Startups Weekly: Will Trump ruin the unicorn IPOs of our dreams?

The government shutdown entered its 21st day on Friday, upping concerns of potentially long-lasting impacts on the U.S. stock market. Private market investors around the country applauded when Uber finally filed documents with the SEC to go public. Others were giddy to hear Lyft, Pinterest, Postmates and Slack (via a direct listing, according to the latest reports) were likely to IPO in 2019, too.

Unfortunately, floats that seemed imminent may not actually surface until the second half of 2019 — that is unless President Donald Trump and other political leaders are able to reach an agreement on the federal budget ASAP.  This week, we explored the government’s shutdown’s connection to tech IPOs, recounted the demise of a well-funded AR project and introduced readers to an AI-enabled self-checkout shopping cart.

1. Postmates gets pre-IPO cash

The company, an early entrant to the billion-dollar food delivery wars, raised what will likely be its last round of private capital. The $100 million cash infusion was led by BlackRock and valued Postmates at $1.85 billion, up from the $1.2 billion valuation it garnered with its unicorn round in 2018.

2. Uber’s IPO may not be as eye-popping as we expected

To be fair, I don’t think many of us really believed the ride-hailing giant could debut with a $120 billion initial market cap. And can speculate on Uber’s valuation for days (the latest reports estimate a $90 billion IPO), but ultimately Wall Street will determine just how high Uber will fly. For now, all we can do is sit and wait for the company to relinquish its S-1 to the masses.

3. Deal of the week

N26, a German fintech startup, raised $300 million in a round led by Insight Venture Partners at a $2.7 billion valuation. TechCrunch’s Romain Dillet spoke with co-founder and CEO Valentin Stalf about the company’s global investors, financials and what the future holds for N26.

4. On the market

Bird is in the process of raising an additional $300 million on a flat pre-money valuation of $2 billion. The e-scooter startup has already raised a ton of capital in a very short time and a fresh financing would come at a time when many investors are losing faith in scooter startups’ claims to be the solution to the problem of last-mile transportation, as companies in the space display poor unit economics, faulty batteries and a general air of undependability. Plus, Aurora, the developer of a full-stack self-driving software system for automobile manufacturers, is raising at least $500 million in equity funding at more than a $2 billion valuation in a round expected to be led by new investor Sequoia Capital.


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5. A unicorn’s deal downsizes

WeWork, a co-working giant backed with billions, had planned on securing a $16 billion investment from existing backer SoftBank . Well, that’s not exactly what happened. And, oh yeah, they rebranded.

6. A startup collapses

After 20 long years, augmented reality glasses pioneer ODG has been left with just a skeleton crew after acquisition deals from Facebook and Magic Leap fell through. Here’s a story of a startup with $58 million in venture capital backing that failed to deliver on its promises.

7. Data point

Seed activity for U.S. startups has declined for the fourth straight year, as median deal sizes increased at every stage of venture capital.

8. Meanwhile, in startup land…

This week edtech startup Emeritus, a U.S.-Indian company that partners with universities to offer digital courses, landed a $40 million Series C round led by Sequoia India. Badi, which uses an algorithm to help millennials find roommates, brought in a $30 million Series B led by Goodwater Capital. And Mr Jeff, an on-demand laundry service startup, bagged a $12 million Series A.

9. Finally, Meet Caper, the AI self-checkout shopping cart

The startup, which makes a shopping cart with a built-in barcode scanner and credit card swiper, has revealed a total of $3 million, including a $2.15 million seed round led by First Round Capital .

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Badi gets $30M for AI-aided room rentals

Should you let AI help you pick your roommates? Barcelona-based urban room rental startup Badi thinks so, and it’s just closed a $30M Series B funding round less than a year after a $10M Series A — suggesting algorithm-aided matchmaking is resonating with its target Millennial(ish) ‘Generation Rent’ demographic, as they hunt for their next flatmate.

The 2015 founded startup has now raised circa $45M in total, while its platform has passed 12M rental requests. Badi also tells us it passed one million registered users last November, up from around 700,000 in February 2018.

It currently offers a service in key cities in four European markets: Spain, France, Italy and the U.K.

The business was set up to respond to the rising trend of urban living (and indeed tourism) that’s been driving rents and squeezing more people into shared houses to try to make city living affordable.

Badi CEO and founder Carlos Pierre points to estimates that by 2050 the total population living in cities will increase from 54% to 66%. “There will likely be a shortage of homes for people looking to live in cities and as a result, this will lead to an increase in smaller living units or rooms. This is where Badi comes in,” he suggests in a statement.

On the AI front, Badi applies machine learning technology to help with the flatmate matching process — learning from users of its platform, as they match and agree to become flatmates, and then feeding ‘compatibility insights’ back in to keep improving its recommendations.

The Series B is led by U.S.-based consumer tech VC firm Goodwater Capital, making its first investment in a Spanish startup. Also investing Target Global and existing VCs Spark Capital and Mangrove Capital.

Badi says the funding will be put towards consolidating its services in Barcelona, Madrid, London, Paris and Rome, and also to open new offices in London.

It says it’s spying a big opportunity there (despite Brexit) on account of the UK capital being one of the most most expensive for renters in the region.

Two other cities it operates in, Barcelona and Madrid, are similarly in demand with renters (and tourists), with Badi noting the rental market in Spain has grown by 130% in the last 10 years and represents 23% of the entire real estate industry.

While Paris and Rome are also major tourist destinations, and short term tourist rentals have been widely linked to increased rents for locals.

Badi’s business is positioned to benefit from the tourist-inflated rent trend as it stands, though cities like Barcelona are also looking at what they can do, policy wise, to curb rising rents and ensure there is affordable and adequate living space for local families, such as via social housing quotas on developers and even buying vacant buildings themselves to convert to housing stock.

But despite increased political attention on the problem of a lack of affordable housing in cities in desirable urban hotspots it’s highly unlikely that housing pressures are going to let up any time soon.

Badi says the Series B will also be used to expand the size of its team, up to 100%, and also to develop additional extra services intended to make life easier for landlords and tenants.

“In the first quarter of 2019, we will work on improving our product to offer possibilities for professionals and private owners to make their experience on Badi far more efficient. Secondly we are redesigning and launching a new booking system around April 2019 to enhance the booking experience to make it more streamlined and user-centric,” it tells us.

Commenting on the funding in a statement, Chi-Hua Chien, co-founder of Goodwater Capita, added: We are extremely excited to partner with Badi in their mission to solve the looming urban housing crisis — there simply aren’t enough homes in cities and housing has become too expensive. Badi provides a unique end-to-end rental platform that builds trust and convenience directly into the customer experience, which has enabled them to unlock thousands of new rooms in cities around the world.”

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Payment service Toss becomes Korea’s newest unicorn after raising $80M

South Korea has got its third unicorn startup after Viva Republica, the company beyond popular payment app Toss, announced it has raised an $80 million round at a valuation of $1.2 billion.

This new round is led by U.S. firms Kleiner Perkins and Ribbit Capital, both of which cut their first checks for Korea with this deal. Others participating include existing investors Altos Ventures, Bessemer Venture Partners, Goodwater Capital, KTB Network, Novel, PayPal and Qualcomm Ventures. The deal comes just six months after Viva Republica raised $40 million to accelerate growth, and it takes the company to nearly $200 million raised from investors to date.

Toss was started in 2013 by former dentist SG Lee who grew frustrated by the cumbersome way online payments worked in Korea. Despite the fact that the country has one of the highest smartphone penetrations rates in the world and is a top user of credit cards, the process required more than a dozen steps and came with limits.

“Before Toss, users required five passwords and around 37 clicks to transfer $10. With Toss users need just one password and three steps to transfer up to KRW 500,000 ($430),” Lee said in a past statement.

Working with traditional finance

Today, Viva Republica claims to have 10 million registered users for Toss — that’s 20 percent of Korea’s 50 million population — while it says that it is “on track” to reach a $18 billion run-rate for transactions in 2018.

The app began as Venmo -style payments, but in recent years it has added more advanced features focused around financial products. Toss users can now access and manage credit, loans, insurance, investment and more from 25 financial service providers, including banks.

Fintech startups are ‘rip it out and start again’ in the West –such as Europe’s challenger banks — but, in Asia, the approach is more collaborative and assistive. A numbe of startups have found a sweet spot in between banks and consumers, helping to match the two selectively and intelligently. In Toss’s case, essentially it acts as a funnel to help traditional banks find and vet customers for services. Thus, Toss is graduating from a peer-to-peer payment service into a banking gateway.

“Korea is a top 10 global economy, but no there’s no Mint or Credit Karma to help people save and spend money smartly,” Lee told TechCrunch in an interview. “We saw the same deep problems we need to solve [as the U.S.] so we’re just digging in.”

“We want to help financial institutions to build on top of Toss… we’re kind of building an Amazon for the financial services industry,” he added. “We try to aggregate all those activities, covering saving accounts, loan products, insurance etc.”

Former dentist SG Lee started Toss in 2013.

Lee said the plan for the new money is to go deeper in Korea by advancing the tech beyond Toss, adding more users and — on the supply side — partnering with more companies to offer financial products.

There’s plenty of competition. Startups like PeopleFund focus squarely on financial products, while Kakao, Korea’s largest messaging platform, has a dedicated fintech division — KakaoPay — which rivals Toss on both payment and financial services. It also counts the mighty Alibaba in its corner courtesy of a $200 million investment from its Ant Financial affiliate.

Alibaba and Tencent tend to move in pairs as opposites, with one naturally gravitating to the rivals of the other’s investees as recently happened in the Philippines. It’s tricky in Korea, though. Tencent is caught in limbo since it is a long-standing Kakao backer. But might the Ant Financial deal spur Tencent into working with Toss?

Lee said his company has a “good relationship” with Tencent, including the occasional home/away visits, but there’s nothing more to it right now. That’s intriguing.

Overseas expansion plans

Also of interest is future plans for the business now that it is taking on significantly more capital from investors who, even with the most patient money out there, eventually need a return on their investment.

Lee is adamant that he won’t sell, despite Viva Republica increasingly looking like an ideal entry point for a payment or finance company that has missed the Korean market and wants in now.

He said that there are plans to do an IPO “at some point,” but a more immediate focus is the opportunity to expand overseas.

When Toss raised a PayPal-led $48 million Series C 18 months ago, Lee told TechCrunch that he was beginning to cast his eyes on opportunities in Southeast Asia, the region of over 650 million consumers, and that’s likely to see definitive action next year. The Viva Republica CEO said that Vietnam could be a first overseas launchpad for Toss.

“We’re thinking seriously about going beyond Korea because sooner or later we will hire saturation point,” Lee said. “We think Vietnam is quite promising. We’ve talked to potential partners and are currently articulating ideas and strategy materialized next year.

“We already have a very successful playbook, we know how to scale among users,” Lee added.

While the plan is still being put together, Lee suggested that Viva Republica would take its time expanding across Southeast Asia, where six distinct countries account for the majority of the region’s population. So, rather than rapidly expanding Toss across those markets, he indicated that a more deliberate, country-by-country launch could be the strategy with Vietnam kicking things off in 2019.

The Toss team at HQ in Seoul, Korea

Korea rising

Toss’s entry into the unicorn club — a vaunted collection of private tech companies valued at $1 billion or more — comes weeks after Coupang, Korea’s top e-commerce company, raised $2 billion at a valuation of $9 billion.

While that Coupang round came from the SoftBank Vision Fund — a source of capital that is threatening to become tainted given its links to the murder of journalist Jamal Khashoggi — it does represent the first time that a Korea-based company has joined the $100 billion mega-fund’s portfolio.

Some milestones can be dismissed as frivolous, but these two coming so close together are a signal of increased awareness of the potential of Korea as a startup destination by investors outside of the country.

While Lee admitted that the unicorn valuation “doesn’t change a lot” in daily terms for his business, he did admit that he has seen the landscape shift for Korea’s startup ecosystem — which has only two other privately-held unicorns: Coupang and Yello Mobile.

“More and more global VCs are aware that South Korea is a really good opportunity to do a startup. It is getting easier for our fellow entrepreneurs to pitch and get access to global funds,” he said, adding that Korea’s top 25 cities have a cumulative population (25 million) that matches America’s top 25.

Despite that potential, Korea has tended to focus on its ‘chaebol’ giants like Samsung — which accounts for a double-digital percentage of the national economy — LG, Hyundai and SK. That means a lot of potential startup talent, both founders and employees, is locked up in secure corporate jobs. Throw in the conservative tradition of family expectations, which can make it hard for children to justify leaving the safety of a big company, and it is perhaps no wonder that Korea has relatively fewer startups compared to other economies of comparable size.

But that is changing.

Coupang has been one of the highest profile examples to follow, alongside the (now public) Kakao business. But with Viva Republica, Toss and a charismatic dentist-turned-founder, another startup story is being written and that could just inspire a future generation of entrepreneurs to rise up and be counted in South Korea.

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