TestFlight’s future as an investment hunting ground
Hello and welcome to Pipeline. It's been quite the week in the Bay Area (fires! A plague! Fire tornadoes! A pandemic!) so hope you all have stayed safe and healthy. This week: The bleak economics of microVC funds, what a 100x revenue multiple really means, and why investors are tweeting out their TestFlight app lists.
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Overheard
- "Were your grandparents slaves?" That's a question Net Watch Solutions founder Peter Beasley was asked when raising money for his startup. It's just one example of bias and racism Black founders have faced when pitching companies.
- "News flash: Most VCs don't make f*** you money,"says Bo Ren. Sure, partners in bigger established funds aren't hurting for cash, but the founders of micro VC funds, which are exploding in popularity, are speaking out about their side hustles to make it work, like Gil X. Hernandez, who works construction shifts in NYC.
- Call it a coaching tree? I asked last week for better terms to replace the word "mafia." Matt O. suggested a krewe, in reference to the groups that work on Mardi Gras floats (and have a shared passion and business and personal interests). But a lot of you preferred sporting analogies, like a coaching tree or a bench.
Biz on Biz
What's in your TestFlight?
TestFlight is supposed to be a developer tool for companies to test and troubleshoot their software with a few users. It's also been a utilitarian tool for venture capitalists for years; early-stage investments often involve founders sending VCs a link to their TestFlight app to check it out before it gets released into the App Store.
But as my colleague David Pierce reported this week, how developers use TestFlight is changing. It's becoming a place for developers to build apps just for smaller audiences, with fewer constraints than they have to meet in the real App Store. There are also new apps springing up in TestFlight to make it easier to find and discover these under-the-radar apps, and that's whipping up a greater feeling of exclusivity. And if anyone loves a sense of exclusivity, it's VCs.
- Fun fact before we move on: TestFlight was actually owned by a venture-backed business. It was acquired in 2011 by app testing company Burstly, which had raised over $7 million by firms like Upfront Ventures. Apple then acquired Burstly (and TestFlight) in 2014.
Anyway, it's no surprise that investors are now showing off the apps they have in TestFlight as a kind of signaling tool, at least on Twitter, of how connected they are.
- "I do love this notion of building a main street for apps that aren't seeking something grander," said Floodgate's Ann Miura-Ko. "I also think it's an interesting status tool to show off your TestFlight with all of the apps no one has heard of yet. I guess that's sort of been the thing that a lot of early-stage VCs have done for a while, but with the explosion of angels, it's become a way of showing whether you're in the know or not."
- "You know you're crushing it as a VC associate when you have more TestFlight apps than App Store apps," said Pear VC associate Harris Stolzenberg in a joking tweet.
- What's changed, really, is people being public about it. Venture capitalists have long swapped TestFlight links, and in 2015, Lowercase Capital's Matt Mazzeo tried to expand the pool of early testers by launching a way to get early TestFlight links via text. It didn't really take off, but he brought the group back this summer after the buzz crept in and more creative apps started taking off.
For now, TestFlight isn't really a place to source or find deals: It remains largely utilitarian to the VCs I talked to. But that may be slowly changing.
- Lerer Hippeau's Isabelle Phelps said that until this summer, the firm had mostly used TestFlight for diligence. But because of COVID-19, it's started to explore it more as a discovery tool, since it's now harder to serendipitously discover new apps.
- Some firms are using Departures and Airport, two TestFlight apps that make it easier to navigate TestFlight. "We haven't used these tools as signal — probably because if it is a signal it's already too late — but I think it's interesting for series A firms to scan these types of apps for more signal," Miura-Ko said.
- "I haven't used Departure or Airport for deal sourcing, but I think it's an interesting place to explore, particularly for consumer-focused investors," said Weekend Fund's Ryan Hoover. He pointed out that it's similar to Product Hunt, which has been used by early-stage startups for years. Even Product Hunt is now launching a texting service to "drop" new apps for people eager to try early versions.
The big new question is: Might a VC back a TestFlight-only app? Venture capitalists continue to back apps that first appear on TestFlight— just look at Clubhouse, which raised at a $100 million valuation and still hasn't graduated to the App Store — but the 10,000 user cap is obviously a barrier to scale.
- There's a lot more freedom for development within that boundary than developers have when they graduate to the App Store.
- But with more freedom for development on TestFlight, there's an open question over whether investors might someday favor a smaller, engaged community over an app open to everyone. "It depends on the business model and if the company can become a venture scale company with 10,000 app users," Hoover said.
Join us Wednesday

Earlier this week, Protocol hosted the first of two events in our 2020 national political conventions series. We convened engaging conversations on how leaders today will enable a diverse workforce of the future. Join us Wednesday, when we'll host the second event in the series, featuring special assistant to the president, Matt Lira, and more. This event series is hosted in partnership with ITI.
Inside Track
- It can sound crazy to hear an investor put in money at 50x or 100x a company's revenue, but Andreessen Horowitz's Alex Immerman and David George argue that entry multiples often don't really matter.
- Rolling funds may be all the rage, but if you're trying to raise a traditional fund, Initialized's Alda Leu Dennis has advice on where to find the capital (and what not to ignore while you're finding it).
- How did Epic Games become one of the most interesting video game companies? TechNexus' Brett Bivens pulled together a compilation of stories behind the rise of video game companies.
- Last week, I wrote about what happened to startups in YC's W20 class and what it was like to raise in a pandemic. Freshpaint's Steven Fitzsimmonspublished a breakdown of how much of a grind it was to raise as part of the cohort — and how it managed to still end up oversubscribed.
Need to Know
- People always forget one thing about Oracle: It actually has one of the world's leading data broker operations. Protocol's Tom Krazit has a good explanation for why a potential TikTok-Oracle deal isn't as outlandish as it seems.
- Things got Unreal. Apple took the nuclear option and threatened to ban Epic from its developer tools, right as Epic was showing off its Unreal Engine 5 platform. Which companies stand to gain? Unity, for sure, and potentially CryTek with its CryEngine.
- Drama at Domio. The Information found that the short-term rental startup, which has raised nearly $70 million, was using misleading Airbnb accounts to get around laws, and now Airbnb has shut down all of its accounts as it investigates.
- You get a SPAC! You get a SPAC! Everyone's got one now, including new ones from "Moneyball's" Billy Beane, Eventbrite founder Kevin Hartz and even Paul Ryan (yes, the former House speaker.)
- My other favorite IPO trend: "Confidential" IPO filings that companies publicly announce. This week, finally, it was Airbnb.
- From Protocol: Amazon is good at so many things. Why is it bad at games?
- This week in VC history: Four years ago, Uber bought self-driving truck startup Otto for a promised $680 million. It would come to regret it after Google sued over IP theft: "All Uber has to show for Anthony Levandowski is this lawsuit," said one of Uber's lawyers at the time.
- And your weekend reading: Robinhood is still on a fundraising spree, but what makes the stock-trading app so special? Forbes has a deep dive on "Robinhood's billionaire founders, option kid cowboys and the Wall Street sharks that feed on them."
Five Questions For ...
Revolution Growth's Steve Murray
What's one startup or product that failed or was shut down that you wish were still here today?
It's easily the most hated startup of the last five years but Theranos. If they would have pulled off what they were trying to do, it would have transformed health care and made a huge difference for people who on a regular basis have to go through very painful procedures to draw blood. To be clear, Elizabeth Holmes is not an admirable person and fraud is unacceptable, but the idea she was pursuing was worthy.
What's a secret obsession of yours that most people don't know about?
I obsessively track in a very systematic way how often I'm in touch with my 20 most favorite people in my life. I actively want to avoid the scenario where I wake up one day and realize it's been five years since I last spoke with (fill in the blank). I actually record it in a little book. It's super important to me and takes dedication. Right now with the pandemic, I drive an hour to meet my little brother so we can go for a run every Thursday or Friday night.
What was your first check?
My first check was [a] $5 million, series B investment in Pivot Solutions. All of the traders on Wall Street were using AOL Instant Messenger to communicate (you might not know someone's name, but you knew their IM name), and this product integrated deeply into their trading systems to allow them to actually trade over IM. Like so many innovations, it started out as a consumer product and ended up on the enterprise side.
What's one of the worst predictions you've ever made?
Using pattern recognition from 2001 and 2008, I incorrectly predicted access to public and private capital would become much more difficult during the [COVID-19] pandemic. Obviously it didn't turn out that way. Private investment[s] at VCs are continuing at a slightly modest pace. The public markets are open in a way that no one expected. I sit on the board of two companies that recently went public: DraftKings and BigCommerce. The fact that companies are going public in August is unprecedented, that rarely happens.
What product or service are you totally, even irrationally, loyal to?
Much to my family's annoyance, I'm loyal to PC and Android. My texts come in strange, and I can't FaceTime. But when one of our consumer-facing companies rolls out a new app, I'm the only one around the table who can show what it looks like on an Android, which is no small detail as the majority of smartphones use an Android operating system.
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