Groww, an Indian investment app, has become one of the first startups from the country to shift its domicile back home.
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Good news, crypto founders! Venture capital activity is picking up in the sector, recovering from the multi-year lows investments fell to in late 2023. Put another way, venture folk appear more bullish on web3 than they used to be not very long ago.
But that was hardly the only news item we had to dig into on Equity this morning. Akamai is spending $450 million to buy API security firm Noname, a deal that TechCrunch previously reported would be worth around $500 million. Still, $450 million is a lot of money, and the deal is worth giving thought to given that Noname was valued at more than $1 billion back in 2021.
Speaking of M&A, Wiz is another name in the cybersecurity space that could go shopping, thanks to its recent $1 billion fundraise. It intends to buy both wounded unicorns and hot, smaller startups to bolster its business. The company is now valued at $12 billion, which is a lot. (Wayve also raised north of $1 billion, but is focused on the self-driving space instead of security.)
We also saw Monzo snag $190 million more, bringing its full-year fundraising score to more than $600 million. Meanwhile, TikTok is fighting a potential ban in the States, and Oyo’s been trying to raise new capital at a fraction of its prior worth.
In closing, Haje is bringing Pitch Deck Teardown to Equity! If you have not read the series (start here), you are in for a treat. We’re kicking the new segment off with a look at NOQX’s deck: what worked, what didn’t, and what’s next!
Chat Friday!
Equity is TechCrunch’s flagship podcast and posts every Monday, Wednesday and Friday. Subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.
You also can follow Equity on X and Threads, at @EquityPod.
For the full episode transcript, for those who prefer reading over listening, check out our full archive of episodes over at Simplecast.
Autonomous, AI-based players are coming to a gaming experience near you, and a new startup, Altera, is joining the fray to build this new guard of AI agents.
The company announced Wednesday that it raised $9 million in an oversubscribed seed round, co-led by First Spark Ventures (Eric Schmidt’s deep-tech fund) and Patron (the seed stage fund co-founded by Riot Games alums).
The funding follows Altera’s previous raising a pre-seed $2 million from Andreessen Horowitz and others in January of this year. Now, Altera wants to use the new capital to hire more scientists, engineers, and team members to help with product development and growth.
If the first wave of AI for end users was about AI bots; and more recently, AI “copilots” use generative AI to help understand and respond to increasingly sophisticated queries, then AI agents are emerging as the next stage of development. The focus is on how AI can be used to create increasingly more human-like, nuanced entities that can respond to and interact with actual humans.
One early use case for these agents has been gaming — specifically to use in games that support modifications (mods) like Minecraft. Voyager is one recent project, built on the Minedojo framework, that creates and develops Minecraft AI agents, and this, too, is where Altera is getting its start.
The company’s first product is an AI agent that can play Minecraft with you, “just like a friend” (the waitlist to try that out is here), but this seems to be just chapter one for the company. “We are building multi-agent worlds, opening up exciting opportunities in entertainment, market research, and more,” the company promises on its site. And after that? Robot dreams, it seems.
“Creating the human qualities required to turn co-pilots into co-workers and exploring a world where digital humans are given a physical form factor,” Altera explains.
At the helm of Altera is Robert Yang, a neuroscientist and former assistant professor at MIT. In December 2023, Yang and Altera’s other co-founders—Andrew Ahn, Nico Christie, and Shuying Luo—stepped away from their applied research lab at MIT to focus on a new goal: developing AI agents (or “AI buddies,” as Yang calls them) with “social-emotional intelligence” that can interact with players and make their own decisions in-game.
“It has been my life goal as a neuroscientist to go all the way and build a digital human being—redefining what we thought AI was capable of,” Yang told TechCrunch. That is not to say that Yang is coming from a misanthropic point of view. “Our solidly pro-human framework means that we are building agents that will enhance humanity, not replace it,” he insists.
What is notable about Yang and Altera’s focus is its consumer focus. This stands in contrast with a big swing that we have seen in AI towards building models that can be used either to speed up or sometimes replace humans in enterprise environments. (Even with OpenAI, ChatGPT has certainly been a viral hit globally, but at its heart the startup has been trying to build a business around usage of its APIs.)
“We see more potential in building agents within the gaming industry,” he said. “This approach allows us to iterate faster, collect data more effectively, and deliver a product where there are eager users and where emergent behavior is a feature, not a bug.”
(And yes, in keeping with its consumer focus, you should not be surprised that, for now, the company is not talking about monetization at all. )
Similar to the Voyager GPT-4-powered Minecraft bot, Altera’s autonomous agents are capable of playing Minecraft as if they were humans, performing tasks like building, crafting, farming, trading, mining, attacking, equipping items, chatting, and moving around.
Altera’s agents are designed to be companions for gamers, not assistants who do what you tell them to. Unlike NPCs (non-player characters), they have the freedom to make their own decisions, which could either make the game more entertaining or frustrating, depending on your playing style.
In a video demo, Yang plays around with multiple scenarios, including one where he tries to convince the AI agent to attack other people. The bot is hesitant at first, typing in the chat, “I don’t want any trouble, can we just find a peaceful solution? Fighting won’t solve anything.” Yang taunts it, commanding others to attack the “weak” bot. It eventually defends itself and kills Yang’s Minecraft character. “I’ll make sure they regret crossing me,” the AI agent wrote.
While the ending may be a little sinister, the gameplay feels no different from a regular session with friends, trolling and competing against each other.
Altera is currently testing the model with 750 Minecraft players and plans to officially launch later in the summer. It’ll be available via Altera’s desktop app, which is free to download but will also come with paid features.
Minecraft is just a starting point for Altera. The company eventually plans to bring the model to additional video games and other digital experiences. Altera’s AI agents “execute an action as code, meaning they can play any game without material customization,” Yang explained. For instance, it could work with Stardew Valley, he said. Altera will also integrate the technology with game engine SDKs for “broader developer use.”
In addition to the recent investments by First Spark and Patron, Altera has gained support from a long list of high-profile investors, demonstrating confidence in the company’s potential. Altera boasts investors such as Alumni Ventures, a16z SPEEDRUN, Benchmark partner Mitch Lasky, Duolingo Chief Business Officer Bob Meese, Vamos Ventures, Valorant co-founder Stephen Lim, and more.
“There exists a massive opportunity to create AI companions that engage in all areas of our lives. However, today’s AI lacks critical traits like empathy, embodiment, and personal goals, which prevent it from forming real, lasting connections with people,” Aaron Sisto, partner at First Spark Ventures, said in a statement. “Robert and the team at Altera are leveraging deep expertise in computational neuroscience and LLMs to build radically new types of AI agents that are fun, unique, and persistent across platforms. We are thrilled to be a part of their journey.”
Kyle Kuzma is a lot of things. He’s a forward for the Washington Wizards NBA team and a 2020 NBA champion. He’s also a style icon — depending on who you ask — and an angel investor. Now he’s an adviser at a venture fund too.
“I’m part of a new generation of the NBA,” Kuzma told TechCrunch in a phone interview. “For me, I’ve always been a hustler and somebody that is very interested in business and doing things just to set up my family’s generational wealth. I think getting into venture is only going to take that to a different stratosphere.”
Kuzma, 28, joined early-stage-focused Scrum Ventures in March as an adviser to help with the firm’s sports and entertainment fund, which is targeting $120 million. The partnership started in January when Kuzma’s agent, Austin Eastman, was connected to Scrum managing director and partner Michael Proman. Kuzma said he was impressed with Scrum’s team. Proman said the positive sentiment was mutual.
“The thing about Kyle is, I personally didn’t really even understand how extensive his interests were in the venture space until after getting introduced,” Proman, a former NBA employee on the business development team, said. “Kyle is really interested in understanding the venture playbook but more so from the venture side.”
Proman said Scrum’s sports fund, where Kuzma will be helping, is a little different than other sports-focused VC funds, because it focuses on tech that could be useful to athletes or enterprise sports customers and is also applicable to other industries. Ozlo Sleepbuds is a good example. The company makes earbuds to help people sleep better. While sleeping well is incredibly important for athletes, it’s important far beyond professional sports too. Scrum participated in the company’s $6 million seed round earlier this year.
Scrum’s broad approach to sports tech makes Kuzma a good adviser, as opposed to another NBA player, Proman said, because Kuzma has already invested across several sectors. Kuzma started angel investing in 2020 and has built up a portfolio that includes soda alternative Lemon Perfect, which has gone on to raise an additional $67.8 million in venture capital; consumer data company, Surf; and watch marketplace, Bezel.
“His investment portfolio is pretty diverse; it’s not just your classic sports tech,” Proman said. “There are a lot of folks out there that want to invest into what they do 24/7, and while they may be great at providing insights and analysis of those technologies, in many cases those aren’t venture-backable technologies.”
Kuzma said he plans to be a hands-on investor, and while he knows a name like his could be a marketing boon for the companies he works with, he said he doesn’t just want to rest there and would rather use his status to help companies expand their network using his connections. He also thinks his experience playing basketball makes him a good fit as a VC because he’s used to working in a competitive environment where you don’t succeed unless you work as a team.
“I bring a competitive nature,” he said. “When you play sports at the highest level like the NBA, you are playing chess and not checkers. We are smart; we are not just athletes. We are not just people that play sports and not do anything else.”
Kuzma’s presence has already proved beneficial for the firm, Proman said, as working with an athlete like Kuzma has led to an uptick in inbound interest in the firm. Good inbound interest — he clarified.
Kuzma isn’t the first NBA player to get involved with venture capital. Kevin Durant’s family office, 35V, invests heavily in startups. Steph Curry is the anchor LP of Penny Jar Capital. Former players like Andre Iguodala and Michael Redd have taken more formal roles in the industry, too, by launching firms of their own, Mosaic and 22 Ventures, respectively. Kuzma is the latest NBA player to dive into venture, but he likely won’t be the latest for long.
“Joining Scrum Ventures is really exciting for me,” Kuzma said. “I want to further my portfolio and just my reach in the VC world. As athletes, they always tell you to diversify your portfolio as much as you can. This is the next iteration of me as an entrepreneur.”
Founders at the early stages of building their startups may have already created a strong solution, identified a gap in the market, or may simply have an inescapable and driving motivation to build their own business. Ideally, they have a good combination of all three. But do they have product-market fit? And what actually is product-market fit, anyway?
The investors at Sequoia, one of the world’s biggest venture capital firms, have come up with a very handy framework to answer those two questions. It distills the landscape into three archetypes.
“Hair on Fire” roughly means that your startup addresses an urgent problem. A security startup, for example, might fit here, especially if it can win initial business on the back of parachuting in to fix a breach or other problem already in progress. Or, think of the wave of companies that offered services to businesses and users when they were suddenly sheltering in place and working from home during the peak of Covid-19.
“Hard Fact” translates as a startup that solves an existing problem better than what’s already out there. Square, which emerged as a new point of sale product in a seemingly old and saturated market, is a good example of this.
Lastly, “Future Vision” relates to deep tech, moonshots, and products out of left field. These would include quantum startups, but also those building flying cars or even autonomous vehicles that would ply our roads (or any of the tech that will be needed to make such vehicles).
Each of these archetypes will have its own customer mindset, competitive market status, opportunity/general product goals, challenges, examples of those who got it right and those that did not, and so on. Sequoia partner Jess Lee, a specialist in early-stage investing, gave a big talk on the concept at TechCrunch’s Early Stage event in Boston in April. Sequoia has written about the framework here, too.
In sum, the theory goes like this: Startups all, more or less, fit into one of these three archetypes, so identifying which archetype a company fits in can help it focus and develop.
Sequoia is confident enough of the structure that it uses the framework in its Arc program to help early-stage founders focus on how they are building. It also helps the firm evaluate potential startup investments. Beyond that, and just as importantly, founders can lean on an archetype to better anticipate and articulate the challenges and opportunities in their space. That can be helpful for decision-making internally, of course, as well as for fundraising or pitching partnerships or customers.
During her presentation on the framework, Lee said that Sequoia does not have a favored category among the three.
“I think you can create great companies in all those categories,” Lee said. Still, she admitted that certain kinds of companies might find it especially challenging to raise money in the current climate.
For deep tech and moonshots — two common kinds of startups found in the “Future Vision” category — fundraising “was easier in a zero-interest-rate period when there was a ton of capital flowing in,” Lee said. “I don’t know if [those companies] would have been able to raise as much [starting out now] as they had to, to be able to get to where they are now.”
Lee was a co-founder at Polyvore, which combined social mechanics and e-commerce — its users contributed fashion and product clips from around the web and used those products to assemble mood boards, with affiliate marketing underpinning it all. Polyvore was eventually acquired by Yahoo, and she parted ways with it. Yet, that e-commerce and consumer focus has stayed with her, she said, adding that she’s still interested in trying to find new winners in that category despite the challenges of trying to break into the space these days.
“It can still be done,” she said. “I feel like many consumer companies fall in the ‘Hard Fact’ category, and I particularly love working with consumer companies. But you have to be good at both marketing your problem as well as marketing your solution and building this. So it takes a lot to get it right.
“It almost feels like alchemy. I can’t tell you how many founders I’ve met who said, ‘Oh, yeah I was working on Snapchat, too. Like, I had my own version.’ And it sounded like it was similar, but just the right number of details allowed Snapchat to be the one that broke away.”
None of this is to say that the third category, “Hair on Fire,” is exactly easy. “You have to ruthlessly execute,” Lee said. “[You need] so much velocity to stay ahead of everyone.”
Her conclusion drives home one of the most critical aspects of building an early-stage business. “I think there’s a little bit of founder-market fit that goes into each of these product-market fit categories.”
While the venture world is abuzz over generative AI, Dayna Grayson, a longtime venture capitalist who five years ago co-founded her own firm, Construct Capital, has been focused on comparatively boring software that can transform industrial sectors. Her mission doesn’t exclude AI, but it also doesn’t depend on it.
Construct recently led a seed-stage round, for example, for TimberEye, a startup developing vertical workflow software and a data layer that it says can more accurately count and measure logs and, if all goes as planned, help the startup achieve its goal of becoming the marketplace for buying timber. How big could that market be, you might be wondering? According to one estimate, the global forest products industry hit $647 billion in 2021.
Another Construct deal that sounds less sexy than, say, large language models, is Earth, a startup that’s centered around human composting, turning bodies into “nutrient-rich” soil over a 45-day period. Yes, ick. But also: it’s a smart market to chase. Cremation today accounts for 60% of the market and could account for upwards of 80% of the market in another 10 years. Meanwhile, the cremation process has been likened to the equivalent of a 500-mile car trip; as people focus more and more on “greener” solutions across the board, Earth thinks it can attract a growing number of those customers.
Dodging some of the AI hype doesn’t completely inoculate Grayson and her co-founder at Construct, Rachel Holt, from many of the same challenges facing their peers, as Grayson told me recently during a Zoom call from Contruct’s headquarters in Washington, D.C. Among their challenges is timing. The pair launched their first three funds amid one of the venture industry’s frothiest markets. Like every other venture firm on the planet, some of their portfolio companies are also wrestling right now with indigestion after raising too much capital. All that said, they’re barreling toward the future and – seemingly successfully – dragging some staid industrial industries along with them. Excerpts of our recent chat, edited for length, follow.
You were investing during the pandemic, when companies were raising rounds in very fast succession. How did those rapid-fire rounds impact your portfolio companies?
The quick news is they didn’t impact too many of our portfolio companies by virtue of the fact that we really deployed the first fund into seed companies – fresh companies that were starting in 2021. Most were getting out of the gate. But [generally] it was exhausting and I don’t think those rounds were a good idea.
One of your portfolio companies is Veho, a package delivery company that raised a monster Series A round, then an enormous Series B just two months later in early 2022. This year, it laid off 20% of its staff and there have been reports of turnover.
I actually think Veho is a great example of a company that has managed very well through the economic turbulence over the last year or two. Yes, you could say they had some whipsaws in the financial markets by attracting so much attention and growing so quickly, but they have more than doubled in revenue over the past year or so, and I can’t say enough good things about the management team and how stable the company is. They have been and will remain one of our top brand companies in the portfolio.
These things never move in a straight line, of course. What’s your view on how involved or not a venture firm should be in the companies that it invests in? That seems somewhat controversial these days.
With venture capital, we’re not private equity investors, we are not control investors. Sometimes we’re not on the board. But we are in the business of providing value to our companies and being great partners. That means contributing our industry expertise and contributing our networks. But I put us in the category of advisors, we’re not control investors, nor do we plan to be control investors. So it’s really on us to provide the value that our founders need.
I think there was a time, especially in the pandemic, where VCs advertised that ‘we won’t be overly involved in your company – we’ll be hands off and we’ll let you run your business.’ We’ve actually seen founders eschew that notion and say, ‘We want support.’ They want someone in their corner, helping them and aligning those incentives properly.
VCs were promising the moon during the pandemic, the market was so frothy. Now it very much seems the power has swung back to VCs and away from founders. What are you seeing, day to day?
One of the things that hasn’t gone away from the pandemic days of rushing to invest is SAFE notes [‘simple agreement for future equity’ contracts]. I thought when we came back to a more measured investing pace that people would want to go back to investing in equity rounds only – capitalized rounds versus notes.
Both founders and investors, ourselves included, are open to SAFE notes. What I have noticed is that those notes have gotten ‘fancier,’ including sometimes side letters [which provide certain rights, privileges, and obligations outside of the standard investment document’s terms], so you really have to ask all the details to ensure the cap table isn’t getting overly complicated before [the startup] has [gotten going].
It’s very tempting, because SAFEs can be closed so quickly, to add on and add on. But take boards, for example; you can have a side letter [with a venture investor] that [states that], ‘Even though this isn’t a capitalized round, we want to be on the board,’ That’s not really what SAFE notes are designed for, so we tell founders, ‘If you’re going to go into all of that company formation stuff, just go ahead and capitalize the round.’
Construct is focused on “transforming foundational industries that power half the country’s GDP, logistics, manufacturing, mobility, and critical infrastructure.” In some ways, it feels like Andreessen Horowitz has since appropriated this same concept and re-branded it as “American Dynamism.” Do you agree or are these different themes?
It’s a little bit different. There are certainly ways that we align with their investment thesis. We believe that these foundational industries of the economy – some call them industrial spaces, some call them energy spaces that can incorporate transportation, mobility, supply chain and decentralizing manufacturing – need to become tech industries. We think that if we’re successful, we’ll have a number of companies that are maybe manufacturing software companies, maybe actually manufacturing companies, but they will be valued as tech companies are valued today, with the same revenue multiples and the same EBITDA margins over time. That’s the vision that we’re investing behind.
We’re starting to see some older industries getting rolled up. A former Nextdoor exec recently raised money for an HVAC roll-up, for example. Do these types of deals interest you?
There are a number of industries where there are existing players out there and it’s very fragmented, so why not put them all together [in order to see] economies of scale through technology? I think that’s smart, but we’re not investing in older world technology or businesses and then making them modern. We’re more in the camp of introducing de novo technology to these markets. One example is Monaire that we recently invested in. They are in the HVAC space but delivering a new service for monitoring and measuring the health of your HVAC through their low tech sensors and monitoring and measuring service.
One of the founders had worked previously in HVAC and the other worked previously at [the home security company] SimpliSafe. We want to back people who understand these spaces — understand the complexities and the history there — and also understand how to sell into them from a software and technology perspective.
When Sonia García and Stas Sokolin decided to launch Amae Health to solve the broken care system for people with severe mental illness, they were already intimately familiar with the industry’s issues.
“I started thinking about this problem a very long time ago,” said Sokolin, Amae’s CEO. “I grew up with a sister who had bipolar disorder for many, many years, and as a family we always struggled to find her care. It seemed like everything was so piecemeal, and it broke our family apart.”
Garcia had her own experiences with the mental healthcare system, too. She lost her father to suicide when she was 16 years old, and then she and her family spent years as caregivers for her brother with schizoaffective and bipolar disorder. Sokolin and García were introduced by mutual friends at Stanford because they were both passionate about this area. The pair knew the system could be better.
They launched Amae Health in 2022 to be a new approach to helping patients with severe mental illness. Amae brings resources — including family and individual therapy, social workers, psychiatric care and medicine management — all under one roof. One physical roof, that is, as Amae is focused on an in-person approach. The startup hired Dr. Scott Fears, who had experience with this all-encompassing care approach through his work with the Los Angeles Veterans Affair Hospital, so they could iterate on and improve an existing model as opposed to starting a new one from scratch.
Amae Health just raised a $15 million Series A round led by Quiet Capital with participation from Healthier Capital, former One Medical CEO Amir Dan Rubin’s firm; Baszucki Group and Index Ventures partner Mike Volpi, in addition to all of the company’s seed investors. The startup currently has one clinic in Los Angeles and plans to use the capital to expand. Its next center will be in Raleigh, North Carolina, with locations in Houston, Ohio and New York to follow shortly after.
The funds will also be used to continue building out the company’s data platform. Sokolin said the company is using AI to go through the troves of data it collects at its clinic to find ways they can continue to improve care.
Over the past few years, many startups have launched to improve the mental healthcare system, but Amae Health’s focus area and approach stand out. Most of the mental health startups that launched in the pandemic are digital first and focused on anxiety and depression. Amae looks very different.
There’s nothing wrong, of course, with having a slate of companies focused on anxiety and depression, and it’s good to see founders focused on helping people with severe mental illness, too. Severe mental health problems affect 14.1 million people in the U.S., according to the National Alliance on Mental Illness. But there’s a lot less innovation in the sector.
That’s not too surprising: Solutions for people with severe mental illness don’t perfectly fit a traditional venture model in the way many telemedicine and digital solutions do. People with severe mental illness need care that is in person, making solutions more costly and slower to scale.
“When we first went out to raise money, a lot of venture investors were asking, why are you doing this in person? Why is this not virtual?” Sokolin said. “The fact of the matter is you can’t treat someone who is having delusions or auditory hallucinations virtually. The same way you can’t treat cancer virtually, you can’t treat this virtually.”
The nature of the business also means that they aren’t expanding to all 50 states right away as some digital health startups have been able to. García said the company is fine with that because it’s more focused on the outcomes than the scaling.
“That is about intentional growth and scale, not the winner-take-all market, but really being considerate and conscious about how we do grow and ensuring we are generating lasting change and recovery in these individuals’ lives,” Garcia said.
Trying to scale too fast has hurt some mental health startups. Therapy telemedicine platform Cerebral has come under fire for how it advertises to potential customers and how it handles patient data in its pursuit of scale.
This slower growth approach can and has worked in venture before, said Sokolin, a former VC at both the Chan Zuckerberg Initiative and Health2047. One Medical, a full-service healthcare system, including in-person care, is a prime example. The company raised more than $500 million before getting scooped up by Amazon for $3.9 billion. It’s not surprising the former CEO is a current investor in Amae.
Sokolin and García are fine with the fact that their approach has turned off some potential investors. They are focused more on building a system for quality care, not just how many patients they can see.
“There are way more individuals than anyone could ever treat,” Sokolin said about the scope of individuals with severe mental illness. “We are never going to treat anything more than a small fraction, but we want to be the best-in-class provider for those members.”
This year already proved that startups are willing to go public in a less-than-ideal market — and get rewarded for it, too. But bankers, lawyers and investors said the recent IPO successes aren’t enough to foster more than a dozen tech IPOs this year.
“I don’t think we will have the floodgates open like I might have thought,” Greg Martin, co-founder and managing director at Rainmaker Securities, told TechCrunch. “The trickle was delayed; I thought it would happen sooner in Q1. Because of that, I think the floodgates can’t open til 2025, but we could have a healthy flow of 10 to 15 companies for the year.”
Jeremy Glaser, a lawyer and co-chair of Mintz’s venture capital and emerging companies practice, said that despite how the recent IPOs have performed thus far, people need more data than just a few weeks, or a month, of trading to feel confident.
Looking at how Klaviyo and Instacart are performing today shows why people remain cautious. Klaviyo is currently trading at a $5.94 billion market cap, down from its $9.2 billion IPO price. Instacart is faring better, but still trading under its initial IPO price of $9.9 billion. It’s currently trading at $9.47 billion.
“I’ve lived through a lot of IPO cycles, you really do need an extended period of time where you are seeing multiple IPOs staying above the IPO price,” Glaser said. “I don’t know if we are there yet. We have some positive signs but we need to see more companies staying above the IPO price for an extended amount of time.”
Timing plays a big factor here, too, due to the election. If a couple of companies had come out and made their public debuts at the beginning of the year — and had they done well — it might have given other companies enough time and confidence to get through a full S-1 process before the election. But due to the timing of the recent IPOs, companies would be crunched for time.
Martin added that despite the successes, he’s not sure this is really a good market to go out in anyway. Interest rates aren’t being cut the way many predicted and were hoping for this year, and Martin isn’t convinced that the economy is fully in the clear yet after 2022’s bear market — especially with uncertainty about how the markets will react after the election in November.
“I still feel like recession is not out of the woods yet,” Martin said. “We had, what, 1% growth in Q1? Mostly macro economic factors, it feels like the market is sensing relative stability right now but there [are] a lot of things that could turn that. I’m hopeful [the market] remains stable. I’m remaining optimistic at this point.”
The sentiment from Glaser and Martin seems to align with what other folks in the market are saying, too. A top-tier venture fund recently told TechCrunch that it was advising all of its portfolio companies that could potentially IPO to wait until next year. Colin Stewart, Morgan Stanley’s global head of technology equity markets, recently told CNBC that he thinks 10 to 15 companies could go public this year — right in line with Martin’s prediction — and that 2025 will be better.
Investors weren’t sure what to think about the IPO market heading into 2024. Some thought that activity would start to pick back up while others thought it would be another quiet year, according to a TechCrunch survey. The one thing they all seemed to agree on was that any rise in activity wasn’t likely until the second half of the year.
But then Astera Labs filed to go public in February, and Reddit followed shortly after. Ibotta was next in March, followed by Rubrik just a week later. All four have since floated and popped on their first day of trading. While the respective stocks retreated since then, they are all currently trading above their IPO prices — which were all priced above their initial target ranges.
Watching these four stocks hit the market successfully makes us wonder: Were investors wrong about the timeline of the return of IPOs? But based on sentiment from folks like Martin and Glaser, probably not.
This means that VCs likely have to wait another year for the IPO market to be a meaningful source of liquidity. However, exits aren’t fully off the table this year. Glaser said that he isn’t working on IPOs, but his M&A practice has been the busiest it’s been in a long time. For investors looking for returns this year, that’s good news.
Welcome to Startups Weekly — Haje’s weekly recap of everything you can’t miss from the world of startups. Sign up here to get it in your inbox every Friday.
Musk’s 10-month-old baby, xAI, is closing in on a whoppin’ $6 billion funding round. The social network X, née Twitter — also part of Elon’s tech family — is already a shareholder. The deal was initially supposed to raise just $3 billion, but then everybody wanted in and the price tag bumped. Investors include Musk’s BFFs from Sequoia Capital, Future Ventures and some other chums who may also be joining this AI party — it’s all very Mean Girls “You can’t sit with us” at this point. The thing that really frustrates me, though, is how smug Musk probably is about all of this. It’s fine, I’m just bitter that none of my startups ever raised $6 million — never mind three orders of magnitude more.
Sure, it may be on the eve of getting banished from the U.S. altogether (although, I hasten to add, the previous administration tried that, too, and TikTok’s still here, going strong), but TikTok may be sneaky in more ways than one. Word on the street (or should we say web?) is that TikTok is playing a bit of hide-and-seek with Apple. Instead of giving Apple its 30% cut for in-app purchases, it appears they’re trying to guide users into buying their digital tipping coins directly from their website. But shh … it’s a secret! The feature is apparently only visible to certain users (lookin’ at you, high spenders). Will Apple give them the boot like they did Fortnite? Only time will tell.
Your founding team sucks: In a brutally honest chat with me at TechCrunch Early Stage, Tom Blomfield, ex-Monzo Bank founder and current Y Combinator partner, spilled the tea on venture capitalist decision-making. He says investors are looking for unicorns that can deliver 1,000x returns — anything less is an epic fail. They’re not just judging your business model or product. No, they’re eyeing YOU up to see if you have what it takes to make their cash multiply like rabbits.
Hello? Is that iPhone? Why are you so quiet today? Image Credits: Vectorian / Getty Images
Oh, EyeEm, you sly dog! The once “Insta-challenger” Berlin-based photo-sharing app that nearly went belly-up last year has found a new way to milk its users — by training future AI overlords! Yup, they’re selling your snaps to train machine-learning models. Users were graciously given 30 days to pack up their digital photo albums and scram or forever hold their peace (and surrender their photos). Are you opting out, though? Not as easy as swiping left on Tinder — you need to manually delete your pictures. But wait for it … the real kicker is if you decide in a fit of rage to delete your account altogether, no more payouts for you. Womp-womp, sad trombone.
It’s like “Game of Thrones” but in the tech world. Welcome to Techstars’ latest season, where CEO Maëlle Gavet is fighting battles on all fronts within her kingdom! She’s got a bank collapse, an international accelerator program shutdown, and dodgy LinkedIn posts. And that’s just for starters. Throw in the Swedish labor law conundrums and you’ve got more drama than an episode of The Real Housefounders. As if that wasn’t enough, she’s also dealing with a company-wide revolt against her reign, as well as her cost-cutting measures leading to a toxic work culture, and hiring folks with as much startup experience as my pet goldfish. (It died back in 2007. RIP, Knee-mo.) Stay tuned for this gripping saga of power struggles, corporate drama, questionable financials and strategizing — I can’t guarantee dragons or White Walkers but there will be plenty of fire-breathing and icy glares!
Mark Cuban wrote a check to Truffle Shuffle. Nobody will comment on whether it was a good exit for the company. Image Credits: Christopher Willard / ABC via Getty Images
Rubrik, the cybersecurity company, decided to take a leisurely stroll onto Wall Street this week and BAM! Shares shot up 16% on their public debut. They were initially priced at $32 per share (just a smidge above their target range) and settled down to a cushy $37 by end of trading. Now, that’s one way to make an entrance! This little outing bumped their valuation from $3.5 billion in 2019 to a dizzying $6.6 billion today. Not bad for a company that’s not even turning profits yet! Their secret sauce? Subscription revenue — it went from 73% to 91% in just a year. But, hey, who needs profitability when you’ve got stickiness, right? While this may seem like the start of an IPO party parade with Reddit and Ibotta leading the conga line, potential interest rate cuts could play party pooper soon enough. No doubt, Greylock is giggling maniacally all the way to the bank.
ButcherBox, the meat-obsessed startup that bootstrapped its way to a juicy $600 million revenue, just sunk its teeth into “Shark Tank” darling Truffle Shuffle. The acquisition is less about gobbling up competition and more about helping ButcherBox’s customers stop burning their steaks. Truffle Shuffle was born out of sheer desperation when founders Jason McKinney and Tyler Vorce found themselves with $20,000 worth of truffles but no restaurants to sell them to, thanks to our dear friend COVID-19.
RevenueCat founders Miguel Carranza (L) and Jacob Eiting (R). Image Credits: RevenueCat
Bad news for healthcare privacy this week. UnitedHealthcare CEO says “maybe a third” of U.S. citizens were affected by their recent hack, and Kaiser pissed away a bunch of customer data as well. Gee, thanks, you clowns.
Anyway. Here’s a few other stories that are fun. Maybe. Or at least interesting. Or maybe they just got a metric crapton of traffic this week. Who knows what my selection criteria is, but … just read the stories, okay?
Lacey Hunter thought all was well as she put her startup through the three-month Newchip accelerator. Then the organization filed for bankruptcy in May 2023. Things went from bad to worse later that year when she discovered warrants of her company — rights to buy an ownership stake — had become part of the proceedings, which ultimately forced her to shut down her company.
In 2022, Hunter started TechAid, an AI smart-matching tool for humanitarian aid, and was just beginning the accelerator’s curriculum when Newchip filed for bankruptcy.
“I made a few friends, but functionally, got nothing from Newchip,” Hunter said. “I was shooting to have the curriculum done by August, but in May, the website went down.”
The now-defunct Austin accelerator had filed for bankruptcy amid employee and customer discontent. The court has since ordered the company to auction off the warrants it held in more than 1,000 of the startups that went through the accelerator program.
Normally, private companies like startups have control over which investors are allowed to buy shares and the prices they pay. But the bankruptcy court, which works to restore creditors rather than equity holders, isn’t allowing Newchip’s startups to exert that kind of control. Instead, the auctions are ongoing, with the first tranche already sold and upcoming tranches expected to be sold this spring and summer.
Founders are outraged — including some, like Hunter, who have actually lost their companies as a result.
TechAid fought the sale of the warrants prior to closing the company. Hunter tried to buy them back herself from Newchip, but the organization’s lawyers declined her offer, she told TechCrunch. She had lined up a grant from a bank to help fund her offer, but it ultimately told her no because it was too risky for them to be involved with an unknown warrant holder on her cap table. So Hunter felt she had no choice but to shut TechAid.
“There was no path,” Hunter said. “I knew I was not going to be able to raise money. I mean, I couldn’t even get a no-strings-attached grant. I totally get that, but it still sucks.”
Newchip started out as an aggregator of top deals from “various equity-based crowdfunding platforms,” according to Silicon Hills News, and later evolved into an accelerator that promised to help startups grow their companies and meet investors — for a hefty fee.
It charged startups between a few thousand dollars and $18,000 to $20,000 for its training programs, founders said. Startups also granted Newchip the right to buy $250,000 worth of shares in the company at a later date, but at their current valuation — this type of deal is also known as a warrant.
Newchip founder and CEO Andrew Ryan previously faced harsh criticism about his leadership style, including allegations that he could be “abusive” and threatening to employees, according to eight former employees who walked out. (Ryan acknowledged to TechCrunch last year that his leadership style was based on “a military mindset.”) One example involved a meeting of about 15 employees in sales, operations and marketing. Ryan had asked the leaders of each department to read a book on how to help college volunteers be more passionate about volunteering, recalled one person who attended the meeting. Ryan asked two of the company’s leaders to lead the group in a discussion of the book. But many were confused by it and didn’t see how it applied to Newchip’s business.
“They were struggling with it. Andrew kept jumping in and interrupting them, and directly challenging them.” And finally, recalled the source, Ryan said, “This was a test for individuals that I’ve asked to do this today. I was going to fire one of you, based on whoever did the worst job.”
He then singled out one person, told the room the person was fired, and, this person recalled, Ryan then said, “I do stuff sometimes to see who’s loyal and to see who is going to do what I tell them to do. This was a test and you failed. You’re out.’”
After seeing Ryan fire this guy in front of the whole room, “I literally watched all of his direct reports sitting there saying to themselves, ‘I will never trust this man again,’” the source said.
Ryan contends that the person who was fired during that meeting had behaved aggressively after being singled out. Ryan also claims that the individual had come unprepared to lead the meeting, which Ryan viewed as an “act of overt insubordination,” telling TechCrunch: “While conducting the termination publicly in that meeting may seem harsh, it was intended to reinforce the gravity of the situation and ensure all managers understood that we took these training sessions and their responsibilities as leaders seriously.”
Image Credits: TechCrunch
When Newchip (which also did business under the name Astralabs) initially filed for bankruptcy in March 2023, it was a Chapter 11 debt reorg. It then went into Chapter 7 — dissolution and liquidation — two months later.
Its Chapter 11 filing revealed that it had $1.7 million in total assets and $4.8 million in total liabilities. But the value of the warrants was apparently not taken into account at that time, a source familiar with internal happenings said. Those warrants were estimated to be valued at an eye-popping just under $500 million by Austin-based VC fund and early Newchip investor Sputnik ATX, according to a document viewed by TechCrunch.
“I feel so much stress and embarrassment. I’m a struggling founder and don’t have the money to pay for a lawyer. Here was this accelerator supposed to help founders, and instead it is imposing stress on young founders.”
Management had not been keeping up with the warrants to the point where it had missed that some companies had exited or raised money, losing out on the potential upside, noted Kerstin Hadzik, a consultant who was brought in to serve as interim CFO a few weeks after the initial bankruptcy filing.
How much did Newchip potentially lose? Sputnik ATX said it identified $54 million in warrant value from companies that had liquidity events “that should have been reported to Newchip but were not,” according to documents viewed by TechCrunch.
In Hadzik’s view, Newchip might have also been saved from going into Chapter 7 if Ryan had been willing to step down as CEO and had presented the warrants as assets when initially filing for Chapter 11.
The judge repeatedly asked Ryan if he would voluntarily step down and let someone else, such as a chief restructuring officer, run the company. Ryan repeatedly dodged the question, expressing doubt that anyone could do so successfully. Ryan also noted that employees had requested “a new CEO” and later claimed that he “was going to step aside … but the shareholders and investors, as part of them putting capital in, preferred that I stay here to make sure that we have the capital … to continue driving the business.”
Ryan also admitted that he was the company’s “major owner and shareholder” and that he had just “terminated all the board” the week before, just after having filed for bankruptcy, according to court documents viewed by TechCrunch.
“The judge was offering like a lifeline,” and Ryan “just said no,” Hadzik recalled.
In a Zoom interview with TechCrunch back when we first reported on the bankruptcy, and in two LinkedIn posts in 2023, Ryan said that he accepted “full responsibility for the events at Newchip.”
Ryan later alleged that there was an attempted coup on the part of an investor but sources say that Ryan had actually asked early investor Joe Merrill to serve as CEO before changing his mind and resuming the role himself. Merrill, who was an early investor in Newchip under its previous model and also co-founder of Sputnik ATX, declined to comment beyond noting that he believed the attempted sale of the warrants was a valid move.
One founder, who asked to remain anonymous, told TechCrunch that Newchip had approached her on LinkedIn and told her if she got approved to join, she would get introductions to investors. So she paid a $7,500 deposit and was all set to join Newchip when a founder friend told her to “never pay for introductions.”
She decided to hear out Ryan. What convinced her to ask for her money back was that Ryan “blew off our meeting.” He reached out later, but she had already emailed Newchip asking for her deposit back on the basis that she had not started yet.
The founder got her money back, but Newchip didn’t void her contract, so she is now part of the bankruptcy lawsuit. That’s when she learned that someone could buy the warrants of her company for pennies on the dollar, and “it could screw your valuation going forward,” she said.
“I feel so much stress and embarrassment,” she told TechCrunch. “I’m a struggling founder and don’t have the money to pay for a lawyer. Here was this accelerator supposed to help founders, and instead it is imposing stress on young founders.”
There was a period of time when founders could object to their warrants being sold, according to Chad Harding, managing partner at Peak Technology Partners, the investment banking firm tasked by the court to sell the warrants.
The deadline for those in the first tranche to object to these sales was January 15, he told TechCrunch. Founders from all over the world, including Australia and Finland, filed objections, according to court documents.
“We were in the process of obtaining a refund from Newchip when Newchip went bust,” wrote Veronica Hey, CEO and founder of Australian startup Ok Away. “The contract is therefore null and void and the warrant attached to it is not applicable. None of this will stand up in an Australian court. If you continue to pursue in ‘selling’ this warrant you are selling something that does not exist and there will be repercussions.”
But startups’ objections were made in vain when the court overruled them. A bankruptcy court’s goal is to oversee the selling of assets to settle debts. If there is money left over, it’s paid to shareholders. Ryan is the majority shareholder.
So the warrants are being sold in three tranches. The first involved 133 companies, including for startups such as Cleanster.com, bitewell, Agshift and Firehawk Aerospace. Combined, those 133 startups had raised over $340 million in funding, according to documents shared by the sales agent with potential investors and viewed by TechCrunch.
Ultimately, the sales agent ended up selling 28 warrants in just four companies from the first tranche for a total of about $58,000, presumably at a discount. Successful bidders included Bitewell and ClearForce — startups that bought back their own warrants in advance for $5,000 each, according to an agreement with the trustee — as well as Palm Ventures and Angel Deal Syndicate. The latter purchased the bulk of the warrants, spending $43,000 on warrants in 24 companies, according to court documents viewed by TechCrunch.
The second tranche will likely be sold this summer and will include over 1,400 warrants for sale, according to Harding. The bid deadline will likely be late July, Harding said.
Founders of those startups included in the second tranche will also have the opportunity to object with a proposed deadline of May 31.
Ryan maintains that extensive efforts “have been made to notify stakeholders well in advance.”
“This has afforded ample time for interested parties to access information and documents, raise any objections or issues, and prepare for participation in the sale,” Ryan told TechCrunch.
Like TechAid’s Hunter, Garrett Temple blames the loss of his company on Newchip’s demise. He, similar to Hunter, also participated in Newchip’s accelerator program from January until May 2023. His startup, Novogiene, was a medical tech company focused on epidemic prevention.
Temple put around $7,500 on his credit cards to be part of the program and said that he never spoke with investors. His main reason for doing Newchip was to get investors for a $500,000 round, in part to pay for a small production run of his device so he could send it to universities and medical schools for pilot testing.
The meetings with investors were supposed to happen after a demo day that was scheduled for the summer. But when Newchip shut down in May, that demo day, and hence those introductions, didn’t happen. Temple wasn’t able to keep going and ended up dissolving Novogiene in the summer of 2023. As such, his company no longer existed for warrants to be sold to potential investors.
Temple said he spoke with his bank about getting money back from the program since he used credit cards. The bank was at first successful in getting $5,000 returned. However, about a month later, Temple noticed that money was no longer in his account and believes Newchip protested the funds.
Though Temple has moved on, he still has some intellectual property for Novogiene and says he is hoping at some point to license the technology to someone else or perhaps at another time pick up where he left off.
“It was very sad to call it quits because getting the funding to make those units was the only hurdle before making serious progress,” Temple said. “If they connected me with investors like they said, I could have made my invention, gotten efficacy and would be shipping units right now. I really do believe that.”
Accelerator operators sell dreams. But that doesn’t always mean that the accelerator will come through. And sadly, the founders who buy into those dreams can be the ones who end up paying the price.
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