Source Code: Your daily look at what matters in tech.
To give you the best possible experience, this site uses cookies. If you continue browsing. you accept our use of cookies. You can review our privacy policy to find out more about the cookies we use.
pipelinepipelineauthorBiz CarsonNoneDo you know what's going on in the venture capital and startup world? Get Tomio Geron's newsletter every Saturday.021fce003e
July 14, 2020
The coronavirus pandemic has made returning to the classroom less appealing to many students. Contrary Capital founder Eric Tarczynski sees that as an opportunity.
"Perhaps obviously, paying $50,000 to take classes online is just not appealing to anyone," Tarczynski said. Students headed to elite schools such as Harvard seem particularly troubled by the situation. Instead, Tarczynski's venture firm is making a different offer: It will invest up to $100,000 in exchange for a small slice of ownership in startups created by five different students (or student teams) who are willing to take a gap year to build a company.
The idea of a gap year isn't new. Neither is the idea of investors paying kids to drop out of college: Peter Thiel has been doing it for years. But Contrary's experiment is a bet on the pandemic being a good time for students to start companies — and on there being more of an interest in leaving college, on a temporary basis, to do it.
It's an interesting move for a firm like Contrary, which has been traditionally cozy with colleges. Part accelerator, part venture firm, Contrary's business has been to scout college campuses for the next generation of entrepreneurs and give them support and access to Silicon Valley funding networks. Now, the gap year experiment is encouraging founders to take a year away from school.
"We do believe pretty deeply in universities, but primarily when they are in person," Tarczynski said.
It's also a different approach than the Thiel Fellowship, which offers the money as a grant and pays students to drop out of college entirely to pursue their company. But the precedent the Thiel fellowship has set is an inspiring one to Tarczynski. Billion-dollar startups like Oyo Rooms and Figma were born out of Thiel Fellowships, and Ethereum's co-creator, Vitalik Buterin, was also a Fellow.
For Contrary's program, groups have to commit to working on the project full time, but otherwise the firm is open to backing entrepreneurs at any education stage, from undergraduates to doctorates. Contrary is also open to backing immigrant founders, especially since some international students may be sent home if schools don't have in-person classes. The hope is to help college students looking for an alternative path during the time of coronavirus to be able to focus on a company without the distractions of school for a year.
"We pretty strongly believed that the limiting factor for young people when it comes to company creation is just bandwidth," Tarczynski said.
Paying founders to take a year off is an easy way to clear their plates.
Biz Carson
Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.
People
Beeper built the universal messaging app the world needed
It's an app for all your social apps. And part of an entirely new way to think about chat.
Beeper is an app for all your messaging apps, including the hard-to-access ones.
Image: Beeper
January 22, 2021
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
January 22, 2021
Eric Migicovsky likes to tinker. And the former CEO of Pebble — he's now a partner at Y Combinator — knows a thing or two about messaging. "You remember on the Pebble," he asked me, "how we had this microphone, and on Android you could reply to all kinds of messages?" Migicovsky liked that feature, and he especially liked that it didn't care which app you used. Android-using Pebble wearers could speak their replies to texts, Messenger chats, almost any notification that popped up.
That kind of universal, non-siloed approach to messaging appealed to Migicovsky, and it didn't really exist anywhere else. "Remember Trillian from back in the day?" he asked, somewhat wistfully. "Or Adium?" They were the gold-standard of universal messaging apps; users could log in to their AIM, MSN, GChat and Yahoo accounts, and chat with everyone in one place.
<p>Migicovsky has spent the last two years building a modern equivalent. It's called Beeper, and it pulls 15 different messaging services — including WhatsApp, Slack, Instagram and iMessage — into a single app. The app launched this week, and will cost $10 a month for anyone who wants to use it. Migicovsky said roughly 40 people have been using the app for the last few months, and that he's come to rely on it completely. "Beeper went down for me a couple of weeks ago, and I had to fix it," he said. "And for the hours I was fixing it, I had to open up Slack, Telegram, Signal, everything. It was like going back to the Stone Ages." </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
</div>
</div></p><p>To explain how Beeper works, and why Migicovsky thinks it's valuable, you have to understand the protocols. In the early days of online messaging (otherwise known as The Adium Era), many messaging services were based on a protocol called Extensible Messaging and Presence Protocol, or XMPP. When it was designed, XMPP intended to make all kinds of communication on the internet, from text to video to file transfers, into decentralized systems. For a while, it worked: From AIM to Google Talk to the early days of Facebook Chat, some of the biggest messaging services used XMPP. </p><p>A few years later, Google and Facebook — and soon others — decided to stop supporting XMPP. Some argued XMPP was too complicated a protocol and simply didn't work; others said they could develop features more quickly by keeping everything in-house. "Today, group conversations, sharing your day with stickers or emojis and messaging across multiple devices have become second nature to many of us," Google product manager Mayur Kamat <a href="https://web.archive.org/web/20150704141805if_/https://plus.google.com/+MayurKamat/posts/ETBvtp9VYav" rel="noopener noreferrer" target="_blank">wrote in 2015</a> announcing the switch from Google Talk (which supported XMPP) to Hangouts (which didn't). Whatever the reason, messaging apps soon became walled gardens, with everything run — and stored — in one place.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
</div>
</div></p><p>In the last few years, though, a group of developers has been building a new protocol, one they hope can offer all the openness and decentralization of XMPP but with all the modern features people need now: encryption, voice and video, integrations with other apps and the like. It's called Matrix. "Matrix is our effort to right the balance" after decades of great tech being turned into walled gardens, said Matthew Hodgson, Matrix's technical co-founder. "If you were going to build the holy grail of messaging," the team asked themselves several years ago — a service where anyone can participate, where everything is encrypted, where nothing is locked off from the ecosystem — "what would it look like?" Some of this tech has been built in the past, but always inside a single company or service. They wanted to build it and give it to the internet.</p><p>Ultimately, Hodgson said, Matrix is more than a messaging protocol. "It's a real-time database for any kind of information," he said, from financial tickers to drone flights to VR streams. "Matrix just gives you the building blocks to synchronize it between different deployments." Messaging just happens to be something with which Hodgson and his team have plenty of experience. Not to mention, it's kind of a killer app. Matrix-based messaging can support a whole ecosystem of apps, the way email protocols do. It's all end-to-end encrypted, and it's resilient by virtue of not being housed in a single data center. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
</div>
</div></p><p>"When Slack goes down for six hours," Hodgson said, "or Signal goes down for 24 hours, people realize, 'hang on, all my eggs are in one basket.'" There are already decentralized, harder-to-kill apps like Slack or Signal running on Matrix, where there's less security risk or possibility of downtime. He added: "The narrative is swinging in our direction." Millions of users use Matrix messaging tools already, he said, including the entire French government, which uses a Slack-like tool called Element that is built by the Matrix team.</p><p class="shortcode-media shortcode-media-rebelmouse-image">
<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNTUxMjQ3Mi9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTY3MDIzNzU0NX0.NPrsWaIEy9RUG90_cIsyZMFW7foaGyiuP_vHdD2T-Ok/img.png?width=980" id="ce4ab" class="rm-shortcode" data-rm-shortcode-id="37ea800dd363bb5c0c588b2727990131" data-rm-shortcode-name="rebelmouse-image" alt="Beeper chats">
<small class="image-media media-caption" placeholder="Add Photo Caption...">Beeper tries to wrangle lots of messaging apps into one. Eventually, that might not be necessary.</small><small class="image-media media-photo-credit" placeholder="Add Photo Credit...">Image: Beeper</small></p><p>Matrix is key to Beeper, but in a slightly different way. Migicovsky isn't trying to build a brand-new chat service to compete with WhatsApp; he's trying to wrangle all the services people use into a system that feels more open. So he's taking advantage of a Matrix feature called Bridges, which pulls other apps into the Matrix ecosystem. Sometimes this is easy: Migicovsky said IRC and Telegram have great APIs, making it easy to send and read messages from other apps. Most others are a bit hackier, though Migicovsky said it's rarely impossible: "If you can open something in a browser, we can get to it."<br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
</div>
</div></p><p>One of Beeper's most enticing integrations is with iMessage, which would mean users could access their iMessages on Android or Windows through the Beeper app. This one is stupendously hacky. If a Beeper user has a Mac that's always on and connected to the internet, it's easy; Beeper just connects to the same relay that delivers messages to all your Apple devices, and sends them to Beeper. But if you don't have a Mac that fits the description, there's only one way in. "We wrote an app for jailbroken iPhones that acts as a relay," Migicovsky said. "There's a database on the iPhone called sms.db. And so we just read and write to that." </p><p>But wait, it gets hackier! There's no way to get everyone to jailbreak their iPhones, so Migicovsky found a workaround. "I buy used old cracked-screen iPhones for cheap," he said. "I jailbreak them, and send them to people with the app installed. And they just set it up and leave it somewhere connected to Wi-Fi." There's a box full of semi-busted iPhones, all the way back to the iPhone 4, on his desk right now. The plan works, though it doesn't exactly scale. "We tried a lot of different things," Migicovsky said. "It might not be like this forever." </p><p>There's one part of this setup that Migicovsky actually quite likes. "You control the phone," he said. All the code is open source, and Beeper encrypts all messages; only users have their passwords to access them. But if you really don't want Beeper getting your texts anymore, just unplug that jailbroken iPhone, and you're done.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
</div>
</div></p><p>Migicovsky has lots of ideas for how to improve Beeper as a product, and messaging in general. "No one has really innovated in chat in the last 10 years," he said, before allowing that maybe Slack and Discord get a little credit. But that's it. He's not sure what better looks like, though. He's intrigued by new ways to sort and organize messages, even how threads could look. "I'm really just excited about having this ... not a blank canvas, a malleable canvas," he said.</p><p>The list of places people message seems to get longer every day, and Migicovsky wants Beeper to support them all. "I want to build LinkedIn and Snapchat, and I'm not dating but a lot of people want Tinder messages on this," he said. He's not trying to replace those apps entirely, though. "Discord's amazing," he said, by way of example. "It has cool animations, you have the audio chat that's really good, it's got this social element." For Discord things, people should use Discord. But texting with friends or sharing photos shouldn't be a Discord thing. Or an Instagram thing, or a WhatsApp thing, or a Signal thing, or a Slack thing. It definitely shouldn't be all of those, separately.</p>"It would be wonderful if we didn't have to build what we built," Migicovsky said. "And you could just look me up, like in a phone book or something, and say, 'I want to talk to Eric.'" In the long run, Matrix might help make that possible — already, it appears some of Twitter's decentralization work through Project Bluesky is <a href="https://twitter.com/bluesky/status/1352302821140549632" rel="noopener noreferrer" target="_blank">being done on Matrix</a>, and Hodgson said he's had conversations with a number of big players in the tech world about build a more open and interoperable messaging ecosystem. For now, the best anyone can do is put everything in one place. It's hacky, but it's progress.
Keep Reading
Show less
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
Protocol | Enterprise
Why Oracle and SAP are fighting over startups
Did someone mention a chance to burnish reputations and juice balance sheets?
New cloud-based offerings and favorable contract terms are convincing startups to switch to software from Oracle and SAP earlier in their lives than your might expect.
Jane Seidel
January 19, 2021
Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.
January 19, 2021
In the hunt for their next big-ticket customers, SAP and Oracle are trying to cast off reputations as stodgy tech providers by making a huge push to provide their software to startups.
Both companies have found themselves in choppy waters recently as potential customers have turned to the cloud, shunning the on-premises solutions SAP and Oracle are known for. That's coupled with a global pandemic that dried up demand for the expensive enterprise-grade software that drives profits at the vendors.
<p>Now, to help bolster the balance sheet, they're trying to find the next Starbucks, General Motors or Medtronic as early as possible. </p><p>"Oracle and SAP have recognized that they need to go downmarket," Valoir analyst Rebecca Wettemann told Protocol. "The reality is, there just aren't that many companies that have the appetite or the interest … in doing a big investment." </p><p>It may surprise some to see such a focus on smaller organizations, which are typically loath to invest in what is traditionally thought of as enterprise-grade technology, especially given the cost. But improvements in the products from both providers, their pivots to cloud-based offerings and favorable contract terms are convincing founders of the value of deploying software such as an enterprise resource planning, or ERP, system from a large vendor earlier in the life cycle. So much so that, at Oracle, the startup business is growing at a clip of as much as 400% year-over-year. At SAP, the company brought 773 new customers in the space last year. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
</div>
</div></p><p>"It's been a steady plod over the past few years just to let startups know Oracle is here," said Jason Williamson, the vice president of Oracle for Startups. "Now, we're in that phase of the flywheel to really deliver on the promise." </p><p>Take the Jennifer Lopez- and Alex Rodriguez-backed startup Super Coffee. In 2018, the bottled energy drink company was finding it difficult to share daily sales data with its national team. Ultimately, it meant that only the top brass of the organization had a 360-degree view of the business. That prevented employees from, among other things, pinpointing the most successful sales strategies to use in their own outreach. So it tapped Oracle's NetSuite for an ERP system, industry jargon to refer to software that effectively helps back the most foundational business segments at enterprises, like finance and supply chain operations </p><p>"We were running our business gradually as we went, using spreadsheets," co-founder and president Jordan DeCicco told Protocol. "When we introduced the ERP, we had everything that we needed in one place and we could easily access and share it with the entire company. [Salespeople] had the same knowledge as the leadership team when they are making decisions." </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
</div>
</div></p><h2>Getting in on the ground floor
</h2><p>Super Coffee is not alone. Other startups are using similar products to help prepare for looming growth, gain efficiency in their daily operations and broadcast the maturity of the firm to potential customers or investors, according to startup executives. </p><p>In the past, founders may have shunned the more expensive products from Oracle or SAP in favor of cheaper alternatives catered to small businesses, such as Acumatica, Intact or FinancialForce. But there's now acknowledgement that deploying the costlier solutions sooner could save on a more arduous implementation down the line. And because most of the software is now offered through the cloud, it can scale much more easily as the company grows, without the added burden of managing the tech in-house. </p><p>"We saw a lot of the companies who were the size that we wanted to be in a couple years using the tool," DeCicco said. "It was kind of a no-brainer for us." </p><p>For SAP and Oracle, the business is unlikely to ever serve as a suitable replacement for enterprise licenses, given the software is often provided at a discount and startup success is the exception, not the norm. Instead, the goal is to try to make a connection with companies before some of them hit it big. As operations expand and the workforce grows, often so do the number of software licenses; since it's costly to switch out ERP platforms, that could mean more revenue for SAP and Oracle over the long term, even if only a handful of clients see huge growth. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
</div>
</div></p><p>Electric car maker Rivian, for example, <a href="https://news.sap.com/2019/08/sap-hyper-growth-rivian/" rel="noopener noreferrer" target="_blank">tapped SAP's S/4HANA in 2019</a>. Since then, the startup has raised billions in funding and is reportedly close to hitting a $25 billion valuation, becoming one of the most prominent companies in the automotive industry despite having not yet shipped a finished vehicle. Rivian declined to comment for this article. </p><p>"These are companies that have high expectations for growth," SAP Senior Vice President Greg Petraetis said. "They want to move from being ramp-ups to category leaders to global leaders in what it is that they do. They want to invest in a technology stack that they will never outgrow." </p><p>Growing the pipeline is so critical that Oracle is even expanding its outreach to catch entrepreneurs early, particularly at the university level, before they even begin the work to launch a company. "You reap what you sow," Williamson said. "If we want to gain the next big startup unicorn, we have to be early."</p><p>For SAP and Oracle, the partnerships also help shed their reputations as stodgy tech providers of yesteryear. Internally, both have made strides to improve their technology to blunt this criticism, but it still takes work to persuade potential customers of the upgrades: a continual challenge, but one that likely gets easier as they win more startup business. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
</div>
</div></p><p>"We had to actually convince people in our company to give it a chance. It's not the same SAP," said Tim Flaherty, chief financial officer at medical device startup Enable Injections, an S/4HANA customer. "Back 10 years, we probably wouldn't have gone this way."</p><p>And as both of those giants move toward small businesses, rivals that already catered to that market — such as FinancialForce, which offers a very similar product — are also making strides toward becoming a partner that can grow alongside the startup itself. Those competitors have the ability "to be a growth partner beyond the [small business] phase. There's nothing from a capability perspective that limits them … from supporting a large organization," said Wettemann. </p><h2>The modern ERP
</h2><p>For startups, deploying big-ticket software signals to both investors and customers that the company is prepared to handle any major surge in business. While even just a decade ago, such a purchase would be almost unheard of for a smaller organization, the products are becoming more "out of the box" solutions, meaning that clients don't have to go through the often time-intensive and costly customization efforts. </p><p>"Would I have considered an ERP of 10 years ago in a startup? No way. Way too clunky, way too difficult to deal with," said Livekindly Chief Information and Digital Officer Rogan Moore. But, he added, legacy ERP systems and the modern digital offerings "are very different things." The vegan food collective is relying on SAP's S/4HANA to help it rapidly scale and compete against the globe's largest food producers for ingredients and partnerships. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
</div>
</div></p><p>SAP and Oracle are also giving the companies attractive contract terms, such as set costs for additional licenses or add-on applications. Oracle, for example, provides a 70% discount on additional cloud credits or licenses for startup customers for at least two years, according to Williamson. </p><p>"We bought what we needed at the time and we have a blend of things that we have pricing on that we think we will need in the future that we managed to lock in," Moore said. </p><p>There are also other non-operational benefits, like connecting startups to potential investors or customers. Enable Injections, for example, opted to go with SAP over other providers like Oracle due to its influence within the healthcare sector. As many as 80% of pharmaceutical companies use the company's software, per Flaherty. </p><p>Clearly, there are advantages on both sides of these relationships: startups get better tools and cred with investors; Oracle and SAP get to burnish their reputation and start on the ground floor with the corporations of the future. And while the startup business isn't the most lucrative for SAP or Oracle right now, the early battles being waged could help determine the fate of earnings reports in the years to come.</p>
From Your Site Articles
- How crazy an idea is Oracle buying TikTok? - Protocol — The ... ›
- How Christian Klein's reboot of SAP's strategy is working out - Protocol ›
- Despite an early-week scare, cloud earnings finish strong - Protocol ... ›
- SAP Concur is losing its president and customer chief - Protocol ... ›
- SAP's Christian Klein's bid to remake the company - Protocol — The people, power and politics of tech ›
Keep Reading
Show less
Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.
Is this a VC bubble, or just the new normal?
Huge deals, little diligence and hyper-fast follow-on rounds have become commonplace. For now.
Things are looking awful frothy, aren't they?
Photo: Drew Beamer/Unsplash
January 16, 2021
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
January 15, 2021
The VC industry is "frothy," "overheated" or "bonkers," investors say. Whether this is the new normal or unhealthy signs of an overheated market depends on your point of view — and how well your portfolio is doing.
There are signs that VC has changed all around. In recent months, deal sizes and valuations have spiked in hot deals; due diligence on startups has evaporated as investors compete to get into hot deals first; venture firms are investing much more than they normally do; there are hyper-fast follow-on rounds; and more non-traditional investors are backing early-stage startups.
<p>In one recent example, low-code startup Retool, which helps companies quickly and cheaply build internal software tools, attracted top-tier investors who bid for a round that ended up valuing the quickly-growing company at close to <a href="https://www.bloomberg.com/news/articles/2020-10-20/retool-nears-1-billion-valuation-with-funding-from-sequoia" rel="noopener noreferrer" target="_blank">$1 billion</a>. Sequoia Capital won the deal, leading the Series B. Despite its fast growth and high valuation, Retool's annualized revenue run rate at the time of funding in October was between $5 million to $10 million, according to those familiar with the deal. (It has since jumped higher, one source said.)</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
</div>
</div></p><p>That sort of sky-high revenue multiple is not uncommon for companies that are seeing strong growth and happen to fit into a particular theme that venture investors are chasing. </p><p>This shift started as far back as 2018, when tech's dominance in the market became clearer, some investors say, but has ramped up in the past six months or so. Some point to particular enthusiasm about a post-pandemic economy and perhaps a wave of relief-induced investment once the pandemic actually boosted many startup sectors, such as enterprise, ecommerce and gaming. </p><p>Whatever the original motivation, the surge of investment is being made possible by <a href="https://www.cbinsights.com/research/report/venture-capital-q4-2020/" rel="noopener noreferrer" target="_blank">cash</a> that's flooding into the venture industry, a trend driven by low interest rates, exuberance over unusually strong exits last year in companies such as enterprise software firm <a href="https://www.protocol.com/snowflake-ipo" target="_self">Snowflake</a> and high valuations for late-stage companies, such as gaming company Roblox. </p><p>"Capital is flooding into the VC market because of high returns in VC," Zach Coelius, founder at Coelius Capital, said. "That leads to more investors splashing money around and driving up prices and investing in companies that shouldn't be invested in."</p><p>New macroeconomic conditions — as well as startups growing faster and generating higher revenues than ever before — are behind this, said Chirag Chotalia, partner at Threshold Ventures. Previous "category-defining companies" used to typically exit at $1 billion to $5 billion, but now those outcomes are $10 billion to $30 billion or higher, he said.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
</div>
</div></p><p>"We think about it as the new normal," Chotalia said. "The biggest revelation for me is the size of the outcomes really supports the quote-unquote frothiness in the cycle. In many ways, what was irrational a couple years ago is now much more rational today because of what we're seeing on the exit side."</p><p>Even if the stock market drops, these new startups still have strong fundamentals, he thinks. "The magnitude of the exits is not driven so much by the stock market but by the revenue scale and the growth rate of these companies. I don't see it nearly as cyclical as past cycles," Chotalia said. "Valuations may come down, but not these growth rates. Multiples might be questionable for some portion of companies, but revenues are here to stay, as are the growth rates."</p><h3>'No time to dilly-dally'</h3><p>With the fierce competition for top deals, the rigor of due diligence is declining. Startup deals used to entail days of calls and research at the seed round and weeks at Series A or later. Now seed deals can now be done in hours, and Series As within days.</p><p>"Diligence cycles have become much more compressed," Coelius said. "You don't have time to dilly-dally anymore. It's 24- to 48-hour decision cycles. You have to have done your diligence beforehand."</p><p>Investors have gone beyond "preemptive" deals where they seek to invest in a company before it searches for funding. One new strategy: VC firms might <a href="https://twitter.com/gokulr/status/1349536685214687234?s=21" rel="noopener noreferrer" target="_blank">send</a> a term sheet to a startup even before a "get-to-know-you" meeting; some even hire diligence firms to do this work for them. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
</div>
</div></p><p>"Now it's turned to firms coming in saying, 'I've done all my work; here's a term sheet,'" said Matt Murphy, partner at Menlo Ventures. "It's a way to force something on people before they're even ready."</p><p>"Everyone is saying 'I can't miss the next Snowflake at A or B or C,'" said Semil Shah, founder at Haystack. "It's not just fear of missing out: It's now fear of missing that company that could be a $100 billion company. That fear is sharpened."</p><p class="pull-quote">What was irrational a couple years ago is now much more rational.</p><p>Another aspect that's ratcheting up is the speed of follow-on rounds. Some hot companies are raising a new round in two to three months after a previous one. "It used to be like, 'Damn, I missed it, I'll check in in six to 12 months,'" Murphy said. "Now what everyone is doing is moving to a dynamic of: 'I missed it. It doesn't matter, I'll put a term sheet in two to three months later.'"</p><p>Nontraditional startup investors, particularly in early-stage deals, could also lead to startups getting funded before they're ready. In a recent example, a venture investor pointed to the unusual case of a banking advisory firm leading a deal for an early-stage startup at the Series A. This is a step beyond investment banks leading deals, which has already been common.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
</div>
</div></p><p>The frenzy is especially focused on the hottest deals among top entrepreneurs or companies, Coelius said. It's a maxim among venture capitalists that each year there are <a href="https://stripe.com/atlas/guides/ama-marc-andreessen" rel="noopener noreferrer" target="_blank">15 to 20 startups</a> that will be massively successful, and those are the only companies that matter in driving investors' returns.</p><p>But this filters down to lower-quality deals. For example, companies that are not snapped up by top investors are then backed by newer investors who are trying to break into the industry. And they may be even less diligent than established firms, Coelius said.</p><p>"The risk is always: Mediocre companies raise at high valuations," said Mamoon Hamid, partner at Kleiner Perkins. "If historically you wrote $10 million checks, now you're losing $20 million [when a startup fails]. It's going to happen. But people don't think that way. They think, 'what's the upside,' not the downside."</p><h3>The Icarus effect</h3><p>Valuations are so high at the moment that one new firm, Apeira Capital, is seeking to create synthetic vehicles to essentially short <a href="https://www.wsj.com/articles/overvalued-startups-could-be-shorted-by-new-firm-11607337001" rel="noopener noreferrer" target="_blank">overvalued startups</a>. There are a plethora of companies that may be fundamentally good companies but are just overvalued due to the way that venture capitalists value and invest in them, Apeira founder Natalie Hwang said. </p><p>And despite the flood of cash going into the market, capital is not being distributed evenly, said Deena Shakir, partner at Lux Capital. The proportion of funding that went to female-founded startups in 2020 dropped to 2.3% from 2.8% in 2019, according to Crunchbase. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="5">
</div>
</div></p><p>Venture firms investing much more than they typically do could come back to bite them. One limited partner who requested anonymity said some firms that typically make one to two deals per quarter are now making upwards of seven to nine. If it's true that there are only 15 to 20 truly winning startups in a given year, that pace could push investment returns down.</p><p>"It just can't end well," the investor said. "It almost feels like we're looking at an entire cohort [of investors] that's going to have substandard returns."</p><p>For limited partners, this could lead to trouble when it comes to exits. "There's no price diversity," said Chris Douvos, founder at fund-of-funds Ahoy Capital. "You're just playing the momentum. It's a buy high, sell higher mentality. My concern is, as a whole, the entire industry has conditioned itself to need those kinds of exits for success."</p><p>Many investors today don't think about — or weren't around during — the last real downturn, he added. "Pricing things for perfection and glossing over weaknesses won't hurt you in a one-way market," Douvos said. "But if there's ever a hiccup, you'll have the Icarus effect where the higher you fly, the further you'll fall."</p>
Keep Reading
Show less
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
COVID-19 bruised TripActions’ business. It chose to innovate.
If nobody's booking business flights through your startup, why not help people pay for their corporate takeout instead?
TripActions had to confront a world with far less travel.
Photo: TripActions
January 7, 2021
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
January 7, 2021
TripActions was a fast-growing startup that helped clients manage their business travel when the pandemic hit early last year. Now, almost a year later, it's also helping businesses with their work-from-home expenses.
Chief financial officer Thomas Tuchscherer compared what happened last spring to being in a speeding car that was forced off a cliff — a terrifying experience shared by most travel industry companies hit hard by the COVID-19 crisis.
<p>"All of a sudden the ground vanishes, so you're flying off in this car that's not supposed to fly," he told Protocol. "It was scary while the car was up in the air, not knowing how to land it. But it forced us to focus and invest in areas that really mattered."</p><p>A major area the startup focused on as COVID-19 took hold is TripActions Liquid, a line of credit it launched last February to help clients finance their business travel. On Thursday, the company said it's expanding the service to cover a broader range of expenses at a time when business travel is still largely down.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
</div>
</div></p><p>While TripActions Liquid was mainly used to pay for clients' flights, hotels and car rental expenses when it first launched, clients can now also use the service to pay for non-travel business needs that are more relevant in the era of remote work, general manager Michael Sindicich said.</p><p>"The type of spend shifted," he told Protocol. "You're not spending on travel as much, but you're still spending on a lot of other business areas ... A lot of it is for digital advertising, it's software spend, it's work-from-home furniture. You see a lot of DoorDash. You see, now that we're just coming off the holidays, a lot of gifts to employees."</p><p>Sindicich said the startup is "leveraging a lot of fintech and different tools" to enhance the ability of businesses to manage their expenses. TripActions Liquid, for instance, uses AI to quickly approve expenses and process payments. </p><p>Tuchscherer said the decision to expand TripActions Liquid to cover expenses beyond travel was also "driven by a natural expansion to capture more spend, and also to become more strategic" to clients' finance teams, including the CFO.</p><p>"If you're only truly present we can only talk about travel, you may be speaking only with the travel managers," he said. By expanding to other expenses, "you move up the finance stack and you start speaking with more strategic financial employees, including controllers, including CFOs."</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
</div>
</div></p><p>TripActions launched the line of credit in February 2020 with $500 million in debt financing from Silicon Valley Bank, Goldman Sachs and Comerica. Initially, it was geared toward making it faster and more convenient for businesses to use the TripActions travel management platform.</p><p>But then the COVID crisis caused travel bookings to plummet by as much as 90% last spring. TripActions was forced to cut costs, including a major round of layoffs, Tuchscherer said.</p><p>"We had to take the very difficult decision of letting go about a quarter of the company back in March," he said.</p><p>The company has started to bounce back as some business travel also resumed. It also began expanding the scope of TripActions Liquid, which has become the startup's fastest-growing business.</p><p>Meanwhile, investor interest has also remained strong. In June 2020, at the height of the pandemic, the company, which had raised $250 million the previous year at a $4 billion valuation, raised another $125 million from investors led by Greenoaks Capital, boosting its total tally to $600 million. The new valuation will be set when TripActions goes public, Tuchscherer said. He declined to set a timeline for the company's IPO.</p><p>Jonah Crane, a partner at the fintech-focused investment firm Klaros Group, said TripActions' decision to expand its financing business shows how startups can tweak their business model, especially during a crisis.</p>"It's a good example of that broader trend where a company will often start getting traction in solving one problem for your customers and then say, 'Hey, we can also, we can also help you with this other thing,'" he told Protocol.
Keep Reading
Show less
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
Politics
In 2020, COVID-19 derailed the privacy debate
From biometric monitoring to unregulated contact tracing, the crisis opened up new privacy vulnerabilities that regulators did little to address.
Albert Fox Cahn, executive director of the Surveillance Technology Oversight Project, says the COVID-19 pandemic has become a "cash grab" for surveillance tech companies.
Photo: Lianhao Qu/Unsplash
December 30, 2020
Issie Lapowsky (@issielapowsky) is a senior reporter at Protocol, covering the intersection of technology, politics, and national affairs. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University’s Center for Publishing on how tech giants have affected publishing. Email Issie.
December 29, 2020
As the coronavirus began its inexorable spread across the United States last spring, Adam Schwartz, senior staff attorney at the Electronic Frontier Foundation, worried the virus would bring with it another scourge: mass surveillance.
"A lot of really bad ideas were being advanced here in the U.S. and a lot of really bad ideas were being actually implemented in foreign countries," Schwartz said.
<p>In China, where the virus first took hold, the country had already begun using draconian smartphone-based tools to <a href="https://www.bbc.com/news/technology-51439401" rel="noopener noreferrer" target="_blank">track sick people's whereabouts</a> and effectively force them to stay home. In Israel, lawmakers rushed through a proposal to give government officials <a href="https://www.bbc.co.uk/news/technology-51930681" rel="noopener noreferrer" target="_blank">access to Israelis' location data</a>. As the White House met with tech giants including Facebook and Google to discuss ways they could help, Schwartz and others feared the U.S. might be next in allowing fear of the virus to subvert basic civil liberties.</p><p>Nine months into the crisis, Schwartz said, the "worst ideas" being deployed internationally have yet to take hold in the U.S. But that doesn't mean COVID-19 hasn't created a slew of smaller, but still insidious privacy setbacks for Americans who, in recent years, have become increasingly wary of all the intrusive ways that governments and private companies use their personal data. Since March, corporate offices and college campuses have been flooded with biometric scanners, employers have deployed software that lets them remotely monitor workers' keystrokes and giant corporations like Ticketmaster have <a href="https://help.ticketmaster.com/s/article/What-are-your-COVID-screening-requirements?language=en_US" rel="noopener noreferrer" target="_blank">contemplated</a> linking people's negative COVID-19 tests to their tickets to gain entry to future events. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
</div>
</div></p><p>While many of these precautions are well-meaning attempts to preserve public safety and to use technology to get the economy up and running again, they can come at a cost to personal privacy. And yet, the crisis has once again relegated privacy legislation to the back burner in Congress as lawmakers battle over how to handle dueling health and economic disasters.</p><p>Albert Fox Cahn, executive director of the Surveillance Technology Oversight Project, says the COVID-19 pandemic has become a "cash grab" for surveillance tech companies. "I think this has been the most dangerous moment for civil rights since 9/11," he said. "When you're faced with impossible choices like whether or not to keep schools open and deprive kids of an education or put them at risk, it's so easy to be taken in by the allure of magical thinking and startups that say if you just install this tracking device you'll somehow be able to avoid doing the impossible."</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
</div>
</div></p><p>Contact tracing has been a source of concern, as governments across the country work with a slew of private firms to manage manual contact tracing with no real guardrails in place. "People by the thousands are telling contact tracers where they've been, who they're with, and we don't think there are sufficient ways to secure that data, especially when private contractors or for-profit corporations are helping," Schwartz said.</p><p>In New York, Cahn's organization supported legislation that would have protected New Yorkers from having their contact tracing data used against them in court or administrative proceedings. That bill passed over the summer, but Governor Andrew Cuomo has yet to sign it into law, leaving that information vulnerable. "In most states, police or ICE can get contact tracing data with a subpoena," Cahn said. "This not only creates a privacy threat, but it's a public health nightmare. There are millions of Americans who would second guess whether to fully disclose their potential contacts."</p><p>Apple and Google partnered on a contact-tracing tool that went to extremes to ensure people's data wouldn't be centrally stored or shared with either company or with the government. But health officials, at least early on, <a href="https://www.washingtonpost.com/technology/2020/05/15/app-apple-google-virus/" rel="noopener noreferrer" target="_blank">scoffed</a> at the limitations. "Digital apps and technology have struggled in the in-between space of wanting to track the path of this disease, this virus, while at the same time really struggling with very real privacy concerns," said Malkia Devich-Cyril, founding director and senior fellow at the advocacy group MediaJustice.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
</div>
</div></p><p>The imminent rollout of a vaccine presents even trickier questions, like what happens if businesses or governments begin requiring people to prove they've been vaccinated in order to access certain spaces. California's legislature already defeated a bill that would have created a blockchain-based system to create what Schwartz calls "immunity passports." EFF argued that requiring people to hand over their smartphones to prove their immunity would open them up to other privacy invasions and would require people to have a smartphone in the first place. "We view this as a horrible, horrible idea," Schwartz said, noting that EFF will be "in the trenches" if any similar proposals arise.</p><p>Over the course of 2020, there have been other, subtler attitudinal shifts too. In the spring, news outlets that, in the past, criticized apps for surreptitiously tracking and selling people's location data, suddenly began tapping that same data to track where people were actually <a href="https://www.nytimes.com/interactive/2020/04/02/us/coronavirus-social-distancing.html" rel="noopener noreferrer" target="_blank">staying at home</a> or whether anti-shutdown protesters might be <a href="https://www.theguardian.com/us-news/2020/may/18/lockdown-protests-spread-coronavirus-cellphone-data" rel="noopener noreferrer" target="_blank">spreading the virus</a>. "We think there's a lot of COVID-washing going on," Schwartz said.</p><p>That COVID-washing hasn't been uniform though, Devich-Cyril said, noting that Black and brown communities with a long history of being surveilled remain wary of that kind of intrusion. "The simple fact of a medical disaster is not enough to turn people away from their desire for basic freedoms and rights," Devich-Cyril said.</p><p>Still, despite these setbacks, privacy advocates did score some wins in the midst of the chaos. On Election Day, Portland, Maine succeeded in banning facial recognition technology. Michigan voted to require police to seek search warrants before accessing electronic data. And California passed Proposition 24, a measure that rewrites the California Consumer Privacy Act and gives Californians new rights over protecting their data. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
</div>
</div></p><p>"That is the story of privacy in 2020," said Jim Steyer, CEO of Common Sense Media, which backed Prop. 24. "That was a significant step forward." It's worth noting that not all privacy groups celebrated the passage of Prop. 24. Some, like the American Civil Liberties Union, opposed it over concerns that it created new privacy loopholes for businesses.</p><p>Schwartz is at least relieved that so many of the "bad ideas" that emerged at the beginning of 2020 have not been adopted in the U.S. But as the pandemic rages on through 2021, the fight for privacy in the face of a global health crisis will undoubtedly continue.</p>
From Your Site Articles
Keep Reading
Show less
Issie Lapowsky (@issielapowsky) is a senior reporter at Protocol, covering the intersection of technology, politics, and national affairs. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University’s Center for Publishing on how tech giants have affected publishing. Email Issie.
Latest Stories
See more
Most Popular
Bulletins
January 22, 2021 11:32 EST
Get Source Code in your inbox
David Pierce's daily analysis of the tech news that matters.