From food delivery to housing: Former Favor founders raise millions for Sunroom Rentals

Real estate tech startup Sunroom Rentals, which leases units on behalf of property managers and apartment owners, has raised $ 11 million in a Series A round of funding led by Gigafund.

Ben Doherty and Zachary Maurais, former founders of the delivery app Favor, launched Sunroom in May 2018 with the mission of “boosting the profitability” of mid-size property managers and apartment owners by giving them a way to outsource their leasing operations.

The pair sold Favor to Texas grocer H-E-B in 2018 and soon after shifted their focus on building out Sunroom. The Austin-based company has developed an app that it says gives renters a way to tour, apply for and lease a unit “entirely online.” COVID-19 has led to more renters wanting virtual ways to explore and secure rental units. Mobile-first, Maurais noted, is particularly appealing to millennials and Gen Zers.

“Personally, we love to create products that fulfill consumer’s most basic needs,” said Maurais, the company’s president. “With food under our belt, we decided to focus on housing.”

While one might wonder what the parallels between food delivery and housing might be beyond fulfilling consumers’ needs, CEO Doherty said the rental market in 2021 looks a lot like the food delivery market in 2013.

“In 2013, Grubhub had successfully put many restaurant menus online, but most of the transactions and delivery process was still offline,” he told TechCrunch. “We’re in a similar position with the rental market, as the majority of rental listings are online, but touring, applying or leasing units is still done offline.”

Since its launch, Sunroom Rentals has signed more than 2,000 leases and had over 100,000 renters sign up for its services in fast-growing Austin, where it focused its initial efforts.

“According to the U.S. Census, that represents roughly 10% of renters in the greater Austin metro,” Maurais said. “Instead of going shallow and wide nationally, we decided to go deep in markets, in an effort to gain network effects, which was a strategy that worked well for us at Favor.”

Sunroom Rentals claims that it’s leasing units five days faster than the market average. This benefits property managers, Doherty said, because they can grow quicker “while improving leasing performance.”

Looking ahead, the company will use the funding to expand across Texas, including in Houston, San Antonio and Dallas. It will also invest in its partner portal, which aims to give owners and property managers a way to view real-time data on leasing performance.

Sunroom Rentals currently has 18 employees with the goal of more than doubling its headcount this year. It’s in particular looking to hire across its engineering, product and sales departments.

As mentioned above, Gigafund led the Series A financing, which included participation from NextGen Venture Partners, Calpoly Ventures and a slew of angel investors, including Gokul Rajaram (Google & Square) and Homeward’s Tim Heyl, among others. Existing backers include Founders Fund Seed, Draper Associates, Boost VC and Capital Factory (among many others). The round marked Sunroom’s first “priced” round, meaning the first time it’s given up stock.

Jonathan Basset, managing partner at NextGen Venture Partners, believes Sunroom was essentially in the right place at the right time and “on trend with touchless leasing even before COVID hit.”

“I watched them build a profitable consumer marketplace in a competitive market with Favor and was impressed with them as operators,” he said. “These businesses have a surprising amount of similarities and I’m confident they can rise to the challenge.

Last week, TechCrunch reported on the raise of another startup operating in this increasingly crowded space. Seattle-based Knock — a company that has developed tools to give property management companies a competitive edge — raised $ 20 million in a growth funding round led by Fifth Wall Ventures.

Knock’s goal is to provide CRM tools to modernize front office operations for these companies so they can do things like offer virtual tours and communicate with renters via text, email or social media from “a single conversation screen.” For renters, it offers an easier way to communicate and engage with landlords.

Maurais said the two differ in that Knock is a CRM built for leasing agents with a SAAS model where as Sunroom is a marketplace, where renters match, tour and apply with partnered properties.

“Sunroom also provides a suite of leasing & analytics software to its partners and generates both transactional and subscription revenues,” he added.

Startups – TechCrunch

Trading app Public drops payment for order flow in favor of tips

Soon all tech news will be fintech news, all fintech news will be trading platform news and all trading platform news will concern the business mechanics of such services.

So, after looking into Robinhood’s fourth-quarter payment for order flow (PFOF) revenues this morning, we’re back with a related story. This time, however, we’re talking about Public.

Public, like Robinhood, is a zero-cost trading service. Its founders have worked to build a community-first platform, including offering ways to let groups chat about their investments.

And like Robinhood, Public has seen its growth skyrocket in recent days. Company representatives told TechCrunch today it was seeing “steady ~30%” month-over-month growth until Thursday, when “new user signups went up 20x.”

Both share strong backing from investors: Robinhood raised billions in new capital this week to ensure it has enough cash to meet clearinghouse deposit requirements. It managed to do so in part because its Q4 2020 numbers show that its PFOF business is ticking along nicely.

Public, flush with a recent $ 65 million Series C, took a different tack this morning and announced it would “stop participating in the practice of Payment for Order Flow.”

To which we say … all right.

On one level, this is neat. Public is not going to sell its order flow to market makers for fees. That’s good for users, but how will it make up the lost revenue? Tips, which will prove an interesting experiment in monetization.

TechCrunch asked the company if it believes tips will compensate for PFOF revenue, to which founders Leif Abraham and Jannick Malling replied via email that they were “optimistic that the difference will be offset by the optional tipping feature.”

However, dropping payment for order flow is only so brave a move from Public. After all, Public was not making Robinhood-level amounts of fetti from its PFOF business. Indeed, as we wrote when Public raised its Series C:

Before chatting with Public, I dug into its trading partner Apex’s filings to learn about its payment for order flow results from its recent filings. The resulting sums are somewhat modest for Apex’s collected clients. This means that Public’s revenue metrics, a portion of the aggregate sums, are even more unassuming.

Startups – TechCrunch

Why VC funding is falling out of favor with top D2C brands

In 2020, venture capitalists unceremoniously broke up with D2C brands and product-based businesses.

Many watched as the consumer brands in their portfolios rushed to make hefty layoffs and eke out more runway and grew more concerned with their business models.

Some simply monitored the “lackluster” Casper IPO or skimmed articles about Brandless and others “imploding” and started pulling a slow fade on D2C brands — not taking pitches, not following up.

Many product-based brands, as it turns out, are no longer interested in chasing venture capital.

Last year, investors adopted a wait-and-see approach to all new investments and prayed portfolio brands could cut their burn significantly enough, stay relevant and ride things out.

Product-based businesses fell out of favor and venture capitalists, if they did invest last year, mainly focused on AI startups, or companies focused on data collaboration, data privacy and healthcare (mostly founded by men, might I add).

From a distance, it sounds like direct-to-consumer founders were left destitute and desperate for financing, wounded by every slow fade or hard pass, beholden as ever to the whims of Silicon Valley.

But as Hal Koss so eloquently shared in his “DTC playbook” post-mortem, this wasn’t a one-way breakup; this parting of ways is actually mutual. Many product-based brands, as it turns out, are no longer interested in chasing venture capital, playing the “grow-at-all-costs” game and relinquishing partial control to investors, despite the pandemic and the uncertain circumstances many founders find themselves facing.

Through my work running and scaling Bulletin, I’ve followed thousands of product-based businesses ranging from indie beauty brands selling clean serums and cleansers to sex tech companies making couples’ vibrators and foreplay accessories. I’ve followed them on Instagram, in the press and across various platforms, and in many cases, I’ve spoken to their founders directly.

Over the past two years, I interviewed executives at more than 30 women-owned businesses for my upcoming book, “How to Build a Goddamn Empire,” and had long phone calls with dozens of independent brands and makers as Bulletin got a handle on how the pandemic was impacting customers. And I noticed something new and remarkable about what founders want now, in 2021, compared to what they wanted in years past.

Back then, I’d get dozens of cold emails and DMs asking how I successfully raised VC and what the unspoken rules might be. I’d hear from business owners who were considering a raise or gearing up for one. Product-based entrepreneurs approached me at panels or Bulletin events and say they wanted to be the “Glossier for X” or the “Away for Y.” Many younger founders didn’t even know what venture capital really was, but they saw it as symbolic validation for the business, or the only way to get “big.”

Now, brands would rather scrape by than pursue an injection of funding on someone else’s terms; just ask the Gorjana founders or Scott Sternberg. Many brands that saw astronomical growth in 2020, like Rosen, Golde, Entireworld and others that spurred similar growth for Etsy and Shopify are fully bootstrapped businesses, and proudly so.

Some founders I’ve spoken to have even outright rejected offers for investment. A lot of D2C brands are interested in learning about alternative forms of financing like bank loans, lines of credit and crowdfunding, and ask about iFundWomen or Kickstarter, observing the success of other fully crowdfunded brands like Dame and Pepper.

Venture capital, from my vantage point, has lost its sheen for a lot of product-based brands. They’re not destitute and desperate for financing. They’re actually scoffing at the prospect and trusting they can succeed, scale and maintain long-term profitability without swapping equity for cash. They’re tripped up by what they’ve been reading in the media, or they’ve survived or even thrived during COVID, as a fully bootstrapped company, and feel more conviction than ever that the “grow slow” approach is the right move.

They’re reading the same stories about layoffs and tenuous unit economics at massive D2C companies and agreeing with Sam Kaplan that the old playbook — pricey customer acquisition practices, rapid scale, endless rounds of funding — is out of date. It’s 2021 and we’re midpandemic. These brands want to turn a profit.

Startups – TechCrunch

A court decision in favor of startup UpCodes may help shape open access to the law

For the past three years, UpCodes and its founders have been entangled in a copyright lawsuit filed by the International Code Council (ICC). Though both focus on the building industry (specifically, the codes architects and builders need to follow), the lawsuit deals with an issue that has wider ramifications: is it possible to copyright the law, or text that carries the weight of the law?

Founded in 2016 and backed by investors including Y Combinator, UpCodes offers two main products, a database of state building codes that is available on a freemium basis, and UpCodes AI, which scans 3D building models for potential code violations. UpCodes’ building code database is at the center of the lawsuit, because it contains material the ICC claims copyright on. UpCodes says its software simplifies the complex and often expensive process of code compliance, one of the most important parts of the building process. But the ICC, the nonprofit organization that develops the model code used or adopted for building regulations by all 50 states, claims UpCodes impacts its ability to make revenue and continue authoring new code.

In May, UpCodes won a major decision in the case when United States District Judge Victor Marrero ruled that its posting of building codes was covered by public domain and fair use (a copy of Marrero’s ruling is embedded below).

The lawsuit will proceed because both parties’ motions for dismissal were not granted, but Scott Reynolds, who founded UpCodes with his brother Garrett, called the ruling “a huge advance for us in terms of what we’re doing and making sure UpCodes continues in the future.”

Nine days after Judge Marrero’s ruling on May 27, however, the ICC filed another lawsuit against UpCodes and the Reynolds brothers. This time, the ICC is suing UpCodes for false advertising and unfair competition, claiming that the startup’s copies of building codes are “incomplete and riddled with errors.” UpCodes maintains that the second lawsuit is an attempt to find another way to shut down its business.

The ruling’s wider implications

Marrero’s decision in the first lawsuit is noteworthy because it is one of the first to cite the Supreme Court’s ruling earlier this year in Georgia v., which stemmed from another case involving copyright and the law.

In 2015, the State of Georgia’s Code Revision Committee sued, a non-profit that shares public domain materials, to stop it from publishing the Official Code of Georgia Annotated (OCGA), a compilation of all laws in the state. The Code Revision Committee argued that annotations made to the OCGA placed it under state copyright, but the Supreme Court ultimately ruled in April that Georgia does not have copyright over the annotated legal code.

The Supreme Court ruling was watched closely by building professionals and open access advocates. As Architect’s Newspaper wrote in an article published last month, “the Georgia precedent helps clarify the border between private property and the public domain, with implications for architects using or considering such products as well as advocates of nonmonetized availability of code information.”

In an email to TechCrunch, lawyer Joseph Gratz, who represents UpCodes and the Reynolds brothers, said the UpCodes lawsuit’s relevancy extends beyond the building industry because “obviously, it deals with a key question about how we govern ourselves as a society. The ruling confirms that the law belongs to the people, and nobody owns it. You can’t make a business model out of owning the legal rules that citizens have to follow; you have to find some other way to support your business which ICC has done, by getting revenue from program services.”

He added, “It’s a model of how open government data can drive new innovations and successful startups. Law isn’t the only kind of information created by the government that can be leveraged in new ways. Property data, statistics and other kinds of government data can also support new businesses. And in all those cases, big old incumbents like ICC will try to find ways to slow down their new competitors.”

UpCodes was founded by Scott, an architect, and Garrett, a software engineer who previously worked at PlanGrid. The brothers wanted to create a more efficient way to reference building codes, which are so complex that many architecture and building firms hire code consultants to help them navigate regulations. Headquartered in San Francisco, the company currently has about 400,000 monthly active users, mostly industry professionals like architects and engineers, but also home owners and rental tenants.

ICC’s first lawsuit against UpCodes claims the startup violated its copyright on forty International Codes (I-Codes), the set of model building codes that have been adopted by all 50 states. The ICC argues that this impedes their ability to generate revenue from selling copies of its model codes, therefore making it harder for the organization to develop new building codes.

But UpCodes’ stance, supported by Marrero’s ruling, is that the I-Codes are either in the public domain or protected by fair use because they have been adopted into law by federal, state and local governments. (After the ICC filed its copyright infringement lawsuit in August 2017, UpCodes’ site was redesigned to include only enacted state and local building codes, instead of the ICC’s model codes).

Does the government edicts doctrine apply?

Despite being opponents in two ongoing lawsuits now, both UpCodes and the ICC view the Supreme Court’s ruling in Georgia v. positively.

“What was really interesting for our case is that no matter if they were in the majority or dissenting, Supreme Court justices on both sides had really incredible quotes that said if it is in the law, of course it’s in the public domain,” said Scott Reynolds.

ICC’s general counsel Melike Oncu, however, said that the ruling “confirmed that [the ICC] is the owner of the model codes it publishes” because of what it said about the governments edicts doctrine. As defined by the U.S. Copyright Office, the doctrine states “edicts of government, such as judicial opinions, administrative rulings, legislative enactments, public ordinances, and similar official legal documents are not copyrightable for reasons of public policy. This applies to such works whether they are Federal, State, or local as well as to those of foreign governments.”

Oncu told TechCrunch in an email that the Supreme Court “confirmed that the government edicts doctrine is ‘a straightforward rule based on the identity of the author… assessed by asking ‘whether the author of the work is a judge or legislator’ acting in ‘the course of his judicial or legislative duties and not ‘whether given material carries ‘the force of law.’”

In other words, Oncu said “this means that the government edicts doctrine does not apply to the Code Council’s I-Codes and that they retain copyright protection regardless of whether or not they are later adopted into law.”

In his decision, Marrero wrote that “because ICC is a private party that lacks the authority to make or interpret the law, the Government Edicts doctrine is clearly not dispositive of this case.” But he also noted that ICC encourages adoption of its model codes into law, so that “even if adoption into law is not the sole reason ICC produces the I-Codes, it is clearly one of the most significant reasons, if not the most significant reason, that the ICC does so,” and that “a private party cannot exercise its copyrights to restrict the public’s access to the law.”

The ICC disagrees with Marrero’s ruling, Oncu told TechCrunch. The organization “believes that his decision was wrong because it held that codes that have the force of law are not copyrightable even if they are authored by a private party. As such, the decision is directly contradicted by the Supreme Court decision’s in Georgia.”

But Gratz said that “building codes are the law, and the Supreme Court ruled that ‘no one can own the law.’ That’s exactly what Judge Marrero ruled.”

Gratz added that “even if the government edicts doctrine doesn’t apply, UpCodes wins for two other separate reasons: because there’s only one way to express the law accurately, so UpCodes had to express it the same way ICC wrote it; and because UpCodes was using the material solely for the purpose of informing the public about what the law is, which the court has found to be fair use.”

In his decision, Marrero cited two other previous rulings involving two of the three groups that merged to form the ICC in 1994: the Building Officials and Code Administration (BOCA) and the Southern Building Code Congress International (SBCCI).

In 1980, BOCA sued private publisher Code Technology for publishing and selling its own edition of building code that was adopted by Massachusetts. The First Circuit court ruled in Code Technology’s favor. Then in 2002, the SBCCI sued Peter Veeck for posting a model building code adopted by local governments on his website, which gave free information about North Texas. SBCCI initially won the case in district court, but lost the appeal when the Fifth Circuit ruled in Veeck’s favor.

“Though the Government Edicts doctrine does not address government adoption of model building codes, two circuit courts have considered the issue,” Marrero wrote. “Their holdings are broadly consistent with each other and reaffirm the principle that no one can own the law. Moreever, both cases concern the model codes of ICC’s predecessors, SBCCI and BOCA, on which at least some of the I-Codes are based. These cases strongly suggest that Defendants do not infringe ICC’s copyrights insofar as they accurately post the I-Codes as adopted.”

The second lawsuit

After Marerro’s ruling, the Reynolds brother said they thought ICC might want to reach a settlement to avoid the chance of setting another precedent in Circuit Court. Instead, the ICC filed its second lawsuit on June 5, claiming that UpCodes and the Reynolds brothers “falsely have claimed and still claim that the copies of the codes they offer are, e.g. accurate, completed and up-to-date.”

In the suit, ICC cites a section in Marrero’s ruling where the judge explained why he was denying UpCodes’ motion for dismissal. “ICC has still raised genuine factual disputes that at least some of the codes posted on Current UpCodes [referring to the version of the site after the initial lawsuit was filed] have ‘indiscriminately mingled’ enacted text with unadopted model text.”

UpCodes corrected the errors when notified by the ICC. The Reynolds brothers said that the second lawsuit pointed out less than two dozen errors on UpCodes’ site, but they have now documented more than 400 sections on ICC’s site that either have an error or out-of-date code that they will use in their response.

Gratz said, “ICC appears to have filed the second lawsuit as a back-up plan to misuse unfair competition law to shut down a superior competitor, since ICC’s first attempt to shut down UpCodes failed. Instead of competing in the marketplace, ICC is wasting time with litigation over marketing copy.”

Both ICC and UpCodes told TechCrunch that they collaborate closely with jurisdictions to make sure codes are up-to-date.

Oncu said that ICC “works hand-in-hand with jurisdictions to publish custom codes. The Code Council receives approval from government officials from each jurisdiction that the code it posts is accurate before publishing a new or revised code.”

She added that a pre-motion letter by Gratz “misleadingly identified as ‘errors’ instances where the Code Council correctly published the custom code with the approval of the jurisdiction and then the identified provision was later amended.”

The Reynolds brothers said UpCodes uses a combination of tech and collaborating with building departments to find mistakes in the codes posted to their database. The startup’s algorithms identify potential errors in the code and the company has worked with building departments in California, Utah, North Dakota and New York City to modify and update codes in their database. For example, UpCodes worked with the California Building Standards Commission to identify missing or duplicated sections and printing errors.

“We have over a million sections of code. When someone points out an error, we can fix it immediately,” said Garrett. “It sounds obvious, but having a system and a team that can fix an error within hours and deploy that to the site, across one system, is a lot better than it was historically, when you got an update and had to print it out and staple it into a book.”

“Putting these codes together is an incredibly complicated process and we’re happy to help by leveraging our tech,” he added. “On the other hand, ICC would rather be a gatekeeper to the law rather than explore innovations in the industry. Codes only get more complex over time. We need new technology and innovations to keep up with the growing demands of these regulations.”

ICC vs UpCodes DecisionandOrder by TechCrunch on Scribd

Startups – TechCrunch

As VCs favor B2B startups, B2C upstarts’ venture activity falls

The Q2 2020 venture capital market did not bring a catastrophic slowdown to either the global private investment scene or the U.S.’s own VC scene. But inside the rosier-than-anticipated private capital results of the second quarter, there were pockets of weakness, and strength, that we should understand as we look to the rest of 2020 and the continuance of the pandemic-driven economy.

The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, and you can now receive it in your inbox. Sign up for The Exchange newsletter, which will drop Saturdays starting July 25.

This morning we’re exploring trends detailed in the PitchBook-NVCA Q2 venture report, adding to our coverage of similar data sets produced by competing venture and private business information sources CB Insights and Crunchbase.

The NVCA data provides a useful cross section of venture activity beyond the usual quarterly totals, allowing us to better understand the diverging fortunes of domestic venture investment into business-serving startups (which appear strong), and investments into consumer-serving startups (which appear weak).

It also provides a peek into AI/ML-focused investing, a topic that TechCrunch has covered extensively this year. And, finally, we have a lens into recent U.S. VC results for startups that have at least one female founder, or were founded by all-women teams.

Some of the news is positive, and some of it is less so. But we owe it to ourselves to understand all of it. So to wrap up our week’s dive into Q2 VC activity, let’s get into our final look at the data, focusing today on the nuances of the United States’s own venture results.

B2B’s rise continues

As 2019 came to a close, TechCrunch wrote about a notable trend: Seed investors shifted their attention from consumer-focused startups to business-focused startups. Seed deals had moved from majority-B2C to majority-B2B, in other words.

Startups – TechCrunch