Writer Anand Giridharadas on tech’s billionaires: “Are they even on the same team as us?”

Since the start of the coronavirus pandemic, America’s roughly 640 billionaires have seen their fortunes soar by $845 billion in combined assets or 29% collectively, widening the already yawning gap between the very richest and the rest of the U.S.

Many of those billions were made by tech founders, including Mark Zuckerberg, Jeff Bezos, and Elon Musk, whose companies have soared in value and, in tandem, their net worth. In fact, so much has been made so fast and by so few relatively, that it’s easy to wonder if greater equality is now forever out of reach.

To talk about the question, we reached out earlier this week to Ananad Giridharadas, a former New York Times correspondent whose 2018 book, “Winners Take All: The Elite Charade of Changing the World,” became a best-seller.

Giridharadas’s message at the time was largely that the generosity of the global elite is somewhat laughable — that many of the same players who say they want to help society are creating its most intractable problems. Think, for example of Bezos, whose company paid zero in federal tax in 2017 and 2018 and who is now on the cusp of opening a tuition-free preschool for underserved children called the Bezos Academy.

Given the aggressive escalation over the last six months of the same trends Giridharadas has tracked for years, we wondered how he views the current situation. Our chat has been edited for length and clarity.

TC: You have a weekly newsletter where you make the point that Jeff Bezos could give every one of Amazon’s 876,000 employees a ‘pandemic’ bonus of $105,000 and he would still have as much money as he did in March.

AG: There’s this way in which these crises are not merely things that rich and powerful survive. They’re things that they leverage and exploit, and it starts to raise the question of: are they even on the same team as us? Because when you have discussions about stimulus relief around what kind of policy responses you could have to something like the 2008 financial crisis or the pandemic, there’s initially some discussion and clamor for universal basic income, or substantial monthly checks for people, or even the French approach of nationalizing people salaries… and those things usually die. And they die thanks to corporate lobbyists and advocates of the rich and powerful, and are replaced by forms of relief that are upwardly redistributive that essentially exploit a crisis to transfer wealth and power to the top.

TC: Earlier in the 20th century, there was this perception that industry would contribute to solving a crisis with government. In this economy, we didn’t see a lot of the major tech companies, or a lot of the companies that were benefiting from this crisis, really sacrificing something to help the U.S. Do you see things that way?

AG: I think that’s right. I’m always wary of idealizing certain periods in the past, and I think there were a lot of problems in that time. But I think there’s no question that it was not as difficult back then, as it is today, to summon some kind of sense of common purpose and even the need to sacrifice values like profit seeking for other values.

I mean, after 9/11, President George W. Bush told us all to go shopping as the way to advance the common good. Donald Trump is now 18 levels of hell further down that path, not even telling us that we need to do anything for each other and [instead describing earlier this week] a pandemic that has killed 200,000 people as being something that doesn’t really affect most people.

So there’s just been a coarsening. And that kind of selfish trajectory of our culture, after 40 years of being told that what we do alone is better than what we do together, that what we do to create wealth is more important than what we do to advance shared goals — that quite dismal, dull message has had its consequences. And when you get a pandemic like this, and you suddenly need to be able to summon people to all socially distance at a minimum or, more ambitiously, pull for the common good or pay higher taxes or things that might even cost them a little bit, it’s very hard to do because the groundwork isn’t there.

TC: You’ve talked quite a bit over the years about “fake change.”

AG: Silicon Valley is the new Rome of our time, meaning a place in the world that ends up deciding how a lot of the rest of the world lives. No matter where you lived on the planet Earth, when the Roman Empire started to rise, it had plans for you one way or another, through your legal system, or your language, or culture, or something else. The Roman Empire was coming for you.

Silicon Valley is that for our time. It’s the new Rome [in] that you can’t live on planet Earth and be unaffected, directly or indirectly, by the decisions made in this relatively small patch of [of the world]. So the question then becomes, what does that new Rome want? And my impression of having reported on that world is that it’s an incredibly homogeneous world of people at the top of this new Rome. It’s white male dominated in a way that even other white male dominated sectors of the American economy are not . . . and it’s a lot of a certain kind of man who often is actually more obtuse about understanding human society and sociological dynamics and human beings than the average person.

Maybe they didn’t spend a lot of time negotiating human dynamics at sleepovers, which is fine. But when you end up with a new Rome and it’s hyper dominated by people of one race and one gender, many of whom are disproportionately socially unintelligent, running the platforms through which most human sociality now occurs — democratic discourse, family community, so on and so forth — we all start to live in a world created by people who are just quite limited. They are smart at the thing they’re smart at and they’ve become in charge of a lot of how the world works. And there’s simply not up to the task. And we see evidence of that every day.

TC: Are you speaking about empathy?

AG: Empathy is absolutely one of [the factors]. The ability to understand the more amorphous, non technological, non quantifiable things . . . it’s so interesting, because it’s people who are clearly very smart in a certain area but  just honestly do not understand democratic theory. There’s just so much work that’s been done — deep, complicated thinking going back to Plato and Aristotle, but also modern sociological work, including why a safety net and welfare is complicated. And there’s a certain kind of personality type that I have found very dominant in Silicon Valley, where it’s these men who just don’t really have a lens for that.

They’re often geniuses. It’s a certain kind of particular personality type where you care a lot about one thing and you go deep on that one thing, and it’s probably the same personality type that Beethoven had. It’s a great thing, actually. It’s just not great for governing us, and what these people are doing is privately governing us, and they have no humility about the limitations of their worldview

TC: We’re talking largely about social media here. Is it reasonable to expect some kind of government action. Do you think that’s naive? 

AG: It’s absolutely essential that the tech industry be brought into the same kind of sensible regulatory regime. I mean, you have kids, I have kids. If you’ve ever read the side of their car seats or any of the other products in their lives, you understand how much regulation there is for our benefit. . . I often say that the government at its best is like a lawyer for all of us. The government is like ‘Why don’t we check out these car seats for you and create some rules around them and then you can just buy a car seat and not have to wonder whether it’s the kind that protects your child or crumbles?’ That’s what the government does for all kinds of things.

TC: You’ve talked about billionaires who don’t want to pay taxes yet don’t hesitate to make a donation because they have control over where their money is spent and they get their name on a building, and it’s true. Many companies whose founders also consider themselves philanthropists, like Salesforce and Netflix, paid no federal tax in 2018, which amounts to billions of dollars lost. If you had to prioritize between taking antitrust action or closing the tax loopholes, what would you choose?

AG: They’re both important. But I think I would prioritize taxation.

One way to think about it is this pre distribution and redistribution. The monopoly issue in a way is pre distribution, which is how much money you get to make in the first place. If you get to be a monopoly because we don’t enforce antitrust laws, you’re going to end up making pre tax a lot more money than you would otherwise have made if you had to compete in an actual free market.

Once you’ve made that money, the tax question comes up. So both are important, but I think you can’t overestimate the extent to which the tax thing is just totally foundational. If you look at the report that the 400 richest families in America pay a lower effective tax rate than the bottom half of families, it’s appalling.

We live in a complicated world. A lot of different things have been going on, including just in the last few months. But if you have to really summarize the drift and the shift of the last 40 years, it’s been a war on taxation. And it’s been a massive redistribution of wealth from the bottom to the top of American life through taxation. Since the ’80s, the top 1% has gained $21 trillion of wealth, and the bottom half of Americans have lost $900 billion of wealth on average —  and much of that was prosecuted through the tax code.

Awkward! Above, Giridharadas shaking hands with Amazon founder Jeff Bezos at a Wired event in 2018.

from Amazon – TechCrunch https://techcrunch.com/2020/09/24/writer-anand-giridharadas-on-techs-billionaires-are-they-even-on-the-same-team-as-us/

Meet the final round judges who will decide the winner of this year’s Disrupt Battlefield Competition

It’s never easy, deciding which of the 20 companies that make it into the Disrupt Battlefield Competition will be anointed its winner. There’s just so much at stake each year and at Disrupt 2020 this September 14-18 the stakes are even higher.

For that one startup that makes it all the way through the gauntlet, winning means $100,000, along with some serious bragging rights, which is nontrivial. But it can also be life-changing, given the interest the winner receives from customers, from investors and from the corporate development teams of the world’s biggest companies. (While some past winners have gone public, like Dropbox, others have quickly sold, like Mint and Vurb.)

The winner each year also benefits from the kind of media exposure that’s virtually impossible for a young startup to enjoy elsewhere.

It’s because TechCrunch takes such pride in getting our winners right that the group of judges who make the ultimate call is so important, and we feel confident that we have the exact right team this year. You’ll have to stay tuned to watch them at work, but here’s what to know in advance about the six individuals who — in less than two weeks —  will forever impact the future of one young founding team:

Sonali De Rycker joined Accel in 2008 and has helped lead its London office ever since. There, she focuses on consumer, software and fintech startups. and some of her most notable deals include Avito (acquired by Naspers); Spotify, which went public last year;  and Letgo (acquired by Naspers). Before joining Accel, De Rycker — who grew up in Mumbai and graduated from Bryn Mawr College and Harvard Business School — was an investor with Atlas Venture (now Accomplice). She also previously served on the board of Match.com.

Caryn Marooney is a general partner at Coatue Management, and, as such, sits on the boards of Zendesk and Elastic, and holds an advisory role at Airtable. While newer to the world of investing — she joined Coatue late last year — Marooney knows startups as well as anyone in Silicon Valley, having previously co-founded the powerhouse public relations agency OutCast Agency, whose early customers included Amazon, Salesforce, Netflix and VMWare. Indeed, underscoring her ability to identify the most promising startups, she left her own company in 2011 for a client that seemed particularly promising to her — Facebook — where she spent the following eight years as its VP of communications and as a trusted advisor to CEO Mark Zuckerberg.

For the last two-and-a-half years, Ilya Fushman has been a general partner at Kleiner Perkins, which he joined after spending several years with Index Ventures and, before that, spending four years at Dropbox, where he was one of the company’s first 75 employees. Fushman — who was born in Russia and immigrated with his family to Israel, then Germany, then finally the U.S. — holds a Ph.D. in Applied Physics and an M.S. in electrical engineering from Stanford University, and a B.S. in physics from Caltech. Among the deals he has been involved with over the years are Slack, Intercom and Optimizely,

Troy Carter is the founder and CEO of Atom Factory, a 10-year-old entertainment management company that famously worked early on with Grammy Award winner Lady Gaga, among other celebrities. Carter began his career in Philadelphia working for Will Smith and James Lassiter’s Overbrook Entertainment. He more recently incorporated A \ IDEA, a product development and branding agency, as well as AF Square, an angel fund and technology consultancy. Some of his most recent bets include Good Money, an Austin, Texas-based digital banking platform, and Truebill, the New York-based app that enables users to optimize spending and manage subscriptions.

Michael Seibel is a partner at Y Combinator and the CEO of its startup accelerator. He joined YC full time in 2014 after first co-founding two YC-backed startups with serial entrepreneur Justin Kan: Justin.tv, the life-streaming service that birthed Twitch (which Amazon later acquired for $970 million in cash) and Socialcam, which was acquired by Autodesk for $60 million just 18 months after it was founded. Seibel is also credited with introducing Airbnb to YC soon after it was founded. Back in June, Seibel was appointed to the board of Reddit after the company’s co-founder, Alexis Ohanian, said he was giving up his role as a director and urged the company to fill his seat with a Black candidate.

Matthew Panzarino has been the editor-in-chief of TechCrunch since 2015 and a top editor with the organization since 2013. Before joining TC, he was news editor and managing editor at The Next Web. He also previously founded a professional photography business and a news blog covering the Apple ecosystem. Panzarino — who has made a name for himself in the tech world through his coverage of Apple and Twitter, as well as his understanding of a broad range of fields, including robotics, computer vision, AI, fashion, VR and AR — has served as a finals judge for each of the last five years.

We are so pleased — and thankful — that De Rycker, Marooney, Carter, Fushman, and Seibel can join us for this year’s Disrupt, which kicks off this coming Monday, September 14, and runs though Friday, Septebmer 18.

If you want to catch some of what are sure to be the fastest-rising stars in the vast startup ecosystem, you won’t want to miss your chance to nab a front-row seat to the Startup Battlefield competition and much more with a Disrupt Digital Pro Pass or a Digital Startup Alley Exhibitor Package. Or you can just sign up to watch the Startup Battlefield competition and our Breakout Sessions with the Disrupt Digital Pass for just $45 for a limited time.

from Amazon – TechCrunch https://techcrunch.com/2020/09/08/meet-the-final-round-judges-who-will-decide-the-winner-of-this-years-disrupt-battlefield-competition/

That Whole Foods is an Amazon warehouse; get used to it

Earlier this week, in Brooklyn, near the waterfront, Amazon opened what looks from the outside like a typical Whole Foods store. It isn’t open to the public, however; it’s a fulfillment center.

“Grocery delivery continues to be one of the fastest-growing businesses at Amazon,” the company said in a statement about the location, noting that it has hired hundreds of new employees to aid in its operations. “We’re thrilled to increase access to grocery delivery.”

Americans sort of knew this was coming. Still, the pace at which retail spaces of all sizes are being converted into e-commerce fulfillment centers has become a bit breathtaking. According to the commercial real estate services firm CBRE, since 2017 at least 59 projects in the U.S. have centered on converting 14 million square feet of retail space into 15.5 million square feet of industrial space, and that trend is “absolutely going to continue,” says Matthew Walaszek, an associate director of industrial and logistics research at CBRE.

It has played out fairly quietly to date, save for the occasional headline about, well, Amazon, typically. Last month, for example, the Wall Street Journal reported that the ever-expanding conglomerate is in talks with the largest mall owner in the U.S., Simon Property Group, about converting both former and current JCPenney and Sears stores into distribution hubs from which it can deliver packages.

Amazon needs the space. Meanwhile, Simon needs a tenant that can pay its bills. That’s a tall order right now for many brick-and-mortar retailers that were already under pressure and watched foot traffic disappear entirely with as the country largely shut down in March in response to the pandemic threat.

In fact, despite that Simon and an apparel licensing firm, Authentic Brands, recently partnered to buy apparel retailers Brooks Brothers and Lucky Brand out of bankruptcy (Simon and fellow mall operator Brookfield Property Partners are also in advanced talks to buy J.C. Penney), some reportedly view the moves as a means to buy time as these real estate companies reconfigure their properties to accommodate one anchor tenant.

That exact scenario has already played out at Randall Park Mall in a Northeast Ohio suburb (a mall, incidentally, that this editor occasionally frequented as a teenager growing up in Cleveland).

Once filled with gaudy stores like Piercing Pagoda and Spencer’s Gifts, the mall — which featured marbled columns and was among the world’s largest enclosed shopping centers when it opened in 1976 —  is now the site of an 855,000-square-foot facility filled with mobile robotic fulfillment systems that make it easier for Amazon to more quickly deliver packages.

A local outlet reported its conveyor belts would stretch farther than 10 miles if laid in a straight line.

Yet it isn’t always Amazon that’s snapping up these properties. There are a number of other large e-commerce players that are rapidly expanding their physical footprint right now, along with opportunistic developers betting the U.S. will also focus more on domestic manufacturing facilities in a post-COVID world.

That’s saying nothing of big grocery chains that, like Amazon’s Whole Foods, are increasingly focused on developing fulfillment centers — sometimes right inside a store that sees foot traffic. At an Albertson’s in South San Francisco, for example, customers blithely shop around an automated rack-and-tote system at the store’s center that preps orders for pickup and delivery.

To a certain extent, this ongoing shift in use was inevitable. The U.S. has the strange distinction of featuring 24 square feet of retail space per capita. By comparison, Canada and Australia have 16.8 square feet and 11.2 square feet per capita, respectively.

“We just have a lot of retail — we are over-retailed — so it’s not surprising that properties are struggling,” Walaszek says.

The pandemic has only poured figurative fuel on fire.

Forbes estimates that upwards of 14,000 real-world retail stores will close in the U.S. this year. Meanwhile, during the first six months of the year, consumers spent $347.26 billion online with U.S. retailers, up 30.1% from $266.84 billion for the same period in 2019, according to U.S. Department of Commerce data parsed by the news and research outfit Digital Commerce. That’s up from the 12.7% upswing seen during the first half of 2019.

Retail properties converted to industrial use remains a niche trend when considering there is 14.5 billion square feet of industrial real estate in the U.S. and it won’t transform life as we know it overnight.

For one thing, retail-to-industrial conversions involve buy-in from local zoning officials whose constituents are often concerned about congestion, noise and pollution, among other things.

Retail rents are also significantly higher than industrial rents — more than double in some markets — so it’s “a hard sell to a retail landlord to convert to industrial where revenues aren’t going to be as high,” notes Walaszek.

Still, thanks to a confluence of events — including the runaway growth of Amazon specifically —  both big and small fulfillment centers are beginning to spring up fast.

As Amazon’s first “permanent online-only” Whole Foods in Brooklyn underscores, they may wind up in what seem like the unlikeliest of places, too

from Amazon – TechCrunch https://techcrunch.com/2020/09/03/that-whole-foods-is-an-amazon-warehouse-get-used-to-it/

Commercial real estate could be in trouble, even after COVID-19 is over

Commercial real estate owners, brokers and landlords have collectively made many hundreds of billions of dollars a year in recent years as the economy zipped along.

Now, they’re getting clobbered by the pandemic-fueled economic crisis. Worse, their industry may be forever changed by it.

To state the obvious, extracting rent from nearly anyone right now is problematic. According to the National Multifamily Housing Council, just 69% of U.S. households had paid their rent by April 5 compared with the 81% who’d paid by March 5 and the 82% who paid by the same time last year.

That statistic will almost assuredly look worse by May 5, given the soaring numbers of both laid-off and furloughed employees.

On the commercial side, the problem is beginning to look as dire. In addition to the countless small retail and restaurant businesses that may be forced to permanently vacate their commercial spaces because they can no long afford them, a growing number of corporate chains is also beginning to prove unwilling or able to pay their rent.

WeWork, for example, has stopped paying rent at some U.S. locations while it tries to renegotiate leases, says the WSJ, this even as the co-working company continues to charge its own tenants.

Staples, Subway and Mattress Firm have also stopped paying rent as a way to strong-arm building owners into rent reductions, lease amendments and other courses of action designed to offset the losses they are incurring because of the coronavirus.

Ch, ch, ch, changes

The question begged is what happens next. While some may look to muscle their way into distressed assets, it’s very possible the commercial real estate market will never look the same.

For one thing, while small retailers and restaurants melt away, some of their online rivals are beefing up. Amazon, despite no shortage of bad publicity, gains market share by the day. In fact, this week, it again sailed into trillion-dollar territory.

The online streetwear marketplace StockX is also booming, as we reported a few weeks ago. Its CEO, Scott Cutler, said at the time: “[W]e’ve always been a marketplace of scarcity, but now you can’t actually go into a real retail location, so you’re coming to StockX.”

The landscape may change particularly quickly in markets like San Francisco, Chicago, Boston and New York, where not only is there a density of independent shops and restaurants, but startup employees and other white collar workers are suddenly working from home and perfecting the art of distributed teamwork.

Consider Nelson Chu, the founder and CEO of Cadence, a seed-stage, 17-person securitization platform startup in New York. After recently landing $4 million in funding, Cadence signed a lease last month with a landlord who has agreed to start charging the outfit only when it is able to move into its new uptown digs.

It’s a good deal for Cadence, which doesn’t have to worry about paying for square footage it can’t use. Nevertheless, Chu notes that being forced to work remotely has awakened him to the possibility of incorporating more remote work into the startup’s processes.

“You always question whether remote work will impact business continuity,” says Chu. “But now that we’re forced to do it, we haven’t skipped a beat. There could be something to be said for having less office space and allowing the people who commute from out of state to not have to be in the office every day.”

It’s easy to imagine that, using tools like Slack, Google Sheets, and Zoom, other founders and management teams that hadn’t already joined the telecommuting trend are coming to the same conclusion.

Taking care of business

The possibility isn’t lost on real estate companies.

“Remote work is something we’re thinking a lot about right now,” says Colin Yasukochi, director of research and analysis at the commercial real estate services giant CBRE. “People are right now being forced to do it,” but “I think some will inevitably stick” to working remotely, he says. “The question of how many, and for how long, is unknown.”

Certainly, it’s not the trend CBRE or others in the real estate world were expecting this year. An “outlook” report published by CBRE last November sounded understandably rosy. “Barring any unforeseen risks,” it said at the time, “resilient economic activity, strong property fundamentals, low interest rates and the relative attractiveness of real estate as an asset class” suggested that 2020 would be a “very good year” for commercial real estate.

In the ensuing months, of course, that unforeseen risk has prompted shutdowns that have led to layoffs across nearly every sector of the economy. It has also — by the very nature of it being a viral contagion — made it highly likely that even when people are allowed to re-occupy commercial spaces, they’ll be less enthusiastic about dense workspaces.

This is doubly true if they know they can get their work done outside the office.

It could well lead to reduced demand for office space later on. It could also mean the same amount of space — or perhaps even more —  with reconfigured office layouts. No one yet knows, including commercial estate brokers.

Mark George, a San Jose, Calif.-based broker with the commercial real estate company Cresa, is currently working from home, where he shares an office with his wife, who is also working remotely for the first time. It’s nice to be home with their children, says George, but being housebound makes it harder to get a pulse on industry changes, particular in his industry.

Brokers are “somewhat isolated,” he says. “Touring activity has dried up because we can’t show space. City Hall is closed in every municipality, so you can’t pull permits. The industry is really shut down.”

George said that “deals that were at the finish line probably got signed” before the coronavirus really took hold in the U.S. But the “deals that were close and not quite there? Every deal I’ve seen has been put on ice. Everyone is in a holding pattern.”

A Cresa colleague of George in San Francisco, Brandon Leitner, echoes the sentiment, saying that “things are not moving fast.” Still, Leitner expects the firm — which handles clients as big as Twitter to Series A and even seed-stage companies — will see a deluge of activity once the city’s current stay-in-place mandate is lifted and brokers can start showing properties again.

Specifically, Leitner expects the market to come down by “at least 10% and probably 20% to 30%” from where commercial space in San Francisco has priced in several years, which is $88 per square foot, according to CBRE. Driving the expected drop is the 2 million square feet that will come onto the market in the city as soon as it’s possible — space that companies want to get off their books.

That’s a lot, particularly given that there is roughly 3.2 million square feet of commercial space available already, according to CBRE’s Yasukochi, who adds that a “good amount” came onto the market in the last six months alone.

Say it ain’t so

That’s not great for landlords, who are “hesitant right now to put a new number on the market,” says Leitner.

He offers that they are “realistic” and likely to “make as many concessions as they can” to hang on to and attract new tenants. Of course, there’s only so much they can do. They typically have debt to contend with, meaning that if there’s a sustained downturn or fewer people return to the office, they will themselves be relying on their relationships with lenders to see them through.

George, the San Jose-based broker, believes lenders will be inclined to help in order to preserve their own investments. The Federal Reserve may also give the banks the ability to defer mortgage payments, which would make it easier for property owners to put off charging rent.

Even still, whether the commercial real estate market comes all the way back after COVID-19 remains to be seen.

“This [pandemic] is something we’ve never experienced before,” notes Yasukochi. He says CBRE’s economists estimate the next two quarters will be “very tough.” At the same time, he says, the market “might see a substantial” uptick in the four quarter.

“It really depends on whether demand bounces back, and whether expansion plans will be put on hold, or permanently [shelved].”

For now, he seems optimistic about a return to business as usual, particularly within his home market of San Francisco.

It “feels like things go wrong really fast in the Bay Area,” says Yasukochi. “But typically, they come back really fast, too.”

No doubt industry players are counting on it.

from Amazon – TechCrunch https://techcrunch.com/2020/04/08/commercial-real-estate-could-be-in-big-trouble-even-after-this-is-all-over/

‘A perfect storm for first time managers,’ say VCs with their own shops

Until very recently, it had begun to seem like anyone with a thick enough checkbook and some key contacts in the startup world could not only fund companies as an angel investor but even put himself or herself in business as a fund manager.

It helped that the world of venture fundamentally changed and opened up as information about its inner workings flowed more freely. It didn’t hurt, either, that many billions of dollars poured into Silicon Valley from outfits and individuals around the globe who sought out stakes in fast-growing, privately held companies — and who needed help in securing those positions.

Of course, it’s never really been as easy or straightforward as it looks from the outside. While the last decade has seen many new fund managers pick up traction, much of the capital flooding into the industry has accrued to a small number of more established players that have grown exponentially in terms of assets under management. In fact, talk with anyone who has raised a first-time fund and you’re likely to hear that the fundraising process is neither glamorous nor lucrative and that it’s paved with very short phone conversations. And that’s in a bull market.

What happens in what’s suddenly among the worst economic environments the world has seen? First and foremost, managers who’ve struck out on their own suggest putting any plans on the back burner. “I would love to be positive, and I’m an optimist, but I would have to say that now is probably one of the toughest times” to get a fund off the ground, says Aydin Senkut, who founded the firm Felicis Ventures in 2006 and just closed its seventh fund.

“It’s a perfect storm for first-time managers,” adds Charles Hudson, who launched his own venture shop, Precursor Ventures, in 2015.

Hitting pause doesn’t mean giving up, suggests Eva Ho, cofounder of the three-year-old, seed-stage L.A.-based outfit Fika Ventures, which last year closed its second fund with $76 million. She says not to get “too dismayed” by the challenges.

Still, it’s good to understand what a first-time manager is up against right now, and what can be learned more broadly about how to proceed when the time is right.

Know it’s hard, even in the best times

As a starting point, it’s good to recognize that it’s far harder to assemble a first fund than anyone who hasn’t done it might imagine.

Hudson knew he wanted to leave his last job as a general partner with SoftTech VC when the firm — since renamed Uncork Capital — amassed enough capital that it no longer made sense for it to issue very small checks to nascent startups. “I remember feeling like, Gosh, I’ve reached a point where the business model for our fund is getting in the way of me investing in the kind of companies that naturally speak to me,” which is largely pre-product startups.

Hudson suggests he miscalculated when it came to approaching investors with his initial idea to create a single GP fund that largely backs ideas that are too early for other VCs. “We had a pretty big LP based [at SoftTech] but what I didn’t realize is the LP base that’s interested in someone who is on fund three or four is very different than the LP base that’s interested in backing a brand new manager.”

Hudson says he spent a “bunch of time talking to fund of funds, university endowments — people who were just not right for me until someone pulled me aside and just said, ‘Hey, you’re talking to the wrong people. You need to find some family offices. You need to find some friends of Charles. You need to find people who are going to back you because they think this is a good idea and who aren’t quite so orthodox in terms of what they want to see in terms partner composition and all that.'”

Collectively, it took “300 to 400 LP conversations” and two years to close his first fund with $15 million. (Its now raising its third pre-seed fund).

Ho says it took less time for Fika to close its first fund but that she and her partners talked with 600 people in order to close their $41 million debut effort, adding that she felt like a “used car salesman” by the end of the process.

Part of the challenge was her network, she says. “I wasn’t connected to a lot of high-net-worth individuals or endowments or foundations. That was a whole network that was new to me, and they didn’t know who the heck I was, so there’s a lot of proving to do.” A proof-of-concept fund instilled confidence in some of these investors, though Ho notes you have to be able to live off its economics, which can be miserly.

She also says that as someone who’d worked at Google and helped found the location data company Factual, she underestimated the work involved in running a small fund. “I thought, ‘Well, I’ve started these companies and run these big teams. How how different could it be?” But “learning the motions and learning what it’s really like to run the funds and to administer a fund and all responsibilities and liabilities that come with it . . . it made me really stop and think, ‘Do I want to do this for 20 to 30 years, and if so, what’s the team I want to do it with?'”

Investors will offer you funky deals; avoid these if you can

In Hudson’s case, an LP offered him two options, either a typical LP agreement wherein the outfit would write a small check, or an option wherein it would make a “significant investment that have been 40% of our first fund,” says Hudson.

Unsurprisingly, the latter offer came with a lot of strings. Namely, the LP said it wanted to have a “deeper relationship” with Hudson, which he took to mean it wanted a share of Precursor’s profits beyond what it would receive as a typical investor in the fund.

“It was very hard to say no to that deal, because I didn’t get close to raising the amount of money that I would have gotten if I’d said yes for another year,” says Hudson. He still thinks it was the right move, however. “I was just like, how do I have a conversation with any other LP about this in the future if I’ve already made the decision to give this away?”

Fika similarly received an offer that would have made up 25 percent of the outfit’s debut fund, but the investor wanted a piece of the management company. It was “really hard to turn down because we had nothing else,” recalls Ho. But she says that other funds Fika was talking with made the decision simpler. “They were like, ‘If you sign on to those terms, we’re out.” The team decided that taking a shortcut that could damage them longer term wasn’t worth it.

Your LPs have questions, but you should question LPs, too

Senkut started off with certain financial advantages that many VCs do not, having been the first product manager at Google and enjoying the fruits of its IPO before leaving the outfit in 2005 along with many other Googleaires, as they were dubbed at the time.

Still, as he tells it, it was “not a friendly time a decade ago” with most solo general partners spinning out of other venture funds instead of search engine giants. In the end, it took him “50 no’s before I had my first yes” — not hundreds —   but it gave him a taste of being an outsider in an insider industry, and he seemingly hasn’t forgotten that feeling.

Indeed, according to Senkut, anyone who wants to crack into the venture industry needs to get into the flow of the best deals by hook or by crook. In his case, for example, he shadowed angel investor Ron Conway for some time, working checks into some of the same deals that Conway was backing.

“If you want to get into the movie industry, you need to be in hit movies,” says Senkut. “If you want to get into the investing industry, you need to be in hits. And the best way to get into hits is to say, ‘Okay. Who has an extraordinary number of hits, who’s likely getting the best deal flow, because the more successful you are, the better companies you’re going to see, the better the companies that find you.”

Adds Senkut, “The danger in this business is that it’s very easy to make a mistake. It’s very easy to chase deals that are not going to go anywhere. And so I think that’s where [following others] things really helped me.”

Senkut has developed an enviable track record over time. The companies that Felicis has backed and been acquired include Credit Karma, which was just gobbled up by Intuit; Plaid, sold in January to Visa; Ring, sold in 2018 to Amazon, and Cruise, sold to General Motors in 2016, and that’s saying nothing of its portfolio companies to go public.

That probably gives him a kind of confidence that it’s harder to earlier managers to muster. Still, Senkut also says it’s very important for anyone raising a fund to ask the right questions of potential investors, who will sometimes wittingly or unwittingly waste a manager’s time.

He says, for example, that with Felicis’s newest fund, the team asked many managers outright about how many assets they have under management, how much of those assets are dedicated to venture and private equity, and how much of their allotment to each was already taken. They did this so they don’t find themselves in a position of making a capital call that an investor can’t meet, especially given that venture backers have been writing out checks to new funds at a faster pace than they’ve ever been asked to before.

In fact, Felicis added new managers who “had room” while cutting back some existing LPs “that we respected . .. because if you ask the right questions, it becomes clear whether they’re already 20% over-allocated [to the asset class] and there’s no possible way [they are] even going to be able to invest if they want to.”

It’s a “little bit of an eight ball to figure out what are your odds and the probability of getting money even if things were to turn south,” he notes.

Given that they have, the questions look smarter still.

from Amazon – TechCrunch https://techcrunch.com/2020/04/01/a-perfect-storm-for-first-time-managers-say-vcs-with-their-own-shops-and-who-have-advice/

As the U.S. shuts down, StockX’s business is booming, says its CEO

StockX, the high-flying resale marketplace that connects buyers and sellers of sneakers, streetwear, handbags and other collectible items, has seen its fortune rise along with the $6 billion global sneaker resale market, which is part of the broader $100 billion sneaker category. In fact, the company, which was assigned a billion dollar valuation last year, says $1 billion worth of merchandise was sold through its platform last year.

The big question is whether StockX can maintain its momentum. Not only are other rivals biting at the heels of the five-year-old, Detroit-based outfit, which has raised roughly $160 million from investors, but some believe the streetwear “bubble” is on the verge of bursting. Add to the mix a pandemic that’s putting millions of people out of work (and in some cases jeopardizing the health of those still showing up), and you might assume that answer is no.

Yet in an online event earlier this week hosted by StrictlyVC and conducted by Erin Griffith of the New York Times, StockX CEO Scott Cutler insisted that the exact opposite is true. By his telling, business is booming.

Perhaps unsurprisingly, he even argued that StockX looks more durable than the traditional public market right now, and he’s well-acquainted with the latter, having spent nine years as an executive with the New York Stock Exchange earlier in his career.

Some highlights from their chat follow:

Griffith kicked off the interview by asking who is driving the marketplace and whether it might be a small number of power users.

“Seventy-five percent of our customers are under the age of 35. And that customer is a now a wide demographic, I would say two years ago, it was defined in sneakers as a “sneakerhead,” meaning somebody that collected sneakers and bought and sell sneakers specifically. But today, that demographic, if you looked at millennials and Gen Z, as an example, 40% of them would define themselves as sneakerheads, and so that’s male and female, and this demographic is around the world. We have customers in over 170 countries and territories.”

Cutler went on to say that StockX is very well-positioned because, unlike with a lot of goods that people might find through Amazon or a Google search and thus compete on some level with them, StockX is itself the “first” shopping destination for most of its customers.

“Even the brands can’t provide access to [what’s for sale at StockX].  So that consumer comes to us as a first destination; they don’t go to those brands to shop . . . That means that we have an incredible opportunity then to deliver exactly what that customer wants at the beginning of the journey, which is very rare in e-commerce, to be that first point of destination.”

Naturally, Griffith asked how the virus has impacted StockX’s bottom line. Cutler said it’s been “great for our business and growth.”

“The recent events over the last couple of months has been a benefit to our business. We’ve had more and more traffic and buyers coming to our site because in some respects, traditional retail in some geographies is not available. We thought we’ve always been a marketplace of scarcity, but now you can’t actually go into a real retail location, so you’re coming to StockX. So on the one hand, it’s been great for our for our business and for our growth.”

Cutler also acknowledged that to accommodate that growth, StockX needs people in the warehouses where sellers send goods so that StockX can authenticate them before shipping out to buyers. He said that StockX has “people in those centers that are coming to work right now, even in places like New Jersey that are certainly impacted.” He called it a “balancing” act of trying to ensure its team members feel “safe” while continuing to operate its business at scale around the world.

As for how, exactly, StockX is ensuring these employees are safe, he said that StockX is “operating under all of the local rules and regulations that we have in all the different places where we operate.” As an added sweetener, he said the company recently gave a “spot bonus” and increased the salaries of employees at its authentication centers by 25%.

And what happens if the warehouses are ordered to shut down or employees begin showing up with the virus? Griffith asked what StockX’s backup plan entailed.

Here, Cutler noted the company’s multiple authentication centers, saying that “in the event that we have to reroute traffic from one authentication center to the other, we will do that. We’ve been operating that way.”

He also said that business continuity planning is currently a “stand-up every single day [wherein] we go through site safety and security and any incidents that come up and we’re making decisions as a team every day on some of that routing logic.”

Griffith wondered what kinds of conversations StockX’s venture investors are having with the company, given everyone’s focus right now on belt-tightening. (StockX is backed by DST Global, General Atlantic, GGV Capital Battery Ventures, and GV, among others.)

Cutler acknowledged that the “future, in some respects, is uncertain for many of us, in that you don’t know how long this is going to last.” He said that as the company looks to the future, it’s trying to factor in “different scenarios of macro shifts in demand” but that as it looks at “macro shifts in the supply chains” it has reason for optimism. He pointed to China, for example, where many supply chain factories went down this winter and are now back up to 80% or 90% of their previous capacity.

Asked if StockX is recession-proof should the downturn last (Griffith noted that some of the pricier sneakers on the platform are selling for thousands of dollars), Cutler suggested that he hopes so for the sake of the businesses that are run off its platform. 

Said Cutler, “For a lot of our sellers, you have to appreciate that they depend on StockX for their livelihood. They actually may be running a very sophisticated business that is selling sometimes thousands of pairs of sneakers every single day to [maybe] a student who’s using StockX to fund their education.”

Cutler also compared StockX to the public equities markets, insisting that they aren’t so different and that, to his mind, StockX might even be the safer bet right now.

“We actually have buyers who see this time as a market opportunity and see the price of a rare Jordan 1 [shoe] that’s maybe coming down, and they say, ‘Hey, this is short lived,’ much like somebody may say, ‘Hey, the market is off a little.’

“They’re putting their money in sneakers,” Cutler continued, adding: “My portfolio right now in sneakers is still up on the year. That’s more than I can say about the S&P.”

from Amazon – TechCrunch https://techcrunch.com/2020/03/27/as-the-u-s-shuts-down-stockxs-business-is-booming-says-its-ceo/

MasterClass is launching free, live Q&A sessions with big shots in their respective industries

MasterClass is known for selling access to pre-recorded online classes by a long list of people who are among the best at what they do, from tennis great Serena Williams to writer David Sedaris to chef Thomas Keller.

More recently, however, the company added live Q&A sessions with these same stars as a member benefit, and now, for the foreseeable future, it’s opening these sessions to non-members, too. It’s the San Francisco startup’s way of making itself more accessible to a broader audience that perhaps can’t rationalize paying $90 per class or $180 for a yearly all-access pass, especially in this increasingly grim market.

The first free session streams live on Wednesday at noon PT from MasterClass’s site and will feature Chris Voss, who was once the lead international kidnapping negotiator for the FBI. Voss had earlier created a module for MasterClass on the art of negotiation, and he’ll be talking to whomever wants to tune in with the help of a moderator who will be asking questions that have been submitted in advance by students.

It’s just “one of a bunch” of such live Q&A sessions that will be made available, according to MasterClass CEO David Rogier, who we chatted with Friday afternoon and who half-kiddingly describes Voss’s mission as partly to help families that are stuck at home to better negotiate who is going to use the big-screen TV at any one time (though more broadly the idea is to teach empathy).

It’s a small step from MasterClass, which separately gives away 130,000 all-access passes each year to organizations in need and has committed to giving away an addition 200,000 of these passes this year. (It’s opening up applications to these passes soon to organizations that can apply on its website, says a spokeswoman.)

Seemingly, MasterClass could lean in even further while much of America, and the rest of the globe, is trapped at home and looking for both entertainment and high-quality educational content.

In the meantime, Rogier is quick to note that MasterClass has a variety of kid-friendly content that’s instructive — if best consumed with parental supervision.

Among the now 80 classes available through the site — including new classes by interior designer Kelly Wearstler, a class on self expression and identity by RuPaul, and Gabriela Cámara teaching Mexican cooking — are classes, for example, by Neil deGrasse Tyson, who walks viewers through his take on scientific thinking and communication. Another segment stars Doris Kearns Goodwin, whose class centers on U.S. presidential history.

Other courses recommended by Rogier himself include Penn and Teller’s class on the art of magic; a class on space exploration by retired astronaut and former Commander of the International Space Station, Chris Hadfield; and, for older kids who might be trying to make sense of the world right now, a class by New York Times columnist Paul Krugman on the economy.

As for how five-year-old MasterClass was doing before the world changed, Rogier declines to share specific growth stats, merely describing its numbers as “great.” He also notes that MasterClass is now available not only via its website and app but on the big screen through Apple TV and Amazon Fire TV.

It’s also rolling out Android TV and Roku soon.

Pictured above: Former FBI hostage negotiator Chris Voss.

from Amazon – TechCrunch https://techcrunch.com/2020/03/22/masterclass-is-launching-free-live-qa-sessions-with-big-shots-in-their-respective-industries/

Identifying opportunities in today’s saturated cybersecurity market

Yoav Leitersdorf is the founder of YL Ventures, a 12-year-old, Mill Valley, California.-based seed-stage venture firm that invests narrowly in Israeli cybersecurity startups and closed its fourth fund with $120 million in capital commitments last summer — a vehicle that brings the capital it now manages to $260 million.

The outfit takes a concentrated approach to investing that has seemingly been paying off. YL Ventures was the biggest shareholder in the container security startup Twistlock, for example, which sold to Palo Alto Networks last year for $410 million after raising $63 million altogether. (YL Ventures had plugged $12 million into the company over four years.) It was also the biggest outside shareholder in Hexadite, an Israeli startup that used AI to identify and protect against attacks and that sold in 2017 to Microsoft for a reported $100 million.

Still, the firm sees a lot of cybersecurity startups. It also has an advisory board that’s comprised of more than 50 security pros from heavyweight companies. For insight into what they’re shopping for this year — and how startups might grab their attention — we reached out to Leitersdorf last week to ask what he’s hearing.

from Amazon – TechCrunch https://techcrunch.com/2020/01/12/identifying-opportunities-in-todays-saturated-cybersecurity-market/

While other tech giants fund housing initiatives, Amazon is opening a homeless shelter — inside its HQ

As big tech gets bigger, industry leaders have begun making more noise about helping homeless populations, particularly in those regions where high salaries have driven up the cost of living to heights not seen before. Last January, for example, Facebook and Chan Zuckerberg Initiative, among other participants, formed a group called the Partnership for the Bay’s Future that said it was going to commit hundreds of millions of dollars to expand affordable housing and strengthen “low-income tenant protections” in the five main counties in and around San Francisco. Microsoft meanwhile made a similar pledge in January of last year, promising $500 million to increase housing options in Seattle where low- and middle-income workers are being priced out of Seattle and its surrounding suburbs.

Amazon has made similar pledges in the past, with CEO Jeff Bezos pledging $2 billion to combat homelessness and to fund a network of “Montessori-inspired preschools in underserved communities,” as he said in a statement posted on Twitter at the time, in September 2018.

Now, however, Amazon is taking an approach that immediately raises the bar for its rivals in tech: it’s opening up a space in its Seattle headquarters to a homeless shelter, one that’s expected to become the largest family shelter in the state of Washington.

Business Insider reported the news earlier today, and it says the space will be able to accommodate 275 people each night and that it will offer individual, private rooms for families who are allowed to bring pets. It will also feature an industrial kitchen that’s expected to produce 600,000 meals per year.

The space is scheduled to open in the first quarter of the new year, and is part of a partnership Amazon has enjoyed for years with a nonprofit called Mary’s Place that has been operating a shelter out of a Travelodge hotel on Amazon’s campus since 2016. The new space, which BI says will have enough beds and blankets for 400 families each year, isn’t just owned by Amazon but the company has offered to pay for the nonprofit’s utilities, maintenance, and security for the next 10 years or as long as Mary’s Place needs it.

BI notes that the shelter will make a mere dent in Seattle’s homeless population, which includes 12,500 people in King County, where Seattle is located, but it’s still notable, not least because of the company’s willingness to house the shelter in its own headquarters.

It’s a move that no other tech company of which we’re aware has taken. The decision also underscores other cities’ equivocation over where their own, growing homeless populations should receive support. In just one memorable instance, after San Francisco Mayor London Breed last March floated an idea of turning a parking lot along the city’s Embarcadero into a center that would provide health and housing services and stays for up to 200 of the city’s 7,000-plus homeless residents, neighboring residents launched a campaign to squash the proposal. It was later passed anyway.

Vox noted in report about Microsoft’s $500 million pledge last year that many of these corporate efforts tend to elicit two types of reactions: admiration for the companies’ efforts — or frustration over the publicity these initiatives receive. After all, it’s hard to forget that Amazon paid no federal tax in the U.S. in 2018 on more than $11 billion in profit before taxes. The company also threatened in 2018 to stop construction in Seattle if the city passed a tax on major businesses that would have raised money for affordable housing.

Whether Amazon — one of the most valuable companies in the world, with a current $915 billion market cap — is doing its fair share is certainly worthy of exploring in an ongoing way.

Still, a homeless shelter at the heart of the company is worth acknowledging — and perhaps emulating — too.

“It’s not one entity that’s going to solve this,” Marty Hartman, the executive director of Mary’s Place, tells BI. “It’s not on corporations. It’s not on congregations. It’s not on government. It’s not on foundations. It’s all of us working together.”

Pictured above: A view of the new Mary’s Place Family Center from the street, courtesy of Amazon.

from Amazon – TechCrunch https://techcrunch.com/2019/12/30/while-other-tech-giants-fund-housing-initiatives-amazon-is-opening-a-homeless-shelter-inside-its-hq/

Klarna CEO says “maybe” of taking public Europe’s most valuable fintech next year (but he’s not ruling out another round, either)

Yesterday, at TechCrunch Berlin, we sat down with Sebastian Siemiatkowski, the cofounder and CEO of Klarna, a 15-year-old company that’s currently the most highly valued privately held fintech in Europe, following a $460 million investment that pegged the company’s worth at $5.5 billion back in August. (Asked yesterday to confirm that the company has raised $1.2 billion altogether from investors, Siemiatkowski joked — without confirming the amount — “It sounds like you know better than I do.”)

Siemiatkowski had come to the event largely to take the wraps off a new tech hub in Berlin that will house 500 employees in product and engineering. But we were far more interested in discussing the future of the company, which is best known for providing instant credit to online shoppers at the point of checkout and is growing fast, with nearly 3,000 employees across 17 countries. Klarna has also begun competing more aggressively in the U.S.  —  as well as fending off a against a growing spate of competitors, from publicly traded AfterPay to Max Levchin’s Affirm to Sezzle. a company in Minneapolis that seemingly appeared from the blue a few years ago. 

Of course, the toughest competition of all may come from Amazon and Google, which are increasingly embedding their payment systems — Amazon Pay and and Google Pay — into their own massive platforms. We talked with Siemiatkowski about how Klarna survives as they gobble up more of the retail industry. We also asked about whether Amazon might be an acquirer, or whether Klarna might be eyeing an IPO in 2020 instead. You can check out excerpts from our conversation below. They’ve been lightly edited for length and clarity.

TC: The last time we sat down together was four years or so ago, when Klarna was best known for its checkout product. What are some of the ways in which the company has evolved since then?

SS: There’s a massive opportunity. For consumers, when they shop online today, they have so many friction points. One of them might be the ability to get free credit without all the fees and things that people associate with credit cards. But there’s also other things like, where’s my package? When will it arrive? How do I do returns? Where are the best offers? Where are the best discounts? There’s a lot of things that people still struggle with. And so what we’re trying to do is create that super-smooth shopping experience, and the more problems we solve for these customers, the better, and the happier they are, and the more they’re going to use it.

TC: Do you have any other financial products, like [longer-term] loans?

SS: We do direct type of payments like that. And then, in some countries here in Europe, we’ve already launched a plastic card, as well. So you can use this like that. And then we also do this kind of Mint.com-like financial dashboard that shows you your spending habits, and all that kind of stuff.

TC: You’re adding this hub in Berlin, but you’re already in Germany–

SS: Yes, Germany is actually our largest market. In Germany, we have about 30 million users, which, you know, takes us about 10 million ahead of that American wallet thing [PayPal], which is quite cool. So Germany is a super important for us, but right now what’s exciting is the U.S., so right now we’re adding customers at a pace that will be about six million customers on an annual basis right now. So the U.S. is really taking off.

TC: This instant credit product is still the biggest producer of revenue?

SS: Yes. If you look at those two things going on here, first is that millennials, in the U.S. and U.K.,  they don’t have credit cards they have debit cards — 70% of millennials in the U.S. only have debit cards. But they’re still looking sometimes to get a cash flow ease. What’s good about our services is doesn’t cost a consumer anything, so it’s not like the old credit cards which were really expensive for users.

It’s merchant-funded, so that allows the consumers to then sometimes be able to either ease their cash flow by paying in four installments, or try before they buy [meaning they can defer the payment for some period] and stuff like. People forget that people who have debit cards have much harder issues shopping online than people with credit cards, and that’s a big piece of what we’re solving for.

TC: Do you always break the payments into four installments? Do you customize these plans?

SS: Breaking [into] four [payments] is great and that’s one option. What we’ve seen is that consumers have different needs, so some people really like our try-before-you-buy product [where] you pay nothing at the time but then [pay] everything 30 days later when you receive the products. Sometimes, if it’s a bigger purchase, like you’re buying a sofa or something, you split it over 24 months of financing or something like that, which is kind of different. And sometimes people just want to pay for everything instantly. So we just want to make sure that people have all the options that they want.

TC: How much can users spend? What’s the upper boundary?

SS: I’m sure there is one but it’s really hard to answer because it’s very individual, on an individual basis.

TC: And to be clear, you’re buying these from merchants at a discount? Is that how it works?

SS: Basically, the merchant sets up with us, they pay us a merchant fee just like they do with PayPal or somebody else. Then we process the payments for them, and we take the full risk, and all the customer care and everything related to the transaction.

TC: I’m assuming you’re not using your [venture funding] to do this. You have a bank charter in Sweden . . .

SS: Yes, we’re a fully licensed bank and we have deposits to fund the balance sheet. So people in Germany can actually save with Klarna and get 1%, which doesn’t sound a lot, but it’s massively more than they get with any of the traditional banks in Germany.

TC: What about interest fees and late fees? How do those work?

SS: Basically, we keep them extremely low. There are sometimes if you’re late, there might be a late fee but but the whole purpose here is that it’s merchant-funded. So merchants pay for this, and the consumers get a much better product than the traditional credit card or other options.

TC: What’s the default rate?

SS: Super low. If look at overall Klarna, for all markets, it’s is less than 1%.

TC: There is a competitor of yours, AfterPay, that was criticized last year because something like a quarter of its revenue was coming from late payments. What [is your revenue coming from]?

SS: Most of it is coming from merchant fees, and late fees in general are never bigger than the losses that you’re making. But I think it’s definitely an important topic, where all the companies in this industry need to be very careful about how you set up your products.

I think Klarna — maybe because we’ve been around longer than the competitor you’re referring to and because we’re five times their size in totality — maybe we have just come a little bit further in how we think about consumer value and making sure that fees are right and so forth. So those are important topics to keep an eye on. But I also think that what’s even more important is that you have this credit card industry, which in general has charged massive interest rates, a lot of late fees, and been not a very transparent and great industry. And I think, actually, the big opportunity is for people like us, and the one you refer to and others, to disrupt that industry. It’s the credit card industry that we’re going after.

TC: Sure, and I’m not going to defend the credit card industry, but did you say what your interest fees are?

SS: It depends on an individual basis, but it’s definitely lower than the average credit card fee.

TC: Meanwhile, you’re charging merchants more than credit card companies, which you can do because you’re basically increasing their customers’ purchasing power.

SS: Yes. If you look to some markets like Brazil and Turkey that’s kind of how the whole world work. So in a way,  that’s kind of the direction we’re heading in, because as a merchant, you’ll have more buying power than as a single individual consumer, so you’ll be able to negotiate better rates, and be able to offer these products at a better rate than this as a single individual [receives].

TC: Obviously you’ve heard concerns that, especially as we’re maybe heading into a recession, easy credit may be dangerous for consumers. Your technology can assess whether or not someone is a good credit risk and whether or not an attempted transaction is fraudulent, but you’re not really getting a picture of a customer’s other financial obligations or burdens. 

SS: We do thorough credit checks. It depends because it’s hard to answer these questions when you’re active in 17 markets, because they’re all different. But it’s a definite obvious for us that we need to be able to assess people’s ability to pay, as well as their intent to pay . . . We’ve been doing this for 15 years, so we really learned how to identify that and do it in a, in a thoughtful and in a good way for the consumer.

TC: A lot of competitors have sprung up in recent years. Why hasn’t there been more consolidation in the space? Is it too soon?

SS: I think it might come eventually, but I do think again that there’s a lot of focus on these companies right now . . . and the point is that like, what we’re trying to do all of us, all these companies together, is really going after the trillion-dollar credit card industry  that hasn’t served customers well, that hasn’t, you know, and has been all about hiding fees and hasn’t been transparent and whose products and services are fairly poor quality.

There’s a big opportunity to change how this whole [industry works] and that’s true for us and to some degree also true for [mobile-only banks] N26 and Monzo and all the banking disruptors. We’re all going after these big banks that haven’t really served their customers well.

TC: It’s interesting that a lot of them are taking stakes in companies like yours. Visa made a strategic investment in Klarna in 2017. Why aren’t they pulling the trigger on more acquisitions? Is it a matter of them not knowing how to integrate these new technologies into their legacy systems but wanting at the same time to keep tabs on things?

SS:  I genuinely think —  I’ve been doing this now for 15 years, which is kind of crazy; I was 23 when we started —  that the bank disruption is actually happening now and I’m one of the people who would never say that. I’m always like, ‘Oh, [something] is just a trend, it’s hype, it’s going to pass, it’s going to take longer than people expect.’ But I see it happening. Consumers are switching en masse to these new services.

So what the legacy incumbents can do is [choose] from three options: transform themselves, which demands a very courageous CEO to really change a business like that; secondly, M&A; and third, go away and die as a company. So I do think that’s what you’re going to see in the market.  In general, if you look at the whole industry, you’re going to see a lot of investments in M&A activity going on, because that’s just how you defend yourself as as an incumbent versus disruption.

TC: Have you been approached?

SS: We get approached all the time, yeah.

TC: I thought it was interesting that you announced in October that AWS is now your preferred cloud provider. I imagine that Amazon is an important partner for you.

SS: Yes.

TC: I’m wondering especially about Amazon given that Amazon and Google are now embedding payment systems into their platforms. How do and your rivals [compete against them]?

SS:  I’m [someone who] believes that sticking to core is so important and so, like, what’s happening is we’ve seen a lot of like the big tech giants trying to kind of do more and more and more and more things. And I just think that’s very hard to do over time.

The other thing we do at Klarna is try to consistently stay ahead. When we started 15 years ago, payments online was all about safety; that was the only thing people [cared about] because they felt unsafe shopping online. I think 2010 to 2020 has been about simplicity — one click. one click. one click, because Amazon really taught us that one click was important and everyone wants to do one click. The question is, what happens from 2020 to 2030? That’s what we’ve been thinking about. How do we stay ahead of the game? How do we innovate? How do we keep creating new services and improvements to consumers so that they feel that this is better than what’s out there right now.

In my opinion, that really demands you to be passionate and in love with your business. And I think it’s hard for tech giants to be that at that scale. It’s easy to recognize what’s going on right now; it’s much harder [for them] to guess what’s going to happen five years from now. That’s really demand that passion and closeness to what you’re doing.

TC: Talking about the future, I saw that you talk to the Financial Times this summer, and when they asked you about going public after all these years, you said that, “In many ways we have most of the things in place that we need. It’s more question of timing and focus.” So how is 2020 looking in terms of timing?

SS: Yeah, I don’t know, maybe it could happen. It was kind of funny, because I was reading an interview with Michael Moritz, who’s on our board, and he was saying that we were going to stay private forever. So, I don’t know, it’s hard for me to know that what’s true anymore. People are reporting different things about Klarna.

TC: You never do know what Michael Moritz is going to say. But if you were to go public, I assume it would be a U.S. listing.

SS: I would assume so, too.

TC: What do you make of this whole direct listing concept that your neighbor [in Stockholm, Spotify, pioneered]?

SS: I think it’s wise. I mean Michael [Moritz] is a big proponent of it. I think it makes sense. I read all the arguments, and it looks interesting.

TC: But you’re not raising money with direct listings — your existing shareholders are instead selling their shares on the open market — which sort of begs the question: will you be raising [another private round] of funding again? You raised a big round in summer.

SS: We are in a very exciting phase right now, where the U.S. and U.K. is growing so fast for us. . . And we want to continue investing. We think the potential market in in the US is just massive . . .So we’ll we’ll see what happens, but I wouldn’t rule it out, that one thing that could happen is raise even more money to be investing even more in growth and product delivery, and new products and services, as well as sales and marketing in the US,

TC: Of course, every time you raise money it impacts whether or not you’re profitable. Are you profitable now? Have you been?

SS: Klarna has been profitable every year up until this year.

TC: That giant fundraise [in summer] kind of threw you off.

SS: Yeah, exactly.

from Amazon – TechCrunch https://techcrunch.com/2019/12/12/klarna-ceo-taking-public-the-valuable-fintech0/

Ben Horowitz on shocking rules and dramatic object lessons

Ben Horowitz, co-founder of venture firm Andreessen Horowitz, has a new book out titled “What You Do Is Who You Are,” which takes a look at how to create culture at a company.

We sat down with Horowitz last month to discuss some of the lessons he aims to impart and why he felt compelled to write about culture now — including whether it has to do with the growing tech backlash against once-small companies that have taken over the world, and whose cultures are magnified exponentially as a result.

We published parts of our chat here, where we talked about Uber and WeWork specifically. The rest, which dives more into practical advice for founders, follows. Our conversation has been edited lightly for length and clarity.

Extra Crunch: One of the problems we’re dealing with right now, that’s driving this big tech backlash in ways, has a lot to do with just how empowered founders are. And that seemingly goes back to them having more say than other shareholders via dual-class shares. How much power should these founders have?

Ben Horowitz: I think it’s pretty important for tech companies to have some sort of long-term view of the business. Now, fast forward and Eric Ries has this new idea of a Long Term Stock Exchange, which basically says, okay, founders won’t have to have dual-class shares, but the shareholders and the founders will be in it together. So the shareholders have to vest their shares to get voting rights and if you hold the stock for years, and you can get some power, but you don’t get it right off the bat.

I think that that’s probably the optimal model. But I would say that, at least in my view, dual-class is still better than activist investors going after tech companies, because you can’t get to the next product. It’ll just make the company very short-term.

Also, and maybe I’m talking like an old CEO, but I think one of the things that gets lost in the kind of conversation between founders and shareholders is employees. It’s very bad for employees when activist investors get control of the company and drive it toward short-term returns because often, everybody ultimately loses their job in those scenarios.

What about phasing out those dual-class shares over time, though, maybe over five, or seven, or 10 years, which is a decent amount of time for founders to transition their startups to publicly-traded companies?

I think that that would make sense if the people who got power were long-term investors. I just think that if you have short-term investors, making decisions about [a] technology company, the easier way to expand profits is to stop doing R&D because it’s not going to show up in the next two years. But long-term, that’ll spell doom. And I think that’s kind of the way these proxy battles have gone. It’s been like, ‘Okay, stop spending, stop investing.’

I don’t think the kind of cultural issues that companies have run into have much to do with voting power. I think it just has more to do some combination of lack of skill and how fast the companies are growing.

Going back to the book, why weave in the cultural figures that you have — Toussaint Louverture, Genghis Khan and Shaka Senghor [a contemporary who served time for murder and today is a criminal justice reform advocate]. There are so many people you could have included, and you focused on these three individuals.

It’s a weird origin story, but Prince years ago put out an album called 3121, and he opened this club in Vegas called the 3121, and he would perform there, like, every weekend. And the show would start at 10 and he would show up at midnight or 1 a.m., but during that time in between, he would show these old films with these really interesting dancers in these elaborate clothes. And you’d just be watching these old guys, and then Prince would start to splice in [his own movies, including] “Under the Cherry Moon” and “Purple Rain,” and you’d go, ‘well those are the dance moves from those guys [in the older films] and that’s a quote from those guys,’ and you realize: that was what he was trying to express. And I thought, you know, I finally really understand him. And I thought, you know, [these three] have really influenced my views on culture [for a variety of reasons] and it would be a good way to tell this story.

It’s fascinating how it comes together. Were you ever a teacher?

When I was in graduate school, I was a computer science kind of TA, so I taught the freshmen computer science, programming languages, and whatnot.

My grandfather was a teacher — he was fired actually during the McCarthy era for being a communist teacher; he was teaching junior high.

He was a communist. So at least McCarthy got that part right. But it makes me very nervous, people wanting to remove people from their positions these days because of their points of view. My grandfather supported Stalin, and, like, Stalin was really bad. But I don’t think he should have been fired for being a teacher. I just don’t think it’s very good for society. Everybody’s got to be able to have a bad point of view. When you go, ‘You have a bad point of view and that’s illegal, to think that, and now we’re going to take away your job from you, make you not a legitimate person . . .’

We just saw that in the sports world, which was pretty crazy. Speaking of which, in the book you talk about the need to create shocking rules as part of establishing a company culture. As part of that section, you reference former New York Giants coach Tom Coughlan, who started meetings five minutes early and fined players $1,000 for every minute they were late. Doesn’t Andreessen Horowitz do something like that, penalize people for being late?

from Amazon – TechCrunch https://techcrunch.com/2019/11/04/ben-horowitz-on-shocking-rules-and-dramatic-object-lessons/