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Beyond the fanfare and SEC warnings, SPACs are here to stay

Published May 5, 2021
Matt Johnson
Contributor

Matt Johnson is CEO and co-founder of QC Ware, a quantum computing software company. Matt was a managing director in private equity at Apollo Management and prior to that was a managing director in principal investing at Credit Suisse.

The number of SPACs in the deep tech sector was skyrocketing, but a combination of increased SEC scrutiny and market forces over the past few weeks has slowed the pace of new SPAC transactions. The correction is an inevitable step on the path to mainstreaming SPACs as an alternative to IPOs, but it won’t cause them to go away. Instead, blank-check vehicles will evolve and will occupy a small and specialized — but important — part of the startup financing landscape.

I believe that SPAC financings can solve a major problem for all capital-intensive technology startups: the need for faster — and potentially cheaper — access to large amounts of capital to fund product development over multiple years.

The tsunami of SPAC financings sparked commentary from all corners of the capital markets community, from equity analysts and securities lawyers to VCs and fund managers — and even central bankers. That’s understandable, as more than $60 billion of SPAC deals have been announced since the beginning of 2020, plus $55 billion in PIPE capital, according to investment bank PJT Partners.

The views debated by finance experts often relate to the reasonableness of SPAC pricing and transaction structures, the alignment of incentives for stakeholders, and post-merger financial and stock price performance. But I’m not going to add another voice to the debate on the risk-reward calculus.

As the co-founder of a quantum computing software startup who worked in financial markets for two decades, I’d like to offer my perspective on two issues that I think my peers care more about: Can SPACs still solve the funding problem for capital-intensive, deep tech startups? And will they become a permanent financing option?

Keeping the lights on at deep tech startups

I believe that SPAC financings can solve a major problem for all capital-intensive technology startups: the need for faster — and potentially cheaper — access to large amounts of capital to fund product development over multiple years.

SPACs have created a limitless well of capital that deep tech startups are diving into. That’s because they are proving to be more attractive than other sources of financing, such as taking investments from later-stage VC funds or growth equity funds with finite fund sizes and specific investment themes.

The supply of growth capital from these vehicles has been astounding. In 2020, SPACs alone raised more than $83 billion via 248 IPOs, which is equal to a third of the total $300 billion raised by the entire global VC community. If the present rate of financings had continued, the annual amount of SPAC financings would have been on par with the total R&D expenditure of the U.S. government —  roughly $130 billion to $150 billion.

This new supply of capital can let startups keep the lights on, helping them address a practical need while they develop products that may take a decade to field. Before SPACs, any startup that wanted to remain independent had to lurch from one round of VC financing to the next. That, as well as the intense IPO process, is a major time sink for management teams and distracts them from focusing on product development.

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Emerging open cloud security framework has backing of Microsoft, Google and IBM

Published May 5, 2021

Each of the big cloud platforms has its own methodology for passing on security information to logging and security platforms, leaving it to the vendors to find proprietary ways to translate that into a format that works for their tool. The Cloud Security Notification Framework (CSNF), a new working group that includes Microsoft, Google and IBM is trying to create a new open and standard way of delivering this information.

Nick Lippis, who is co-founder and co-chairman of ONUG, an open enterprise cloud community, which is the primary driver of CSNF, says that what they’ve created is part standard and part open source. “What we’ve been really focusing on is how do we automate governance on the cloud. And so security was the place that was ripe for that where we can actually provide some value right away for the community,” he said.

While they’ve pulled in some of the big cloud vendors, they’ve also got large companies who consume cloud services like FedEx, Pfizer and Goldman Sachs. Conspicuously missing from the group is AWS, the biggest player in the cloud infrastructure market by far. But Lippis says that he hopes, as the project matures, other companies including AWS will join.

“There’s lots of security programs and industry programs that get out there and that people are asking them to join, and so some companies want to wait to see how well this pans out [before making a commitment to it],” Lippis said. His hope is, that over time, Amazon will come around and join the group, but in the meantime they are working to get to the point where everyone in the community will feel good about what they’re doing.

The idea is to start with security alerts and find a way to build a common format to give companies the same kind of system they have in the data center to track security alerts in the cloud. The way they hope to do that is with this open dialogue between the cloud vendors and the companies involved with the group.

“So the structure of that is that there’s a steering committee that is chaired by CISOs from these large cloud consumer brands, and also the cloud providers, and they provide voting and direction. And then there’s the working group where all the work is done. The beauty of what we do is that we have now consumers and also providers working together and collaborating,” he said.

FIDO Alliance and W3C have a plan to kill the password

Don Duet, a member of ONUG, who is CEO and co-founder of Concourse Labs, has been involved in the formation of the CSNF. He says to keep the project focused they are looking at this as a data management problem and they are establishing a common vocabulary for everyone to work within the group.

“How do you build a consensus on what are the types of terms that everybody can agree on and then you build the underlying basis so that the experts in your resource providers in this case, Cloud Service Providers, can bless how their data [connects] to those common standards,” Duet explained.

He says that particular problem is more of an organizational problem than a technical one, getting the various stakeholders together and just building consensus around this. At this point, they have that process in place and the next step is proving it by having the various companies involved in this test it out in the coming months.

After they get past the testing phase, in October they plan to actually demonstrate what this looks like in a before and after scenario, with the new framework and without it. As the group works toward these goals, the hope is that eventually the framework will become more established and other companies and vendors will come on board and make this a more standard way of sharing security alerts. If all goes well, they hope to build in other security information into this framework over time.

With a $50B run rate in reach, can anyone stop AWS?

Solving the security challenges of public cloud

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Text Blaze raises $3.3M for its speed-writing automation service

Published May 5, 2021

Text Blaze, which was a part of the recent Winter 2021 Y Combinator accelerator batch, announced that it has closed a $3.3 million seed round. The company’s investment was led by Two Sigma Ventures’s Villi Iltchev and Susa Ventures’s Leo Polovets.

The company’s product hybridizes two trends that TechCrunch has been tracking in recent years, namely automation and the written word. On the automation front, we’ve seen Zapier grow into a behemoth, while no-code products and RPA have made the concept of letting software boost worker output increasingly mainstream. And on the writing-assistance side of things, from Grammarly to Copy.ai, it’s clear that people are willing to pay for tools to help them writer better and more quickly.

So what does Text Blaze do? Two main things. First, its Chrome extension allows users to save “snippets” of text that they can add to emails, and other notes in rapid-fire fashion. I might save “Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines” to “/intro in Text Blaze, saving myself lots of time whenever I kick off a new podcast script.

But saving snippets and quickly inserting them into various text boxes in a user’s browser are just part of what makes Text Blaze neat. The product can also save template snippets with various boxes left open for users to fill in. So, a user could have a user-feedback snippet saved, that reserved spots for them to add in names, and other unique information quickly, while reusing the bulk of the text itself.

Text Blaze also has integrations with external services to ensure that its service can save users time. For example, the service can pull in CRM data from Hubspot into a text snippet used in Gmail. The idea is to link different services and data sources automatically, helping users shave minutes from their days, and hours from their weeks.

So far Text Blaze has run lean, according to its co-founder Dan Barak, who told TechCrunch that its staff of four will grow to around 10 this year, thanks to its new capital. Like nearly every startup that we’ve spoken to in recent months, Barak said that Text Blaze is a remote-first startup with a wide hiring lens.

Text Blaze’s model is freemium, with a consumer paid offering that costs $2.99 monthly. The key limitation in its free product, Barak, is a hard cap of 20 snippets. Past that you’ll need to pay. TechCrunch was modestly confused at the low price point, and relatively robust free feature set that the startup is offering. The co-founder explained that the company’s long-term plan is to sell into enterprises, making the pro version of Text Blaze more of a tool to generate awareness in what its service can do more than its final monetization scheme.

Some 70% of the company’s users so far have signed up using their corporate email, which could provide a wide avenue into later enterprise sales. According to the Text Blaze website, business users will pay a little more than double what its prosumer users will.

The company’s strategy appears to be working. Not only is it attracting users — its Chrome extension notes more than 70,000 users — and early revenue, but it also managed to convert Iltchev and Polovets into believers in its product. “When I first saw Text Blaze, it reminded me of the early days of Zapier which helped professionals to automate repetitive tasks, except Text Blaze provides a more approachable and easier to adopt entry point though written communications,” the Two Sigma investor told TechCrunch.

Susa’s Polovets said that he “fell in love with the [startup’s] product,” adding that he “wanted to invest as soon as I tried the product.”

Text Blaze’s round closed a few weeks ago. Let’s see how quickly it can scale with the new funds under its belt.

 

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One CMO’s honest take on the modern chief marketing role

Published May 5, 2021
Daniel Incandela
Contributor

Daniel Incandela is the chief marketing officer of Terminus, an ABM platform that powers high-performing go-to-market teams.

There’s no shortage of commentary around the chief marketing officer title these days, and certainly no lack of opinions about the role’s responsibilities and meaning within a company. There’s a reason for that. CMO is the shortest tenured C-suite role — the average tenure of a CMO is the lowest of all C-suite titles at 3.5 years.

CMOs either produce the numbers or we find another job.

That’s because the chief marketing officer’s role is increasingly complex. Qualifications require broad, strategic thinking while also maintaining tactical acumen across several functions. There’s a big disparity in what companies expect from CMOs. Some want a strategist with an eye for go-to-market planning, while others want a focus on close alignment with sales in addition to brand awareness, content strategy and lead generation.

Still other companies want their CMO to emphasize product marketing and management. Ask 10 CMOs how they define their role and you’ll get 10 different answers.

So, I’m sharing my honest, straight from the mouth of a tenured CMO take on what the role actually means, plus the key attributes of today’s modern CMO.

We must be the Master Builder

Hat tip to “The Lego Movie” for this analogy. Today’s marketing executives must bring functions and teams together. From sales and marketing alignment to product and everything in between, chief marketers are the connective tissue between every function. Driving alignment between these functions is table stakes.

Same goes for people teams and culture — I’ve experienced an increase in CMOs serving as the linchpin of a company’s culture. My CEO lives by the famous phrase “culture eats strategy for breakfast” and driving culture alignment now sits squarely on marketing’s shoulders.

Consistently drives new opportunities

Ah, demand generation. Driving new opportunity creation will continue to be a top priority for CMOs, of course. I’m not sharing anything new here, but the stakes are higher. CMOs either produce the numbers or we find another job. Doesn’t get any more straightforward than that. But, simply generating leads to check a box doesn’t cut it in board rooms anymore.

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Here’s all the biz dev support Startup Alley+ founders get at TC Disrupt 2021

Published May 5, 2021

We’re looking for motivated early-stage founders who want to take advantage of every possible opportunity to launch their startups to new levels of success. Historically, one of the most effective ways to do that is to exhibit in Startup Alley, at TechCrunch Disrupt.

This year at TechCrunch Disrupt 2021 (September 21-23) we’re shaking up history and adding a new layer of opportunity exclusively for founders who apply for a Startup Alley Pass. It’s called Startup Alley+, and here’s what you need to know.

Every exhibiting founder is eligible for Startup Alley+ — an experience designed to set you up with additional education, exposure and success before Disrupt even starts.

However, the TechCrunch team will select only 50 founders to form the cohort, and they’ll kick things off by attending TechCrunch Early Stage: Marketing & Fundraising in July — for free. That’s right. You won’t pay anything to participate in Startup Alley+ beyond the initial cost of your Startup Alley Pass.

Other perks include three months of free business development support. You’ll attend three masterclasses on topics that every early-stage founder needs to well, master:

Who wouldn’t want to perfect their pitch long before diving into Disrupt to impress investors? Startup Alley+ participants will do just that by pitching at one of our mini pitch-offs during our weekly Extra Crunch Live events. Check your calendar now and get ready to bring the heat.

  • Session 1- July 21
  • Session 2 – August 4
  • Session 3 – August 18
  • Session 4 – September 1
  • Session 5 – September 8

11 words and phrases to cut from your VC pitch deck

Keep your pitching arm warmed up and ready, because TechCrunch will introduce Startup Alley+ participants to top investors through our new VC match-making program. And don’t forget, there’s even more pitching in your future when you get to TC Disrupt. Every exhibitor in Startup Alley gets two minutes to pitch during a breakout feedback session.

We set a low hoop to jump through in order to be considered for Startup Alley+ — simply exhibit in Startup Alley. TechCrunch will choose the founders to participate in Startup Alley+ by the end of June.

Apply for your Startup Alley Pass now to make sure you have a shot. Even better — apply before the early-bird price expires next Friday, May 13 at 11:59 p.m. (PDT), and you’ll also save $50.

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Music mixing marketplace EngineEars raises $1M, with help from Kendrick Lamar

Published May 5, 2021

EngineEars today announced a $1 million raise. The company’s first round of funding features investments from Kendrick Lamar, DJ Mustard, Roddy Rich and Slauson and Co. “Quality of sound is still important in music,” Lamar said in a quote provided to TechCrunch. “Ali has always been a progressive thinker. Engineers will transcend the culture.”

The service was launched in 2018 by Grammy winner Derek “MixedByAli” Ali, who has worked on a slew of high-profile tracks from artists including Lamar, Jay Rock, SZA, Nipsey Hussle and Snoop Dogg.

The educational courses turned into a touring curriculum, with 15 workshops in four countries, where Ali says he was able to determine what the community most needed.

“During that time, we really learned what the problem is,” says Ali. “All of the problems entailed tracking payments, being credited, the antiquated business model of file transfers and essentially just helping an independent audio engineer sustain and create a business for themselves.”


Source:  Claima Stories 

EngineEars has since branched out into something more akin to a marketplace for audio engineers. Independent mixers can offer their services and connect with artists and labels, get credit for the tracks they’ve worked on and — perhaps most importantly in the world of freelancing — get paid.

The platform launched an alpha version in January and since has 120 engineers verified by an existing vetting process. The invite-only service has another 2,000 people on its waiting list, according to Ali.

The service is currently working on a feature roadmap based on the requests of existing users and looking toward potential additions like the ability to buy beats, going forward. Other suggested features include contract negotiations for work-for-hire, but much of this is still very much in early stages.

Generative algorithms are redefining the intersection of software and music

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How 4 New Jersey pools turned into a startup that just raised $10M

Published May 5, 2021

As the oldest of 12 children, Bunim Laskin spent much of his teen years looking for ways to help keep his siblings entertained. Noticing that a neighbor’s pool was often empty, Laskin reached out to ask if his family could use her pool. To make it worth her while, he suggested that they could help cover her expenses for maintaining the pool.

Soon after, five other families had made the same arrangement with her and the pool owner had six families covering 25% of her expenses. This meant that the neighbor was actually making money off her pool. The arrangement sparked a business idea in Laskin’s mind. At the age of 20, he founded Swimply, a marketplace for homeowners to rent out their underutilized pools to local swimmers, with Asher Weinberger.

The Cedarhurst, New York-based company launched a beta in 2018, starting with four pools in the New Jersey area. 

“We used Google Earth to find houses, and then knocked on 80 doors with a pool,” CEO Laskin recalls. “We got to 100 pools organically. Word of mouth really helped us grow.” The site was pretty bare bones, he admits, with potential customers only able to view photos of the pools and connect with the pool owner by phone.

That year, Swimply did around 400 reservations and raised $1.2 million from friends and family.

In 2019, Swimply launched what he describes as a “proper” website and app with an automated platform. It grew “four to five times” that year, again mostly organically. In an episode that aired in March 2020, the company appeared on Shark Tank but went home without a deal.

Then the COVID-19 pandemic hit. Swimply, Laskin said, pivoted right into the pandemic.

“We were the perfect solution for people when the world was falling on its head,” he said. The company restructured its offering to ensure that pool owners did not have to interact with guests. “It was the perfect, contact-free, self-serve experience to hang out and be with people you quarantined with.”

10 proptech investors see better era for residential and retail after pandemic

The CDC then came out to say that it was safe to swim because chlorine could help kill the virus, and that proved to be a big boon to its business.

“On one end, it was a way for people to have a normal day and on the other, it helped give owners a way to earn an income, at a time when many people were being affected financially,” Laskin told TechCrunch.

Business took off in 2020 with revenue growing 4,000% and now Swimply is announcing a $10 million Series A round. Norwest Venture Partners led the financing, which also included participation from Trust Ventures and a number of angel investors such as Poshmark founder and CEO Manish Chandra; Rob Chesnut, former general counsel and chief ethics officer at Airbnb; Ancestry.com CEO Deborah Liu and Michael Curtis. 

Swimply is now operating in a total of 125 U.S. markets, two markets in Canada and five markets in Australia. It plans to use its new capital in part to expand into new markets and toward product development.

Image Credits: Swimply

The way it works is pretty straightforward. Swimply simply connects homeowners that have underutilized backyard spaces and pools with those seeking a way to gather, cool off or exercise, for example. People or families can rent pools by the hour, ranging in price from $15 to $60 per hour (at an average of $45/hour) depending on the amenities. New markets that Swimply has recently expanded to include Portland, Oregon; Raleigh, North Carolina and the California cities of Oakland, San Luis Obispo and Los Gatos. 

“The shifting mindset from younger generations about ownership is a huge contributor to increased growth of the Swimply marketplace,” said co-founder Weinberger, who serves as Swimply’s COO. “Swimming is the third most popular activity for adults and number one for children, and yet no other company has tackled the aquatic space to make swimming more affordable and accessible…until now.”

While the company declined to provide hard revenue figures, Laskin said Swimply was seeing “seven digits a month in revenue” and 15,000 to 20,000 reservations a month. Families represent the most popular reservation.

“People can book and pay through our platform, and only 20% of hosts ever meet their guests,” Laskin said. “We’re enabling a new kind of consumer behavior with what we’re doing.”

The company is planning to use its new capital to also rebuild much of its tech infrastructure and boost its customer support team to be more “readily available.”

It is also now offering a complimentary up to $1 million worth of insurance per booking for liability as well as $10,000 for property damage.

Swimply has a little over 20 employees, up 10 times from two people in December of 2020. It plans to double that number over the next few months.

The company’s model has proven quite lucrative for some owners, according to Laskin.

“Last year, there were some owners who earned $10,000 a month. One owner in Denver earned $50,000 last year and he had signed up toward the end of the summer. He should make over $100,000 this year,” Lasken projects.

Its only criteria is that owners offer a clean pool. Eighty-five percent of hosts offer restrooms as well. If they don’t, they are limited to one-hour reservations with a max of five guests. Swimply has also partnered with local pool companies, and if they pay one of its owners a visit and certify that pool, that owner gets a badge on the site “so guests get an additional level of security,” Laskin said.

Ed Yip of Norwest Venture Partners admits that when he first heard of the concept of Swimply, he “didn’t know what to make of it.”

But the more he heard about it, the more excited he got.

“This is the Holy Grail for a consumer investor. We’re not changing consumer behavior, but rather [we] productize the experience and make it safer and easier on both sides,” Yip told TechCrunch.

What also gets the investor excited is the potential for Swimply beyond just swimming pools in the future.

“We’re seeing a ton of demand from hosts wanting to list hot tubs and tennis courts, for example,” Yip said. “So this can turn into a marketplace for shared outdoor resources and that’s a huge market opportunity that adds value on both sides.”

Indeed, the concept of monetizing underutilized space is a growing concept. Earlier this year, we reported on Neighbor, which operates a self-storage marketplace, raising $53 million in a Series B round of funding. Neighbor’s unique model aims to repurpose under-utilized or vacant space — whether it be a person’s basement or the empty floor of an office building — and turn it into storage.

Neighbor raises $53M for self-storage marketplace after 5x YoY revenue growth

 

 

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4 strategies for building a digital health unicorn

Published May 5, 2021
BIll Taranto
Contributor

GHI Fund President Bill Taranto has spent more than two decades in the healthcare industry and has 15 years of experience in healthcare investing. In addition to his venture investing knowledge, Bill has decades of management operations experience.
More posts by this contributor

It’s an entrepreneur’s market in digital health today, with startups raising record-breaking funding at soaring valuations and debuting on public markets to eager investors.

According to CB Insights, as of March 3, 2021, there are 51 healthcare unicorns — “startups” — worth $1 billion or more around the world. Global venture capital funding, including private equity and corporate VC, into digital health was the highest ever in the first quarter 2021 at $7.2 billion, according to Mercom Capital Group.

The massive influx of capital to healthcare should not be surprising; the pandemic has made it starkly clear that digital health is the future of healthcare. To that end, we should anticipate additional healthcare exits worth more than $1 billion in the near term. Which again, is great for entrepreneurs — as long as they understand how hard it is to build a unicorn in healthcare. Today, becoming a unicorn requires founders who are long on vision and operational experience.

Today, becoming a unicorn requires founders who are long on vision and operational experience.

Company founders most often turn to veteran investors for help with grand-slam strategies to create the next healthcare unicorn. That’s why many of them seek counsel from the Merck Global Health Innovation Fund: Because we have the experience, resources, successful track record and networks to build real scale in digital health.

During the pandemic, lots of investors jumped in to invest in digital health for the first time. But we’ve been investing for more than a decade. Two of our portfolio companies, Preventice Solutions and Livongo, exited last year as unicorns, rounding out the $6.2 billion in digital health market value MGHIF has exited over the last two years. And we are expecting two more unicorn exits in 2021. But we’re not stopping there; we’ll be investing our $500 million fund in drone-supported supply chain technologies, telehealth, AI, digital pathology, remote clinical trials and Internet of Medical Things (IoMT).

Given our success, here are four instrumental strategies to building a unicorn in digital health that we know work.

Raise the “right amount” of capital to build the right company

We often ask entrepreneurs: Would you rather own 20% of a $50 million company or 5% of a $1 billion company? To most, the answer is obvious. In our experience, too many entrepreneurs worry about dilution and never raise the right amount of capital.

It’s well known that companies with rapidly growing revenues are valued at a premium — but it’s important to remember that this is hard to do in healthcare. Getting to scale takes time because healthcare is so complicated and involves so many stakeholders.

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The morality and efficacy of going public earlier

Published May 5, 2021

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

For this week’s deep dive Natasha and Alex and Chris dug into the world of the IPO. Not just the numbers and the metrics and the calculations of valuations at diluted, and non-diluted, share counts. No. We wanted to talk about the morality and efficacy of going public.

So to round out our conversation we enlisted Steve Cakebread, the CFO of Yext, and Garth Mitchell, the CFO of Latch. Cakebread is known for being aboard the Salesforce, Pandora and Yext IPOs. Mitchell has sat on both sides of the table during the IPO process, and is currently helming the money equations as Latch approaches the public markets via a SPAC.

For more context, Yext, a company that first launched at a TechCrunch event back in 2009, provides data tooling and search software to businesses, while Latch builds software and hardware for rental-focused buildings. Yext is public. Latch will be in a few months.

Back to our topic, we asked Cakebread to talk about his thesis on why going public earlier than later can help a company’s maturity process and can help provide greater returns to the general public. The CFO has written a rather good book about the IPO process more generally and what it means for a company’s internal processes, but his morality notes especially stood out because it’s an argument far less noisy than the POP critics. Baked beans come up, somehow!

We also asked Mitchell to talk about Latch’s choice to go public, and what opportunities and challenges the SPAC route brings for the company. Of course, there’s a SPAC joke in there (or two), but we get into broader “what’s next” debates about if more companies will start to leave the private world, venture capital’s role in this whole mess and the financial lift of going to the public market.

Hope you enjoy the show, and get excited: Equity is going to have more guests on from time to time, and we welcome any suggestions you want to throw at us. 

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 AM PST, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts!

Unpacking Chamath Palihapitiya’s SPAC deals for Latch and Sunlight Financial

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