When Keith Rabois announced he was leaving Founders Fund to return to Khosla Ventures in January, it came as a shock to many in the venture capital ecosystem — and not just because Rabois is a big name in the industry. It was surprising because unlike in many other fields, venture capitalists don’t traditionally move […]
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Scarcely five months after its founding, hard tech startup Layup Parts has landed a $9 million round of financing led by Founders Fund to transform composites manufacturing. Lux Capital and Haystack also participated. The breakneck pace is more than a subtle indication that investors’ appetite for tech-focused solutions to the woes of the American industrial base […]
© 2024 TechCrunch. All rights reserved. For personal use only.
When Keith Rabois announced he was leaving Founders Fund to return to Khosla Ventures in January, it came as a shock to many in the venture capital ecosystem — and not just because Rabois is a big name in the industry.
It was surprising because unlike in many other fields, venture capitalists don’t traditionally move around very much — especially those that reach the partner or general partner level as Rabois had.
VC funds have 10-year life cycles and partners have good reason to stay that course. In some instances, they may be a “key man” on a firm’s fund meaning that if they leave, the fund’s LPs have the right to pull their capital out if they choose. Many partners and GPs also have some of their own money invested in their firms’ funds which gives them further reason to stick around.
So, while big-name investor moves in venture capital aren’t common, they seem to have become so in recent months. So far this year, there have been notable instances of investors returning to old firms, striking out on their own or taking a pause from investing entirely.
Just today, Vic Singh, one of the co-founders of Eniac Ventures announced he was stepping down from the firm he helped launch in 2009 to launch his own.
Singh joins a growing list of VCs who have left firms recently:
Although many students in the United States enter community colleges intending to transfer to four-year universities, only 16% of those students receive bachelor’s degrees within six years. But Campus, an online alternative to traditional community colleges, has an approach that aims to change that.
Many adjunct professors at the nation’s top universities, including UCLA, Princeton and NYU, earn such low salaries that a quarter of them qualify for some form of government assistance. At the same time, the cost of education has been skyrocketing.
“I got obsessed with the idea of giving everybody access to these amazing professors” at a price that most students can afford, said Campus founder Tade Oyerinde.
Investors seem to be obsessed, too: The company announced Tuesday that it raised a $23 million Series A extension round, led by Founders Fund, with 8VC participating.
Campus has hired adjunct professors who are also currently teaching at colleges like Vanderbilt, Princeton and NYU, paying them $8,000 a course, which is much higher than the national average. The cost of attending Campus is $7,200 a year; it’s fully covered for students who qualify for federal Pell Grants, allowing about 40% of the college’s students to study for free.
All students are provided with a laptop, Wi-Fi and access to tutors. They’re paired with coaches who are tasked with making sure that everyone stays on track. Enrollment has been growing fast, according to Oyerinde. Students want to be a part of something modern and new, he said, and they think of Campus as a trampoline into a four-year program.
Last year, Campus raised a $29 million Series A, led by Sam Altman and Discord founder Jason Citron. Solo VC Lachy Groom, Bloomberg Beta, Founders Fund, Reach Capital and Precursor Venture also participated. Earlier this year, the company caught Shaquille O’Neal’s eye, and the basketball star topped up that round.
Most of the capital from Campus’s first Series A installment went toward purchasing a physical college in Sacramento. While most students study online and are based throughout the country, the community college now offers in-person courses in phlebotomy, medical assistance and cosmetology.
The capital from Founders Fund-led Series A extension, which Campus is announcing on Tuesday, will be used to fuel growth.
The firm boosted its stake in Campus — Founders Fund’s first edtech bet — due to the company’s scalable tech platform, said partner Trae Stephens.
“I think the structure is kind of a hack,” he said. “You can get the cost low enough that there are no out-of-pocket costs. That’s very hard to do when there are overhead costs attached.”
Perhaps this is why VCs have historically avoided backing traditional academic institutions.
For now, each class has on average 75 students and three teacher assistants. While Oyerinde didn’t say whether professor to student ratios will increase as enrollment numbers grow, he emphasized that Campus’ margins look like those of a tech business.
The company is very mindful of for-profit colleges’ dark past. In 2019, University of Phoenix, a private university, agreed to pay a $50 million fine and forgive $140 million in student fees, following a five-year investigation by the Federal Trade Commission into the company’s misleading claims about job opportunities available to its students.
“Campus is not going to saddle students with tons of debt. I don’t think this is good for the U.S. economy,” Stephens said. “We’re going to do this in a way that aligns with the goals of the Federal Pell grants.”
Oyerinde says the company is squarely focused on making sure that the cost of education is low (or nothing) and that students graduate.
Campus faces a surprising challenge: finding the coaches. While attracting professors (with a long waitlist) and students is simple, the company needs coaches who encourage students to stick with their education.
“If we need engineers or marketing people. That’s easy,” Oyerinde said. “But there’s not a pool of people who’ve done this particular role of building deep relationships, motivating people consistently for multiple years on end.”
Pomelo, a startup that combines international money transfer with credit, has raised $35 million in a Series A round led by Dubai venture firm Vy Capital, TechCrunch has exclusively learned. Additionally, the company is announcing a $75 million expansion of its warehouse facility.
Founders Fund and A* Capital also participated in the financing, along with early investor Afore Capital, and others.
The deal brings total funds raised to date to $55 million in equity capital and $125 million for its warehouse facility. TechCrunch covered Pomelo’s Founders Fund-led $20 million seed funding in 2022.
New backer Vy Capital is an under-the-radar investment firm that has grown to over $5 billion in assets and made headlines for backing Elon Musk in his purchase of Twitter.
Pomelo’s new round was among Keith Rabois’ last deals before recently leaving Founders Fund for Khosla Ventures, and he continues to sit on its board.
“Both Keith Rabois and Kevin Hartz went super pro rata on this round,” Pomelo founder and CEO Eric Velasquez Frenkiel said in an interview with TechCrunch, describing the Series A round as “preemptive.” He declined to reveal valuation, saying only it was an “up round.”
Hartz serves as the co-founder and general partner at A*. Previously, he also co-founded Eventbrite and Xoom, an online money transfer service that went public in 2013 and was acquired by PayPal for $1.1 billion in 2015.
In a written statement, Rabois said that “Pomelo stands out through a fundamentally different approach to remittance transfer by using credit as its foundation.”
Pomelo launched in the Philippines in 2022, allowing people in the United States to send money to the country while at the same time building their credit. In other words, Pomelo has built a remittance product on credit card rails.
Specifically, the startup has struck up an agreement with Mastercard to create what it describes as a product category called “Send Now, Pay Later” (SNPL), which it claims is “faster and with no transfer fees” as compared to traditional cross-border money movement.
Image Credits: Pomelo
Pomelo works by allowing a user to set up an account that comes with credit cards. The creator of the account can set limits, pause cards and view spending habits.
Senders can give cash, in the form of credit, to family members — which the startup thinks will help with instant access to funds, fraud and chargeback protection and, for potential immigrants that may use this to send money back home, a way to boost one’s credit score with more transaction history. In the event that someone cannot pay, Pomelo charges a late fee, “so there is no interest on the product,” Frenkiel said. The company makes money mostly through interchange revenue, and foreign exchange is a smaller component.
Since its 2022 launch, Pomelo has added new payment options including most recently, the ability for users to send funds to GCash, a popular e-wallet (similar to Venmo in the U.S.) in the Philippines, in addition to cards. (According to a recent article by STL Partners, 67% of Filipinos use GCash.)
This ability is particularly important in a country like the Philippines where proof of ability to pay can be required before medical treatment, Frenkiel said. He relates the story of customer Danette Flores, a nurse who sends money to two family members in the Philippines with Pomelo.
“My mom had suffered a heart attack, and she needed to be transferred to the ICU, but the hospital required proof of payment for that. My brother used his Pomelo Card to get her admitted,” Flores said.
Pomelo offers customers two options: either an unsecured credit line or a secured credit line based on its underwriting criteria at this time. The non-revolving credit line for unsecured customers gives them the ability to transfer up to $1,000 a month. On the secured side, a customer can put in a security deposit. In other words, Pomelo can hold funds in the app that effectively can be used to open a credit line.
The startup’s new capital will go toward product and market expansion. Pomelo’s next target country is Mexico.
“Mexico is certainly the largest corridor for the United States — something close to $40 billion is sent over to Mexico every year,” Frenkiel said.
Presently, Pomelo has 55 employees in the U.S. and Philippines.
As Christine Hall recently reported, cross-border fintech is hot right now. The cross-border payments market is forecasted to reach over $250 trillion by 2027, according to the Bank of England. And experts say fintechs are giving banks a run for their money (pun intended) here, especially in the business-to-business sector where artificial intelligence, machine learning and blockchain come into play — all emerging technologies fintechs love.
But there are other startups focused on the consumer market, including Alza, a startup aimed at helping meet the various banking needs of Latin or Central Americans who have moved to the U.S. With Alza, users get an FDIC-insured checking account and debit card. They also get the ability to send cross-border remittances to more than 20 countries in Latin or Central America embedded in its app via three methods, depending on the recipient country: bank transfer, cash pickup or transfer to a debit card. That company quietly raised $6.6 million in a round led by New York-based Thrive Capital in late 2021.
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Last week, TechCrunch broke the news that the workforce management software outfit Rippling was on the cusp of closing a new, $200 million round of funding at a hefty $13.4 billion valuation led by Coatue. We also reported that the round featured a separate, $670 million secondary component meant to give some of the company’s investors a bigger bite of the company, while letting Rippling’s employees – some of whom joined at the outset in 2016 – cash out some of their shares.
Rippling declined to comment at the time, but in an interview Friday afternoon, founder Parker Conrad confirmed our information, adding that the secondary component is actually a $590 million tender, with $200 million available for employees and $390 million available for seed and other investors.
The round, Rippling’s Series F, is also almost entirely an inside round. Coatue is an earlier investor in Rippling, along with other backers in this round that have been investing all along, including Founders Fund and Greenoaks. The only new member on the cap table is Dragoneer, a growth-stage investment firm in San Francisco.
Of course, we were interested in much more than Rippling’s new fundraise, so while we had Conrad on the phone, we talked turnover. We discussed the company’s new office lease in San Francisco (right now, it’s the second-biggest lease to be signed this year in the city). Conrad also shared why Rippling is relatively “free” of AI. Later this week, you can hear that full conversation in podcast form; for now, excerpts of that conversation follow, edited for length.
So why raise this money?
Honestly, it started out as just an employee tender. We wanted to find a way to get some liquidity for early employees, so we went to market, looking really to do about $200 million for employees that wanted to sell some stock. [But] we got a lot of investor interest, so we expanded it first to include a small amount of primary [capital] – mostly as a way to get more ownership for investors that were looking to buy more – and then beyond that, we ended up expanding into seed investors as well.
What does this secondary sale say about your plans to eventually go public? An IPO is a little bit in the distance?
I definitely think it’s a bit in the distance, but it’s not like a way of delaying [anything]. If anything, it’s probably nice if there are people who want to buy a house or [want more cash] because life happens. It’s great to relieve some of that pressure before you go public so that you don’t have tons of people selling as soon as they can in the public markets.
Is this the first time employees have been able to sell some shares?
It’s not. We did something in 2021. But it was smaller and the company was smaller, and it was a long time ago.
Do you worry about employees leaving after cashing out?
One of the things that we talked about internally when we launched it was, we said, ‘Look, the first rule of an employee tender is that you don’t talk about the tender internally or publicly.’ We don’t want to see anyone spiking the football, or something like that. And the second rule of the employee tender is, ‘see the first rule.’ This is a very private, personal thing, and I’m thrilled for everyone [participating]; if this makes a difference in [their] life, that’s great. But it’s not the destination. The game’s not over.
How do you feel about turnover more generally? Some people don’t like to see it; other managers think it’s for the best. Elon Musk seems to be a fan, given the rate at which he turns over his executive team at Tesla.
The executive team at Rippling has been remarkably stable for a long time. A lot of the people on the team are people who I originally hired for those roles. Some of them are people I have long work histories with, even before this company. And certainly I always like to keep people. I mean, every once in a while, there’s an early Rippling employee who leaves the company, and I find it always just emotionally really sad when that happens, even if the company is going to be fine and they want to do something else or, you know, in some cases just kind of hang out. On a personal level, that’s always very difficult for me.
You newly leased 123,000 square feet in San Francisco for local employees, who are now back three days a week. How did you settle on that policy, and do you worry about retention or hiring?
We just think there’s an enormous amount of value of people being in the office together. We were never a company that was going remote. When we went remote temporarily during the pandemic, we said, this is for three weeks, and then we’re going back to the office. Of course, it was unfortunately a lot longer than that, but we were back in the office as soon as we could be. I think it’s possible for some companies to be fully remote, but it’s sort of like playing the game on hard mode. I think it’s a lot easier if people can get together in person; you get a lot done.
In the meantime, workforce management software is super crowded. You’re going up against a company that you famously co-founded and ran, Zenefits. There’s Paycor, Workday, Gusto, to name a few . . .
The weird thing is that Rippling is not actually a [human capital management] HCM company. Everyone who has been building business software believes that the way to build the best business software is to build these extremely narrow, focused deep products. And I think it’s completely wrong. I think the way you build the best business software is to build a really broad product suite of deeply integrated and seamlessly interoperable products. Yes, we have a very strong HR and payroll suite, but we also have an IT and security suite; we have a spend management suite, where we do things like corporate cards and bill pay and expense reimbursements. Actually, we’re using the primary capital that we raised in this round to fund the R&D efforts for a new, fourth cloud that we intend to launch in a completely different area.
The classic example of a company that builds software in this way is Microsoft. Microsoft is the like the OG of compound software businesses.
Speaking of Microsoft, what is your “AI strategy”?
We are a company that is relatively free of any AI products right now. There’s some stuff that we’re working on. But I am always very skeptical of things that are, like, super trendy in Silicon Valley. So I can tell you what [our AI strategy] is not. I’m super skeptical of these chatbots. I don’t think anyone wants to chat with their HR software.
I have to ask about a tweet related to our story about your new round. I saw [Benchmark general partner] Bill Gurley chimed in that “Anti-focus ain’t cheap.” I wasn’t sure if that was laudatory or a dig. Do you know?
I assume given that it came from Bill that it’s a dig. And he’s not wrong that taking this opposite approach is expensive, particularly on the R&D side. If you look at Rippling financially, the thing that really stands out is how we spend on R&D. If you compare us to other HCM competitors – because you talked about the crowded HCM space – they spend an average of 10% of their revenue on R&D. Next year, Rippling is going to spend as much on R&D as [three rival companies] combined, and we have a much lower revenue footprint than the three. It’s definitely true that there’s a huge upfront investment phase in building what we’re building that obviously over time, as a percent of revenue, should come down. So he’s not wrong, but it’s a very explicit part of our strategy. What Bill might not totally understand is the benefit that you get from building software in this way; much higher upfront R&D costs [later result in] much higher sales and marketing efficiency.
Has Bill ever done business with you?
No, I’ve never met Bill. He’s sort of a constant, low-grade antagonist, but I’ve never actually met him.
I know he doesn’t get along very well with Marc Andreessen.
Then Bill and I have that in common. Maybe we should meet up and grab a beer over that particular thing.
Former senior SpaceX executive Tom Ochinero is teaming up with SpaceX alum-turned-VC, Achal Upadhyaya, and one of Sequoia’s top finance leaders, Spencer Hemphill, on a new venture called Interlagos Capital, TechCrunch has learned.
There is little public information available about Interlagos, and the trio did not respond to TechCrunch’s request for comment. The company was formally incorporated in the state of Delaware on March 7, and it was registered as an out-of-state company with the state of California only days ago on April 11. Ochinero, Upadhyaya and Hemphill are all listed on the documents. The principal address is in El Segundo, California.
A trademark application for “Interlagos” was filed with the U.S. Patent and Trademark Office on April 4. That application lists an address identical to the one found on the company’s business registration. The application states that the company will deal in “venture capital services; venture capital funding services, namely, providing financing to emerging and start-up companies.”
Ochinero departed from SpaceX in February after a nearly ten-year stint at the company, where he eventually became senior vice president of commercial business. In that role, he helped SpaceX grow into the undisputed global lead in commercial launch. People familiar with the matter told CNBC at the time that Ochinero was resigning “to attend to a family medical matter.”
With Interlagos, he is teaming up with another SpaceX alum — Upadhyaya — who spent a decade in engineering roles at SpaceX before joining investment firm Cantos as a venture partner in 2022. He left sometime this year, according to his LinkedIn. At Cantos, Upadhyaya’s bets included satellite bus manufacturer Apex Space and motion control system developer Salient Motion, both startups headed by ex-SpaceX founders.
Spencer Hemphill, a finance executive, is rounding out the team. He’s coming from Sequoia, where he also spent ten years. He also departed sometime this year, leaving the firm as assistant controller.
Ochinero is just the latest SpaceX executive to move from the behemoth space company into venture investing. It’s popular enough for people to leave SpaceX to found other companies or invest in them that there’s a website dedicated to connecting the two groups. Other notable investors in the SpaceX-to-VC pipeline include Founders Fund’s Scott Nolan, who was a very early SpaceX employee, and Alpine Space Ventures’ Bulent Alton.
Late stage HRtech startup Rippling is raising new capital. The company’s new round, which has not yet closed, would inject $200 million into Rippling with another $670 million worth of shares being sold by existing stockholders, according to two people familiar with the deal.
This will be Rippling’s Series F, and could raise its valuation to as high as $13.4 billion on a post-money basis, up from the $11.25 billion valuation it reached when it last raised capital in a $500 million Series E just a year ago. Rippling had raised $1.2 billion total previous to this round.
Reached earlier today, a Rippling spokesperson declined to comment.
Rippling’s last round came together during the Silicon Valley Bank crisis, when Rippling’s funds were suddenly frozen. Rippling founder and CEO Parker Conrad took to X and worked the phones with his banks, investors, and its own customers to raise the cash needed to cover everyone’s payrolls.
In this round, existing investor Napolean Ta at Founders Fund is prepared to invest up to another $310 million, per two sources familiar with the transaction, which — very notably — would be the largest check that Founders Fund has ever written for a single company’s round. It’s unclear how much of this cash is for the new Series F shares and how much will be used to buy shares from other investors, because existing investor Coatue is actually leading the round. There’s participation from existing investor Greenoaks, as well.
That Rippling is raising more capital in a year is not a shock; the HRtech market for payroll services and remote labor management is large, growing, and features a slate of well-funded late-stage startups. Rippling competitor Gusto told TechCrunch that it reached $500 million in trailing revenue last year, along with cash flow positivity. Earlier this year Deel, which focuses on payroll for teams that cross borders, said that it had reached $500 million worth of annual recurring revenue.
With Gusto worth around $9.5 billion per Crunchbase data, Deel worth $12 billion, Remote more than $3 billion, and Rippling now at $13.5 billion, there’s a titanic amount of venture capital, founder and employee equity in HRtech today. And new companies are popping up, too. Remofirst recently raised $25 million, for example, to keep working on its low-cost hiring product that competes with many of the companies listed above.
Likewise, with the IPO market still sluggish, existing shareholders, be it employees or existing investors are also looking to sell stakes in private companies to gain liquidity. Large secondary transactions have become en vogue.
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