Friday, April 12, 2019

African e-commerce startup Jumia’s shares open at $14.50 in NYSE IPO - TechCrunch

African e-commerce startup Jumia’s shares open at $14.50 in NYSE IPO - TechCrunch


African e-commerce startup Jumia’s shares open at $14.50 in NYSE IPO - TechCrunch

Posted: 12 Apr 2019 06:30 AM PDT

Pan-African e-commerce company Jumia listed on the New York Stock Exchange today, with shares beginning trading at $14.50 under ticker symbol JMIA. This comes four weeks after CEO Sacha Poignonnec confirmed the IPO to TechCrunch and Jumia filed SEC documents.

With the public offering, Jumia becomes the first startup from Africa to list on a major global exchange.

In an updated SEC filing, Jumia indicated it is offering 13,500,000 ADR shares for an opening price spread of $13 to $16 per share, representing 17.6 percent of all company shares. The IPO could raise up to $216 million for the internet venture.

Since the original announcement (and reflected in the latest SEC docs), Mastercard Europe pre-purchased $50 million in Jumia ordinary shares.

The IPO creates another milestone for Jumia. The company in 2016 became the first African startup unicorn, achieving a $1 billion valuation after a funding round that included Goldman Sachs, AXA and MTN.

There's a lot to break down on Jumia's going public. The company is often dubbed the "Amazon of Africa," and like Amazon, Jumia comes with its own mixed buzz. Jumia's SEC F-1 prospectus offers us more insight into the venture, and perhaps any startup from Africa, thus far.

About Jumia

Founded in Lagos in 2012 with Rocket Internet backing, Jumia now operates multiple online verticals in 14 African countries. Goods and services lines include Jumia Food (an online takeout service), Jumia Flights (for travel bookings) and Jumia Deals (for classifieds). Jumia processed more than 13 million packages in 2018, according to company data.

Jumia's original co-founders included Nigerian tech entrepreneurs Tunde Kehinde and Raphael Afaedor, but both departed in 2015 to form other startups in fintech and logistics.

Starting in Nigeria, the company created many of the components for its digital sales operations. This includes its JumiaPay payment platform and a delivery service of trucks and motorbikes that have become ubiquitous with the Lagos landscape. Jumia has extended this infrastructure as an e-commerce fulfillment product called Jumia Services.

Jumia has also opened itself up to Africa's traders by allowing local merchants to harness Jumia to sell online. The company has more than 80,000 active sellers on the platform using the company's payment, delivery and data-analytics services, Jumia Nigeria CEO Juliet Anammah told TechCrunch previously.

The most popular goods on Jumia's shopping site include smartphones, washing machines, fashion items, women's hair care products and 32-inch TVs, according to Anammah.

Jumia an African startup?

Like Amazon, Jumia brings its own mix of supporters and critics. On the critical side, there are questions of whether it's actually an African startup. The parent for Jumia Group is incorporated in Germany and current CEOs Jeremy Hodara and Sacha Poignonnec are French.

On the flipside, original Jumia co-founders (Kehinde and Afaedor) are African. The company is headquartered (and also incorporated) in Africa (Lagos), operates exclusively in Africa, pays taxes on the continent, employs 5,128 people in Africa (page 125 of K-1) and the CEO of its largest country operation (Nigeria) Juliet Anammah is Nigerian.

The Africa authenticity debate often shifts into questions of a Jumia diversity deficit, which is of course important from Silicon Valley to Nairobi. The company's senior management and board is a mix of Africans and expats. Golden State Warriors basketball player and tech investor Andre Iguodala joined Jumia's board this spring with a priority on "diversity and making sure the African culture is in the company," he told TechCrunch.

Can Jumia turn a profit?

The Jumia authenticity and diversity debates will no doubt roll on. But the biggest question — the driver behind the VC, the IPO, the founders and the people buying Jumia's shares — is whether the startup can generate profits and ROI.

Obviously some of the world's top venture investors, such as Jumia backers Goldman, AXA and Mastercard, think so. But for Jumia skeptics, there are the big losses. The company has generated years and years of losses, including negative EBITDA of €172 million in 2018 compared to revenues of €139 that same year.

To be fair to Jumia, most startups (e-commerce startups in particular) rack up losses for years before getting into the black. And operating in a greenfield sector in Africa — where it had to create much of the surrounding infrastructure to do B2C online sales — has presented higher costs for Jumia than e-commerce startups elsewhere.

On the prospects for Jumia's profitability, two things to watch will be Jumia's fulfillment expenses and a shift to more revenue from its non-goods-delivery services, which offer lower unit costs and higher-margins. Per Jumia's SEC F-1 index (see above), freight and shipping make up more than half of its fulfillment expenses.

So Jumia has not turned a profit, but its revenues have increased steadily, up 11 percent to €93.8 million (roughly $106.2 million) in 2017 and up again to €130 million (or $147 million) in 2018. If the company boosts customer acquisition and lowers fulfillment costs — which could come from more internet services revenue and platform investment with IPO capital — it could close the gap between revenues and losses. This reflects the equation for most e-commerce startups. With the IPO, Jumia will have to publish its first full public financials in 2019, which will provide a better picture of profitability prospects.

Jumia's IPO and African e-commerce?

There is, of course, a bigger play in Jumia's IPO. One connected to global e-commerce and the future of online retail in Africa.

Jumia going public comes as Africa's e-commerce landscape has seen its share of ups and downs, notably several failures in DealDey shutting down and the distressed acquisition of Nigerian e-commerce hopeful Konga.com.

As for the big global names, Alibaba has talked about Africa expansion, but for the moment has not entered in full.

Amazon offers limited e-commerce sales on the continent, but more notably, has started offering AWS services in Africa.

And this week, DHL came on the scene, launching its Africa eShop platform with 200 global retailers on board, in partnership with MallforAfrica's Link Commerce fulfillment service.

Competition to capture Africa's digitizing consumer markets — expected to spend $2 billion online by 2025, according to McKinsey — could get fierce, with more global entries, acquisitions and competition on fulfillment services all part of the mix.

And finally, the outcome of Jumia's IPO carries weight even for its competitors. "Many things, like business decisions and VC investments across Africa's e-commerce sector are on hold," an African e-commerce exec told TechCrunch on background.

"Everyone's waiting to see what happens with Jumia's IPO and how they perform," the exec said.

So the share price connected to NYSE ticker sign JMIA could reflect not just investor confidence in Jumia, but investor confidence in African e-commerce overall.

Ethical Fashion Startup Jumpstarts Impact Entrepreneurs In Africa - Forbes

Posted: 12 Apr 2019 06:38 AM PDT

Alice and Tom Cracknell with a weaver in Ethiopia

ORIGIN

A few years ago, husband and wife Tom and Alice Cracknell were looking for a way to stimulate local business growth in developing countries. Tom, a doctor specializing in global health, and Alice, a lawyer who also worked for a variety of international charities, had met while working in Mali. But they both were struck by the underwhelming effect of traditional development aid. What they wanted was a sustainable way for local people to support themselves, build growing enterprises that addressed critical needs in their communities and  provide jobs.

With that in mind, and inspired by the writings of Grameen Bank's Muhammad Yunus, last year they founded ORIGIN, a UK-based nonprofit selling ethical fashion—organic cotton sweatshirts and t-shirts decorated with artisanally made pockets.

That, however, was only part of the puzzle. The enterprise would then invest the profits into helping to start locally run social impact companies based in the areas from where some of the fabric originated.

According to the web site: "They are a leg up to local social business entrepreneurs who want to make a sustainable economically viable solution to a real life problem that keeps locals in a state of poverty and deprives them of the very freedoms that we enjoy as part of daily life in the UK."

Or, as Alice says, "We felt there was a better way of providing funding and development aid, using the capitalist engine to do that."

More about ORIGIN's ethical fashion business: Each item of clothing is adorned with a pocket made from hand-woven and hand-dyed fabric created by local artisans using traditional techniques. Garments are produced in wind-powered factories in India that use fair labor practices and are Global Organic Textile Standard (GOTS)-certified.

But the point of selling those products is to provide funding to launch businesses that are run by and employ local people. The first enterprises are based in Mali, Ethiopia and The Gambia, areas where Alice and Tom have spent time.

Example: Green Latrine, based in Ethiopia's Simien Mountains, where ORIGIN sources some of its cotton. Last year, the Cracknells did a simple on-the-ground assessment to understand what local residents needed. From there, they came up with the idea for a sanitation business that would provide basic toilets and running water to communities in the area. Specifically, the enterprise would build ventilated improved pit latrines, which are designed in such a way to keep away flies and other disease-transporting insects.

Initially, ORIGIN supplied startup costs, from training to such materials as concrete and piping. It will continue to provide ongoing support. "This isn't a traditional charity," says Tom. "We're trying to give people the opportunity to start enterprises that are sustainable." Through an African conservation charity, they also found a local entrepreneur who wanted to champion the enterprise.

Other enterprises include a seamstress school in Mali and a new hospital for HIV care in The Gambia, among others.

ORIGIN is self-funded. But it's now running a crowdfunding campaign, aiming to attract money to finance expansion. It's raised £10,535 of a £25,000 target.

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China’s startup ecosystem is hitting back at demanding working hours - TechCrunch

Posted: 12 Apr 2019 05:08 PM PDT

In China, the laws limit work to 44 hours a week and require overtime pay for anything above that. But many aren't following the rules, and a rare online movement puts a spotlight on extended work hours in China's booming tech sector. People from all corners of society have rallied in support for improvements to startup working conditions, while some warn of hurdles in a culture ingrained in the belief that more work leads to greater success.

In late March, anonymous activists introduced 996.ICU, a domain name that represents the grueling life of Chinese programmers: who work from 9 am to 9 pm, 6 days a week with the threat of ending up at ICU, a hospital's intensive care unit. The site details local labor laws that explicitly prohibit overtime work without pay. The slogan "Developers' lives matter" appears at the bottom in solemn silence.

A project called 996.ICU soon followed on GitHub, the Microsoft-owned code and tool sharing site. Programmers flocked to air their grievances, compiling a list of Chinese companies that reportedly practice 996 working. Among them were major names like e-commerce leaders Alibaba, JD.com and Pinduoduo, as well as telecoms equipment maker Huawei and Bytedance, the parent company of the red-hot short video app TikTok.

In an email response to TechCrunch, JD claimed it doesn't force employees to work overtime.

"JD.com is a competitive workplace that rewards initiative and hard work, which is consistent with our entrepreneurial roots. We're getting back to those roots as we seek, develop and reward staff who share the same hunger and values," the spokesperson said.

Alibaba declined to comment on the GitHub movement, although founder Jack Ma shared on Weibo Friday his view on the 996 regime.

"No companies should or can force employees into working 996," wrote Ma. "But young people need to understand that happiness comes from hard work. I don't defend 996, but I pay my respect to hard workers!"

Bytedance declined to comment on whether its employees work 996. We contacted Huawei but had not heard back from the company at the time of writing.

996.ICU rapidly rocketed to be the most-starred project on GitHub, which claims to be the world's largest host of source codes. The protest certainly turned heads among tech bosses as China-based users soon noticed a number of browsers owned by companies practicing 996 had restricted access to the webpage.

The 996 dilemma

The 996 list is far from exhaustive as it comprises of voluntary entries from GitHub users. It's also hard to nail down the average work hours at a firm, especially a behemoth with tens of thousands of employees where policies can differ across departments. For instance, it's widely acknowledged that developers work longer than their peers in other units. Anecdotally, TechCrunch has heard that bosses in some organizations often find ways to exploit loopholes, such as setting unrealistic KPIs without explicitly writing 996 into employee contracts.

"While our company doesn't force us into 996, sometimes, poor planning from upper management forces us to work long hours to meet arbitrary management deadlines," a Beijing-based engineer at a professional networking site told TechCrunch. This person is one of many sources who spoke anonymously because they are not authorized to speak to media.

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BEIJING, CHINA APRIL 25, 2018: Passenger on a train in the Beijing Subway. Donat Sorokin/TASS (Photo by Donat SorokinTASS via Getty Images)

Other companies are more vocal about 996, taking pride in their excessively diligent culture. Youzan, the Tencent-backed, Shopify-like e-commerce solution provider, explicitly demanded staff to live out 996 work styles. Employees subsequently filed complaints in January to local labor authorities, which were said to have launched an investigation into Youzan.

A lot of companies are like Youzan, which equates long hours of work with success. That mindset can easily lure programmers or other staff into accepting extra work time. But employees are hardly the only ones burning out as entrepreneurs are under even greater pressure to grow the business they build from scratch.

"The recent debate over 996 brings to light the intense competition in China's tech industry. To survive, startups and large companies have no choice but to work extremely hard. Some renown entrepreneurs even work over 100 hours a week," Jake Xie, vice president of investment at China Growth Capital, an early-stage venture fund, told TechCrunch.

"Overtime is a norm at many internet companies. If we don't work more, we fall behind," said a founder of a Shenzhen-based mobile game developing startup. Competition is particularly cut-throat in China's mobile gaming sector, where creativity is in short supply and a popular shortcut to success is knocking off an already viral title. Speed, therefore, is all it matters.

Meanwhile, a high-performing culture brewing in China may neutralize society's resistance to 996. Driven individuals band together at gyms and yoga studios to sweat off stress. Getting group dinners before returning to work every night becomes essential to one's social life, especially for those that don't yet have children.

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Photo source: Jack Ma via Weibo

"There is a belief that more hours equals more learning. I think some percentage of people want to put in more hours, and that percentage is highest for 22 to 30 years old," a Shanghai-based executive at a tech company that values work-life balance told TechCrunch. "A few people in my team have expressed to us that they feel they cannot grow as fast as their friends who are working at companies that practice 996."

"If you don't work 996 when you're young, when will you?" Wrote 54-year-old Jack Ma in his Weibo post. "To this day, I'm definitely working at least 12 to 12, let alone 996… Not everyone practicing 996 has the chance to do things that are valuable and meaningful with a sense of achievement. So I think it's a blessing for the BATs of China to be able to work 996."

(BAT is short for Baidu, Alibaba and Tencent for their digital dominance in China, akin to FANNG in the west.)

Demanding hours are certainly not unique to the tech industry. Media and literature have long documented the strenuous work conditions in China's manufacturing sector. Neighboring Japan is plagued by karoshi or "death from overwork" among its salarymen and Korean companies are also known for imposing back-breaking hours on workers, compelling the government to step in.

Attempts to change

Despite those apparent blocks, the anti-996 movement has garnered domestic attention. The trending topic "996ICU gets blocked by large companies" has generated nearly 2,000 posts and 6.3 million views on Weibo. China's state-run broadcaster CCTV chronicled the incident and accused overtime work of causing "substantial physical and psychological consequences" in employees. Outside China, Python creator Guido van Rossum raised awareness about China's 996 work routine in a tweet and on a forum.

"Can we do something for 996 programmers in China?" He wrote in a thread viewed 16,700 times.

The 996 campaign that began as a verbal outcry soon led to material acts. Shanghai-based lawyer Katt Gu and startup founder Suji Yan, who say they aren't involved in the 996.ICU project, put forward an Anti-996 License that would keep companies in violation of domestic or global labor laws from using its open source software.

But some cautioned the restriction may undermine the spirit of open source, which denotes that a piece of software is distributed free and the source code undergirding it is accessible to others so they can study, share and modify the creator's work.

"I strongly oppose and condemn 996, but at the same time I disagree with adding discretionary clauses to an open source project or using an open source project for the political game," You Yuxi, creator of open-source project Vue, which was released under the MIT license, said on the Chinese equivalent to Twitter, Weibo. (Gu denies her project has any "political factors.")

Others take a less aggressive approach, applauding companies that embrace the more humane schedule of "9 am to 5 pm for 5 days a week" via the "995.WLB" GitHub project. (WLB is short for "work-life balance.") On this list are companies like Douban, the book and film review site famous for its "slow" growth but enduring popularity with China's self-proclaimed hippies. WeWork, the workplace service provider that bills itself as showing respect for employees' lives outside work, was also nominated.

While many nominees on the 996 list appear to be commercially successful, others point to a selection bias in the notion that more work bears greater fruit.

"If a company is large enough and are revealed to be practicing 996, the issue gets more attention. Take Youzan and JD for example," a Shanghai-based developer at an enterprise software startup told TechCrunch.

"Conversely, a lot of companies that do practice 996 but have not been commercially successful are overlooked. There is no sufficient evidence that shows a company's growth is linked to 996… What bosses should evaluate is productivity, not hours."

Or, as some may suggest, managers should get better at incentivizing employees rather than blindingly asking for more hours.

"As long as [China's] economy doesn't stall, it may be hard to stop 996 from happening. This is not a problem of the individual. It's an economic problem. What we can do is offering more humane care and inspiring workers to reflect, 'Am I working at free will and with passion?' instead of looking at their work hours," suggested Xie of China Growth Capital.

While a push towards more disciplined work hours may be slow to come, experts have suggested another area where workers can strive for better treatment.

"It seems almost all startups in China underfund the social security or housing fund especially when they are young, that is, before series A or even series B financing," Benjamin Qiu, partner at law firm Loeb & Loeb LLP, explained to TechCrunch.

"Compared to 996, the employees have an even stronger legal claim on the above since it violates regulations and financially hurts the employee. That said, the official social credit and housing fund requirement in China appears to be an undue burden on the employer compared to the Silicon Valley, but if complied with, it could be understood as an offset of the 996 culture."

A number of my interviewees spoke on conditions of anonymity, not because their companies promote 996 but, curiously, because their employers don't want to become ensnarled in the 996 discussions. "We don't need to tell people we support work-life balance. We show it with action," said a spokesperson for one company.

How these black women startup founders are using blockchain - Fast Company

Posted: 12 Apr 2019 12:30 PM PDT

As blockchain technology continues to transform financial services and seemingly every other new startup, it faces a major challenge: how to fix a major gender imbalance, one that's even more pronounced for black women. While the technology itself has revolutionary potential, it's remained very traditional when it comes to inclusivity. Only 8.78% of individuals in the blockchain and crypto community are women, according to CoinDance. The data was not broken down by race, but there are major racial disparities in employment in the financial services and tech sectors between white women and black women.

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Though their numbers may be low, there are a few black women in blockchain working as entrepreneurs and corporate leaders who are looking to bring more black women into the industry. Here are two of them, offering their advice for incorporating the technology in business.

Eliminating friction within the self-service retail space

Dawn Dickerson uses her influence to engage with the blockchain community, inform people who are interested in the technology, and fundraise for her company, Popcom, an automated retail technology company. Popcom develops software and IoT-connected hardware for self-service retail, including vending machines and digital kiosks used to dispense products and perform transactions.

"Our goal overall is to reduce the friction and transactions in automation in the retail setting and then allow retailers to collect data from and about their customers," says Dickerson. "It's very similar to what's currently being done in the e-commerce environment, from Google Analytics and other platforms like Shopify."

The data collection and metrics were largely unavailable for the self-service retail space until Dickerson created the software. The idea started after she began to grow her first business, Flat Out of Heels. "Blockchain came into play around protecting customers' data and identity. Since we use facial recognition, it was important for me to keep the data secure and only release the information for the retailer that the customer wants to share," she says. Her new software will use facial recognition to purchase regulated retail products like cannabis, alcohol, and pharmaceuticals to be sold in vending machines and digital kiosks.

This software is turning customers' images into a biometric half, "which is a series of numbers and letters that represent that person's identity." Dickerson explained that the biometric half would be stored on the blockchain with their unique private keys as the only way to unlock any types of data associated with that profile.

Helping companies incorporate blockchain solutions

Natasha Bansgopaul is the cofounder and COO of DarcMatter, a global fintech platform for alternative investments. The company creates fintech solutions to make the process of raising capital easier for fund managers and smoothing the way for investors to access deal flow in the alternative space. Now that the company is in its fourth year, they launch a blockchain division called Konstellation, focused on creating blockchain solutions for the global financial services industry.

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"We're thinking about taking that next step of fintech and using blockchain feed supplements that apply both broad and specific sectors of financial services. Knowing that this is where a lot of the foundational blockchain innovation is needed, we want to continue to embrace this industry and take it to the next stage," shared Bansgopaul.

Blockchain was always a part of DarcMatter's product road map for a launch in 2020, but due to the excitement and interest in the technology, the company accelerated the plan to launch Konstellation in 2018. Since the launch, they've leveraged partnerships within traditional financial services on a global scale. "We also provide access and exposure within the blockchain world for more established institutions looking to figure out how to incorporate blockchain solutions in their companies as well," she says.

Be intentional when exploring blockchain

Although it's a great time to explore blockchain and the need to get more black women in the industry is urgent, Dickerson and Bansgopaul believe that entrepreneurs should be wary of jumping on the bandwagon. "If you don't have to use blockchain, it makes no sense to spend the $100,000 it takes for developers to integrate it into your product," says Dickerson.

Dickerson, who has pitched herself to investors, knows all too well that many entrepreneurs are pushed by investors into business strategies that won't work for their business. She was once told that Flat Out Heels should be a subscription box service because her company was not tech. "If blockchain is applicable, if it is the best solution, absolutely use it, but never make any business decisions based on what investors want, because [many are] bandwagon jumpers. They love one thing today and tomorrow they don't," she says.

Given the expense and novelty of the blockchain industry, Bansgopaul also agrees that it's not a requirement for all companies. She believes the traditional path of securing loans and investors is still a viable option for most companies."There's an influx of people just trying to take advantage of the financial gain opportunity or the lack of understanding from investors, and the immaturity of the market. There's a lot of people coming in and trying to do stuff and putting the name 'blockchain' on things," Bansgopaul says.

Funding your blockchain projects

If you are looking to attract investors with your blockchain project, she suggests you learn more about it by spending time with blockchain developers and joining blockchain community meet-ups or attending conferences. "The technical aspects of the project are what drives a community of investors to support blockchain projects, and this is a community that has become professional at identifying the technological ideas that will be core to the development of the industry as a whole," Bansgopaul says.

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Dickerson is raising money in the form of a token, and she promotes her token sales on social media. Right now she does not see any black women raising money in this way, and she's hoping to change it. "I do encourage black women to tokenize a cap and use a security token to raise money, because that's just a great way to raise money and allow for your investors to get liquidity. It also allowed me to raise money from the general public through equity crowdfunding under the JOBS Act Title III Reg CF," Dickerson says.

Although the blockchain and crypto world was created for anonymity, what's unique in its growth is the willingness and eagerness for people to meet, learn, and engage with one another. Groups and organizations like Black Women in Blockchain Council, Stealth Mode, and many other communities for people of color in blockchain offer the connections to more black women in the industry.

Disrupting the Pentagon: Can the Air Force Learn To Think Like a Startup? - Popular Mechanics

Posted: 12 Apr 2019 06:20 AM PDT

Gen. Stephen Wilson sips from a plastic cup of cold brew as he eyes the drone before him. Wilson is not wearing a uniform, but everyone here at the Capital Factory, an 81,000-square-foot startup incubator space in downtown Austin, defers to the Air Force Vice Chief of Staff, uniform or no.

The drone's maker, Gareth Block of Third Insight Inc., holds the flying disc in one hand, telling Wilson it could be the key to the future of unmanned aircraft. Third Eye's drones are built with a mesh of copper that serves as a protective Faraday cage against unwanted signals. Drone autonomy is a hot-button issue as America's potential foes devise ways to jam or tamper with satellite signals.

"He who controls the spectrum, wins," Wilson intones, and then launches into a discussion about materials besides copper that can help safeguard electronics. The material of choice, if money is no object, is graphene. But price is always a consideration, so Block mentions magnetite as an alternative. "Write that down!" Wilson cries out to an aide, who scribbles into a notebook.

Appetite for Disruption

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John Shackell (center), a force protection business consultant with the Air Force Security Forces Center at JBSA-Lackland, practices his pitch as representatives from Aerial Applications listen during Wednesday's tour. Shackell's idea of wide area detection using unmanned aerial vehicles and unmanned ground vehicles was selected as one of eight finalists for AFIMSC's Innovation Rodeo.

U.S. Air Force photo by Armando Perez

While the general is visiting for just a few days, the Air Force now has a permanent office at the Capital Factory (on the ground floor, next to the inevitable ping pong room). The space is meant to be the polar opposite of an intimidating air base, enticing entrepreneurs in the building to drop in and see if they could be working with the Air Force. AFWERX, an effort the Air Force began in 2017 to bring the Air Force closer to the world of the startups companies, now runs offices in Las Vegas, Washington D.C. and here in Austin.

The typical Air Force way of doing business—slow, methodical, rigid—could not be less appealing to startups. They are low on staff, inexperienced in government contracting, and lack the money to stay in business long enough for the Pentagon to finally agree to fund them. What's more, the Pentagon's glacial pace is no way to meet quickly emerging threats from Russia and China.

"Even on our best days, it will take four months."

Wilson is trying to change that. "Senior leadership's role is to knock down barriers to success," he says. "There are people out there who are competing against us to win. We need to get faster."

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At Capital Factory

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What's happening in Austin is a microcosm of the nationwide effort to let entrepreneurs and military meet face-to-face. "We never expected to have people in uniform here, but it's awesome," says Capital Factory CEO Joshua Baer, who gestures at a wall of the Air Force's ground floor office that rolls up like a garage door. "We have parties in the lobby here and they open this door, so people can wander in…What we do here is figure out how to make the right environment for that to happen."

Even so, making the Air Force ready for startup culture is not as easy as inviting the brass and leaving the uniforms at home.

'Shark Tank' For the Military

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Lt. Col. Karen Landale, 773rd Enterprise Sourcing Squadron commander, tests the virtual reality simulator during Wednesday's tour. Landale will present the Air Force Installation Contracting Agency's idea of a contracting officer representative app.

U.S. Air Force photo by Armando Perez

The Pentagon can spend years defining the specific requirements of a new project before handing it off to one of the handful of giant defense contractors that have the staff to navigate the Byzantine process and deep pockets to survive the wait. "Even on our best days, it will take four months to do awards," says Will Roper, the USAF Assistant Secretary for acquisition, technology and logistics.

Roper is one of the chief proponents of the outreach to startups, and he knows how big the change would be. "[Four months] might be okay for a defense prime or even a company of several hundred people that can keep paychecks flowing while they wait. But for a startup that's got a big idea, living month to month, they need to have awards done within the week."

He wanted to get creative with the Pentagon's clunky funding apparatus, "hacking" the system to get money to startups fast. The solution became a government purchase card—basically a credit card the Air Force uses to buy things off the shelf, such as hoses and ropes. "When you dig into the purchase card authority, it's actually really broad," Roper says.

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A startup hub's inevitable ping pong room.

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The startup solution could not only speed up the military's pace of tech advancement, but also amplify its investment. "Early investments tend to multiply in the VC world. When one person buys in, typically more do," Roper says. "So we might see Air Force investments multiply, where a commercial investor would say, 'Well, if the Air Force is interested, I know there's a business case for national security, I see something that might be commercially viable. I'm going to buy in as well.'"

The Air Force now holds "Pitch Days," in which entrepreneurs can walk in, meet uniformed officials, and potentially leave with a government contract that day. Over two days in New York in March, the Air Force awarded 51 contracts, paying out up to $158,000 to each company.

Like many federal agencies, the Defense Department has Small Business Innovation Research (SBIR) projects that can go toward startups. "That's $660 million dollars every year that there seem to be very little expectations for," Roper says. "So what I want the Air Force to start having is high expectations. I want U.S. startups to have high expectations that this money is going to start becoming seed corn."

How Innovation Spreads

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Gen. Stephen Wilson, far right, during his visit to Capital Factory.

Jordyn Fetter

Since so much of the startup culture depends on communication, having multiple points of contact across the nation is a must-have for the Air Force. Many companies don't have military in mind as a customer for their tech until someone suggests it.

In the afternoon, Wilson leaves downtown Austin and endures the midday traffic to visit the headquarters of Icon, a company behind massive 3D printers that can create entire concrete structures in hours. "Twenty months ago we didn't know what AFWERX was or that we could even work with the Air Force," Icon co-founder Evan Loomis says. "Until we were introduced to the concept, we as civilians didn't know it existed." Now, on top of venture capital investments, they have an SBIR grant to research the idea of using robots and propriety cement mixtures to create ad-hoc military bases.

"Until we were introduced to the concept, we as civilians didn't know it existed."

Wilson watches the robotic arm trace deft patterns on a full-scale test platform, and then grins as Loomis hands him a phone loaded with an app to move the arm manually. The demo turns into a discussion: Could they infuse the concrete with materials to mask any emissions that a savvy opponent could use to monitor or target the base? And then he demonstrates the true nature of innovation: its dependence on random conversations.

"If you were looking at graphene, I just heard about something that might be cheaper," Wilson says, then looks for his aide. "What's that name? Magnetite."

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