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Permalink - Posted on 2021-06-18 21:36
Employees of several small businesses were paid late Friday after payroll and benefits platform Zenefits closed for the Juneteenth holiday and experienced a glitch, two people affected told Crunchbase News.
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Zenefits provides tools for businesses to handle HR, onboarding, benefits and payroll. It’s used by many small and medium-sized businesses. The San Francisco-based company has raised at least $584 million in known venture funding, per Crunchbase data, and was most recently valued at $4.5 billion by private investors when it raised funding in 2015.
On Friday, several people took to the comments section of a Facebook post Zenefits made in honor of Juneteenth, which this week became a federal holiday celebrating the end of slavery in the U.S., to complain that their employees hadn’t been paid, despite their respective companies processing payroll.
The post was soon deleted.
John Bazyk, CEO of Connecticut-based security system company Command Corp., told Crunchbase News that he realized Friday morning that his company’s employees hadn’t been paid after one of them contacted him.
Command usually sees a tax withdrawal and employees’ net pay come out of its bank account on Wednesday, but this week only the tax withdrawal was taken on Wednesday, Bazyk said.
The payroll amount was taken out this morning, but had yet to be disbursed to employees as of 4 p.m. Eastern, he said.
Bazyk said he spent four hours Friday trying to deal with the issue, and hadn’t received any communication from Zenefits such as an email alerting him of the issue.
Some employees have bills that automatically debit from their bank accounts, he said, and not being paid could put them in a bind.
“The employees are upset at me, they think I didn’t run payroll,” Bazyk said. “Some of these are new employees. They’re joining a new company and it’s like, ‘Wait I’m not getting paid?’ ”
Usually preceding a holiday, Zenefits will remind customers to run payroll early, Bazyk said, but that wasn’t the case this week. He noted that he understands it’s a unique situation — with President Biden on Thursday signing legislation that made Friday a new federal holiday in celebration of Juneteenth — but the situation and lack of communication from Zenefits were frustrating.
“Even if they make it right, we’re probably going to leave them because it’s an unacceptable mistake,” Bazyk said.
It’s not clear how many of Zenefits’ customers or their employees were impacted by the error.
Nancy, a controller and HR administrator at a company in the Washington, D.C., area, said she was notified by two employees Friday that they hadn’t been paid. Around 2:15 p.m. Eastern, she saw a notification in the Zenefits portal acknowledging the issue. Nancy did not want to share her full name because she was not authorized to speak on behalf of her employer.
“Businesses can make mistakes,” she said. “Whatever caused the debit to not go out is not good. But then to not be there to answer what happened … that’s bad.”
A Zenefits spokeswoman said in an email to Crunchbase News that the issue causing the payroll delay was resolved, and that employees would receive payment by 5 p.m. Pacific time.
“Today, Zenefits experienced an issue that resulted in a delay for some employees’ direct deposits,” the statement read. “This has been resolved and we can confirm that employees who did not receive their direct deposit this morning will receive it today by 5 PM PT. All employees will be paid and the funds have already been processed. We are currently waiting on the banks to send them out this afternoon.”
Another Zenefits spokeswoman said in an email at 2:40 p.m. Pacific time that the issue was resolved and affected employees had been paid.
Illustration: Li-Anne Dias
Editor’s Note: This story was updated after it was first published to reflect that payment for affected employees had gone through late Friday afternoon, after Crunchbase News first spoke with sources.
Permalink - Posted on 2021-06-18 12:15
It’s hot out there. And as usual in the depths of summer, our thoughts turn to ice cream.
However, this job is supposed to be about covering startup funding, and not about scarfing pints of cookies ‘n cream. So instead, we’re channeling our cravings toward a look at the entrepreneurial and funding climate for frozen treats.
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As one might expect, it’s a huge addressable market. Globally, ice cream accounts for a roughly $70 billion a year industry. And while the bulk of spending goes to established, leading brands, upstarts also abound, vying to whip up concoctions with the newest flavors, lowest calorie counts, best nutritional profiles, or most decadent taste.
An analysis of funding data from Crunchbase and other sources shows a decent, if not overwhelming, amount of venture investment in the frozen concoction space. A sample list of 14 companies shows roughly $70 million raised in the past couple years. That includes funding for ice cream purveyors as well as other sweet frozen delicacies, including popsicles, slushy drinks and plant-based ice cream alternatives. See list below:
Many of the sizable funding recipients fit into a few categories. These include healthier or lower-calorie ice creams, plant-based products and alcohol-infused frozen desserts.
In a category all its own is the most heavily venture-funded startup in the space: Figure8, creator of the Museum of Ice Cream, an entertainment and indulgence experience with a frozen treat theme. The company raised $40 million in Series A financing in pre-pandemic 2019, with further financing likely dependent on performance as in-person entertainment spending resumes.
Several other companies have also raised funding for ice cream boasting fewer calories, higher protein, or other nutritional qualities in vogue. This includes: Killer Creamery, a maker of keto diet-friendly ice cream; Lohilo, a low-carb, high-protein brand; and Nightfood, a maker of ice cream for evening consumption, including a pickle flavor marketed to pregnant women.
Nondairy options also abound in the startup sphere. This includes Sunscoop, maker of allergen-free, plant-based ice cream; Evive, a frozen smoothie cube upstart; and Wildgood, which uses olive oil as a signature ingredient.
While everyone likes eating ice cream, not everyone has historically enjoyed investing in it. It’s a sector that can produce big misses, along with big hits.
On the miss side, one standout is MooBella, a provider of ice cream vending machines capable of aerating, flavoring and freezing dozens of flavors of scoops fresh and on demand. After raising $52 million in funding from 2007 to 2010, per Crunchbase data, the company eventually shuttered.
On the hit side, the clear front runner is Halo Top, the most successful new U.S. ice cream brand launched in the past decade. Founded in 2012 by a Los Angeles lawyer, the low-calorie pint producer managed massive scaling without VCs, instead securing two seed rounds on the consumer brand fundraising platform CircleUp.
Acquired in 2019 by frozen-treat maker Wells Enterprises, Halo Top’s story proves that calories are a rare area where we see an inverse correlation between quantity and cost. That is, people will pay more for something that puts on fewer pounds. At close to 300 calories per pint, Halo Top’s product commands premium prices by swapping out some of the traditional sugar and cream for alternatives like air, egg whites and stevia extract.
In the final analysis, our takeaway is that perhaps the most fitting metaphor for ice cream startup investment is ice cream itself.
On a summer day, it’s pretty much the best substance in the universe. But execution is everything. If you don’t eat fast, it will soon be a melted mess.
Looking at funded startups in the frozen treat space, it’s likely the same trajectory applies, with investment outcomes ranging pretty broadly from delectable to soggy puddle.
Illustration: Dom Guzman
Permalink - Posted on 2021-06-04 12:30
Over the past 100 years, the average human lifespan has roughly doubled. And as life expectancy rises, the senior population is growing, too. By 2050, well over a fifth of Americans are expected to be 65 and over. An American born today, meanwhile, can expect to live to nearly 80.
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In short, we’re getting older. And startups and venture investors — ever cognizant of growth markets — are scaling up efforts to serve our fast-growing aging population.
So far this year, VCs have poured over half a billion dollars into U.S. startups focused on eldercare and home health care, Crunchbase data shows. Funded companies include Papa, a platform connecting older adults with people to provide companionship and assistance; Ruby, a startup that helps seniors make safety upgrades to their homes; and Harmonize, a remote care platform focused on people with serious conditions.
The funding comes as seniors are increasingly opting to stay put, with survey data showing that three-fourths of older adults prefer to continue living in their homes as long as possible. The space got a further boost in 2020 as the pandemic fueled demand for at-home and remotely delivered health care.
“There are so many tailwinds coming out of this pandemic,” said Helen Adeosun, founder and CEO of Cambridge, Massachusetts-based CareAcademy, a venture-backed startup that provides training for home health providers. “One is that we as a country have discovered that a lot of things can be done at home, including health care.”
Certainly startup investors have discovered this. In the last five calendar years, venture backers have invested more than $2.5 billion into eldercare and home health startups. Though not all home health care startups are specifically focused on seniors, they are power users on most platforms, accounting for an outsized share of overall health spending.
Using Crunchbase data, we break down the numbers in the chart below:
Eldercare and remote health care are seeing activity across all stages of the startup investment spectrum, from seed to later stage and pre-IPO. There’s even a unicorn or two in the mix.
For remote care, the most heavily funded private company is DispatchHealth, a Denver-based provider of mobile and remote health care that has raised more than $400 million in known funding to date. Seniors are a core target demographic for the startup, which touts its partnerships with Medicare providers.
Other well-funded startups include Honor, a tech-enabled platform for finding skilled home care providers that has pulled in more than $250 million in venture capital, AlayaCare, a home health software platform with around $110 million in funding, and Papa, which has raised over $90 million.
There’s plenty of seed-stage activity as well. Recent seed-funding recipients include New York-based Aloe Care Health, provider of a voice-activated medical alert system for older adults and caregivers, Serenity Engage, a HIPAA-compliant messaging app platform for senior care, and Grayce, a tool for family members navigating care needs for aging relatives.
For a sense of where startup funding is happening across stages, we put together a list of funded startups for 2021:
Political action could provide a further boost to the eldercare space. Earlier this year, the Biden administration called on Congress to put $400 billion toward expanding access to home- or community-based care for aging relatives and people with disabilities.
In addition to expanding at-home care, the administration says it is seeking to improve compensation for homecare workers, a workforce composed disproportionately of women of color who “have been underpaid and undervalued for far too long.”
It’s a policy objective that could use some help from entrepreneurs, said CareAcademy’s Adeosun, noting that currently there is a lack of professional infrastructure for direct care workers to develop skill sets that could boost job opportunities and pay. Her startup is looking to address this by providing online courses for senior care professionals in topics such as working with dementia patients, transporting wheelchair-bound seniors, and caring for stroke survivors.
The eldercare sector isn’t only of interest to the venture crowd, of course. Public investors are watching the space as well, with an eye to expanding options to buy shares in fast-growing companies.
A couple of special-purpose acquisition companies have already cropped up with plans to acquire a promising player in the eldercare space. Senior Connect Acquisition, a SPAC launched late last year by UnitedHealth Group founder Richard Burke, seeks to put $300 million toward acquiring and taking public a company in the senior care and home health market. Another SPAC, EQ Health Acquisition Corp., has $220 million to put to work and lists home care and hospice providers among its target areas.
The most recent IPO in the space, home care provider Aveanna Health, offers services across age groups. Shares have traded mostly flat since the Atlanta-based company made its market debut in April with a market cap around $2.2 billion.
For now, talk of hot new offerings for senior-focused companies is running ahead of actual deals. But for those who see demographic trends as the core driver of market demand, it’s clear this is an area that’s poised for growth. And as our population grows older, we could use more help from younger companies with innovative approaches to aging gracefully.
Illustration: Dom Guzman
Permalink - Posted on 2021-05-21 12:30
Every so often at Crunchbase News, we take it upon ourselves to read through every sizable recent seed funding round. It’s an exercise that leads to both information overload and a vague sense of where the startup future is headed.
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The latest data-dive focused on seed and pre-seed rounds of $2 million or more announced in 2021 — of which there are a little over a thousand reported. The analysis found a few investment themes that stand out as especially popular.
The ones we picked to highlight in our survey include labor-saving robotics, mental health, alternative protein and real estate software. These aren’t brand-new investment sectors, but their continued strong showing indicates VCs see plenty more growth ahead in these spaces.
As to the futuristic vision that these seed funding trends collectively represent, it’s largely a continuation of technology-driven shifts already underway. In other words: Seed startup activities point us toward a future in which we spend more time on our devices, while software and machines do more of our actual work, and we pick through an even broader array of discretionary purchases and digital activities.
Below, we break out four themes in more detail, along with curated lists of funded companies.
The world is full of dull and routine work, and there aren’t enough people able or willing to do it at prevailing wages. This state of affairs — combined with increasing sophistication and falling costs of robotics technology — seems to be fueling a rise in seed-focused startups looking to automate a host of unloved tasks.
We put together a curated list of robotics startups that raised seed funding so far this year, featuring companies taking on industries from shipping to farming to food service. It includes: Bear Flag Robotics, a developer of autonomous tractors; Pickle Robot, maker of bots for package handling and logistics; and Chef Robotics, which is bringing robotics to restaurant kitchens.
As these are seed-stage companies, it’s too soon to tell if their offerings will gain broad industry uptake. For now, it’s clear at least that investors are impressed by the labor-saving potential.
Anyone who follows the intersections of mindfulness, mental health and venture funding is probably aware that there’s plenty of later-stage activity in the space. Two of the pioneering mindfulness apps, Calm and Headspace, are already securely in unicorn territory. Funding for U.S. mental health startups, meanwhile, hit an all-time high last year, with over $900 million invested.
But apparently, investors don’t perceive this as a space where early entrants will squeeze out up-and-coming founders. Rather, there’s quite a lot of deal volume and some pretty large seed rounds going to mental health and mindfulness startups, including 11 in our curated list that have raised funding this year.
Where’s the money going? Intriguing companies starting up include Mantra Health, a digital mental health platform for university students, Cutback Coach, an app for reducing alcohol consumption, and Spill, which offers mental health support to employees, and is accessible through Slack.
It’s been many years since alternative protein startups first started populating our seed funding tallies. Since then, several former upstarts have grown into mature, highly valued companies, including plant-based burger rivals Beyond Meat, which is publicly traded, and Impossible Foods, which is reportedly eyeing an IPO at a potential $10 billion valuation.
Investors seem to think there’s potential for plenty more big exits as well, as the meatless meat space is still seeing significant seed-stage funding. Several have raised funding this year, as featured in this curated list.
The latest startup crop is looking a step beyond veggie burgers. Our list includes Jellatech, which is developing gelatin and collagen derived from cells instead of animals, Next Gen Foods, which makes a plant-based chicken substitute, and Longève, a maker of pea protein crumbles and other plant products.
Established software platforms for managing and renting properties abound, as a Google search on the subject will demonstrate. Yet we don’t see one or two household name companies commandeering major market share in the space, akin to a Zillow in real estate or Intuit for taxes.
For now, it appears seed-stage investors see room for new entrants with potential to scale. So far this year, over a dozen seed-stage companies offering platforms and tools to manage rentals and investment properties have raised rounds of $2 million or more. (See curated list.)
Funded startups include RentRedi, a provider of software for collecting rents and managing rental properties, Landis, a startup for people who want to transition from renting to owning a home, and Houm, a marketplace for landlords in Latin America to find tenants, collect rent and manage properties.
So, the future doesn’t care what we think about it. If another mini seed-funding trend favoring AI-enabled writing bots (see list) proves fruitful, in the future there will actually be a bot that does most of this job. It may even learn sarcasm.
That said, my takeaway here is that most of the startup-driven futuristic trends highlighted above seem like favorable directions. Automating hazardous or boring routine tasks through robotics should theoretically provide more time for us to pursue more productive or pleasant activities. Plant-based proteins don’t harm animals and allow us to have tasty satiating meals with a smaller carbon footprint. And real estate management could use some techie upgrades.
The trend I’m less gung-ho about is app-based mental health. In particular, I wonder about the efficacy of turning to an app to heal oneself of the sense of isolation and existential angst stemming from a life lived increasingly via screens and apps. It would be kind of like having a stiff drink to get sober. Or eating a cheesecake to lose weight.
Now, don’t get me wrong. I would love to lose weight by eating a cheesecake and would certainly write a check for a startup that offers that. It’s just when something seems too good to be true, it often is.
Seed funding sample investment lists
Illustration: Dom Guzman
Permalink - Posted on 2021-05-20 13:00
Editor’s note: This article is part of Something Ventured, an ongoing series by Crunchbase News examining diversity and access to capital in the venture-backed startup ecosystem. Read more about how venture dollars are spreading around the U.S. here and access the full project here.
Steve Case openly admits he did not know of all the opportunities that existed when six years ago he launched Revolution’s Rise of the Rest, which focuses on investing in underserved and secondary markets in the country.
“I sensed it,” he recalls, “but I didn’t know it.”
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Since 2014, Rise of the Rest seed funds have been focused on investing outside of the big venture capital markets — Silicon Valley, New York and Boston — looking to shine a spotlight on what lies outside the well-known coastal areas. The seed funds have invested in 181 early-stage companies throughout 33 states — plus Washington, D.C., and Puerto Rico — and 83 cities. In total, the firm has invested in more than 200 companies.
Case, who co-founded internet provider AOL1 in the mid-1980s, first saw what some didn’t while working on the Startup America Partnership under former President Barack Obama — and while evaluating opportunities outside of the big venture markets, he is clear that is not because he believes their doom is imminent.
“The Rise of the Rest does not presume California will fall, just that there is more opportunity outside of just Silicon Valley,” Case said.
While Case said there is no denying the Valley has been at the epicenter of innovation, transformational technology and companies can occur anywhere. That has never been more true than now, as both investors and entrepreneurs sense they can invest and work from anywhere — a sentiment only accelerated by the pandemic.
In fact, Case believes the current spread of venture dollars and the expanding footprint of the U.S. tech ecosystem could have strategic advantages as states and areas with institutional knowledge of certain disciplines are being enabled to sprout startups to take advantage of that.
“What’s interesting is that companies could be better because they are not in Silicon Valley,” he said. “Instead, they can be in cities with domain expertise.”
Case points to his firm’s investment in Chattanooga, Tennessee-based FreightWaves, a data and content forum that provides near-time analytics, as an example. With the city’s strong ties to trucking, rail and freight, there would seem to be strategic advantages for a company to be based there instead of Silicon Valley, Case said.
The same can be witnessed in healthcare and life sciences, Case points out. While Boston, New York and the Bay Area may have great medical facilities, the new surge in startups in the industry in places like Minnesota with the Mayo Clinic and Maryland around Johns Hopkins University is only logical, he said.
Case reminiscences about the early days of the internet when talking about mixing up the opportunities that are out there. While many assume California and Silicon Valley were always the driving engine for “the information superhighway,” Case points out AOL’s origins are in Virginia, Microsoft was founded in Albuquerque, New Mexico, Sprint was in Kansas City and Prodigy was in White Plains, New York.
When people saw the opportunity to layer on top of the internet with operations and applications, Silicon Valley took off.
“I think it is just educating people to the opportunity that exists outside of Silicon Valley,” said Case, adding if that occurs it could reduce the so-called “brain drain” that happens when people leave much of the middle of the country and move to the coast looking for opportunity.
Case sees that talent migration changes and the startup and tech world become less dominated by a few coastal areas as a potential healthy thing for the U.S. as a whole.
“There would be more jobs, more opportunities in more places,” he said. “This can help address this divide we have in our country.”
Featured image: Steve Case outside the Rise of the Rest bus. Photo courtesy of Revolution.
Permalink - Posted on 2021-04-30 12:30
Americans in the market for a rental car have much to complain about lately. First there’s sticker shock: Rental costs are astronomically higher than even pre-pandemic levels. Then there’s supply: Even with price hikes, there aren’t enough vehicles to go around.
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The causes are no great mystery. The COVID-19 pandemic had a devastating impact on the major car rental agencies. With travel at a standstill, bookings nosedived last spring. Rental operators sold large portions of their fleets and curtailed new purchases as demand contracted. The turmoil was enough to push even long-established industry leader Hertz into bankruptcy.
A year later, the landscape looks completely different. More than four months into a nationwide vaccination campaign, travel is picking up again. Vehicle bookings are way up year over year, and both established rental agencies and venture-funded upstarts are seeing their revenue jump.
“It was a total 360,” said Anthony Paulino, who rents out four cars in the Orlando area through the Turo rental platform. Whereas a year ago he had virtually no active rentals, his vehicles are now “booked all the way till November.”
Peer-to-peer rental startups look poised to be potential big winners in a post-pandemic economy. While rental fleet operators face supply crunches, venture-backed companies like Turo and Getaround, which rely on existing car owners, have an easier time scaling to meet the quickly escalating demand.
It’s too soon to tell whether startups will make significant gains in market share. Peer-to-peer car rentals have been around for a while and have raised over a billion dollars, yet their footprints are still a fraction of the big, branded rental fleet operators.
San Francisco-based Turo, founded in 2009, was one of the first P2P players out of the gate. To date, it’s raised at least $467 million in known funding from a long list of venture and strategic investors, including IAC, August Capital and Kleiner Perkins.
Turo competes in the same space as the big rental fleets, offering airport pickup as well as daily rentals and discounts for longer periods. Its offerings consist of vetted independently owned vehicles, with owners themselves arranging rentals via its platform. Turo sets maximum and minimum prices, and takes a cut of each transaction.
Fellow San Francisco startup Getaround also operates a marketplace of independently owned vehicles, but has historically focused on shorter-duration rentals. The company, which operates in cities across 17 states, has raised over $540 million in known venture funding since its inception in 2011, with SoftBank as its largest investor. Like Turo, it’s also seeing business pick up.
“There’s no doubt that demand has increased across the country on Getaround in the last couple months,” said Pat Notti, the company’s vice president of marketplace and operations. The rising cost of purchasing a car has also boosted demand, he said, as many people use the service as an alternative to owning a vehicle.
Operators of P2P rental platforms pitch their offerings as a cheaper, more fun and more flexible alternative for people who need a vehicle temporarily.
Turo, in particular, likes to play up its varied selection of rides, which includes a high proportion of electric vehicles, sports cars and luxury models.
Teslas are especially abundant across the platform. They can be a good fit for rentals because there are fewer moving parts to maintain than in a gas-powered car, said Ryan Levenson, who runs an EV YouTube channel and rents out EVs in the San Francisco Bay Area via Turo. Broadly, P2P renters say they do well offering a sexier model than a standard airport rental at a price that’s lower or at least not too much higher.
Meanwhile, for Getaround, smaller, fuel-efficient gas-powered cars and hybrids dominate the listings. Predominantly, people are picking up vehicles for errands, day trips and other use cases in their local communities, Notti said.
The economics for those renting cars on platforms seem typical of the gig economy: It’s commonly a side income, rarely a primary one. Levenson estimates that he makes roughly double the cost of owning and maintaining his cars.
It’s not for everyone, though. There are a lot of details to juggle — such as cleaning, charging or fueling, and checking for and repairing damages. Message boards of those who’ve experimented with renting their vehicles show mixed feedback: Some see a nice payoff for modest work, while others say it’s not worth the hassle.
Paulino, the Orlando Turo rental operator, is hopeful that down the road P2P car rentals will become increasingly mainstream as people see they can get more bang for their buck than at established agencies.
A lot of people accustomed to traditional taxis were suspicious about using the app at first. Now, it’s their go-to.
“It’s just like Uber in the beginning,” he said.
Illustration: Dom Guzman
Permalink - Posted on 2021-04-07 12:30
There comes a time for most entrepreneurs when they ask themselves one of the age-old questions: “Raise capital or exit?”
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This is a highly strategic question and, as expected, the answer is “it depends.” This discussion can be complex and there are many factors which go into addressing it properly.
Below are some of the many considerations which should be taken into account.
The probabilistic outcome of exits is helpful in forming the long-term strategy of entrepreneurs and investors. We at Allied Advisers analyzed data over the last five years and it’s clear: Acquisitions (loosely defined as deals below $200 million) comprised over 92 percent of the exits, and 90 percent of the exits are below $100 million.
Allied Advisers Data Sources: All undisclosed values are assumed to be less than $100M
While big-ticket deals such as the Salesforce1 acquisition of Slack for $27 billion and IBM’s purchase of Red Hat for $34 billion generate a lot of media buzz, it’s emerging growth and mid-size companies that keep the technology M&A market humming and exciting.
The chart below may help shape the thinking of entrepreneurs and investors as they look at this critical question: Should I raise my next round or should I exit? Some businesses have the potential to become unicorns, decacorns or trillion-dollar market-cap companies, but most businesses can have a healthy outcome earlier in their life cycle. Some may choose to bootstrap, taking in a smaller infusion of capital thereby reducing their dilution and having optionality for an earlier exit.
As an entrepreneur and investor, being cognizant of your capital structure is critical, including the total amount of capital you have taken in and investors’ expected returns. If the future dilution is offset by growth and gains in market share and the valuation increases, then by all means you should raise additional capital. Other considerations include strategic buyer and private-equity investor appetite and the ability to pay specific to your industry. Doing so will help maximize shareholder value.
Running a dual-path capital raise or exit process: For companies of a certain size — generally above $10 million annual recurring revenue — especially for B2B SaaS companies, these options can be attractive to both private-equity investors and strategic buyers. Having both options enhances valuation and allows entrepreneurs and investors to choose the path.
Raising secondary capital: Growing a business to become a unicorn is a long and arduous process and the path to eventual liquidity can get stretched. PE firms and growth-stage venture investors offer options of secondary liquidity given the timeline for an exit continues to lengthen. A recent example is workflow automation company Zapier in which Sequoia and Steadfast Financial purchased shares at a $5 billion valuation from Zapier’s original investors. We have been in plenty of situations where investors have provided meaningful secondary liquidity which provides for a “nest egg” for an entrepreneur and also gives them focus and cash reserves for personal needs to go for the “second bite of the apple” via an eventual IPO or larger exit down the road.
Personal preferences: Entrepreneurs by nature are visionaries. When they get frustrated with a lack of ideal solutions for existing problems they go out on their own to solve complex challenges. They do not suffer the bureaucracy, overhead and restrictions that come with working in larger organizations. At some point in their journey they need capital to grow. Exceptions like Veeva (which took $7 million of capital before it got to an IPO), Atlassian, Mailchimp, Qualtrics etc. waited for a long time before raising money and most of their capital raised was secondary.
Some entrepreneurs can use the infusion of capital to create value for all shareholders, and for some entrepreneurs it can be challenging to get used to board oversight and governance that comes with outside capital. As an astute investor once told me: “It is easier to get out of a marriage than a cap table.”
Entrepreneurs and investors should think carefully about what their goals and vision are while assessing their ability to work well together to create something larger that could be done by raising capital. Navigating carefully can be beneficial for all parties.
Gaurav Bhasin is managing director with Allied Advisers, a global technology-focused boutique advisory firm focused on investment banking for entrepreneurs and investors. The Silicon Valley-based firm, with a presence in Los Angeles, Israel and India, serves entrepreneurs and investors of technology growth companies on strategic advisory including M&A and capital raises.
Illustration: Li-Anne Dias
Permalink - Posted on 2021-04-02 12:30
The classic self-storage business model is pretty straightforward. You rent a space, lug your stuff there, and pay every month. Eventually you either move your stuff or it gets removed (and possibly made into a reality TV show.)
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This has proven over time to be a very lucrative business model. The top five storage-focused real estate investment trusts are collectively valued over $85 billion. In recent weeks, most are trading at or near all-time highs.
But while investors may like traditional storage offerings, consumers aren’t crazy about them. Rental fees add up, and hauling stuff to and from storage is no fun. Thus, it’s not surprising that in recent years a crop of well-funded startups have been scaling up, seeking to reduce some of the pain points.
“When you look at the traditional model, it lacks flexibility,” said Rahul Gandhi, CEO of MakeSpace, a startup that has raised over $140 million to reenvision the storage space. By moving stuff and retrieving storage items for customers, the company is one of several upstarts seeking to make it easier to manage our stuff.
Venture investors have socked away plenty of cash in storage deals. Overall, U.S. storage-focused startups have collectively raised over $500 million in venture and growth funding to date, per Crunchbase and reported data.
The bulk of investment has gone to a few players, including storage and pickup services MakeSpace and Clutter, as well as peer-to-peer storage marketplace Neighbor. Meanwhile, a handful of earlier-stage players have also raised smaller rounds. We lay out some of the largest and most recent funding recipients below:
The most capital-intensive investment theme is around what can be described as concierge storage services. These are companies that rent storage space but also offer services to go along with it, such as picking up stuff, digitally cataloguing it, and retrieving items on demand.
Top-funded players Clutter and MakeSpace attempt to offset the extra expense of their high-service models by getting cheaper, more out-of-the-way storage spaces. This is a shift from traditional self-storage models, which require customers to drive themselves and concentrate on locations within easy driving distance.
Meanwhile, the other heavily funded player in the space, Neighbor, pitches itself as a cost-saving alternative. It sets price recommendations for its marketplace of peer-provided spaces that are well below traditional self-storage providers.
Over the past year, there’s been sufficient storage demand for both traditional and upstart players in the space to see some growth.
Broadly, the U.S. storage industry has performed well amid the pandemic. In the public market, the largest storage REITS overall reported higher income and lower vacancy rates. Several startups, meanwhile, also reported higher revenue, boosted by consumers spending more time in their homes and looking to free up space.
MakeSpace’s Gandhi uses his own pandemic experience as a case in point.
“All of a sudden, my home became my office, school for my kids, and living space,” he said. It required some shuffling around of stuff to make room for their new stay-at-home lifestyle.
He wasn’t alone. Gandhi said his business roughly doubled in the past year, with customers storing about 40 percent more stuff than they were pre-pandemic. Beyond the need to clear out space, an uptick in city dwellers making temporary or long-term moves also contributed to demand.
At Clutter, CEO Ari Mir said the business managed to carry on without a pause during the pandemic because it qualified as an essential service. Business has been expanding, he said, which is not entirely unexpected given that storage demand is highly correlated with major life changes.
“What a lot of investors realized last year is while other companies’ businesses were tanking … storage companies were solid as a rock,” he said.
Meanwhile at Neighbor, CEO Joseph Woodbury saw growing demand from both sides of its marketplace: those seeking storage and those looking to earn extra money renting spare space. He says business revenue increased 5x from March 2020 to March 2021.
Now, as we emerge from the pandemic, we can imagine that storage could see another boon. After all, consumers out and about again will be looking to sock away all the exercise equipment and sourdough bread making accoutrements acquired when they were stuck at home.
Certainly storage startup executives sound confident their models will continue to resonate. A shared observation from CEOs Crunchbase spoke to is that while self-storage is a huge industry, it hasn’t been highly focused on customer service.
“All these big, incumbent players have really built their footprint around the real estate,” MakeSpace’s Gandhi said. “We don’t see ourselves as a real estate business … We see ourselves as a consumer technology and marketing business.”
Both Gandhi and Mir attribute their companies’ founding stories to personal moving experiences filled with disappointment at the cumbersome steps required in securing storage. It’s particularly complicated for people in urban areas, where MakeSpace and Clutter focus, as they often don’t have easy access to a vehicle or cost-effective nearby storage spaces.
Neighbor’s Woodbury, meanwhile, said self-storage is often too expensive and out-of-the-way for potential customers. A more tech-centric marketplace approach makes it easier for people to rent cheaper space in their own neighborhoods and for the business to add extra capacity without actually having to construct new storage facilities.
So, storage is hot. But what does that mean for the future of venture-backed startups in the space?
At MakeSpace, Gandhi sees the company as well positioned, having raised a $55 million round last spring that he said “was designed to be our last round of capital.” The company is on track for $75 million in revenue this year and is profitable in several of its markets. While it is not profitable overall, he anticipates that could happen in the next year and a half.
Clutter, meanwhile, is the most highly capitalized of the lot, having raised $200 million in a SoftBank-backed round about two years ago. The company continues to scale out of that investment, Mir said.
And Neighbor is flush with fresh capital, having closed a $53 million round this month. The fundraising effort consisted of finally accepting a term sheet from real estate-focused VC Fifth Wall after repeat offers.
Still, we have yet to see a recent VC-backed storage company hit the public markets. None of the CEOs we spoke to hinted at this imminently occurring either.
However, some sort of exit does not seem out of the question, given that public investors like both the storage and tech sectors of late. One can imagine a lot of enthusiasm around an opportunity to store cash in an investment with exposure to both industries.
Illustration: Dom Guzman
Permalink - Posted on 2021-03-30 12:00
Editor’s note: This is Mergers & Money, a monthly column by Senior Reporter Chris Metinko that covers dealmaking in the enterprise tech space.
After a couple of quiet years, robotic process automation is back in the headlines.
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In 2018, robotic process automation — or RPA as it’s called — was one of the biggest buzz phrases in enterprise tech and the venture capital world. The promise to automate repetitive, noncomplex tasks in the workplace through software attracted $1 billion in venture funding, according to Crunchbase data.
That number dwindled over the next few years, but 2021 has brought RPA very much to the forefront of those who watch tech and investing. Friday’s news of UiPath officially filing to go public served as an exclamation point after several smaller M&A deals took place in the space through the last couple of months.
In fairness, while headlines about RPA slowed, the space itself never has. Enterprises have always been hungry for the ability to automate simple workplace tasks as they look to save costs and push efficiency. RPA software allows companies to do just that, automating aspects of invoicing, data entry and even now customer service and marketing.
The recent push of dealmaking seems like the natural outcome of that maturation of RPA technology past very straightforward back-office tasks and into new realms like customer service, as well as the growing market with more companies digitizing and moving processes to the cloud.
After hitting $1 billion in funding in 2018, funding to RPA companies dropped to $920.2 million in 2019 and bottomed out at just $296.4 million last year, according to Crunchbase data.
However, this year already has seen significant funding and dealmaking. It started in late January when SAP acquired German process automation company Signavio. Then just last week, ServiceNow decided to get into the RPA game when it bought India-based startup Intellibot.io.
UiPath even made news before its filing: Last month, the company raised a $750 million Series F co-led by existing investors Alkeon Capital and Coatue at a post-money valuation of $35 billion, and just last week it acquired Denver-based API integration platform Cloud Elements.
UiPath’s S-1 filing includes some market size estimates including those from IDC, which expected the sector of intelligent process automation to be $17 billion by the end of 2020 and $30 billion by the end of 2024. UiPath, however, believes its total global market is more likely around $60 billion currently.
That size has made the market attractive to investors. Even though venture capital flowing into the market seems to have slowed, funding deals have actually remained rather unchanged in the space. In 2018, there were 16 financing deals and 20 the following year, according to Crunchbase. Last year still saw 14 deals although the amount of dollars was low.
The actual dollar amounts also are somewhat skewed, as UiPath and Automation Anywhere soaked up much of the funding as the top private players in the market.
UiPath has raised $2 billion to date, according to Crunchbase. In November 2019, Automation Anywhere closed a $290 million Series B funding at a post-money valuation of $6.8 billion, led by Salesforce Ventures1. The company has raised $840 million to date, according to Crunchbase numbers.
The market size and its growth also seem to be shown out in UiPath’s numbers. According to the S-1, the company saw 81 percent year-to-year revenue growth, increasing from $336.2 million for its fiscal year ended Jan. 31, 2020, to $607.6 million for the fiscal year just ended.
The company also significantly trimmed its net losses from $519.9 million in 2020 to $92.3 million. UiPath also flipped an operating cash burn of $359.4 million to a positive operating cash generation of $29.2 million.
Next month likely will tell if those numbers are enough to impress public investors. With its current fiscal year revenue number and valuation, the company carries a multiple of nearly 58x — which may not make investors’ response automatic.
Illustration: Dom Guzman
Permalink - Posted on 2021-03-26 12:15
New Yorkers are used to being at the center of the action. From finance to media to advertising to fashion, theirs is the city where trends get set and big deals get made.
In the tech and venture capital world, however, not so much. While New York is certainly no slouch in technology or startup generation, it’s not the epicenter of that scene. The most valuable U.S. tech companies are on the opposite coast, and Northern California historically gobbles up the lion’s share of venture funding.
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Recent funding data shows New York is catching up, though. So far this year, New York companies have pulled in $7.6 billion in seed through late-stage venture funding. If investment continues at this pace, the city will be on track for a record-setting year.
“It doesn’t surprise me that we’re on pace to do more,” said Cynthia Franklin, the director of entrepreneurship for the Berkley Center for Entrepreneurship at NYU’s Stern School of Business. “Despite the fact that 2020 was such a strange year, there have been several sectors that have been doing quite well.”
While the pandemic had a devastating impact on many small New York businesses, technology startups in a number of sectors — such as fintech, e-commerce, gaming and telemedicine — saw sharp growth in demand, Franklin notes. In essence, shifts in consumer and business behavior that were already underway accelerated during the past year.
Cash-flush venture funds have been pouring more money into local companies in these spaces too, with a sharp rise in large rounds this year. For a multiyear perspective, we lay out New York funding totals for 2021 and the past five calendar years in the chart below:
As you can see, the 2021 funding spike is a sharp contrast to other recent years. For 2018 to 2020, annual investment ranged from $15.5 billion to $17.2 billion — big sums, but not a huge year to year fluctuation in funding.
But as more nations emerge from the pandemic lately, unbridled optimism is widespread in the venture space. This past December, January and February have been the three peak funding months of the past two years.
New York is part of this bullish trend. So far this year, at least 25 New York-headquartered companies have raised venture or growth rounds of $100 million and up (see list).
At least five NYC companies, meanwhile, pulled in $300 million or more in 2021, as we highlight in the chart below:
In addition to big rounds, we’re also seeing big exits for NYC-headquartered companies. DigitalOcean, provider of a cloud computing platform for small and medium-sized businesses, made its market debut Wednesday, securing a valuation around $4.4 billion. A few weeks earlier, insurance provider Oscar Health went public as well, and was recently valued at around $5.4 billion.
Probably the biggest is yet to come — robotic process automation software giant UiPath confidentially filed to go public in December. The company raised a $750 million pre-IPO round in February at a $35 billion valuation.
As we look at funding more broadly, New York stands out as one of the more diversified startup ecosystems, with a large presence spanning fintech, digital media, consumer, real estate, enterprise software, health and, increasingly, biotech. In short, it seems pretty much anything that doesn’t require a giant manufacturing facility can scale up there.
That diversification is observable across stages. And while we’ve been focusing so far on later-stage rounds, it’s worth noting that New York’s early-stage and seed funding activity has also held up at healthy levels in 2021.
So far this year, investors have put roughly $200 million into reported seed-stage deals, and $1.5 billion into early-stage rounds (Series A and B), per Crunchbase data. Businesses securing larger early-stage rounds run the gamut from natural language processing to blockchain infrastructure to smart dog collars.
Now, as we’ve noted before, headquarters don’t always translate into headcount. Growth-stage companies in particular are commonly based in one city, but have their staff spread out across the country or the globe. This is the case for UiPath, Ro, Compass, Squarespace and others. (Plus, of course, this past year workers who can telecommute have largely been doing so.)
Still, headquarters location matters. By and large, New York-based companies will have their executive team in the city, maintain office space, host events locally, and draw on the area’s considerable talent pool to fill core positions.
As funding for New York startups continues to rise, it’s hard to envision what might slow things down beyond a broader nationwide or global contraction in investment.
After all, when it comes to tech and entrepreneurial hubs, New York has the usual required elements: A huge and diverse population of skilled workers, leadership in a broad array of industries, several prominent research universities, and easy access to capital.
Plus, as we mentioned before, New Yorkers are used to their city taking a lead role in emerging industries. For tech, perhaps it’s only a matter of time.
Illustration: Dom Guzman