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What startups can learn from this dumpster fire year – TechCrunch

Want this newsletter in your inbox every Saturday morning? Sign up here. Remember when it was news that venture capitalists were open for business? Or when Zoom investing was only done by that one guy in Ann Arbor (ha, I kid!)? These past few months have felt busier than ever, with no holiday slowdown in […]

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Remember when it was news that venture capitalists were open for business? Or when Zoom investing was only done by that one guy in Ann Arbor (ha, I kid!)? These past few months have felt busier than ever, with no holiday slowdown in sight when it comes to startup growth, hot IPOs and new financings.

Even with a distracting bull market, I wanted to reflect and see how the youngest startups are faring. Alex Wilhem and I dove into data, provided by Pitchbook, to see if the next DoorDashes and Airbnbs are getting their first financings.

The answer is that seed investing flourished but in a complicated way. COVID-19 shook up which startups were considered attractive by private investors. And that changeup came at risk to certain sectors and people.

Here’s how two investors explained the dynamics:

Freestyle’s Jenny Lefcourt:

I think seed prices are being driven up by the larger [venture] firms playing earlier and feeling like they cannot afford to miss the next DoorDash. I think the larger firms have so much capital to put to work and feel they are better off burning some [cash] at seed for the upside of being in the right [startups] where they can double, triple, 10x down on their winners.

Eniac Ventures’ Nihal Mehta:

Because you can’t meet in person, investors felt way more comfortable investing in ‘proven’ entrepreneurs that had pre-existing connections to their social circle.

The long-term ramifications of this tunnel vision means that female founders lost out during this time, since social circles in venture capital are largely white and male. From a sector perspective, e-commerce and edtech have had an easy time raising, but at the cost of travel and hospitality.

The data brings a sort of dissonance to startup-land: Even though seed investing has never looked more busy and fruitful, this is good news for some, and bad news for others. It’s a healthy reminder that a boom and bust can be true at the same time.

How’s that for a 2020 sign-off? We’ll be off next week but in the meantime, two bits of homework: take advantage of this Extra Crunch holiday sale and send me tips and thoughts to [email protected] or tweet me @nmasc_ in between your holiday treats.

I’ll chat with you all in the New Year.

Waves of sheets of paper that mimic fire

Image Credits: Getty Images

Edtech’s biggest challenge in 2021

No sector has had a year quite like edtech. The sector attracted $10 billion in funding globally, and remote learning went from a tool to a necessity.

Here are my favorite edtech stories I wrote this year:

Finally, in my end of year op-ed for TechCrunch, I propose that the ubiquity of remote learning surely brought a boom to new users, but it may have in fact limited the sector’s ability to innovate in lieu of fast, easy scale.

Here’s my biggest tip for the year ahead:

For edtech in 2020, flexible and scrappy was a survival tactic that led to profits, growth and most of all, aha moments that technology was needed in the way we learn. Now, as we enter the rest of the decade, the sector will have to shake off its short-term-fix mentality to evolve from tunnel vision to wide-pan ambition.

light bulb flickering on and off

Image: Bryce Durbin / TechCrunch

A $16B checkbook for space startups

Funding for space startups is defying odds – which is the poetic flair we need once in a while. As part of our TC Sessions: Space 2020 event, a number of TechCrunch reporters dove deep into what kind of money is going into … the space.

Chris Boshuizen of the venture firm DCVC and a co-founder of Planet Labs notably said:

We don’t yet live in the sci-fi future, where you can just fly up, grab a piece of debris and bring it back. That’s really, really hard — I think probably five years away — but something we want to support and see happen.

Image of Uncle Sam floating in space with the Space Force logo above his left shoulder.

Image of Uncle Sam floating in space with the Space Force logo above his left shoulder.

Remembering the startups we lost in 2020

Building a startup is always difficult, but the pandemic was a plot twist that led to a not-so-happy ending for many companies this year. So, as part of an annual TechCrunch tradition, we paid homage to the startups we lost in 2020.

Here are my takeaways:

  • This is not a fun list. Failure is hard, but you can learn a thing or two when you sort through the ashes. For example? Big names, big plans, and a boatload of money isn’t a replacement for actually making money.
  • List includes short-form video app Quibi, to lawyer tech startup Atrium, to a slew of travel startups which fell apart as the virus dragged on.
  • While some businesses chalked up failure to COVID-19, the cracks and fundamental business flaws were often peeking through far before the pandemic began.

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@EquityPod

Finally, Equity is ending the year with two holiday episodes. This week, we’ve got reflections on this dumpster fire year. I teamed up with Danny, Chris and Alex to just sit back and think about this eventful year. We also got five venture capitalists who we got to leave us their notes as well.

The goal for this episode was to sit down and think a year that no one could have ever predicted, but with a specific angle, as always, on venture capital and startups.

We asked about the biggest surprise, non-portfolio companies to watch, and trends they got wrong and right. There was also banter on Zoom investing (Alex came up with Zesting, not me) and startup pricing.

Equity drops every Monday at 7:00 a.m. PST and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

Here’s how two investors explained the dynamics:

Source: https://techcrunch.com/2020/12/26/what-startups-can-learn-from-this-dumpster-fire-year/

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South Korean antitrust regulator fines Google $177M for abusing market dominance – TechCrunch

The Korea Fair Trade Commission (KFTC) said on Tuesday it fined Google $177 million for abusing its market dominance in the Android operating system (OS) market. The U.S. tech company has restricted market competition by prohibiting local smartphone makers like Samsung Electronics and LG Electronics from customizing their Android OS, through Google’s anti-fragmentation agreements (AFA), […]

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The Korea Fair Trade Commission (KFTC) said on Tuesday it fined Google $177 million for abusing its market dominance in the Android operating system (OS) market.

The U.S. tech company has restricted market competition by prohibiting local smartphone makers like Samsung Electronics and LG Electronics from customizing their Android OS, through Google’s anti-fragmentation agreements (AFA), according to the antitrust regulator statement.

Under the AFA, smartphone developers are not allowed to install or develop “Android forks”, modified versions of Android.

The KFTC banned Google LLC, Google Asia Pacific and Google Korea from imposing local smartphone developers to sign the AFA and make changes on details about the existing version. The new measure in South Korea will be applied to not only mobiles devices but also other Android-powered smart devices including watches and TVs.

Android has spurred innovation among Korean mobile operator owners and software developers and that has led to a better user experience for Korean consumers, Google said in its statement. “The KFTC’s decision released today ignores these benefits, and will undermine the advantages enjoyed by consumers. Google intends to appeal the KFTC’s decision,” a spokesperson at Google said.

The commission has been investigating Google over the anti-competition practice in OS market since July 2016, a spokesperson at KFTC said.

Google’s global mobile OS market share excluding China has been increased to 97.7% in 2019 from 38% in 2010, as per KFTC’s announcement.

Google’s AFA has also limited to launch tech companies’ new devices like smart watches and TVs using the operating system (OS) including Samsung’s smart watch in 2013, LG Electronics’ LTE smart speaker in 2018 as well as Amazon’s smart TV in 2018.

South Korea’s watchdog is probing into three other cases including the Play Store app market, billing system and the advertisement market.

Meanwhile, South Korea’s “anti-Google law”, takes effect on 14 September, based on Korea Communications Commission’s press release.

In late August, South Korea passed a bill to curb global tech companies including Google and Apple from imposing their own proprietary in-app payment service and commissions on app developers.

Source: https://techcrunch.com/2021/09/14/south-korean-antitrust-regulator-fines-google-177m-for-abusing-market-dominance/

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The SEC and the DOJ just charged this startup founder with fraud, saying he lied to Tiger and others – TechCrunch

Today, both the U.S. Department of Justice and the Securities and Exchange Commission charged Manish Lachwani, cofounder of a mobile app testing company Headspin, with fraud. The SEC says he violated antifraud provisions, and the civil penalties it’s seeking include a permanent injunction, a conduct-based injunction, and to bar him for serving as a corporate […]

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Today, both the U.S. Department of Justice and the Securities and Exchange Commission charged Manish Lachwani, cofounder of a mobile app testing company Headspin, with fraud. The SEC says he violated antifraud provisions, and the civil penalties it’s seeking include a permanent injunction, a conduct-based injunction, and to bar him for serving as a corporate executive or board member.

The DOJ, which arrested Lachwani earlier, has accused him of one count of wire fraud and one count of securities fraud, and the associated penalties if he’s found guilty are are more harsh, including, for wire fraud, a maximum sentence of 20 years in prison and a fine of $250,000. If he’s found guilty of securities fraud, he faces a maximum sentence of 20 years in prison and a fine of $5,000,000.

Both the the SEC and the DOJ say Lachwani — who led the six-year-old company as CEO until May of last year — defrauded investors out of $80 million by falsely claiming that his company, Headspin, had “achieved strong and consistent growth in acquiring customers and generating revenue” when he was pitching its Series C round to potential backers.

By the SEC’s telling, his fabrications were designed to help secure the round at a so-called unicorn valuation. That apparent plan worked, too, with Palo Alto-based Headspin attracting coverage in Forbes in February of last year after Dell Technologies Capital, Iconiq Capital and Tiger Global provided the company with $60 million in Series C funding at a $1.16 billion valuation. Forbes reported at the time that the valuation was double the valuation investors assigned HeadSpin when it closed its Series B round in October 2018.

The SEC also says that Lachwani was looking to enrich himself, saying he did so “by selling $2.5 million of his HeadSpin shares in a fundraising round during which he made misrepresentations to an existing HeadSpin investor.” (It isn’t clear from its complaint whether the SEC is referring to the Series C or an earlier round.)

The DOJ’s federal complaint suggests that Lachwani’s alleged scheming dates back to at least November 2019, when the company was fundraising. It says it was then that the success of Palo Alto-based Headspin — which helps apps and devices work in different environments around the world – was being knowingly misrepresented to investors by Lachwani.

More specifically, the complaint alleges that “in materials and presentations to potential investors, Lachwani reported false revenue and overstated key financial metrics of the company. . . he maintained control over operations, sales, and record-keeping, including invoicing, and he was the final decision maker on what revenue was booked and included in the company’s financial records.”

In the investigation that led to the DOJ’s charges, the FBI discovered “multiple examples” of Lachwani “instructing employees to include revenue from potential customers that inquired but did not engage Headspin, from past customers who no longer did business with Headspin, and from existing customers whose business was far less than the reported revenue,” says the department.

How far off were these collective calculations? The complaint says that ultimately, Lachwani “provided investors false information that overstated Headspin’s annual recurring revenue . . . by approximately $51 to $55 million.”

According to the complaint, Lachwani’s fraud unraveled after the company’s board of directors conducted an internal investigation and revised HeadSpin’s valuation down from $1.1 billion to $300 million. Indeed, in August of last year, The Information reported that the company was planning to lower the value of its Series C stock by nearly 80%.

The outlet reported at the time that Lachwani had already been replaced by another executive. That person, according to LinkedIn, is Rajeev Butani, who joined Headspin as its chief sales officer around the time its Series C round was being announced in February of last year.

Nikesh Arora, a former SoftBank president, the current CEO and chairman of Palo Alto Networks helped lead the internal review as a then-director on the board of Headspin, said The Information.

The SEC says it’s investigation is continuing. Meanwhile, the DOJ notes in its announcement that “a complaint merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.”

Either way, the outlook doesn’t look very promising right now for Lachwani, who, according to Forbes, previously sold a mobile cloud business to Google and wound up co-founding Headspin after Yahoo cofounder Jerry Yang introduced him to Brien Colwell, a former Palantir and Quora engineer was working at the time on a different startup.

Colwell remains with Headspin as its CTO. He has not been named in either the SEC or the DOJ’s complaints relating to Headspin.

The company itself, which says it has been cooperating with the government’s investigation, was also not charged.

Pictured above, left to right, Headspin founders Lachwani and Colwell.

The DOJ’s federal complaint suggests that Lachwani’s alleged scheming dates back to at least November 2019, when the company was fundraising. It says it was then that the success of Palo Alto-based Headspin — which helps apps and devices work in different environments around the world – was being knowingly misrepresented to investors by Lachwani.

Source: https://techcrunch.com/2021/08/25/the-sec-and-the-doj-just-charged-this-startup-ceo-with-fraud-saying-he-lied-to-tiger-and-others/

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Blockchain startup XREX gets $17M to make cross-border trade faster – TechCrunch

A substantial portion of the world’s trade is done in United States dollars, creating problems for businesses in countries with a dollar shortage. Blockchain startup XREX was launched to help cross-border businesses in emerging markets perform faster transactions with products like a payment escrow service and crypto-fiat exchange platform. The Taipei-headquartered company announced today it has […]

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Blockchain startup co-founders Winston Hsiao and Wayne Huang in front of the company's logo

XREX co-founders Winston Hsiao and Wayne Huang

A substantial portion of the world’s trade is done in United States dollars, creating problems for businesses in countries with a dollar shortage. Blockchain startup XREX was launched to help cross-border businesses in emerging markets perform faster transactions with products like a payment escrow service and crypto-fiat exchange platform.

The Taipei-headquartered company announced today it has raised $17 million in pre-Series A funding led by CDIB Capital Group. The oversubscribed round also included participation from SBI Investment (a subsidiary of SBI Holdings), Global Founders Capital, ThreeD Capital, E.Sun Venture Capital, Systex Corporation, MetaPlanet Holdings, AppWorks, BlackMarble, New Economy Ventures and Seraph Group. XREX’s last funding was a $7 million seed round in 2019.

Part of the new round will be use to apply for financial licenses in Singapore, Hong Kong and South Africa, and partner with banks and financial institutions, like payment gateways.

“We specifically wanted to build a regulatory-friendly cap table,” XREX co-founder and chief executive officer Wayne Huang told TechCrunch. “It’s really hard for a startup like us to raise from banks and public companies, but as you can see, this round we deliberately to do that and we were successful.”

Huang sold his previous startup, anti-malware SaaS developer Armorize Technologies, to Proofpoint in 2013. Armorize analyzed source code to find vulnerabilities, and many of its clients were developers in Bangalore and Chennai, so Huang spent a lot of time traveling there.

“We ran into all sorts of cross-border money transfer issues. It seemed almost unstoppable,” Huang said. “Growing up in the U.S. and then in Taiwan, we were not exposed to those issues. So that planted a seed, and then when Satoshi [Nakamoto] published the bitcoin white paper, of course that was a big thing for all cybersecurity experts.”

He began thinking of how blockchain can support financial inclusion in emerging markets like India. The idea came to fruition Huang teamed up with XREX co-founder Winston Hsiao, the founder of BTCEx-TW, one of Taiwan’s first bitcoin exchanges. Hsiao grew up in India and founded Verico International, exporting Taiwan-manufactured semiconductors and electronics to other countries, so he was also familiar with cross-border trade issues.

XREX Crypto Services give merchants, especially those in countries with low U.S. dollar liquidity, tools to conduct trade in digital fiat currencies. “They have to get quick access to the U.S. dollar and be able to pay it out quick enough for them to secure important commodities that they want to import, and that’s the problem we want to solve,” said Huang.

To use the platform, merchants and their customers sign up for XREX’s wallet, which includes a commercial escrow service called Bitcheck. Huang said it is similar to having a standby letter of credit from a commercial bank, because buyers can use it to guarantee they will be able to make payments. Bitcheck uses digital currencies like USDT and USDC, stablecoins that are pegged to the U.S. dollar.

Merchants pay stablecoin to suppliers and XREX escrows the funds until the supplier provides proof of shipment, at which point it moves the payment to them. XREX’s crypto-fiat exchange allows users to convert USDT and USDC to U.S. dollars, which they can also withdraw and deposit through the platform.

Part of XREX’s funding will be used to expand its fiat currency platform, though Huang said it doesn’t plan to add too many cryptocurrencies “because we’re not built for crypto traders, we’re built for businesses and brand really matters to them. Brand and compliance, so whatever the U.S. Comptroller of the Currency says is a good stablecoin is what they’re going to use.”

Some of XREX’s partners include compliance and anti-money laundering providers like CipherTrace, Sum&Substance and TRISA. Part of XREX’s funding will be used to expand its security and compliance features, including Public Profiles, which are mandatory for customers, and user Reputation Index to increase transparency.

In a statement about the funding, CDIB Capital Innovation Fund head Ryan Kuo said, “CDIB was an early investor in XREX. After witnessing the company’s fast revenue growth and their commitment to compliance, we were determined to double our investment and lead this strategic round.”

The Taipei-headquartered company announced today it has raised $17 million in pre-Series A funding led by CDIB Capital Group. The oversubscribed round also included participation from SBI Investment (a subsidiary of SBI Holdings), Global Founders Capital, ThreeD Capital, E.Sun Venture Capital, Systex Corporation, MetaPlanet Holdings, AppWorks, BlackMarble, New Economy Ventures and Seraph Group. XREX’s last funding was a $7 million seed round in 2019.

Source: https://techcrunch.com/2021/08/22/blockchain-startup-xrex-gets-17m-to-make-cross-border-trade-faster/

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