Category: TECHNOLOGY
Citi backs Indian SaaS startup Lentra as it plans to expand internationally
India initially made its name in the tech world years ago when it staked out reputation as a key hub for business process outsourcing. Now that legacy has taken a very different turn in fintech with outsourcing of a very different kind, with the emergence of embedded finance technology. In the latest development, Lentra, an Indian embedded AI-based finance startup, has raised $60 million — a Series B that values the startup at “over $400 million,” D Venkatesh, the founder and CEO of the startup, told TechCrunch in an interview.
Existing investors Bessemer Venture Partners and Susquehanna International Group (SIG) led the round with strategic participation also from Citi Ventures, a subsidiary of the New York-based investment banking giant Citigroup.
This is Citi Ventures’ first investment in a fintech out of India, and this round overall underscores how far the fintech and embedded finance ecosystem have come along in recent years. Lentra, which is profitable, has been growing at a very fast clip. In 2019, its first year of operations, it registered $1 million from its “annual consumption rate” — this term relates to the amount of revenue Lentra makes based on usage of its APIs. As of this year, that figure is up to $10 million, and it is projected to hit $100 million in 2024.
The Mumbai-based startup works with commercial banks to power their digital loan services. HDFC Bank, Federal Bank, Standard Chartered and IDFC First Bank are some of its key customers. Overall, Lentra has more than 50 clients and has processed over 13 billion transactions and $21 billion worth of loans since its launch. Venkatesh said the startup achieved all this growth without hiring a single sales executive until April this year.
The company’s mission is not unlike that of a number of other fintechs that have thrown their hats into the ring to work with — rather than completely upend and disrupt — legacy financial services providers, which have found themselves unable to keep up with innovation from faster moving, tech based competitors.
“We want to help and empower the banks, who are our clients, to lend better, lend completely on a digital platform and improve on all parameters,” said Venkatesh.
Those parameters are the same for banks the world over. Yes, banks want to lend more, and to be more accessible to more potential borrowers — hence moving to digital platforms to help them scale and compete better against digital-first offerings. But banks have had their feet burned many a time already: they don’t want to take on a load of bad debt in the process of scaling, so they need better tech to improve how they vet borrowers, and also to have a better grip on forecasting what they might expect to get in returns (and losses) as a result.
The four-year-old fintech helps them do this through a variety of loan tools. Lentra Lending Cloud, which gives ready-to-use third-party API connectors to various data sources, as well as a Loan Management System (LMS) and a no-code Business rules engine (BREx) with modules for clients to use out-of-the-box. The startup also has a platform called GoNoGo in its catalog that helps banks ascertain whether a loan should be given to a customer once they get their application.
Venkatesh said that in India, 90% of lending frauds occur by way of ID proof thefts, where bad actors impersonate someone with a better credit record to get a loan quickly. Lentra uses AI to triangulate data to identify potential fraud attempts.
“If you solve ID theft fraud, you minimize the approach or the stance that the bank will have towards a non-performing asset or bad loan,” the founder said.
He claimed while banks had only been able to whittle down the loan process — applying, processing and approving or denying applications — to between six and seven days, Lentra’s technology has reduced that turnaround to a few seconds.
Even though a number of startups are trying to ease lending for banks, interestingly Lentra sees Salesforce as one of its biggest competitors when it comes to loan origination.
“Our number one target is anyone who’s using Salesforce for loan origination. We go, latch on to them, and then we convert them,” Venkatesh said.
Citi is not just interested in tapping more into India’s tech ecosystem, but to leverage it for its own global growth, too.
“Lentra is our first fintech investment in India, and we are very excited about the team’s ability to develop and scale low-friction software solutions for lenders,” said Everett Leonidas, Director & APAC Lead Investor for Citi Ventures, in a statement. “As a global bank, we look forward to Lentra scaling their products and platform internationally.”
Venkatesh told TechCrunch that Lentra plans to utilize the funding to continue updating its platform, add new features and make it more robust and faster. The startup is also set to expand beyond India and establish its business outside the country, starting with three economies in Asia: Indonesia, the Philippines and Vietnam. Post the initial expansion, the startup plans to go beyond Asia and enter the U.S.
Offices in the three new Asian countries will become operational starting as early as January, the founder said.
Lentra already has its presence in Singapore since it acquired an AI startup TheDataTeam in June this year that had an office in the Lion City. Venkatesh said that the office in Singapore would become the vehicle for the startup to go into the ASEAN economies.
Alongside improving the offering and expanding the business, Lentra has plans to acquire complementary businesses. The founder told TechCrunch that its acquisition plans focus on three areas — robotic process automation, payment systems or solutions that are not regulated entities and teams working on statistical modeling or building heuristics model within statistics.
“Lentra is empowering lenders to fuel the dreams of millions with effective financial inclusion and credit decisioning,” said Vishal Gupta, Partner at Bessemer Venture Partners. “We were really impressed with the combination of their technology prowess and the commercial advantage that Lentra is delivering to their clients. We look forward to helping them continue to achieve their vision of becoming the most trusted and sought after cloud-native digital lending platform, empowering clients in democratizing credit through accurate decisioning and rapid processing.”
Lentra also has HDFC Bank as an investor, though it did not participate in the latest funding round. Venkatesh said that the bank could have invested but it did not this time as it had to follow the Reserve Bank of India’s condition of not holding more than 10% in unrelated businesses due to merging with HDFC Group.
The startup currently has Mumbai as its number one market, followed by Delhi, Chennai and Bengaluru. It has a team of 500 people that is aimed to grow to 800 to support the ongoing plans.
Citi backs Indian SaaS startup Lentra as it plans to expand internationally by Jagmeet Singh originally published on TechCrunch
https://techcrunch.com/2022/11/13/citi-india-investment-saas-startup-lentra-funding/
Volunteer at TC Sessions: Space and get a free pass to TechCrunch Disrupt 2023
It takes a lot of people to bring a tech conference to life, and we’re looking for incredible people to support our events team and help make TC Sessions: Space an amazing experience for our attendees.
If you’re incredible (heck, you know you are) or interested in space technology, tech startups, event planning — or all of the above — apply to volunteer at TC Sessions: Space, which takes place on December 6 in Los Angeles, California. It’s a great way to see what it takes to produce a world-class conference.
We expect more than 1,000 people at this event, and volunteers will handle a variety of tasks. At any given time, you might help with registration, wrangle speakers, direct attendees, scan tickets or help with general event setup.
What’s in it for you? Fair question. If you’re selected, not only will you get a behind-the-scenes look at how events are produced, but you’ll also earn a free pass to attend TechCrunch Disrupt 2023 in San Francisco on September 19–21.
Plus, when you complete your volunteer shift, you can attend the interviews, presentations and breakout sessions. Just some of the speakers gracing our stage include:
- Frank Calvelli, assistant secretary, Air Force for Space Acquisitions and Integration
- Steve Jurczyk, co-founder and CEO, Quantum Space
- Carolyn Mercer, chief technologist, NASA
- Melanie Stricklan, co-founder and CEO, Slingshot Aerospace
- Thomas Zurbuchen, associate administrator for the Science Mission Directorate, NASA
And, of course, be sure to check out the early-stage startups exhibiting their latest space tech on the show floor.
Volunteer spots are limited. If you want to gain valuable event experience, take in all the galactic goodness and earn a free pass to TechCrunch Disrupt 2023, apply to volunteer at TC Sessions: Space by November 22 to be considered!
Volunteer at TC Sessions: Space and get a free pass to TechCrunch Disrupt 2023 by Lauren Simonds originally published on TechCrunch
How the FirstBuild product co-creation studio is changing how new things are made
If you are running R&D at a large appliance manufacturer, you have a challenge.
You typically make products in enormous quantities at pretty slim margins. In order to recoup your development, tooling and launch marketing costs, you need to create and sell a huge number of products. To ensure that that’s possible, you’d probably end up doing a bunch of user and market research to ascertain that you have the highest chance of success with your products.
That makes sense, but the very business model itself means that it’s hard to do something truly risky, which in turn means that mainstream manufacturers rarely come up with anything genuinely innovative.
If there was a mushroom fruiting appliance, would a lot more people regularly be growing mushrooms at home? There was only one way to find out: to build one and to try and sell it.
That’s where FirstBuild comes in. If you’re a small appliances nerd, you may have seen its Opal nugget ice maker, the studio’s first big breakthrough; the Mella mushroom fruiting chamber; its indoor pizza oven; or the Arden indoor smoker. I spoke with André Zdanow, president at FirstBuild, to figure out where these ideas came from and how the studio is working to try to replicate those successes.
“The most famous example is probably the Opal nugget ice maker. At first, it wasn’t actually a product at all — it was a technology being worked on in the refrigeration division of GE Appliances,” Zdanow said, explaining that it turned out to be a head-scratcher. They wanted to put the “nugget ice” into a fridge but weren’t able to figure out exactly what the market size would be for such a thing. “It’s actually really complicated to put the technology into a refrigerator. In other words, it was really a great idea that engineers had been toying around with for years, but in the context of the focus and economics of a multibillion-dollar company, it wasn’t something that they could focus on.”
The Opal nugget ice maker was FirstBuild’s first commercial success. Image Credits: FirstBuild
In a parallel universe, that tech would never have seen the light of day, but instead, the engineers came to FirstBuild and wondered what would happen if they put the tech in a separate appliance, rather than into a full-size refrigerator.
“We see lots of people go to the store and buy this type of ice. They call it Sonic ice or hospital ice. We decided to develop a prototype and see if people want it to be just an ice maker,” Zdanow explained. That was the genesis of the FirstBuild lab’s success. “It started with crude concepts that looked like an ice maker but had nugget ice in it. From there, it progressed through industrial design and ultimately to a $2.7 million crowdfunding campaign on Kickstarter back in 2015.”
How the FirstBuild product co-creation studio is changing how new things are made by Haje Jan Kamps originally published on TechCrunch
The power pendulum is swinging back to employers, isn’t it?
Tech layoffs may get worse before they get better — which means that the next few months will be full of companies trying to pivot their way to survival during this extended downturn.
At least that’s what entrepreneur Nolan Church, who helped lead Carta’s 2020 layoffs as its chief people officer, thinks. He estimates that another 30,000 to 40,000 tech employees around the world will be laid off in Q1 2023 — a number that follows the more than 100,000 layoffs so far in 2022, according to layoffs.fyi data.
Church chatted with me on Equity this past week about how his experience in the people operations world, at both Carta and DoorDash, has influenced his perspective on the best playbook for layoffs. He’s also building Continuum, a venture-backed startup that wants to match executive talent with startups for full-time and fractional opportunities. Unsurprisingly, his vision for a more flexible workforce fits well into the fact that tens of thousands of employees are now looking for work after just this week’s layoff stampede alone.
My entire conversation with Church lives now wherever you find podcasts, so take a listen if you haven’t yet. Below, we extracted four key excerpts from the interview, from canned CEO statements to how he’s thinking about Twitter’s workforce reduction.
The conversation
Let’s talk about Twitter and ownership. We saw Jack Dorsey tweet a few days after the layoff that he ultimately owns responsibility for the fact that Twitter overhired. That delay in his response created a lot of attention, which made me wonder if the bar is getting higher when it comes to the way that employees expect CEOs to take responsibility for large-scale layoffs.
Over the last 12 years, the pendulum between who has power between employees and employers has drastically swung toward employees. Now we’re in a moment where the pendulum is swinging back. If I predict where the next five to 10 years are going, the best talent is ultimately always going to be sought after. And I think employees now will continue to hold more power as they go forward. And they will remember how companies handle this moment.
To your point around Jack, very candidly, I thought [his statement] was so weak. He waited to say anything; he sent out like two sentences. As somebody who has followed Jack and has been a fan of Jack for a very long time, I thought that this was the definition of weak leadership. And I would have expected more from him. And if I was an employee thinking about working for Jack in the future, I would think twice about it.
The power pendulum is swinging back to employers, isn’t it? by Natasha Mascarenhas originally published on TechCrunch
https://techcrunch.com/2022/11/13/the-power-pendulum-is-swinging-back-to-employers-isnt-it/
What goes up must come down
Welcome to The Interchange! If you received this in your inbox, thank you for signing up and your vote of confidence. If you’re reading this as a post on our site, sign up here so you can receive it directly in the future. Every week, I’ll take a look at the hottest fintech news of the previous week. This will include everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There’s a lot of fintech news out there and it’s my job to stay on top of it — and make sense of it — so you can stay in the know. — Mary Ann
Like many of you, I’m sure, I was caught up last week watching the downfall of FTX unfold. It was a startling development in the world of crypto, and while I don’t cover the space directly, I couldn’t help but be fascinated by the goings-on — and not in a good way.
For more on that debacle, check out our crypto-focused Chain Reaction podcast here and our general coverage here.
I also couldn’t help watching the train wreck of Elon Musk taking over Twitter and Meta’s letting go of 11,000 people. But I digress.
Last week, I ended the newsletter saying I hoped this week would come with more uplifting news. Unfortunately, that was not the case.
Real estate fintech Redfin announced on November 9 that it was laying off 13% of its staff, or 862 people, in response to the continued slowing of the housing market. This followed Opendoor’s layoff of 550 people, or 18% of its workforce, the week before and Zillow’s cuts of 300 in late October. It also follows Redfin’s letting go of 470 employees in June.
Notably, Redfin also said it is shuttering RedfinNow, its iBuying division. To that end, CEO Glenn Kelman wrote in an all-hands email: “One problem is that the share gains we could attribute to iBuying have become less certain as we rolled it out more broadly, especially now that our offers are so low…And the second problem is that iBuying is a staggering amount of money and risk for a now-uncertain benefit. We’ve tied up hundreds of millions of dollars in houses that you yourself wouldn’t want to own right now.”
Kelman went on to say that the company’s June layoff was in response to Redfin’s expectation that it would sell fewer houses in 2022. The latest layoff “assumes the downturn will last at least through 2023.”
Redfin’s, Zillow’s and Opendoor’s layoffs aren’t the only ones in the industry. Digital mortgage lender Better.com conducted yet another layoff or two in the past couple of weeks. One source told me 240 employees were let go on November 4. And San Francisco Business Times reporter Alex Barreira tweeted on November 11 that dozens more workers were let go, sharing colorful details of the company’s WARN notice, in which Better.com said it was not able to provide notification earlier as the separations were the result of a “dramatic deterioration” in the company’s business. When I reached out to the company about the layoffs, a spokesperson wrote via email: “Better is focused on making prudent decisions that account for current market dynamics.”
Okay, back to Redfin. One thing that stood out most to me with regard to that company’s latest round of layoffs was Kelman’s candor as he addressed employees. In his email, he said: “To every departing employee who put your faith in Redfin, thank you. I’m sorry that we don’t have enough sales to keep paying you.”
Interestingly, Kelman appears to be putting his own personal bets into real estate markets outside the U.S. In September, he co-invested in a Seattle startup called Far Homes that was founded by Redfin alums and is focused on “buying and selling real estate in foreign markets,” as reported by GeekWire.
CEOs as of late have been particularly remorseful as their companies either deteriorate or lay off staff. Besides Kelman, other examples this week include Meta CEO Mark Zuckerberg admitting he overestimated how long the post-pandemic revenue surge would last, saying: “I got this wrong, and I take responsibility for that.”
Also last week, FTX CEO and founder Sam Bankman-Fried admitted he “fucked up” and “should have done better” right before FTX declared bankruptcy and he stepped down from his role. This is after the crypto exchange was valued at $32 BILLION earlier this year. In Early August, Robinhood CEO Vlad Tenev took responsibility for the company’s letting go of 23% of its staff, saying: “This is on me.”
Even Better.com CEO Vishal Garg admitted at one point that he had not been disciplined over the previous 18 months, telling employees: “We made $250 million last year, and you know what, we probably pissed away $200 million.”
What does this tell us? CEOs are human, yes. Flawed humans just like the rest of us. In some cases, decisions such as over-hiring were made out of genuine (or foolish) belief that the people hired would be needed in years to come. In other cases, decisions were less honorable and more about furthering the executive’s own agenda.
Unfortunately, either way, thousands of employees are paying the price.
Image Credits: Kuzma / Getty Images
Weekly News
Months after acquiring gamified finance mobile app startup Long Game, Truist Financial Corporation has introduced the Truist Foundry, an innovation division that it says “will function as a startup within the bank.” The goal will be to deliver “game-changing projects” and serve the bank’s lines of business. A spokesperson told me via email that specifically, the Truist Foundry will work on “building software solutions that drive value and market leadership for the bank.” In other words, it looks like one of the United States’ largest banks is getting even more serious about its digital efforts.
Instacart has tapped Dutch payments giant Adyen to serve as “an additional payments processing partner.” As part of the new partnership, the companies said in a press release that Instacart will leverage Adyen functionality, including PINless debit enablement of transactions “to further optimize and improve authorization rates for an even more seamless customer experience.” Pymnts has more here.
Another example of fintech for good. Banking-as-a-service startup Synctera is partnering with Solvent, a fintech company that is building “affordable financial services” to support those who were previously incarcerated. One aspect of the link-up is Synctera’s recently announced Smart Charge Card, which does not require a credit review or a company to fund its customers’ balances. Overall, Synctera says it is helping supply Solvent with “a suite of personal finance and banking tools, products and services aimed to empower and build wealth among ex-cons, a group of Americans often underserved and overlooked.”
BNPL player Affirm last week reported mixed financial results. While its fiscal first quarter revenue of $361.62 million beat analysts’ estimates, its net loss of 86 cents per share was greater than expected. Its stock tanked to a new 52-week low of $11.94 last week before rebounding to $15.88 on Friday morning at the time of writing. The company tried to put a positive spin on the results, sharing via email that active consumers grew 69% year-over-year and total transactions increased to 13.3 million, representing 97% growth year-over-year. It also claimed that delinquencies and net charge-off rates remained at or below pre-pandemic levels during the quarter.
From Sarah Perez: “Elon Musk last week detailed his vision for Twitter’s plan to enter the payments market during a live-streamed meeting with Twitter advertisers, hosted on Twitter Spaces. The new Twitter owner suggested that, in the future, users would be able to send money to others on the platform, extract their funds to authenticated bank accounts and, later, perhaps, be offered a high-yield money market account to encourage them to move their cash to Twitter.”
Also from Sarah Perez: “Google announced it’s expanding its user choice billing pilot, which allows Android app developers to use other payment systems besides Google’s own. The program will now become available to new markets, including the U.S., Brazil and South Africa, and Bumble will now join Spotify as one of the pilot testers. Google additionally announced Spotify will now begin rolling out its implementation of the program starting this week. The company first announced its intention to launch a third-party billing option back in March of this year, with Spotify as the initial tester.” More here.
From Tage Kene-Okafor: Kuda, the London-based and Nigerian-operating startup taking on incumbents in the country with a mobile-first and personalized set of banking services, is expanding to the U.K. by offering a remittance product to Nigerians in the diaspora. The digital bank has seen some success since launching in Nigeria in 2019. Kuda claims to have up to 5 million users, more than thrice the number it had last August during its $55 million Series B round, money it raised to enter into other African countries like Ghana and Uganda this year. Expansion into those countries is yet to materialize; instead, Kuda has opted to launch in the U.K., a move the company says is part of a major global expansion drive.
Image Credits: Bryce Durbin / TechCrunch
Funding and M&A
Thomson Reuters to acquire tax automation company SurePrep for $500M
Pet insurance startups chase the market as pet ownership booms among Gen Z and Millennials
Yassir pulls in $150M for its super app, led by Bond
Quona Capital sinking $332M into startups focused on financial inclusion
Former Tink employees launch Atlar, a payment automation startup
Travel app Hopper raises $96M from Capital One to double down on social commerce
Blnk, a fintech that provides instant consumer credit in Egypt, raises $32M in debt and equity
A16z-backed Tellus wants to offer consumers a much better savings rate. Here’s how.
And elsewhere:
Savvy Wealth completes $11 million capital raise:
Ritik Malhotra (CEO) and Muller Zhang (CTO) founded Savvy after Malhotra came into a windfall of cash after selling his two startups (Streem was acquired by Box in 2014, and Elph was acquired by Brex in 2019). Long story short, he was advised to seek out a financial advisor, and after sampling several different options, he was inspired to start Savvy in 2021 — a national registered investment advisor (RIA) built on what the company describes as “a digital first wealth management firm centered around modernizing human financial advice.”
Before I close, just a reminder that we here at TechCrunch love scoops. So if you’ve got a news tip or inside information about a topic we have covered (or haven’t yet but should). I’d love to hear from you. You can reach me via Signal or DMs at 408.204.3036. Or you can drop us a note at tips@techcrunch.com. If you prefer to remain anonymous, click here to contact us, which includes SecureDrop (instructions here) and various encrypted messaging apps.
That’s it from me for this week. Here’s to more good news than bad next week! Until then, take good care…xoxo, Mary Ann
What goes up must come down by Mary Ann Azevedo originally published on TechCrunch
https://techcrunch.com/2022/11/13/what-goes-up-must-come-down-fintech-layoffs/
Meta lays off thousands, FTX collapses, and Twitter has a very weird week
Hey, friends! Welcome back to Week in Review, the newsletter where we recap the top TechCrunch headlines from the past seven days. Get it in your inbox every Saturday AM by signing up here.
Ready? Let’s go.
most read
Twitter had a week so strange that it could easily make up this entire newsletter, so we’ll keep to the bullet points:
- Last week Elon laid off a huge chunk of the company. This week, some of those who were let go were reportedly asked to come back.
- Twitter started giving blue verified checkmarks to anyone who’d pay $8. Things got chaotic fast.
- Twitter rolled out a new, second checkmark for “Official” accounts. And then got rid of them. And then…brought them back?
- By Friday morning, after fake “verified” accounts popped up for everything from companies to athletes to politicians, Twitter paused the $8 verification badge program.
- A number of execs quit — to the point where the exits perked the ears of the FTC.
- Elon reportedly told Twitter employees that “bankruptcy isn’t out of the question” for the company.
FTX collapses: Once one of the biggest crypto exchanges in the world, FTX effectively exploded this week. It briefly looked like competitor Binance would step in to acquire FTX, only for Binance to take one look at FTX’s books and back out almost immediately. FTX founder Sam Bankman-Fried has since resigned, and the company has filed for bankruptcy.
Meta layoffs: Meta — the parent company behind Facebook, Instagram, and Whatsapp — laid off 13% of its workforce this week. With a worldwide headcount of around 87,000 employees, that works out to over eleven thousand roles cut.
Gmail will no longer let you go back to old Gmail: Don’t like the new look that Gmail started rolling out back in July? Bad news. While users could previously revert to the old design, the Gmail team announced this week that the new design will be the “standard experience” for all within weeks.
Google finds exploits in Samsung phones: “Google says it has evidence that a commercial surveillance vendor was exploiting three zero-day security vulnerabilities found in newer Samsung smartphones,” writes Zack Whittaker. “The chained vulnerabilities allow an attacker to gain kernel read and write privileges as the root user, and ultimately expose a device’s data.”
audio roundup
Looking for a new podcast to tune into on your commute? Here’s what’s up in TC podcasts lately:
- The Chain Reaction crew broke down the absurd collapse of FTX as it was happening.
- Equity (with a guest appearance from TC’s Becca Szkutak) covered the seemingly endless layoffs we’re seeing from tech companies big and small, and what FTX’s meltdown means for it and companies like it.
- Darrell was joined on The TechCrunch Podcast by TC senior reporter Dom-Madori Davis to talk about “the coalition of VCs that are standing for reproductive rights” and to recap the biggest tech stories of the week.
TechCrunch+
Not a TechCrunch+ member yet? Here’s what members were checking out most behind the paywall:
How ButcherBox bootstrapped to $600M in revenue: How did ButcherBox grow from a modest Kickstarter to $600 million in revenue in just a few years? Haje outlines the company’s path so far.
The Exchange: In his increasingly popular daily newsletter, Alex Wilhelm wonders: Has everyone been valuing software companies the wrong way all along?
Meta lays off thousands, FTX collapses, and Twitter has a very weird week by Greg Kumparak originally published on TechCrunch
FTX Investigating a Potential Hack Amid Bankruptcy
More than $370 million worth of crypto funds appears to be missing, according to a crypto analytics firm.
How Twitch CEO Emmett Shear Gets to Inbox Zero
The 39-year-old head of the gaming and entertainment live-streaming service shares what’s on his phone.
https://www.wsj.com/articles/twitch-ceo-emmett-shear-phone-download-11667941249?mod=rss_Technology
What the midterm madness means for startups
Let AI generate it
Generative AI is the hot new thing in tech. Well, perhaps not new, but it’s recently entered the VC lexicon thanks to high-profile text-to-image AI systems like OpenAI’s
Welcome to Startups Weekly, a nuanced take on this week’s startup news and trends. To get this in your inbox, subscribe here.
Hey, folks. It’s Kyle, filling in this issue for Natasha, who’s taking a much needed break from the news cycle (and the spectacle that’s become Twitter). While it’s my first Startups Weekly column, you’ve likely seen me on TC here and there, covering chiefly venture, AI and enterprise-related items. It’s a real pleasure to round up this week’s startup news — partially because it doesn’t center around Musk shenanigans.
But before we collectively tune out for the weekend, let’s recap the week, which was marked by the midterm elections in the U.S.
As loathsome and distressing as the U.S. election cycle has become, the outcome always has major implications for the tech industry. U.S.-based chipmakers are holding out hope for relief as the U.S. increasingly decouples from China. Crypto businesses are awaiting regulations to establish guardrails for so-called stablecoins and settle jurisdictional issues. And the largest tech giants are bracing for a possible last-ditch effort by the White House to pass antitrust legislation — pending, of course, the post-midterm political climate.
It goes without saying that the stakes are high. Sanctions, alongside supply chain constraints and inflation, threaten to depress the stateside chipmaking industry — one chip machine firm, Lam Research, has already predicted losses up to $2.5 billion in revenue next year due to newly imposed trade rules. The antitrust bills, if passed, could significantly restrict the ability of Amazon, Meta, Microsoft and other tech incumbents to acquire and punish rivals to boost their own products and services.
Unsurprisingly, the industry was out in force for the 2022 midterms, judging by the top donors. Google, Amazon, Meta and their trade groups poured almost $100 million into lobbying as they sought to derail antitrust legislation — and its supporters. Meanwhile, according to an analysis by the Washington Post, FTX CEO Sam Bankman-Fried, Larry Ellison and Peter Thiel gave tens of millions of dollars to their preferred campaigns, exerting a stark technologist influence on the acerbic field.
Whether the industry succeeded in securing a bright two-year future for itself is up for debate.
Excepting those in sectors with bipartisan support, like defense, startups could be the ones to suffer the most in this politically divided stretch — especially those in the chipmaking, green and crypto businesses. At least one study finds that congressional gridlock contributes to income inequality, while another implies that political stalemates have a greater negative impact than even hostile government policies on a company’s ability to innovate.
Consider how a recession might play out. Assuming Congress is slow to act (as divided branches often are), there could be less federal government spending on social safety net programs, leading to a drawn-out recovery. There’s the prospect of debt ceiling fights, too, which could be damaging in a different aspect. Recall that as result of debt ceiling bickering during President Barack Obama’s first term, the U.S. lost its perfect AAA credit rating from Standard & Poor in August 2011, prompting the stock market to plunge more than 5%.
In a note to investors, Morgan Stanley predicts that the current Congressional divide means fiscal expansion will be reactive as opposed to proactive over the next two years, coming only as “a reaction to deteriorating economic conditions or an external shock to the economy.”
Of course, partisan gridlock needn’t be entirely a bad thing where it concerns the economy — or startups. According to data from Edelman Financial Engines cited in a piece by CNN Business, the S&P 500 had an annualized return of 16.9% since 1948 during the nine years when a Democrat was in the White House and Republicans had a majority in both chambers of Congress. That compares to 15.1% during periods of full Democratic control and 15.9% in years when there was a unified GOP government.
A silver lining, but a relatively weak one, admittedly.
In the rest of this newsletter — which is less of a downer, I promise! — we’ll talk about Twitter’s fleeing user base, the rise of generative AI and e-commerce’s enduring VC appeal. For more content along those lines, give me a follow — I’m at @Kyle_L_Wiggers on Twitter (Mastodon migration pending).
Twitter’s losses are rivals’ gains
Nary an hour goes by without news of Twitter’s rocky transition under new management. Last weekend, the network began banning certain parody accounts following a Musk-led rule change, including the accounts of high-profile comedians. Then on Tuesday came a report from Platformer’s Casey Newton that Musk is considering putting all of Twitter behind a paywall. Yikes.
The unpredictable policymaking has begun to spook users, some of whom are leaving for what they see as greener pastures. That’s to the benefit of startups like Mastodon, a Germany-based platform that offers an experience in many ways comparable to Twitter’s. (For a primer on Mastodon’s history, how it works and how to join it, read my colleague Amanda Siberling’s piece, which does a thorough job of breaking it all down.)
Here’s why it’s important: Mastodon has experienced rapid growth since Elon Musk’s takeover of Twitter, with nearly half a million users joining the network since October 27. While the company is nonprofit, its expansion could fan Twitter rivals’ emergence from the ashes — and VC backing of those rivals. Former Google Area 120 director Gabor Cselle is among the opportunists, announcing on Monday that he’s secured interest (and promises of capital) from investors and an ex-Twitter exec to build a Twitter alternative.
Image Credits: Bryce Durbin / TechCrunch
Let AI generate it
Generative AI is the hot new thing in tech. Well, perhaps not new, but it’s recently entered the VC lexicon thanks to high-profile text-to-image AI systems like OpenAI’s DALL-E 2 and Stability AI’s Stable Diffusion. Stability AI recently raised $101 million at a reported valuation over $1 billion, and OpenAI is said to be in talks for capital from Microsoft and other backers at a valuation close to $20 billion.
Deepfaked porn and AI-generated art competition entries might be dominating the headlines. But investors see massive potential in generative AI built for the enterprise. TechCrunch’s Rita Liao this week covered Movio, a two-year-old startup leveraging generative AI along with other AI frameworks to make videos featuring talking human avatars. A little earlier in the fall, I wrote about Jasper, an AI content platform for marketing that landed $125 million at a $1.5 billion valuation.
Here’s why it’s important: VCs are increasingly bullish on generative AI. In a recent article on its website, VC firm Sequoia muses that generative AI — referring to any AI that can generate text, photos, audio or video — has the potential to “generate trillions of dollars of economic value.” Trillions might sound optimistic, but what’s certain is LP’s willingness to write checks is fueling an explosion of new ventures in the nascent space.
Image Credits: Bryce Durbin / TechCrunch
From home workouts to home decor
What’s Peloton co-founder John Foley been up to since he left the company in September? Becoming something of a rug salesman, apparently. Really. My colleague Rebecca Szkutak profiles Foley’s latest venture for TC+, called Ernesta. Aiming to launch in spring 2023, Ernesta — backed by $25 million in venture capital — will sell custom rugs through a direct-to-consumer (DTC) strategy.
Here’s why it’s important: Rugs online might seem random. But the fact that Ernesta secured a large tranche so quickly points to the continued investor enthusiasm around e-commerce — in spite of souring views on DTC. The pandemic supercharged online shopping, driving the digital sales of goods to $815.4 billion in 2020 up from $671.2 billion in 2019, according to the U.S. Census Bureau’s Annual Retail Trade Survey. Where it concerns DTC, high-profile flops like Casper, Brandless and Outdoor Voices have given some VCs pause to be sure. But as Ernesta’s success shows, the funding hasn’t dried up yet. The rug company joins Rad Power Bikes, Madison Reed and Glossier among the DTC brands that have landed tens of millions in equity at sizable valuation step-ups.
Image Credits: Cavan Images / Getty Images
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What the midterm madness means for startups by Kyle Wiggers originally published on TechCrunch
https://techcrunch.com/2022/11/12/what-the-midterm-madness-means-for-startups/
Freemium or free trials: Why not both?
Welcome to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily TechCrunch+ column where it gets its name. Want it in your inbox every Saturday? Sign up here.
The recent OpenView-Chargebee 2022 report had SaaS benchmarks as its focus, but also touched in passing on a topic I’ve been curious about: reverse trials, a pricing model that offers SaaS companies a middle ground between freemium and free trials. Let’s explore. — Anna
A binary choice?
As more SaaS companies adopt product-led growth (PLG), a sales method in which user conversions are driven by the product itself rather than a sales team, founders are often faced with a pricing model dilemma. If their startup opts for a freemium model, most users will never get a taste of the premium features reserved for paying users. But if the company offers a time-limited free trial, users who don’t become customers at the end of that period might be gone forever.
There are many other pros and cons to freemium and free trials.
As OpenView partner Kyle Poyar told me, “freemium models tend to drive more acquisition and more signups to your product, for example, while free trials have fewer signups but have a higher conversion rate from free to paid.”
As a result, founders often think they are facing a binary choice, Poyar said. In an interview, Airtable head of growth Lauryn Isford told him that these two choices are often thought of as prioritizing user growth (with freemium) or revenue growth (with free trials.)
Poyar, however, doesn’t think freemium versus free trials is the only alternative. For companies to “get the best of both worlds,” he and OpenView advocate for the reverse trial model, exemplified by Airtable. But what are reverse trials all about, and are they for everyone?
Psychology 101
Freemium or free trials: Why not both? by Anna Heim originally published on TechCrunch
https://techcrunch.com/2022/11/12/freemium-or-free-trials-why-not-both/