It is no secret that Andreessen Horowitz is bullish about crypto: Not only does the firm boast that it started to invest in the space a decade ago, but it also debuted a $4.5 billion web3 fund last week.
To understand a16z’s bullishness despite what others have described as a “crypto winter,” its 2022 State of Crypto Report is a good start. Per its disclaimers, the document is not directed to any investors or potential investors — yada, yada, yada. But it does read like an argument for crypto, DeFi, NFTs and all things web3.
The problem, in my view, is that the report’s authors, all of whom are part of a16z’s team, are overstating the current opportunity for crypto. By doing so, they are making it sound bigger than it is — and it may take years to get to that point.
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That the report takes an optimistic view of crypto is understandable. After all, if you are about to deploy billions in funding into a market, and you are not even alone, the TAM needs to be up to par. But the report is also meant to be an overview of trends, which is why it seems questionable to allude to opportunities that aren’t real yet.
The point that bothered me the most has to do with remittances — money sent cross-border by individuals, typically from a richer country to a poorer one. The World Bank expects that such annual inflows will reach $630 billion in 2022. And yes, there are inefficiencies and fees along the way. For the authors of the a16z report, that’s more than enough to list remittances as an argument for DeFi.
But are remittance payments and money transfers really ripe for crypto disruption? And is DeFi really the right solution to help what the report describes as the “huge part of the world [ … ] underserved by existing financial institutions”? That’s definitely not what I am hearing from the ground — as also confirmed by two founders I reached out to Tomás Bercovich from Global66 and Ryan Newton from Paisa.
Thanks, but no thanks
Just earlier this month, I sat in the audience of the Tech.eu Summit as Wise CEO Kristo Käärmann was interviewed on stage. “Currently, Wise doesn’t accept cryptocurrencies. Do you think,” Bloomberg’s Ivan Levingston asked him, “that this might change at some point?”
This is a recurring question for the fintech company, so Käärmann made sure not to sound dismissive. “I am very excited about the technology,” he said, while also adding that “there are interesting experiments going on all around the world.” But the gist of his answer was still a nail in the crypto coffin. “We are just looking for a use case,” he said. “We’re looking for the …read more
Strong Compute, a Sydney, Australia-based startup that helps developers remove the bottlenecks in their machine learning training pipelines, today announced that it has raised a $7.8 million seed round. The round includes a total of 30 funds and angels, including the likes of Sequoia Capital India, Blackbird, Folklore and Skip Capital, as well as Y Combinator, Starburst Ventures and founders and engineers from companies like Cruise, Waymo, Open AI, SpaceX and Virgin Galactic.
The company, which was part of Y Combinator’s Winter ’22 batch, promises that its optimizations can speed up the training process by 10x to 1000x, depending on the model, pipeline and framework. As Strong Compute founder Ben Sands, who previously also co-founded AR company Meta, told me, the team has recently made some breakthroughs where it was able to take Nvidia’s reference implementation, which its customer LayerJot used, to run 20 times faster.
“That was a big win,” Sands said. “It really gave us the sense that there is nothing that can’t be improved.” He didn’t quite want to reveal all of the details of how the team’s optimizations worked, but he noted that the company is now hiring mathematicians and is building tools that give it a more detailed view of how their user’s code interacts with the CPUs and GPUs at a much deeper level than was previously possible.
As Sands stressed, the current focus for the company is to start automating a lot of the current work to optimize the training process — and that’s something the company can now tackle, thanks to this funding round. “Our goal now is to have serious development partners in self-driving, medical and aerial, in order to be looking at what is actually going to generalize really well,” he explained. “We’ve now got the resources to have an R&D team that doesn’t have to deliver something in a two-week sprint but that can actually look at what’s some real core tech that could take a year to actually get a win out of but that can really help with that automated analysis of the problem.”
The company currently has six full-time engineers but Sands plans to double that over the next few months. In part, that’s also because the company is now getting inbound interest from large companies that often spend $50 million or more on their compute resources (and Sands noted that the market is basically bi-modal, with customers either spending less than $1 million or $10 to $100 million, with only a few players in the middle).
Every company that is trying to build ML models, though, suffers from the same problem: training models and running experiments to improve them still take a lot of time. That means the well-paid data scientists working on these problems spend a lot of time in a holding pattern, waiting for results …read more
Welcome to the second episode of The TechCrunch Podcast, our weekly news show bringing you all the top stories in tech. This week, we sat down with TC writers Natasha Mascarenhas, Anita Ramaswamy and Devin Coldewey to talk about the continued, troubling trend of layoffs in tech; Adam Neumann’s new crypto carbon credit startup (?!); and the one-upmanship among AI image generation technologies happening between OpenAI and Google.
Articles from the episode:
- A third straight week of tech layoffs in the books
- Latch, a proptech meets SaaS play, conducts two consecutive weeks of layoffs
- Adam Neumann’s blockchain-based redemption story now sponsored by a16z
- OpenAI: Look at our awesome image generator! Google: Hold my Shiba Inu
Other news from the week:
- It’s official: Broadcom to acquire VMware in massive $61B deal
- Jack Dorsey steps down from Twitter’s board
- Twitter investors sue Elon Musk over acquisition shenanigans
- Hana Mohan’s Twitter thread on the YC advice to founders
- Hana Mohan’s episode of Found
- Equity’s episodeWe think founders need a quick Heart to Heart about the market
The Station: EV SPACs face new regulatory speed bump, more on Rivian’s reorg and VW weighs direct sales for Scout brand
Welcome back to The Station, your weekly guide to everything going on in the world of transportation.
Many readers of this weekly newsletter are likely enjoying a three-day weekend thanks to the Memorial Day holiday. So, this week I will keep it a wee bit shorter.
Before we get started, check out the latest transportation Q&A, this time with Convoy co-founder and CEO Dan Lewis. He predicts digital freight will go mainstream within the year. Why? Lewis said: “The industry is going to contract differently. Brokers are going to think about digital capacity and how they get access to that; they’re going to be comfortable using a platform like Convoy for that.”
Maybe scooter ADAS isn’t such a bad idea after all. A new report from the UK Department for Transportation revealed that the number of pedestrians injured after being hit by e-scooters was nearly four times higher in 2021, at 223 people, than in 2020 when 57 people were injured.
Seeing as how it’s still illegal in the UK for people to ride private e-scooters, most of these injuries occurred with vehicles from shared micromobility schemes. The report doesn’t say where these accidents occurred – were scooter riders on the sidewalk, and if so, are there protected bike lanes on the street where the accidents occurred?
PeopleForBikes, in partnership with Wend Collective, released a report celebrating the milestones of certain U.S. cities that have systematically increased bike mobility by following the organization’s grassroots effort strategy.
Here are some of the highlights:
• Austin, Texas: Completed 115 miles of new bike lanes in 24 months and secured another $460M to complete the network by 2025.
• Pittsburgh, Pennsylvania: Completed 50 new network miles and plans to build another 15 miles in 2022.
• Providence, Rhode Island: Constructed 43 miles of new bikeways under Great Streets Initiative, with another 22 miles planned for this year.
• New Orleans, Louisiana: Constructed 27 miles of new “high comfort” bikeways in underserved areas. Offered highest concentration of new protected bike lanes of any other city in the program.
• Denver, Colorado: Constructed 100 miles of new bikeways with another 50 miles of community-based networks scheduled for 2022.
In other news…
A BCG survey predicts subscription will be the fastest-growing area of micromobility this decade.
Self-combusting micromobility vehicles are getting more abundant.
Serial 1 has released its new BASH/MTN e-bike, a single-speed, small-batch production bike where minimalism meets off-road adventure.
Squad Mobility launched pre-orders for its Solar City Car, a two-seater compact city car that charges itself, in part, on solar energy. The car will be available in 2023 from €6,250.
See ya next week!
— Rebecca Bellan
A little bird
Indonesia’s sprawling archipelago has long been a headache for logistics companies, but there’s no lack of brave challengers. Jarkata-based Astro, which provides 15-minute grocery delivery, has recently closed a $60 million Series B financing round, lifting its total funding to $90 million since the business launched just nine months ago.
The Series B round was led by Accel, Citius and Tiger Global, with participation from existing investors AC Ventures, Global Founders Capital, Lightspeed and Sequoia Capital India. The company declined to disclose its post-money valuation.
The speed at which Astro is attracting investment goes to show the need for hefty upfront investment in the grocery delivery race, which is about establishing a logistics infrastructure quickly and locking in loyal customers ahead of rivals. Founded by Tokopedia veteran Vincent Tjendra, Astro plans to spend its funding proceeds on user acquisition, product development, and hiring more staff to add to its current team of 200.
As in many countries around the world, on-demand delivery got a boost during the COVID-19 pandemic in Indonesia. But e-grocery penetration in the country remains low and is estimated to be just 0.5% by 2022, compared to China’s 6% and South Korea’s 34% in 2020.
That means there’s a huge opportunity for companies like Astro that are trying to prove the convenience of online grocery ordering over brick-and-mortar visits. The e-grocery delivery market in Indonesia is projected to reach $6 billion by 2025.
Astro offers 15-minute delivery within a range of 2-3km through its network of rented “dark stores,” which are distribution hubs set up for online shopping only. The company has opted for a cash-intensive model, as it owns the entire user journey going from inventory sourcing, supply chain, mid-mile, to last-mile delivery. The benefit of this heavyweight approach is that it gets to monitor the quality of customer experience.
Astro currently operates in around 50 locations across Greater Jakarta, an area with 30 million residents, through a fleet of about 1,000 delivery drivers. Revenues grew more than 10x over the past few months and downloads hit 1 million, the company said.
The startup is competing with incumbents like Sayurbox, HappyFresh, and TaniHub to win over users. Its customers range from working professionals to young parents at home “who seek convenience,” said Tjendra.
Grocery delivery is notoriously cash-burning, but Tjendra reckoned margins will improve as the business scales. The company’s main source of revenue is the gross margin it earned from the goods sold and delivery fees customers pay. A large chunk of the business’s costs comes from delivery, which the founder believed “will come down over time as we deploy for hubs and subsequently reduce the delivery distance areas.”
On the Chain Reaction podcast this week, Lux Capital’s newest investor, Grace Isford, joined us to talk about the opaque but crucial world of web3 infrastructure. At Lux, Isford invests in the companies working behind the scenes to make sure crypto exchanges are secure and reliable enough to avoid being hacked.
Before joining Lux this February, Isford was an investor at Canvas Ventures focused on enterprise software and fintech. A data infrastructure investment she worked on at Canvas revealed to her the opportunity in the web3 space for companies to “share data immutably at scale,” motivating her pivot to crypto, she said.
“That led me down the rabbit hole, and then I ended up investing myself personally,” Isford said. “I got into yield farming, which coincided with my move to New York, where many of my friends are also in the crypto and VC ecosystem.”
Isford says her investing approach in web3 is rooted in what she calls her “circle of competence,” or the area where she can be competitive compared to others in the space.
“NFT investing is quite different than DeFi investing, which is quite different than crypto data infrastructure investing, and I would argue that any person who says they invest in web three shouldn’t invest in all of that — they should probably choose their sweet spot in their core competency,” Isford said.
Isford’s own “circle of competence,” based on her prior experience, is in enterprise and fintech infrastructure, so we asked her what she thinks some of the biggest challenges are for web3 infrastructure providers.
Compared to web2, Isford said, web3 lacks enterprise-level security solutions. Alchemy and Infura are the only two major node service providers in the industry, meaning that most of crypto is reliant on two infrastructure providers to manage their data.
“There seems to be a new security hack reported every week [in web3],” Isford said, citing the recent Metamask and Ethereum dApp outage that originated from Infura and February’s Wormhole bridge hack.
While a number of startups are working on developing security solutions, Isford said, the tech is “still quite nascent” when it comes to developer tools, data infrastructure monitoring, and storage.
Another major challenge is managing fraud and downside risk, Isford added.
“I think [that issue] is really keeping a lot of folks out of the crypto world right now [because they’re] afraid of losing all their money if they venture too deeply into crypto,” Isford said.
Isford is optimistic that through the massive inflows of investment into web3 startups in the past year, companies will be able to build more reliable solutions.
“I think TRM Labs, Chainalysis, and several other companies in this space have 10x potential in terms of compliance and monitoring because you just do not have that yet at scale in the same way that we’ve kind of created these sophisticated AML systems on the financial infrastructure side in the web2 world,” Isford said, referring to traditional financial institutions’ anti-money laundering technology.
Better fraud and risk management systems are a …read more
It’s not an inexpensive transaction, but thanks to a “go-shop” provision that gives VMware 40 days to “solicit, receive, evaluate and potentially enter negotiations with parties that offer alternative proposals,” there’s market speculation that another bidder could enter the fray.
After chewing through analyst notes on the deal, Ron and Alex wound up on opposite sides regarding whether a higher price or another bidder would make sense. Ron’s view is that the company’s value is higher than its recent financial results may imply, while Alex feels the company is not sufficiently performative to deserve a higher price.
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We’ve long speculated who might buy VMware, and after Dell spun out the company, TechCrunch listed Amazon, Alphabet, Oracle, Microsoft and IBM as potential acquirers. The fact that we did not foresee Broadcom as a potential suitor underscores our view that we don’t fully grok if it’s the correct buyer for VMware.
So let’s talk about the pros and cons of the matter, ask what VMware is worth, and how it may have value over and above its recent quarterly results. Ron is taking point!
With $61 billion on the table, it’s hard to imagine anyone paying more, and research firm Bernstein agrees with the perspective. Before we put the idea to bed, though, it’s worth taking a moment to think about the value of VMware.
VMware’s value goes beyond what its balance sheet or its profit and loss statement tells us at the moment. While the company might not have had a perfect first quarter, it has a particular set of skills that could fit nicely with any of the big cloud infrastructure providers.
In fact, cloud infrastructure-as-a-service exists today only because the early crew at VMware figured out virtualization at scale in the early 2000s. Until then, people used servers, and if a server was underutilized, well, too bad. Virtualization lets you divide a computer into multiple virtual machines, paving the way for cloud computing as we know it today.
While cloud computing has changed some since its early days, virtualization remains a core tenet of the market. Imagine for a moment if one of the three or four cloud vendors — think Amazon, Microsoft, Google or even IBM (although this deal is a bit rich for its blood) — brought VMware into its fold.
VMware brings more to the table than virtualization, of course. Over the years, it has gained various capabilities by acquiring companies like Heptio, a containerization startup launched by Craig McLuckie and Joe Beda, two of the people who helped create Kubernetes.
Welcome to The Interchange, a take on this week’s fintech news and trends. To get this in your inbox, subscribe here.
We’ve all been keeping up with the recent drama of Stripe vs. Plaid. Rather than rehash all that here, I’ll point you to some of our recent articles on the topic and just summarize: The two fintech startups have recently grown (much) more competitive.
If things weren’t turbulent enough, another startup has very publicly emerged as a formidable competitor to StripeFinix.
Now, Finix is not coming out of nowhere. The SaaS startup — which started out in early 2020 by selling its payments tech to other businesses — raised a $35 million Series B led by Sequoia. In an unusual twist, Sequoia just 1 month later walked away from the deal in which it reportedly wrote the self-described payments infrastructure company a $21 million check. As TC’s Connie Loizos reported at the time, Finix told employees that soon after issuing its check, Sequoia concluded that Finix competes too directly with Stripe, the payments company that represented one of Sequoia’s biggest private holdings and that in turn counted Sequoia as one of its biggest outside investors.
Fast-forward to last week. Finix announced that it was becoming a payments facilitator, in addition to enabling other companies to facilitate payments. This move puts it in direct competition with Stripe, something that CEO and co-founder Richie Serna is not shy about admitting.
In an interview this past week, Serna elaborated by noting that Finix indeed started out to build software that gave any software company a way to become their own payment facilitator.
“We were building technology that would take a three-year in-house build by dozens of engineers, with tens of millions of dollars of technical R&D and investment, and taking that down to a number of months by getting developer-friendly APIs to start monetizing their payments,” he said. “That was our biggest core offering. What we’ve done now is become the payments facilitator ourselves, so that we can not only provide the payments, but also all the back office requirements and compliance certifications, so that our customers can get up and running in a matter of days, rather than months.”
He says the move gives Finix the ability to work with companies and software platforms who have $0 in processing volume all the way up to companies with billions of dollars in processing volume.
“This allows these customers to get a better product experience and faster speed to market, and allows us to take on those non-technical aspects of rolling out and monetizing, and getting payments,” Serna added.
You see, historically, companies needed to hit a certain volume threshold before Finix could work with them. But now, according to Serna, they can start working with them in their earliest states.
“Customers can start working with us from day one, use finance APIs, and when they’re ready to take on …read more
It’s been a bumpy road for the electric vehicle startups that rushed to go public over the past two years by merging with a publicly traded shell company.
Now, the SEC’s broadest attempt to crackdown on these so-called reverse mergers could put a few speed bumps on the road to becoming — and maintaining — a SPAC.
The U.S. Securities and Exchange Commission will conclude Tuesday a 60-day public comment period on a number of proposed guidelines for SPACs, specifically around disclosures, marketing practices and third-party oversight. If approved, the barrier of entry to becoming a SPAC will rise, putting it on par with the regulatory burden placed on companies that pursue the more traditional IPO path.
The rules will “help ensure that investors in these vehicles get protections similar to those when investing in traditional initial public offerings,” SEC Chairman Gary Gensler said when the proposal was first released back in March. The rules, if approved, will also strengthen protections for current investors, as well as prevent SPACs from using “overly optimistic language or over-promise future results” to appeal to potential investors.
“Ultimately, I think it’s important to consider the economic drivers of SPACs,” Gensler said in March. “Functionally, the SPAC target IPO is being used as an alternative means to conduct an IPO.”
The most significant change to the proposed guidelines requires aligning the financial statements required for SPACs with those of traditional IPOs, a major step toward creating more transparency. This includes more disclosure across several areas.
The guidelines also call for gatekeepers such as auditors, lawyers, and underwriters to be held responsible for their work, including assuming liability for the registration statements SPACs must file ahead of a target IPO. Gensler said the changes “provide an essential function to police fraud and ensure the accuracy of disclosure to investors.”
While the proposal winds through the approval process, some players in market have pressed the pause button.
For instance, Goldman Sachs halted its dealmaking in May as it waits to see how the new regulations will affect dealmaking, especially if the SEC revokes the so-called safe harbor protection that until now has allowed SPACs to make bullish projections. Credit Suisse and Citigroup have voiced alarm, too.
“I could say I think I’m gonna make a bajillion dollars in 2025, but here are all the reasons why I might not,” said Ramey Layne, a capital markets and M&A attorney at Vinson and Elkins. “If you say that there’s a safe harbor, then you can’t be sued for that if it proves to be wrong.”
The SEC’s proposed regulations are “a very big step in the right direction,” said Stanford Law School professor Michael Klausner, especially if SPACs are required to “disclose the extent to which their shareholders’ equity is diluted at the time of the merger.”
The SEC expects to finalize new guidelines during the second half of 2022. Meanwhile, of the roughly 600 SPACs currently searching for a company to acquire, some deals have ground to a halt or been scrapped, according to SPAC …read more
Enterprise productivity company Box reported results earlier this week for the first quarter of its fiscal 2023, the three-month period ending April 30. Box managed to beat revenue expectations, though it missed on adjusted per-share profit. Shares of the company initially lost modest ground.
You might read the above paragraph and wonder why we’re digging into a SaaS company that had a quarter that appeared to be somewhat mixed in results terms and largely neutral from an investor perspective. The reason is that Box is accelerating out of a period in which external investors took aim at its leadership over complaints about flagging growth; the company managed to fend off activist investor demands and is now reaping the results of the work it did while out of favor with Wall Street.
Box’s revenue expansion decelerated to single-digit percentage points. Since Box went through the activist wringer, we’ve seen other public software companies with similar growth rates come under external pressure. This is what we’re calling the SaaS growth trap — a time when a company’s revenue expansion has slowed, but its profitability has not sufficiently scaled to keep investors content with its performance.
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Public software companies in the trap have to find a way to ignite growth without torching profitability. It’s akin to the position that many startups find themselves in today, with growth expectations staying high as private-market investors are simultaneously less interested in high-burn models. Startups have to keep the growth coming while also paying double attention to their cost structure. It’s a hard path to navigate.
Box managed it, though it took time. The company’s $238 million worth of Q1’F23 revenue was up 18% compared to its year-ago period, a growth rate that bested the 17% it managed in the quarter prior, and the 14%, 12% and 10% growth rates it reported in the quarters stretching back to the first quarter of its fiscal 2022. Notice the upward trajectory — it’s important.
So how did Box manage to get out of the growth trap while also growing its gross margins, operating income and net profit in its most recent quarter? Let’s talk about it. It’s a lesson for public companies, yes, but also one that startups will want to understand as they navigate a more complex and demanding investment market for early-stage technology shares.