🗞 Venture Chronicles - August 2020

Overlooked #34

Hi, it’s Alexandre from Idinvest. Overlooked is a weekly newsletter about underrated trends in the European tech industry. Today, I’m sharing the most insightful news of August.

For 2020, I want to pick one piece of news per day and write a short comment about it. I want to talk about something that strikes me. Something that happened in the tech ecosystem. Here is the issue for August!

Please note that the date picked for each event is not always the exact date of the event but the date I decided to write about the event.

  • Saturday, Aug. 1st: Let's start with the TikTok vs. Trump saga. I could have written short morsels about this soap opera during the whole month. Instead, I will try to summarize everything that happened up until the end of August.

    • In the middle of a political and economical war between the US and China, Donald Trump decided during the summer to ban a number of Chinese apps in the US - including TikTok. Bytdance (TikTok’s owner) had no choice but launch a sales process to sell to a foreign third party TikTok’s US operations. The Chinese TikTok app is run independently from the Western one. China still has a nuisance power and could block the transaction by refusing to include the TikTok recommendation algorithm, considered as a strategic and sensitive asset for China.

    • Potential acquirers: Microsoft/Walmart, Oracle/Sequoia/General Atlantic, Twitter, Triller/PE Fund.

    • I love the Microsoft/Walmart consortium. On the one hand, Microsoft is acquiring a second social graph after LinkedIn and is becoming a de facto social media leader. On the other hand, Walmart is acquiring a strong distribution arm for its e-commerce activity.

    • Kevin Mayer (CEO) resigned after only 4 months in activity.

    • The deal must be signed before the Sep. 15th deadline set up by Trump.

  • Sunday, Aug. 2nd: Matt Turck (VC at NY based fund FirstMark) wrote a paper recommending startups to hire a VP of Finance just after raising their series A to handle the following tasks: have accurate and easily accessible financial and operational KPIs, set up the right processes on accounting and finance, manage closely your cash situation and better understand your cash cycles, bring inputs to the CEO to build the strategy. (Matt Turck)

  • Monday, Aug. 3rd: Lick Home is raising a £3m seed roud led by Felix Capital. It's a D2C brand offering products to decorate or renovate your home starting with painting and wallpapers. It has also an offer for professional customers and aim to disrupt the customer experience in this market (community building, 1-on-1 video consultation, digitalization etc.) (Felix Capital, Tech.eu)

  • Tuesday, Aug. 4th: Public digital health giants Livongo and Teladoc are merging to create an entity worth $38bn. Teladoc provides virtual care services (virtual care delivery, acute needs, chronic conditions and mental health) while Livongo offers proactive patient engagement solutions for individuals with chronic conditions (diabetes, prediabetes, hypertension, weight management and behavioral health). (Techcrunch, Forbes)

  • Wednesday, Aug. 5th: Earlier this year, AngeList introduced rolling funds. Instead of raising all the capital upfront, fund managers are now able to raise capital through recurring quarterly subscriptions. Therefore, you can start investing without having to raise the total amount, the fundraising remains open at anytime and you can increase the fund size whenever you want. This new structure is starting to get traction in the US especially for first time solo-GPs. For instance, Sahil Lavingia is using a rolling fund to raise a $5m annual generalist seed fund. Sahil was employee n°2 at Pinterest before building its own company called Gumroad. It's a platform which helps creators that sell products to consumers which have passed the $10m ARR mark. You should definitely check his fund memo. (Sahil Lavingia, Techcrunch)

  • Thursday, Aug. 6th: Cindy Bi is another good example of these rolling fund managers. She was Aspose's CEO which is a self funded company building an API to manage file formats. Cindy is raising $6m per year to be deployed at seed stage with $250k tickets in 15-20 companies. She has built a great track record as an angel investor investing in 100 startups with 3 unicorns (Cruise, Rippling and Zapier) and 10+ potential unicorns (inc. Algolia, Ship Bob or Lambda School). (Cindy Bi)

  • Friday, Aug. 7th: Mux - which is building the API backbone to power the next generation of video apps - raised a $37m series C led by a16z. (a16z, Techcrunch)

    • Mux has two products: API to manage video and data analytics for videos.

    • The a16z partner commented: « the last time I saw an API this elegant and powerful was Twilio for SMS or Stripe for payment. »

    • It’s obviously a covid-boosted deal. I would be interested to learn more about the traction pre-covid and how the growth during covid has impacted the valuation. The company reported the following figures to Techcrunch: 4x revenue growth (8x for the API video product), 160% net dollar retention, 5-6x LTV/CAC.

    • API is replacing software. Owning an API block to build video apps is the logical next step especially in a covid world in which video has become the main communication channel. A new wave of consumer and business video apps is being built on top of these APIs and will not have to build similar video in-house capabilities as Zoom, Netflix or Twitch. Investing in Mux is a pick and shovel play as opposed to application plays like Hopin or Livestorm.

  • Saturday, Aug. 8th: Jordan Odinsky wrote a paper on building a cult around your product. Everyone is trying to build a community around its product but it's extremely hard to do. Jordan discusses recent examples like Superhuman, Lambda School, Roam Research, Figma, Lemonade or Notion. He gives good ingredients in cult building: going after an identified enemy (e.g. Superhuman vs. Gmail), building a commitment curve and setting up a velvet rope (waitlist, influencers, building in public, test-flights). (on Cult Wars, on Velvet Ropes)

  • Sunday, Aug. 9th: I listened to a podcast with Matthew Ball who is one of the best thinker in the entertainment industry and more specifically in gaming. My favorite section is on Epic Games which is the company behind Fortnite. (Invest Like the Best)

    • I love gaming as a space because it's the entertainment category with the highest potential to capture most of our free time and it's at the forefront of many tech innovations.

    • Epic Games is much more than Fortnite's game developer. Epic has a game engine called Unreal Engine which is the not only the best engine to make games but also the best software to make realistic simulations. Car makers use Unreal for their advertising spots. Singapore airport uses Unreal to modelize people flux. Film-makers use Unreal to produce animated movies etc.

    • The long-term vision is to become the cornerstone of the metaverse powered by Unreal Engine by building and offering at costs the key infrastructure layers needed for its rise. The metaverse is the idea that a digital world will emerge with characteristics that make it as relevant or even more relevant than the physical world (more immersion, more interactions, data portability etc.)

    • Epic Games is progressively adding blocks and creating flywheels to get closer to the advent of the metaverse.

  • Monday, Aug. 10th: Sifted discussed with Taxfix's CEO Mathis Buechi the secondary transaction which happened simultaneously during the $65m series C led by Index back in April. €3.8m worth of shares were sold by 40 employees and former employees out of the €40.0m pool dedicated to employees. Employees could only sell up to 50% of their shares during this transaction. I wrote here a paper on secondary transactions but here the idea is to cash out employees who either (i) left the company and don't want to wait for an exit to cash out their position, (ii) are still onboard but want a cheque to feel more financially secure and compensate for a low salary they could have accepted in the early days of a company. (Sifted)

  • Tuesday, Aug. 11th: Revolut released its 2019 financial statements which are full of interesting insights. (Revolut, Sifted)

    • Revolut has offices in London (HQ), Krakow (opened in 2017), Porto (2019) and Vilnius.

    • It has close to 13m retail customers and has added 3m users since the beginning of the year (vs. 3.8m users at the end of 2018). Revolut has also 220k business customers.

    • Revolut has both a European Banking License and an electronic money license that have been operating since the end of 2019.

    • In 2019, revenues tripled to reach £162.7m (vs. £58.2m) while operating losses increased to £107.4m (vs. £34.0m in 2018).

  • Wednesday, Aug. 12th: RevenueCat raised a $15m series A led by Index. It's a tool to manage in-app purchases and subscriptions in mobile apps. The founders started to work on the idea in August 2017 and launched a first product two months later. In August 2018, the company went to YC and ended the batch with 40 customers and the year with 157 customers and $10k MRR. The company has experienced a strong growth since then and has struggle to keep up with the rising demand. Subscriptions as a business model are rising for consumer products and especially for mobile apps. It's not surprising that you can build a VC-backed business to manage them. (RevenueCat, Crunchbase)

  • Tuesday, Aug. 13th: German VC La Famiglia raised a €50m fund II (vs. €35m fund I) to invest in European B2B startups. The fund has backed c.40 startups to date including Forto, Arculus, Graphy, Spread.ai, Luminovo. (Techcrunch)

  • Friday, Aug. 14th: Fortnite is launching a war against Apple. This is August’s second biggest tech saga after TikTok vs. Trump. Fortnite is opposing the 30% cut Apple is taking on every transaction happening on its store. After explicitly pushing its users to bypass Apple payments, the app was removed from the App Store. Fortnite decided to publish a parody video mimicking Apple famous 1984 commercial and to issue a statement on its website to start a legal battle with Apple. (Fortnite, Apple Commercial, Tim Sweeney)

    • Epic Games (Fortnite owner) has always been opposed to the high commission rates taken by stores. It launched its app on Android by bypassing the Google Play Store and it also launched the Epic Games Store with a 12% take rate as opposed to the 30% rate of its direct contender Valve. Epic believes that operating a store is a commodity and it should be operated almost at cost - with a take rate more similar to what payment providers are taking.

    • Tim Sweeney (Epic Games CEO) is saying that he’s not looking for a specific deal for Fortnite but is pushing for a drastic change in the App Store policies to give more value back to the developers.

  • Saturday, Aug. 15th: Square is testing a micro-lending feature with 1k users with its Cash-App mobile application. Users will be able to borrow between $20 and $200 to be paid back in 4 weeks with a 5% interest rate. It's another piece going towards building the fractional economy. It hopes to bring financial freedom to the people that are struggling to make both ends meet on a certain month. Instead of paying overdraft with insane interest rates, you borrow money from Square and you pay it back once you have earned your salary. (Techcrunch)

  • Sunday, Aug. 16th: The next time you want to pitch Uber's bull case to someone, here is what you should say. Uber is taking the concept of a cloud provider and is replicating to the transportation industry: instead of renting storage and computing power, you rent transportation capabilities. It wants to take a cut on any transportation movement. Uber wants you to enter your daily life and have you using its app several times a day: to take a Uber, to order food, to transport a parcel, to take a Lime etc. To pursue this objective, Uber could add financial products (like its Uber card offering cash back) but also a subscription like Amazon Prime (e.g. for $100 per month, you can access to Uber transportation services without any limitations) (Turner Novak)

  • Monday, Aug. 17th: Tencent is acquiring a minority stake (20-25% stake) into French mobile game developer and publisher Voodoo at a $1.4bn valuation. I wrote here a extensive deep dive on Voodoo looking at the company history and highlighting its current challenges to go beyond the hypercasual gaming market. (FT)

  • Tuesday, Aug. 18th: Gymshark raised a round with General Atlantic valuing the company at $1.3bn valuation. It's the first round raised by this UK-based company founded in 2012. It started by selling supplements before moving into clothing. The brand was built with Shopify. Gymshark has been brilliant at building a community around its core audience of people between 18 and 25 y.o. "whose lives revolve around fitness, fashion and music". (Forbes, Sifted, Seedtable)

  • Wednesday, Aug. 19th: I read How Music Got Free by Stephen Witt during the summer to continue my exploration of the music industry. Stephen Witt described this key period in the music industry at the beginning of the 21st century in which the mp3 digital format started to emerge and disrupt the industry by competing with physical formats and enabling the rise of piracy. Here are some learnings:

    • Music is the paragon of many business and innovation theories: the Innovator’s Dilemma, bundling economics, the impact of digitalization on an industry etc.

    • Doug Morris was the king of the music industry. He worked at the three music majors (Universal, Warner and Sony). He was the best at signing young and local artists and make them worldwide stars. He was obsessed by sales figures and managed to build a tier-1 management team.

    • Steve Jobs tried to buy Universal Music from Vivendi in 2003. Imagine the shape music industry today if that transaction had happened.

    • Music piracy was a cultural movement. Competition between online groups to be the first to leak albums before their release date ("zero day warez"). People smuggling vinyls from highly secured plants

  • Thursday, Aug. 20th: The Economist released a graph on Roblox's increasing user engagement. Roblox is a game platform which allows users to program games and play games created by other users. Contrary to Unreal Engine or Unity, Roblox game-creation platform does not require coding skills. (The Economist) Roblox has insane metrics:

    • Roblox is played by 3/4 of Americans between 9 and 12 year olds.

    • 50m games have been created since inception. 5k games have more than 1m plays and 20 more than 1bn.

    • 2m developers are in Roblox's ecosystem. They earned $100m in 2019 and could earn $250m in 2020.

  • Friday, Aug. 21th: Lambda School raised a $74m series C led by Gigafund. Lambda is reinventing education by building a modern school financed through income share agreements (i.e. you don't pay a school tuition fee upfront but you give x% of your salary after graduation during a certain period back to the school) which is a much better model to keep incentives between students and the school aligned. Gigafund was created in 2017 by two former partners at Founders Fund with the ambition to invest in long-term projects with the ambitious to reshape our world. It invested into SpaceX, Luminous Computing, The Boring Company, LabGenius and Golden. (Lambda, Techcrunch)

  • Saturday, Aug. 22th: Goldman Sachs is planning to raise a $2bn growth fund in 2021. The idea is to make tech investments with tickets anywhere between $30m and $200m. Through its PE funds, Goldman has already built a strong portfolio in tech with investments in companies like Uber, Plaid, Voodoo, Backmarket, Meilleurtaux.com etc. (Bloomberg)

  • Sunday, Aug. 23th: Dataiku raised a $100m series D led by Stripes Ventures with the participation of new entrant Tiger Global and existing investors. It's an outstanding success story founded in France in 2013. The company was valued at $1.4bn after a secondary round led by Google in Dec. 2019. Dataiku is a data-science platform that helps data scientists and data citizens to use their data to create ML and AI models to enhance their operations (e.g. reduce customer churn, better fraud detection, predictive maintenance etc.). It has 300 customers including Schlumberger, GE Aviation, Sephora and Unilever. (Crunchbase)

  • Monday, Aug. 24th: Game-engine Unity filed for IPO. The company was founded in Denmark in 2004. It has been backed by Sequoia since its series A which has a remarkable 24.1% stake in the company. Compared to its main competitor Unreal, Unity is easier to use especially for small teams and its the category leader in mobile gaming. It's the game engine behind Call of Duty mobile game and Nintendo mobile versions of Mario Kart and Animal Crossing. (S1, Techcrunch)

  • Tuesday, Aug. 25th: YC did its Demo Day to present the companies selected for the Summer 2020 batch. It was the first full-remote edition of YC. The recipe seems to keep working despite this major change. I love the Demo Day because it gives you a good pulse of where tech is heading in the upcoming months. I covered the batch in my latest edition here. (Techcrunch on Day 1, Techcrunch on Day 2)

  • Wednesday, Aug. 26th: Speaking of YC, Trove raised a $16m series A led by a16z on a $75m post money valuation. The company was in the Summer 2020 batch. It managed to raise before Demo Day with a tier one investor and a flashy valuation. It's something that a16z had done twice in the past 12 months with Tandem (also a YC company) and Clubhouse. In relation with this topic, the fund wrote a paper to justify the reasoning behind paying companies at much bigger revenue multiples than public peers. Trove is building tools to help startups founders and HR people designing and communicate compensation packages for their employees. (a16z, Techcrunch)

  • Thursday, Aug. 27th: Facebook released a blog post assessing the upcoming changes Apple iOS 14 will bring to its advertising model. Apple is pushing hard to give more privacy to its users. In iOS 14, users will have the possibility to limit ad-tracking and will be asked each time they download an app with ad-tracking whether they want to share their data. Most users will probably refuse, reducing the efficiency and as a consequence the revenues generated by those ads. I believe that this change is overlooked and many mobile ad-based businesses will be dramatically impacted starting with hypercasual games which is a category built mainly on advertising as a business model. (Facebook, Stratechery)

  • Friday, Aug. 28th: Ev Williams, Medium's CEO, is talking about the future of the company. Medium has experienced a strong growth over the last 18 months - which seemed partly counter-intuitive for me following their product updates deteriorating the reading experience to push users to subscribe to their paying plan. "Several hundred thousands" people are subscribed to this pro plan (in which you can access Medium content without limitations) and $2m per month are redistributed to writers. (Ev Williams)

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  • Saturday, Aug. 29th: In the US, 52% of young adults (18-29 y.o.) are living with their parents. It’s almost an all time high level. The covid economic and healthcare crises are pushing family to live together to take care of each other and to reduce expenses. (Dailymail)

a screenshot of a cell phone: The rise to 52 percent over the summer months is an eight-decade high
  • Monday, Aug. 31st: The Hut Group is working on an European IPO that could value the company at up to $5.9bn. It's an overlooked success in the European tech ecosystem founded in 2004 and backed by Balderton. The Hut Group is an e-commerce platform owning different brands for beauty and nutrition products. (Reuters)

Thanks to Julia for the feedback! 🦒 Thanks for reading! See you next week for another issue! 👋