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Venture Investors Turn To AI To Find Deals

There are few industries in tech that have not been changed or disrupted by artificial intelligence. Now, some of the people investing in those sectors are using AI to figure out where to put their money next.

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From medicine to retail to the auto industry, there are few industries in tech that have not been changed or disrupted by artificial intelligence.

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Now, some of the people investing in those sectors are using AI to figure out where to put their money next. While that may seem like an obvious use of AI and machine learning, it’s been something most VCs have been slow to adopt.

“VCs love to disrupt other spaces using data and networks—except their own,” said Ilya Kirnos, co-founder, managing director and CTO of San Francisco-based venture firm SignalFire.

Investment firms such as SignalFire and EQT Ventures are not just investing in tech companies, but are in their own way tech companies—housing their own proprietary AI platforms to analyze and vet investment opportunities.

AI directs big money

Alastair Mitchell, partner at EQT Ventures, estimates the firm’s AI platform–called Motherbrain–for sourcing portfolio companies has played a role in about $200 million of the firm’s approximately $900 million total invested since its first fund opened in 2016.

“We placed a big bet on technology to be better investors,” he said.

Motherbrain digests both public data, such as investor and LinkedIn data, app store rankings and funding information, as well as proprietary information to score companies. Mitchell estimates the platform is helping the firm track about 2 million companies.

Stockholm-based EQT Ventures, which describes itself as a hybrid between a startup and a VC firm, plans to use Motherbrain over the next few years to help it find investment opportunities for its second fund, which launched last year. About 75 percent of that $700 million fund is still available for investment, said Mitchell, adding that three of the firm’s top five investments from its 2016 fund were sourced through Motherbrain.

The firm, with investments that include Wolt, Handshake and Netlify, also recently promoted Henrik Landgren, who specifically oversees Motherbrain and previously built Spotify’s global analytics team, to partner.

While EQT Ventures is a separate set of funds from the private-equity firm EQT, Mitchell said the more traditional investment firm also has used Motherbrain to analyse growth fund opportunities; illustrating that the use of AI is moving beyond just venture.

AI not just to invest

However, AI uses for firms stretch beyond just investing. SignalFire looks at four stages of successful investing: sourcing, diligence, placing the investment, and adding value to that company once it is in the portfolio, Kirnos said.

SignalFire, which usually invests in seed or early-growth rounds, uses its AI platform in all four phases.

“It has differentiated us,” said Kirnos, who was a software engineer at Google before co-founding SignalFire.

While SignalFire uses AI to help source and do its diligence before investing in companies, the company also uses its proprietary platform to help its portfolio companies grow by analyzing and researching their markets, recruiting talent and creating business strategies. The firm uses its platform to track more than 2 million data sources and half a trillion data to help tell a company everything from how to differentiate itself to how to price its product.

Kirnos said he also looks at his firm as a tech startup, one that has used AI to now invest in nearly 100 companies, including the likes of Grammarly and Ro, formerly Roman Health.

“We have companies in our portfolio that could be public companies,” he said.

COVID and the digital transformation of investing

Nearly every tech executive and investor talks of how the COVID-19 pandemic has caused a “digital transformation” in all sectors and areas of work.

That may apply to investing too, Kirnos said.

“Companies are remote now with COVID,” he said “The stuff you track is more widely dispersed.”

Kirnos said the days of hiring a graduate from Stanford University to go out to talk to people about the next big thing in tech are at least temporarily paused due to the pandemic.

“You have to use data, you have to use systems,” Kirnos said.

With SignalFire having about $1 billion under management and EQT Ventures investing from its second $700 million fund, other investors may eye the returns on that money to see if AI is something they should not just invest in, but also use.

“No doubt as we are successful, there will be imitation,” Kirnos said.

Illustration: Dom Guzman

Investment firms such as SignalFire and EQT Ventures are not just investing in tech companies, but are in their own way tech companies—housing their own proprietary AI platforms to analyze and vet investment opportunities.

Source: https://news.crunchbase.com/news/venture-investors-ai-deal-sourcing/

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Square Rolls Up Afterpay As BNPL Market Stays Hot

Payments platform Square plans to buy Afterpay, an Australian buy now, pay later service, in an all-stock deal valued at around $29 billion.

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Payments platform Square plans to buy Afterpay, an Australian buy now, pay later service, in an all-stock deal valued at around $29 billion.

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Melbourne-based Afterpay is publicly traded on Australia’s ASX exchange. It currently counts more than 16 million consumers and nearly 100,000 merchants globally as users of its platform, including major retailers across fashion, homewares, beauty, sporting goods and other categories. The company, backed by investors including Tencent and Coatue, has raised just under $449 million in funding, per Crunchbase data.

Afterpay competes in the increasingly crowded buy now, pay later space, which allows consumers to break up online purchases into smaller payments. Its biggest competitors include Stockholm-based Klarna, which has raised $3.7 billion from private investors to date, and Affirm, which raised $1.5 billion in venture funding before going public in January. Affirm’s share price has since plummeted to less than half of its 52-week high in February, but jumped 14 percent in morning trading on Monday after the Afterpay acquisition was announced.

Another major player in the BNPL space includes fintech giant PayPal, which in 2008 purchased Bill Me Later, an early pioneer in the space.

All told, venture investors poured $1.7 billion into buy now, pay later companies between 2016 and 2020, per Crunchbase data. A Bank of America survey late last year predicted the BNPL market was poised to “grow 10-15 times by 2025 to eventually process between $650 billion and $1 trillion in transactions.”

Venture investors like the BNPL business model because these startups essentially have two revenue streams, Kamran Ansari, a venture partner at Greycroft, which invested in e-commerce pay-over-time financing tool Credit Key, told Crunchbase News earlier this year.

The first revenue source is the actual transaction, when the merchant typically pays between 2 and 3 percent of the purchase price to the BNPL service in exchange for being able to offer that convenience to its customers. The second revenue stream for the BNPL service is interest payments from borrowers.

Square’s shares have surged 105 percent over the past year amid a boom for digital transactions such as its mobile Cash App. It also reported second-quarter earnings on Sunday, revealing that revenue had more than doubled from the same quarter the previous year, to $4.7 billion.

San Francisco-based Square said it plans to integrate Afterpay into its Cash App and seller ecosystem.

“By combining with Square, we will further accelerate our growth in the U.S. and globally, offer access to a new category of in-person merchants, and provide a broader platform of new and valuable capabilities and services to our merchants and consumers, Afterpay co-founders and co-CEOs Anthony Eisen and Nick Molnar said in a statement announcing the deal.

Illustration: Li-Anne Dias.

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

Another major player in the BNPL space includes fintech giant PayPal, which in 2008 purchased Bill Me Later, an early pioneer in the space.

Source: https://news.crunchbase.com/news/square-rolls-up-afterpay-as-bnpl-market-stays-hot/

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Cryptocurrency Experts Say These 4 Factors Are Driving Change In The Industry

The COVID-19

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The COVID-19 pandemic accelerated acceptance of digital currencies like Bitcoin and the underlying blockchain technologies that power them. And while Bitcoin volatility continues — with the currency hitting its lowest point in months this week — investors are optimistic momentum will continue even as the world slowly starts to return to normal.

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The crypto and blockchain sector has attracted nearly $12.4 billion in venture investment into U.S.-based companies since 2017 and $19.4 billion globally, Crunchbase numbers show. In fact, data so far for 2021 shows dollars were nearly 3x from 2020 for both global and U.S. investments. But the sector also faces continued opportunities and challenges going forward, including more widespread adoption and new regulatory pressures from governments around the world.

Case in point: Earlier this month, El Salvador became the world’s first country to adopt bitcoin as legal tender. At the same time, Thailand’s Securities and Exchange Commission ordered its exchanges to delist meme coins, such as Dogecoin, as well as NFTs, exchange tokens and fan tokens, saying those tokens have “no clear objective or substance or underlying [value].”

Stepped-up efforts by China’s government to rein in the crypto space had the largest impact on valuations. On Friday, authorities in China’s Sichuan province, one of the country’s largest mining centers, reportedly ordered cryptocurrency miners to shut down their operations,

Cryptocurrency experts say these kinds of polarizing events put a spotlight on the space.

“Blockchain was accelerated five years in the pandemic,” according to Alon Goren, founding partner at blockchain fintech venture studio Draper Goren Holm.

Here’s a closer look at four factors that are likely to drive big changes in the cryptocurrency space in years to come.

1) Mainstream adoption

Cryptocurrency startups are working to make the process of using, buying, trading and finding digital currencies easier, driving greater consumer awareness and adoption.

Increasingly, mainstream adoption of cryptocurrencies is “crazy important” to the growth of the sector, according to Goren. Still, some of that adoption has come from less serious applications of digital currencies, including “meme coins” — assets based on jokes but with no real value other than those given to them by social indicators — a phenomenon that also concerns Goren because they reinforce the notion that cryptocurrency isn’t legitimate.

“Publicly traded companies can show quarterly earnings, you can follow the CEO on Twitter and you know their opinions on things,” Goren added. “In crypto, you don’t have those kinds of things to show legitimacy.”

Meanwhile, Hsuan Lee, CEO of Portto/Blocto, said the adoption of NFTs — non-fungible tokens — is one of the biggest factors that has changed the industry in the past year. Portto is a Taiwan-based company that aims to make blockchain simple for users and developers.

Although NFTs have been around since 2017, they were initially not appealing for typical use, but that all changed when they became approachable by retail investors, including when sports organizations got involved in selling digital clips and cards, he said.

“The National Basketball Association doesn’t market itself as a blockchain, but offering collectibles on it appeals to fans,” Lee said in an interview. “With those kinds of applications, even introducing a music NFT would potentially attract existing music fans. With that kind of people joining the party, it will make crypto more mainstream.”

Muneeb Jan, a cryptocurrency and fintech expert operating out of Hong Kong, said the investor base for cryptocurrency is still largely retail investors, while major financial institutions are in the discovery phase.

Still, new companies are announcing on a daily basis that they will accept bitcoin and other cryptocurrencies, and banks are facing crypto investor demand to get more involved in the space, Jan said.

“Crypto funds are increasingly viewed as an asset class,” he said in an interview. “There is not much of a use case currently, but they want to jump onto the bandwagon. If more large institutional investors come in, there will be price stability, and it will improve the legitimacy.”

2) Price volatility

Jan believes two of the biggest headwinds slowing more mainstream cryptocurrency adoption are price volatility and the fact that bitcoin as a mode of payment is not yet completely viable due the current inability to quickly process transactions.

Bitcoin has been particularly volatile in recent days. After surging above $40,000 about a week ago, the currency fell below $30,000 this week, recovering to around $32,400 as of Tuesday afternoon. Over the past year, the price grew to a peak of more than $60,000 before falling back to half that at the end of May.

Just processing transactions is not a sustainable use long-term due to the expensive transaction fees associated with it, even though people want bitcoin to be able to do that, he added.

“Other cryptocurrencies are not volatile because the community investing in them have come to a consensus on the price,” Jan said.

Lee said price volatility will be aided by regulations, especially as cryptocurrency is adopted more broadly. Price volatility will only be fixed with time, he said.

“This is a very young market and it has attracted attention, which makes prices volatile,” he added. “It can be dangerous to get into a space without established regulations. Being at an early stage, there is a lot of imagination that can be had for these cryptocurrencies. At the same time, when bad news comes out, it can easily dump harder on crypto than other companies.”

3) Regulatory pressure

Regulations proposed for cryptocurrency have gained steam since the beginning of 2021.

Among them: The U.S. Department of the Treasury announced in May that it will require any transfer worth $10,000 or more to be reported to the Internal Revenue Service as part of an effort to curb tax evasion.

“I’m happy to see regulations come into place because it will be good for the industry overall,” Lee said. “It will minimize possible scams or malicious use cases and make it better for everyone to get on board.”

The government is also examining possible regulations of cryptocurrency exchanges with a focus on protecting investors and preventing market manipulation, as well as financial account reporting as it relates to cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies.

Goren called a focus on Bitcoin, Etherium and the public markets “a double-edged sword.” Any real value is eroded when inflation occurs, but Bitcoin is a decentralized currency, so its value holds up well against inflation.

And the more institutions that participate, the more legitimacy it creates so regulators are less likely to fight it, he said.

“Most lawmakers know crypto is not used by criminals, but the people who put them in office are large financial institutions that are cheering when they say that happens,” Goren said.

While he understands why there have to be IRS reporting requirements for tax purposes, he disagrees when government regulations don’t consider Bitcoin a currency, but then treats it like cash.

By instead treating cryptocurrency as a capital asset, the IRS is taxing capital gains, which could also have implications on the venture capital world, he added.

Goren said other countries have a bit more clarity, but there is still misunderstanding in the U.S. when it comes to how cryptocurrencies should be reported financially, and it won’t change until there is clear categorization of cryptocurrencies.

4) Beyond Bitcoin

Rocketfuel Blockchain founder Peter Jensen said it will take time for the public to understand and be comfortable with cryptocurrency, much as people had to acclimate to the idea of online banking and ATM cards before that.

Jensen’s company, based in San Francisco, processes crypto payments. He believes people are distracted by the price volatility of Bitcoin, although it is just one out of some 200 cryptocurrencies.

“We need to move people’s minds away from Bitcoin because who knows if cryptocurrency will survive,” Jensen said in an interview. “There are many cryptocurrencies pegged to the dollar, which means they have zero volatility. If you take those and use them for payment, then you get the benefits of that.”

Global developments — such as El Salvador adopting cryptocurrency and both Sweden and Dubai issuing their own digital currencies — bring promise for the future of the industry, and Jensen predicts the U.S. will eventually issue a digital version of the dollar.

He sees a world where when you get a job, you will have the choice of receiving your paycheck in dollars or cryptocurrency, and there will be no volatility because those funds will be guaranteed by the U.S. government.

“We feel that the U.S. has an opportunity to be ahead, even though China is adopting cryptocurrency faster, as well as those with less-efficient banking systems,” Jensen added. “If we don’t stay in front, we are going to be last.”

Crunchbase Pro queries listed for this article

The query used for this article was “Global Cryptocurrency Companies,” in which “Bitcoin,” “cryptocurrency” and “virtual currency” were the organizational industry search terms. The data was then separated out by changing the headquarters location to “United States.”

All Crunchbase Pro Queries are dynamic with results updating over time. They can be adapted with any company or investor name for analysis.

Illustration: Dom Guzman

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

Stepped-up efforts by China’s government to rein in the crypto space had the largest impact on valuations. On Friday, authorities in China’s Sichuan province, one of the country’s largest mining centers, reportedly ordered cryptocurrency miners to shut down their operations,

Source: https://news.crunchbase.com/news/cryptocurrency-experts-say-these-4-factors-are-driving-change-in-the-industry/

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Zenefits Payroll Glitch Results In Delayed Paychecks For Small-Business Employees

Employees of several small businesses weren’t paid Friday after payroll and benefits platform Zenefits closed for the Juneteenth holiday and experienced a glitch, two people affected told Crunchbase News.

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Employees of several small businesses were paid late Friday after payroll and benefits platform Zenefits closed for the Juneteenth holiday and experienced a glitch, two people affected told Crunchbase News.

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Zenefits provides tools for businesses to handle HR, onboarding, benefits and payroll. It’s used by many small and medium-sized businesses. The San Francisco-based company has raised at least $584 million in known venture funding, per Crunchbase data, and was most recently valued at $4.5 billion by private investors when it raised funding in 2015.

On Friday, several people took to the comments section of a Facebook post Zenefits made in honor of Juneteenth, which this week became a federal holiday celebrating the end of slavery in the U.S., to complain that their employees hadn’t been paid, despite their respective companies processing payroll.

The post was soon deleted.

John Bazyk, CEO of Connecticut-based security system company Command Corp., told Crunchbase News that he realized Friday morning that his company’s employees hadn’t been paid after one of them contacted him.

Command usually sees a tax withdrawal and employees’ net pay come out of its bank account on Wednesday, but this week only the tax withdrawal was taken on Wednesday, Bazyk said.

The payroll amount was taken out this morning, but had yet to be disbursed to employees as of 4 p.m. Eastern, he said.

Bazyk said he spent four hours Friday trying to deal with the issue, and hadn’t received any communication from Zenefits such as an email alerting him of the issue.

Some employees have bills that automatically debit from their bank accounts, he said, and not being paid could put them in a bind.

“The employees are upset at me, they think I didn’t run payroll,” Bazyk said. “Some of these are new employees. They’re joining a new company and it’s like, ‘Wait I’m not getting paid?’ ”

Usually preceding a holiday, Zenefits will remind customers to run payroll early, Bazyk said, but that wasn’t the case this week. He noted that he understands it’s a unique situation — with President Biden on Thursday signing legislation that made Friday a new federal holiday in celebration of Juneteenth — but the situation and lack of communication from Zenefits were frustrating.

“Even if they make it right, we’re probably going to leave them because it’s an unacceptable mistake,” Bazyk said.

It’s not clear how many of Zenefits’ customers or their employees were impacted by the error.

Nancy, a controller and HR administrator at a company in the Washington, D.C., area, said she was notified by two employees Friday that they hadn’t been paid. Around 2:15 p.m. Eastern, she saw a notification in the Zenefits portal acknowledging the issue. Nancy did not want to share her full name because she was not authorized to speak on behalf of her employer.

“Businesses can make mistakes,” she said. “Whatever caused the debit to not go out is not good. But then to not be there to answer what happened … that’s bad.”

A Zenefits spokeswoman said in an email to Crunchbase News that the issue causing the payroll delay was resolved, and that employees would receive payment by 5 p.m. Pacific time.

“Today, Zenefits experienced an issue that resulted in a delay for some employees’ direct deposits,” the statement read. “This has been resolved and we can confirm that employees who did not receive their direct deposit this morning will receive it today by 5 PM PT. All employees will be paid and the funds have already been processed. We are currently waiting on the banks to send them out this afternoon.”

Another Zenefits spokeswoman said in an email at 2:40 p.m. Pacific time that the issue was resolved and affected employees had been paid.

Illustration: Li-Anne Dias

Editor’s Note: This story was updated after it was first published to reflect that payment for affected employees had gone through late Friday afternoon, after Crunchbase News first spoke with sources.

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

On Friday, several people took to the comments section of a Facebook post Zenefits made in honor of Juneteenth, which this week became a federal holiday celebrating the end of slavery in the U.S., to complain that their employees hadn’t been paid, despite their respective companies processing payroll.

Source: https://news.crunchbase.com/news/zenefits-payroll-glitch-results-in-small-business-employees-not-getting-paid/

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