Browsing Tag: Startups

F5 got an expensive holiday present today, snagging startup Shape Security for approximately $1 billion.

What the networking company gets with a shiny red ribbon is a security product that helps stop automated attacks like credential stuffing. In an article earlier this year, Shape CTO Shuman Ghosemajumder explained what the company does:

We’re an enterprise-focused company that protects the majority of large U.S. banks, the majority of the largest airlines, similar kinds of profiles with major retailers, hotel chains, government agencies and so on. We specifically protect them against automated fraud and abuse on their consumer-facing applications — their websites and their mobile apps.

F5 president and CEO François Locoh-Donou sees a way to protect his customers in a comprehensive way. “With Shape, we will deliver end-to-end application protection, which means revenue generating, brand-anchoring applications are protected from the point at which they are created through to the point where consumers interact with them—from code to customer,” Locoh-Donou said in a statement.

As for Shape, CEO Derek Smith said that it wasn’t a huge coincidence that F5 was the buyer, given his company was seeing F5 consistently in its customers. Now they can work together as a single platform.

Shape launched in 2011 and raised $183 million, according to Crunchbase data. Investors included Kleiner Perkins, Tomorrow Partners, Norwest Venture Partners, Baseline Ventures and C5 Capital. In its most recent round in September, the company raised $51 million on a valuation of $1 billion.

F5 has been in a spending mood this year. It also acquired NGINX in March for $670 million. NGINX is the commercial company behind the open-source web server of the same name. It’s worth noting that prior to that, F5 had not made an acquisition since 2014.

It was a big year in security M&A. Consider that in June, four security companies sold in one three-day period. That included Insight Partners buying Recorded Future for $780 million and FireEye buying Verodin for $250 million. Palo Alto Networks bought two companies in the period: Twistlock for $400 million and PureSec for between $60 and $70 million.

This deal is expected to close in mid-2020, and is of course, subject to standard regulatory approval. Upon closing Shape’s Smith will join the F5 management team and Shape employees will be folded into F5. The company will remain in its Santa Clara headquarters.

Source: Tech Crunch Startups | F5 acquires Shape Security for B

For many founders, building and selling a successful venture-backed company for cash is the ultimate goal. However, the reality is that some companies will instead receive an equity-funded acquisition proposal in which equity of another private venture-backed company, rather than cash, represents all or a significant portion of the purchase price.

Because all equity is not created equal, it is important for founders to understand how to negotiate for better equity in the context of such an acquisition proposal. This article explores what better equity looks like and some strategies founders can use to negotiate for that equity.

What is “better” equity?

To know what “better” equity is for the seller, it is necessary to understand what the “worst” and “best” stock is in the context an equity-funded acquisition by a private company buyer. The “worst” stock is plain common stock which does not enjoy any special rights and is subject to contractual restrictions which diminish its liquidity profile. Common stock sits at the bottom of the priority stack (after debt and preferred equity) in the event the company dissolves or is sold — thus, it is least valuable. Variations of transfer restrictions (e.g., a prohibition on private secondary sales) may further diminish the desirability of common stock by making it difficult or impossible for the holder to achieve liquidity outside of an M&A event or initial public offering (IPO).

In contrast, the “best” stock is (1) the acquirer’s most senior series of preferred stock, coupled with (2) additional contractual rights enhancing such stock’s liquidity profile. For our purposes here, we’ll call this “enhanced preferred stock.” All things being equal, founders and VCs should have a strong preference for enhanced preferred stock in an equity-funded acquisition for several reasons:

• Usually, the most senior series of preferred stock will enjoy a liquidation preference ensuring that a certain amount of proceeds (commonly equal to invested capital) from a sale of the company flow to stockholders of that series before proceeds are distributed to junior preferred and common stockholders.
• Unique contractual rights not shared by common stockholders, like special voting rights with respect to major events and transactions, unique information rights, pro rata investment rights with respect to future financings, rights of first refusal and co-sale rights, increase the stock’s relative value.
• Beyond the standard set of rights that are usually enjoyed by all preferred stockholders, additional contractual rights of and reduced restrictions on enhanced preferred stock make it more likely that the holder of such equity will achieve liquidity of some or all of its holdings prior to an M&A event or IPO. Such additional rights may include one or more of the following: time or event-based redemption rights (i.e., the right to force the acquirer to redeem equity at a specified price in the future), other liquidity rights tied to future financings or commercial transactions (e.g., the right to sell stock to the investors in the next equity financing), covenants of the acquirer to permit and support private secondary sales and registration rights (i.e., the right to force the acquirer to register stock with the SEC, thereby allowing for unrestricted resale by the holder).

“Better” stock lies somewhere on the continuum between the common stock and enhanced preferred stock poles, with the type of stock and bundle of rights associated with such equity determining its precise location. Additional contractual rights and reduced restrictions may significantly improve the desirability of common stock and perhaps place the holder in a better position than it would have been as a preferred stockholder. For example, a seller able to negotiate the right to sell a certain amount of common stock to investors in the acquirer’s next preferred stock equity financing could be more favorably positioned than the holder of senior preferred stock without any enhanced preferred rights.

Negotiating for better stock. With a framework for understanding what better stock means, below are several strategies sellers can employ in M&A negotiations to obtain better stock than that initially offered by the buyer.

Avoiding dire situations and preserving leverage. Leverage matters in every negotiation and any strategy that ignores this reality is doomed to fail. To state the obvious, the first strategy to negotiate for better stock in an equity-funded acquisition is the first strategy in preparing for any M&A event: companies should do all they can to avoid being in a dire fire sale situation when a buyer comes knocking on their door. If the seller is a failing company seeking a sale as a last ditch effort to avoid shutting its doors, even the best strategies may be useless in negotiation since as soon as the buyer says “no”, the seller will likely fold its hand and agree to the deal offered.

Source: Tech Crunch Startups | Negotiate for ‘better’ stock in equity-funded acquisitions

Coral is a company that wants to “simplify the personal care space through smart automation,” and they’ve raised $4.3 million to get it done. Their first goal? An at-home, fully automated machine for painting your nails. Stick a finger in, press down, wait a few seconds and you’ve got a fully painted and dried nail. More than once in our conversations, the team referred to the idea as a “Keurig coffee machine, but for nails.”

It’s still early days for the company. While they’ve got a functional machine (pictured above), they’re quite clear about it being a prototype.

As such, they’re still staying pretty hush hush about the details, declining to say much about how it actually works. They did tell me that it paints one finger at a time, taking about 10 minutes to go from bare nails to all fingers painted and dried. To speed up drying time while ensuring a durable paint job, it’ll require Coral’s proprietary nail polish — so don’t expect to be able to pop open a bottle of nail polish and pour it in. Coral’s polish will come in pods (so the Keurig comparison is particularly fitting), which the user will be able to buy individually or get via subscription. Under the hood is a camera and some proprietary computer vision algorithms, allowing the machine to paint the nail accurately without requiring manual nail cleanup from the user after the fact.

Also still under wraps — or, more accurately, not determined yet — is the price. While Coral co-founder Ramya Venkateswaran tells me that she expects it to be a “premium device,” they haven’t nailed down an exact price just yet.

While we’ve seen all sorts of nail painting machines over the years (including ones that can do all kinds of wild art, like this one we saw at CES earlier this year), Coral says its system is the only one that works without requiring the user to first prime their nails with a base coat or clear coat it after. All you need here is a bare fingernail.

Coral’s team is currently made up of eight people — mostly mechanical, chemical and software engineers. Both co-founders, meanwhile, have backgrounds in hardware; Venkateswaran previously worked as a product strategy manager at Dolby, where she helped launch the Dolby Conference Phone. Her co-founder, Bradley Leong, raised around $800,000 on Kickstarter to ship Brydge (one of the earliest takes on a laptop-style iPad keyboard) back in 2012 before becoming a partner at the seed-stage venture fund Tandem Capital. It was during some industrial hardware research there, he tells me, when he found “the innovation that this machine is based off of.”

Vankateswaran tells me the team has raised $4.3 million to date from CrossLink Capital, Root Ventures, Tandem Capital and Y Combinator . The company is part of Y Combinator’s ongoing Winter 2020 class, so I’d expect to hear more about them as this batch’s demo day approaches in March of next year.

So what’s next? They’ll be working on turning the prototype into a consumer-ready device, and plan to spend the next few months running a small beta program (which you can sign up for here.)

Source: Tech Crunch Startups | Coral raises .3M to build an at-home manicure machine

Hello and welcome back to our regular morning look at private companies, public markets and the grey space in between.

Today, we’re weighing a standard bit of startup wisdom that recently reemerged against some surprising, contrasting evidence. Does too much money hurt a startup more than it helps, or is that standard view actually mistaken? We’ll start with the traditional view, which was re-upped this month by venture capitalist Fred Wilson, along with some supporting arguments proffered by a Boston-based venture firm.

Afterwards, we’ll dig into a grip of contrasting data that should provide plenty to chew on over the holidays. Ready?

Fit to burst

Union Square Ventures‘ Fred Wilson wrote earlier in December (citing an excellent Crunchbase News piece by occasional TechCrunch contributor Jason D. Rowley) that he was curious if startups that raise huge ($100 million and greater) early-stage rounds do better or worse than their cohorts that raised only smaller sums.

Underpinning his question is Wilson’s belief that “performance of VC backed companies is inversely correlated to how much money they raise.” This makes good sense. And if anyone has enough anecdotal evidence to support the view, it’s Wilson who has been a venture capitalist since the late 1980s.

The idea that too much money is bad for startups isn’t hard to understand: startups need to focus and run fast; too much money can lead to both bloated operations, diffuse product direction and useless dalliances in cruft.

Startups also die when they have too little money, of course. But the concept that there is a midpoint between insufficient funds and an ocean of capital that is optimal has lots of credibility amongst the venture class. (I believe this is my favorite phrasing of the concept, that “more startups die of indigestion than starvation.”)

A 2016-era TechCrunch article written by some of the folks from Founders Collective makes the point plainly:

By examining the technology IPOs of the past five years, we found that the enriched (well capitalized) companies do not meaningfully outperform their efficient (lightly capitalized) peers up to the IPO event and actually underperform after the IPO.

Raising a huge sum of money is a requirement to join the unicorn herd, but a close look at the best outcomes in the technology industry suggests that a well-stocked war chest doesn’t have correlation with success.

In the spirit of fairness, I’ve long agreed with the above views.

My views on the question of too much money ruining organizations came from a different field, but are worth sharing for context. My father once told me an analogous story about a small poetry magazine, a publication that operated on the proverbial shoestring and was always weeks away from shutting down. But it limped along, barely keeping the lights on as it produced brilliant work.

Then, someone died and left the magazine a pile of money in their will — but the sudden influx of capital wrecked the publication and it eventually shut down.

In many cases, raising too much money too early can hurt a team or cause it to lose track of its mission. But for tech startups, on average, is that really correct?

Maybe not

Source: Tech Crunch Startups | Do more startups die of indigestion or starvation?

Ripple has raised a $200 million Series C funding round. Tetragon is leading the round, with SBI Holdings and Route 66 Ventures also participating. According to Fortune, the company is now valued at $10 billion.

“We are in a strong financial position to execute against our vision. As others in the blockchain space have slowed their growth or even shut down, we have accelerated our momentum and industry leadership throughout 2019,” Ripple CEO Brad Garlinghouse said in the announcement.

The startup has been focused on improving cross-border payments and other money-transmitting activities using XRP, a cryptocurrency that has its own blockchain, the XRP Ledger. The total market capitalization of XRP tokens is currently the third-largest cryptocurrency market capitalization behind bitcoin and Ethereum.

It is currently worth $8.4 billion according to CoinMarketCap. While XRP is a decentralized cryptocurrency, Ripple controls a significant chunk of the total market cap. That reserve is valuable by itself. During the third quarter of 2019, Ripple sold $66.24 million in XRP tokens.

Ripple believes that cryptocurrencies (and XRP in particular) could be a great way to facilitate cross-border transactions. It has the potential to be both cheaper and faster than traditional foreign exchange solutions.

The company has been trying to convince financial institutions to switch to RippleNet as the back-end currency for international payments.

RippleNet now has 300 customers. In particular, Ripple took a 10% stake in MoneyGram to help them switch to RippleNet, at least in part.

Source: Tech Crunch Startups | Ripple raises 0 million to improve global payments

Burst, the subscription dental care service, with the pretty, pretty toothbrushes, has now added a sleek dental floss product to its monthly kits.

The Los Angeles-based dental hygiene company, which has raised at least $20 million in financing from the growth capital investment firm Volition Capital, takes a different approach to reaching consumers than competitors like Quip.

Burst works hand-in-hand with a network of dental hygienists and dental professionals both as a channel to sell through and a sounding board for new product development. The company’s dental health professionals who are part of its sales channel now totals more than 20,000 people. Burst shares profits with these channel partners and has distributed about $3.5 million through the program.

Indeed, it was through the network of experts that the company arrived at the design for its dental floss.

“While there was a clear gap in the market for an affordable but effective electric toothbrush, our incredibly strong partnership with dental professionals has been key to the success of Burst,” said Brittany Stewart, COO of Burst. “From development and testing, to sharing our products with their network, Burst’s Ambassadors have been part of the team every step of the way. We’re proud to have fueled a grassroots movement of independent dental professionals who are just as passionate as we are about modernizing a tired industry.” 

The new product is a $12.99 mint-eucalyptus-flavored, charcoal-coated dental floss that expands between teeth. Burst’s floss comes in a case for replacement bobbins, which can be delivered to a customer’s door for $6.99 per month.

“When we first met the founders of Burst, we immediately recognized they were tapping into something special in an industry that was ripe for disruption,” stated Larry Cheng, managing partner and co-founder of Volition Capital. “We were inspired by their vision and wanted to support the growth trajectory they were already on, capitalizing on their key strengths, such as product development and the Ambassador network, while identifying further opportunities.” 

Source: Tech Crunch Startups | Burst adds a super high-tech dental floss to its dental care offerings

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

This week Kate was in SF, Alex was in Providence and there was a mountain of news to shovel through. If you’re here because we mentioned linking to a certain story in the show notes, that’s here. For everyone else, let’s get into the agenda.

We kicked off with a look at three new venture funds. In order:

• Tusk Ventures: Tusk’s new fund, worth $70 million, is an effective doubling of its prior fund’s $36 million size. The politically savvy firm has put money into Coinbase, and other companies that deal with regulated industries.
• Sapphire Ventures: SAP’s former corporate venture fund Sapphire Ventures announced a whopping $1.4 billion fundraise this week. Sapphire may be one of or the most successful CVC spinouts to date.
• Moxxie: Katie Jacobs Stanton, known for co-founding #ANGELS, just closed her debut fund on $25 million. Kate chatted with her about her experience fundraising her very own fund, some of her previous investment and her plans for Moxxie Ventures, so there was plenty to unpack here.

From there we turned to the gender imbalance in the world of venture capital. This year, companies founded by women raised only 2.8% of capital. These not-so-stellar statistics are always worth digging into.

We then took a quick look at two different venture rounds, including ProdPerfect’s $13 million Series A and Pepper’s smaller $5.6 million round. ProdPerfect’s round was led by Anthos Capital (known for investing in Honey, which sold for $4 billion). The company has $2 million in ARR and is growing quickly. Pepper, formed by former Snap denizens, is working to help other startups lower their CAC costs in-channel. Smart.

And finally, Alex wanted to bring up his series on startups that reach the $100 million ARR threshold (Extra Crunch membership required). A first piece looking into the idea led to a few more submissions. There seem to be enough companies to name the grouping with something nice. Centurion? Centipede? Centaur? We’re working on it.

Source: Tech Crunch Startups | Centaurs, centurions, centipedes: the 0M ARR CLUB

The Midwest may not be known as the fashion capital of the world (or even the U.S.), but its place in the consumer retail firmament is secure through L Brands and its Victoria’s Secret and Bath & Body Works subsidiaries.

Now, venture investors are investing $17.3 million to establish another tent-pole clothing brand in the region, with a new commitment to the St. Louis-based clothing brand Summersalt.

Founded by a former Washington University design professor and swimwear designer, Lori Coulter, and a marketing and branding consultant, Reshma Chattaram Chamberlin, Summersalt launched in 2017 with a line of direct-to-consumer swimwear.

In the past two years, the company has expanded beyond its $95 swimsuits to include cashmere sets, packable jackets and wrinkle-free pants.

Initially backed by the Rise of the Rest Seed Fund, backed by AOL founder Steve Case’s Revolution investment fund, the company has gone on to attract capital from Founders Fund, Lewis and Clark Ventures and Victress Capital .

The latest round was led by Mercato Partners, a Utah-based venture capital firm.

“We could not be more thrilled with the opportunity to lead Summersalt’s latest funding found, and partner with two passionate founders who have a clear vision, are mission driven and have a track record for accelerated performance,” said Joe Kaiser, a director with Mercato Partners, in a statement. “The product, brand, team and the incredible consumers make for a winning combination.”

Summersalt calls its line of clothing “travel wear” and used its footprint in the swimsuit market to expand its reach with other items that could be taken on trips to less-sun-drenched parts of the world.

“We are building a generation defining travel brand that goes beyond swimwear and apparel to create a community of curious women who love to explore,” said Coulter, the company’s president and chief executive in a statement. “Our unparalleled experience in apparel, deep supply chain expertise and fit-technology will  be at the foundation as we continue to scale and build a brand with highly profitable unit economics.”

Source: Tech Crunch Startups | St. Louis-based Summersalt raises .3 million for its direct-to-consumer clothing line

Lenskart, an omni-channel retailer in India that sells eyewear products, said on Friday that it has raised $275 million in a new financing round from SoftBank Vision Fund as it looks to expand its business in the nation.

As part of the new financing round — dubbed Series G — some of the nine-year-old startup’s existing investors are selling their stake, said Peyush Bansal, founder and chief executive of Lenskart in an interview with TechCrunch. He did not name the investors, though.

SoftBank Vision Fund’s investment pushes Lenskart’s all-time raise to $456 million. A person familiar with the matter told TechCrunch that the new round values Lenskart at over $1.5 billion.

The nine-year-old startup, which began as an e-commerce service to sell spectacles, contact lenses and eye care products, has expanded to brick and mortar stores in recent years. Today, the startup has presence in over 500 stores across more than 100 cities in India, it said. Online sales still account for more than 60% of the startup’s overall revenue, however.

Bansal said the startup will use the fresh capital to improve its technology infrastructure and supply chain. “We are thrilled to have SoftBank Vision Fund with us in our journey. Their understanding of consumer and technology will help us build the next edition of Lenskart,” he said.

According to industry estimates, more than half a billion people in India are affected by poor vision and need eyeglasses, but only 170 million of them have opted to get their vision corrected.

Lenskart said it sees immense potential in growing within India, especially in smaller towns and villages that don’t have many trained optometrists. To reduce the friction, it offers free eye inspection tests to all potential customers. It also lets users book a couple of glasses and try them at home before committing a purchase. On its website, the startup uses a 3D AI model to allow users to check how different pairs of glasses would look on their face.

According to research firm Euromonitor International, India’s eyewear market is worth $4.6 billion — much of which remains unorganized.

Source: Tech Crunch Startups | SoftBank Vision Fund invests 5M in India’s Lenskart

Curve, the so-called “over-the-top” banking platform that lets you consolidate all of your bank cards into a single Curve card and app, is launching new feature to make it possible to send money to friends and contacts.

Dubbed “Curve Send,” the feature lets you send money from any of your bank accounts (via the debit cards you have linked to Curve) to any other account in over 25 different currencies. It does this by utilising the APIs of Visa and Mastercard, essentially turning the card networks into a single money transfer network via Curve as the intermediary.

“Curve Send instantly solves people’s problem of financial fragmentation by consolidating all their cards into one, eliminating the lengthy money transfer process experienced by most customers when they want to send money to their friends or peers using multiple bank accounts or multiple currencies,” says the London-based fintech.

To transfer money via Curve Send, you simply open the Curve app, choose a contact and amount, and then select which of your linked bank cards you want to send the money from. The recipient will then get notified and be asked to take a photo of their bank card, and Curve will send the money directly to their bank via the card network.

Curve says it doesn’t charge fees for sending or receiving payments via Curve Send. It will also handle FX, too, at a claimed “mid-market” rate with no fees (capped at £500 per month for Curve users on its free plan, and unlimited for Curve Black and Curve Metal).

In a brief email exchange with Curve founder and CEO Shachar Bialick, he said that “Curve is basically operating like an exchange” in that it brings Visa and Mastercard together, with Curve powering communication between the two card networks for peer-to-peer payments. “We’ve done tests for the past two months and people love it,” he says.

Adds Diego Rivas, Curve’s Head of OS Product, in a statement: “Customers want to send money to their friends and family with just a few touches. But with so many different options and the rise of challenger banks, the process is unnecessarily complicated and customers end up having 3-4 apps just to send money. We wanted to make this whole process ten times easier for our customers. Now they have one simple, smart platform which can move money from any account to any account, securely and fee free”.

Source: Tech Crunch Startups | Curve, the ‘over-the-top’ banking platform, launches “Curve Send” for P2P payments in 25 currencies