Chinese Tesla rival Nio files to raise $1.8 billion in US IPO

Tesla may be looking to go private, but Chinese rival Nio is going the other way after it filed to raise $1.8 billion in an IPO on the New York Stock Exchange.

Nio was started in 2014, initially as NextCar, by Bin Li, an entrepreneur who founded online automotive services platform Bitauto. The company is backed by Chinese internet giants Baidu and Tencent among others, and it has developed two vehicles so far: the EP9 supercar and ES8.

The former is really a concept/racer car — it broke the electric vehicle speed record last year — but the ES8, pictured above, is a car designed for the masses which is priced at 448,000 RMB, or around $65,000.

Nio opened sales for the ES8 last year but it only began shipping in June. Thus, to date, it has fulfilled just 481 orders, although it claims that there are 17,000 customers who put down reservations waiting in the wings.

That means that, essentially, it is pre-revenue at this point.

The company reported revenue of $6.9 million as of the end of June — so one month of deliveries — with a total loss of $502 million for 2018 to date. Last year, Nio lost $759 million in 2017, that included no revenue and nearly $400 million spent on R&D.

Nio may be in the same space as Tesla, but its approach differs from the U.S. firm. The company operates ‘clubhouses’ where it sells to new customers and allows existing owners to come to spend time, while it also goes direct to consumer with mobile-based sales. (Not, unlike, say an early Xiaomi model.)

Nio’s pricing is more focused on mid-market and, without a charger network like Tesla (most Chinese households would struggle to charge at home), it has developed its own unique way to handle battery charging. Its vehicles support battery swapping at dedicated stations while it operates a range of roaming charging trucks can  reach users who are low on juice.

Those on-demand charging services come as part of a subscription-based package which will add further revenue beyond car sales. Further down the line, the company said its vehicles will be compatible with the national EV charging network China is developing so that’ll help on the charging front, too.

Like China’s infrastructure play, Nio itself is very much a work in progress.

Indeed, case in point, it doesn’t yet operate its own factory.

Right now, state-owned JAC Motors handles product but Nio has pledged to invest $650 million to construct its own manufacturing plant in Shanghai. Nio’s current order backlog will take six to nine months to process, according to the filing, but its own factory could mean orders are dispatched to customers within 28 days of purchase.

The company’s focus is China, but Nio has global roots. Shanghai is its headquarters and home to nearly 2,500 staff, but it also has teams in Munich (design), San Jose (software and self-driving) and London and Oxford in the UK, which handle vehicle concepts.

Its executive team is predominantly Chinese but one familiar name is Padmasree Warrior who is the head of Nio’s U.S. business. The former Motorola CTO joined the company in 2015 after calling time on Cisco, where she spent seven years and had been chief technology and strategy officer.

Despite an international setup, there’s no word in the filing on whether Nio has a timeframe for selling vehicles outside of China. For now, the company cites analyst data claiming that “China is a clear leader in the global EV market” with sales growing from 21,800 in 2013 to 740,900 units last year. That’s despite the Chinese government cutting back on some of its generous subsidies aimed at encouraging early ownership of EVs and eco-friendly hybrid cars.

Hollywood gets its own open source foundation

Open source is everywhere now, so maybe it’s no surprise that the Academy of Motion Picture Arts and Sciences (yes, the organization behind the Oscars) today announced that it has partnered with the Linux Foundation to launch the Academy Software Foundation, a new open source foundation for developers in the motion picture and media space.

The founding members include a number of high-powered media and tech companies, including Animal Logic, Blue Sky Studios, Cisco, DreamWorks, Epic Games, Google, Intel, SideFX, Walt Disney Studios and Weta Digital.

“Open Source Software has enabled developers and engineers to create the amazing effects and animation that we see every day in the moves, on television and in video games,” said Linux Foundation CEO Jim Zemlin.” With the Academy Software Foundation, we are providing a home for this community of open source developers to collaborate and drive the next wave of innovation across the motion picture and broader media industries.”

The Academy Software Foundation’s mission statement notes that it wants to be a neural forum “to coordinate cross-project efforts; to provide a common built and test infrastructure; and to provide individuals and organizations a clear path to participation in advancing out open source ecosystem.”

According to a survey by the Academy, 84 percent of the industry uses open source software already, mostly for animation and visual effects. The group also found that what’s holding back open source development in the media industry is the siloed nature of the development teams across the different companies in this ecosystem.

“The creation of the Academy Software Foundation is an important and exciting step of the motion picture industry,” said Nick Cannon, the chief technology officer of Walt Disney Animation Studios. “By increasing collaboration within our industry, it allows all of us to pool our efforts on common foundation technologies, drive new standards for interoperability and increase the pace of innovation.”

The fact that even Hollywood is now embracing open source and its collaborative nature is yet another sign of how the world of software development has changed in recent years. Over the last few years, traditional enterprises realized that whatever technology they developed to run their software infrastructure isn’t what actually delivers value to their customers, so it made sense to collaborate in this area, even with their fiercest competitors  — and the same, it seems, now holds true for the Hollywood studios, too (or at least for those that have now joined the new foundation).

Heads-up: 2FA provider Duo Security to be acquired by Cisco (ugh)

US-based two-factor authentication provider Duo Security announced this morning that it is in talks to be acquired by networking giant Cisco. According to Duo’s press release, Duo will become a “business unit” under Cisco’s Security Business Group, and current Duo CEO Dug Song will become the unit’s general manager.

Ars is a happy Duo customer, and we use the product extensively to apply 2FA to a variety of our internal services; beyond that, several Ars staffers (myself included) use Duo’s free tier to wrap 2FA around our own personal stuff, like Linux PAM authentication and Mac/Windows logins. Duo’s flexibility and ease of use has been a huge driver of success for the company, which says it has about 12,000 customers.

But the worry here is that Cisco is going to murder the golden goose—and, as a former Cisco customer, I’m struggling to feel anything but dread about all the ways in which this acquisition might kill everything that’s good about Duo.

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Cisco is buying Duo Security for $2.35B in cash

Cisco today announced its intent to buy Ann Arbor, MI-based security firm, Duo Security. Under the terms of the agreement, Cisco is paying $2.35 billion in cash and assumed equity awards for Duo.

Duo Security was founded in 2010 by Dug Song and Jonathan Oberheide and went on to raise $121.M through several rounds of funding. The company has 700 employees with offices throughout the United States and in London, though the company has remained headquartered in Ann Arbor, MI.

Co-founder and CEO Dug Song will continue leading Duo as its General Manager and will join Cisco’s Networking and Security business led by EVP and GM David Goeckeler. There’s no word if Duo will continue to operate out of Ann Arbor if the deal closes.

The acquisition feels like a good fit for Cisco. Duo’s security apparatus lets employees use their own device for adaptive authentication. Instead of issuing key fobs with security codes, Duo’s solution works securely with any device. And within Cisco’s environment, the technology should feel like a natural fit for CTOs looking for secure two-factor authentication.

“Our partnership is the product of the rapid evolution of the IT landscape alongside a modernizing workforce, which has completely changed how organizations must think about security,” said Dug Song, Duo Security’s co-founder and chief executive officer. “Cisco created the modern IT infrastructure, and together we will rapidly accelerate our mission of securing access for all users, with any device, connecting to any application, on any network. By joining forces with the world’s largest networking and enterprise security company, we have a unique opportunity to drive change at a massive scale, and reshape the industry.”

Over the last few years, Cisco has made several key acquisitions: OpenDNS, Sourcefire, Cloudlock, and now Duo. This latest deal is expected to close in the first quarter of Cisco’s fiscal year 2019.


Duo Security’s Dug Song On Company Priorities | Disrupt NY 2017

What every startup founder should know about exits

The dream of a startup founder can often be summarized by the following well-intentioned, and mostly delusional, quote: “We’ll raise a few rounds and in a few years we’ll IPO on Nasdaq.”

But a more likely scenario looks something like this:

You invest a few years of hard work to build something of value. One day you receive an acquisition offer out of the blue. You’re elated. And you’re not prepared. You drop everything to focus on this opportunity. Exclusive due diligence starts. Your company is a mess (IP, contracts, burn). Days become weeks; weeks become months. You’ve neglected business and fundraising. You’re running out of money. M&A is now your one and only option. The buyer says they found a bunch of cockroaches in the walls and drops the price. Now what?

Sound unlikely?

This is still a favorable situation: You had an offer! Think about how much time you invested in your various funding rounds. The hundreds of names and Google spreadsheet or Streak-powered quasi-CRM process.

Have you spent even a fraction of that on understanding exit paths? If you’d rather not live the situation described above, read along.

The E-word: A strange taboo

Investors live by exits, but many founders keep dreaming of unicornization and avoid the “E-word” until it’s too late. Yet, in 2016, 97 percent of exits were M&As. And most happened before Series B.

Exits matter because that’s when you, your team and your investors get paid. Oddly enough, and to use a chess metaphor, we hear a lot about the “opening game” (lean startup) and the “mid-game” (growth), but very little about this “end game.

As a result, founders miss opportunities or leave money on the table. This is a shame. Our fund has more than 700 companies in portfolio. We want the best possible exit for each of them. And fortune favors the prepared! Now, how to get 700 exits (and counting)?

To explore the topic, we organized a series of Master Classes tapping corporate buyers, bankers, investors, lawyers and startup CEOs with M&A or IPO experience in San Francisco. It was a group that included the founders of Guitar Hero —  bought by Activision; JUMP Bikes —  a SOSV portfolio company bought by Uber, Ubiquisys —  bought by Cisco and Withings —  bought by Nokia. Each one for hundreds of millions.

Their observations can be summarized below.

Maximize optionality

“Founders must be aware of what contributes to an exit. This means understanding partnerships and how they are formed in the business space the entrepreneur is working in,” said one Master Class participant.  

As founders, you build your product, your company and… optionality. You need to understand the options open to your company, and take steps to enable them.

The most likely one is an acquisition, but there are others like IPO (including small cap), RTO, SBO, LBO, Equity Crowdfunding and even ICO.

“Exit is not a goal ​per se, but as a CEO it is something you should think about as early in your cycle as possible, while being business-focused,” said the London-based investor Frederic Rombaut, of Seraphim Capital.

Indeed, most participants said that exits should always be on the chief executive’s agenda, no matter how early in the process. “Exits should be on the CEO agenda. Not front and center, but on the agenda. M&A is a by-product of a great business and targeted BD. IPOs are always an option once you’ve built significant cashflow forecasting.”

It’s important to ask questions like: How many “strategic engagements” with potential buyers have you had this month? Is your message and value clear in their eyes? Have you considered an acquisition track in parallel to a fundraise?

It doesn’t stop there:

  • Equity crowdfunding might help close some gaps at seed stage.
  • Early IPOs on smaller exchanges can be an option to raise over $10 million —  the robotics startup Balyo went public and raised €40 million on Euronext to get rid of a critical “right of first refusal” option held by one of its corporate investors.
  • Reverse mergers can work too: the medical exoskeleton company EKSO Bionics went public this way.

One thing is sure: The time to exit is not when you’re running out of money.

Companies are bought, not sold

Unicorn or not, the most likely exit is an acquisition.

As George Patterson, managing director at HSBC in New York said, “Good tech companies are bought, not sold. The question is thus: how to get bought?”

Patterson says it’s important to understand how mergers and acquisitions actually work; how to prepare a startup for an exit; and how to develop a “feel” for the market you’re exiting through and into.

How M&A works

Hearing from corp dev veterans from Cisco, Logitech, Dassault and IBM, a few key ideas emerged:

Motivations vary

It could be from least to most expensive, or as a mix, as listed by Mark Suster, managing partner at Upfront Ventures:

  1. Talent hire ($1 million/dev as a rule of thumb —  location matters)
  2. Product gap
  3. Revenue driver
  4. Strategic threat (avoid or delay disruption)
  5. Defensive move (can’t afford a competitor to own it)

How corporates find you

Corporates find deals via the development of partnerships, investment (CVC), their business units, corp dev research, media and investor connections.

Asked about the best approach, Todd Neville, manager of Corporate Business Development and Strategy at IBM (who gave the most detailed description of the corp dev process), said, “Do something cool to one of the IBM customers. If they rave about even a POC, we’re interested.”

In other words, business development is corporate development. 

Get the house in order

Buyers typically want to know three things:

  1. Is your IP really yours?
  2. Is your team capable?
  3. Will your customers stick around?

For IP, they will check your contracts (staff and contractors), and run some automated code analysis for proprietary code and open source use. They will evaluate potential IP infringement. No point buying you if you end up costing more in lawsuits!

For your team skills: Sitting down with your engineers will tell them plenty enough without understanding the details of this or that algorithm. The last thing a corporate wants is to be accused of stealing!

Lawyers engaged early can help. The later the clean-up, the more costly and painful.

Develop a feel for your “market”

Develop relationships and create champions within corporates. It will help promote your deal when the time comes, and will let you keep your finger on the pulse of corporate strategy to time your moves.

Do you read the earning calls of Cisco or IBM (or others relevant to you)? This is where strategies are presented. Are your keywords coming up there or in their press releases?

Chris Gilbert, former CEO of Ubiquisys (sold to Cisco for more than $300 million) was very deliberate in planning his exit.

Selling starts on day one and is a leadership-only function —  work out who will be your buyer. Only the CEO can do this. Constantly articulate why a company should buy you,” Gilbert said. Bring clear messages into the acquiring company so it can be presented upwards: give them the presentation you would like them to show their boss! When the time is right, force decisions through competition. If you know they have to buy you, your starting position is strong.”

The dark art of price discovery

There are dozens of formulas (from DCF to comparables) to evaluate a deal —  which also means none is “correct.” What matters is: How much would you sell for, and how much is the buyer ready to pay?

Gilbert, at Ubiquisys, described how close interactions with his banker helped drive the price up among the bidders assembled.

Just like buyers, we meet bankers and lawyers too rarely at startup events, but there is much to learn with them. They make deals happen, avoid value erosion and optimize price. They often also make introductions before you engage them, to build goodwill and earn your business.

And if you worry about fees, the right banker handsomely pays for itself by finding more bidders and playing “bad cop” for you, avoiding direct confrontation with your future employer. Do you want a slice of the watermelon or the whole grape?

Final twist: Exits are not exits

When asked about what happens after an M&A or IPO, buyers said they generally hoped the founders would stay with them for many years. Often using re-vesting, earn-outs or shares of the acquiring company to incentivize them. Neville, from IBM, mentioned a security company they acquired whose founder is now the head of one of the largest IBM divisions.

In the case of IPOs, supposedly the ultimate “exit,” any block of shares sold by founders would face extreme scrutiny and might cause a price drop.

So who’s exiting during those deals? Investors (and not always).

Eventually, if the average age of a startup at exit is 8-10 years, the active duty period of founders (if not replaced in the meantime) extends even more. Better love the problem you’re solving, and your customers!

Thanks to speakers, participants and supporters of this Master Class series:

London: Frederic Rombaut (Seraphim Capital), Joe Tabberer (FirstBank), Chris Gilbert (Ubiquisys), Jonathan Keeling (Crowdcube), Fred Destin, Tony Fish (AMF Ventures, James Clark (London Stock Exchange), Denise Law (SGCIB).

Paris: Frederic Rombaut (Seraphim Capital), Manuel Gruson (Dassault Systemes), Pierre-Henri Chappaz (Rothschild Global Advisory), Christine Lambert-Goue (All Invest), Olivier Younes (EXPEN), Eric Carreel (Withings), Fabien Bardinet (Balyo), Xavier Lazarus (Elaia Partners), Pierre-Eric Leibovici(Daphni). Jean de La Rochebrochard (Kima Ventures), Jeremy Sartre (SmartAngels), Gwen Regina Tan (Entrepreneur First).

San Francisco: Natasha Ligai (Logitech), Matt Cutler (Cisco),Will Hawthorne, (CODE Advisors), Ryan Rzepecki (JUMP Bikes), Charles Huang (Guitar Hero), Jeff Thomas (Nasdaq), Shahin Farshchi (Lux Capital), Ammar Hanafi (Moment Ventures), Adam J. Epstein (Third Creek Advisors), Nathan Harding (EKSO Bionics), Kate Whitcomb, Anthony Marino and Ethan Haigh (SOSV).

New York: Todd Neville (IBM), George Patterson (HSBC), Ryan Rzepecki (JUMP Bikes), Aaron Kellner (SeedInvest), Jeremy Levine (Bessemer Venture Partners), Taylor Greene (Collaborative Fund), Adam Rothenberg (BoxGroup), Eli Curi (Fenwick & West), Ian Engstrand and Salil Gandhi (Goodwin), Warren Spar(Sparring Partners Capital), Duncan Turner, Vivian Law and Sheng Ge (SOSV).

Freshworks raises $100M

Freshworks, a company that offers a variety of business software tools ranging from IT management to CRM for sales and customer support software, today announced that it has raised a $100 million funding round co-led by Sequoia and Accel Partners, with participation from CaptialG.

The company’s last funding round came in the form of a $55 million Series F round led by Sequoia in 2016. Today’s round brings the San Bruno-based company’s total funding to $250 million, at a valuation that’s now north of $1.5 billion, the company tells us. Freshworks also today noted that it now pulls in over $100 million in annual recurring revenue.

In addition to the new funding, Freshworks also today announced that it has hired a former AppDynamics VP of finance and treasury Suresh Seshardi as its CFO. Seshardi helped AppDynamics prepare for its IPO, so it’s a fair bet that he’ll do the same at Freshworks. AppDynamics, of course, famously didn’t actually IPO but was instead acquired by Cisco only hours before the team was supposed to ring the bell on Wall Street.

Freshworks CEO Girish Mathrubootham tells us we shouldn’t hold our breath waiting for his company to IPO. “Freshworks hasn’t started the IPO process but we do feel that we will eventually go public in the U.S.,” he said. “With that said, our primary focus right now is on growing the business and investing in our platform. When the timing is right, we’ll make that decision.”

Freshworks, which launched its first product back in 2010, also tells us that it plans to use the new cash to invest in its platform and especially in looking at how it can use AI to bring new innovations to its tools.

Current Freshworks users include the likes of Sling TV, Honda, Hugo Boss, Toshiba and Cisco. In total, the company’s tools are now in use by about 150,000 businesses, making it one of the larger SaaS providers you have probably never heard of.

 

Balbix raises $20M for a predictive approach to enterprise cybersecurity

Security breaches are a disaster for corporate companies, but good news if you’re someone who offers preventative solutions. Today in 2018, wide-ranging attacks on the likes of Equifax, Sony Pictures and Target have only added value to those charged with safeguarding companies.

Balbix, one such solutions provider, has pulled in a $20 million Series B to grow its business and try to prevent high-profile cybersecurity disasters using a predictive model of measuring and assessing threats.

The round is led by Singtel Innov8, the corporate fund of Singapore telco Singtel which owns Trustwave and is active in the security space, and Mubadala Ventures, the Abu Dhabi firm that’s well known for backing SoftBank’s $100 billion Vision Fund. Existing Balbix investor Mayfield Fund also took part alongside angels including ex-Cisco CEO John Chambers, former Cisco EVP Pankaj Patel and entrepreneurs BV Jagadeesh and Gary Gauba.

Balbix raised $8.6 million a year ago when it came out of stealth although the company was first founded 2.5 years ago by CEO Gaurav Banga (photographed above), who was a founder of Bromium, a fellow security company that has raised over $115 million from investors.

This time around with Balbix, Banga is turning predictive. The company’s platform uses a combination of smarts like artificial intelligence and machine learning to essentially map out all potential vulnerabilities within an organization. That could range from varying operating system version numbers to weak employee passwords, one employee’s poorly-secured laptop and beyond. The Balbix system plugs into existing operational security products to offer reactive responses and to create a real-time view of an organization’s security health and any weaknesses.

“At enterprise scale, keeping everything up to snuff is very hard,” CEO Gauba told TechCrunch in an interview. “Most organizations have little visibility into attack surfaces, the right decisions aren’t made and projects aren’t secured.”

“We started this company so that we could use cutting-edge machine learning algorithms to automatically and comprehensively measure the security and attack surface, and to produce relevant insights for all stakeholders,” he added. “You look at the numbers and you could easily have hundreds of millions or tens of billions of data points to watch for vulnerabilities — you have to make sure they are ok.”

The timing certainly seems opportune, with data breaches seemingly in the headlines on a regular basis. In particular, in the case of Equifax, the implications of the attack went to the C-level management and boardroom.

“2017 was special,” Gauba said. “Ask any CIO, CEO, or board member of a public company and that was the year that everyone woke up [and] figured their careers were at risk. It should have happened before but it took he Equifax breach… they realized this thing is real and it can have a career-altering impact on their work and personal life.”

“The CSO was always the fall guy before, but now it can go all the way up,” he added. “One of our challenges we face now is how do you answer a board member or CEO’s questions on security. For us, the answer is simple: if you can’t measure something then you can’t improve it, the right decisions are based on data so go ahead and find that data.”

Unlike other solutions, Balbix doesn’t charge security companies by the event — aka attacks — so it remains invested in preventing those kinds of scenarios from happening.

For this round, Gauba said that the company was focused on raising “smart money” that goes beyond simply providing capital to offer strategic value, too. The company does have international reach in terms of customers — which include both enterprise customers and global managed security service providers (MSSP) — and sales but for now its only office is San Jose.

Internationalization is certainly an area where Singtel Innov8 and Mubadala Ventures — located in Southeast Asia and the Middle East, respectively — can lend a hand, and the company itself is weighing up international offices.

We know you hate the Internet of Things, but it’s saving megafauna from poachers

For much of this decade, organizations seeking to protect wildlife have attempted to use emerging technology as a conservation tool, allowing small numbers of people to monitor and manage data from animals over a wide area. Nowhere is that effort more focused—and more desperate—than in the regions of Africa where illegal animal trade is threatening to wipe out endangered animals such as rhinos, elephants, pangolins, and lions. Here, several organizations are applying Internet of Things (IoT) technology to protect animals, providing rangers with data that helps them intercept poachers before they can get to their quarry.

Many conservation efforts elsewhere use IoT to try to track the location of animals, such as Vodafone’s IoT tagging of Scottish harbor seals and tracking of endangered dugongs in Philippines. But in Africa, the task of protecting rhinos is slightly different—it’s about tracking people, specifically the poachers who hunt down the rhinos for their tusks.

Rhinos, of course, aren’t unique in needing such intervention. Based on data from the Great Elephant Census (GEC), a continent-wide survey conducted by Microsoft cofounder Paul Allen’s Vulcan Inc., Africa’s savanna elephant population declined by 30 percent between 2007 and 2014 for instance. That’s a loss of 144,000 elephants. Current data shows the rate of decline of the elephant population is now eight percent per year, and ivory poachers are the main reason for that decline.

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