All posts in “entrepreneurship”

Four MIT students have launched DeepBench to democratize access to expert networks

New European financial regulations requiring fund managers at investment firms to pay banks for research and trading services separately could open the door for new entrants in the professional advisory services marketplace.

The rules, which were approved in 2014, but only took effect in January, are proving to be a boon for four MIT students who launched a company last year to try to grab some of the market.

DeepBench, founded by Devin Basinger, Yishi Zuo, Derek Hans and Nikhil Punwaney, is proposing some novel business model solutions to address what the MIT students see as flaws in the existing market — particularly around the use of expert networks in financial advisory services.

DeepBench co-founders Devin Basinger, Nikhil Punwaney, Derek Hans and Yishi Zuo

Expert networks are communities of experienced professionals in a given field. Fortune 500 companies, hedge funds, private equity firms and other entities rely on individuals from these groups for their insights and expertise. The biggest company in the expert network industry, Gerson Lerman Group (GLG), has nearly 50 percent market share and was on track to reach $400 million in revenue in 2016.

But GLG has had its share of troubles. The company played an integral role in providing the expert that passed confidential information to an SAC Capital trader, which was used as evidence in an insider trading case against the firm and its owner, Steven A. Cohen. The hedge fund ended up paying a record $1.8 billion in fines to the SEC (they did not admit wrongdoing in the case).

There is a significant opportunity to disrupt the expert networking space. As more experienced workers retire, some may want to continue putting their skills to use, albeit in a reduced capacity. Being a part of an expert network allows them to be available for clients who request their expertise in a flexible, convenient capacity. Facilitating this specialized knowledge sharing is a billion-dollar market for the taking.

Aside from established players like GLG and its European competitors, AlphaSights and Third Bridge, other startups like Clarity, Slingshot Insights, Catalant (formerly known as HourlyNerd) and Dūcō are also looking to transform the way expert networking is done. GLG is known to charge a group of four within a firm $100,000 for basic access to their network for a year. In comparison, these startups have different approaches and business models to improving the way clients access the expertise they need. Their efforts reflect two main segments within the expert network market: expert calls and project-based work.

DeepBench and Slingshot Industries are focusing their efforts on expert calls. DeepBench launched its current service in March 2017, which uses its “technology-driven, human-assisted” platform to connect individual clients with available experts for a 30 to 60-minute conversation at an agreed-upon rate. In addition, the startup does not require “learners” to sign long-term contracts or prepay, unlike other firms, allowing for greater client flexibility. Slingshot Industries matches groups of clients with similar interests to an expert to answer their questions. The group would crowdfund the cost for chatting with the expert.

Catalant and Dūcō have aimed for matching clients that need long-term projects completed with the relevant experienced contractor. These clients are looking for experts who are interested in extended-duration work. Catalant leverages its algorithms to quickly match prospective clients with the experts they are looking for based on the former’s search criteria.

Their goal is to make this process seamless, so more experts and clients will feel enabled to collaborate outside of a conventional consulting framework or contracting arrangement. Dūcō appears to take a more conventional approach to connecting clients and experts. The D.C.-based startup vets its pool of experts before offering them up to potential clients. Like Catalant, Dūcō uses matching algorithms to match clients with project work needs to experts ready to assist them.

As investors seek information to keep their competitive edge, and firms need outside help in solving internal problems, on-demand access to expert networks will become necessary. DeepBench currently has more than 1,000 registered experts for their closed beta platform. Currently, more than 20 clients are using the service. Most are top consulting companies, investors and product designers.

“We are focused on finding quality high-fit advisors right now instead of increasing the volume we can have available for clients,” Basinger said.

With a shift in E.U. financial regulations, expert networks are using their momentum in the Asian and U.S. markets to establish themselves in Europe. This specialized knowledge sharing can be shaped by startups like DeepBench as competition between firms continues to intensify.

Here are the top Midwestern states and cities for startups

The American Midwest has a long history of making stuff. During the 20th century, it was the manufacturing center for the nation, and indeed much of the world. It’s still where a surpassing majority of agricultural commodities are grown and processed. But is it also a major producer of technology startups? Maybe not as much as the coasts, but the Midwest’s bustling metropoli and vast expanses of rural land prove to be fertile ground for quite a bit of startup activity.

And that’s what we’re going to take a look at here. In a similar vein to our recent analysis of startup fundraising in the South, we’ll break down the region into its constituent parts, assessing deal and dollar volume trends in the Midwest’s two primary sub-regions, some of its individual states and the most active metropolitan areas in the U.S.’s midsection.

And, to be clear, this is not Crunchbase News’s first foray into the region. We’ve covered the region’s seed-stage interest in AI and hard tech, a few notable rounds and have always included the Midwest in all manner of data-spelunking expeditions. And to this, we’ll add a deep dive into the numbers.

Defining the midwest

Borders and boundaries are a deep well of disputes. To preempt debate, we use the U.S. Census Bureau’s definition of the Midwest region which, unlike its definition of the South, shouldn’t be too controversial. If you have something against Kansas or Ohio being included in this group, take it up with the Feds.

The good folks at the Census Bureau split the Midwest into two distinct — and rather unimaginatively named — sub-regions: the West North Central and East North Central states, which are separated by the Mississippi River. We’ve included the map below.

By splitting the Midwest into two distinct parts, we’ll be able to see where most of the startup and funding activity is concentrated. Spoiler alert: The farther west you go, the startup population (and the population itself) grows more scattered.

Capital flows into Midwestern startups

Based only on reported data in Crunchbase, the Midwest appears to be affected by the same phenomenon as the rest of the country. Crunchbase News has previously found that the number of seed and early-stage deals has gone off a cliff in the U.S., resulting in a top-heavy market featuring many large, late-stage deals. And this wouldn’t be a problem if it weren’t for a shortfall in new startups to fill the next cycle of early-stage funding. The “hollowing out” of the Midwestern venture deal pipeline becomes readily apparent when you look at funding data for the past several years, which you can find in the chart below.

To wit, deal volume is down markedly since 2014, as Crunchbase News reported in its Q4 2017 report of startup funding activity in the U.S. and Canada. But somewhat counterintuitively, the amount of money being invested into startups is on the rise in the Midwest and throughout many other parts of the country, reaching fresh multi-year highs in 2017. Almost one full quarter into 2018, the trend appears to continue unabated.

But this chart abstracts away a lot of nuance, so let’s take a closer look at the region and its states.

Focusing in on Midwestern deal and dollar volume

We’ll start first with deal volume, because that’s a fairly decent indicator of a geographic region’s level of startup activity. Below, we’ve plotted venture deal volume, divided by sub-region.

Again, based on the reported data from Crunchbase, we found that deal counts have been on a downward trend for several years. And though some of this may be attributable to reporting delays, projected deal volume data for the whole of the U.S. and Canada (fourth chart down in the Q4 quarterly report) shows a years’-long downtrend. There’s no reason to believe that startup activity in the Midwest is materially different from the rest of the U.S. and Canada.

But what about the relative “balance of power” between the two sub-regions? At least when it comes to deal volume, has one sub-region waxed while the other waned? To a limited extent, the answer is yes. Between 2012 and 2017, the percentage share of all Midwestern dealflow going to West North Central states like the Dakotas, Minnesota and Missouri has grown from 25.4 percent to 31.2 percent, up by nearly one-fifth in relative terms.

Now let’s check out dollar volume. The chart below displays aggregate reported venture capital dollar volume raised by startups in the Midwest.

As far as the amount of money Midwestern startups have raised over time, the trendline is generally up and to the right. But that’s not the only way this differs from the deal volume data we looked at earlier. For dollar volume, there appears to be no appreciable change in the “balance of power” between the two sub-regions since 2012. Depending on the year, East North Central states like Illinois, Michigan and Ohio raked in between 70 and 78 percent of total dollar volume, but that variance doesn’t appear in an orderly trend.

Where are most Midwestern deals done?

We started first at the regional level, then compared smaller groupings of states. Now, let’s see how deal and dollar volume is distributed on a state-by-state level. Doing so will point to the states that lead the region in venture-backed startup activity. Below, you’ll find a chart of how deal volume is split between the top five Midwestern states.

And here is how dollar volume is distributed.

As we saw with our analysis of the South, the top five Midwestern states for deal volume are the same five top-ranked states for dollar volume. But there is some notable variation in how these states rank among each other and the amount of deal and dollar volume they account for.

Considering that Illinois is home to Chicago and a number of downstate universities with deep tech startup roots, the fact that it places first for both metrics shouldn’t come as much of a surprise.

What might be more of a head-scratcher is Minnesota, which ranks third in deal volume but second in dollar volume. Why does it switch places with Ohio? The answer could lie in the industrial mix which, in the case of Minnesota, includes a disproportionately high number of medical device and other life sciences companies, which typically take a lot of capital to get off the ground.

The top Midwestern startup cities

Longtime readers of Crunchbase News may remember a ranking of Midwestern startup cities we wrote back in August 2017. However, here we’re just focusing on deal and dollar volume over the past 15 months, since the start of 2017.

Let’s start first with the top 10 Midwestern cities as measured by number of startup funding rounds.

And in the chart below, you can see the top cities, as ranked by venture dollar volume, from the same period of time.

In both rankings, four of the top five cities are the same, but the odd one out appears to be Columbus, Ohio. Although there were a fairly large number of rounds raised by startups in that metro area, most of the rounds were fairly small by national standards. And one of the main reasons why Kansas City, Missouri jumped so much in the dollar volume rankings was a $100 million Series F round raised by C2FO.

But, again, as far as the Midwest goes, everything pales in comparison to Chicago alone.

For many, the Midwest is in a kind of Goldilocks zone. The East and West coasts seem to hold more or less equal sway over the culture and economy and most of its cities are neither too big nor too small. The only extreme it seems to occupy is its winter weather.

Mobile delivers high exit multiples despite broader market slowdown

In the world of mobile apps, numbers come in two sizes: big and bigger.

More than one billion people use Facebook’s mobile app every day. Instagram — another Facebook property — has well over 100 million photos and videos uploaded to the platform every 24 hours. And untold millions of emails, instant messages, small financial transactions and other interactions are facilitated by mobile devices every day.

But what about the financial side of the mobile business; specifically, venture investment and returns? All of that activity should bring in some considerable revenue, and a lot of startups are seeking a niche in this expansive ecosystem. By taking a look at the numbers behind two different ends of the startup life cycle — seed and early-stage funding on one side and exits on the other — a reasonable understanding of the mobile market today can be had.

In doing so, we’ll see just how much money has gone to startups in the mobile sector, and the (often good) returns they generate for investors.

Early-stage venture investment in mobile may be a bright spot

In prior coverageCrunchbase News explored the performance of U.S. venture funding, and, at least as far as seed and early-stage investment goes, 2017 was not a great year.

At the early stage, which consists of Series A and Series B rounds, deal and dollar volume is down from highs set around 2015. And while we’ve asserted that this trend is widespread, there are bright spots in the early-stage market. Mobile may be one of them.

In the chart below, we display seed and early-stage funding round data for startups in Crunchbase’s “mobile” category group from 2007 through the end of 2017.

This broad group includes companies in a number of categories, encompassing everything from mobile payments and mobile health apps to iOS, Android and, yes, even Windows Phone and Palm OS. And despite declines in overall deal volume (mostly attributable to reporting delays), the pullback from 2015 highs haven’t been as precipitous as other categories or the market as a whole.

Since 2012, the average seed or early-stage round in Crunchbase’s mobile category group has been on the upswing, according to reported data.

Emerging industries may be driving growth in round size

Part of the increase may be driven by the types of companies that are being funded.

One of the main trends over the past several years is the emergence and growth of mobile-facilitated “sharing economy” services. Sure, most of us are familiar with ridesharing services like Uber and Lyft, but the market has grown to include a much wider array of services.

A vibrant and highly competitive market for dockless bikes emerged seemingly out of thin air, as Crunchbase News has previously covered. Just in the last quarter of 2017, LimeBike raised $50 million in its Series B at a pre-money valuation of $175 million, and China-based Mobike raised an as-yet-unknown amount of private equity funding from LINE, the Japanese mobile messaging company.

Other mobile-focused apps in the sharing economy are gaining traction too. Hyr, a “marketplace that connects traditional businesses with workers to fill hourly paid shifts, on demand,” recently closed a $1.3 million seed round. And at the intersection of “the real world” and mobile, San Francisco-based Omni, which helps its users store and rent out their extra stuff, closed a $25 million Series B in January 2018.

And apart from the sharing economy companies, there’s also been a fair bit of investor interest in enterprise applications designed around mobile. For example, Peerfit, a Tampa-based company that aims to “redefine corporate wellness programs,” raised $10.3 million in a Series B round announced in January. On the cybersecurity front, HYPR Corp closed a $10 million Series A to fuel the growth of its mobile-based biometric authentication business.

Sharing economy and enterprise startups also share a common thread: they’re expensive to get started.

On the sharing economy side, it takes a lot of capital to build the supply and demand sides of a marketplace. Meanwhile, enterprise startups have to contend with long sales cycles and stricter requirements from their prospective customers. With a greater prevalence of capital-intensive sharing economy and enterprise startups in the mobile funding mix, it shouldn’t be surprising that the mobile category continues to fare better than others.

The economics of mobile are conducive to massive exit multiples

Venture investors often talk about investing in companies that will deliver a 10x return on invested capital. It goes without saying that doing so, and doing so consistently, is a challenge.

Recently, Crunchbase News surveyed the landscape of large “exits” and found that the life sciences offer a fairly deep pool of opportunities for large exit multiples. But the ratio of valuation to invested capital (VIC) for many of the deals highlighted in that article pale in comparison to some of the multiples to be found in mobile.

Below, we’ve highlighted just a few of the biggest M&A deals, in terms of exit multiples, to come out of the mobile sector. These companies were founded between 2003 and the present, known as the unicorn era.

Just like Crunchbase News’s earlier survey of exit multiples found that the mix of tech companies was surprisingly diverse, so too are the businesses in the table above.

However, one company connects two of these deals. Through a series of acquisitions, Facebook repositioned itself from a primarily desktop-based social network to being mobile-first. In the process, Facebook has become one side of a duopoly in mobile advertising. According to financial data compiled by Statista, Facebook’s mobile ad revenue went from basically $0 in 2012 to $8.92 billion by the end of 2017. Desktop ad revenue — some $1.2 billion — remained largely flat over the same period.

Although many believed that the $1 billion acquisition price for Instagram was far too high, Facebook raked in $4.1 billion in revenue from Instagram ads in 2017. Now that’s a multiple!

Why the decent funding and exit multiples?

As shown, the mobile sector produced some exits with very good multiples on invested capital, which is good for investors and entrepreneurs alike. The category also outperforms the general market.

So what makes the mobile category special? A few factors may be at play here. Shifts to more capital-intensive startups are being made. As far as exits go, some of the biggest came from companies with a more traditional software business model, one involving a large up-front investment of time and financial resources to build, but close to zero marginal costs to maintain and near-infinite potential to scale up.

But there is another factor to keep in mind. A few years ago, investors and the tech press were abuzz with excitement about mobile. Now that the fervor over the mobile sector has dimmed in terms of press, more exciting sectors like artificial intelligence, blockchain and others seem to be the center of attention lately. And while that may sound like a bad thing, it isn’t.

It’s not that mobile got any less exciting; it’s just become as common as the air.

Featured Image: Li-Anne Dias

Boeing HorizonX invests in Berkeley aerospace battery tech startup

Boeing’s HorizonX is the aerospace company’s vehicle for making investments in promising next-generation startups and technology, and it just placed its latest bet: funding in Cuberg, a Berkeley-based battery tech startup that has a founding team including Stanford University researchers.

Battery tech is still one of the most frustrating roadblocks any company encounters when trying to build electric vehicles and other battery-powered technology and transportation. For Boeing, there are plenty of potential upsides to building out batteries that can last significantly longer than those available via today’s tech.

Cuberg’s work focuses on batteries with especially high energy density, while retaining thermal safety. That basically means they hope to be able to build a new type of battery cell that can hold a lot more power for vehicles to use, while also not catching fire.

That’s not all, however: Cuberg’s approach would result in a manufacturing process that could be used in exiting large-scale battery factories. The end result is a relatively smooth transition process from existing manufacturing to building next-gen cells, which obviously means a lot less upfront investment when it comes to taking the new manufacturing process to scale.

Cuberg was originally founded in 2015, and this market the first time Boeing HorizonX has invested in any energy storage companies since its inception last year. The funding, which is described as a “second seed” round, should help Cuberg grow its team and its facilities in preparation for fully automated manufacturing.

Featured Image: Stephen Brashear/Getty Images

Investors are pouring money into Frank, a TurboTax for student loan applications

Venture capitalists have been trying to make money from the higher education market for years.

It’s a rich target for the clutch of investor that pride themselves (in their better moments) on investing in companies that can improve society, and that work to fix broken systems, and a new startup Frank is the latest attempt to make a lasting change in the industry.

At this point no one would argue that higher education in America isn’t broken. The debt amassed by the millennial generation and its descendants is nothing short of crippling and increasingly a degree (either vocational or academic) is no longer the guarantor of success that it once was.

Still, the benefits outweigh the risks attendant in not becoming bonafide, so millions of students each year humble themselves before the altar of admissions officers and two-year and four-year institutions.

What many of these students don’t know is that they’re leaving thousands of dollars on the table.

Much of the money that venture capitalists have committed to startups in this space focuses on new ways to lend money, but Frank, which just raised $10 million in funding, is taking a different route.

Rather than lend students money, Frank is looking to make the process of applying for loans easier. The company, founded by 25-year-old former banker and University of Pennsylvania graduate Charlie Javice, is like a TurboTax for college loan applications.

It’s backed by a clutch of interesting investors including Aleph, the U.S.-Israeli investment fund that’s also put money into new insurance company, Lemonade and WeWork; Reach Capital; former Uber advocate Bradley Tusk’s Tusk Ventures; and Slow Ventures. Marc Rowan, the co-founder of Apollo Global Management, one of the largest private equity firms in the world, led the most recent investment.

Charlie Javice, Frank’s founder and chief executive

“You need to change the trajectory before people have to take on debt,” Javice tells me.

That’s Franks’ mission. The company launched in March with a pilot program for low-income students at a few high schools in the Bronx.

“I spent a lot of time on the banking side trying to figure out how to lend money in a more responsible way, and have banks give a shit,” Javice has said elsewhere. “It always came back to the one thing which was, there was no ally for students.”

The company’s technology automates much of the application process for the Free Application for Federal Student Aid form that is the gateway to getting the federal government to help pay for a college education.

It’s important to note that almost everyone qualifies for some form of student aid.

A NerdWallet study from 2016 indicated that students left $2.7 billion in free federal Pell grants on the table by not completing FAFSA information.

Initially, Javice came to the problem by focusing on providing better credit scoring to lower the cost of loans for students. “Dumb, blind monkeys could do a better job of credit scoring than banks do,” Javice tells me.

But ultimately, that startup ran afoul of regulators who insisted that the new company needed to be regulated as a credit-scoring agency.

The critical factor, Javice says, is that lenders aren’t incentivized to help their customer. They make more money when they can charge more interest on payments, and the government has been inflating the cost of education by giving away money to institutions that then funnel those funds into facilities and athletics departments that in turn require higher tuition costs to maintain their upkeep, Javice says.

“Most schools want to maximize revenue,” she says.

Frank makes money for offering some premium services. It’s free for folks to use the service to make the FAFSA application process easier, but for a $500 flat fee students can access an aid appeal process that can let them try to get more money if they’ve accepted a lower loan package — and a review feature that lets an expert double-check the information that students provide on their FAFSA forms.

And Frank’s services apply to more than just four year colleges.

“We have beautician, cooking school, truck driving schools,” that are eligible for these grants, Javice said. “Over the summer 40% of our base is going to these vocational or technical colleges.”

Roughly 63% of Frank’s customers are young women, 83% are 17 to 24 years old and nearly half will be the first people in their family to attend a college. The company is also helping veterans, who after years of military service often can’t access the benefits they’re supposed to receive under the GI Bill because the process is so arcane and complicated, Javice said.

The company has 18 full time employees, 10 in Israel and 8 in the U.S. and has a support team comprised of students who have taken advantage of the company’s services.

Right now, Frank will manage the FAFSA application process everywhere, and is partnering with New York, Texas, and Pennsylvania for managing state aid programs. Eventually the company would like to move into helping students manage the loan repayment process as well.

“Charlie and her team at Frank are creating a fair financial service and solving a legitimate need – giving students across the U.S. access to higher education,” Frank’s new lead investor, Rowan, said in a statement.