This Week In VC covering vc from a student perspective

August 02 (TWIVC Newsletter #02)

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This is a weekly newsletter covering the top stories in startups, venture capital, and cutting-edge technologies. The newsletter is organized into three sections: a recap of the biggest stories of the week, a long-form deep dive into a specific topic, and a profile of a lesser-known fund.


Weekly Recap

  1. Healthcare gets an injection in the arm 🧬

    A number of healthcare startups received significant funding this week, adding to an already red-hot season for life sciences funding. Ro, the New York-based digital health startup raised $200 million in a Series C round led by General Catalyst, which values the online health-care firm at $1.5 billion. Ro plans to use the new funding to invest in technology and double the engineering to staff to 140 employees.

    Additionally, Stamford-based health intelligence startup Sema4 announced a $121 million Series C led by BlackRock, which values the company at just over $1 billion. The second healthcare unicorn 🦄 in a week! Sema4 hopes to improve patient outcomes through data-driven diagnosis, treatment, and prevention especially in reproductive health and oncology.

    Finally, the Los Angeles-based at-home care and telemedicine startup Heal raised $100 million from health insurance behemoth Humana in a series D round. This deal will offer Heal the opportunity to leverage Humana’s health care expertise and access to patients in order to expand into new markets in the United States like Chicago, Charlotte, and Houston. What a big week for healthcare!

  2. Density raises a dense pile of cash 🏢

    With many firms beginning to bring employees back into the office, social distancing is a number-one priority for maintaining a safe and healthy workplace. Density, a San Francisco-based tech startup, has developed a sensor to anonymously count the number of employees in a building. The privacy-focused startup closed a $51 million Series C round led by Kleiner Perkins this week to address unprecedented demand from grocery stores, offices, governments, manufacturers, and industrial plants looking to adhere to capacity constraints during COVID-19. Utilizing AI-powered crowd analytics combined with depth-measuring hardware, Density has already been implemented in companies like Pepsi, Delta, Verizon, Uber, Marriot and Exxon Mobil.

  3. Chorus.ai listens in on new funding 🔈

    Conversation intelligence startup Chorus.ai raised $45 million in Series C funding led by Georgian Partners, with participation from Emergence Capital, Redpoint Ventures, and Sozo Ventures. The San Francisco-based AI-driven startup helps sales teams become more productive by analyzing keywords and topics in meetings, calls, and emails, enables smoother hand-offs to other salespeople, and strengthens customer relationships. Chorus.ai started only five years ago, showing significant progress. The round will be used to expand the go-to-market team and increase investment in product innovation.

  4. Remitly gets a huge money transfer 💵

    Remitly, an international money transfer startup, raised $85 million in a new round of funding led by Prosus’s PayU. The Seattle-based FinTech is focused on helping immigrants send remittances back to family members still in their home country, an especially important mission considering the financial effects of COVID-19. Remitly CEO Matt Oppenheimer stated that customer growth has increased by 200% YoY, with over 300 million customers spread over 17 outbound countries and 57 inbound countries.

  5. Tempo sees workout gains 💪🏽

    With home fitness exploding as millions of people work from home during the pandemic, San Francisco-based Tempo announced a $60 million Series B led by Norwest Venture Partners and General Catalyst, with participation from Founders Fund, Signal Fire, DCM, Y Combinator, and Bling Capital. The $2000 device tracks form, counts reps, and recommends workouts on a large display, with constant live feedback from trainers on the platform. According to company financials, it’s on track to hit a $100 million run rate, owing to sales that have jumped by 500% since pre-orders opened this February. I should go do some exercise now…

  6. TikTok saga continues in the US 🇺🇸

    Drama continues to surround TikTok’s operations in the US as President Trump told reporters about a potential domestic ban and his opposition to a potential acquisition by Microsoft. In response to the President’s comments, Microsoft halted its talks to acquire TikTok from ByteDance, and then restarted talks late Sunday evening. This is on the heels of drama earlier in the week, where TikTok CEO Kevin Mayer accused Facebook of copying TikTok with its new Reels platform. Last week, it was reported that an investor group including Sequoia and General Atlantic had offered to acquire the company at a valuation of $50 billion, but it looks like there’s been no progress on that front. TikTok-ers, it may be your last few days on the platform!


VC Profile

I like to profile lesser-known venture funds who are focused on impact investing, run specialized mandates, or have a diverse set of GP’s leading the fund. Let me know if you come across an interesting fund!

This week, I’ll be profiling Precursor Ventures, a Black-led seed stage venture capital firm in San Francisco, California. Precursor is led by Charles Hudson, the firm’s sole general partner. Hudson previously was a Partner at Uncork Capital and started a few companies of his own.

Precursor Ventures focuses on investing as early as possible, ideally as a first round lead investor. They mainly focus their investments to San Francisco, New York, and Toronto, with limited investments in other geographies, with a typical investment of $100,000 to $250,000. Precursor Ventures has a focus in known and unknown areas of software and hardware, but is open to an investment in any growth areas. They target 15-20 investments per year on average in order to work with a wide network of founders and still be active in current investments.

Precursor is currently in the process of raising as much as $40 million for its third flagship fund, following its $31 million oversubscribed second fund in early 2019.

Recent investments include:

Recent exits include:

In an industry that’s been historically known for a lack of minority inclusivity, it’s exciting to see an all-Black VC be a leader in the seed-stage category and encourage founders from all backgrounds, religions, and races to build great companies.


Longform: Has Big Tech become too big?

Tech

This week’s headlines in technology have been dominated by the testimony of Big Tech’s top CEO’s in front of the US Congress on antitrust issues. Jeff Bezos (Amazon), Tim Cook (Apple), Sundar Pichai (Google), and Mark Zuckerberg (Facebook) were grilled over a Cisco WebEx call for several hours in front of the House Judiciary Committee’s antitrust subcommittee, with a combined total of 217 questions. While the classic political posturing took place, with additions of conspiracy theories and shouting matches (usually instigated by Rep. Jim Jordan), there was substantial inquiry by Congress into the role of the technology giants in stifling competition and preventing innovation.

This brings us to these central questions:

(1) Do the technology giants have too much power?

(2) Are the technology giants negatively harming the technology ecosystem?

We’ll frame this around the four companies that were being investigated: Amazon, Apple, Google, and Facebook.

Congress focused on two key problems for Amazon: the company’s use of data on third-party sellers to develop and promote its own products, and Amazon’s anticompetitive behavior in stifling competition. Rep. Pramila Jayapal pressed Bezos on Amazon’s adherence to a company policy on not accessing seller data, which Bezos was unable to guarantee. Quite often, Amazon will begin duplicating a third-party product that has done quite well on its platform under its own private label brand, and undercut the original product based on private information. By knowing the profit-per-unit, Amazon could ensure that manufacturers could deliver a higher margin on an Amazon-branded unit. Amazon has continuously denied the allegation, but several employees have confirmed parts of the accusation. Retailers have begun to shun Amazon’s marketplace in fear of being duplicated and undercut, which forces them to find use other marketplace options.

Amazon has not only used private information to duplicate products on the marketplace side but has even used its venture-capital arm to gain access to product data. A WSJ report mentions how Amazon used its Alexa Fund to invest in startups, which allowed it to gain access to financials, strategic plans, and other proprietary IP to develop its own competing product. Amazon’s competing product eventually forced many of these companies out of business, as Amazon had the size, scale, and power to undercut that destroyed many of the business models that these companies had perfected before Amazon had invested in these firms. To me, this is a clear moral and ethical violation if not legal violation on Amazon’s end. It’s harming and destroying the technology ecosystem along with the relationship between a VC and its portfolio company in an effort to consolidate power. Founders will become more wary of freely sharing information with a VC in fear of it being used against them, which damages the symbiotic relationship so preciously guarded in the Valley.

A clear streak of Amazon’s anticompetitive nature can be seen in its effort to win market share from and ultimately acquire Diapers.com. Emails show Amazon continuously lowered prices to force Diapers.com out of business, even willing to swallow $200 million in losses in one month on diapers alone. Once Amazon weakened and acquired Diapers.com at a fraction of its original value, it raised the prices back up - a clear violation of anticompetitive behavior.

Amazon is not the only bad player.

Apple also has a streak of anti-competitive behavior in its history. It makes over 60 apps that compete with third party sellers but aren’t subject to the 30 percent tax that it places on them, which reduces competition in the marketplace as competitors are forced out. Not only that, but it also has an uneven playing field for developers: bigger players get less revenue taken away by Apple through side deals, hurting smaller developers and startups.

For Facebook, Congress focused on its acquisition of Instagram. Lawmakers accused Facebook of taking out competitors and consolidating market power; I actually think Facebook’s acquisition was valid. During that time, there were other competitors to Instagram that operated in the space, and it wasn’t entirely guaranteed that Instagram would become the tycoon it is today with hundreds of millions of users. Picture-based social media was still a very nascent market, and Instagram had just begun to emerge as a solid player. Some can even argue that Facebook’s acquisition allowed for Instagram to blossom into what it is today by utilizing Facebook’s business expertise, consumer data, and innovation tools. There’s definitely an argument to be made that Instagram and Whatsapp have become too big now to stay under Facebook’s belt due to the sheer market consolidation, but the initial acquisition was a smart and successful business play. There were several questions about content moderation, but I won’t get into that.

Finally, everybody’s favorite search engine, Google. Google is in the greatest danger of antitrust action being taken against its massive digital advertising business, and the most obscene anti-competitive behavior violations. Google’s grip on search can almost be described as a monopoly, as Google enjoys massive network effects:

“There are also high barriers to entry in these markets, in part because of network effects: the more consumers use a search engine, the more attractive it becomes to advertisers. The profits generated can then be used to attract even more consumers. Similarly, the data a search engine gathers about consumers can in turn be used to improve results.” - European Commission

Let’s look at a clear listing of Google’s anticompetitive behavior (creds to Ben Thompson of Stratechery):

The most obscene of this is offering local results from Google Maps over Yelp and TripAdvisor, as Google scraped data from competitors and then used that to leverage its own products higher. With Google able to own all sides of the advertising auction, there’s a definitive argument that changes need to be made to reduce Google’s monopoly on search and digital advertising.

I’ll qualify my concerns about big tech. Big tech has provided immense economic and social utility to businesses, consumers, and small businesses alike, contributed to cutting-edge innovation and R&D, and generated hundreds of thousands of jobs. But now, they have gotten too big and are wielding their unmatched power with small businesses being destroyed as collateral damage. In order to combat this, we need to update the law: the current antitrust and anti-competition laws are too outdated for today’s digital-focused companies.

I’d love to hear your thoughts on the role of big tech in the technology ecosystem; comment below or shoot me an email!


Addendum

If you have any suggestions, comments, or ideas, please feel free to reach out to me at rohil at upenn dot edu.