Tag: IPO

Categories
McNair Center Weekly Roundup

Weekly Roundup on Entrepreneurship 4/7

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

The Carried Interest Debate

Tay Jacobe and Jake Silberman, Research Assistants, McNair Center for Entrepreneurship and Innovation

McNair’s Jacobe and Silberman analyze the ongoing discussion surrounding carried interest. A complicated concept in the financial sector, carried interest refers to the profits earned on a private investment fund that are paid to fund managers. Private investment funds include VC, PE and hedge funds.

Debate arises from carried interest’s subjection to the capital gains tax rate. The capital gains tax rate caps taxes on carried interest at 20 percent. Critics of the so-called carried interest “loophole” argue that the government should tax carried interest at the standard federal income tax rate of 39.6 percent. Supporters of maintaining the capital gains tax rate for carried interest claim that it acts as a performance incentive for fund managers.

During the 2016 presidential campaign, Trump criticized the massive profits that investment fund managers earned from carried interest. Since taking office, President Trump has not commented on his administration’s plans for taxation on carried interest. The House Republican’s 2016 Tax Reform Proposal proposes a “reduced but progressive” capital gains tax on carried interest. As Jacobe and Silberman note, such a plan would likely cause fund managers’ net incomes to go up.

Looking Forward: Why the VC Industry Needs More Female Investors

Dana Olsen, Reporter, PitchBook

PitchBook’s Olsen analyzes the need for promoting gender diversity in VC firms. Despite modest gains in diversification at many VC firms, most firms are yet to make substantial change. In 2016, only 17 percent of global VC deals involved companies with female founders, while only 9 percent were female-led at the time of backing. Admittedly, these statistics reveal improvements from 2007, when these numbers stood at 7 and 6.8 percent, respectively.

According to Olsen, “the most efficient way to increase the number of female-founded companies that receive VC funding is to have more female venture capitalists.” Aileen Lee, prominent venture capitalist and founder of Cowboy Ventures, believes that “women who have more numbers on the investment team invest in more women.” Another obvious way to increase rates of female entrepreneurship is to introduce educational programs that spark girls’ interest in STEM-related fields at an early age.

A Dearth of I.P.O.s, but It’s Not the Fault of Red Tape

Steven Davidoff Solomon, Contributor, The New York Times

University of California, Berkeley School of Law’s Professor Davidoff Solomon writes for the New York Times on the recent decline in IPOs in the U.S. Many politicians point to over-regulation of the private market as an explanation, evidenced by the line of interrogation at the confirmation hearing of President Trump’s nominee to head the SEC, Jay Clayton. Since 1996, the number of publicly listed firms on the NYSE has been cut by nearly half. Furthermore, the number of IPOs has decreased from 706 in 1996 to only 105 in 2016.

Professor Davidoff Solomon proposes a number of theories for explaining the dropoff in deal-making activity – none of which involve government regulation. Firstly, Davidoff Solomon suggests that “structural changes in the market ecosystem” might be encouraging increased mergers and acquisitions in public and private markets, respectively. Alternatively, the dropoff in IPOs could potentially be caused by a decline in attractiveness of small offerings as the public. In 1996, 54 percent of new offerings were considered large, compared to only 4 percent in 2016. According to Davidoff Solomon, the “market for new issues has moved toward liquidity and bigger stocks.”

And in the Startup News…

New Clerky Tools Help Startups Hire and Raise Funds without Running into Legal Problems

Lora Kolodny, Contributor, TechCrunch

Founded in 2011, Clerky is a San Francisco-based startup that builds software to assist startups and their attorneys with legal paperwork. The startup, founded by former attorneys, focuses almost exclusively on providing legal templates and software for high-growth startups. Originally, Clerky’s services centered around helping startups incorporate their company online. Now, Clerky is looking to expand its services beyond business formation, with its latest two online tools Hiring and Fundraising.

By using Clerky, startups can spend their cash on higher level services and advice, rather than costly legal paperwork. For example, many startups spend thousands of dollars on attorney’s fees for handling seed rounds finances. With Clerky, however, companies can pay $99 in return for six months of unlimited issuances of SAFEs and convertible notes. Many of Y Combinator’s co-founders have used Clerky’s Formation tool to launch their business. Now, they can also rely on the firm’s software throughout their various growth stages and funding rounds.

Dropbox Secures $600M Credit Line with IPO on Horizon

PitchBook News & Analysis

Last week, the Weekly Roundup series covered a PitchBook article on a relatively recent trend in startup financing: debt. Debt financing is not uncommon for startups that are looking to go public. IPO are costly, and opening up lines of credit gives a company some cash without “diluting equity stakeholders.” However, many startups without IPOs in their near future are increasingly accumulating debt; according to PitchBook News and Analysis, funding rounds that were at least partially debt brought in $14 billion in deal value in 2016.

Dropbox, the latest tech unicorn to announce debt financing ahead of an upcoming IPO, is a well-known startup that provides users with cloud-based storage services. Dropbox reportedly secured the $600 million line of credit ahead of a possible offering in 2017.

With Mulesoft’s successful IPO in March, 2017 could deliver a good year for tech enterprise. Cloud-based identity management firm Otka is another enterprise tech firm set to go public within a few weeks.

Categories
McNair Center Weekly Roundup

Weekly Roundup on Entrepreneurship 3/31

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Business Groups Hope Trump Can Change Health Law by Administrative Action

Jeffrey Sparshott, Reporter, The Wall Street Journal

Juanita Duggan, CEO of the National Federation of Independent Businesses, described the unraveling of the American Health Reform Act as “a dismal failure.”

Despite several nationwide organizations like the National Retail Federation, the U.S. Chamber of Commerce and the National Association of Manufacturers pushing lawmakers to support the plan, Republicans could not build a consensus for the bill.

Not all small business owners favored the GOP bill. According to Tom Embley, CEO of Precision AirConvey Corp., a Newark manufacturing company that employs 40 workers, the proposed plan wouldn’t have done “anything to lower costs” for his firm.

More Than Obamacare Repeal, Small Businesses Want Congress to Rein in Costs

Stacy Cowley, Reporter, The New York Times

The New York Times’ Cowley reports on health care reform as told from the perspective of small businesses. While small businesses have been some of the most outspoken critics of the ACA since its passage in in 2010, the group as a whole is actually fairly divided on the issue; according to Manta and BizBuySell, approximately 60 percent of small business owners want the ACA to be repealed.

As Cowley points out, “every business is uniquely affected by the complex law.” She spoke to small business owners across the country, representing a variety of regions and industries. Two themes were common: The lack of sustainability of the status quo and the need for bipartisan reform. One thing Congress’s recent health care drama did accomplish was to reveal small businesses’ growing disdain for Congress’s inability to find common ground and deliver policy stability.

Early-Stage Investment for Software Startups Holds Steady

Alex Wilhelm, Editor In Chief, Crunchbase News

A recent Crunchbase report reviews the performance of younger SaaS companies after a year of relatively illiquid market for late-stage SaaS startups in 2016.

SaaS, or software as a service, refers to “firms that sell software products on a recurring basis.” As Wilhelm notes, SaaS firms constitute an “important part of the modern startup landscape.” According to Crunchbase analysis, early and mid-stage SaaS startups experienced relatively tame Series A and B funding rounds last year, despite the sector as a whole putting on a poor showing for enterprise IPOs when compared to 2015.

Wilhelm suggests that the better-than-expected fundraising aggregates indicate investor confidence that “the late-stage and public markets would figure out SaaS, or a blind willingness to follow a plan that was supposed to work.”

Kushner to Oversee Office of American Innovation at White House

Michael C. Bender, Reporter, The Wall Street Journal

President Trump recently announced the opening of a new White House office, the Office of American Innovation (OAI). The new White House office, tasked with mimicking “private-sector efficiency inside the federal government,” will be led by Jared Kusher, senior policy advisor and son-in-law to President Trump. The office will oversee a number of ambitious task forces, including the taskforce that will be headed by Governor Chris Christie to address the opioid epidemic.

According to Press Secretary, the OAI will address both long-term and urgent needs, such as” modernizing information technology” and “streamlining the Department of Veteran Affairs.” Additionally, the office will conduct communications with many executives, including prominent Silicon Valley CEOs who visited the White House in recent months.

 

Ask a Female Engineer: How Can Managers Help Retain Technical Women on Their Team?

Cadran Cowansage, software engineer at Y Combinator Blog

Y Combinator’s Cowansage attempts to understand why women tend to step out of technical positions more frequently than their male counterparts. Cowansage asked several female engineers about their past decisions to leave their technical position at a specific company or the industry entirely. Interestingly, many of the responses don’t specifically address gender-driven workplace conflicts or discrimination. Instead, many of the women attribute their departures to irreconcilable differences with company management.

Startups often lack formal HR departments. Impartial organizational roles, like senior HR employees, who are distanced from the executive team are valuable resources; these positions offer employees an outlet for voicing their complaints without fear of jeopardizing their job status. Additionally, many women left their previous engineering positions due to lack of shareholder attention to the project they were dedicated to. Another commonly voiced problem during the interviews was rejection of requests for a promotion or raise. The interviews revealed that many women were willing to leave their company when they learned that employees with less experience were earning higher salaries or bonuses.

Startups Increasingly Turning to Debt Financing Despite Dangers

Mikey Tom, Reporter, PitchBook

PitchBook’s Tom shares some insight from  2016 Annual VC Valuations Report. According to the report, median early-stage valuations and the tally of firms that exited the market at a lower valuation than their most recent valuation reached an all-time high. As Tom points out, “rather than raising a new equity round at a sub-optimal valuation or seeking a premature liquidity event,” startups are increasingly relying on debt financing for cash. In fact, excluding 2016, the number of startups composed of debt has increased since 2008. Notably, many of the massive tech unicorns, like Airbnb and Uber, raised billion dollar loans in recent years.

Tom acknowledges the attractiveness of debt financing for many startups, but he forewarns founders of the dangers of accumulating too much debt: “if a startup is unable to achieve the amount of growth it forecasts, the debt ends up acting as more of a time bomb than growth equity.”

Categories
McNair Center Weekly Roundup

Weekly Roundup on Entrepreneurship 3/24/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Congress Turns Its Attention to Entrepreneurship and Innovation — But Does It Take Effective Action?

Anne Dayton, Research Manager, McNair Center
The 115th Congress has passed 3 bills this legislative session relating to entrepreneurship and innovation. The tally seems abnormally high considering that only 10 bills have been passed in total since Congress first convened on January 3rd, While this wave of legislation might appear to indicate that Congress has set its sights on promoting entrepreneurship and innovation, the McNair Center’s Anne Dayton notes that out of the three bills passed by Congress, only one substantiates effective policy.

Out of the three bills passed, Dayton highlights the TALENT Act as likely to “make a real world impact.” The TALENT Act essentially codifies and formalizes the Presidential Innovation Fellows program, an initiative originally introduced by President Obama. The bill falls under House Majority Leader McCarthy’s Innovation Initiative for spurring higher rates of innovation in the private sector. For more insight into the work done by Innovation Fellows, check out Julia Wang’s post for the McNair Center on President Obama’s efforts to generate an “innovation nation.”

The other two acts, Promoting Women in Entrepreneurship and INSPIRE, aim to support women in entrepreneurship but are unfortunately, according to Dayton, “devoid of meaningful changes to public policy.” If you’re interested in how policy can increase women in STEM and innovation-based fields, check out this post from McNair’s Tay Jacobe.

Notwithstanding the results of the recent legislation, Dayton acknowledges that “all three acts passed Congress with bipartisan support”; hopefully these unified efforts are a function of “a shared interest in furthering innovation in government and expanding access to careers in entrepreneurship and STEM” among U.S. politicians.

In Silicon Valley, a Voice of Caution Guides a High-Flying Uber

Katie Benner, The New York Times, Reporter

Bill Gurley is a general partner at prominent Silicon Valley VC firm, Benchmark. Gurley spotted Uber early on, claiming a 20 percent stake in the successful ride-hailing app six years ago. Since Benchmarks original investment in Uber in 2011, the startup’s value increased 1,100-fold. Despite the startup’s huge successes, Uber has run into a host of problems in recent weeks, including legal disputes, stiff competition from rival ride-sharing app Lyft and negative press attention for employee allegations of sexual harassment and discrimination.

In light of the startup’s series of blunders, Gurley decided to take a more hands-on approach in advising Uber’s damage control strategy and will reportedly assist in the search for a COO for the startup. Since joining Benchmark, Gurley has been involved in the firm’s profitable investments into GrubHub, OpenTable and Zillow. However, with a successful public offering, Uber could become Gurley’s greatest tech investment yet.

Gurley is famous in Silicon Valley for his often unorthodox and unpopular advice to successful tech firms. During the dot com boom, he advised tech startup Net Gravity to go public as soon as possible, rather than to delay their IPO for further funding rounds. According to Gurley, “taking on too much venture funding…can fuel a lack of discipline” and lead to the absence of “rigorous financial and operational controls” among startups.

Will the Gig Economy Make the Office Obsolete?

Diane Mulcahy, Harvard Business Review, Reporter

Harvard Business Review’s Mulcahy reports on the potential of the gig economy going forward. In a traditional economy, companies demand employee attendance – in other words, the five day, eight-hour workweek. Under a gig economy, however, companies value employee performance over attendance and allow employees to disconnect their work from the office space. Options that allow employees to work remotely or in co-working spaces cut real-estate costs for employers and provide productive and flexible work environments for employees.

According to Mulcahy, “the most impactful lesson that traditional companies can learn from the gig economy is to judge all workers, including employees, on their results, not on when and where they do their work.” Perhaps entrepreneurs and startups might take a hint from the benefits of the gig economy. For most firms, and especially small businesses, labor is the most costly input into the production process. In fact, according to a study from CBRE, the average U.S. company spends roughly $12,000 per employee per year on office space alone. A survey of 8,000 employees conducted by McKinsey’s Global Institute reveals that employees who work outside of the typical office lifestyle report higher levels of satisfaction and productivity.

MuleSoft Stock Soars after Latest Tech Unicorn IPO

Mikey Tom, PitchBook, Contributor

PitchBook’s Tom covers MuleSoft’s IPO from last Friday. The IPO secured the VC-backed startup a market cap slightly above $3 billion. Mulesoft is 2017’s first large tech enterprise to go public. The San Francisco-based company develops software platforms that integrate data, devices, and APIs (application programming interfaces). Although 2016 was a slow year for public offerings (in comparison to M&A deals), Tom predicts that 2017 could reverse this current trend in VC exits. Tom predicts that the market’s “warm” reception to Mulesoft public offering could signal a shift in the “public market’s appetite for enterprise.” Just last week, tech unicorn Okta filed for its IPO. Okta provides identity management technologies, a hot sector in the tech industry right now.

How Spotify Is Finally Gaining Leverage over Record Labels

Josh Constine, TechCrunch, Reporter

Music-streaming startup Spotify has come a long way since its founding in 2008. In 2012, Constine wrote an article for TechCrunch explaining how Spotify’s success has always hinged on the cooperation of record labels; as a result of Spotify’s limited bargaining power in negotiating with artists, the startup pays huge royalties to their record labels. Despite limited leverage over record labels, the popular company now boasts over 50 million paid subscribers. In his latest post for TechCrunch, Constine notes several ways that Spotify has fundamentally shifted the power balance between streaming platforms and record labels.

First, Spotify has become a vehicle for music discovery, with its Discover Weekly feature shaping a many listener’s music preferences. Going forward, Spotify might take further advantage of the selection process for these recommended playlists to gain bargaining power when negotiating with artists. Currently, Spotify attributes a large proportion of the total royalty payments for many large record labels. If record labels want to rethink their partnership with Spotify now, they will potentially jeopardize a substantial stream of revenue. What’s more, Spotify has recently made moves to diversify its service offerings to include videos, limit content access by offering a tiered subscription system for new releases, and own the rights to the music it streams so that it can eliminate royalty payouts completely for some artists.

According to Constine, if Spotify successfully capitalizes on these strategies, the startup may achieve lower royalty rates and negotiation power before going public.

A Physician’s Open Letter to Health Tech Startups

Dr. M. Christine Stock, Guest Author, VentureBeat

In her post for VentureBeat, Dr. Christine Stock sends a clear message to health tech startups: start inviting physicians “innovation process.” According to Dr. Stock, who is a tenured professor of anesthesiology at Northwestern University, doctors want to be involved in the process that will transform how medicine is practiced going forward. The current model of implementation leaves physicians out of the development process.

Dr. Stock comments that “many new technologies work well after the period of adaptation,” but “leaving end-users (physicians) out of the product development process leads to unanticipated problems such as unintuitive and frustrating workflow, taxing documentation requirements and nonsensical and inaccurate cut-and-paste progress notes.” To increase the productivity of physicians during the rollout period and more effectively promote the well-being of their patients, tech startups should openly communicate with physicians. Through feedback from medical professionals, tech innovators might realize that flooding doctors with a flurry of new digital tools often leads to poor workflow and patient dissatisfaction on the consumer end of the chain.

Dr. Stock also notes on areas of the medical field that urgently demand innovation from the startup sector, including patient ownership of personal medical information and creating an open platform for EMR (electronic medical records) systems, so that healthcare providers can easily access medical records from and communicate with providers using different systems.

Categories
McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup 3/10/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

A Tale of Untapped Potential: Cincinnati

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

McNair’s Martin focuses on Cincinnati’s entrepreneurial ecosystem this week. While this midwestern city might appear a surprising or unlikely choice, many of Cincinnati’s entrepreneurs have thrived in recent years due to the city’s ample resources. For starters, the city is home to ten Fortune 500 companies, including Macy’s and Kroger. Its large corporations offer an invaluable network of resources and access to capital for aspiring entrepreneurs.

Furthermore, the University of Cincinnati, which boasts a marketing program that ranks among the top five in the nation, and Xavier University both offer university accelerator programs designed to support young entrepreneurs as they look to launch a business plan. In addition to university accelerator programs, entrepreneurs in Cincinnati also have the option of applying to three other accelerators within the region, The Brandery, UpTech and Ocean Accelerator.

Although Cincinnati is home to a variety of different VC funds and investment options, like CincyTech and Cintrifuse, the city closes significantly fewer deals on average per year than the likes of Austin or Denver. Martin explains this smaller number of deal closures as a function of lower levels of VC activity and fewer funding rounds. To compete with major entrepreneurial hubs, Cincinnati must increase its VC presence even further.

Wanted: More Women Entrepreneurs

Taylor Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

In her latest post for the McNair Center, Jacobe analyzes how improving female representation in entrepreneurship could boost economic growth in the U.S. Currently, women-owned businesses account for only 16 percent of employing companies. While women entrepreneurs tend to perform as well as, if not better than, their male counterparts, many cite lack of access to capital and limited mentorship opportunities as major obstacles to success.

According to a study from the National Women’s Business Council, women entrepreneurs start their businesses with 50 percent less capital than men. A survey conducted by the Kauffman Foundation revealed that 79 percent of women entrepreneurs drew from their personal funds when launching their business. Perhaps more telling, women are three times less likely than men to receive funding from angel and seed investors for their startups. By tackling gender bias in VC firms and other barriers to capital, public and private initiatives can better integrate women into America’s entrepreneurial ecosystem.

As Snap Ascended, These Rival Apps Faltered

Joanna Glasner, Reporter, TechCrunch

According to TechCrunch’s Glasner, VCs love messaging apps for a number of reasons: “massive scalability, low startup costs, loyal users and the potential to mint billions without having to turn a profit.” Messaging apps present a huge potential for success for investors in the modern age, exemplified by Snap’s recent IPO and WhatsApp’s acquisition by Facebook for $17 billion in 2014. Despite this rosy picture, many VC-backed startups that were messaging apps have fallen through the cracks over the years. TechCrunch recently took a closer look at how much capital has been invested into messaging apps only to find that VCs have poured hundreds of millions of dollars into companies that haven’t raised a funding round in two years. Glasner concedes that it is too early to dismiss these once promising startups as failed investments. Regardless the outcomes of these startups, prospects of success in the messaging app arena are daunting.

Y Combinator Opens Registration for Its Free Startup School Online Course

Ken Yeung, Contributor, VentureBeat

Y Combinator,one of the most successful seed accelerators in the U.S., has funded over 1,464 startups since its founding in 2005. Known for its excellent track record of spotting tech giants (Dropbox, Reddit and Airbnb, to name a few), its companies have a total valuation of over $80 billion. The famous accelerator recently announced that it would be opening up its Startup School event to the masses through a massively open online course (MOOC). The 10-week online course will offer entrepreneurs, who are not enrolled in Y Combinator’s core program, access to online courses taught by successful entrepreneurs, venture capitalists and industry greats. Lessons will focus on important topics in the startup business, such as “idea generation, product development, growth, culture building, fundraising and more.” Y Combinator partner Jessica Livingston told VentureBeat  back in 2015 that the accelerator’s mission was “to help startups at whatever stage they’re in become billion-dollar companies.”

Lemnos Just Raised a $50 Million Third Fund to (Mostly) Focus on Hardware

Connie Loizos and Katie Roof, Contributors, TechCrunch

San Francisco-based VC firm Lemnos was founded in 2014 as a firm focused on seed-staged investment into hardware companies. Successful companies like Fitbit, Oculus, Square and GoPro have boosted investor confidence in hardware companies in recent years. Lemnos recently announced that it will discontinue its incubator program to focus solely on investing in promising software development and hardware startups. The announcement marks a new stage in the VC firm’s short history, as Lemnos used to invest exclusively in hardware companies. When asked about possible investment opportunities moving forward, Lemnos executives told TechCrunch that they were very excited about the field of robotics.

This Program Uses Lean Startup Techniques to Turn Scientists into Entrepreneurs

Greg Satell, Contributor, Harvard Business Review

In 2011 the National Science Foundation (NSF), headed by Subra Suresh, founded I-Corps, a program designed to help transform scientists into entrepreneurs. The idea for the program originated when Suresh noticed that many of the scientific discoveries, made possible with NSF research grants, were not breaking out of their academic silos and into the marketplace. Harvard Business Review’s Satell describes the program as an initiative by NSF to “foster better links between government and industry.” Errol Arkilic, director of I-Corps, initially reached out to Steve Blank to help design the program, which is now an 8-week course for graduate students. The curriculum adopts the philosophies of Blank’s lean startup movement. Blank stresses the importance of developing products that actually address consumer needs; early on, Arkilic realized that many aspiring scientist-entrepreneurs create solutions to problems that consumers don’t want. Upon completion of the entrepreneurship training, participants partner with VentureWell, a nonprofit accelerator.

As of last May, I-Corps successfully trained over 700 teams. In aggregate, I-Corps teams have raised over $80 million from government grants and VC firms. Significantly, 90 percent of the program’s participants say that I-Corps changed their approach to conducting research and writing grant proposals. In response to the program’s success, the Department of Energy and the Department of Defense implemented programs that resemble the I-Corps model.

When Will All the Unicorns Exit? VC Liquidity Lagging behind Expectations

Mikey Tom, Senior Financial Writer, PitchBook

PitchBook’s Tom explains that “for the VC model to work, huge rounds need to lead to huge exits.” However, while 2015 was a year of unicorn funding rounds, 2016 did not bring large exits. In fact, VC-backed exits reached their lowest point in six years in Q4 of 2010. Part of the decline in exits could potentially be explained by an increased buildup of capital in private markets; abundance of VC in private markets might lead startups to wait longer to go public or get acquired. Another important statistic revealed by PitchBook’s analysis of VC liquidity in 2016: the median size of corporate M&A deals increased – by a lot. The total exit value of corporate M&A deal reached its second highest level in the decade, indicating larger and fewer acquisitions. On the other hand, the amount of capital raised and the number of completed IPOs in 2016 reached lows not observed since 2010 for VC-backed firms.

These Are the 50 Most Promising Startups You’ve Never Heard Of

Ellen Huet, Reporter, Bloomberg

Bloomberg recently released a list of the 50 most promising U.S. startups. Market researcher Quid generated the list by looking at over 50,000 startups and considering factors, such pace of funding, industry and history of the company’s founders.All 50 startups were founded within the last six years, and they represent a variety of industries. Startups involved in online security, fraud detection, AI, autonomous driving and AR drew the most capital. VC firms Andreessen Horowitz and Sequoia Capital each invested in six startups that made the cut.

 

The Weekly Roundup will return on March 24.

Categories
McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup 3/3/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Crowdfunding

Tay Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

This week, McNair’s Jacobe analyzes a relatively new phenomenon in capital fundraising: crowdfunding. Crowdfunding enables startups and entrepreneurs to raise capital for their businesses, without going through more formal sources of funding like angel investors, bank loans and VC funds. Although Indiegogo and KickStarter are by far the largest and most successful crowdfunding websites, many additional crowdfunding platforms have emerged in recent years. In 2015, the crowdfunding industry was valued at roughly $17.25 in comparison to $58.8 billion for VC funds.

While startups may find success in raising cash on crowdfunding sites, there is still no guarantee that the startup will be successful. This uncertainty holds for VC-backed startups as well, but unpredictability becomes a particular concern for crowdfunding-backed startups; the success rate of Kickstarter’s startups stands at 35.72 percent.

According to a study conducted at the Wharton School, a differentiating factor between startups that go through successful crowdfunding campaigns is strategic and longterm planning. Jacobe believes that “crowdfunding has potential to shake the dynamics of investment in the coming decades.” In order for crowdfunding to reach its full potential as an alternative platform for entrepreneurs to raise capital, policymakers should implement regulations that support and empower the crowdfunding environment

Startups Seeking Funding Should Consider Corporate Venture Capital Arms

Richard Harroch, Contributor, Forbes

In recent years, many large corporations, like Google, Nokia and Qualcomm, have been sprouting “venture capital arms.” Venture capital arms or corporate venture arms are VC funds that are separately owned or subsidiaries of a parent company. According to Forbes’ Harroch, corporate venture arms typically participate in seed, Series A and Series B investment rounds. These funds often look out for startups that offer the parent company a strategic or synergistic edge.

Among other positive outcomes, the corporate venture model benefits startups by providing credibility, a larger consumer base, access to an expansive network of resources and connections and strategic and industry-specific guidance. However, as pointed out by Michael Yang, the Managing Director for Comcast Venture, “there is no shortage of capital for the best startups.” Because the most promising startups can easily choose from a wide range of investing options, corporate arms distinguish themselves from traditional VC funds by leveraging their in-house expertise and ability to benefit companies post-investment.

Venture capital arms are a strategic and financially attractive option for many large corporations. Parent companies gain access to new and disruptive technologies, potential industry partners, budding industry talent, insight into alternative business models and additional sources of cash inflow.

Tech Startup Market Sinks to Lowest Point in Three Years

Sarah McBride, Journalist, Bloomberg

Stock markets have been enjoying a post-election rally amid expectations of infrastructure spending, decreased regulations and corporate tax cuts. Since January 26th, the Nasdaq Composite Index soared 13% percent and the Dow Jones Industrial Average broke the 20,000 mark.

However, Bloomberg’s McBride points out under-performance by one key segment of the market: private technology startups. While private tech startups are also likely to benefit from the Trump administration’s proposed tax cuts and deregulation, stricter immigration rules for the H-1B visa program could prove harmful. Bloomberg’s U.S. Startups Barometer measures startup deal-making in the U.S. at 37 percent below its level from December, putting the startup sector at its lowest point since April of 2014.

Although private market deals tend to reach a lull at the beginning and end of the year, deal flow in 2017 seems unusually low when compared to previous years. According to McBride, many VCs are now facing “the prospect that they had overpaid for many investments” in previous years, “particularly the coveted unicorn startups valued at $1 billion or more.”

Fortunately, the recent slow in deal flow is not symptomatic of a lack of capital; according to the National Venture Capital Association, U.S. venture funds raised $41.6 billion in 2016, “ the most since the dot-com days of 2001.” Despite the current trend, McBride expects more VC-backed private technology firms to go public.

And in startup news…

More bad news: JackThreads, Stayzilla shutting down

Dana Olsen, Financial Writer, PitchBook

Pitchbook’s Olsen reports on recent layoffs by VC-backed startups. In 2016, many startups halted operations and trimmed down their work forces. Last year, employees at many startups like Sonos, Pebble, Shyp, Optimizely, Yik Yak and Github faced waves of layoffs. Unfortunately, layoffs in the startup sector seem likely to continue into 2017. Munchery, Joyable, JackThreads and Stayzilla are four startups that have already instituted mass layoffs ahead of March. According to Olsen, VC-backed Stayzilla and JackThreads are also considering shutting down operations due to unsound financial practices and lack of profitability.

SoftBank set to invest more than $3 billion in WeWork

Brian Sullivan, Reporter, CNBC

WeWork is reportedly set to receive over $3 billion in investment from Japanese VC firm, SoftBank. WeWork, founded in 2010 in New York City, provides coworking spaces, networking opportunities and educational services to entrepreneurs, small businesses and freelancers. Since opening its original office location in New York City in 2010, WeWork has expanded its operations nationwide and globally, with a new location likely to open in downtown Houston later this year, The startup currently offers over 150 coworking spaces, with locations in most major U.S. cities and over 15 countries.

At the time of its last investment, WeWork was valued at approximately $17 billion. With the deal, WeWork’s valuation would surpass $20 billion. In recent years, this successful startup has accumulated over $1 billion in capital from prominent VC firms like Goldman Sachs, Benchmark and Hony Capital.

SoFi Raises $500 Million Led by Silver Lake for Global Expansion

Selina Wang, Reporter, Bloomberg

Founded in 2010, San Francisco-based Social Finance Inc. (SoFi) provides modern underwriting services. Using SoFi, customers can purchase financial products, such as student loan refinancing, mortgage loans, personal loans, wealth management and life insurance online.

In its latest funding round, SoFi raised over $500 million, drawing investments from SoftBank, GPI Capital and some sovereign wealth funds, but PE firm Silver Lake Partners led the charge. The recent funding round will support SoFi’s efforts to break out into international markets and expand its financial product offerings. Many SoFi executives have expressed interest in providing customers with an larger set of personal financing tools, such as mobile deposit.

Categories
McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 2/3/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

Reducing Recidivism through Entrepreneurship

Catherine Kirby, Research Assistant, McNair Center for Entrepreneurship and Innovation

In her latest piece, McNair’s Kirby highlights the promise of entrepreneurial programs in curbing recidivism among newly released inmates. Beyond supporting local economies and communities, reducing recidivism increases productivity of the formerly incarcerated – an often overlooked and underutilized portion of the labor force.

Many ventures that offer entrepreneurial education programs in prisons have witnessed high returns on their investments. For instance, alumni of the Prison Entrepreneurship Program, a Houston-based nonprofit, boast a 100% employment rate after one year of their release and have created more than 2,000 small businesses.

Report: Trump Plans H-1B and Other Work Visa Reforms

Ingrid Lunden, Writer, TechCrunch

President Trump’s recent executive order on immigration was criticized by some Silicon Valley tech firms, including Google, Facebook and Microsoft. According to a report published by Bloomberg, the administration plans to announce another executive order that will reform the H-1B visa program. A draft of the order circulated by Bloomberg reveals an emphasis on protecting American workers.

Many tech companies rely on H-1B visas for recruiting  foreign employees who possess specific skills or talent that cannot be found domestically. However, there is a bipartisan consensus that the visa program needs reform as many outsourcing firms abuse H-1B visas.  Some legislators propose adding wage requirements to increase competition and quality in foreign recruitment.

Snap Said to Choose NYSE over Rival Nasdaq for Upcoming IPO

Sarah Frier and Alex Barinka, Reporters, Bloomberg Technology

Snap Inc.’s IPO will go through the New York Stock Exchange for its IPO, which is expected to come sometime in March. Snap’s choice reflects a reversal in tech IPO’s, as an increasing number of tech firms are choosing the NYSE over the Nasdaq to debut their shares. This transition follows Facebook’s botched IPO on Nasdaq in 2012.

In other news, Snap Inc. is developing technology that will update Snapchat’s in-app lenses to include filters for environments and landscapes. The AR features, though not scheduled for a near-term launch, also offer an attractive “range of options for potential advertisers.”

Small Businesses Uneasy over Border-Adjustment Tax Plan

Ruth Simon and Richard Rubin, Reporters, Wall Street Journal

The U.S. House Republicans’ proposal to reform the tax code includes an important section on border adjustment. Border adjustment restricts businesses from deducting the costs of imports from their taxable income. Some skeptics fear that the provision will pressure firms that rely on imports to raise their prices.

However, small businesses that rely on imports for obtaining cheap raw materials worry that border adjustment will bring higher operating costs. According to House Representative Tom Reed (R – N.Y.), a member on the House Ways and Means Committee, lawmakers are considering offering “safe harbors”  for small businesses to avoid increased expenses.

The proposed plan exempts domestic purchases and adopts a flat corporate tax rate of 20%. Supporters of the plan believe that “the dollar will rise to offset the tax change” through cheaper imports.

And in startup news…

Lyft Cuts Sales Staff, Reorganizes Team as the Startup Chases Uber

Eric Newcomer, Startup Reporter, Bloomberg Technology

San Francisco-based startup, Lyft, was founded in 2012 as ride-booking app.Despite trailing Uber in overall market share, Lyft has found success in marketing directly to customers. By cutting fares, the startup also now serves 20-40% of consumers in large U.S. cities. Coupled with recent cost-cutting efforts, Lyft plans to turn a profit by 2018.

Recent trims in its labor force are helping Lyft gain a competitive edge over other ride-hailing apps. The company also plans to partner with more governments and health-care organizations going forward. In January, Lyft announced a collaboration with National MedTrans Network to offer “2,500 rides a week for medical appointments” in New York City.

Cafe X Opens in San Francisco, Bringing Robots to the Coffee Shop

John Mannes, Reporter, TechCrunch

Cafe X founder Henry Hu is transforming the traditional coffee shop with his latest startup. With Cafe X, customers order their drinks at an on-site kiosk using a mobile app, and a “robot” prepares and serves their coffee. The startup opened its first American location in San Francisco this past week. Hu hopes to expand the company’s operations into a franchise, with each shop locally sourcing its coffee beans.

Hu’s startup received backing from a successful seed round from last year that drew in $5 million from prominent VCs, Khosla Ventures, Social Capital, Jason Calacanis, Felicis Ventures, Silicon Valley Bank and the Thiel Foundation.

With Cafe X, customers save time and money (only $2.25 for an 8 oz drink). Furthermore, automation introduces a marketing advantage, as profits can be spent on sales rather than labor costs.

Comparably Raises $7.25 million to Help Match Employees with the Best Companies

Ken Yeung, Staff Writer, VentureBeat

California-based startup Comparably collectively raised $7.25 from VC firms in its latest funding round. Competing with Glassdoor and LinkedIn, the startup offers job-market monitoring services and publishes relevant information on industry salaries and company culture for job hunters.

The startup’s recent funding totals enable Comparably to expand its monitoring services and partner with more companies. Comparably co-founder Jason Nazar told VentureBeat in 2016 that the company’s mission was “to make work better” through “transparency around compensation and culture.”

The Weekly Roundup is taking next week off and will return on February 17.

Categories
McNair Center Weekly Roundup

Entrepreneurship Weekly Roundup: 10/28/2016

 Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Innovation and Entrepreneurship news.

Here is what you need to know about entrepreneurship this week:

Big Problems for Small Practices

Catherine Kirby, Research Assistant, McNair Center for Entrepreneurship and Innovation

Kirby examines the effects of the Affordable Care Act on entrepreneurship within health care. U.S. health care regulations currently hinder entrepreneurship among healthcare professionals, particularly for doctors seeking to establish private practices.
Kirby recommends that the U.S. implement policy changes that would better foster entrepreneurship among physicians. Measures like restructuring reimbursement rates and improving quality of care requirements would reduce the burdens that many private practices face and enable physicians to start small medical practices.

U.S. early stage investment holds up, late stage plunges

Joanna Glasner and Gené Teare, Contributors, CrunchBase

Venture capital investment slowed in the third quarter. Glasner and Teare write that estimates relying on end-of-quarter data may overstate declines in early stage investment.
Crunchbase compares its own projected funding totals with reported round count totals for the third quarter. Quarterly projected funds show bullish early stage investment. When factoring in projections, Crunchbase’s report for the third quarter finds that U.S. startups continue to enjoy high levels of strategic, seed and venture capital investment during seed and early stage rounds. However, there is a steep decline in late stage investment, with fewer companies raising late stage rounds and investors pouring less money into Series C and later rounds.

Startups get bought not sold

Ken Elefant, managing director at Intel Capital, PE Hub

Many entrepreneurs focus, sometimes shortsightedly, on the dream of reaching an IPO. As a result, start-ups often fail to develop important relationships with corporate investors. According to data from Dealogic, only five U.S.-based tech companies went public in the first eight months of 2016. To avoid going out of business or selling at a fire-sale price, Elefant recommends that entrepreneurs develop strong relationships with corporate investors early on so that a later search for an acquisition offer does not turn into a last-ditch attempt to save a sinking ship.
Corporate investors invest in companies for three reasons: to gain access to a technology, to break into other markets and to acquire. For start-ups, relationships with corporate investors offer viability and credibility. Additionally, these relationships provide development, support,  feedback and access to corporate engagement and funds. For companies that might not be on track for an IPO, strong relationships with corporate investors can lay the groundwork for an acquisition.

‘Shark Tank for Students’ Re-Defines Entrepreneurship

Christopher Putvinski, SAPVoice, Forbes

Putvinski focuses on a new television series, The Social Innovation Series. This “Shark Tank or a Y Combinator for students” asks aspiring entrepreneurs to address problems in health or wellness in their own communities.
The show grants $1,000 to students with promising and innovative ideas and a grand prize of $10,000 and the title of “SAP Teen Innovator” to the student with the winning idea.

How Blind Hiring Can Make Your Company More Inclusive

Frida Polli, Mattermark


In an editorial for Mattermark, Polli writes on how diverse companies outperform their non-diverse counterparts. Increasing diversity among employees not only promotes a more fair and equitable workplace environment but also offers a high return on investment for companies. See the McKinsey & Company Report on how diversity improves company performance. Polli suggests that “blind auditioning” is a possible solution for the lack of diversity in companies’ workforces. Using advanced analytics and assessment technologies, companies can ensure predictability and eliminate bias in their pre-hiring assessments of applicants. According to Polli, “improving diversity isn’t just the right thing to do, it’s the smart thing to do.”

And in startup news…

Google buys eye-tracking VR firm Eyelock

Grant Gross, Senior Editor for IDG News Service

Eyefluence is a California-based startup focused on eye-interaction technologies in Virtual Reality (VR) and Augmented Reality (AR) headsets. Serial entrepreneurs Jim Marggraff and David Stiehr founded Eyefluence in 2013.
Google acquired the startup on Tuesday. The acquisition reflects Google’s growing interest in VR and AR technology. The deal further shows the growing potential of VR and AR for entrepreneurs interested in building successful tech startups.

Wavefront gathers $52 mil Series B

Iris Dorbian, Author, PE Hub

Another California-based tech-based startup, Wavefront, recently reported raising $52 billion in Series B funding. Investors include big names such as Sequoia Capital, Sutter Hill Ventures and Tenaya Capital.
Wavefront develops metrics monitoring services for cloud and modern application environments. Wavefront offers invaluable services to leaders in the software industry that rely on Cloud technology, such as Workday, Box, Lyft, Microsoft, Intuit and Groupon.