Caterina Fake is known for her trend-spotting; here’s some of what she’s chasing now

Roughly a year ago, entrepreneurs Caterina Fake and Jyri Engeström decided to form a traditional venture outfit called Yes VC. Fast forward, and the duo has nearly closed on $50 million for their debut fund, including backing from Supercell founder Ilkka Paananen, former Etsy CEO Chad Dickerson and the family office of Nokia Chairman Risto Siilasmaa.

That investors would want to invest alongside them isn’t surprising. Fake famously co-founded the photo-sharing site Flickr, which sold to Yahoo, before co-founding Hunch, which sold to eBay. Engeström co-founded Jaiku, a mobile social network that sold to Google, before co-founding Ditto, a mobile local recommendations app that was acquired by Groupon. They’ve also written early checks as angel investors to a wide number of companies. Fake backed Kickstarter and Etsy, among tens of others; Engeström’s various bets include the popular clothing label Betabrand, and startups like Applifier (acquired by Unity Technologies) and Moves (acquired by Facebook).

Now, investing on behalf of San Francisco-based Yes VC, Fake and Engeström have invested in a dozen more startups, including a clothing retailer that we reported on earlier this week called Kids on 45th that’s not in Silicon Valley and doesn’t photograph what it sells to customers online — which is a big departure from nearly every other e-commerce concept we’ve covered. In fact, because we thought it was so interesting, we asked Fake to hop on the phone with us and share what else she’s seeing — and funding. Unfortunately, one of the most intriguing investments that we wound up discussing we can’t include (the founders would not be pleased), but we can share it soon. Our conversation has otherwise been lightly edited for length.

TC: Kids on 45th seems very unique in that it caters to those willing to buy kids clothing sight unseen in exchange for affordability and time savings. It’s rare to see an e-commerce company that’s not catering to status-conscious consumers.

CF: They are rare, my goodness. It’s a severely under-addressed market. Its [customers] tend to be middle-class and lower-income moms who are super busy working and don’t care about brands or or have a lot of time to select kids’ clothing. So many Silicon Valley startups cater to college dudes who are trying to get out of doing their chores, I find it kind of offensive. This is a company that supports moms who really need the support, who can’t afford to have their groceries delivered or their packages dropped off and picked up — who are really pulling their weight, and everyone else’s.

TC: It’s in Seattle. How did you meet the company?

CF: We met [founder] Elise [Worthy] through [the consumer VC firm] Maveron. It was a little early for them so they introduced us. We often get referrals from Series A firms and from founders who know what we look for and what we like, and Maveron knew Elise was perfect for us.

Only three [of our new portfolio companies] are in the Bay Area, by the way. We have one in Portland, Maine; in Boise; in Vancouver. Silicon Valley is still Rome, but other places are becoming much stronger.

We’re also seeing a lot of stuff from women, partly because it’s a 50-percent female partnership here. There are so many awesome companies led by women and female entrepreneur networks. Our secret sauce is that we see a lot of these opportunities. Etsy I took all around the Valley for a seed round and everyone pooh-poohed it because they had this blind spot of not understanding businesses that cater to women. But there are huge opportunities all over the place.

TC: We talked when you were launching Yes VC and you were really enthusiastic about decentralization. Are you investing in blockchain startups?

CF: There isn’t a lot of compelling blockchain stuff that we’ve seen, though I do believe that the massive consolidation of power in the top five companies is not good for tech industry, startups or the broader ‘innovation ecosystem.’ What I find interesting lately is all the stuff going on in social platforms and online communities that are fine grained, meaning networks for specific or narrower communities, of developers, of women, of people dealing with a certain problem.

When Flickr started a year or two after Facebook, the Internet was so huge [and open] that it could serve these faceted networks. I think we’ve since seen the results of trying to be all things too all people —  nuns, white supremacists, truck drivers — [and] you shouldn’t serving all those people.

TC: You clearly think about these things a lot. You started a podcast this year, “Should This Exist,” about technologies that affect humanity. 

CF: It’s stuff I’ve been talking about all along and conversations I’ve been having online for a long time. In recent years, we’ve seen the effect of blitzscaling, and ‘move fast and break things,’ and development principles that the Valley has been flaming the flames of, so we ask [on the podcast]: Can this exist? Can it get funding? And should this exist? We’re putting out an episode every couple of weeks, and we’re halfway through this first season, with a plan to put out 10 episodes altogether.

We did one episode on ‘neuropriming,’ or zapping your brain to make it learn faster; another on AI therapy, with AI replacing people in the form of therapists and teachers and surgeons in diagnosing brain tumors. We’ve also talked about facial recognition and drones and supersonic flight, and stuff coming up in genetics — scary things with both huge potential to serve humanity and also to go really, terribly wrong. It’s important to [ask more questions] at the beginning of these industries rather than later, when we’re making a last-ditch effort to [solve the problems they’ve created].

TC: What are your theses right now when it comes to investing?

CF: All of our confreres in VC are like, ‘You got to have a thesis.’ It all sounds kind of like crap. What we did was retrospected all the stuff that has done really well [that we’ve helped fund], including Etsy and Cloudera, and what they had in common. One is a marketplace for handmade goods, the other an open-source tech platform, but what they have in common is that they were both at the vanguard of movements. Etsy became the vanguard of the DIY movement. Kickstarter [another early angel investment] became the vanguard of crowdfunding. Blue Bottle Coffee was the vanguard of the artisanal coffee movement. Public Goods [a membership club for natural and sustainable bathroom products] is in the vanguard [away from this] glut of marketing where you’re being constantly bombarded with messaging. It’s about simplification. Sometimes, you just want shampoo without being assaulted by branding first.

TC: What size checks are you writing?

CF: Typically, it’s a $500,000 check into a pre-seed deal, or we’ve gone as high as $1.5 million, writing follow-on checks selectively.

TC: Biggest investment out of the new fund?

CF: It may be either Kids on 45th or Public Goods.

TC: Are you seeing less frothy valuations in other markets?

CF: That’s true to some extent, but Valley fever is a contagion that takes hold as much in Indiana as California. It really is the case that the price is whatever the market will bear.

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Equity Shot: Pinterest zooms into the public markets (and yet another tech company files for an IPO)

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

This is a relaxed, Friday, Equity Shot. That means Kate and Alex were on deck to chew through the latest from the IPO front. We’ll keep doing extra episodes as long as we have to, though we’re slightly sorry if we’re becoming a bit much.

That’s a joke, we’re not sorry at all.

So, three things this week. First, Fastly filed an S-1 (Alex’s notes here), second, Zoom completed its highly-anticipated IPO (Kate’s post here, Alex has notes too), third. Pinterest went public too (More from TechCrunch here). Ultimately, Pinterest’s stock offering valued the company at $12.6 billion (higher than its latest private valuation) but we’ve got some notes on the ‘undercorn’ phenomenon anyway (here and here).

Fastly is going public after raising more than $200 million at a valuation greater than $900 million. Founded in 2011, the content-delivery company surpassed the $100 million revenue mark in 2017, growing a little under 40 percent in 2018. It’s an unprofitable shop, but it has a clear path to profitability. And given how Zoom’s IPO went, it’s probably drafting a bit off of market momentum.

As mentioned, Zoom had a wildly successful first day of trading. The company ended up pricing its shares above range at $36 apiece only to debut on the Nasdaq at $65 apiece. Yes, that’s an 81 percent pop and yes, we were a bit floored.

Finally, Pinterest’s debut was solid, leading to a more than 25 percent gain over its above-range IPO price. What’s not to like about that? It’s hard to find fault with the offering. Pinterest got past the negative press and questions about private market valuations, went public, raised a truckload of money and now just has to execute. We’ll be watching.

If you’re looking for more Uber IPO content, don’t worry, there’s plenty more of that to come. See ya next week.

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercast, Pocket Casts, Downcast and all the casts.

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Equity Shot: Pinterest zooms into the public markets (and yet another tech company files for an IPO)

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

This is a relaxed, Friday, Equity Shot. That means Kate and Alex were on deck to chew through the latest from the IPO front. We’ll keep doing extra episodes as long as we have to, though we’re slightly sorry if we’re becoming a bit much.

That’s a joke, we’re not sorry at all.

So, three things this week. First, Fastly filed an S-1 (Alex’s notes here), second, Zoom completed its highly-anticipated IPO (Kate’s post here, Alex has notes too), third. Pinterest went public too (More from TechCrunch here). Ultimately, Pinterest’s stock offering valued the company at $12.6 billion (higher than its latest private valuation) but we’ve got some notes on the ‘undercorn’ phenomenon anyway (here and here).

Fastly is going public after raising more than $200 million at a valuation greater than $900 million. Founded in 2011, the content-delivery company surpassed the $100 million revenue mark in 2017, growing a little under 40 percent in 2018. It’s an unprofitable shop, but it has a clear path to profitability. And given how Zoom’s IPO went, it’s probably drafting a bit off of market momentum.

As mentioned, Zoom had a wildly successful first day of trading. The company ended up pricing its shares above range at $36 apiece only to debut on the Nasdaq at $65 apiece. Yes, that’s an 81 percent pop and yes, we were a bit floored.

Finally, Pinterest’s debut was solid, leading to a more than 25 percent gain over its above-range IPO price. What’s not to like about that? It’s hard to find fault with the offering. Pinterest got past the negative press and questions about private market valuations, went public, raised a truckload of money and now just has to execute. We’ll be watching.

If you’re looking for more Uber IPO content, don’t worry, there’s plenty more of that to come. See ya next week.

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercast, Pocket Casts, Downcast and all the casts.

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Malware researcher Marcus Hutchins pleads guilty, ending his legal case

Malware researcher Marcus Hutchins has pleaded guilty to two counts of creating and selling a powerful banking malware, ending a long and protracted battle with U.S. prosecutors.

Hutchins, a British national who goes by the online handle MalwareTech, was arrested in August 2017 as he was due to fly back to the U.K. following the Def Con security conference in Las Vegas. Prosecutors charged Hutchins with his involvement with creating the Kronos banking malware, dating back to 2014. He was later freed on bail.

A plea agreement was filed with the Eastern District of Wisconsin, where the case was being heard on Friday. His trial was set to begin later this year.

Hutchins agreed to plead guilty to distributing Kronos, a trojan that can be used to steal passwords and credentials from banking websites. In recent years, the trojan has continued to spread. He also agreed to plead guilty to a second count of conspiracy.

Hutchins faces up to 10 years in prison. Prosecutors have dropped the remaining charges.

In a brief statement on his website, Hutchins said: “I regret these actions and accept full responsibility for my mistakes.”

“Having grown up, I’ve since been using the same skills that I misused several years ago for constructive purposes,” he said. “I will continue to devote my time to keeping people safe from malware attacks.”

His attorney Marcia Hofmann did not immediately return a request for comment.

Hutchins rose to prominence after he stopped the spread of the WannaCry ransomware attack in May 2017, months before his arrest. The attack used powerful hacking tools developed by the National Security Agency, which were later leaked, to backdoor thousands of Windows computers and install ransomware. The attack was later attributed to hackers backed by North Korea, knocking U.K. hospitals offline and crippling major companies around the world.

By registering a domain name found in the malware’s code, Hutchins stemmed the spread of the infection. He was hailed a hero for stopping the attack.

Prior to his release and after, Hutchins gained further praise and respect from the security community for his contributions to the malware-reversing field, and demonstrating his findings so others can learn from his findings.

Justice Department spokesperson Nicole Navas declined to comment.

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Prosper is the latest Silicon Valley company to get dinged by, and settle charges with, the SEC

Another Silicon Valley company is settling with the SEC: the online lending company Prosper, which the SEC had accused of “miscalculating and materially overstating annualized net returns to retail and other investors.” Prosper has agreed to pay $3 million as part of the settlement, in which it has neither admitted nor denied the agency’s allegations.

According to a new release from the SEC: “For almost two years, Prosper told tens of thousands of investors that their returns were higher than they actually were despite warning signs that should have alerted Prosper that it was miscalculating those returns.” The 14-year-old, San Francisco-based company “excluded certain non-performing charged off loans from its calculation of annualized net returns” that it communicated to investors from around July 2015 through May 2017.

The mistake owed to a coding error that excluded the defaulted loans from its computations, the SEC said, causing Prosper to overstate its annualized net returns to more than 30,000 investors on individual account pages on its site and in emails soliciting additional investments from investors.

The SEC added that “many” investors decided to make additional investments based on the overstated annualized net returns and the “Prosper failed to identify and correct the error despite [its] knowledge that it no longer understood how annualized net returns were calculated and despite investor complaints about the calculation.”

The settlement is the second for the SEC in two week’s time. On April 2, the SEC announced that the founder and former chief executive of Jumio has agreed to pay the agency $17.4 million to settle charges that he defrauded investors in the mobile payments and identity verification startup before it went bankrupt.

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