All posts in “Private Equity”

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.

Scaleworks announces pre-holiday surprise with Keen IO acquisition

Scaleworks, a private equity firm based in San Antonio, Texas, apparently couldn’t wait until after the holidays to share the news of its latest purchase. The firm announced it was acquiring Keen IO in a Medium blog post yesterday.

Terms of the deal were not disclosed, and neither company was available for comment beyond the blog post, but Keen has raised close to $30 million since it was founded in 2011.

Keen IO makes tools for developers to create customized analytics dashboards. Scaleworks’ general partner Ed Byrne, who penned the blog post announcement, described the company in these terms:

“, launched in 2011, set out to let developers create a custom analytics back-end. It lets companies easily build and embed all sorts of analytics for teams and customers and often powers the dashboards in your favorite SaaS tools,” he wrote.

Byrne added that it was a company the firm had had an eye on for some time as many of its properties are using the Keen IO toolkit to build dashboards. They are not alone. According to the company website, 50,000 developers at 3500 companies have used the Keen tools to build such dashboards. This includes a range of companies such as EMC, Adobe, Kik, Pandora, Ticketmaster and Freshdesk.

The company open sourced a key tool, the Data Explorer, in 2015 in the hopes of getting companies to use and improve the data exploration tool. It’s most recent funding round was in June, 2016 for $14.7 million led by Pelion Venture Partners, according to data on Crunchbase.

Scaleworks is a private equity firm that focuses on B2B and SaaS companies including Chargify, Earth Class Mail, Assembla, Filestack, Followup and Qualaroo.

Featured Image: cifotart/Getty Images

Neos launches IoT powered home insurance UK-wide

What do you get if you combine the Internet of Things with the business of home insurance? UK startup Neos is hoping the answer is prevention rather than (just) payouts.

Its home insurance product is intended to lean on sensor tech and wireless connectivity to reduce home-related risks — like fire and water damage, break ins and burglary — by having customers install a range of largely third-party Internet-connected sensors inside their home, included in the price of the insurance product. So it’s a smart home via the insured backdoor, as it were.

Customers also get an app to manage the various sensors so they can monitor and even control some of the connected components, which can include motion sensors, cameras and smoke detectors.

The Neos app is also designed to alert users to potentially problematic events — like the front door being left open or water starting to leak under their kitchen sink — the associated risk of which a little timely intervention might well mitigate.

It sees additional revenue opportunity there too — and is aiming to connect customers with repair services via its platform. So the service could help a customer who’s away on holiday arrange for a plumber to come in and fix their leaky sink, for example (there’s no smart locks currently involved in the equation though — Neos customer can name trusted keyholders to be contacted in their absence).

“The vision really is about moving insurance from a traditional claims, payout type solution… to one that’s much more preventative, and technology’s really the enabler for that,” says co-founder Matt Poll. “We also think that customers get quite a raw deal from their insurance company… for being a really good customer and not claiming… And no value.

“So what we’re trying to do is to provide value to customers throughout the term of their policy — allowing them to monitor their own homes, using our cameras and the devices that we give them. If there is an issue, they’ll get alerted. Most importantly they or us through our monitoring center and assistance service can put the things right… In that sense both the customer and us benefit if we’re successful.”

On the insurance cover front Poll claims there’s no new responsibilities being placed on customers’ shoulders — despite all the sensor kit that’s installed as part of the package. “There’s no responsibility placed on the customer. We’re really clear about that,” he tells TechCrunch. “Customers do ask this question — oh what if I don’t arm the alarm, does that mean I’m not covered? And our answer is simply of course you’re covered.”

The startup was founded 18 months ago by Poll, an ex-insurance guy, combining with a more technical co-founder. The team market tested their proposition last year in and around London, partnering with Hiscox on the insurance product offering for that trial. They’re now launching their own branded, own insurance offering nationwide.

Neos is actually offering a range of home insurance products, including a combined contents plus buildings insurance offering (or either/or), across three pricing tiers — aiming to support different levels of coverage and different types of customers, such as flat vs house dwellers, for example, or homeowners vs tenants.

While it’s generally aiming to be tech agnostic when it comes to which smart home sensors can be used — supporting a range of third party devices — Neos has developed its own smart water valve, for example, as Poll says it couldn’t find an appropriate existing bit of IoT kit in the market for that.

“It uses machine learning to monitor an individual’s water signature within their property over a period of a couple of weeks and then we can identify from that if there’s any leaks — small or large — and most importantly if a leak does arrive the customer or our monitoring sensor can turn the water off remotely,” he notes.

It’s also built its own hub to control the firmware on the third party devices its platform is integrating with. “We want to put ourselves out there to give customers the best solution for the job and move as the market moves,” says Poll on Neos’ overall philosophy towards hardware.

Despite all this additional kit to be installed in customers’ homes, Poll bills the insurance products as competitively priced (and positioned) vs more traditional insurance offerings. Neos’ prices vary from “approximately £15 to £50 per month”, which it says includes “all the necessary hardware, 24/7 monitoring and assistance plus the comprehensive insurance cover”.

“We’ve got some good early traction and I think the price point that we’ve come in at is attractive, and the value proposition is there,” says Poll, noting that the product will be on price comparison sites “by the end of this month — at the very latest”, as well as being offered through property website Zoopla, which is a distribution partner (and investor) in Neos.

He also says the insurance quote process has been radically simplified by Neos drawing on a range of publicly available data so that potential customers don’t have to answer to a large number of questions just to get a quote.

“We can actually give customers a full quote from just their postcode and their address,” he says. “We use 261 different data sources… One of our partners and early investors is Zoopla. They have a lot of data that they provide us. We also use data from Landmark and Land Registry — local authority data.

“Because all this data’s publicly available. We don’t ultimately need to ask how many bedrooms or bathrooms you’ve got — in most cases we already know that data. Actually in most cases we know the square footage of your property which is a much more accurate predictor of risk anyway.”

Another strand of the go-to-market approach is it’s also working with existing insurance brands to white label its offering — setting it up to scale more quickly into markets (and regulations) outside the UK.

“We’re just about to launch an Aviva-backed solution,” says Poll. “A lot of the big insurers are looking in this space but haven’t done anything… So we’ve had a lot of interest outside of just our direct Neos brand from larger insurers based here in the UK, Europe and also in the US.”

He says Neos is also hopeful of signing a “large scale partner in the US” — one of the top five home insurance companies — which would be a second strand to its white labeling/enterprise solution bow if they nail that deal down.

“Markets like the US… are very different from a regulation point of view and cost of entry for a small business like us to enter, so that model makes sense. But we’re very much — certainly now and we’ll always be — focused on the Neos direct to consumer brand,” he adds.

Poll says he’s hoping for a minimum of “tens of thousands” of customers within a year’s time for Neos’ b2c play — and “ideally” significant growth above that. “If you add in the b2b play as well in terms of customers actually utilizing our platform I think the potential is significantly higher than that,” he adds.

The startup has previously raised £5m in Series A funding led by Aviva Ventures and with BBC sporting personality Gary Lineker also investing. As well as Zoopla, another strategic partnership is with Munich Re, which has also invested.

Interesting takeaways from its beta period include that customers were keen to have help installing all the sensor kit (Neos is offering an installation service for a fixed price if users don’t want to fit the kit relying on its instructions themselves), and that security concerns appeared to be more of a smart home driver for the product than risks such as water leaks, so Neos tweaked some of the sensor bundles it’s now offering.

Poll also says customer feedback from the trial pushed it to offer a fix on premiums for their first three years (assuming a customer makes no claims) to reassure potential customers that it isn’t seeking to use smart home hardware to lock then in to its products and then quickly inflate premiums.

“It’s interesting how customer perceptions are,” he says, arguing there’s “a mistrust of the insurance industry as a whole” — which is something else Neos is hoping can be fixed with a little IoT-enabled preventative visibility.