Tech Between The Coasts 023 | Wednesday, October 9, 2019
The jig is up, not-software isn’t software, a housing cost tipping point, an expensive acquisition of a drunk elephant, non-GPS location tracking x 2
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TL;DR
What We’re Thinking: the jig is up!
What We’re Reading: not-software isn’t software, a housing cost tipping point, an expensive acquisition of a drunk elephant
Deals & More: non-GPS location tracking x 2, this robot has Moxi, exits abound in Austin
What We’re Thinking
“Tech startups imbibe cash and run on optimism. Lately they’re running short on both.” That’s how Theodore Schleifer starts his latest piece at Recode on the chaos late-stage Silicon Valley startups have been experiencing in recent weeks.
The impetus for the article is Postmates’ decision a few days ago to pull their IPO, which is only the latest data point in the laundry list of egregious tech “market corrections” we’ve seen over the past year or so — Lyft down 50%, Uber down 25%, WeWork down…well basically to zero. Overall, the 2019 cohort of tech IPOs (almost all of which are coastal) is up only 5% this year, compared to 13% for the 2018 cohort, and 94% (!!) for the 2017 cohort. Pair all of these numbers with the recent shockingly remorseful comments from Softbank’s typically exuberant Masayoshi Son, and one thing is becoming more and more clear: the jig is up (or at least close to it).
As I allude to often in this newsletter, I believe this moment presents a massive opportunity for venture and tech generally in the middle of the country. A #BetweenTheCoasts reset, if you will. Though there are certainly a few exceptions, startups here typically have not been exposed to the same degree of valuation inflation, disregard for unit economics, and hubris that coastal companies have been. Once reality sets in, it’s going to be much harder for coastal entrepreneurs and investors to adjust than those of us who have more or less been “living within our means” this whole time. But there are a couple caveats.
First off, we need to keep clearly articulating what it is that makes the middle of the country a great place to live and build a business in a way that doesn’t seem defensive. We need people to be excited about what’s going on #BetweenTheCoasts. We don’t want them to feel like it’s a last resort.
Secondly, we can’t get cocky. Silicon Valley wasn’t always Silicon Valley, and it won’t be forever. We need to make sure that once this “realignment” happens — and I’m confident it will — we don’t build up mini Silicon Valleys all across the middle of the country that are destined to fall into the same traps we see so often today.
Stay humble, folks.
What We’re Reading
Related to the point above, AVC’s Fred Wilson has his own thoughts about the core issue bringing about sudden venture market sobriety: people have realized you just can’t value non-software (or low-margin) businesses like software (or high-margin) businesses.
I couldn’t pass up the opportunity to share this clip I came across on Twitter from CNBC this week. It features a panel that includes LinkedIn’s editor-in-chief Dan Roth talking about the “tipping point” that he thinks large, expensive, mostly coastal cities have already reached with regard to the ability to retain talent: “There is a correlation between when housing prices exceed 30% of people’s average incomes [and when] you cannot keep top talent in those cities. San Francisco — 51% housing cost to income [ratio]. People are leaving. They’re going to lower-cost cities like Phoenix [and] Minneapolis.” Give it a quick watch.
It’s mentioned below in the “Exits & Acquisitions” section, but I wanted to draw special attention to the recent acquisition of trendy Austin-based skincare company Drunk Elephant by Shiseido for $845M (!!!). It’s a particularly interesting story because the company was largely bootstrapped. According to 2PM’s “Covering Commerce” newsletter (one of my favorite sources of thoughtful direct-to-consumer commentary), the company has raised just $8.3M from venture investors and plans to end the year with $100M in revenue, driven by over 80% — 85% organic online. Wow.
Deals
Austin-based SparkCognition — a cross-industry “higher order” AI platform — raised $100M from investors including Temasek, Hearst Ventures, Founders Equity Partners and Boeing.
Reston, VA-based Satelles — a secured, GPS-independent, satellite-based time and location platform — raised $26M led by C5 Capital; other investors included Iridium Communications.
Denver-based Viola — a cannabis producer and retailer — raised $16M led by Gotham Green Partners.
Dallas-based PoLTE — a GPS-independent indoor- and outdoor-location tracking platform — raised $12.5M.
Atlanta-based SaaSOptics — a B2B Saas subscription management platform — raised $12M led by Fulcrum Equity Partners.
Houston-based BrainCheck — a cognitive healthcare platform helping doctors track mental health within their aging patients — raised $8M co-led by S3 Ventures and Tensility Venture Partners.
Austin-based Tenfold — a CRM and telephony integration platform — raised $7.5M led by Next Coast Ventures; other investors included Andreessen Horowitz, Geekdom Fund, and Salesforce Ventures.
Dallas-based Razberi Technologies — a secure video surveillance and IoT platform — raised $5.8M led by LiveOak Venture Partners; other investors included Chartline Capital Partners.
Austin-based Diligent Robotics — a developer of a robot hospital assistant called Moxi — raised $3M co-led by True Ventures and Ubiquity Ventures; other investors included Next Coast Ventures, Capital Factory, Pathbreaker Ventures, Boom Capital, and Grit Ventures.
Austin-based Place Technology — maker of a Salesforce-powered, SMB-focused financial planning and management platform — raised $3M led by Geekdom Fund; other investors included Star Vista Capital.
Austin-based PreFix — a preventative home maintenance platform — raised $2.7M led by Chicago Ventures; other investors included Brand Foundry Ventures, Firebrand Ventures, and a group of angels including Brian Spaly (founder of Bonobos and Trunk Club), Paul Hedrick (founder/CEO of Tecovas), and Brett Hurt (co-founder/CEO of data.world).
Austin-based Lantha — a maker of chemical sensors — raised $2.6M led by GOOSE Society of Texas.
Daytona Beach, FL-based Sensatek Propulsion — a maker of wireless temperature, pressure, and strain sensors for real-time gas turbine performance monitoring — raised $2M led by Rhapsody Venture Partners; other investors including Cloquet Capital Partners, StarterStudio, and VentureWell.
Scottsdale, AZ-based SmartRent — a smart home automation platform for multifamily property managers and renters — raised an undisclosed amount led by Amazon Alexa Fund.
Funds
Austin-based Escalate Capital Partners — a hybrid venture/growth lender and investor focused on tech, services, and healthcare startups — has closed its fourth fund at $282M.
Austin-based Ironspring — a new post-seed to Series B venture firm focused on heavy machinery innovation — has raised $47.5M for its debut fund. The fund has not been announced as closed.
Boulder-based Harbinger Ventures — an early stage venture firm focused on female-founded consumer companies — has closed its second fund at $21.7M.
Exits & Acquisitions
Austin-based Drunk Elephant — a skincare brand — was acquired for $845M by Japanese skincare giant Shiseido (one of the oldest cosmetics companies in the world).
Austin-based Olono — a sales activity management platform — was acquired by revenue analytics company InsightSquared.
Austin-based RealSavvy — a real estate software platform often called the “Pinterest of real estate” — was acquired by OJO Labs.
Austin-based Vida Capital — an alternative asset management platform — was acquired by RedBird Capital Partners and Reverence Capital Partners.
Events
Twin Cities Startup Week runs from October 9–16 across the Minneapolis-St. Paul area.
Memphis’ 7th Annual Startup of the Year Competition & Summit is happening October 14–16.
The 12th annual Venture Atlanta conference, which brings together tech companies and investors from the Southeast and beyond, will be held in Atlanta from October 16–17.
The 2019 Northwest Arkansas Technology Summit will be held in Bentonville, AR from October 20–23.
This year’s Startup Connection, which facilitates informal interactions among early stage startups, investors, and other members of the innovation community in the St. Louis region and beyond, will be held in St. Louis on November 6. The event, in its 11th year, is the anchor event of the inaugural STL Startup Week, which runs November 1–9.
The first-ever 2019 Flyover Fintech conference — “a conference bringing innovators, financial services leaders and policymakers to the center of everything fintech” — will be held in Lincoln, NE from November 11–12.
