Schools are closing their doors, but Opendoor isn’t

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

This week Natasha Mascarenhas, Danny Crichton and myself hosted a live taping at Disrupt for a digital reception. It was good fun, though of course we’re looking forward to bringing the live show back to the conference next year, vaccine allowing.

Thankfully we had Chris Gates behind the scenes tweaking the dials, Alexandra Ames fitting us into the program and some folks to watch live.

What did we talk about? All of this (and some very, very bad jokes):

And then we tried to play a game that may or may not make it into the final cut. Either way, it was great to have Equity back at Disrupt. More to come. Hugs from us!

Equity drops every Monday at 7:00 a.m. PT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Startups – TechCrunch

What a startup isn’t – the fun and sexy part!

So a local journalism student wanted to do a "day in the life" project on someone from our area. I volunteered as my business is going through a lot of change (we were retail primarily with ecommerce as an after thought-ish and now going to wholesale and smoother/more focused ecommerce). I thought it might be interesting since I'm back to startup mode, wearing all the hats and days are crazy.

Instead the student hears "chocolatier" and only wants to shadow on a production day. Absolutely not. My production days are intense and can't be interrupted. Besides, it's actually the most uninteresting part of the business, it's just following recipes I created quite a while ago.

After I say no and explain that another day is not only more feasible for me, but more interesting (to be fair, I'm a nerd for business), they write back saying they "respectfully decline if they can't sit in on a production day."

Ugh! Being a business owner of any sort means so much more than the fun and "glamorous" side, especially when you're in (or back in as in my case) startup mode. And not only that, it's incredibly more involved, interesting and exciting! Spreadsheets and sales meetings are intensely intriguing when you're risking it all!

Sorry, I guess there's not a lot of point to this point other than to vent to people who would hopefully understand. Product =/= business!

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Startups – Rapid Growth and Innovation is in Our Very Nature!

Boston’s Q2 shows that the startup rebound isn’t ahead of us, it’s upon us

The coronavirus caused some disagreement amongst Boston’s venture capital community. Looking back at our mid-2020 survey of its VCs, some saw the city’s strength in biotech and healthcare as a competitive advantage, while others saw Boston’s diverse startup ecosystem as key to its survival.

And some were worried that activity was about to clamp down. Jeff Bussgang, Flybridge Ventures, put it most frankly: “Q2 financing for Boston is going to fall off a cliff. The biotech industry may see some bright spots […] but the financing market has frozen up as solid as the Charles River in February.”

With fresh data in hand, it appears that the more bullish were more right than the bears and that, in a good turn of affairs for Boston startups, Bussgang was wrong.

The city, much like the country, did not see the sharply negative quarter that many anticipated. Boston posted record venture capital investment in the period, its highest total since at least Q3 2018 according to CB Insights data.

The same dataset also says that Boston-area companies raised $ 3.7 billion across 126 deals. Indeed, the good news from Boston’s Q1 bested better-than-anticipated-results from both the global venture capital community, and the domestic VC world in Q2.

Bussgang sent an updated metaphor to the TechCrunch team in response to this data: “It was a tundra in March and April but, as happens in Boston, April showers and May flowers kicked in and the financing markets started to gush again in the late spring/early summer, just in time to save Q2 .”

While the data isn’t historically definitive due to reporting lags, it can be used as a directional sign that Boston’s rebound isn’t ahead of us, it’s upon us.

The solid numbers are a sign that COVID-19 and economic turmoil have put many startups in greater demand than before, which means that they need to amass money to meet growth needs.

Startups – TechCrunch

DoubleDown is going public: Why isn’t its IPO worth more?

Agora isn’t the only company headquartered outside the United States aiming to go public domestically this quarter. After catching up on Agora’s F-1 filing, the China-and-U.S.-based, API-powered tech company that went public last week, today we’re parsing DoubleDown Interactive’s IPO document.


The Exchange is a daily look at startups and the private markets for Extra Crunch subscribers; use code EXCHANGE to get full access and take 25% off your subscription.


The mobile gaming company is targeting the NASDAQ and wants to trade under the ticker symbol “DDI.”

As with Agora, DoubleDown filed an F-1, instead of an S-1. That’s because it’s based in South Korea, but it’s slightly more complicated than that. DoubleDown was founded in Seattle, according to Crunchbase, before selling itself to DoubleU Games, which is based in South Korea. So, yes, the company is filing an F-1 and will remain majority-held by its South Korean parent company post-IPO, but this offering is more a local affair than it might at first seem.

Even more, with a $ 17 to $ 19 per-share IPO price range, the company could be worth up to nearly $ 1 billion when it debuts. Does that pricing make sense? We want to find out.

So let’s quickly explore the company this morning. We’ll see what this mobile, social gaming company looks like under the hood in an effort to understand why it is being sent to the public markets right now. Let’s go!

Fundamentals

Any gaming company has to have its fun-damentals in place so that it can have solid financial results, right? Right? [Editor’s note: A

Anyway, DoubleDown is a nicely profitable company. In 2019 its revenue only grew a hair to $ 273.6 million from $ 266.9 million the year before (a mere 2.5% gain), but the company’s net income rose from $ 25.1 million to $ 36.3 million, and its adjusted EBITDA rose from $ 85.1 million to $ 101.7 million over the same period.

Startups – TechCrunch

Why localized compensation in a work-anywhere world isn’t so simple

Last Thursday, Mark Zuckerberg told Facebook’s 48,000 employees that he expects upwards of 50% of the company will be working remotely within 10 years. After outlining many of the advantages that remote work confers — including to “potentially spread more economic opportunity around the country and potentially around the world” — he added that those who choose to move to other places in the U.S. or elsewhere will be paid based on where they live.

“We’ll localize everybody’s comp on January 1,” Zuckerberg said. “They can do whatever they want through the rest of the year, but by the end of the year they should either come back to the Bay Area or they need to tell us where they are.”

Facebook isn’t pioneering something entirely new. The concept of localized compensation has been around for some time, and it’s used by tech companies like GitHub that have primarily distributed workforces. Still, questions about whether it’s fair to pay employees based on their location are sure to grow as more outfits adopt remote-work policies.

Despite Facebook’s uncharacteristic transparency about its thinking, not everyone thinks the tactic makes sense.

One longtime Bay Area recruiter who typically focuses on executive searches calls “disparate pay for the same work” a “dangerous place to be.” Explains the recruiter, Jon Holman, “Even if you invoke the geographic disparity arithmetic based almost entirely on housing costs, what if a new openness to telecommuting means that more women or people of color can aspire to some of these jobs? Are you going to pay them less than the mostly white and Asian-American engineers in the Bay Area? I doubt it.”

Startups – TechCrunch

Mark Cuban: ‘Raising money isn’t an accomplishment, it’s an obligation’

Mark Cuban isn’t impressed that you’ve raised money.

“If you think the accomplishment is raising money first, we’re probably not gonna get along,” said Cuban in an Extra Crunch Live interview. “If your orientation is ‘I got to raise the money first,’ you don’t really have a company yet, and you really haven’t accomplished anything yet. […] Sweat equity is the best equity.”

We also got his take on today’s economy, the nation’s direction and his notes on what startups should do to survive in the new world. Happily, as we had an hour to chat, we managed to cover a lot of ground. The full conversation (YouTube) is after the jump, and we’ve excerpted a number of quotes for your perusal.

But up top we wanted to share Cuban’s notes regarding which companies should accept Paycheck Protection Program (PPP) funds from the Small Business Administration. The matter became a hot-button issue in and around Silicon Valley, where initial debate centered around which startups could access the money. After it became clear the first installment of PPP funds wasn’t going to last, whether startups should access to the capital at all became a question. Some venture-backed companies even decided to return their PPP check.

According to Cuban, when PPP was first put together, the market’s “perspective was that there’d be plenty of money for everybody. You know, people didn’t really want to do the math.” Cuban said that if there was $ 350 billion in the pot and one million small businesses, the fund would have worked out to $ 350,000 apiece. “Well guess what,” he said, “there are 30 million companies, [and] like 20 of them are independent contractors.”

Once you did the calculations again with that many companies eligible for PPP funds, you could tell that the money wasn’t going to last. So Cuban told firms that he’s invested in where he has sway to “either not apply or just pay it back immediately.” Why? “For the betterment of the country and the economy,” he said, adding that “if you do have access to capital” or “your business isn’t dramatically impacted [then] let’s leave [the PPP money] for the people who need it the most.”

As noted, the full video is below (you can join Extra Crunch here!), along with Cuban’s notes on startup advice during the pandemic, American 2.0 (and Marc Andreessen’s essay), AI, pre-seed companies, his future in politics and how to pitch him.

Mark Cuban on the record

How he’s advising portfolio companies during the pandemic:

So first and foremost, communicate. Second is be honest. Third is be transparent. And fourth is be authentic. Because everybody is nervous. Everybody is terrified at a certain level. So you just have to recognize that. People are going to need that honesty from you and people are going to want communications from you. That’s been the primary thing around what these companies should do.

Regarding cutting costs: Every business is different. On the smallest ones, they’re already grinding, and it’s typically dependent on the founder. I’ve really tried to encourage people to keep all their employees on if at all possible. That there’s gonna be a lot of change and that’s going to create a lot of opportunity. So, if you can hold on to your employees and push forward in any way, shape, or form, you may have an opportunity.

Startups – TechCrunch

Plantible raises $4.6 million seed round for an egg white replacement that isn’t aquafaba

When California announced a statewide lockdown, Tony Martens and Maurits van de Ven decided to stay put instead of heading home to Amsterdam.

So, the co-founders of Plantible bought two trailers and started living at their HQ: a two-acre duckweed farm in San Diego.

Plantible uses duckweed, a tiny aquatic leaf, to extract a plant-based protein ingredient that will eventually allow food companies to make animal-based products into plant-based products. The offering would be attractive to companies that make baked goods or protein powder, and thus use lots of egg whites as part of their creation process.

The startup is selling a whey or dairy protein replacement, and is still working on FDA approval.

“We are firm believers that whatever is in nature should be sufficient to provide humanity the ingredients they need,” said Martens from the office trailer.

The startup recently did a series of trials with companies, and Martens says that Plantible validated it can be a replacement with baking ingredient companies and plant-based meat sellers. But the startup is not limited to current use cases.

“If the sector we had our eyes on is taking a while, but sports nutrition is taking off really fast, we’ll go there,” said Martens. “We need to prove the feasibility of our company.”

The trailers where Plantible co-founders have sheltered in place amid COVID-19 lockdowns.

Plantible is entering a crowded space. Recently, aquafaba, the liquid made from a can of chickpeas, has regained popularity amid other quarantine cooking hacks. Martens says that aquafaba might recreate foaminess, but it doesn’t recreate gelation (or the sizzle and fry look that comes when you pour a real egg white into a hot pan). Plantible claims to offer an egg-white replacement with no compromises on texture or nutrition.

The startup also has some increasingly well-funded alternative protein competitors. Plantible’s closest venture-backed competitors are Clara Foods and FUMI Ingredients, as both try to create egg-white replacements. Clara Foods uses yeast, instead of chickens, to make egg whites, and similarly sells to businesses that use egg whites in large quantities for items like macaroons, angel food cake and protein powders. It has the backing of Ingredion, a global ingredients solution company.

Plantible needs to have a faster, cheaper and more scalable operation to beat its competitors. From a supply perspective, Plantible is in a good place. Duckweed doubles in mass every 48 hours and grows year-round. Plus, it is more digestible than pea, soy or algae, the company claims.

The real expense comes from the extraction process.

Right now, Martens admits, Plantible is “lab scale, and lab scale is really expensive.”

To bring costs down, the company just raised a $ 4.6 million seed round, co-led by Vectr Ventures and Lerer Hippeau. Other participants include eighteen94 Capital (Kellogg Company’s venture capital fund) and FTW Ventures.

Plantible co-founders Maurits van de Ven and Tony Martens (from left to right).

Through the new capital, Plantible claims it will be cost-competitive with egg whites. Currently, two pounds of liquid egg whites cost $ 8 to $ 10 dollars to make and sell for $ 15 to $ 20 dollars.

“In the end it is about developing a scalable and cost-competitive supply chain that produces a desired ingredient. Since it is very hard to compete with nature, we have decided to embrace it as much as possible by identifying a highly functional and nutritional enzyme,” he said.

“The more you can leverage nature, the more scalable you become,” he said.

As with any seed-stage alternative-protein company, the proof that Plantible has legs to succeed will be in sales and capacity to produce. And it’s not quite there yet.

Startups – TechCrunch

Why The Government is Isn’t a Bigger Version of a Startup

This article previously appeared in War On The Rocks

There was a time when much of U.S. academia was engaged in weapon systems research for the Defense Department and intelligence community. Some of the best and brightest wanted to work for defense contractors or corporate research and development labs. And the best startups spun out of Stanford were building components for weapon systems.

Indeed, Silicon Valley was born as a center for weapon systems development and its software and silicon helped end the Cold War.

During World War II the United States did something its adversaries did not; it enlisted professors and graduate students as civilians in 105 colleges and universities to build advanced weapon systems — nuclear weapons, radar, etc. After World War II, the military-academic relationship that was so effective against Germany and Japan mobilized to face the Soviet threat and almost every research university (Massachusetts Institute of Technology, Stanford, Caltech, Harvard, Columbia, Johns Hopkins, University of Michigan, University of Wisconsin, Cornell, University of Chicago, and many others) continued to engage in weapon systems research during the Cold War.

Unique among them was Stanford, which provost Fred Terman (the father of American electronic warfare and electronic intelligence in World War II)) built as a center of excellence in microwaves and electronics. Rather than focus the university inward on research, Terman took the radical step of encouraging Stanford professors and graduate students to start companies applying engineering to pressing military problems. The companies they started in the 1950s and 60s were based on Stanford’s defense contacts and contracts — microwave components, electronic warfare, and intelligence systems, and then the first wave of semiconductor companies. As there was no venture capital, these early startups were funded by early sales to weapon systems prime contractors and subcontractors.

But this quarter-century relationship between the military and universities ended with a bang in 1969. In the middle of the Vietnam War, student riots protesting military research forced the end of classified work on most college campuses. One of the unintended consequences was that many of the academics went off to found a wave of startups selling their technology to the military. For example, at Stanford after student riots in April 1969 shut down the Applied Electronics Laboratory, James de Broekert ,who was building electronic intelligence satellites, left the university and co-founded three Silicon Valley military intelligence companies: Argo Systems, Signal Science, and Advent Systems.

Within a decade, the rise of venture capital in Silicon Valley enabled startups to find commercial customers rather than military ones. And from then on, innovation in semiconductors, supercomputers, and software would be driven by startups, not the government.

After 9/11, with the memories of the fall of the twin towers, this ecosystem of military, academic, corporate, and startup actors coalesced for the decade as U.S. companies felt a patriotic duty to help their country defeat a common enemy.

But the 2013 Snowden revelations damaged that tenuous relationship yet again. In hindsight the damage wasn’t the result of what the United States was doing, but over the Pentagon’s inability and unwillingness to own up to why it was doing it: After the intelligence failure of 9/11, security agencies overcompensated by widespread, warrantless datamining as well as electronic and telephonic surveillance, including on U.S. persons.

Without a clear explanation of why this had been done, startups, which were already being funded by ever-increasing pools of venture capital, abandoned cooperation with the Defense Department and focused on high returns on social media and commercial applications. The commercial applications of big data, machine learning, artificial intelligence, drones, robotics, cyber, quantum computing, and biotechnology are the core foundations on which the Pentagon needs to build the weapons of the 21st century. Yet the development of these advanced technologies is now being driven by commercial interests, not the Defense Department.

America’s adversaries understand this. China is tightly integrating its defense establishment with startups, companies, and academia in “military-civilian fusion.” Russia, Iran, and North Korea have also fused those activities.

Reconstituting the tightly connected military-academic-commercial ecosystem that the Defense Department once had requires the Pentagon to relearn skills it once had, overcoming decades of avoiding the political and social issues of what it takes to rally the nation against a common threat. Today, every government agency, service branch, and combatant command is adopting innovation activities (hackathons, design thinking classes, innovation workshops, et al.) to tap into the creativity of a new generation of soldier — born into a digital world, comfortable with technology, and willing to improve and enhance America’s ability to fight and win.

The Government Can’t Act Like a Startup
However, those activities are not enough. The government isn’t a bigger version of a startup and can’t act like a startup does. Innovation activities in government agencies most often result in innovation theater. While these activities shape and build culture, they don’t win wars, and rarely deliver shippable or deployable products.

Startups dream in years, plan in months, evaluate in weeks, and ship in days. At times this means startups operate at speeds so fast they appear to be a blur to government agencies. It’s not that these companies are smarter than Defense Department employees, but they operate with different philosophies, different product development methodologies, and with different constraints.

The table below summarizes a few of the salient differences. Some of the most important are the least obvious. Startups can do anything. They can break the law and apologize later (as Uber, Airbnb, and Tesla did), but a government official taking the same type of risks can go to jail.

Urgency and risk-taking in a startup are integral parts of the culture, felt by 100 percent of early-stage employees. The urgency servicemembers feel on the battlefield is felt by few in government agencies, and most often there are negative incentives for risk-taking. In a startup cluster (Silicon Valley, Beijing, Tel Aviv) a failed entrepreneur is known as “experienced.” In a government agency, they’re likely known as being out of a job.

Innovation at speed is a given at a startup but the exception in a government agency. Advances in commercial technologies are occurring at no less than two, and up to ten, times the speed of comparable Pentagon-developed or acquired systems. Some of the speed is simply due to development methodologies. Waterfall development is still used by most defense contractors, resulting in updates of systems measured in years. With Agile development, used by all startups, updates can occur in weeks or sometimes days, or even hours. Some of the speed differences are because commercial companies and academics face Darwinian competitive pressures for revenue or recognition. These force rapid technical advances in fields such as machine learning, artificial intelligence, robotics, big data, and analytics.

The very definition of a contractor implies a contract. And a government contract starts with fixed requirements that only change with contract modifications. That makes sense when the problem and solution are known. But when they are unknown the traditional methods of contracting fail. Startups recognize that when new circumstances arise, they can pivot — make substantive changes to their products without any new contracts.Existing contractors have learned how to master the arcane defense acquisition system and live with the slow decision-making and payment processes. In some agencies, large contractors seem to “own” sections, offices, organizations, or programs. Often former government employees, at the level of GS-15 and below, will leave as staffers and return the next day working for large Beltway contractors, working or managing the same programs they previously worked. This relationship between government agency and contractor further impedes and often rejects innovation or disruption. Officers know they will likely lose their post-retirement future if they seek radical change.

This symbiotic relationship between government agencies and incumbent contractors is also a barrier to new entrants, in particular to startups with the very technologies the Department of Defense now needs. While the Pentagon has made efforts to reform the process (Other Transaction Authorities, TechFAR, mid-tier contracting, accelerators…) there is still a fundamental misunderstanding of what financial incentives would attract the best and brightest investors to guide their companies to work with the Defense Department. There are no incentives for prime contractors to invest in new ventures and none to acquire new ventures. And there is no plan for how to rapidly insert and deploy startup technologies into weapon systems.

So, the question is: What’s next? How do leaders in government think about and organize innovation in a way that makes a difference?

The answer is that, yes, government agencies need to be more agile. And yes, they need to fix the systemic internal issues that hinder their own innovators’ contributions. But, in addition, what they are missing is a comprehensive plan to build a 21st-century defense innovation ecosystem — reintegrating the military, academia, and private enterprise. To harness both their own internal innovators and this new external ecosystem the Defense Department needs what I call an innovation doctrine to organize their efforts to rapidly access and mobilize talent and technology. The Pentagon can build a mindset, culture, and process to fix this. This doctrine would let the country again capture the untapped power and passion of the best and brightest to leapfrog adversaries and win wars.

Steve Blank