Industry experts bullish on $500M KKR investment in Box, but stock market remains skeptical

When Box announced it was getting a $500 million investment from private equity firm KKR this morning, it was hard not to see it as a positive move for the company. It has been operating under the shadow of Starboard Value, and this influx of cash could give it a way forward independent of the activist investors.

Industry experts we spoke to were all optimistic about the deal, seeing it as a way for the company to regain control, while giving it a bushel of cash to make some moves. However, early returns from the stock market were not as upbeat as the stock price was plunging this morning.

Alan Pelz-Sharpe, principal analyst at Deep Analysis, a firm that follows the content management market closely, says that it’s a significant move for Box and opens up a path to expanding through acquisition.

“The KKR move is probably the most important strategic move Box has made since it IPO’d. KKR doesn’t just bring a lot of money to the deal, it gives Box the ability to shake off some naysayers and invest in further acquisitions,” Pelz-Sharpe told me, adding “Box is no longer a startup its a rapidly maturing company and organic growth will only take you so far. Inorganic growth is what will take Box to the next level.”

Dion Hinchcliffe, an analyst at Constellation Research, who covers the work from home trend and the digital workplace, sees it similarly, saying the investment allows the company to focus longer term again.

“Box very much needs to expand in new markets beyond its increasingly commoditized core business. The KKR investment will give them the opportunity to realize loftier ambitions long term so they can turn their established market presence into a growth story,” he said.

Pelz-Sharpe says that it also changes the power dynamic after a couple of years of having Starboard pushing the direction of the company.

“In short, as a public company there are investors who want a quick flip and others that want to grow this company substantially before an exit. This move with KKR potentially changes the dynamic at Box and may well put Aaron Levie back in the driver’s seat.”

Josh Stein, a partner at DFJ and early investor in Box, who was a long time board member, says that it shows that Box is moving in the right direction.

“I think it makes a ton of sense. Management has done a great job growing the business and taking it to profitability. With KKR’s new investment, you have two of the top technology investors in the world putting significant capital into going long on Box,” Stein said.

Perhaps Stein’s optimism is warranted. In its most recent earnings report from last month, the company announced revenue of $198.9 million, up 8% year-over-year with FY2021 revenue closing at $771 million up 11%. What’s more, the company is cash-flow positive, and has predicted an optimistic future outlook.

“As previously announced, Box is committed to achieving a revenue growth rate between 12-16%, with operating margins of between 23-27%, by fiscal 2024,” the company reiterated in a statement this morning.

Investors remains skeptical, however, with the company stock price getting hammered this morning. As of publication the share price was down over 9%. At this point, market investors may be waiting for the next earnings report to see if the company is headed in the right direction. For now, the $500 million certainly gives the company options, regardless of what Wall Street thinks in the short term.


By Ron Miller

KKR hands Box a $500M lifeline

Box announced this morning that private equity firm KKR is investing $500 million in the company, a move that could help the struggling cloud content management vendor get out from under pressure from activist investor Starboard Value.

The company plans to use the proceeds in what’s called a “dutch auction” style sale to buy back shares from certain investors for the price determined by the auction, an activity that should take place after the company announces its next earnings report in May. This would presumably involve buying out Starboard, which took a 7.5% stake in the company in 2019.

Last month Reuters reported that Starboard could be looking to take over a majority of the board seats when the company board meets in June. That could have set them up to take some action, most likely forcing a sale.

While it’s not clear what will happen now, it seems likely that with this cash, they will be able to stave off action from Starboard, and with KKR in the picture be able to take a longer term view. Box CEO Aaron Levie sees the move as a vote of confidence from KKR in Box’s approach.

“KKR is one of the world’s leading technology investors with a deep understanding of our market and a proven track record of partnering successfully with companies to create value and drive growth. With their support, we will be even better positioned to build on Box’s leadership in cloud content management as we continue to deliver value for our customers around the world,” Levie said in a statement.

Under the terms of the deal, John Park, Head of Americas Technology Private Equity at KKR, will be joining the Box board of directors. The company also announced that independent board member Bethany Mayer will be appointed chairman of the board, effective on May 1st.

Earlier this year, the company bought e-signature startup SignRequest, which could help open up a new set of workflows for the company as it tries to expand its market. With KKR’s backing, it’s not unreasonable to expect that Box, which is cash flow positive, could be taking additional steps to expand the platform in the future.

Box stock was down over 8% premarket, a signal that perhaps Wall Street isn’t thrilled with the announcement, but the cash influx should give Box some breathing room to reset and push forward.


By Ron Miller

Box shares rise on report company is exploring sale

Shares of Box, a well-known content-and-collaboration company that went public in 2015, rose today after Reuters reported that the company is exploring a sale. TechCrunch previously discussed rising investor pressure for Box to ignite its share-price after years in the public-market wilderness.

At the close today Box’s equity was worth $23.65 per share, up around 5% from its opening value, but lower than its intraday peak of $26.47, reached after the news broke. The company went public a little over five years ago at $14 per share, only to see its share price rise to around the same level it returned today during its first day’s trading.

Box, famous during its startup phase thanks in part to its ubiquitous CEO and co-founder Aaron Levie, has continued to grow while public, albeit at a declining pace. Dropbox, a long-term rival, has also seen its growth rate decline since going public. Both have stressed rising profitability over revenue expansion in recent quarters.

But the problem that Box has encountered while public, namely hyper-scale platform companies with competing offerings, could also prove a lifeline; Google and Microsoft could be a future home for Levie’s company, after years of the duo challenging Box for deals.

As recently as last week, Box announced a deal for tighter integration with Microsoft Office 365. Given the timing of the release, it was easy to speculate the news could be landing ahead of a potential deal. The Reuters article adds fuel to the possibility.

While we can’t know for sure if the Reuters article is accurate, the possible sale of Box makes sense.

The article indicated that one of the possible acquisition options for Box could be taking it private again via private equity. Perhaps a firm like Vista or Thoma Bravo, two firms that tend to like mature SaaS companies with decent revenue and some issues, could swoop in to buy the struggling SaaS company. By taking companies off the market, reducing investor pressure and giving them room to maneuver, software companies can at times find new vigor.

Consider the case of Marketo, a company that Vista purchased in 2016 for $1.6 billion before turning it around and selling to Adobe in 2018 for $4.75 billion. The end result generated a strong profit for Vista, and a final landing for Marketo as part of a company with a broader platform of marketing tools.

If there are expenses at Box that could be trimmed, or a sales process that could be improved is not clear. But Box’s market value of $3.78 billion could put it within grasp of larger private-equity funds. Or well within the reaches of a host of larger enterprise software companies that might covet its list of business customers, technology, or both.

If the rumors are true, it could be a startling fall from grace for the company, moving from Silicon Valley startup-darling to IPO to sold entity in just six years. While it’s important to note these are just rumors, the writing could be on the wall for the company and it could just be a matter of when and not if.


By Ron Miller

McAfee sells enterprise biz to Symphony Technology Group for $4B

Security firm McAfee announced this morning that will be selling its enterprise business to a consortium led by the private equity firm Symphony Technology Group for $4 billion.

It should pair well with RSA, another enterprise-focused security company the private equity firm purchased last February for $2 billion.

McAfee President and Chief Executive Officer, Peter Leav says that his company has decided to direct the firm’s resources to the consumer side of the business. “This transaction will allow McAfee to singularly focus on our consumer business and to accelerate our strategy to be a leader in personal security for consumers,” he said in a statement.

The company has been some moves in the last year, returning to the public markets after a decade as a private company. In January, the company reportedly laid off a couple of hundred employees and shut down its software development center in Tel Aviv.

Although Symphony did not point directly to the RSA acquisition, the two investments create a large combined legacy security business for the firm, both of which have strong brand recognition, but might have lost some of their edge to more modern competitors in the marketplace.

Looking at McAfee’s latest earning’s report, Q42020, which the company reported on February 24, 2021, the consumer business grew at a much brisker rate than the enterprise side of the house. The former was up 23% YoY, while the latter grew at a far slower 5% rate.

As for the entire year, the company reported $2.9 billion in total FY2020 revenue, up 10% YoY. That broke down to $1.6 billion in consumer net revenue up 20% YoY, and $1.3 billion in enterprise net revenue, an increase of just 1% for the full year.

The company has a complex history, starting life in the 1980s selling firewall software. It eventually went public before being purchased by Intel for $7.7 billion in 2010 and going private again. In 2014, the company changed names to Intel Security before Intel sold a majority stake it to TPG in 2017 for $4.2 billion and changed the name back to McAfee.

The transaction is expected to close by the end of this year subject to regulatory oversight.


By Ron Miller

Extra Crunch roundup: Edtech VC survey, 5 founder mistakes, fintech liquidity, more

Edtech is so widespread, we already need more consumer-friendly nomenclature to describe the products, services and tools it encompasses.

I know someone who reads stories to their grandchildren on two continents via Zoom each weekend. Is that “edtech?”

Similarly, many Netflix subscribers sought out online chess instructors after watching “The Queen’s Gambit,” but I doubt if they all ran searches for “remote learning” first.

Edtech needs to reach beyond underfunded public school systems to become more sustainable, which is why more investors and founders are focusing on lifelong learning.

Besides serving traditional students with field trips and art classes, a maturing sector is now branching out to offer software tutors, cooking classes and singing lessons.

For our latest investor survey, Natasha Mascarenhas polled 13 edtech VCs to learn more about how “employer-led up-skilling and a renewed interest in self-improvement” is expanding the sector’s TAM.

Here’s who she spoke to:

  • Deborah Quazzo, managing partner, GSV Ventures
  • Ashley Bittner, founding partner, Firework Ventures (a future of work fund with portfolio companies LearnIn and TransfrVR)
  • Jomayra Herrera, principal, Cowboy Ventures (a generalist fund with portfolio companies Hone and Guild Education)
  • John Danner, managing partner, Dunce Capital (an edtech and future of work fund with portfolio companies Lambda School and Outschool)
  • Mercedes Bent and Bradley Twohig, partners, Lightspeed Venture Partners (a multistage generalist fund with investments including Forage, Clever and Outschool)
  • Ian Chiu, managing director, Owl Ventures (a large edtech-focused fund backing highly valued companies including Byju’s, Newsela and Masterclass)
  • Jan Lynn-Matern, founder and partner, Emerge Education (a leading edtech seed fund in Europe with portfolio companies like Aula, Unibuddy and BibliU)
  • Benoit Wirz, partner, Brighteye Ventures (an active edtech-focused venture capital fund in Europe that backs YouSchool, Lightneer and Aula)
  • Charles Birnbaum, partner, Bessemer Venture Partners (a generalist fund with portfolio companies including Guild Education and Brightwheel)
  • Daniel Pianko, co-founder and managing director, University Ventures (a higher ed and future of work fund that is backing Imbellus and Admithub)
  • Rebecca Kaden, managing partner, Union Square Ventures (a generalist fund with portfolio companies including TopHat, Quizlet, Duolingo)
  • Andreata Muforo, partner, TLCom Capital (a generalist fund backing uLesson)

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In other news: Extra Crunch Live, a series of interviews with leading investors and entrepreneurs, returns next month with a full slate of guests. This year, we’re adding a new feature: Our guests will analyze pitch decks submitted by members of the audience to identify their strengths and weaknesses.

If you’d like an expert eye on your deck, please sign up for Extra Crunch and join the conversation.

Thanks very much for reading! I hope you have a fantastic weekend — we’ve all earned it.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

13 investors say lifelong learning is taking edtech mainstream

Image Credits: Bryce Durbin

Rising African venture investment powers fintech, clean tech bets in 2020

After falling into yesterday’s wild news cycle, Alex Wilhelm returned to The Exchange this morning with a close look at venture capital activity across Africa in 2020.

“Comparing aggregate 2020 figures to 2019 results, it appears that last year was a somewhat robust year for African startups, albeit one with fewer large rounds,” he found.

For more context, he interviewed Dario Giuliani, the director of research firm Briter Bridges, which focuses on emerging markets in Africa, Asia and Latin America.

Talent and capital are shifting cybersecurity investors’ focus away from Silicon Valley

A road sign that says "Leaving California."

Image Credits: MCCAIG (opens in a new window) / Getty Images

New cybersecurity ecosystems are popping up in different parts of the world.

Some of of that growth has been fueled by an exodus from the Bay Area, but many early-stage security startups already have deep roots in East Coast cities like Boston and New York.

In the United Kingdom and Europe, government innovation programs have helped entrepreneurs close higher numbers of Series A and B rounds.

Investor interest and expertise is migrating out of Silicon Valley: This post will help you understand where it’s going.

Will Apple’s spectacular iPhone 12 sales figures boost the smartphone industry in 2021?

On Wednesday, 20 January, 2021, in Dublin, Ireland. (Photo by Artur Widak/NurPhoto via Getty Images)

Image Credits: NurPhoto (opens in a new window) / Getty Images

Today’s smartphones are unfathomably feature-rich and durable, so it’s logical that sales have slowed.

A phone purchased 18 months ago is probably “good enough” for many consumers, especially in times of economic uncertainty.

Then again, of the record $111.4 billion in revenue Apple earned last quarter, $65.68 billion came from phone sales, largely driven by the release of the iPhone 12.

Even though “Apple’s success this quarter was kind of a perfect storm,” writes Hardware Editor Brian Heater, “it’s safe to project a rebound for the industry at large in 2021.”

The 5 biggest mistakes I made as a first-time startup founder

Boy Standing with Dropped Ice Cream Cone

Image Credits: Randy Faris (opens in a new window) / Getty Images

Finmark co-founder and CEO Rami Essaid wrote a post for Extra Crunch that candidly describes the traps he laid for himself that made him a less-effective entrepreneur.

As someone who’s worked closely with founders at several startups, each of the points he raised resonated deeply with me.

In my experience, many founders have a hard time delegating, which can quickly create cultural and operational problems. Rami’s experience bears this out:

“I became a human GPS: People could follow my directions, but they struggled to find the way themselves. Independent thinking suffered.”

Dear Sophie: How can I sponsor my mom and stepdad for green cards?

lone figure at entrance to maze hedge that has an American flag at the center

Image Credits: Bryce Durbin/TechCrunch

Dear Sophie:

I just got my U.S. citizenship! My husband and I want to bring my mom and her husband to the U.S. to help us take care of our preschooler and toddler.

My biological dad passed away several years ago when I was an adult and my mom has since remarried.

Can they get green cards?

— Appreciative in Aptos

Check out the amazing speakers joining us on Extra Crunch Live in February

Extra Crunch Live February Schedule: February 3 Gaurav Gupta Lightspeed Venture Partners Raj Dutt Grafana Labs February 10 Aydin Senkut Felicis Kevin Busque Guideline February 17 Steve Loughlin Accel Jason Boehmig Ironclad February 24 Matt Harris Bain Capital Isaac Oates Justworks

Next month, Extra Crunch Live returns with a lineup of guests who are extremely well-qualified to discuss early-stage startups.

Each Wednesday at noon PPST/3 p.m. EST, join a conversation with founders and the investors who backed their companies:

February 3:

Gaurav Gupta (Lightspeed Venture Partners) + Raj Dutt (Grafana Labs)

February 10:

Aydin Senkut (Felicis Ventures) + Kevin Busque (Guideline)

February 17:

Steve Loughlin (Accel) + Jason Boehmig (Ironclad)

February 24:

Matt Harris (Bain Capital) + Isaac Oates (Justworks)

Also, we’re adding a new feature to Extra Crunch Live — our guests will offer advice and feedback on pitch decks submitted by Extra Crunch members in the audience!

10 VCs say interactivity, regulation and independent creators will reshape digital media in 2021

Photo of a young woman watching TV in the bedroom of her apartment; eating sushi and enjoying her night at home alone.

Image Credits: Aleksandar Nakic (opens in a new window) / Getty Images

Since the pandemic disrupted the social rhythms of work and school, many of us have compensated by changing our relationship to digital media.

For instance, I purchased a new sofa and thicker living room curtains several months ago when I realized we have no idea when movie theaters will reopen.

Last year, podcast sponsors spent almost $800 million to reach listeners, but ad revenue is estimated to surpass $1 billion this year. Clearly, I’m not the only person who used a discount code to buy a new product in 2020.

At this point, I can scarcely keep track of the multiple streaming platforms I’m subscribed to, but a new voice-activated remote control that comes with my basic cable plan makes it easier to browse my options.

Media reporter Anthony Ha spoke to10 VCs who invest in media startups to learn more about where they see digital media heading in the months ahead. For starters, how much longer can we expect traditional advertising models to persist?

And in a world with hundreds of channels, how are creators supposed to compete for our attention? What sort of discovery tools can we expect to help us navigate between a police procedural set in a Scandinavian village and a 90s sitcom reboot?

Here’s who Anthony interviewed:

  • Daniel Gulati, founding partner, Forecast Fund
  • Alex Gurevich, managing director, Javelin Venture Partners
  • Matthew Hartman, partner, Betaworks Ventures
  • Jerry Lu, senior associate, Maveron
  • Jana Messerschmidt, partner, Lightspeed Venture Partners
  • Michael Palank, general partner, MaC Venture Capital (with additional commentary from MaC’s Marlon Nichols)
  • Pär-Jörgen Pärson, general partner, Northzone
  • M.G. Siegler, general partner, GV
  • Laurel Touby, managing director, Supernode Ventures
  • Hans Tung, managing partner, GGV Capital

Normally, we list each investor’s responses separately, but for this survey, we grouped their responses by question. Some readers say they use our surveys to study up on an individual VC before pitching them, so let us know which format you prefer.

Does a $27 billion or $29 billion valuation make sense for Databricks?

Data analytics platform Databricks is reportedly raising new capital that could value the company between $27 billion and $29 billion.

By the end of Q3 2020, Databricks had surpassed a $350 million run rate — a $150 million YoY increase, reports Alex Wilhelm.

At the time, he described the company as “an obvious IPO candidate” with “broad private-market options.”

Which begs the question: “Can we come up with a set of numbers that help make sense of Databricks at $27 billion?”

End-to-end operators are the next generation of consumer business

Tourist route to the top of the mountain. Rope bridge in the clouds. Crimea. Ai-Petri

Image Credits: Natalia Timchenko (opens in a new window) / Getty Images

Rapid shifts in the way we buy goods and services disrupted old-school marketplaces like local newspapers and the Yellow Pages.

Today, I can use my phone to summon a plumber, a week’s worth of groceries or a ride to a doctor’s office.

End-to-end operators like Netflix, Peloton and Lemonade take a lot of time and energy to reach scale, but “the additional capital required is often outweighed by the value captured from owning the entire experience.”

Unpacking Chamath Palihapitiya’s SPAC deals for Latch and Sunlight Financial

On January 25, Social Capital CEO Chamath Palihapitiya tweeted that he was making two blank-check deals.

Enterprise SaaS company Latch makes keyless entry systems; Sunlight Financial helps consumers finance residential solar power installations.

“There are nearly 300 SPACs in the market today looking for deals,” noted Alex Wilhelm, who unpacked both transactions.

“There’s no escaping SPACs for a bit, so if you are tired of watching blind pools rip private companies into the public markets, you are not going to have a very good next few months.”

Fintechs could see $100 billion of liquidity in 2021

Long exposure spillway shines water and light. Copy space.

Image Credits: dan tarradellas (opens in a new window) / Getty Images

On Monday, we published the Matrix Fintech Index, a three-part study that weighs liquidity, public markets and e-commerce trends to create a snapshot of an industry in perpetual flux.

For four years running, the S&P 500 and incumbent financial services companies have been outperformed by companies like Afterpay, Square and Bill.com.

In light of steady VC investment, increasing consumer adoption and a crowded IPO pipeline, “fintech represents one of the most exciting major innovation cycles of this decade.”

Drupal’s journey from dorm-room project to billion-dollar exit

Dries Buytaert, co-founder and CTO at Acquia

Image Credits: Acquia

On January 15, 2001, then-college student Dries Buytaert released Drupal 1.0.0, an open-source content-management platform. At the time, about 7% of the world’s population was online.

After raising more than $180 million, Buytaert exited to Vista Equity Partners for $1 billion in 2019.

Enterprise reporter Ron Miller interviewed Buytaert to learn more about his 18-year journey.

“His story is compelling, but it also offers lessons for startup founders who also want to build something big,” says Ron.


By Walter Thompson

Citrix is acquiring Wrike from Vista for $2.25B

Citrix announced today that it plans to acquire Wrike, a SaaS project management platform, from Vista Equity Partners for $2.25 billion. Vista bought the company just two years ago.

Citrix, which is best known for its digital workspaces, sees this as a good match, especially at a time where employees have been forced to work from home because of the pandemic. By combining the two companies, it produces a powerful combination, one that didn’t escape Citrix CEO and president David Henshall

“Together, Citrix and Wrike will deliver the solutions needed to power a cloud-delivered digital workspace experience that enables teams to securely access the resources and tools they need to collaborate and get work done in the most efficient and effective way possible across any channel, device or location,” Henshall said in a statement.

Andrew Filev, founder and CEO at Wrike, who has managed the company through these multiple changes and remains at the helm, believes his company has landed in a good spot with the Citrix purchase.

“First, as part of the Citrix family we will be able to scale our product and accelerate our roadmap to deliver capabilities that will help our customers get more from their Wrike investment. We have always listened to our customers and have built our product based on their feedback — now we will be able to do more of that, faster.,” Filev wrote in a company blog post announcing the deal, stating a typical argument from CEOs of acquired companies.

The startup reports $140 million ARR, growing at 30% annually, so that comes out to approximately 16x its present-day revenue, which is the price companies are generally paying for acquisitions these days. However, as Wrike expects to reach $180 million to $190 million in ARR this year, the company’s sale price could look like a bargain in a few years’ time if the projections come to pass.

The price was not revealed in the 2018 sale, but it surely feels like a big win for Vista. Consider that Wrike has previously raised just $26 million.


By Ron Miller

Extra Crunch roundup: antitrust jitters, SPAC odyssey, white-hot IPOs, more

Some time ago, I gave up on the idea of finding a thread that connects each story in the weekly Extra Crunch roundup; there are no unified theories of technology news.

The stories that left the deepest impression were related to two news pegs that dominated the week — Visa and Plaid calling off their $5.3 billion acquisition agreement, and sizzling-hot IPOs for Affirm and Poshmark.

Watching Plaid and Visa sing “Let’s Call The Whole Thing Off” in harmony after the U.S. Department of Justice filed a lawsuit to block their deal wasn’t shocking. But I was surprised to find myself editing an interview Alex Wilhelm conducted with with Plaid CEO Zach Perret the next day in which the executive said growing the company on its own is “once again” the correct strategy.


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In an analysis for Extra Crunch, Managing Editor Danny Crichton suggested that federal regulators’ new interest in antitrust enforcement will affect valuations going forward. For example, Procter & Gamble and women’s beauty D2C brand Billie also called off their planned merger last week after the Federal Trade Commission raised objections in December.

Given the FTC’s moves last year to prevent Billie and Harry’s from being acquired, “it seems clear that U.S. antitrust authorities want broad competition for consumers in household goods,” Danny concluded, and I suspect that applies to Plaid as well.

In December, C3.ai, Doordash and Airbnb burst into the public markets to much acclaim. This week, used clothing marketplace Poshmark saw a 140% pop in its first day of trading and consumer-financing company Affirm “priced its IPO above its raised range at $49 per share,” reported Alex.

In a post titled A theory about the current IPO market, he identified eight key ingredients for brewing a debut with a big first-day pop, which includes “exist in a climate of near-zero interest rates” and “keep companies private longer.” Truly, words to live by!

Come back next week for more coverage of the public markets in The Exchange, an interview with Bustle CEO Bryan Goldberg where he shares his plans for taking the company public, a comprehensive post that will unpack the regulatory hurdles facing D2C consumer brands, and much more.

If you live in the U.S., enjoy your MLK Day holiday weekend, and wherever you are: thanks very much for reading Extra Crunch.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

 

Rapid growth in 2020 reveals OKR software market’s untapped potential

After spending much of the week covering 2021’s frothy IPO market, Alex Wilhelm devoted this morning’s column to studying the OKR-focused software sector.

Measuring objectives and key results are core to every enterprise, perhaps more so these days since knowledge workers began working remotely in greater numbers last year.

A sign of the times: this week, enterprise orchestration SaaS platform Gtmhub announced that it raised a $30 million Series B.

To get a sense of how large the TAM is for OKR, Alex reached out to several companies and asked them to share new and historical growth metrics:

  • Gthmhub
  • Perdoo
  • WorkBoard
  • Ally.io
  • Koan
  • WeekDone

“Some OKR-focused startups didn’t get back to us, and some leaders wanted to share the best stuff off the record, which we grant at times for candor amongst startup executives,” he wrote.

5 consumer hardware VCs share their 2021 investment strategies

For our latest investor survey, Matt Burns interviewed five VCs who actively fund consumer electronics startups:

  • Hans Tung, managing partner, GGV Capital
  • Dayna Grayson, co-founder and general partner, Construct Capital
  • Cyril Ebersweiler, general partner, SOSV
  • Bilal Zuberi, partner, Lux Capital
  • Rob Coneybeer, managing director, Shasta Ventures

“Consumer hardware has always been a tough market to crack, but the COVID-19 crisis made it even harder,” says Matt, noting that the pandemic fueled wide interest in fitness startups like Mirror, Peloton and Tonal.

Bonus: many VCs listed the founders, investors and companies that are taking the lead in consumer hardware innovation.

A theory about the current IPO market

Digital generated image of abstract multi colored curve chart on white background.

Digital generated image of abstract multi colored curve chart on white background.

If you’re looking for insight into “why everything feels so damn silly this year” in the public markets, a post Alex wrote Thursday afternoon might offer some perspective.

As someone who pays close attention to late-stage venture markets, he’s identified eight factors that are pushing debuts for unicorns like Affirm and Poshmark into the stratosphere.

TL;DR? “Lots of demand, little supply, boom goes the price.”

Poshmark prices IPO above range as public markets continue to YOLO startups

Clothing resale marketplace Poshmark closed up more than 140% on its first trading day yesterday.

In Thursday’s edition of The Exchange, Alex noted that Poshmark boosted its valuation by selling 6.6 million shares at its IPO price, scooping up $277.2 million in the process.

Poshmark’s surge in trading is good news for its employees and stockholders, but it reflects poorly on “the venture-focused money people who we suppose know what they are talking about when it comes to equity in private companies,” he says.

Will startup valuations change given rising antitrust concerns?

GettyImages 926051128

financial stock market graph on technology abstract background represent risk of investment

This week, Visa announced it would drop its planned acquisition of Plaid after the U.S. Department of Justice filed suit to block it last fall.

Last week, Procter & Gamble called off its purchase of Billie, a women’s beauty products startup — in December, the U.S. Federal Trade Commission sued to block that deal, too.

Once upon a time, the U.S. government took an arm’s-length approach to enforcing antitrust laws, but the tide has turned, says Managing Editor Danny Crichton.

Going forward, “antitrust won’t kill acquisitions in general, but it could prevent the buyers with the highest reserve prices from entering the fray.”

Dear Sophie: What’s the new minimum salary required for H-1B visa applicants?

Image Credits: Sophie Alcorn

Dear Sophie:

I’m a grad student currently working on F-1 STEM OPT. The company I work for has indicated it will sponsor me for an H-1B visa this year.

I hear the random H-1B lottery will be replaced with a new system that selects H-1B candidates based on their salaries.

How will this new process work?

— Positive in Palo Alto

Venture capitalists react to Visa-Plaid deal meltdown

A homemade chocolate cookie with a bite and crumbs on a white background

OLYMPUS DIGITAL CAMERA

After news broke that Visa’s $5.3 billion purchase of API startup Plaid fell apart, Alex Wilhelm and Ron Miller interviewed several investors to get their reactions:

  • Anshu Sharma, co-founder and CEO, SkyflowAPI
  • Amy Cheetham, principal, Costanoa Ventures
  • Sheel Mohnot, co-founder, Better Tomorrow Ventures
  • Lucas Timberlake, partner, Fintech Ventures
  • Nico Berardi, founder and general partner, ANIMO Ventures
  • Allen Miller, VC, Oak HC/FT
  • Sri Muppidi, VC, Sierra Ventures
  • Christian Lassonde, VC, Impression Ventures

Plaid CEO touts new ‘clarity’ after failed Visa acquisition

Zach Perret, chief executive officer and co-founder of Plaid Technologies Inc., speaks during the Silicon Slopes Tech Summit in Salt Lake City, Utah, U.S., on Friday, Jan. 31, 2020. The summit brings together the leading minds in the tech industry for two-days of keynote speakers, breakout sessions, and networking opportunities. Photographer: George Frey/Bloomberg via Getty Images

Zach Perret, chief executive officer and co-founder of Plaid Technologies Inc., speaks during the Silicon Slopes Tech Summit in Salt Lake City, Utah, U.S., on Friday, Jan. 31, 2020. The summit brings together the leading minds in the tech industry for two-days of keynote speakers, breakout sessions, and networking opportunities. Photographer: George Frey/Bloomberg via Getty Images

Alex Wilhelm interviewed Plaid CEO Zach Perret after the Visa acquisition was called off to learn more about his mindset and the company’s short-term plans.

Perret, who noted that the last few years have been a “roller coaster,” said the Visa deal was the right decision at the time, but going it alone is “once again” Plaid’s best way forward.

2021: A SPAC odyssey

In Tuesday’s edition of The Exchange, Alex Wilhelm took a closer look at blank-check offerings for digital asset marketplace Bakkt and personal finance platform SoFi.

To create a detailed analysis of the investor presentations for both offerings, he tried to answer two questions:

  1. Are special purpose acquisition companies a path to public markets for “potentially-promising companies that lacked obvious, near-term growth stories?”
  2. Given the number of unicorns and the limited number of companies that can IPO at any given time, “maybe SPACS would help close the liquidity gap?”

Flexible VC: A new model for startups targeting profitability

12 ‘flexible VCs’ who operate where equity meets revenue share

Spotlit Multi Colored Coil Toy in the Dark.

Spotlit Multi Colored Coil Toy in the Dark.

Growth-stage startups in search of funding have a new option: “flexible VC” investors.

An amalgam of revenue-based investment and traditional VC, investors who fall into this category let entrepreneurs “access immediate risk capital while preserving exit, growth trajectory and ownership optionality.”

In a comprehensive explainer, fund managers David Teten and Jamie Finney present different investment structures so founders can get a clear sense of how flexible VC compares to other venture capital models. In a follow-up post, they share a list of a dozen active investors who offer funding via these non-traditional routes.

These 5 VCs have high hopes for cannabis in 2021

Marijuana leaf on a yellow background.

Image Credits: Anton Petrus (opens in a new window) / Getty Images

For some consumers, “cannabis has always been essential,” writes Matt Burns, but once local governments allowed dispensaries to remain open during the pandemic, it signaled a shift in the regulatory environment, and investors took notice.

Matt asked five VCs about where they think the industry is heading in 2021 and what advice they’re offering their portfolio companies:


By Walter Thompson

Thoma Bravo to acquire RealPage property management platform for $10.2B

The busy year in M&A continued this weekend when private equity firm Thoma Bravo announced it was acquiring RealPage for $10.2B.

In RealPage, Thoma Bravo is getting a full-service property management platform with services like renter portals, site management, expense management and financial analysis for building and property owners. Orlando Bravo, Founder and a Managing Partner of Thoma Bravo sees a company that they can work with and build on its previous track record.

“RealPage’s industry leading platform is critical to the real estate ecosystem and has tremendous potential going forward,” Bravo said in a statement.

As for RealPage, company CEO Steve Winn, who will remain with the company, sees the deal as a big win for stock holders, while giving them the ability to keep investing in the product. “This will enhance our ability to focus on executing our long-term strategy and delivering even better products and services to our clients and partners,”  Winn said in a statement.

RealPage, which was founded in 1998 and went public in 2010, is a typical kind of mature platform that a private equity firm like Thoma Bravo is attracted to. It has a strong customer base with over 12,000 customers and respectable revenue, growing at a modest pace. In its most recent earnings statement, the company announced $298.1 million in revenue, up 17% year over year. That puts it on a run rate of over $1 billion.

Under the terms of the deal, Thoma Bravo will pay RealPage stockholders $88.75 in cash per share. That is a premium of more 30% over the $67.83 closing price on December 18th. The transaction is subject to standard regulatory review, and the RealPage board will have a 45-day “go shop” window to see if it can find a better price. Given the premium pricing on this deal, that isn’t likely, but it will have the opportunity to try.


By Ron Miller

2020’s top 10 enterprise M&A deals totaled a staggering $165B

While 2020 won’t be remembered fondly by many of us for much of anything, it was a blockbuster year for enterprise M&A with the top 10 deals totaling an astounding $165.2 billion.

This is the third straight year I’ve done this compilation. Last year the number was $40 billion. The year prior it was $87 billion. Those numbers pale in comparison to 2020’s result.

Last year’s biggest deal — Salesforce buying Tableau for $15.7 billion — would have only been good for fifth place on this year’s list. And last year’s fourth largest deal, where VMware bought Pivotal for $2.7 billion, wouldn’t have even made this year’s list at all.

The 2020 number was lifted by four chip company deals totaling $106 billion alone. Consider that the largest of these deals at $40 billion matched last year’s entire list. But let’s not forget the software company acquisitions, which accounted for the remainder, three of which were via private equity deals.

It’s worth noting that the $165.2 billion figure doesn’t include the Oracle-TikTok debacle, which remains for now in regulatory limbo and may never emerge from it. Nor does it include two purely fintech deals — Morgan Stanley acquiring E-Trade for $13 billion or Intuit snagging Credit Karma for $7.1 billion — but we did include the $5.3 billion Visa-Plaid deal because as it involved an enterprise-y API company we felt like it fit our criteria.

Keep in mind as you go through this year’s list that it appears to be an outlier year in terms of total deal flow. Most years have maybe one or two megadeals, which I would define as over $10 billion. There were six this year. And there were a host of unlisted deals worth between $1 billion and $3.2 billion, several of which would have made it to the list in quieter years.

Without further adieu, here is this year’s Top 10 deals in M&A organized from smallest to largest:

10. Vista snags Pluralsight for $3.5B

This deal happened just this week as we were writing the story, vaulting into 10th place past the $3.2 billion Twilio-Segment deal. Vista has been active as always and it has added Pluralsight, an online education platform for IT pros with plans to take it private again. At a time when more people are online, this deal seems like a wise move.

9. KKR acquires Epicor for $4.7B

This was one of those under-the-radar private equity deals, but one with a bushel of money changing hands. Epicor, hardly a household name, is a mature ERP company dating back to the early 1970s. The company has been on a rocky financial road for much of the 21st century. This could be one of those deals where KKR sees a way to squeeze life from maintenance contracts. Otherwise this one is hard to figure.

8. Insight Partners nabs Veeam for $5B

In yet another private equity deal, Insight acquired Veeam, a cloud data backup and recovery startup based in Switzerland for $5 billion. This one was one of the earliest deals of 2020 and set the tone for the year. The firm had previously invested $500 million into Veeam and apparently liked what it saw and bought the company. Unlike the Epicor deal, Insight probably plans to invest in the company with an end goal of going public or flipping it for a profit at some point.


By Ron Miller

Vista’s $3.5B purchase of Pluralsight signals a maturing edtech market

On Monday, Pluralsight, a Utah-based startup that sells software development courses to enterprises, announced that it has been acquired by Vista for $3.5 billion.

The deal, yet to close, is one of the largest enterprise buys of the year: Vista is getting an online training company that helps retrain techies with in-demand skills through online courses in the midst of a booming edtech market. Additionally, the sector is losing one of its few publicly traded companies just two years after it debuted on the stock market.

The Pluralsight acquisition is largely a positive signal that shows the strength of edtech’s capital options as the pandemic continues.

Investors and founders told Techcrunch that the Pluralsight acquisition is largely a positive signal that shows the strength of edtech’s capital options as the pandemic continues.

“What’s happening in edtech is that capital markets are liquidating,” said Deborah Quazzo, managing partner of GSV Advisors.

Quazzo, a seed investor in Pluralsight, said the ability to move fluidly between privately held and publicly held companies is a characteristic of tech sectors with deep capital markets, which is different from edtech’s “old days, where the options to exit were very narrow.”


By Natasha Mascarenhas

Thoma Bravo acquires Flexera for second time paying $2.85B

Thoma Bravo must really like Flexera, an IT asset management company out of Chicago. The private equity firm bought the company for the second time today. Sources told TechCrunch the price was $2.85 billion.

Technically, Thoma Bravo is getting a majority stake in the company, buying it from previous owners TA Associates and Ontario Teachers’ Pension Plan Board. The firm originally bought Flexera in 2008 from Macrovision for just $200 million. It turned it around just three years later in 2011 for $1 billion profit, according to reports.

While reports last year had the company’s investors looking for $3 billion, they didn’t quite reach that mark, but it’s still a hefty profit as the company continues to change hands, giving each of its owners a substantial return on investment.

At $2.85 billion, Thoma Bravo will have a bigger challenge on its hands to make that same kind of return, but it sees a company it liked before and it still likes it, especially the management team, which to some degree at least remains intact.

“Jim [Ryan] and his team have positioned Flexera for sustained growth by focusing on the strategic challenges enterprises face with complex IT infrastructures,” Seth Boro, managing partner at Thoma Bravo said in a statement.

Ryan was pleased to see the company’s value continue to rise and to connect once again with Thoma Bravo. “This is a resounding vote of confidence in the growth Flexera has shown and the strategic initiatives we’ve undertaken to address the exponential challenges faced by organizations today,” he said in a statement.

The company was founded in 2008 and has bought 12 companies along the way including five in the last couple of years, according to Crunchbase data. The deal is expected to close in the first quarter of next subject to regulatory approvals.


By Ron Miller

Vista acquires Gainsight for $1.1B, adding to its growing enterprise arsenal

Vista Equity Partners hasn’t been shy about scooping up enterprise companies over the years, and today it added to a growing portfolio with its purchase of Gainsight.  The company’s software helps clients with customer success, meaning it helps create a positive customer experience when they interact with your brand, making them more likely to come back and recommend you to others. Sources pegged the price tag at $1.1 billion.

As you might expect, both parties are putting a happy face on the deal, talking about how they can work together to grow Gainsight further. Certainly, other companies like Ping Identity seem to have benefited from joining forces with Vista. Being part of a well capitalized firm allowed them to make some strategic investments along the way to eventually going public last year.

Gainsight and Vista are certainly hoping for a similar outcome in this case. Monti Saroya, co-head of the Vista Flagship Fund and senior managing director at the firm sees a company with a lot of potential that could expand and grow with help from Vista’s consulting arm, which helps portfolio companies with different aspects of their business like sales, marketing and operations.

“We are excited to partner with the Gainsight team in its next phase of growth, helping the company to expand the category it has created and deliver even more solutions that drive retention and growth to businesses across the globe,” Saroya said in a statement.

Gainsight CEO Nick Mehta likes the idea of being part of Vista’s portfolio of enterprise companies, many of whom are using his company’s products.

“We’ve known Vista for years, since 24 of their portfolio companies use Gainsight. We’ve seen Gainsight clients like JAMF and Ping Identity partner with Vista and then go public. We believe we are just getting started with customer success, so we wanted the right partner for the long term and we’re excited to work with Vista on the next phase of our journey,” Mehta told TechCrunch.

Brent Leary, principle analyst at CRM Essentials, who covers the sales and marketing space says that it appears that Vista is piecing together a sales and marketing platform that it could flip or go public in a few years.

“It’s not only the power that’s in the platform, it’s also the money. And Vista seems to be piecing together an engagement platform based on the acquisitions of Gainsight, Pipedrive and even last year’s Acquia purchase. Vista isn’t afraid to spend big money, if they can make even bigger money in a couple years if they can make these pieces fit together,” Leary told me.

While Gainsight exits as a unicorn, the deal might not have been the outcome it was looking for. The company raised over $187 million, according to Pitchbook data, though its fundraising had slowed in recent years. Gainsight raised $50 million in April of 2017 at a post-money valuation of $515 million, again per Pitchbook. In July of 2018 it added $25 million to its coffers, and the final entry was a small debt investment raised in 2019.

It could be that the startup saw its growth slow down, leaving it somewhere between ready for new venture investment and profitability. That’s a gap that PE shops like Vista look for, write a check, shake up a company and hopefully exit at an elevated price.

Gainsight hired a new chief revenue officer last month, notably. Per Forbes, the company was on track to reach “about” $100 million ARR by the end of 2020, giving it a revenue multiple of around 11x in the deal. That’s under current market norms, which could imply that Gainsight had either lower gross margins than comparable companies, or as previously noted, that its growth had slowed.

A $1.1 billion exit is never something to bemoan — and every startup wants to become a unicorn — but Gainsight and Mehta are well known, and we were hoping for the details only an S-1 could deliver. Perhaps one day with Vista’s help that could happen.


By Ron Miller

Which emerging technologies are enterprise companies getting serious about in 2020?

Startups need to live in the future. They create roadmaps, build products and continually upgrade them with an eye on next year — or even a few years out.

Big companies, often the target customers for startups, live in a much more near-term world. They buy technologies that can solve problems they know about today, rather than those they may face a couple bends down the road. In other words, they’re driving a Dodge, and most tech entrepreneurs are driving a DeLorean equipped with a flux-capacitor.

That situation can lead to a huge waste of time for startups that want to sell to enterprise customers: a business development black hole. Startups are talking about technology shifts and customer demands that the executives inside the large company — even if they have “innovation,” “IT,” or “emerging technology” in their titles — just don’t see as an urgent priority yet, or can’t sell to their colleagues.

How do you avoid the aforementioned black hole? Some recent research that my company, Innovation Leader, conducted in collaboration with KPMG LLP, suggests a constructive approach.

Rather than asking large companies about which technologies they were experimenting with, we created four buckets, based on what you might call “commitment level.” (Our survey had 211 respondents, 62% of them in North America and 59% at companies with greater than $1 billion in annual revenue.) We asked survey respondents to assess a list of 16 technologies, from advanced analytics to quantum computing, and put each one into one of these four buckets. We conducted the survey at the tail end of Q3 2020.

Respondents in the first group were “not exploring or investing” — in other words, “we don’t care about this right now.” The top technology there was quantum computing.

Bucket #2 was the second-lowest commitment level: “learning and exploring.” At this stage, a startup gets to educate its prospective corporate customer about an emerging technology — but nabbing a purchase commitment is still quite a few exits down the highway. It can be constructive to begin building relationships when a company is at this stage, but your sales staff shouldn’t start calculating their commissions just yet.

Here are the top five things that fell into the “learning and exploring” cohort, in ranked order:

  1. Blockchain.
  2. Augmented reality/mixed reality.
  3. Virtual reality.
  4. AI/machine learning.
  5. Wearable devices.

Technologies in the third group, “investing or piloting,” may represent the sweet spot for startups. At this stage, the corporate customer has already discovered some internal problem or use case that the technology might address. They may have shaken loose some early funding. They may have departments internally, or test sites externally, where they know they can conduct pilots. Often, they’re assessing what established tech vendors like Microsoft, Oracle and Cisco can provide — and they may find their solutions wanting.

Here’s what our survey respondents put into the “investing or piloting” bucket, in ranked order:

  1. Advanced analytics.
  2. AI/machine learning.
  3. Collaboration tools and software.
  4. Cloud infrastructure and services.
  5. Internet of things/new sensors.

By the time a technology is placed into the fourth category, which we dubbed “in-market or accelerating investment,” it may be too late for a startup to find a foothold. There’s already a clear understanding of at least some of the use cases or problems that need solving, and return-on-investment metrics have been established. But some providers have already been chosen, based on successful pilots and you may need to dislodge someone that the enterprise is already working with. It can happen, but the headwinds are strong.

Here’s what the survey respondents placed into the “in-market or accelerating investment” bucket, in ranked order:


By Walter Thompson

Sprinklr raises $200M on $2.7B valuation three years after last investment

Sprinklr has been busy the last few years acquiring a dozen companies, then rewriting their code base and incorporating them into the company’s customer experience platform. Today, the late-stage startup went back to the fund raising well for the first time in three years, and it was a doozy, raising $200 million on a $2.7 billion valuation.

The money came from private equity firm Hellman & Friedman, who also invested $300 million in buying back secondary shares. Meanwhile the company also announced $150 million in convertible securities from Sixth Street Growth. That’s a lot of action for a company that’s been quiet on the fund raising front for three years.

Company founder and CEO Ragy Thomas says he sought the investment now because after building a customer experience platform, he was ready to accelerate and he needed the money to do it. He expects the company to hit $400 million in annual recurring revenue by year’s end and he says that he sees a much bigger opportunity on the horizon.

“We think it’s a $100 billion opportunity and our large public competitors have validated that and continue to do so in the customer experience management space,” he said. Those large competitors include Salesforce and Adobe.

He sees customer experience management as having the kind of growth that CRM has had in the past, and this money gives him more options to grow faster, while working with a big private equity firm.

“So what was appealing in this market for us was not just putting some more money in the bank and being a little more aggressive in growth, innovation, go to market and potential M&A, but what was also appealing is the opportunity to bring someone like a Hellman & Friedman to the table,” Thomas said.

The company has 10,000 clients, some spending millions of dollars a year. They currently have 1900 employees in 25 offices around the world, and Thomas wants to add another 500 over the next 12 months, — and he believes that $1 billion in ARR is a realistic goal for the company.

As he builds the company Thomas, who is a person of color, has codified diversity and inclusion into the company’s charter, what he calls the “Sprinklr Way.” For us, diversity and inclusion is not impossible. It is not something that you do to check a box and market yourself. It’s deep in our DNA,” he said.

Tarim Wasim a partner at investor Hellman & Friedman, sees a company with tremendous potential to lead a growing market. “Sprinklr has a unique opportunity to lead a Customer Experience Management market that’s already massive — and growing — as enterprises continue to realize the urgent need to put CXM at the heart of their digital transformation strategy,” Wasim said in a statement.

Sprinklr was founded in 2009. Before today, it last raised $105 million in 2016 led by Temasek Holdings. Past investors include Battery Ventures, ICONIQ Capital and Intel Capital.


By Ron Miller