April 2021 – Page 61 – Digital Pulse

News: A quick peek inside Fontinalis, one of Detroit’s best-known young venture firms

April 14, 2021
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Fontinalis, the 12-year-old, Detroit-based early stage venture firm, is known for being among the very first investing outfits to focus squarely on mobility as an overarching theme. It wasn’t a surprising mandate, given that the outfit’s cofounders include Bill Ford, the great grandson of Henry Ford and the executive chairman of Ford Motor Company. Nevertheless,

Nevertheless, the firm has used its ties to the traditional automotive industry to effectively compete against, and invest alongside, many Silicon Valley venture firms in the intervening years, creating an interesting portfolio along the way. It had stakes in Postmates, acquired in an all-stock deal by Uber, and in Lyft, for example. It also backed the self-driving startup nuTonomy, which sold to auto supplier Delphi Automotive in 2017 for $450 million. Some of its newer bets include Gatik, a startup developing an autonomous vehicle stack for B2B short-haul logistics; Robust.AI, a startup at work on an industrial-grade cognitive platform for robots; and Helm.ai, a maker of driverless car AI.

To get a better sense of what make a deal attractive to Fontinalis, as well as to understand how a venture firm in Detroit ensures that it’s top of mind for the founders it most wants to work with, we talked recently with Dan Ratliff, an investor with Fontinalis who joined the firm nearly seven years ago. Our chat has been edited lightly for length.

TC: Are you a native of Detroit?

DR: I am a native Michigander. I grew up in the metro region; I went to Michigan State. I’ve been here my entire life, except for a year spent in Nashville for grad school, and when I graduated, I moved straight downtown [in Detroit].

TC: From where does the name Fontinalis come?

DR: It’s a Latin name and the name of an outside nature preserve club where Bill [Ford] cultivated a lot of his thoughts on conservation and spent a lot of his youth fly fishing. He also joked that there was no way this name was taken.

TC: How much of the firm’s funding is from Ford Motor Co.?

DR: Fontinalis is very much separate by design. We wanted to be independent and not a strategic VC or Bill’s family office, so from day one, we went to outside LPs and we pulled in 20 to 30 LPs in our first fund, including high-net worth [individuals], family offices, and some institutions. Ford wasn’t even an LP. The company has since come on, but not in a majority position. We also now have a handful of corporate investors, including an OEM that hasn’t been announced yet, and insurance companies. And we have family offices with ties to mobility and the transportation industry and which have a keen interest in how mobility evolves and impacts their businesses. We’ve raised $260 million to date across our funds.

TC: That’s a surprisingly conservative amount in the current market. On the coasts, obviously, we’re seeing a money grab like no other.

DR: We see this as multi-decade opportunity, but there is a bit of a chicken-and-egg problem in the Midwest. There’s not as [ample] a base of angel investors. There are a handful of venture funds but not like on the coasts, where you have a lot of founders or people who’ve been part of companies where they’ve made a lot of money and understand the risk-reward profile. Here, [people are] more conservative; they might have made their wealth in more traditional, versus high-growth startup-type, industries.

I do think with Duo Security selling to Cisco [for $2.35 billion in 2018] and StockX’s awesome rise, we’re developing the right tailwinds to set up an ecosystem, but it requires a lot of different things, including people who are used to being at high-growth companies and are willing to take risks [in the form of equity grants and less] salary.

TC: Fontinalis has a wide range of bets, including on a cognitive platform for robots? What’s the through-line?

DR: The mission of the firm at a high level is to invest in companies and tech that impact the efficient movement of people and goods. Automotive is a component, but so are supply chains and logistics and AI and big data and their impact. So we’ll invest in all modes of transportation — road, rail, bike, air. We also invest in vertical technologies like cybersecurity and additive manufacturing.

TC: These are mostly seed and Series A checks?

DR: We invest in the A and B range, as well as in seed-stage startups and later-stage investments. We view ourselves as bringing the same value that a strategic investor might bring without necessarily the strings that might be attached because we work with a lot of the other corporate VCs and mobility-focused VCs, and we try to see if we can help on the [business development] side to get the startup in front of the right person at the right companies.

TC: Is there any special emphasis on trying to fund startups in Detroit and the broader Midwest?

DR: Our mandate is not geographic specific. We have investments on both coasts, in Northeast Boston, in Tennessee [where Fontinalis’s portfolio company, FreightWaves, the market forecasting and analytics platform is based]. We have deals in Switzerland and Israel. We do look globally; we’re more concerned with making sure we can add value.

TC: One of Fontinalis’s other founding partners, Chris Cheever, is in Boston. Has the firm ever considered relocating outside of Detroit?

DR: No, two of our founding partners are based here. A lot of companies we’ve funded are coming, too, because of the infrastructure here on the manufacturing side and things like the Michigan Mobility Center and we can both facilitate a lot of those introductions as well as be a permanent ‘man on the ground’ for companies that aren’t based here.

TC: Does Detroit have the professional services businesses in place to accommodate startups?

DR: In the last five years, we’ve seen a number of law firms [that work with startups] plant flags in Ann Arbor, and it’s encouraging to see.

Also, from a business standpoint, you have the University of Michigan’s Research Corridor and the automotive industry and OEM suppliers and access to mechanical and electrical engineers whose skill sets are as strong and competitive as anywhere in the country. Over the past five years, too, there has been a huge emphasis, including by city and state policymakers, [to strengthen Michigan’s positioning] including through the Office of Future Mobility and Electrification and Detroit’s economic development arm, which is bringing startups into the city. There are a lot of resources going in on the back of what you’ve seen on the real estate side and all that [billionaire investor] Dan Gilbert has done [for the city], including buying up skyscrapers and making them Class A office space and putting them back on the market.

TC: I had the opportunity to talk with Dan about the quality of life there and he’s obviously a big proponent.

DR: Michigan and Detroit are super unique. The suburbs feature really strong school systems, and living in Detroit proper is awesome. It feels like a startup of its own, with new restaurants opening up and new construction and people everywhere on patios, even while Detroit maintains its historic feel, with many buildings that are 100 years old. You also have the Great Lakes and skiing and the outdoors. You can draw comparisons to other startup hotbeds, but there are definite diamond-in-the-rough aspects to being in Michigan.

TC: Anecdotally, does it feel like people who grew up there are staying, rather than heading off in other directions?

DR: When I was an undergrad, 75% of people said, ‘I’m going to Chicago or New York.’ That has changed. Now people are moving to downtown Detroit. There’s high-end real estate, a walkability aspect, and if you’re a sports or music fan, the access you have to things like that is unrivaled. You don’t have to plan anything because there are 10 different things to choose from on a Friday night, from theaters to stadiums to art galleries. There are a lot of things pulling in different types of people.

News: EU plan for risk-based AI rules to set fines as high as 4% of global turnover, per leaked draft

April 14, 2021
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European Union lawmakers who are drawing up rules for applying artificial intelligence are considering fines of up to 4% of global annual turnover (or €20M, if greater) for a set of prohibited use-cases, according to a leaked draft of the AI regulation — reported earlier by Politico — that’s expected to be officially unveiled next

The plan to regulate AI has been on the cards for a while. Back in February 2020 the European Commission published a white paper, sketching plans for regulating so-called “high risk” applications of artificial intelligence.

At the time EU lawmakers were toying with a sectoral focus — envisaging certain sectors like energy and recruitment as vectors for risk. However that approach appears to have been rethought, per the leaked draft — which does not limit discussion of AI risk to particular industries or sectors.

Instead, the focus is on compliance requirements for high risk AI applications, wherever they may occur (weapons/military uses are specifically excluded, however, as such use-cases fall outside the EU treaties). Although it’s not abundantly clear from this draft exactly how ‘high risk’ will be defined.

The overarching goal for the Commission here is to boost public trust in AI, via a system of compliance checks and balances steeped in “EU values” in order to encourage uptake of so-called “trustworthy” and “human-centric” AI. So even makers of AI applications not considered to be ‘high risk’ will still be encouraged to adopt codes of conduct — “to foster the voluntary application of the mandatory requirements applicable to high-risk AI systems”, as the Commission puts it.

Another chunk of the regulation deals with measures to support AI development in the bloc — pushing Member States to establish regulatory sandboxing schemes in which startups and SMEs can be proritized for support to develop and test AI systems before bringing them to market.

Competent authorities “shall be empowered to exercise their discretionary powers and levers of proportionality in relation to artificial intelligence projects of entities participating the sandbox, while fully preserving authorities’ supervisory and corrective powers,” the draft notes.

What’s high risk AI?

Under the planned rules, those intending to apply artificial intelligence will need to determine whether a particular use-case is ‘high risk’ and thus whether they need to conduct a mandatory, pre-market compliance assessment or not.

“The classification of an AI system as high-risk should be based on its intended purpose — which should refer to the use for which an AI system is intended, including the specific context and conditions of use and — and be determined in two steps by considering whether it may cause certain harms and, if so, the severity of the possible harm and the probability of occurrence,” runs one recital in the draft.

“A classification of an AI system as high-risk for the purpose of this Regulation may not necessarily mean that the system as such or the product as a whole would necessarily be considered as ‘high-risk’ under the criteria of the sectoral legislation,” the text also specifies.

Examples of “harms” associated with high-risk AI systems are listed in the draft as including: “the injury or death of a person, damage of property, systemic adverse impacts for society at large, significant disruptions to the provision of essential services for the ordinary conduct of critical economic and societal activities, adverse impact on financial, educational or professional opportunities of persons, adverse impact on the access to public services and any form of public assistance, and adverse impact on [European] fundamental rights.”

Several examples of high risk applications are also discussed — including recruitment systems; systems that provide access to educational or vocational training institutions; emergency service dispatch systems; creditworthiness assessment; systems involved in determining taxpayer-funded benefits allocation; decision-making systems applied around the prevention, detection and prosecution of crime; and decision-making systems used to assist judges.

So long as compliance requirements — such as establishing a risk management system and carrying out post-market surveillance, including via a quality management system — are met such systems would not be barred from the EU market under the legislative plan.

Other requirements include in the area of security and that the AI achieves consistency of accuracy in performance — with a stipulation to report to “any serious incidents or any malfunctioning of the AI system which constitutes a breach of obligations” to an oversight authority no later than 15 days after becoming aware of it.

“High-risk AI systems may be placed on the Union market or otherwise put into service subject to compliance with mandatory requirements,” the text notes.

“Mandatory requirements concerning high-risk AI systems placed or otherwise put into service on the Union market should be complied with taking into account the intended purpose of the AI system and according to the risk management system to be established by the provider.

“Among other things, risk control management measures identified by the provider should be based on due consideration of the effects and possible interactions resulting from the combined application of the mandatory requirements and take into account the generally acknowledged state of the art, also including as reflected in relevant harmonised standards or common specifications.”

Europe sets out plan to boost data reuse and regulate ‘high risk’ AIs

Prohibited practices and biometrics

Certain AI “practices” are listed as prohibited under Article 4 of the planned law, per this leaked draft — including (commercial) applications of mass surveillance systems and general purpose social scoring systems which could lead to discrimination.

AI systems that are designed to manipulate human behavior, decisions or opinions to a detrimental end (such as via dark pattern design UIs), are also listed as prohibited under Article 4; as are systems that use personal data to generate predictions in order to (detrimentally) target the vulnerabilities of persons or groups of people.

A casual reader might assume the regulation is proposing to ban, at a stroke, practices like behavioral advertising based on people tracking — aka the business models of companies like Facebook and Google. However that assumes adtech giants will accept that their tools have a detrimental impact on users.

On the contrary, their regulatory circumvention strategy is based on claiming the polar opposite; hence Facebook’s talk of “relevant” ads. So the text (as written) looks like it will be a recipe for (yet) more long-drawn out legal battles to try to make EU law stick vs the self-interested interpretations of tech giants.

The rational for the prohibited practices is summed up in an earlier recital of the draft — which states: “It should be acknowledged that artificial intelligence can enable new manipulative, addictive, social control and indiscriminate surveillance practices that are particularly harmful and should be prohibited as contravening the Union values of respect for human dignity, freedom, democracy, the rule of law and respect for human rights.”

It’s notable that the Commission has avoided proposing a ban on the use of facial recognition in public places — as it had apparently been considering, per a leaked draft early last year, before last year’s White Paper steered away from a ban.

In the leaked draft “remote biometric identification” in public places is singled out for “stricter conformity assessment procedures through the involvement of a notified body” — aka an “authorisation procedure that addresses the specific risks implied by the use of the technology” and includes a mandatory data protection impact assessment — vs most other applications of high risk AIs (which are allowed to meet requirements via self-assessment).

“Furthermore the authorising authority should consider in its assessment the likelihood and severity of harm caused by inaccuracies of a system used for a given purpose, in particular with regard to age, ethnicity, sex or disabilities,” runs the draft. “It should further consider the societal impact, considering in particular democratic and civic participation, as well as the methodology, necessity and proportionality for the inclusion of persons in the reference database.”

AI systems “that may primarily lead to adverse implications for personal safety” are also required to undergo this higher bar of regulatory involvement as part of the compliance process.

The envisaged system of conformity assessments for all high risk AIs is ongoing, with the draft noting: “It is appropriate that an AI system undergoes a new conformity assessment whenever a change occurs which may affect the compliance of the system with this Regulation or when the intended purpose of the system changes.”

“For AI systems which continue to ‘learn’ after being placed on the market or put into service (i.e. they automatically adapt how functions are carried out) changes to the algorithm and performance which have not been pre-determined and assessed at the moment of the conformity assessment shall result in a new conformity
assessment of the AI system,” it adds.

The carrot for compliant businesses is to get to display a ‘CE’ mark to help them win the trust of users and friction-free access across the bloc’s single market.

“High-risk AI systems should bear the CE marking to indicate their conformity with this Regulation so that they can move freely within the Union,” the text notes, adding that: “Member States should not create obstacles to the placing on the market or putting into service of AI systems that comply with the requirements laid down in this Regulation.”

EU lawmakers are eyeing risk-based rules for AI, per leaked white paper

Transparency for bots and deepfakes

As well as seeking to outlaw some practices and establish a system of pan-EU rules for bringing ‘high risk’ AI systems to market safely — with providers expected to make (mostly self) assessments and fulfil compliance obligations (such as around the quality of the data-sets used to train the model; record-keeping/documentation; human oversight; transparency; accuracy) prior to launching such a product into the market and conduct ongoing post-market surveillance — the proposed regulation seeks shrink the risk of AI being used to trick people.

It does this by suggesting “harmonised transparency rules” for AI systems intended to interact with natural persons (aka voice AIs/chat bots etc); and for AI systems used to generate or manipulate image, audio or video content (aka deepfakes).

“Certain AI systems intended to interact with natural persons or to generate content may pose specific risks of impersonation or deception irrespective of whether they qualify as high-risk or not. In certain circumstances, the use of these systems should therefore be subject to specific transparency obligations without prejudice to the requirements and obligations for high-risk AI systems,” runs the text.

“In particular, natural persons should be notified that they are interacting with an AI system, unless this is obvious from the circumstances and the context of use. Moreover, users, who use an AI system to generate or manipulate image, audio or video content that appreciably resembles existing persons, places or events and would falsely appear to a reasonable person to be authentic, should disclose that the content has been artificially created or manipulated by labelling the artificial intelligence output accordingly and disclosing its artificial origin.

“This labelling obligation should not apply where the use of such content is necessary for the purposes of safeguarding public security or for the exercise of a legitimate right or freedom of a person such as for satire, parody or freedom of arts and sciences and subject to appropriate safeguards for the rights and freedoms of third parties.”

EU lawmakers say it’s time to go further on tackling disinformation

What about enforcement?

While the proposed AI regime hasn’t yet been officially unveiled by the Commission — so details could still change before next week — a major question mark looms over how a whole new layer of compliance around specific applications of (often complex) artificial intelligence can be effectively oversee and any violations enforced, especially given ongoing weaknesses in the enforcement of the EU’s data protection regime (which begun being applied back in 2018).

So while providers of high risk AIs are required to take responsibility for putting their system/s on the market (and therefore for compliance with all the various stipulations, which also include registering high risk AI systems in an EU database the Commission intends to maintain), the proposal leaves enforcement in the hands of Member States — who will be responsible for designating one or more national competent authorities to supervise application of the oversight regime.

We’ve seen how this story plays out with the General Data Protection Regulation. The Commission itself has conceded GDPR enforcement is not consistently or vigorously applied across the bloc — so a major question is how these fledgling AI rules will avoid the same forum-shopping fate?

GDPR’s two-year review flags lack of ‘vigorous’ enforcement

“Member States should take all necessary measures to ensure that the provisions of this Regulation are implemented, including by laying down effective, proportionate and dissuasive penalties for their infringement. For certain specific infringements, Member States should take into account the margins and criteria set out in this Regulation,” runs the draft.

The Commission does add a caveat — about potentially stepping in in the event that Member State enforcement doesn’t deliver. But there’s no near term prospect of a different approach to enforcement, suggesting the same old pitfalls will likely appear.

“Since the objective of this Regulation, namely creating the conditions for an ecosystem of trust regarding the placing on the market, putting into service and use of artificial intelligence in the Union, cannot be sufficiently achieved by the Member States and can rather, by reason of the scale or effects of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union,” is the Commission’s back-stop for future enforcement failure.

The oversight plan for AI includes setting up a mirror entity akin to the GDPR’s European Data Protection Board — to be called the European Artificial Intelligence Board — which will similarly support application of the regulation by issuing relevant recommendations and opinions for EU lawmakers, such as around the list of prohibited AI practices and high-risk systems.

Understanding Europe’s big push to rewrite the digital rulebook

Europe sets out the rules of the road for its data reuse plan

News: Amazon’s Alexa earbuds return with a smaller design and wireless charging

April 14, 2021
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It’s been about a year and a half since Amazon released the first Echo Buds. I reviewed them when they arrived, and they were, I don’t know, fine, I guess. They were a bit on the cheap side, facing some stiff competition in the category and, honestly, the idea of wearing Alexa on my head

But for a first attempt at the space, they weren’t bad. And now the company’s giving it a second go, with some tweaks to the original formula. Top of the list is a redesign that shrinks them 20% and makes them a bit lighter weight. The nozzle is smaller, which should make them more comfortable for longer periods, coupled with four ear tip sizes. The headphones are rated IPX4 for sweat and weather resistance.

Image Credits: Amazon

Amazon has moved on from the predecessor’s Bose noise canceling to its own proprietary tech, which it says can effectively double V1. There’s also an optional case that supports wireless charging via Qi, à la AirPods. The white case, in particular, looks…rather familiar.

That case runs an extra $20 over the $120 asking price for the USB-C case. Though Amazon’s running a limited-time deal to get the standard for $100 and the wireless charging version for $120. They’re also throwing in six months of Amazon Music Unlimited and Audible Plus. The new buds are also available in white. They’re up for preorder today and start shipping in May.

Image Credits: Amazon

Future software updates will bring a new VIP Filter to the headphones. Introduced on the Echo Frames, the feature lets users filter notifications from select senders. In addition to Alexa, the buds can also be set to access Siri or Google Assistant.

Amazon Echo Buds review

News: Plex raises $50M growth round to fuel ad-supported streaming, expansions

April 14, 2021
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Streaming media software maker Plex announced today it has raised a $50 million growth equity round from existing investor Intercap ahead of its planned business expansion into rentals, purchases and subscription content. This is the first financing Plex has taken on since 2014 and is being partly used to purchase shares and options from Plex’s early seed investors and shareholders from prior acquisitions, and to give the company’s earliest employees a bit of liquidity. Of the $50 million raised, $15 million will be put to work as new growth capital.

The company declined to disclose its valuation as a result of the funding — technically Plex’s Series C — but says it resulted in a relatively low dilution for its existing investors who have stayed in, including Kleiner Perkins and Nexstar, for example. Meanwhile, some of its earliest investors were able to get a 10x return or greater on their shares.

As part of the round, Intercap chairman and CEO Jason Chapnik joined the board of directors as chairman, and Intercap president James Merkur also joined the board. Including this financing, Plex has raised more than $60 million.

To date, Plex has been cautious about fundraising because, as Plex CEO Keith Valory says, “we really hadn’t had to.” That is, the company has been profitable on its own.

But things have been changing at Plex in recent years. Though it has always catered to the home media enthusiast with its software for organizing movies, TV, music and photos on users’ home networks, Plex more seriously began to go after the larger market of cord cutters with its 2017 launch of a low-cost, DIY streaming TV service. In the years since, it expanded into free, ad-supported streaming and last year took on rivals like ViacomCBS-owned Pluto TV with its own launch of a live TV service, also supported by ads.

Plex’s secret weapon: cross-media integrations

Today, Plex now offers more than 20,000 free on-demand movies and shows and over 150 free live TV channels in 193 countries, alongside access to other content, including personal media libraries, streaming music and podcasts.

As it expanded the types of services it offers, it also lowered the barriers to entry for Plex newcomers. Users now no longer have to sign up for an account to access the ad-supported video or live linear streaming service, which impacts Plex’s business model.

Image Credits: Plex

“That is much more tailored towards paid marketing — like getting integrated into the search capabilities for devices like Roku, Fire TV or Vizio, etc. But then, also, using [search engine marketing] and Facebook and other, even on-device paid marketing programs to get people to get in and start watching something,” says Valory. “We found that the kind of paid marketing and customer acquisition costs for that business is really efficient. We’ve been able to get profitable on that marketing investment really, really quickly,” he adds.

That model is what prompted Plex to consider raising capital to grow this aspect of its business and expand in new areas, as well.

That included managing subscription content and offering rentals and purchases — something Plex began to talk about last year as part of its roadmap, saying they could potentially arrive in 2020. But then COVID hit, and though streaming itself grew — particularly ad-supported video in April through June or July — some Plex employees were hit harder than others by the pandemic. And Plex also needed more time to ready the infrastructure involved.

It’s now preparing to launch these efforts this year, perhaps initially with a video rental marketplace or a subscription aggregator. (Plex says it’s not sure which will get out of the gate first because both are being built simultaneously.)

With the subscription play, Plex isn’t looking just at selling subscriptions the way that say, Amazon or Apple do through Prime Video Channels or Apple TV Channels. It’s also considering deep linking technology to get users to their favorite streaming apps, including those from the big-name brands that otherwise wouldn’t want to be a part of someone else’s service. This could position Plex as a competitor to services like Reelgood, which today allows users to track what they’re watching and get recommendations across all their streaming apps, not just within each individual app.

Plex’s video rental (and maybe purchases) marketplace, meanwhile, will be much like any other, offering users a chance to pay for content they couldn’t find a way to stream.

Both ideas fit in with Plex’s larger goal to become a one-stop shop for all your media needs.

“We’ve always had a fairly audacious mission. You shouldn’t have to go to 20 different apps to get the content you care about. You should be able to go to one place and we should be able to do all that for you,” notes Valory.

Image Credits: Plex

To fuel its growth on both this front and for its ad-supported businesses, Plex plans to use the funds to expand its now 100-person team with investments in marketing and monetization teams, as well as on the development side.

“Certainly, there’s still way more work to do in terms of amplifying the efforts on our performance and growth marketing and engagement,” Valory says. “I mean, the business is growing super fast, so we’ve done a pretty good job, to date, of building out the muscles to get new users in the pipeline for the AVOD business. There’s still a ton of work to do there, but a lot of the muscles that we’re building there will help in terms of the top-of-funnel and increasing engagement for the whole product,” he adds.

Plex launches a live TV service with over 80 free channels, most available worldwide

Intercap, which led Plex’s round, is in it for the long haul — citing in particular how the fragmentation happening now in the streaming landscape could ultimately be good for Plex’s own growth.

“Content providers, creators and consumers are all paying the price for the explosion of so many streaming media services and the industry needs a trusted way for the experience to be as enjoyable as possible,” says Chapnik. “Plex has always been at the forefront of solving new media challenges and we believe they are primed to solve this problem — they are the cable company of the future.”

News: Upstack raises $50M for its platform and advisory to help businesses plan and buy for digital transformation

April 14, 2021
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Digital transformation has been one of the biggest catchphrases of the past year, with many an organization forced to reckon with aging IT, a lack of digital strategy, or simply the challenges of growth after being faced with newly-remote workforces, customers doing everything online and other tech demands. Now, a startup called Upstack that has

Now, a startup called Upstack that has built a platform to help those businesses evaluate how to grapple with those next steps — including planning and costing out different options and scenarios, and then ultimately buying solutions — is announcing financing to do some growth of its own.

The New York startup has picked up funding of $50 million, money that it will be using to continue building out its platform and expanding its services business.

The funding is coming from Berkshire Partners, and it’s being described as an “initial investment”. The firm, which makes private equity and late-stage growth investments, typically puts between $100 million and $1 billion in its portfolio companies so this could end up as a bigger number, especially when you consider the size of the market that Upstack is tackling: the cloud and internet infrastructure brokerage industry generates annual revenues “in excess of $70 billion,” the company estimates.

We’re asking about the valuation, but PitchBook notes that the median valuation in its deals is around $211 million. Upstack had previously raised around $35 million.

Upstack today already provides tools to large enterprises, government organizations, and smaller businesses to compare offerings and plan out pricing for different scenarios covering a range of IT areas, including private, public and hybrid cloud deployments; data center investments; network connectivity; business continuity and mobile services, and the plan is to bring in more categories to the mix, including unified communications and security.

Notably, Upstack itself is profitable and names a lot of customers that themselves are tech companies — they include Cisco, Accenture, cloud storage company Backblaze, Riverbed and Lumen — a mark of how digital transformation and planning for it are not necessarily a core competency even of digital businesses, but especially those that are not technology companies. It says it has helped complete over 3,700 IT projects across 1,000 engagements to date.

“Upstack was founded to bring enterprise-grade advisory services to businesses of all sizes,” said Christopher Trapp, founder and CEO, in a statement. “Berkshire’s expertise in the data center, connectivity and managed services sectors aligns well with our commitment to enabling and empowering a world-class ecosystem of technology solutions advisors with a platform that delivers higher value to their customers.”

The core of the Upstack’s proposition is a platform that system integrators, or advisors, plus end users themselves, can use to design and compare pricing for different services and solutions. This is an unsung but critical aspect of the ecosystem: We love to hear and write about all the interesting enterprise technology that is being developed, but the truth of the matter is that buying and using that tech is never just a simple click on a “buy” button.

Even for smaller organizations, buying tech can be a hugely time-consuming task. It involves evaluating different companies and what they have to offer — which can differ widely in the same category, and gets more complex when you start to compare different technological approaches to the same problem.

It also includes the task of designing solutions to fit one’s particular network. And finally, there are the calculations that need to be made to determine the real cost of services once implemented in an organization. It also gives users the ability to present their work, which also forms a critical part of the evaluating and decision-making process. When you think about all of this, it’s no wonder that so many organizations have opted to follow the “if it ain’t broke, don’t fix it” school of digital strategy.

As technology has evolved, the concept of digital transformation itself has become more complicated, making tools like Upstack’s more in demand both by companies and the people they hire to do this work for them. Upstack also employs a group of about 15 advisors — consultants — who also provide insight and guidance in the procurement process, and it seems some of the funding will also be used to invest in expanding that team.

(Incidentally, the model of balancing technology with human experts is one used by other enterprise startups that are built around the premise of helping businesses procure technology: BlueVoyant, a security startup that has built a platform to help businesses manage and use different security services, also retains advisors who are experts in that field.)

The advisors are part of the business model: Upstack’s customers can either pay Upstack a consulting fee to work with its advisors, or Upstack receives a commission from suppliers that a company ends up using, having evaluated and selected them via the Upstack platform.

The company competes with traditional systems integrators and consultants, but it seems that the fact that it has built a tech platform that some of its competitors also use is one reason why it’s caught the eye of investors, and also seen strong growth.

Indeed, when you consider the breadth of services that a company might use within their infrastructure — whether it’s software to run sales or marketing, or AI to run a recommendation for products on a site, or business intelligence or RPA — it will be interesting to see how and if Upstack considers deeper moves into these areas.

“Upstack has quickly become a leader in a large, rapidly growing and highly fragmented market,” said Josh Johnson, principal at Berkshire Partners, in a statement. “Our experience has reinforced the importance of the agent channel to enterprises designing and procuring digital infrastructure. Upstack’s platform accelerates this digital transformation by helping its advisors better serve their enterprise customers. We look forward to supporting Upstack’s continued growth through M&A and further investment in the platform.”

News: Outschool is the newest edtech unicorn

April 14, 2021
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Outschool, a marketplace providing small-group, virtual after-school activities for children has raised a $75 million Series C led by Coatue and Tiger Global Management. TechCrunch first learned of the round from sources familiar with the transaction; the company confirmed the deal to TechCrunch later today. The new funding values Outschool’s at $1.3 billion, around 4

The new funding values Outschool’s at $1.3 billion, around 4 times higher than its roughly $320 million valuation set less than a year ago.

To date, Outschool has raised $130 million in venture capital to date, inclusive of its new round.

The company’s valuation growth curve is steep for any startup, let alone an edtech concern that saw the majority of its growth during the pandemic. But while CEO and co-founder Amir Nathoo says his company’s new valuation is partially a reflection of today’s fundraising frenzy, he thinks revenue sustainability is a key factor in his company’s recent fundraise.

How is edtech spending its extra capital?

The new unicorn’s core product is after school classes for entertainment or supplemental studies, on an ongoing or one-off basis. As the company has grown, ongoing classes have grown from 10% of its business to 50% of its business, implying that the startup is generating more reliable revenue over time.

The change from one-off classes to enduring engagements could be good for the company and its students. On the former, recurring revenue is music to investor ears. On the latter, students need repetition to develop close relationships with a course and a group. Ongoing classes about debate or a weekly zombie dance class makes for a stickier experience.

Nathoo says everyone always asks what the most popular classes are, but said it continues to change since its main clientele – kids – have evolving favorites. One week it might be math, the other it might be minecraft and architecture.

Its changing revenue profile helped Outschool generate more than $100 million in bookings in 2020, compared to $6 million in 2019 and just $500,000 in 2017. Nathoo declined to share the company’s expectations for 2021 beyond “projecting to grow aggressively.”

Outschool reached brief positive cash flow last year as a result of massive growth in bookings, but Nathoo shared that that has since changed.

“My goal is to always stay within touching distance of profit,” he said. “But given the fast change in the market, it makes sense to invest aggressively into opportunities that will make sense in the long-term.”

What’s next

Nathoo expects to grow Outschool’s staff from 110 people to 200 by the end of the year, with a specific focus on international growth. In 2020, Outschool launched in Canada, New Zealand, Australia and the UK, so hiring will continue there and elsewhere.

On the flip side, Outschool isn’t teachers at the same clip it was at the height of the pandemic in the United States. When the pandemic started, Outschool had 1,000 teachers on its platform. Within months, Outschool grew to host 10,000 teachers, a screening process that the founder explained was resource-heavy but vital. Outschool makes more money if teachers join the platform full-time: teachers pocket 70% of the price they set for classes, while Outschool gets the other 30% of income. But, Nathoo views the platform as more of a supplement to traditional education. Instead of scaling revenue by convincing teachers to come on full-time, the CEO is growing by adding more part-time teachers to the platform.

Similar to how Airbnb created a host endowment fund to share its returns with the people who made its platform work, Outschool has dedicated 2% of its fundraise to creating a similar program to reward teachers on its platform in the event of liquidity.

One of Outschool’s most ambitious goals is, ironically, to go in school. While some startups have found success selling to schools amid the pandemic, district sales cycles and tight budgets continue to be a difficult challenge for scaling purposes. Still, the startup wants to make its way into students’ lives through contracts with schools and employers, which could help low income families access the platform. Nathoo says enterprise sales is a small part of its business, but the strategy began just last year as part of COVID-19 response. It is currently piloting its B2B offering with a number of schools.

Teachers are leaving schools. Will they come to startups next?

Outschool will also consider acquiring early-stage startups focused on direct-to-consumer learning in international markets. While no acquisitions have been made by the startup to date, consolidation in the edtech sector broadly is heating up.

Nathoo stressed that Outschool’s continued growth, even as schools reopen, has de-risked the company from post-pandemic worries.

“There’s going to be a big spike of in-person activities because everyone is going to want to do that at once,” he said. “But then we’re going to settle at some more even distribution because the future of education is hybrid.”

He added that Outschool’s ethos around online learning hasn’t changed since conception. The company has never seen opportunity in the for-credit, subject-matter digital education sector, and instead has focused more on supplemental ways to support students after school.

“That’s the piece of the education system that is underserved and that was missing,” he said. “The advantages of online learning will remain in the convenience, the cost, and the variety of what you can get that isn’t always available locally.”

News: Pale Blue Dot aims to be Europe’s premier early-stage climate investor and has $100 million to prove it

April 14, 2021
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When Hampus Jakobsson, Heidi Lindvall, and Joel Larsson, all well-known players in the European venture ecosystem, began talking about their new firm Pale Blue Dot, they began by looking at the problems with venture capital. For the three entrepreneurs and investors, whose resumes included co-founding companies and accelerators like The Astonishing Tribe (Jakobsson) and Fast

For the three entrepreneurs and investors, whose resumes included co-founding companies and accelerators like The Astonishing Tribe (Jakobsson) and Fast Track Malmö (Lindvall and Larsson) and working as a venture partner at BlueYard Capital (Jakobsson again), the problems were clear.

Their first thesis was that all investment funds should be impact funds, and be taking into account ways to effect positive change; their second thesis was that since all funds should be impact funds, what would be their point of differentiation — that is, where could they provide the most impact.

The three young investors hit on climate change as the core mission and ran with it.

As it was closing on €53 million ($63.3 million) last year, the firm also made its first investments in Phytoform, a London headquartered company creating new crops using computational biology and synbio; Patch, a San Francisco-based carbon-offsetting platform that finances both traditional and frontier “carbon sequestration” methods; and 20tree.ai, an Amsterdam-based startup, using machine learning and satellite data to understand trees to lower the risk of forest fires and power outages.

Pale Blue Dot is a new early-stage fund backing ‘climate-focused’ startups in Europe

Now they’ve raised another €34 million and seven more investments on their path to doing between 30 and 35 deals.

These investments primarily focus on Europe and include Veat, a European vegetarian prepared meal company; Madefrom, a still-in-stealth company angling to make everyday products more sustainable; HackYourCloset, a clothing rental company leveraging fast fashion to avoid landfilling clothes; Hier, a fresh food delivery service; Cirplus, a marketplace for recycled plastics trading; and Overstory, which aims to prevent wildfires by giving utilities a view into vegetation around their assets.

The team expects to be primarily focused on Europe, with a few opportunistic investments in the U.S., and intends to invest in companies that are looking to change systems rather than directly affect consumer behavior. For instance, a Pale Blue Dot investment likely wouldn’t include e-commerce filters for more sustainable shopping, but potentially could include investments in sustainable consumer products companies.

The size of the firm’s commitments will range up to €1 million and will look to commit to a lot of investments. That’s by design, said Jakobsson. “Climate is so many different fields that we didn’t want to do 50% of the fund in food or 50% of the fund in materials,” he said. Also, the founders know their skillsets, which are primarily helping early stage entrepreneurs scale and making the right connections to other investors that can add value.

“In every deal we’ve gotten in co-investors that add particular, amazing, value while we still try to be the shepherds and managers and sherpas,” Jakobsson said. “We’re the ones that are going to protect the founder from the hell-rain of investor opinions.”

Another point of differentiation for the firm are its limited partners. Jakobsson said they rejected capital from oil companies in favor of founders and investors from the tech community that could add value. These include Prima Materia, the investment vehicle for Spotify founder Daniel Ek; the founders of Supercell, Zendesk, TransferWise and DeliveryHero are also backing the firm. So too, is Albert Wenger, a managing partner at Union Square Ventures.

The goal, simply, is to be the best early stage climate fund in Europe.

“We want to be the European climate fund,” Lindvall said. “This is where we can make most of the difference.”

European VC firm Pale Blue Dot plans to fund 40 ‘planet-positive’ startups

News: Connected Cannabis Co. raises $30 million to bring its designer weed strains to more states

April 14, 2021
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Connected Cannabis Co. was founded in 2009 and has since grown to become a leading cultivator of designer cannabis strains. Today, the company announced $30 million in debt and equity financing. This comes after the company raised a $25 million Series A in 2019. The new round was led by existing investors including Navy Capital

Currently, Connected Cannabis Co. operates cultivation and retail facilities in California and Arizona. With the additional financing, it intends to expand elsewhere. The company says it plans on focusing on states with robust cannabis cultures and promising outlook for growth such as Nevada and Michigan.

“We’re thrilled to bring Emerald Park Capital and Presidio into the Connected family and welcome back our long-term partners that have supported our company’s mission from the very beginning,” said Sam Ghods, CEO of Connected. “We are steadfast in our development of new, best-in-class genetics and our production of top-quality flower that has resulted in impressive growth and unwavering customer loyalty. That same commitment and quality that we’ve prided ourselves on from day one will stay with us as we enter additional states. We look forward to bringing our true product and brand to consumers in new markets – that is our highest priority every time we look at expansion.”

Connected Cannabis is among a growing number of cannabis-focused companies amassing a war chest ahead of expanding outside of select regions. As more states in the United States legalize cannabis, more companies are exploring expansion options. Strict federal regulations often slow the process and make it cumbersome for cultivators like Connected to operate in different states, which often have different regulations and federal law prohibits interstate commerce.

Growing cannabis is easy. The plant is hardy is hearty and forgiving. Growing cannabis at scale is anything but hearty and forgiving, which is why Connected turned to additional funding to fuel its national growth.

News: This startup wants to use technology to help Austin’s housing shortage problem

April 14, 2021
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The sheer volume of people migrating to Austin from all over the country, but particularly from the San Francisco Bay Area, has been making headlines for a while now. One result of this continued migration is a steady surge in housing prices due to increased demand and low inventory that dropped to nearly zero earlier

The sheer volume of people migrating to Austin from all over the country, but particularly from the San Francisco Bay Area, has been making headlines for a while now.

One result of this continued migration is a steady surge in housing prices due to increased demand and low inventory that dropped to nearly zero earlier this year. Now, Homebound, a Santa Rosa, California-based tech-enabled homebuilding startup, is entering the Austin market with the goal of helping ease some of the pain felt in the city by offering an alternative to buying existing homes.

Homebound has raised about $73 million over the years from the likes of Google Ventures, Fifth Wall, Khosla, Sound Ventures, Atomic and Thrive Capital. It raised a $35 million Series B last April and then closed on a $20 million convertible note late last year. CEO Nikki Pechet and Atomic managing partner Jack Abraham founded the company in 2017 after Abraham lost his home to wildfires.

Essentially serving as a virtual general contractor, Homebound combines technology and a network for “vetted” and licensed building “experts” to manage the new home construction from the design phase to completion. The startup has developed tools to track and manage hundreds of unique tasks associated with building a home.

This is a good time to start a proptech company

Up until this point, Homebound has been focused on helping homeowners navigate the challenges and complexities of rebuilding after wildfires in California. But this month, Homebound will be expanding to Austin, its first non-disaster market, with the goal of taking learnings from those rebuilds and applying the same “streamlined, tech-enabled building process” to make custom homebuilding an option for local homeowners.

I talked with Homebound’s CEO and co-founder, Nikki Pechet, to learn more.

With Homebound, she said, the company is out to serve as a “next gen” homebuilder to make it possible “for anyone, anywhere to build a home.”

Austin’s housing market is definitely overheated, with homes going 10-30% above asking in some cases (I should know, I live here).

“Homeowners have been reaching out to us from across the country asking us to come to their market,” Pechet said. “We’re already seeing Austin grow faster than any of our other markets did in their early days. It’s going to be a huge market for us.”

It’s a model Pechet envisions replicating in other cities with similar housing supply issues such as Miami, Tampa, Raleigh and Charlotte.

“This is just the start,” Pechet said. “We’re taking the platform to markets across the country to help exactly with this issue.”

The company starts by helping a potential homeowner identify land they want to build on, or help them find a lot among the inventory Homebound has already built up. From there, it can help with everything from architectural plans to design to actual construction via its platform. Homebound offers a set of plans for people to choose from, with varying levels of customization.

Building costs for a typical single-family home in the Austin area will start around $300,000 depending on the size, complexity of house, lot size and location. That does not include land cost. Some people are opting to build second units on existing properties.

“In most cases, people can build a new home for less than they can pay for an existing home just because of the dynamics,” Pechet said.

News: The TechCrunch Survey of Tech Startup Hubs in England and Wales

April 14, 2021
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TechCrunch is embarking on a major new project to survey European founders and investors in cities outside the major European capitals. Over the next few weeks, we will ask entrepreneurs in these cities to talk about their ecosystems, in their own words. For this survey we are interested in startup hubs in England and Wales.

TechCrunch is embarking on a major new project to survey European founders and investors in cities outside the major European capitals.

Over the next few weeks, we will ask entrepreneurs in these cities to talk about their ecosystems, in their own words. For this survey we are interested in startup hubs in England and Wales. (Scotland will follow, and Northern Ireland is here).

So this is your chance to put your cities on the Techcrunch Map!

We’re like to hear from founders and investors. We are particularly interested in hearing from diverse founders and investors. These are our humble suggestions for the cities we’d most like to hear from:

Birmingham
Brighton
Bristol & Bath
Cambridge
Cardiff
Liverpool
Manchester
Newcastle
Oxford
Reading and Thames valley
York

If you are a tech startup founder or investor in one of the above cities please fill out the survey form here.

The more founders/investors we hear from in a particular city, the more likely it is that city will be featured in TechCrunch.

This is the follow-up to the huge survey of investors (see also below) we’ve done over the last six or more months, largely in capital cities.

These formed part of a broader series of surveys we’re doing regularly for ExtraCrunch, our subscription service that unpacks key issues for startups and investors.

In the first wave of surveys, the cities we wrote about were largely capitals. You can see them listed here.

This time, we will be surveying founders and investors in Europe’s other cities to capture how European hubs are growing, from the perspective of the people on the ground.

We’d like to know how your city’s startup scene is evolving, how the tech sector is being impacted by COVID-19, and generally how your city will evolve.

We leave submissions mostly unedited and are generally looking for at least one or two paragraphs in answers to the questions.

So if you are a tech startup founder or investor in one of these cities please fill out our survey form here.

Thank you for participating. If you have questions you can email mike@techcrunch.com and/or reply on Twitter to @mikebutcher.

Monthly Archives: April 2021