How to value a startup in a downturn - TechCrunch

How to value a startup in a downturn - TechCrunch


How to value a startup in a downturn - TechCrunch

Posted: 31 Mar 2020 11:12 AM PDT

The value of technology companies has fallen as the broader public markets have repriced themselves in light of COVID-19-related market and economic disruptions.

And as the public markets sort out the new value of a huge piece of global business, private companies are being shaken as well.

What happens in the public markets trickles into the private markets, so if we're seeing the value of public tech companies fall, startups are going to take a hit. To understand that dynamic, we spoke with Mary D'Onofrio, an investor with Bessemer Venture Partners. She's the right person to chat with about the links between private valuations and public share prices as she not only helps put capital into growing startups, she also helps run the Bessemer cloud index (now a partnership with Nasdaq, and trackable on a day-to-day basis).

As she's versed on both sides of the public-private divide, we asked her how she values startups in normal market conditions and in more turbulent times like today. We also dug into how founders are reacting to the changing world that may no longer be as amenable to their business plans. Pulling from our conversation, D'Onofrio told TechCrunch that startups want to be valued like companies were a few months ago, while investors want to pay today's market prices.

But enough introduction, let's get to the conversation. This interview has been edited for length and clarity; thanks to Holden Page and Walter Thompson for help with the transcription.

TechCrunch: During our last conversation, we discussed how to value startups. You explained a method in which you consider the future value of cash flows. How do you value startups today versus how much you think they'll be worth down the road?

Mary D'Onofrio: I think what's important to know is that outside of a market disruption, which I think was the the nature of the question to begin with, cloud software tends to trade on revenue and revenue growth. Companies should fundamentally be valued on the present value of their future free cash flows. But I think with cloud software, in particular, there's a prioritization of taking [market]share, and then applying a very long term healthy margin structure on a very massive revenue base once you get there, and generating cash then.

And so I think in bull markets, when capital is readily available, prioritizing growth makes a lot of sense because you want to capture as much share as you can. And then losses are also tolerable because the capital is available to fund that massive growth. And there are actual measurable metrics that validate that structure, with CLTV to CAC [customer lifetime value to customer acquisition costs] being one of them.

VR workplace training startup Strivr lands $30 million Series B - TechCrunch

Posted: 31 Mar 2020 09:22 AM PDT

Virtual reality has been two years away from mainstream adoption for the past six years. In that time, huge companies have made big VR bets only to walk away, countless VR startups have faded or flared out and investment has slowed significantly.

Building an attractive VR product for large enterprises to train employees remotely has remained one of the few major areas of opportunity, one that has been largely dominated by Strivr, which just locked down new funding, bringing their total raised to $51 million.

The VR training startup has closed a $30 million Series B round led by Georgian Partners, a Canadian firm that hasn't been very active in the AR/VR space. CEO Derek Belch says the company ended up pitching a few dozen firms in this raise, and that while the feedback was "overwhelmingly positive," there were certainly some skeptics.

"Everyone knows that VR has been slower to adopt and tougher to anticipate," Belch told TechCrunch.

While AR/VR startups seemed to be raising money left and right in 2016 when Strivr closed its seed round, the market is much sparser in 2020 after years of missed estimates and a relentless parade of shutdowns.

While consumer VR startups have almost unilaterally struggled to get off the ground in recent months, there has still been movement among enterprise offerings. Earlier this month, a competing VR training platform, Talespin, closed $15 million in funding. In late January, enterprise AR/VR teleconferencing app Spatial locked down $14 million. HaptX, which makes a high-end VR glove for enterprise use cases, nabbed $12 million in December.

Landing post-Series A funding has remained a tough challenge for VR enterprise startups, where players are often positioning themselves to be judged in relation to their VR peers rather than to a Salesforce, Box or Atlassian.

"Nobody can get beyond a pilot program," Belch said. "Investors want to know how real this market is and where the target is."

Strivr emerged from Belch's research at Stanford in 2014 as a VR application made to help football players train off the field. Belch had previously been a kicker for Stanford's football team, and his co-founder Jeremy Bailenson led the school's Virtual Human Interaction Lab, a leading research hub that Facebook CEO Mark Zuckerberg visited while doing diligence on the Oculus deal.

As virtual reality gear was further commoditized and investment in the space grew hotter, Strivr soon pivoted from sports training toward workplace training, pitching their solution as a better way for companies to hand top-down instruction to employees. Their software offering is often a combination of interactive 360 videos and computer-generated scenarios that require more active participation from a trainee.

While other VR startups have pushed to integrate phone or tablet-based experiences, Belch says that he has pushed back on customer requests to move away from headset-only experiences toward phone-based 360-degree videos.

"Those are not our disruption, those are gimmicky and a cheap way to bring a new logo on," Belch says.

The company's customer base now includes FedEx, JetBlue, Verizon and BMW. Their biggest get was a deal with Walmart in 2017 that eventually grew into a company-wide rollout across all of their stores, a massive deal that Belch says has been a "blessing and a curse" due to the rollout's scale.

"You have to be smart in terms of what you do that's Walmart specific," Belch told TechCrunch. "They'll swallow you whole if you let them."

Alongside the company's funding news, the startup has announced that they've received a patent to use motion data to predict how effective users will be at the real-world task post-training. Strivr now has 22,000 VR headsets out in the wild, which Belch says have registered 1.6 million sessions. The hardware is all from Oculus.

Strivr is in the fortunate position of closing this deal ahead of the recent pandemic-related market uncertainty — a situation that has complicated their ability to meet with prospective customers and has raised issues with sanitation that Strivr says they have addressed. While Belch sees this Series B as a validation of the customer feedback he's gotten, he also knows that the VR industry remains fraught with challenges.

"Thirty million doesn't last very long if you're stupid; we're going to make sure we're very smart about it," Belch says.

Investors tell Indian startups to ‘prepare for the worst’ as Covid-19 uncertainty continues - TechCrunch

Posted: 31 Mar 2020 10:04 PM PDT

Just three months after capping what was the best year for Indian startups, having raised a record $14.5 billion in 2019, they are beginning to struggle to raise new capital as prominent investors urge them to "prepare for the worst", cut spending and warn that it could be challenging to secure additional money for the next few months.

In an open letter to startup founders in India, ten global and local private equity and venture capitalist firms including Accel, Lightspeed, Sequoia Capital, and Matrix Partners cautioned that the current changes to the macro environment could make it difficult for a startup to close their next fundraising deal.

The firms, which included Kalaari Capital, SAIF Partners, and Nexus Venture Partners — some of the prominent names in India to back early-stage startups — asked founders to be prepared to not see their startups' jump in the coming rounds and have a 12-18 month runway with what they raise.

"Assumptions from bull market financings or even from a few weeks ago do not apply. Many investors will move away from thinking about 'growth at all costs' to 'reasonable growth with a path to profitability.' Adjust your business plan and messaging accordingly," they added.

Signs are beginning to emerge that investors are losing appetite to invest in the current scenario.

Indian startups participated in 79 deals to raise $496 million in March, down from $2.86 billion that they raised across 104 deals in February and $1.24 billion they raised from 93 deals in January this year, research firm Tracxn told TechCrunch. In March last year, Indian startups had raised $2.1 billion across 153 deals, the firm said.

New Delhi ordered a complete nation-wide lockdown for its 1.3 billion people for three weeks earlier this month in a bid to curtail the spread of COVID-19.

The lockdown, as you can imagine, has severely disrupted businesses of many startups, several founders told TechCrunch.

Vivekananda Hallekere, co-founder and chief executive of mobility firm Bounce, said he is prepared for a 90-day slowdown in the business.

Founder of a Bangalore-based startup, which was in advanced stages to raise more than $100 million, said investors have called off the deal for now. He requested anonymity.

Food delivery firm Zomato, which raised $150 million in January, said it would secure an additional $450 million by the end of the month. Two months later, that money is yet to arrive.

Many startups are already beginning to cut salaries of their employees and let go of some people to survive an environment that aforementioned VC firms have described as "uncharted territory."

Travel and hotel booking service Ixigo said it had cut the pay of its top management team by 60% and rest of the employees by up to 30%. MakeMyTrip, the giant in this category, also cut salaries of its top management team.

Beauty products and cosmetics retailer Nykaa on Tuesday suspended operations and informed its partners that it would not be able to pay their dues on time.

Investors cautioned startup founders to not take a "wait and watch" approach and assume that there will be a delay in their "receivables," customers would likely ask for price cuts for services, and contracts would not close at the last minute.

"Through the lockdown most businesses could see revenues going down to almost zero and even post that the recovery curve may be a 'U' shaped one vs a 'V' shaped one," they said.

Corporate Travel Startup Huilianyi Raises $42M Amid Industry Turmoil - pymnts.com

Posted: 31 Mar 2020 06:04 PM PDT

Huilianyi, a business travel platform, notched approximately $42 million in fundraising as China begins a possible economic renewal amid the global coronavirus pandemic, Phocuswire reported.

Huaxing Capital subsidiary Huaxing New Economic Fund headed up the Series C+ round.

Huilianyi was started in 2016 and is a software-as-a-service (SaaS)-based system for travel expense reimbursement. A Huaxing Capital official called the company "an absolute leader in the industry," per a translated statement. The company has millions of active users in different firms, such as Tencent and Didi Chuxing.

The investment money will be used to grow into new markets, such as the United States.

Blue Lake Capital, Zhonglin Capital and SoftBank China, which have invested in the company before, also reportedly invested in the round.

A Zhonglin Capital official said, per the announcement, "In the connected era, we are optimistic that business travel and expense management platforms have become standard applications for enterprises."

Fueled by funding in the past, Huilianyi grew into Malaysia and Singapore in 2018, and then into Japan last year.

In separate news, Fenbeitong, a Chinese business expense management firm, closed a $36 million Series B+ round led by Glade Brook Capital, Ribbit Capital and Eight Roads.

Other participants included BitRock Capital as well as current shareholders CreditEase Industry Fund, China Growth Capital and IDG Capital.

In July, the company notched $12.36 million in a Bojiang Capital-led Series B. Fenbeitong has brought in $57.7 million to date, per the report.

Fenbeitong, which was started in 2015 by Xi Lan, created a business wallet app that let people pay, manage and get reimbursement for business costs.

Fenbeitong brought about a virtual card function and rolled out two subsidiaries for enterprise services and corporate travel with funding in the past.

The new funds will help grow the company's workforce with more research and development workers and toward more optimization of the product.

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On-demand shuttle startup Via hits $2.25 billion valuation on latest funding round led by Exor - TechCrunch

Posted: 31 Mar 2020 11:59 AM PDT

On-demand shuttle startup Via has hit a $2.25 billion valuation following a Series E funding round led by Exor, the Agnelli family holding company that owns stakes in PartnerRe, Ferrari and Fiat Chrysler Automobiles.

The Series E funding round, which included other investors, totaled $400 million, according to a source familiar with the deal. Exor invested $200 million into Via as part of the round, both companies said in an announcement. Noam Ohana, who heads up Exor Seeds, the holding company's early-stage investment arm, will join Via's board.

New investors Macquarie Capital, Mori Building and Shell also participated in the round, as well as existing investors 83North, Broadscale Group, Ervington Investments, Hearst Ventures, Planven Ventures, Pitango and RiverPark Ventures.

Via, which employs about 700 people, plans to use most of these funds to expand its "partnerships," the software services piece of its business. Via has two sides to its business. The company operates consumer-facing shuttles in Chicago, Washington, D.C. and New York. But the core of its business is really its underlying software platform, which it sells to cities and transportation authorities to deploy their own shuttles.

When the company first launched in 2012, there was little interest from cities in the software platform, according to co-founder and CEO Daniel Ramot. The company started by focusing on its consumer-facing shuttles. Over time, and using the massive amounts of data it collected through these services, Via improved its dynamic, on-demand routing algorithm, which uses real-time data to route shuttles to where they're needed most.

Via landed its first city partnership with Austin in late 2017, after providing the platform to the transit authority for free. It was enough to allow Via to develop case studies and convince other cities to buy into the service. In 2019, the partnerships side of the business "took off," Ramot said in a recent interview, adding that the company was signing on two to three cities a week before the COVID-19 pandemic.

Today, the Via platform is used by more than 100 partners, including cities such as Los Angeles and Cupertino, Calif., and Arriva Bus UK, a Deutsche Bahn company that uses it for a first and last-mile service connecting commuters to a high-speed train station in Kent, U.K.

Raising funds in a pandemic

Via managed to close the funding round during an inauspicious time for startups that have found it increasingly difficult to lock in capital due to the COVID-19 pandemic. COVID-19, a disease caused by the coronavirus, has upended markets, along with every industrial and business sector, from manufacturing and transportation to energy and real estate.

Via managed to raise a sizable fund, which just closed, despite the credit tightening and uncertainty. Ramot told TechCrunch that while he was worried the round might be delayed, he noted that Exor is a long-term and patient investor that shares the company's "same vision of where transit is going."

Even now, as nearly every category within transportation — including public transit, ride-hailing, shared micromobility and airlines — has seen ridership drop or dry up altogether, Ramot and Ohana see a promising future.

Ohana said that the market is starting to understand the limits of ride-hailing — hurdles such as poor unit economics and an uncertain path to profitability. "On the other hand, the size of the market for an on-demand dynamic shuttle service is large and underappreciated," Ohana said. "When we look at public transit today, there is a significant opportunity for Via, which already has impressive experience working with municipal and public transit partners across the globe."

That doesn't mean Via is immune to the widespread tumult caused by the COVID-19 pandemic. Via's consumer business has been negatively affected as ridership has dropped due to the spreading disease.

However, there has been some promise with its partnerships business, Ramot said.

Existing partners, a list that includes transit authorities in Berlin, Germany, Ohio and Malta, have worked with Via to convert or adapt the software to meet new needs during the pandemic. A city might dedicate its shuttle service to transporting goods or essential personnel. For instance, Berlin converted its 120-shuttle fleet transport to an overnight service that provides free transit to healthcare workers traveling to and from work.

"There has been a real interest in emergency services," Ramot said, adding he expects to see more demand for the software platform and the flexibility it provides as the pandemic unfolds.

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