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Daily Crunch: KKR invests $500M into Box

Published April 8, 2021

Box gets some financial ammunition against an activist investor, Samsung launches the Galaxy SmartTag+ and we look at the history of CryptoPunks. This is your Daily Crunch for April 8, 2021.

The big story: KKR invests $500M into Box

Private equity firm KKR is making an investment into Box that should help the cloud content management company buy back shares from activist investor Starboard Value, which might otherwise have claimed a majority of board seats and forced a sale.

After the investment, Aaron Levie will remain with Box as its CEO, but independent board member Bethany Mayer will become the chair, while KKR’s John Park is joining the board as well.

“The KKR move is probably the most important strategic move Box has made since it IPO’d,” said Alan Pelz-Sharpe of Deep Analysis. “KKR doesn’t just bring a lot of money to the deal, it gives Box the ability to shake off some naysayers and invest in further acquisitions.”

The tech giants

Samsung’s AirTags rival, the Galaxy SmartTag+, arrives to help you find lost items via AR — This is a version of Samsung’s lost-item finder that supports Bluetooth Low Energy and ultra-wideband technology.

Spotify stays quiet about launch of its voice command ‘Hey Spotify’ on mobile — Access to the “Hey Spotify” voice feature is rolling out more broadly, but Spotify isn’t saying anything officially.

Verizon and Honda want to use 5G and edge computing to make driving safer — The two companies are piloting different safety scenarios at the University of Michigan’s Mcity, a test bed for connected and autonomous vehicles.

Startups, funding and venture capital

Norway’s Kolonial rebrands as Oda, bags $265M on a $900M valuation to grow its online grocery delivery business in Europe — Oda’s aim is to provide “a weekly shop” for prices that compete against those of traditional supermarkets.

Tines raises $26M Series B for its no-code security automation platform — Tines co-founders Eoin Hinchy and Thomas Kinsella were both in senior security roles at DocuSign before they left to start their own company in 2018.

Yext co-founder unveils Dynascore, which dynamically synchronizes music and video — This is the first product from Howard Lerman’s new startup Wonder Inventions.

Advice and analysis from Extra Crunch

Four strategies for getting attention from investors — MaC Venture Capital founder Marlon Nichols joined us at TechCrunch Early Stage to discuss his strategies for early-stage investing, and how those lessons can translate into a successful launch for budding entrepreneurs.

How to get into a startup accelerator — Neal Sáles-Griffin, managing director of Techstars Chicago, explains when and how to apply to a startup accelerator.

Understanding how fundraising terms can affect early-stage startups — Fenwick & West partner Dawn Belt breaks down some of the terms that trip up first-time entrepreneurs.

(Extra Crunch is our membership program, which helps founders and startup teams get ahead. You can sign up here.)

Everything else

The Cult of CryptoPunks — Ethereum’s “oldest NFT project” may not actually be the first, but it’s the wildest.

Biden proposes gun control reforms to go after ‘ghost guns’ and close loopholes — President Joe Biden has announced a new set of initiatives by which he hopes to curb the gun violence he described as “an epidemic” and “an international embarrassment.”

Apply to Startup Battlefield at TechCrunch Disrupt 2021 — All you need is a killer pitch, an MVP, nerves of steel and the drive and determination to take on all comers to claim the coveted Disrupt Cup.

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 3pm Pacific, you can subscribe here.

Bootstrapping, managing product-led growth and knowing when to fundraise

Published April 8, 2021

Product-led growth is all the rage in the Valley these days, and we had two leading thinkers discuss how to incorporate it into a startup at TechCrunch Early Stage 2021. Tope Awotona is the CEO and founder of Calendly, which bootstrapped for much of its existence before raising $350 million at a $3 billion valuation from OpenView and Iconiq. And on the other side of that table and this interview sat Blake Bartlett, a partner at OpenView who has been leading enterprise deals based around the principles of efficient growth.

In this interview, the two talk about bootstrapping and product-led growth, expanding internationally, when to bootstrap and when to fundraise, and how VCs approach a profitable company (carefully, and with a big stick). Oh, and how to spend $350 million.

Quotes have been edited and condensed for quality.

Bootstrapping is directly tied to product-led growth

Product-led growth is all about efficiency — spending all of a startup’s capital and time on perfecting its product to capture new users and help the most fervent customers advocate for the product with others or perhaps the managers approving their expenses. That’s directly related to bootstrapping, since by evading VC investment, a startup has to be much more tied to customers in the first place.

Tope Awotona:

With no marketing at all, Calendly began to take off. So the initial users were in higher education, and very quickly we moved to the commercial sector. And all of that was because of the virality of the product. Seeing that, we just began to invest more into virality. So the combination of self-serve, which is incredibly capital efficient, because you don’t need all of these sales people, and also the virality, instead of spending a bunch of dollars on advertising, you can really rely on the virality of the product and rely on the network of the users to really propagate and to enable distribution, just those are the two things that really allowed us to be successful. (Timestamp: 7:49)

We later discussed how the extreme focus on users can drive efficiency through product-led growth.

Blake Bartlett:

It’s the product and the distribution model, and they need to be tightly aligned. Tope spoke to some of this, but I think first and foremost, even outside of metrics, it’s just how is the business built? And on the product front, the product is built, the jobs to be done, so to speak, are oriented towards the actual user of the product, not their boss. SaaS historically was built for the boss because the boss owns the the budget for that department. So if you’re building a sales tool, build for the VP of Sales, and then hopefully the AEs will, you know, go along with it. But now with product-led growth, you’re actually building for that user. … Eventually, you can build the things on top that the boss cares about like the admin panel, and the KPIs and all that kind of stuff. (Timestamp: 29:35)

Product-led growth and international expansion

Immersion cooling to offset data centers’ massive power demands gains a big booster in Microsoft

Published April 8, 2021

LiquidStack does it. So does Submer. They’re both dropping servers carrying sensitive data into goop in an effort to save the planet. Now they’re joined by one of the biggest tech companies in the world in their efforts to improve the energy efficiency of data centers, because Microsoft is getting into the liquid-immersion cooling market.

Microsoft is using a liquid it developed in-house that’s engineered to boil at 122 degrees Fahrenheit (lower than the boiling point of water) to act as a heat sink, reducing the temperature inside the servers so they can operate at full power without any risks from overheating.

The vapor from the boiling fluid is converted back into a liquid through contact with a cooled condenser in the lid of the tank that stores the servers.

“We are the first cloud provider that is running two-phase immersion cooling in a production environment,” said Husam Alissa, a principal hardware engineer on Microsoft’s team for datacenter advanced development in Redmond, Washington, in a statement on the company’s internal blog.

While that claim may be true, liquid cooling is a well-known approach to dealing with moving heat around to keep systems working. Cars use liquid cooling to keep their motors humming as they head out on the highway.

As technology companies confront the physical limits of Moore’s Law, the demand for faster, higher performance processors mean designing new architectures that can handle more power, the company wrote in a blog post. Power flowing through central processing units has increased from 150 watts to more than 300 watts per chip and the GPUs responsible for much of Bitcoin mining, artificial intelligence applications and high end graphics each consume more than 700 watts per chip.

It’s worth noting that Microsoft isn’t the first tech company to apply liquid cooling to data centers and the distinction that the company uses of being the first “cloud provider” is doing a lot of work. That’s because bitcoin mining operations have been using the tech for years. Indeed, LiquidStack was spun out from a bitcoin miner to commercialize its liquid immersion cooling tech and bring it to the masses.

Spinning out from the cryptocurrency hardware developer Bitfury, LiquidStack pitches a data center cooling tech

“Air cooling is not enough”

More power flowing through the processors means hotter chips, which means the need for better cooling or the chips will malfunction.

“Air cooling is not enough,” said Christian Belady, vice president of Microsoft’s datacenter advanced development group in Redmond, in an interview for the company’s internal blog. “That’s what’s driving us to immersion cooling, where we can directly boil off the surfaces of the chip.”

For Belady, the use of liquid cooling technology brings the density and compression of Moore’s Law up to the datacenter level

The results, from an energy consumption perspective, are impressive. The company found that using two-phase immersion cooling reduced power consumption for a server by anywhere from 5 percent to 15 percent (every little bit helps).

Microsoft investigated liquid immersion as a cooling solution for high performance computing applications such as AI. Among other things, the investigation revealed that two-phase immersion cooling reduced power consumption for any given server by 5% to 15%.

Meanwhile, companies like Submer claim they reduce energy consumption by 50%, water use by 99%, and take up 85% less space.

Submer is dunking servers in goo to save the planet

For cloud computing companies, the ability to keep these servers up and running even during spikes in demand, when they’d consume even more power, adds flexibility and ensures uptime even when servers are overtaxed, according to Microsoft.

“[We] know that with Teams when you get to 1 o’clock or 2 o’clock, there is a huge spike because people are joining meetings at the same time,” Marcus Fontoura, a vice president on Microsoft’s Azure team, said on the company’s internal blog. “Immersion cooling gives us more flexibility to deal with these burst-y workloads.”

At this point, data centers are a critical component of the internet infrastructure that much of the world relies on for… well… pretty much every tech-enabled service. That reliance however has come at a significant environmental cost.

“Data centers power human advancement. Their role as a core infrastructure has become more apparent than ever and emerging technologies such as AI and IoT will continue to drive computing needs. However, the environmental footprint of the industry is growing at an alarming rate,” Alexander Danielsson, an investment manager at Norrsken VC noted last year when discussing that firm’s investment in Submer.

Solutions under the sea

If submerging servers in experimental liquids offers one potential solution to the problem — then sinking them in the ocean is another way that companies are trying to cool data centers without expending too much power.

Microsoft has already been operating an undersea data center for the past two years. The company actually trotted out the tech as part of a push from the tech company to aid in the search for a COVID-19 vaccine last year.

Microsoft employs experimental undersea data center in search for COVID-19 vaccine

These pre-packed, shipping container-sized data centers can be spun up on demand and run deep under the ocean’s surface for sustainable, high-efficiency and powerful compute operations, the company said.

The liquid cooling project shares most similarity with Microsoft’s Project Natick, which is exploring the potential of underwater datacenters that are quick to deploy and can operate for years on the seabed sealed inside submarine-like tubes without any onsite maintenance by people.

In those data centers nitrogen air replaces an engineered fluid and the servers are cooled with fans and a heat exchanger that pumps seawater through a sealed tube.

Startups are also staking claims to cool data centers out on the ocean (the seaweed is always greener in somebody else’s lake).

Nautilus Data Technologies, for instance, has raised over $100 million (according to Crunchbase) to develop data centers dotting the surface of Davey Jones’ Locker. The company is currently developing a data center project co-located with a sustainable energy project in a tributary near Stockton, Calif.

With the double-immersion cooling tech Microsoft is hoping to bring the benefits of ocean-cooling tech onto the shore. “We brought the sea to the servers rather than put the datacenter under the sea,” Microsoft’s Alissa said in a company statement.

Ioannis Manousakis, a principal software engineer with Azure (left), and Husam Alissa, a principal hardware engineer on Microsoft’s team for datacenter advanced development (right), walk past a container at a Microsoft datacenter where computer servers in a two-phase immersion cooling tank are processing workloads. Photo by Gene Twedt for Microsoft.

Realworld raises $3.4M to help Gen Z navigate adulthood

Published April 8, 2021

Realworld has a big vision — founder and CEO Genevieve Ryan Bellaire told me her goal is “simplifying adulthood.” And the New York startup has raised $3.4 million in seed funding to make it happen.

Apparently that’s something Bellaire struggled with herself in her early twenties. Despite being a lawyer with an MBA, she said she found herself “just totally unprepared for all these real-world things,” whether that was figuring out housing or heath insurance — something I (a non-lawyer, non-MBA) can definitely relate to.

“There’s tons of content out there out there that can tell you to fill out this form to sign up for a credit card, but you don’t know what you don’t know,” she said. “There’s not one place that defines adulthood.”

At the same time, there are online services that can make aspects of adulthood easier — whether that’s Lemonade for insurance, Betterment for investing or Zocdoc for doctor’s appointments. But again, finding these services and just knowing that you should use them can be a challenge, so Bellaire said Realworld is meant to serve as the “single point of entry.”

New GV partner Terri Burns has a simple investment thesis: Gen Z

To do that, the startup has created more than 90 step-by-step playbooks, covering everything from budgeting to moving to salary negotiation. Bellaire said these are designed for members of Gen Z who are just leaving college and entering the workforce.

Realworld CEO Genevieve Ryan Bellaire. Image Credits: Realworld

Of course, even if you focus on a specific age group, different twentysomethings will have different backgrounds, income levels and challenges. Bellaire said the playbooks will customize their instructions based on a user’s specific goals and circumstances, but she also argued that Realworld’s “starter pack” of 15 playbooks covers things that every adult will need to deal with in some form, such as creating budgets, finding an apartment and understanding income taxes.

The startup plans to release its first mobile app next month, and its goal is to become what Bellaire described as a “platform, marketplace and community.” The playbooks are a big piece of the platform, and eventually, Realworld could also include a marketplace for services that will help you accomplish those adulthood goals, as well as a community where users share their knowledge and advice.

Realworld initially charged for access to its playbooks, but they’re now available for free. Instead, Bellaire said the company could charge a subscription fee for additional features and for “concierge-oriented support.”

“This is one of those problems where if you get it right, you can make a huge impact, but you can also have huge financial success,” she added.

It sounds like investors agree. Realworld had previously raised $1.1 million, and this new seed round was led by Fitz Gate Ventures, with participation from Bezos Expeditions (Jeff Bezos’ personal investment firm), Knightsgate Ventures, The Helm, Great Oaks VC, Copper Wire Ventures, AmplifyHer Ventures, Underdog Labs, Human Ventures and Techstars.

Amplifyher partner Meghan Cross Breeden noted that Realworld could “corner the market on life milestones,” not just for Gen Z right now, but for “every future milestone … in the long-haul of adulthood, from buying a home to caring for a parent.”

SeedFi closes on $65M to help financially struggling Americans get ahead

Four strategies for getting attention from investors

Published April 8, 2021

Being a successful early-stage investor is about a lot more than simply identifying trends. A successful VC needs to think several steps ahead. For MaC Venture Capital founder Marlon Nichols, it’s an ability that’s helped him spot big names like Gimlet Media, MongoDB, Thrive Market, PlayVS, Fair, LISNR, Mayvenn, Blavity and Wonderschool early on.

Nichols joined us on TechCrunch Early Stage to discuss his strategies for early-stage investing, and how those lessons can translate into a successful launch for budding entrepreneurs. Success involves not only a solid team and great ideas, it also requires the willingness and ability to change and adapt to an ever-changing world.

Getting ahead of the trends

Anyone can identify trends once they’ve broken, but a successful investor needs to see several steps ahead of the pack. This ability helps VCs know where to focus their attention and, eventually, how to weed out the snake oil from the true value pitches.

For us, that means taking a look at emerging behavioral trends and shifts in culture. What we’re looking to understand is where people and companies are going to spend their time and money – not only today, but in the future. So we do research to see if there are supporting factors for this thing sticking around and being successful. If that answer is yes, then we can dig a bit deeper. (Timestamp: 4:33)

Diverse from day one

Setting up a management board for success with Dave Easton

Published April 8, 2021

Viewed from the outside, board selection and corporate governance can seem like a bit of a black box — particularly at a startup. Generation Investment Management partner Dave Easton spoke at TechCrunch Early Stage about how to build a board as a founder, and specifically how to build a board you can live with. Easton’s own ample experience serving on boards as both a full member and as an observer, as well as Generation’s focus on building sustainable, ethically managed, mission-driven businesses helped peel back the curtain on the murky topic of good governance.

On the composition of boards

Easton noted that many boards end up overcrowded — in terms of both the number of people and also the background of those present. Mixing up the type of board members you have managing your corporate governance is key, he said, especially as a company grows in size and maturity.

In terms of fields, the sorts of things that we find that often go wrong is when your board is stacked full of investors. I think investors are great — I’m an investor. I think there are super useful things investors do. But five investors is not very useful, right — it’s just more people who will generally think the same. So a typical thing that we’re doing when we come in is, we’re saying we’re not taking a board seat, we’re gonna give our board seats to an operator — someone who actually knows what they’re doing. When you’re in the earliest stages it’s probably fine to avoid operators and just have one or two investors. Particularly operators who come from, like bigger company backgrounds, they’re not necessarily so helpful when you’re getting product-market fit. But as you get bigger and bigger, you know, operators start to trump investors, and we think boards need to move more heavily in that direction. (Time stamp: 09:34)

Don’t put settled topics up for debate

On the subject of what should actually take place at well-run board meetings, Easton said that one of the most common pitfalls he’s encountered is when management sort of performatively offers up subjects for debate. It’s something that’s easy to do, but it also ends up not only being wasteful of the time of those present, it also leaves a bad taste in basically everyone’s mouths.

Quiq acquires Snaps to create a combined customer messaging platform

Published April 8, 2021

At first glance, Quiq and Snaps might sound like similar startups — they both help businesses talk to their customers via text messaging and other messaging apps. But Snaps CEO Christian Brucculeri said “there’s almost no overlap in what we do” and that the companies are “almost complete complements.”

That’s why Quiq (based in Bozeman, Montana) is acquiring Snaps (based in New York). The entire Snaps team is joining Quiq, with Brucculeri becoming senior vice president of sales and customer success for the combined organization.

Quiq CEO Mike Myer echoed Bruccleri’s point, comparing the situation to dumping two pieces of a jigsaw puzzle on the floor and discovering “the two pieces fit perfectly.”

More specifically, he told me that Quiq has generally focused on customer service messaging, with a “do it yourself, toolset approach.” After all, the company was founded by two technical co-founders, and Myer joked, “We can’t understand why [a customer] can’t just call an API.” Snaps, meanwhile, has focused more on marketing conversations, and on a managed service approach where it handles all of the technical work for its customers.

In addition, Myer said that while Quiq has “really focused on the platform aspect from the beginning” — building integrations with more than a dozen messaging channels including Apple Business Chat, Google’s Business Messages, Instagram, Facebook Messenger and WhatsApp — it doesn’t have “a deep natural language or conversational AI capability” the way Snaps does.

Snaps raises $6M to expand its marketing platform for messaging apps

Myer said that demand for Quiq’s offering has been growing dramatically, with revenue up 300% year-over-year in the last six months of 2020. At the same time, he suggested that the divisions between marketing and customer service are beginning to dissolve, with service teams increasingly given sales goals, and “at younger, more commerce-focused organizations, they don’t have this differentiation between marketing and customer service” at all.

Apparently the two companies were already working together to create a combined offering for direct messaging on Instagram, which prompted broader discussions about how to bring the two products together. Moving forward, they will offer a combined platform for a variety of customers under the Quiq brand. (Quiq’s customers include Overstock.com, West Elm, Men’s Wearhouse and Brinks Home Security, while Snaps’ include Bryant, Live Nation, General Assembly, Clairol and Nioxin.) Brucculeri said this will give businesses one product to manage their conversations across “the full customer journey.”

“The key term you’re hearing is conversation,” Myer added. “It’s not about a ticket or a case or a question […] it’s an ongoing conversation.”

Snaps had raised $13 million in total funding from investors including Signal Peak Ventures. The financial terms of the acquisition were not disclosed.

Holler raises $36M to power ‘conversational media’ in your favorite apps

How to pick an investor in good or bad times

Spotify stays quiet about launch of its voice command ‘Hey Spotify’ on mobile

Published April 7, 2021

In 2019, Spotify began testing a hardware device for automobile owners it lovingly dubbed “Car Thing,” which allowed Spotify Premium users to play music and podcasts using voice commands that began with “Hey, Spotify.” Last year, Spotify began developing a similar voice integration into its mobile app. Now, access to the “Hey Spotify” voice feature is rolling out more broadly.

Spotify chose not to officially announce the new addition, despite numerous reports indicating the voice option was showing up for many people in their Spotify app, leading to some user confusion about availability.

One early report by GSM Arena, for example, indicated Android users had been sent a push notification that alerted them to the feature. The notification advised users to “Just enable your mic and say ‘Hey Spotify, Play my Favorite Songs.” When tapped, the notification launched Spotify’s new voice interface where users are pushed to first give the app permission to use the microphone in order to be able to verbally request the music they want to hear.

Image Credits: GSM Arena (opens in a new window)

Several outlets soon reported the feature had launched to Android users, which is only partially true.

As it turns out, the feature is making its way to iOS devices, as well. When we launched the Spotify app here on an iPhone running iOS 14.5, for instance, we found the same feature had indeed gone live. You just tap on the microphone button by the search box to get to the voice experience. We asked around and found that other iPhone users on various versions of the iOS operating system also had the feature, including free users, Premium subscribers and Premium Family Plan subscribers.

The screen that appears suggests in big, bold text that you could be saying “Hey Spotify, play…” followed by a random artist’s name. It also presents a big green button at the bottom to turn on “Hey Spotify.”

Once enabled, you can ask for artists, albums, songs and playlists by name, as well as control playback with commands like stop, pause, skip this song, go back and others. Spotify confirms the command with a robotic-sounding male voice by default. (You can swap to a female voice in Settings, if you prefer.)

Image Credits: Spotify screenshot iOS

This screen also alerts users that when the app hears the “Hey Spotify” voice command, it sends the user’s voice data and other information to Spotify. There’s a link to Spotify policy regarding its use of voice data, which further explains that Spotify will collect recordings and transcripts of what you say along with information about the content it returned to you. The company says it may continue to use this data to improve the feature, develop new voice features and target users with relevant advertising. It may also share your information with service providers, like cloud storage providers.

The policy looks to be the same as the one that was used along with Spotify’s voice-enabled ads, launched last year, so it doesn’t seem to have been updated to fully reflect the changes enabled with the launch of “Hey Spotify.” However, it does indicate that, like other voice assistants, Spotify doesn’t just continuously record — it waits until users say the wake words.

Given the “Hey Spotify” voice command’s origins with “Car Thing,” there’s been speculation that the mobile rollout is a signal that the company is poised to launch its own hardware to the wider public in the near future. There’s already some indication that may be true — MacRumors recently reported finding references and photos to Car Thing and its various mounts inside the Spotify app’s code. This follows Car Thing’s reveal in FCC filings back in January of this year, which had also stoked rumors that the device was soon to launch.

Spotify was reached for comment this morning, but has yet been unable to provide any answers about the feature’s launch despite a day’s wait. Instead, we were told that they “unfortunately do not have any additional news to share at this time.” That further suggests some larger projects could be tied to this otherwise more minor feature’s launch.

Spotify Group Session UX teardown: The fails and their fixes

Though today’s consumers are wary of tech companies’ data collection methods — and particularly their use of voice data after all three tech giants confessed to poor practices on this front — there’s still a use case for voice commands, particularly from an accessibility standpoint and, for drivers, from a safety standpoint.

And although you can direct your voice assistant on your phone (or via CarPlay or Android Auto, if available) to play content from Spotify, some may find it useful to be able to speak to Spotify directly — especially since Apple doesn’t allow Spotify to be set as a default music service. You can only train Siri to launch Spotify as your preferred service.

If, however, you have second thoughts about using the “Hey Spotify” feature after enabling it, you can turn it off under “Voice Interactions” in the app’s settings.

Twitter said to have held acquisition talks with Clubhouse on potential $4B deal

Published April 7, 2021

Twitter held talks with Clubhouse around a potential acquisition of the live drop-in audio networking platform, with a deal value somewhere around $4 billion, according to a report from Bloomberg. TechCrunch has also confirmed the discussions took place from a source familiar with the conversations.

While the talks occurred over the past several months, they’re no longer taking place, though the reason they ended isn’t known according to the report. It’s also worth noting that just a few days ago, Bloomberg reported that Clubhouse was seeking to raise a new round of funding at a valuation of around $4 billion, but the report detailing the potential acquisition talks indicate that the discussions with Twitter collapsed first, leading to a change in strategy to pursue securing additional capital in exchange for equity investment.

Twitter has its own product very similar to Clubhouse — Spaces, a drop-in audio chatroom feature that it has been rolling out gradually to its user base over the past few months. Clubhouse, meanwhile, just launched the first of its monetization efforts, Clubhouse Payments, which lets users send direct payments to other creators on the platform, provided that person has enabled receipt of said payments.

Interestingly, the monetization effort from Clubhouse actually doesn’t provide them with any money; instead, it’s monetization for recipient users who get 100% of the funds directed their way, minus a small cut for processing that goes directly to Stripe, the payment provider Clubhouse is using to enable the virtual tips.

While we aren’t privy to the specifics of these talks between Twitter and Clubhouse, it does seem like an awfully high price tag for the social network to pay for the audio app, especially given its own progress with Spaces. Clubhouse’s early traction has been undeniable, but there are a lot of questions still remaining about its longevity, and it’s also being cloned left and right by other platforms, begging the age-old startup question of whether it’s a feature or a product on its own.

Whatever went down, the timing of this revelation seems likely to prime the pump for Clubhouse’s conversation with potential investors at its target valuation for the round it’s looking to raise. Regardless, it’s exciting to have this kind of activity, buzz and attention paid to a consumer software play after many years of what one could argue has been a relatively lackluster period for the category.

Clubhouse UX teardown: A closer look at homepage curation, follow hooks and other features

Walnut wants to crack open flexibility for healthcare bills

Published April 7, 2021

Healthcare insurance, if you’re lucky to have it, only covers a subset of conditions in the United States. As a result, patients can often get burdened with horror story charges, like huge deductibles, out-of-network costs and expensive co-pays. So for the uninsured and insured alike, innovative ways of managing big bills are in high demand — especially as uncertainty remains around how COVID-19 and long-haul symptoms will be handled by patients and payers.

Walnut, founded by Roshan Patel, is a point-of-sale lending company with a healthcare twist. Walnut uses a “buy now, pay later” model, popularized by Affirm and Klarna, to help patients pay for healthcare over a period of time, instead of in one $3,000 chunk. Walnut works with healthcare providers so that a patient’s bill can be paid back through $100-a-month increments for 30 months, instead of one aggressive credit card swipe.

A patient using Walnut to pay healthcare bills. Image Credits: Walnut

It’s a sweet deal, but Patel added one more detail that he thinks makes Walnut stand out: The startup doesn’t charge any interest or fees to consumers.

“Almost every ‘buy now, pay later’ company in e-commerce charges interest or fees, and every personal loan provider charges interest or fees, but we do not,” he said. “And that’s really important to me, not making healthcare any more expensive than it already is. It’s a very patient-friendly product.”

Companies that use the buy now, pay later model with zero interest or fees need to make revenue somehow, and in Walnut’s case it is by charging healthcare providers a percentage of each sale or transaction.

If a provider’s collection rate for an out-of-pocket is 50%, Walnut would go to them and say “give us a 40% discount, and we’ll guarantee the cash for you upfront.” The startup will take the risk, and then the provider is able to make 60% of the collection rate.

Healthcare entrepreneurs should prepare for an upcoming VC/PE bubble

Now, ideally, a provider would want to get 100% of payments they are owed, but that is wishful thinking. Patel explained that a large number of bills go unpaid due to bankruptcies or a default on payments (the average collections rate for hospitals out of pocket is less than 20%). Because of this, a company like Walnut has room to offer at least some stable upfront cash to hospitals, even if it ends up being 60% of overall bills versus 100%.

The company uses “extensive underwriting models” to figure out if a patient should qualify for a loan. Patel says that the startup goes beyond using credit score, which he describes as an “outdated metric”, and instead looks at thousands of data points from different providers, from side hustle income to spending habits on things like groceries and bills.

Image Credits: Lightspring (opens in a new window) / Shutterstock (opens in a new window)

Walnut’s biggest challenge, says Patel, is to underwrite the population and pay the healthcare provider upfront in cash. It then collects from the patient on the back end, which comes with its own amount of risk.

“To be able to take on that risk for patients that are less credit-worthy is a very challenging problem, and I don’t think it’s really solved yet in healthcare,” he said.

The startup is starting by working with small private practices of one to five physicians that focus on specialties like dentistry, dermatology and fertility.

A big part of Walnut’s success will be determined by if it can attract people that truly need flexible financing options. For example, the company doesn’t have any hospitals as a partner yet, which would tap a larger group of patients that likely need flexible financing options the most. Right now, “the people who get elective-care surgery are the ones that can afford it.”

Making sense of Klarna

But Patel doesn’t see this as a disconnect; instead, he sees it as an opportunity to widen access to elective medical care to more people.

“I talked to a person last week who has no teeth and wants dentures but it costs $6,000,” he said. “That person should be able to afford it, and we enabled them to pay $100 a month for it.”

Walnut’s two biggest customer groups are the uninsured (people who have lost their jobs from COVID-19), and consumers who have high deductible plans.

Walnut isn’t the first. PrimaHealth Credit, Walnut’s closest competitor, offers point-of-sale lending procedures for elective medical procedures. Think surgeries like cataract work or dental work. The company said the service is currently available in Arizona, California, Florida, Oklahoma and Texas, and will be expanded to all 50 states this year. Walnut, comparatively, is mostly focused on the East Coast and plans to expand nationwide by the end of this year.

PrimaHealth’s average loan size is $1,800, and Walnut’s average loan size is $5,000.

The company is currently piloting with a handful of healthcare providers in dermatology, dentistry and fertility. It has had more than 500 patient loan applications, totaling over $4.6 million in application volume year-to-date. Patel says that Walnut only accepted a fraction of these applications, but declined to share what percent of money it has lent so far. As Walnut refines its model, it might be able to cover other categories.

Up until this point, Walnut has been lending off of its own balance sheet. In order to truly scale, it will need to get a new source of capital — either a credit line, debt financing round or venture capital — to offer more loans. Patel says that the startup is in talks with banks, and turned down a debt offer due to size and rate.

Venture capital seems to be the solution for now: The startup announced that it has raised a $3.6 million seed round from investors including Gradient Ventures, Afore Capital, 2048 Ventures, Supernode Ventures, TA Ventures, Polymath Capital, Tack Ventures, Awesome People Ventures, Newark Ventures and NKM Capital. Angels include the CEOs of Giphy and PillPack, and the CTO of Rampm Financial as well as an NFL coach. The company is also a part of Plaid’s inaugural accelerator.

“I don’t want to be yet another startup trying to offer you an undifferentiated insurance plan,” Patel said.

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