Index Ventures, Stripe back bookkeeping service Pilot with $40M

Five years after Dropbox acquired their startup Zulip, Waseem Daher, Jeff Arnold and Jessica McKellar have gained traction for their third business together: Pilot.

Pilot helps startups and small businesses manage their back office. Chief executive officer Daher admits it may seem a little boring, but the market opportunity is undeniably huge. To tackle the market, Pilot is today announcing a $40 million Series B led by Index Ventures with participation from Stripe, the online payment processing system.

The round values Pilot, which has raised about $60 million to date, at $355 million.

“It’s a massive industry that has sucked in the past,” Daher told TechCrunch. “People want a really high-quality solution to the bookkeeping problem. The market really wants this to exist and we’ve assembled a world-class team that’s capable of knocking this out of the park.”

San Francisco-based Pilot launched in 2017, more than a decade after the three founders met in MIT’s student computing group. It’s not surprising they’ve garnered attention from venture capitalists, given that their first two companies resulted in notable acquisitions.

Pilot has taken on a massively overlooked but strategic segment — bookkeeping,” Index’s Mark Goldberg told TechCrunch via email. “While dry on the surface, the opportunity is enormous given that an estimated $60 billion is spent on bookkeeping and accounting in the U.S. alone. It’s a service industry that can finally be automated with technology and this is the perfect team to take this on — third-time founders with a perfect combo of financial acumen and engineering.”

The trio of founders’ first project, Linux upgrade software called Ksplice, sold to Oracle in 2011. Their next business, Zulip, exited to Dropbox before it even had the chance to publicly launch.

It was actually upon building Ksplice that Daher and team realized their dire need for tech-enabled bookkeeping solutions.

“We built something internally like this as a byproduct of just running [Ksplice],” Daher explained. “When Oracle was acquiring our company, we met with their finance people and we described this system to them and they were blown away.”

It took a few years for the team to refocus their efforts on streamlining back-office processes for startups, opting to build business chat software in Zulip first.

Pilot’s software integrates with other financial services products to bring the bookkeeping process into the 21st century. Its platform, for example, works seamlessly on top of QuickBooks so customers aren’t wasting precious time updating and managing the accounting application.

“It’s better than the slow, painful process of doing it yourself and it’s better than hiring a third-party bookkeeper,” Daher said. “If you care at all about having the work be high-quality, you have to have software do it. People aren’t good at these mechanical, repetitive, formula-driven tasks.”

Currently, Pilot handles bookkeeping for more than $100 million per month in financial transactions but hopes to use the infusion of venture funding to accelerate customer adoption. The company also plans to launch a tax prep offering that they say will make the tax prep experience “easy and seamless.”

“It’s our first foray into Pilot’s larger mission, which is taking care of running your companies entire back office so you can focus on your business,” Daher said.

As for whether the team will sell to another big acquirer, it’s unlikely.

“The opportunity for Pilot is so large and so substantive, I think it would be a mistake for this to be anything other than a large and enduring public company,” Daher said. “This is the company that we’re going to do this with.”

Working backwards to uncover key success factors

If you’re a SaaS business — you’re likely overwhelmed with data and an ever-growing list of acronyms that purport to unlock secret keys to your success. But like most things — tracking with you do has very little impact on what you actually do.

It’s really important to find one, or a very small number, of key indicators to track and then base your activities against those. It’s arguable that SaaS businesses are becoming TOO data driven — at the expense of focussing on the core business and the reason they exist.

In this article, we’ll look at focusing on metrics that matter, metrics that help form activities, not just measure them in retrospect.

Most of the metrics we track, such as revenue growth, are lagging indicators. But growth is a result, not an activity you can drive. Just saying you want to grow an extra 10% doesn’t mean anything towards actually achieving it.

Since growth funnels are generally looked at from top to bottom, and in a historical context — a good exercise can be the other way around — go bottom-up, starting with the end result (the growth goal) and figure out what each stage needs to contribute to achieve it.

You can do this by looking at leading indicators. These are metrics that you can influence — and that as you act, and see them increase or decrease, you can be relatively certain of the knock-on effects on the rest of the business. For example — if you run a project management product, the number of tasks created is likely to be a good leading indicator for the growth of the business — more tasks created on the platform equals more revenue.

The different playbooks of D2C brands

Over the past half a decade, the tidal wave of niche brands delivering new kinds of products to consumers and doing so online has changed the retail and CPG landscapes forever.

This shift has in some way caused a shakeout in traditional retail, with once-popular retailers announcing store closures (JCPenney, Sears) or even liquidation (Payless, Toys R Us) and has sent fashion houses and CPG brands on a soul-searching journey. The changing demographics and desires of shoppers have also fueled the decline of traditional brands and their distribution mechanisms.

This bleak scenario of incumbent consumer brands is in stark contrast to the rapid emergence of a host of digitally-native Direct to Consumer (D2C) brands. A few D2C brands have been successful enough to become unicorns! Retailers like Walmart, Nordstrom, and Target have quickly adapted to the D2C era.

Walmart has made a string of acquisitions beginning with Jet.com and Bonobos. Nordstrom has broadened its assortment to include D2C brands, Target has partnered with Harry’s, Quip, and Flamingo – all of which have rolled out their products in Target’s stores across the country. Target has also invested in Casper, which is the latest D2C brand to become a Unicorn.

Venture capital firms have invested over four billion dollars in D2C brands since 2012, with 2018 alone accounting for over a billion. With investment comes pressure to scale and deliver profits. And this pressure is bringing the focus on some pertinent questions – How are these D2C brands going to evolve and how could they sustain as businesses?

Like always, the pioneering companies find their path and we then derive the playbooks out of them. From PipeCandy’s analysis of several D2C brands, we see the following approaches taken by D2C brands.

  • Playbook 1: Brand’s purpose anchored around one product category
  • Playbook 2: Brand’s purpose anchored around multiple product categories
  • Playbook 3: Brand’s purpose anchored around aggregation of other brands (for sale or rent)

We discuss the market size and capital availability factors that influence the paths and the outcomes.

Table of Contents

  1. D2C playbooks
    1. Playbook 1: Brand’s purpose anchored around one product category
    2. Playbook 2: Brand’s purpose anchored around multiple product categories
    3. Playbook 3: Brand’s purpose anchored around aggregation of other brands (for sale or rent)
  2. Access to capital and how D2C playbooks are impacted
  3. The VC route to scale
  4. The non-VC route to scale
  5. Outcome without hitting scale
  6. Roll-ups by strategic buyers
  7. Roll-ups by financial buyers
  8. Brand incubators

Brand’s Purpose anchored around one product category:

Many of these D2C brands that have experienced early success owe their rise largely to an authentic relationship with consumers that is built on the promise of one product. In many ways, focusing on one product line and a small set of SKUs makes total business sense.

Design, Production, Marketing & Customer Support complexities can stay manageable with such deliberate narrowing down of focus.

In some categories, you could stay focused on one product line for a long time and build a successful company.

Digital health investments slide in the first quarter to $2 billion, according to Mercom Capital

Venture investors, private equity, and corporations funneled $2 billion into digital health startups in the first quarter of 2019, down 19% from the nearly $2.5 billion invested a year ago.

There were also 38 fewer deals done in the first quarter this year than last year, when investors backed 187 early stage digital health companies, according to data from Mercom Capital Group.

While private investments declined, public equities soared in the first quarter — with 66% of the digital health companies that Mercom tracks beating the S&P 500, compared to the previous quarter when nearly the same amount of public companies were underwater compared to the S&P. 

Among startups, data analytics and mobile health apps, drew the most capital, with analytics focused companies raising $557 million for the quarter. Mobile health apps raked in $392 million while telemedicine-focused startups claimed another $220 million — making up the ublk of the funding in the digital healthcare space.

 

 

The top investments went to Doctolib, the European back-office support software developer, which raised $170 million; Health Catalyst, which pulled in $100 million; and Calm, which grabbed another $88 million from investors, according to Mercom. 

 

 

Bankin’ raises $22.6 million for its financial coach

French startup Bankin’ is raising a new $22.6 million funding round (€20 million). The company has managed to attract 2.9 million users in France and wants to become the only app you need to manage your money.

Overall, Bankin’ has raised over $32 million (€28.4 million). Investors include Omnes Capital, Commerz Ventures, Génération New Tech, Didier Kuhn, Simon Dawlat and Franck Lheurre.

Bankin’ first developed an aggregator so that you could view all your bank accounts from a single app. The company has been using a combination of APIs and scrapping to connect to nearly all French banks, 85 percent of Spanish and British banks and 65 percent of German banks.

The app automatically categorizes your transactions and sends you push notifications to alert you of important changes. There’s also a budget feature that can predict how much money you’ll have at the end of the month.

Bankin’ went one step further and started adding transfers from the app. If you want to ditch your bank app, you need to be able to view your balance and your transactions, but you also need to be able to send and receive money.

And now, Bankin’ wants to become your financial coach with automated recommendations and human-powered conversations. The app has been redesigned a couple of months ago to put these recommendations front and center.

For instance, the app can tell you if it’s time to renegotiate your loan, or that you should optimize your savings. The startup partners with other fintech companies, such as Yomoni, Pretto, Transferwise and Fluo, as well as online banks. This could be an interesting acquisition channel for other companies and a good revenue opportunity for Bankin’.

Finally, Bankin’ also sells access to its API called Bridge. For instance, Sage, Milleis Banque, Cegid and RCA use Bridge so that you can connect your third-party bank accounts and view them from your main bank account.

With today’s funding round, the company plans to hire reasonably. There are now 50 people working for Bankin’ and the startup plans to hire 20 more people this year.

Zoom, the profitable tech unicorn, prices IPO above range

Zoom, a relatively under-the-radar tech unicorn, has defied expectations with its initial public offering. The video conferencing business priced its IPO above its planned range on Wednesday, confirming plans to sell shares of its Nasdaq stock, titled “ZM,” at $36 apiece.

The company initially planned to price its shares at between $28 and $32 per share, but following big demand for a piece of a profitable tech business, Zoom increased expectations, announcing plans to sell shares at between $33 and $35 apiece.

The offering gives Zoom an initial market cap of roughly $9 billion, or nine times that of its most recent private market valuation.

Zoom plans to sell 9,911,434 shares of Class A common stock in the listing, to bring in about $350 million in new capital.

If you haven’t had the chance to dive into Zoom’s IPO prospectus, here’s a quick run-down of its financials:

  • Zoom raised a total of $145 million from venture capitalists before filing to go public
  • It posted $330 million in revenue in the year ending January 31, 2019 with a gross profit of $269.5 million
  • It more than doubled revenues from 2017 to 2018, ending 2017 with $60.8 million in revenue and 2018 with $151.5 million
  • Its losses have shrunk from $14 million in 2017, $8.2 million in 2018 and just $7.5 million in the year ending January 2019

Zoom is backed by Emergence Capital, which owns a 12.2 percent pre-IPO stake; Sequoia Capital (11.1 percent); Digital Mobile Venture, a fund affiliated with former Zoom board member Samuel Chen (8.5 percent); and Bucantini Enterprises Limited (5.9 percent), a fund owned by Chinese billionaire Li Ka-shing.

Zoom will debut on the Nasdaq the same day Pinterest will go public on the NYSE. Pinterest, for its part, has priced its shares above its planned range.

Unpacking Pinterest’s IPO expectations

For seven years, Pinterest has been considered a “unicorn,” boasting a valuation larger than $1 billion since its 2012 Series C funding round. Before that, it was considered an underdog, puzzling some investors with its “digital pinboard” and preference for “quality growth.”

Now, as the company takes its final step toward its Thursday NYSE initial public offering, it’s being called an “undercorn.”

Pinterest plans to sell shares of its stock, titled “PINS,” at $15 to $17 apiece, less than the roughly $21 per share it charged private market investors to participate in its mid-2017 Series H, its last private financing. That IPO price translates into a mid-range valuation of $10.64 billion, or nearly $2 billion under the $12.3 billion valuation it garnered after its last round, hence “undercorn.”

There are many potential causes to a down round like this. In the case of Pinterest, it’s probably less a result of newly public Lyft’s poor performance on the stock market and more a result of its own reputation for slow growth. Pinterest is a disciplined company that’s carved a clear path to profitability. It has invested a lot of time and energy into building a positive, diverse culture and a product devoid of trolls and hate speech — time some believe should have been spent focused on rapid growth and scale.

Sure, if Pinterest had tossed its values aside and blitzscaled, maybe it would debut with a larger initial market cap, but its corporate culture will be key to its long-term value, and investors are going to get rich off its IPO either way. So Pinterest is an undercorn — who cares?

Pinterest isn’t too nice

Ben Silbermann, chief executive officer of Pinterest. Photographer: Yana Paskova/Bloomberg via Getty Images

Founded in 2010, Pinterest is one of the youngest members of the newly dubbed “A-PLUS” cohort of unicorns, made up of Airbnb, Pinterest, Lyft, Uber and Slack. Compared to its peers, Pinterest has raised a modest $1.47 billion in equity funding from Bessemer Venture Partners, which holds a 13.1 percent pre-IPO stake, FirstMark Capital (9.8 percent), Andreessen Horowitz (9.6 percent), Fidelity Investments (7.1 percent) and Valiant Capital Partners (6 percent), according to the company’s IPO filing.

Today, Pinterest counts more than 250 million monthly active users, despite a company culture that many have said has slowed progress. Co-founder and chief executive officer Ben Silbermann, as The New York Times pointed out in a recent profile, is not your typical unicorn CEO. He has refused to adopt the move fast and break things mentality, and shied away from the press and focused on “quality growth” and a supportive company culture.

Even with Pinterest’s new status as an undercorn, Bessemer still owns a stake worth upwards of $1 billion. At a midpoint price, FirstMark and a16z’s shares will be worth about $700 million each. Pinterest employees may be too nice to make decisions as quick as other unicorns, as is the claim in CNBC’s recent piece on the company, but the company wouldn’t be where it is today if it completely lacked a “strategic direction.”

“Being nice and having core values and making decisions with intent is to their overall benefit,” Eric Kim, the co-founder of consumer tech investment firm Goodwater Capital, told TechCrunch. “They’ve done an amazing job at being very disciplined with a focus on top lines.”

IPO prospects

More often than not, businesses accrue value at IPO. Look at Zoom, for example; the under-the-radar video conferencing business is expected to increase its valuation nine times over in its IPO, expected tomorrow.

It’s a disappointment to late-stage investors when the opposite happens for one obvious reason: They may not see a return on their investment. If Pinterest indeed becomes an undercorn next week, the new investors that participated in its Series H may have to hold on to their stock longer than planned in hopes its value climbs over time. That, right there, is the worst thing about being an undercorn. These titles are otherwise just nonsense.

Pinterest’s valuation has long radically exceeded its revenues — a factor that surely paved the way for a down round — yet it was touted as a tech marvel, a unicorn among unicorns. In recent years, its valuation has swelled from $4.75 billion in 2014 to $10.47 billion in 2015 to, finally, $12.3 billion in 2017. Meanwhile, Pinterest posted revenues of $299 million in 2016, $473 million in 2017 and $756 million in 2018. There’s no denying the company’s clear path to profitability, as its losses are shrinking year-over-year while profits grow, but 2018’s revenues are still 16 times less than Pinterest’s “decacorn” valuation.

Silicon Valley has a tendency to over-value unprofitable consumer-facing businesses; Pinterest’s down round IPO could be a sign of Wall Street’s reckoning with Silicon Valley’s vanity metrics. Pinterest, however, isn’t the first unicorn to take a hit to its valuation at IPO. Both Box, the cloud-based content management platform, and payments company Square were undercorns when they went public, for example. Square has since thrived as a public company, while Box is currently trading around its initial share price.

“The recovery is all about execution as a public company when everything is much more transparent,” Monique Skruzny, CEO of InspIR Group, an advisory firm focused on investor relations, told TechCrunch. “The IPO is the beginning of a company’s long-term relationship with the public markets and the public markets have to make money. Going public at a valuation that may not necessarily be what some might think or consider to be the top leaves room for upside going forward.”

For Pinterest, continuing to cut losses and surpassing $1 billion in revenue this year is key. Given its history, financial metrics and the generally favorable market conditions, it looks poised to make that happen.

The bottom line is Pinterest, given its slow growth and inflated valuation, was probably always doomed to be nicknamed an undercorn. Its culture, however, shouldn’t be to blame for its new status. After all, a $10 billion IPO is something for the tech industry to be proud of, not to criticize.

In the words of former investor and Evernote co-founder Phil Libin, who joined me on the Equity podcast last week to talk IPOs: “Who would criticize a company who sacrifices growth because they have important culture? Losers, honestly.”

“If they didn’t have the culture and the people they wouldn’t have made anything,” he added.

Proof of Capital is a new $50M blockchain fund that’s backed by HTC

It’s often said that the dramatic fall of crypto prices last year ushered in a new era for technology-focused startups in the blockchain space, and the same argument can be made for the venture capitalists who fund them. Proof of Capital is the latest fund to emerge after it officially announced a maiden $50 million fund today.

The fund is led by trio Phil Chen, who created HTC’s Vive VR headset and is currently developing its Exodus blockchain phone (he spent time as a VC with Horizons Ventures in between), Edith Yeung, who previously headed up mobile for 500 Startups, and Chris McCann, a Thiel Fellow whose last role was head of community for U.S. VC firm Greylock Partners.

The firm — and you have to give them credit for the name — has an LP base that is anchored by HTC — no big surprise there given the connections — alongside YouTube co-founder Steve Chen, Taiwan-based Formosa Plastics, Ripple’s former chief risk officer Greg Kidd (who is also a prolific crypto investor) and a number of undisclosed family offices.

“For HTC, it’s obvious, they already have a product to go with it,” Yeung told TechCrunch in an interview, referencing the fact that HTC is keen to invest in blockchain services and startups to build an ecosystem for its play.

The fund also includes a partnership with HTC which, slightly hazy on paper, will essentially open the possibility for Proof of Capital portfolio companies to work with HTC directly to develop services or products for Exodus and potentially other HTC blockchain ventures. But other LPs are also keen to dip their toes in the water in different ways.

“Some of these backers are curious at the possibilities of blockchain,” continued Yeung. “For example, they’re giving us some ideas on how tokenization and gamification could be applied on different platforms.”

Proof of Capital founding partners (left to right) Edith Yeung, Chris McCann and Phil Chen

The fund itself is broadly targeted at early stage blockchain companies in fintech, infrastructure, hardware and the “consumer layers of the blockchain ecosystem.” Its remit is worldwide. Although Chen and Yeung have strong networks in Asia, the fund’s first deal is an investment in Latin America-based blockchain fintech startup Ubanx.

Yeung clarified that the fund is held in fiat currency and that it is focused on regular VC deals, as opposed to token-based investments.

“It’s a VC fund so the setup is traditional,” she explained. “There’s been a lot of interesting movements in the last two years, [but] we come from a more traditional VC background and are excited about the technology.”

“It’s still really early [for blockchain] and a lot of the hype — the boom and bust — is down to the crypto market and ICOs, but the reality is that a lot of these technologies are really nascent. Now, projects are raising equity, even if they have a token,” Yeung added.

Indeed, last year we wrote about the rise of private sales and that even the biggest blockchain companies took on VC fundingcrypto didn’t kill VCs despite the hype — and Yeung said that blockchain startup founders in 2019 are “taking a more concerted approach” to raising money beyond simply issuing tokens.

“Many projects that raised ICO really smelt like equity,” said Yeung. “We are seeing companies today delaying token issuance as much as possible; the whole thing has gone a little more back to earth.”

HTC is an anchor LP in Proof of Capital, and it is working with the fund to help its portfolio companies develop services for its Exodus blockchain phone, pictured above