All posts in “M&A”

To automate bigger stores than Amazon, Standard Cognition buys Explorer.ai

Standard Cognition helps retail stores stand up to Jeff Bezos’ juggernaut. The $50 million-funded autonomous checkout startup is racing to equip bigger shops with scanless payment technology that lets customers walk out the door without ever stopping at a cashier. While Amazon Go opens its own 2,000 square foot boutiques, Standard Cognition is working on outfitting 20,000 square foot and larger drug stores and grocers. That led Standard Cognition to make its first acquisition, Explorer.ai.

Why would an automated checkout company acquire a self-driving car startup? Because whether you’re tracking shoppers or pedestrians, you need sophisticated maps of the real world. The more accurate the machine vision is, the larger the store you can equip. And since Standard Cognition uses ceiling-based cameras instead of putting them on every shelf like Amazon, it’s much cheaper to keep eyes on a bigger space.

Standard Cognition is only just over a year old, but with the backing of Y Combinator, Alexis Ohanian and Garry Tan’s Initialized Capital, and a fast-moving team of seven co-founders, it believes it can outmaneuver Amazon. That means doing whatever it can to leap forward. Standard Cognition already had in-house mapping technology, but Explorer.ai’s team and tech could accelerate its quest to bring even 100,000 sq ft big box supercenters into the automated checkout age.

“It’s the wild west — applying cutting-edge, state-of-the-art machine learning research that’s hot off the press. We read papers then implement it weeks after it’s published, putting the ideas out into the wild and making them production-worthy — taking it from state-of-the-art to dumb machines you can kick and they won’t fall over.” says Standard Cognition co-founder Jordan Fisher. “It’s no easy task and the exactness we’re going to require will only increase. Having a world-class team of engineers and researchers that can build the next generation version of our mapping is why we’re so excited to have the team joining us.”

From AV To AC

Explorer.ai is was founded in 2017 too, and its acquisition so soon is a testament to how hot the autonomous driving and checkout markets are. Akshay Goel, Nagasrikanth Kallakuri, and Tushar Dadlani noticed self-driving vehicle startups were all trying to generate their own maps. They cobbled together data from several providers, built maps specifically for different purposes, and soon had fellow startups trying to throw money at them. They raised just under $1 million from Story Ventures, early Facebook engineer Nick Heyman and more, growing the team to seven employees.

Explorer.ai’s co-founders

But eventually Explorer.ai realized the bigger players were too cautious to rely on outside maps and it could be years before they’d be comfortable with the idea. “Our view is it would take quite a while to become a commercial success in mapping for autonomous vehicles” Goel tells me. “Most of the companies we were working with in partnerships tried to acquire us from an early stage. Should we fundraise more or start looking at the acquisition process?” the team asked itself as its cash dwindled.

Explorer.ai got a few terms sheets for funding, but weren’t sure they’d be able to go to market fast enough. The founders shopped the startup around “to pretty much everyone” Goel says, though they refused to name names when I asked if that included natural acquirers like Uber and Google’s Waymo. But then they took a left turn into retail. “What we saw was that essentially since autonomous checkout has a lot fewer safety issues, [Standard Cognition] could go to market much faster, and mapping had a large impact on autonomous checkout.”

The two companies declined to disclose financial terms of the deal, but Fisher tells me “We can definitely say it was a competitive process and we’re excited that we could win the hearts and minds of the Explorer team.” Goel adds that “the investors, founders, and team are happy”, implying the payout more than returned the money it’d raised.

Explorer.ai made self-driving car maps before joining Standard Cognition

The big question Standard Cognition’s customers are asking are whether autonomous checkout is cost-effective, simple for customers to understand, and won’t let shoplifters destroy their margins. That means minimizing installation fees, perfecting onboarding and instruction, and recognizing the difference between someone putting an item back on the shelf versus into their jacket. The startup believes that done right, human cashiers can be repurposed as concierges that help customers find what they’re looking for and buy more without having to stand in line.

How do you make this a bulletproof, reproducible system that works as well as a till in a grocery store that no one worries about breaking?” is the challenge Fisher and his new compatriots must solve. “Amazon is pursuing what we call as shelf-based approach with sensors every few inches on every shelf. What’s not great is the expense, the complexity of the electrical and compute systems . . . this is why you’re seeing autonomous checkout applied to Amazon Go and not larger Whole Foods stores. Not from a lack of desire from Amazon, but because it’s not technologically tenable with the approach that they’re taking. I’m confident they’ll tackle that challenge in the next few years but today they’re limited by their technology.”

And so Standard Cognition is pushing as fast as it can build a lead and brand by giving independent retail stores and chains the firepower to fight off Amazon. “I wasn’t thinking we’d do any acquisitions a month ago” Fisher reveals. “Our goal is not just to deliver autonomous checkout to the world but to do it phenomenally quickly. We’re at the beginning of a space race. Two to three years from now, I think this will be potentially as crowded as autonomous vehicles. We’re in the lead today but that’s not enough for us. We need to be light-years ahead to capture as much of the market as we want. [With the Explorer.ai acquisition] how many days does this advance us? How much further along on our roadmap for world domination does this bring us? When we sat down, it was tangible, the real progression of the roadmap.”

Moonbug nabs $145M to buy up kids’ digital media brands

Moonbug, a kid-focused media business founded by a pair of entertainment executives, has brought in a $145 million Series A investment led by The Raine Group, a merchant bank that supports technology, media and telecom efforts.

Venture capital firms Felix Capital and Fertitta Capital also participated in the financing.

Moonbug, headquartered in London, acquires and distributes media content made for kids. Recently, the company completed its first IP acquisition of Little Baby Bum, a children’s sing-along show popular on YouTube, Amazon and Netflix. According to a Los Angeles Times report, one of the show’s videos is the 20th most popular video in YouTube history, boasting 2.1 billion views. In total, Moonbug says Little Baby Bum has clocked in 23 billion views across multiple platforms.

With its Series A investment, Moonbug will amp up its M&A activity to expand its portfolio of content that “helps children build essential life skills.” Moonbug chief executive officer René Rechtman, who spent the last three years as the head of digital studios at The Walt Disney Co., says they plan to acquire eight media businesses.

Rechtman and John Robson, a former senior vice president of digital distribution at Paramount Pictures and vice president of global content at HTC, launched Moonbug earlier this year.

“I see an independent creator and I put them in very simple brackets: one is high viewership and engagement and one is quality of IP,” Rechtman told TechCrunch. “If they have both of those, I am very interested.”

Sovrn acquires VigLink to expand its publisher monetization platform

Sovrn recently raised a $25 million in new funding with the goal of expanding beyond the adtech business through acquisitions. Now it’s announcing the first of those deals: It’s acquiring affiliate marketing company VigLink.

Sovrn first launched in 2014 — made up, as CEO Walter Knapp put it, from “bits and pieces of different companies.” (It emerged from Federated Media and its roots go back to Lijit, which FM acquired in 2011.) Knapp said the company’s vision is to “enable a professional class of storytellers to do more of what they want to do” by providing tools around content creation, distribution, monetization, operations and capital.

As for VigLink, it was founded in 2009 to help publishers monetize by automatically inserting affiliate links (where merchants share revenue with publishers when those publishers drive sales). Knapp said he’s been interested in the intersection of publishing and commerce because publishers are often the ones influencing consumer purchase decisions, but “they don’t really capture the commerce value of what they’ve created.”

VigLink already plays a big role in that process — Knapp said its links are driving nearly $1 billion in annual sales. But he also noted that there’s less than 10 percent overlap between the domains working with Sovrn and VigLink, so he sees plenty of opportunity to grow.

“We can take what is a really interesting product that has appealed more to high volume publishers and take it into content publishers,” Knapp said. “Now what’s required there is a pretty deep understanding of the editorial process.”

Knapp intends to bring entire 35-person VigLink team over to Sovrn, bringing the company’s headcount to 220. He also said that with the addition of VigLink to Sovrn’s business, “transactional adtech” will make up less than half of the company’s total revenue.

And he promised that the VigLink product will continue to evolve, for example by giving publishers more data about the entire customer journey.

The financial terms of the acquisition were not disclosed. According to Crunchbase, VigLink raised more than $27 million from investors including GV, Emergence Capital, First Round Capital, RRE Ventures, Correlation Ventures, Foundry Group, Costanoa Ventures and Silicon Valley Bank.

Mobile payment co. Boku acquires Danal for up to $68M to add user authentication

After going public in the U.K. last year, Boku has made an acquisition to expand its carrier billing services, which let users bill to their mobile bills mobile content purchases from companies like Apple, Microsoft, Spotify and 152 other app and other content purveyors. Today, Boku announced the acquisition of Danal, Inc., a specialist in mobile identity and authentication services, so that it can offer more sophisticated transaction services and also to move into new areas.

Boku will pay up to $68 million for Danal, the company said. Specifically, the financial terms are described by Boku as a “reverse triangular merger” and include 26.7 million Boku common shares of $0.0001 each (“Common Shares”), $3 million of Boku warrants exercisable at 141p each and $1 million in cash, along with a deferred consideration of up to $64 million, “satisfied in Common Shares and warrants, dependent on Danal’s future performance,” which Boku also described as “challenging performance targets for Danal, thereby allowing both parties to share the benefits of efficiencies and growth.”

Danal, Boku said, will become a part of a U.S. subsidiary of Boku.

The market is not particularly excited by the deal it seems: the company’s stock has dropped by more than 23 percent in trading today. Boku currently has a market cap of around £168 million ($216 million), and it says that total payment volume in the 10 months to October was up 124 percent to $2.8 billion (versus $1.3 billion the year before), and monthly active users were 12.2 million in October, up 83 percent on a year before.

This is not Danal’s first transaction with a carrier billing service. In 2016, it sold a portion of its business, BilltoMobile, to Bango for $3.5 million.

Boku is buying the rest of the business left behind, with a view to building a bridge between the data that carriers have about their users and services that those users might engage with either on their mobile devices or through other digital channels. This could include expanding the range of purchases that you can make through carrier billing, but it could potentially also be applied to any service that either has a risk of fraud — such as financial or government-run services — or could use a carrier data to help authenticate the identity of the user.

“Charging purchases to your phone bill has proved a great way for the world’s largest digital companies to acquire and retain users, but has had fairly limited application outside digital content,” said Jon Prideaux, CEO of Boku, in a statement. “This Acquisition allows us to offer services that go further and to improve user quality for our customers while at the same time improving the mobile experience for users. Mobile commerce is booming, yet many tools were developed to support PC-based commerce. Danal has shown that MNO data can also combat fraud, reduce friction in signup and ensure regulatory compliance on mobile. These problems are relevant not just to our existing digital customers but also in other sectors including e-commerce, finance, transportation and government.”

Notably, this potentially could help Boku grow revenues in developed markets alongside the emerging markets where it is currently active.

Danal, based in San Jose, already counts financial institutions, government agencies and retailers as customers, including Western Union, BNP Paribas, PayPal, Square, MoneyGram, Login.gov and USAA.

Boku said Danal  generated revenue of $5.1 million and a loss before interest, taxation, depreciation and amortization of $5.2 million for the full year that ended December 31, 2017. Liabilities as of that date were $10.3 million.

The bigger picture for mobile payments are that while they continue to grow, they are still just around one-third of all e-commerce transactions, according to recent figures collected over the opening weekend of holiday sales.

Within that, billing to carriers is just one part of the overall mix, and after accounting for others in the transaction chain, it makes for thin margins. This explains partly why Boku would be working on adding new revenue streams. But in emerging markets, carrier billing is a popular alternative among users who may not have bank accounts and payment cards. This latest deal for Boku should help it in that area, too.

Travel startups are taking off

The second wave of Internet-era travel companies has captured the attention of venture capitalists.

In the last five years, travel companies have raised more than $1 billion in venture capital funding. That includes short-term rental startups, travel and tourism apps, marketplaces for “experiences” and other travel or hospitality tech platforms. Airbnb, a $38 billion company and an anomaly in the category, has raised $3 billion in that same time frame, according to PitchBook.

In the last few months alone, aspiring Concur-competitor TripActions and travel activities platform Klook entered the “unicorn” club with large venture rounds that valued both of the businesses at more than $1 billion. Meanwhile, luggage maker Away raised $50 million at a $400 million valuation and smaller startups in the space like Freebirds, IfOnly, KKDay, Duffel and RedDoorz all closed modest funding rounds.

“Something is really happening in the industry; something bigger than us,” TripActions co-founder Ariel Cohen said in a recent conversation with TechCrunch about his company’s $154 million Series C financing. “Different startups are identifying the opportunity here and the fact that companies want to make sure their employees are happy while they are on the go. That’s why you see investments in companies like Brex and like TripActions.”

Brex, though not classified as a travel startup, lets startup employees earn extra points on business travel with its corporate credit card for startups. It recently raised a $125 million Series C at a $1.1 billion valuation.

Global travel and tourism is one of the most valuable industries worth some $7 trillion. The online travel market, in particular, is expected to grow to $817 billion by 2020. VCs are hunting for tech-enabled startups poised to dominate that slice.

“You have a new wave of businesses where all of that digital infrastructure is set up, so the focus can be on things like efficiency, improved customer service, scale and growth — you have a ton of companies popping up catering to those needs,” Defy Partners co-founder Neil Sequeira told TechCrunch. Sequeira was a managing director at General Catalyst when the firm made its first investment in Airbnb.

On the other hand, you have a whole cohort of travel business founded amid the dot-com boom that are looking to technology startups for a much-needed infusion of innovation. Many of those larger companies have become active acquirers, fueling VC interest in the space. SAP Concur, for example, acquired the formerly VC-backed travel-booking startup Hipmunk in 2016. Before that, it bought travel planning company TripIt for $120 million, among others.

Expedia has gobbled up a number of travel brands too, like travel photography community Trover; Airbnb-competitor HomeAway, which it paid a whopping $3.9 billion for in 2015; and most recently, both Pillow and ApartmentJet.

Many of these acquisitions are for peanuts, which is far from ideal for a venture-funded company. And building a travel business is cash intensive, hence the $4.4 billion Airbnb has raised to date or even TripActions’ $236 million in total VC funding. To keep momentum in the space, companies need to be striking larger M&A deals.

It doesn’t help that many in and around the venture capital industry are predicting an imminent turn in the market. Travel companies, which are reliant upon a consumer’s tendency to spend excess cash, will be among the first sectors to be impacted by hostile economic conditions.

“If the market turns, people aren’t going to spend $10,000 on a trip to Zimbabwe,” Sequeira said, referencing companies like IfOnly, which sells curated experiences.

Travel startups should raise now while the market is hot. The conditions may not remain favorable for long.