. Whether for her closest friends or a village of strangers on the other side of the world, she embraced others’ challenges as her own. Leila turned vulnerability into an advantage, making people feel so comfortable in her presence that they could unwind their personal and professional puzzles. Leila is the kind of founder we need more of, and she’ll remain an example of how to do business with heart.

Janah’s legacy will continue through the AI data-training specialists the company she founded, Samasource, trains and employs. As part of its latest Series A, Samasource increased staff in Uganda to 90 people with plans to grow that by 150% in 2020, she told TechCrunch in late 2019.

Updated January 25, 2019 to include additional quotes from TechCrunch editor-at-large Josh Constine and additional material from TechCrunch reporter Jake Bright’s recent interview with Janah from November.

Source: Tech Crunch

Clayton Christensen, a longtime professor at Harvard Business School who became famous worldwide after authoring the best-selling business book, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail,” passed away last night.

The Deseret News reported earlier today that the cause tied to complications from leukemia treatments that Christensen was receiving in Boston. He was 67 years old.

Clayton had suffered from ill health for years, always battling his way back. By the age of 58, Clayton — who was diagnosed with Type 1 diabetes at age 30 — had already suffered a heart attack, cancer, and a stroke, telling Forbes in 2011 that he tried to view such setbacks as opportunities, even, apparently, when they involved intensive speech therapy, which he was undergoing at the time.

Clayton created opportunities for himself and others throughout his career. The business world came to know Christensen after Intel cofounder Andy Grove brought him into the company as an advisor, then announced to the world that “The Innovator’s Dilemma,” published in 1997, was the best book he’d read in 10 years. (This was saying something, given Grove’s own considerable writing skills.) Yet Christensen came from modest means.

According to a 2012 profile in New Yorker magazine, he grew up on the “wrong side of the tracks” in Salt Lake City, in a Mormon household, collecting paper tray liners from fast food restaurants, and stuffing his 6′ 8″ frame into a 1986 Chevy Nova that he drove around town.

According to the profile, Christensen, an excellent student and a popular one (he was student body president), “wanted to go to Harvard or Yale, and got into both, but his mother wanted him to go to Brigham Young. Not knowing what to do, he fasted and prayed, and he discovered that God agreed with his mother. That wasn’t the answer he was looking for, so he fasted and prayed some more, just to make sure he hadn’t misheard or something, but he hadn’t, so he went to Brigham Young.”

There, he studied economics before and after a two-year leave of absence to serve as a volunteer full-time missionary for the LDS Church. Then it was off to Oxford, where he earned a master’s as a Rhodes Scholar, then Harvard Business School. After receiving his MBA, he landed at Boston Consulting Group, and after a few years in the working world, headed back to Harvard for a PhD so he could teach.

Over the ensuing years, Christensen would write 10 books, though none were as ubiquitous as “The Innovator’s Dilemma,” which was timed perfectly in retrospect. It put forth a theory why people buy products that are often cheaper and easier to use than their more sophisticated and more expensive predecessors, and resonated widely as one incumbent after another — Xerox, U.S. Steel, Digital Equipment Corp. — stumbled while other companies began rising in their dust: think Amazon, Google, Apple.

Interestingly, according to the New Yorker, one of Christensen’s rare, bad calls was his prediction that the Apple iPhone wouldn’t be widely adopted because it was too fancy.

Apple cofounder Steve Jobs was a fan nevertheless. According to the Walter Isaacson biography of Jobs, published just weeks after Jobs’s death in October 2011, “The Innovator’s Dilemma” “deeply influenced” him.

If you’re interested in learning more about Christensen’s views, you might enjoy this conversation between Christensen and investor-entrepreneur Marc Andreessen; it took place in 2016 at the Startup Grind series.

Source: Tech Crunch

We are living through one of the nation’s longest periods of economic growth. Unfortunately, the good times can’t last forever. A recession is likely on the horizon, even if we can’t pinpoint exactly when. Founders can’t afford to wait until the midst of a downturn to figure out their game plans; that would be like initiating swim lessons only after getting dumped in the open ocean.

When recession inevitably strikes, it will be many founders’ — and even many VCs’ — first experiences navigating a downturn. Every startup executive needs a recession playbook. The time to start building it is now.

While recessions make running any business tough, they don’t necessitate doom. I co-founded two separate startups just before downturns struck, yet I successfully navigated one through the 2000 dot-com bust and the second through the 2008 financial crisis. Both companies not only survived but thrived. One went public and the second was acquired by Mastercard.

I hope my lessons learned prove helpful to building your own recession game plan.

Source: Tech Crunch

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 9am Pacific, you can subscribe here.

1. Goldman Sachs says it won’t take startups public without at least one ‘diverse’ director; it should go further

CEO David Solomon told CNBC that beginning this year, Goldman will no longer take companies public if they don’t have at least one “diverse” member on its board of directors.

Some will, perhaps rightly, see the announcement as little more than marketing. After all, it’s already widely viewed as unacceptable for a company to go public without at least one female board member and preferably far more diversity than that.

2. London’s Met Police switches on live facial recognition, flying in face of human rights concerns

The deployment comes after a multi-year period of trials by the Met and police in South Wales. The Met says its use of the controversial technology will be targeted to “specific locations … where intelligence suggests we are most likely to locate serious offenders.”

3. Sonos clarifies how unsupported devices will be treated

If you use a Zone Player, Connect, first-generation Play:5, CR200, Bridge or pre-2015 Connect:Amp, Sonos is still going to drop support for those devices. But at least the company is backing away from its initial decision that your entire ecosystem of Sonos devices would stop receiving updates, as well.

4. Meet the B2B videoconferencing startup that’s gone crazy for online dating

Eyeson’s website touts “no downloads, no lag, no hassle” video calls. But when TechCrunch came across founder Andreas Kröpfl last December, pitching hard in Startup Alley at Disrupt Berlin, he was most keen to talk about something else entirely: video dating.

5. Layoffs hit Q&A startup Quora

Quora, the 10-year-old question-and-answer company based in Mountain View, is laying off staff in its Bay Area and New York offices. CEO Adam D’Angelo did not disclose the scale of the layoffs.

6. As SaaS stocks set new records, Atlassian’s earnings show there’s still room to grow

Atlassian reported earnings after-hours yesterday and the market quickly pushed its shares up by more than 10%. Alex Wilhelm explores why. (Extra Crunch membership required.)

7. Wikipedia now has more than 6 million articles in English

The feat, which comes roughly 19 years after the website was founded, is a testament of “what humans can do together,” said Ryan Merkley, chief of staff at Wikimedia, the nonprofit organization that operates the online encyclopedia.

Source: Tech Crunch

Los Angeles is one of the most desirable locations for commercial real estate in the United States, so it’s little wonder that there’s something of a boom in investments in technology companies servicing the market coming from the region.

It’s one of the reasons that CREXi, the commercial real estate marketplace, was able to establish a strong presence for its digital marketplace and toolkit for buyers, sellers, and investors.

Since the company raised its last institutional round in 2018, it has added over 300,000 properties for sale or lease across the U.S. and increased its user base to 6 million customers, according to a statement.

It has now raised $29 million in new financing from new investors including Mitsubishi Estate Company (“MEC”), Industry Ventures, and Prudence Holdings . Previous investors Lerer Hippeau Ventures and Jackson Square Ventures also participated in the financing.

CREXi makes money in three ways. There’s a subscription service for brokers looking to sell or lease property; an auction service where CREXi will earn a fee upon the close of a transaction; and a data and analytics service that allows users to get a view into the latest trends in commercial real estate based on the vast collection of properties on offer through the company’s services.

The company touts its service as the only technology offering that can take a property from marketing to the close of a sale or lease without having to leave the platform.

According to chief executive, Mike DiGiorgio, the company is also recession proof thanks to its auction services. “As more distressed properties hit the market the best way to sell them is through an online auction,” DiGiorgio says.

So far, the company has seen $700 billion of transactions flow through the platform and roughly 40% of those deals were exclusive to the company.

“The CRE industry is evolving, and market players, especially younger, digitally native generations are seeking out platforms that provide free and open access to information,” said Gavin Myers, General Partner at Prudence Holdings, in a statement. “CREXi directly addresses this market need, providing fair access to a range of CRE information. As CREXi continues to build out its stable of services, features, and functionality, we’re thrilled to partner with them and support the company’s continued momentum.”

CREXi joins the ranks of startups based in Los Angeles that have raised money to reshape the real estate industry. Estimates from Built in LA count roughly 127 companies, which have raised in excess of $2.4 billion, active in the real estate industry in Los Angeles. These companies range from providers of short-term commercial office space, like Knotel, or co-working companies like WeWork, to companies focused on servicing the real estate industry like Luxury Presence, which raised a $5 million round earlier in the year.

Source: Tech Crunch

Germany’s top soccer (football) league, Bundesliga, announced today it is partnering with AWS to use artificial intelligence to enhance the fan experience during games.

Andreas Heyden, executive vice president for digital sports at the Deutsche Fußball Liga, the entity that runs Bundesliga, says that this could take many forms, depending on whether the fan is watching a broadcast of the game or interacting online.

“We try to use technology in a way to excite a fan more, to engage a fan more, to really take the fan experience to the next level, to show relevant stats at the relevant time through broadcasting, in apps and on the web to personalize the customer experience,” Heyden said.

This could involve delivering personalized content. “In times like this when attention spans are shrinking, when a user opens up the app the first message should be the most relevant message in that context in that time for the specific user,” he said.

It also can help provide advanced statistics to fans in real time, even going so far as to predict the probability of a goal being scored at any particular moment in a game that would have an impact on your team. Heyden thinks of it as telling a story with numbers, rather than reporting what happened after the fact.

“We want to, with the help of technology, tell stories that could not have been told without the technology. There’s no chance that a reporter could come up with a number of what the probability of a shot [scoring in a given moment]. AWS can,” he said.

Werner Vogels, CTO at Amazon, says this about using machine learning and other technologies on the AWS platform to add to the experience of watching the game, which should help attract younger fans, regardless of the sport. “All of these kind of augmented customer fan experiences are crucial in engaging a whole new generation of fans,” Vogels told TechCrunch.

He adds that this kind of experience simply wasn’t possible until recently because the technology didn’t exist. “These things were impossible five or 10 years ago, mostly because now with all the machine learning software, as well as how the [pace of technology] has accelerated at such a [rate] at AWS, we’re now able to do these things in real time for sports fans.”

Bundesliga is not just any football league. It is the second biggest in the world in terms of revenue, and boasts the highest stadium attendance of all football teams worldwide. Today’s announcement is an extension of an ongoing relationship between DFL and AWS, which started in 2015 when Heyden helped move the league’s operations to the cloud on AWS.

Heyden says that it’s not a coincidence he ended up using AWS instead of another cloud company. He has known Vogels (who also happens to be a huge soccer fan) for many years, and has been using AWS for more than a decade, even well before he joined the DFL. Today’s announcement is an extension of that long-term relationship.

Source: Tech Crunch

With the recent emphasis on Uber and WeWork, much media attention has been focused on high-burn, “software-enabled” startups. However, most of the IPOs of the last few years in tech have been in higher capital efficiency software-as-a-service startups (SaaS).

In the last 30 months (2017 2H onwards), a total of 21 U.S.-based, VC-backed SaaS companies have gone public, including Zoom, Slack, Datadog and others¹. I analyzed all 21 companies to understand their fundraising and revenue-generating trajectories. A deep dive into the individual companies’ trajectories can be found in this Extra Crunch article.

Here are the summary takeaways from this data set:

1. At IPO, total capital raised² was slightly ahead of annual run-rate revenue (ARR)³ for the median company

Here is a scatterplot of the ARR and cumulative capital raised at the time each company went public. Most companies are clustered close to the diagonal line that represents ARR and capital raised matching each other. Total capital raised is often neck-and-neck or slightly higher than ARR.

For example, Zscaler raised $148 million to get to $146 million of ARR at IPO and Sprout Social raised $112 million to get to $106 million of ARR.

It is useful to introduce a metric instead of looking at gross dollars, given the high variance in revenue of the companies in the data set — Sprout Social had $106 million and Dropbox had $1,222 million in ARR, a 10x+ difference. Total capital raised as a multiple of ARR normalizes this variance. Below is a histogram of the distribution of this metric.

The distribution is concentrated around 1.00x-1.25x, with the median company raising 1.23x of ARR by the time of its IPO.

There are outliers on both ends. Domo is a profligate outlier that had raised $690 million to get to $128 million of ARR, or 5.4x of ARR — no other company comes remotely close. Zoom and Datadog are efficient outliers. Zoom raised $161 million to get to $423 million of ARR and Datadog raised $148 million to get to $333 million of ARR, both representing only 0.4x of ARR.

2. Cash burn is a more accurate measure of capital efficiency and may diverge significantly from capital raised (depending on the company)

How much capital a company raised tells only half of the story of capital efficiency, because many companies are sitting on a significant cash balance. For example, PagerDuty raised a total of $174 million but had $128 million of cash left when it went public. As another example, Slack raised a total of $1,390 million prior to going public but had $841 million of unspent cash.

Why do some SaaS companies end up seemingly over-raising capital beyond their immediate cash needs despite the dilution to existing shareholders?

One reason might be that companies are being opportunistic, raising capital far ahead of actual needs when market conditions are favorable.

Another reason may be that VCs that want to meet ownership targets are pushing for larger rounds. For example, a company valued at $400 million pre-money may only need $50 million of cash but could end up taking $100 million from a VC that wants to achieve 20% post-money ownership.

These confounding factors make cash burn — calculated by subtracting the cash balance from total capital raised⁴ — a more accurate measure of capital efficiency than total capital raised. Here is a distribution of total cash burn as a multiple of ARR.

Remarkably, Zoom achieved negative cash burn, meaning Zoom went public with more cash on its balance sheet than all of the capital it raised.

The median company’s cash burn at IPO was 0.77x of ARR, quite a bit less than the total capital raised of 1.23x of ARR.

3. The healthiest SaaS companies (as measured by the Rule of 40) are often the most capital-efficient

The Rule of 40 is a popular heuristic to gauge the business health of a SaaS company. It asserts that a healthy SaaS company’s revenue growth rate and profit margins should sum to 40%+. The below chart shows how the 21 companies score on the Rule of 40⁵.

Among the 21 companies, eight companies exceed the 40% threshold: Zoom (123%), Crowdstrike (119%), Datadog (76%), Bill.com (56%), Elastic (55%), Slack (52%), Qualtrics (44%) and SendGrid (41%).

Interestingly, the same outliers in terms of capital efficiency as measured by cash burn, on both extremes, are the same outliers in the Rule of 40. Zoom and Datadog, which have the highest capital efficiency, score the highest and third highest on the Rule of 40. And inversely, Domo and MongoDB, which have the lowest capital efficiency, also score lowest on the Rule of 40.

This is not surprising, because the Rule and capital efficiency are really two sides of the same coin. If a company can sustain high growth without sacrificing profit margins too much (i.e. score high on the Rule of 40), it will over time naturally end up burning less cash compared to peers.

Conclusion

To apply all of this to your favorite SaaS business, here are some questions to consider. What is the total capital raised in multiples of ARR? What is the total cash burn in multiples of ARR? Where does it stack compared to the 21 companies above? Is it closer to Zoom or Domo? How does it score on the Rule of 40? Does it help explain the company’s capital efficiency or lack thereof?

Thanks to Elad Gil and Denton Xu for reviewing drafts of this article.

Endnotes

¹Only includes U.S.-based, VC-backed SaaS companies. Includes Quatrics, even though it did not go public, as it was acquired right before its scheduled IPO.

²Includes institutional investments prior to the IPO. Does not include founders’ personal capital investment.

³Note that this is not annual recurring revenue, which is not a reporting requirement for public companies. Annual run-rate revenue is calculated by annualizing quarterly revenue (multiplying by four). The two metrics will track closely for SaaS businesses, given that SaaS revenue is predominantly recurring software subscriptions.

⁴This is a simplified definition as it will capture non-operational uses of cash such as share repurchase from founders.

⁵Revenue growth is calculated as the growth rate of the revenue during the last 12 months (LTM) over the revenue during the 12 months prior to that. Profit margins are non-GAAP operating margins, calculated as operating income plus stock-based compensation expense divided by revenue over the last 12 months (LTM).

Source: Tech Crunch