July 2021 – Page 56 – Digital Pulse

News: How to navigate an acquisition without alienating your current employees

July 14, 2021
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M&As can provide a bright future for the company, but the process can be stressful. Talent is your most valuable asset, so make sure you give employees what they need to weather the changes.

Babak Varjavandi
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Babak Varjavandi is president and CEO of Nakisa, which provides enterprise business solutions for organization design and accounting and compliance.

Many watchers expected an uptick in merger and acquisition activity when the world began to emerge from the pandemic in 2021, but the current spike is record-breaking, topping $2.4 trillion in the first half of the year. That’s more than a 150% increase over last year’s M&A activity level.

Coming out of the pandemic, there’s a worker shortage that has complex causes, which has increased the competition for talent. On top of that, we’re experiencing what has been coined the “Great Resignation,” with 4 million people quitting their jobs in April alone.

The good news is that with the right leadership approach and preparation, you can address uncertainty and keep your valuable talent on board.

Business leaders everywhere have a greater appreciation of the value of their people as a competitive asset. So, if you’re contemplating a merger or acquisition at this critical juncture, you know it’s important to retain talent and keep employees happy during the M&A process. It’s simple — you need them.

The war for talent is real

Companies — especially startups looking for highly skilled talent— were locked in a war for talent before the pandemic. COVID-19 intensified it, and if employers thought they had the upper hand when workers were getting hammered with layoffs and furloughs, they know better now. A report published earlier this year cited this startling statistic: More than half of workers in North America said they plan to look for a new job when the pandemic ends.

Money alone won’t solve the problem for employees who are motivated by purpose. Employees who are invested in your company put their heart and soul into it, which is invaluable. But employers have to work harder to keep that loyalty, and M&A situations threaten the status quo.

Acquisitions add an element of uncertainty, and workers who feel uncertain about a company’s future and their role in it are more likely to look elsewhere. The good news is that with the right leadership approach and preparation, you can address that uncertainty and keep your valuable talent on board. Here’s some advice for keeping employees top of mind during M&A:

Communicate, communicate, communicate: If you’re steering a startup or established tech company through an acquisition, the most important thing you can do is share your vision of what the new company will look like and how employees will be a part of its success. Employees today have a more entrepreneurial mindset than previous generations. They are purpose-driven, and they need to feel like they have a stake in the business. In a situation where uncertainty is driving anxiety (and causing employees to eye an exit), it’s hard to overcommunicate, and undercommunicating can be disastrous.

News: Twitter is shutting down Fleets on August 3, citing low usage

July 14, 2021
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Stories that disappear after a period of time are where the action is on social platforms like Snapchat, Instagram, WhatsApp and Facebook. But when it comes to Twitter, it looks the product itself is going to be going away in a matter of days. Twitter has confirmed that Fleets — its own take on ephemeral

The company said the reason for the move is a lack of activity — specifically, among the more hesitant Twitter users who it said it was trying to target with Fleets in the first place. Kayvon Beykpour, Twitter’s head of consumer product, said that the company would be building other products, but didn’t say whether they would be bringing in any more ephemeral aspects to any of them.

Spaces, the company’s answer to Clubhouse, currently sits in the same strip at the top of the app as Fleets and it will become the sole occupant of that horizontal carousel when Fleets disappears.

Meanwhile, the company noted in a blog post from Ilya Brown, VP of Product, that some of what it built for Fleets — such as the veritical, full-screen advertising test that it ran only as recently as June — would possibly reappear in other places on the app.

The announcement shouldn’t come as a surprise, given that the most we’ve heard about Fleets has been when Twitter launched them, or made some kind of product iteration on them, or found itself facing a technical glitch. Yet in terms of viral traction, or high profile Fleets, there hasn’t been much.

Most of all, though shut-down also underscores how Twitter continues to struggle to make its product accessible in a more mainstream way to a wider pool of users; and how it struggles to boost engagement by tapping users who are there but just to sit back with their popcorn and watch the action.

Back when Twitter first started testing Fleets in limited markets in March 2020, its bet had been that some people weren’t tweeting as much as others because the permanent format of Twitter put them off. Make the tweets disappear, they thought, and more people would get talking… not least because the format was proving so popular on other social platforms. (Before it made its move last year, Twitter was, indeed, one of the few social media sites that had yet to launch a stories format.)

Initial rollout of the feature looked promising — at least, if you consider it a positive indicator that Fleets crashed from the surge of people using it when it first became a available worldwide.

But longer term, it turns out those quiet Twitter users weren’t much interested in Fleets, either, and that the only people really posting stories as Fleets were already pretty active on the platform.

To be clear, we don’t know how many of power users were using Fleets, either. Twitter declined to provide any usage numbers or other stats on Fleets when asked.

There were other issues that Twitter never quite resolve with the user experience of Fleets. For example, was it an issue or confusing at all that when Twitter launched Spaces they appeared in the same place as Fleets? Or was that lack of clarity the writing on the wall for Fleets?

And with Fleets, it was never completely clear how Twitter decided what to put in the space. Some people follow thousands of accounts, and there was never a way to specifically follow people for their Fleets, so what you saw became a question of Twitter’s algorithms.

It seems that Twitter is not closing the door on trying more experiments, even if it’s had a lacklustre track record in getting some of them into wider use. “Bg bets are risky and speculative, so by definition a number of them won’t work,” Beykpour noted. “If we’re not having to wind down features every once in a while, then it would be a sign that we’re not taking big enough swings.”

News: FlyMachine raises $21 million to build a virtual concerts platform for a post-pandemic world

July 14, 2021
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As concerts and live events return to the physical world stateside, many in the tech industry have wondered whether some of the pandemic-era opportunities around virtualizing these events are lost for the time being. San Francisco-based FlyMachine is aiming to seek out the holy grail of the digital music industry, finding a way to capture

San Francisco-based FlyMachine is aiming to seek out the holy grail of the digital music industry, finding a way to capture some of the magic of live concerts and performances in a live-streamed setting. The startup hopes that pandemic era consumer habits around video chat socialization combined with an industry in need of digital diversification can push their flavor of virtual concerts into the lives of music fans.

The startup’s ambitions aren’t cheap, FlyMachine tells TechCrunch it has raised $21 million in investor funding to bankroll its plans. The funding has been led by Greycroft Partners and SignalFire, with additional participation from Primary Venture Partners, Contour Venture Partners, Red Sea Ventures, and Silicon Valley Bank.

The virtual concert industry didn’t have as big of a lockdown moment as some hoped for. Spotify experimented with virtual events. Meanwhile, startups like Wave raised huge bouts of VC funding to turn real performers into digital avatars in a bid to create more digital-native concerts. And while some smaller artists embraced shows over Zoom or worked with startups like Oda who created live concert subscriptions, there were few mainstream hits among bigger acts.

Wave opens the door for musicians looking for a ‘metaverse’ beyond Fortnite

To make FlyMachine’s brand of virtual concerts a thing, the startup isn’t trying to convert potential in-person attendees of a show into virtual participants, instead hoping to create an attractive experience for the folks who would normally have to skip the show. Whether those virtual attendees were too far from a venue, couldn’t get a babysitter for the night, or just aren’t jazzed about a mosh pit scene anymore, FlyMachine is hoping there are enough potential attendees on the bubble to sustain the startup as they try to blur the lines between “a night in and a night out,” CEO Andrew Dreskin says.

The startup’s strategy centers on building up partnerships with name brand concert venues around the US — Bowery Ballroom in New York City, Bimbo’s 365 Club in San Francisco, The Crocodile in Seattle, Marathon Music Works in Nashville and Teragram Ballroom in Los Angeles, among them — and live-streaming some of the shows at those venues to at-home audiences. FlyMachine’s team has deep roots in the music industry, Dreskin founded Ticketfly (acquired by Pandora) while co-founder Rick Farman is also the co-founder of Superfly which puts on the Bonnaroo and Outside Lands music festivals.

In terms of actual experience — and I had the chance to experience one of the shows (pictured above) before writing this — FlyMachine has done their best to recreate the experience of shouting over the tunes to talk with your buddies nearby. In FlyMachine’s world this is attending the show in a “private room” with your other friends live-streaming in video chat bubbles from their homes. It’s well-done and doesn’t distract too much from the actual concert, but you can adjust the sound levels of your friends and the music when the time calls for it.

FlyMachine’s platform launch earlier this year, arriving as many Americans have been vaccinated and many concert-goers are preparing to return to normal, might have been considered a bit late to the moment, but the founding team sees a long-term opportunity that COVID only further highlighted.

“We weren’t in a mad dash to get the product out the door while people were sequestered in their homes because we knew this would be part of the fabric of society going forward,” Dreskin tells TechCrunch.

Are virtual concerts here to stay?

News: What the growing federal focus on ESG means for private markets

July 14, 2021
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As regulations around ESG change, private players might not have to comply, but they should adapt to position themselves to effectively operate in a new regulatory environment.

Anthony Cimino
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Anthony Cimino, head of policy at Carta, works with policymakers and innovators to drive economic opportunity through expanding equity ownership and private market liquidity.

The increasing regulation of ESG (environmental, social, governance) disclosure reporting may have started in the public markets, but will almost certainly have downstream effects for private market actors — for founders, companies and investors.

Since his confirmation as the chair of the U.S. Securities and Exchange Commission in April, Gary Gensler has made reforming ESG disclosures concerning climate change risk and human capital a top priority. The SEC’s regulatory agenda confirms as much. And Gensler is not alone in his focus on ESG at the federal level.

President Joe Biden issued an executive order encouraging regulators to assess climate-related financial risk. At the end of March, Treasury Secretary Janet Yellen wrote on Twitter that “our future livelihoods … depend on the financial sector to build a more sustainable and resilient economy.” Congress is considering measures that would require increased ESG disclosures, including the Improving Corporate Governance Through Diversity Act, the Diversity and Inclusion Data Accountability and Transparency Act and the Climate Risk Disclosure Act.

This renewed federal focus on ESG issues will bolster the SEC’s effort to create disclosure practices for public companies and mutual funds. Regardless of whether these federal policies around ESG come to pass, they reflect a momentum that will almost certainly impact private markets:

Firms that want to go public — whether via SPAC, direct listing or traditional IPO — may have to seriously consider board diversity or environmental reporting in conjunction with — or well in advance of — their debuts.
Private companies seeking to align with public companies as vendors or partners may be expected to meet specific ESG requirements before the engagement.
Startup founders and venture funds raising capital may work to maintain the largest target market by proactively scoping ESG engagements to ensure they meet criteria for investors who may have their own ESG-focused investment requirements.

In his confirmation hearing before the Senate in early March, Gensler said, “Markets — and technology — are always changing. Our rules have to change along with them.”

The federal government is moving to increase regulation around ESG disclosure requirements with the goals of establishing greater transparency and metrics for public companies.

The federal government is moving to increase regulation around ESG disclosure requirements with the goals of establishing greater transparency and metrics for public companies. These requirements are a response to the changing markets — demands from consumers, scrutiny from investors and a general insistence for higher corporate standards from society at large.

Private markets aren’t immune to these forces. Already, three-quarters of investors in a 2020 survey said it was very important to measure the success of sustainability initiatives, but they also said there’s been a lack of clarity on how to define and measure outcomes.

To be sure, private markets are not headed toward full-scale adoption of ESG regulations. They will not be subject to the same reporting or disclosures framework as their public counterparts. Not today, and possibly not for some time.

But we may begin to see private investors, funds and companies adapting to get ahead of ESG regulation and position themselves to effectively operate in a new — albeit adjacent — regulatory environment. In their case, the rules may not change — but the game could.

What SOSV’s Climate Tech 100 tells founders about investors in the space

News: LG Chem will invest $5.2B in battery materials through 2025

July 14, 2021
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South Korea’s LG Chem has earmarked ₩6 trillion ($5.2 billion) over the next four years to build out its battery materials business. The investment comes as automakers and state regulators set targets to transition away from internal combustion engine vehicles, in a shift that will likely be the most transformative to the mobility industry since

The investments will focus on boosting the production of anode materials, separation membranes, cathode binders, and other essential battery components. This includes plans to build a massive cathode plant in the South Korean city of Gumi, that will increase the industrial giant’s anode production capacity by seven-fold, from 40,000 tons to around 260,000 tons by 2026. LG Chem had already agreed to invest ₩500 billion ($424 million) in the plant, which was announced in July 2019.

LG is also planning to expand its production capacity of carbon nanotubes (CNT), an advanced material used to enhance the performance of lithium-ion batteries, from 1,700 tons this year to triple or more by 2025. To get there, it’s planning on scaling output at its CNT Plant 2 and commencing construction on a third CNT plant this year.

On the supply chain front, LG said its preparing a joint venture with a mining company for the supply of metals and other raw materials for battery components. The company will “actively pursue cooperation in various ways with companies possessing mining, smelting and refining technologies to strengthen its metal sourcing competitiveness,” it said in a statement.

LG Chem is already one of the largest manufacturers of batteries and battery materials, with customers including Volkswagen, General Motors, and Tesla. And the company only sees the global battery materials market expanding – from ₩39 trillion ($34 billion) in 2021 to ₩100 trillion ($87 billion) by 2026.

Along with the battery investment, LG said it will pour an additional ₩3 trillion ($2.6 billion) into sustainable petrochemicals, like biodegradable polymers and plant-based bio-materials, and ₩1 trillion ($872 million) into its drug development business line.

CEO Hak Cheol Shin said the company is examining even more opportunities to shift toward an sustainable business portfolio. “This will be the most revolutionary change since the establishment of the company that will upgrade the value and sustainability of LG Chem, and tangible achievements will become available from the second half of this year,” he said.

Where is suptech heading?

News: You can see fires, but now Qwake wants firefighters to see through them

July 14, 2021
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When it comes to tough environments to build new technology, firefighting has to be among the most difficult. Smoke and heat can quickly damage hardware, and interference from fires will disrupt most forms of wireless communications, rendering software all but useless. From a technology perspective, not all that much has really changed today when it

Qwake Technologies, a startup based in San Francisco, is looking to upgrade the firefighting game with a hardware augmented reality headset named C-THRU. Worn by responders, the device scans surrounding and uploads key environmental data to the cloud, allowing all responders and incident commanders to have one common operating picture of their situation. The goal is to improve situational awareness and increase the effectiveness of firefighters, all while minimizing potential injuries and casualties.

The company, which was founded in 2015, just raised about $5.5 million in financing this week. The company’s CEO, Sam Cossman, declined to name the lead investor, citing a confidentiality clause in the term sheet. He characterized the strategic investor as a publicly-traded company, and Qwake is the first startup investment this company has made.

(Normally, I’d ignore fundings without these sorts of details, but given that I am obsessed with DisasterTech these days, why the hell not).

Data was the new oil, until the oil caught fire

Qwake has had success in recent months with netting large government contracts as it approaches a wider release of its product in late-2021. It secured a $1.4 million contract from the Department of Homeland Security last year, and also secured a partnership with the U.S. Air Force along with RSA in April. In addition, it raised a bit of angel funding and participated in Verizon’s 5G First Responder Lab as part of its inaugural cohort (reminder that TechCrunch is still owned by Verizon).

Cossman, who founded Qwake along with John Long, Mike Ralston, and Omer Haciomeroglu, has long been interested in fires, and specifically, volcanos. For years, he has been an expeditionary videographer and innovator who climbed calderas and attempted to bridge the gap between audiences, humanitarian response, and science.

“A lot of the work that I have done up until this point was focused on earth science and volcanoes,” he said. “A lot of projects were focused on predicting volcanic eruptions and looking at using sensor networks and different things of that nature to make people who live in those regions that are exposed to volcanic threats safer.”

During one project in Nicaragua, his team suddenly found itself lost amidst the smoke of an active volcano. There were “thick, dense superheated volcanic gases that prevented us from navigating correctly,” Cossman said. He wanted to find technology that might help them navigate in those conditions in the future, so he explored the products available to firefighters. “We figured, ‘Surely these men and women have figured out how do you see in austere environments, how do you make quick decisions, etc.’”

He was left disappointed, but also with a new vision: to build such technology himself. And thus, Qwake was born. “I was pissed off that the men and women who arguably need this stuff more than anybody — certainly more than a consumer — didn’t have anywhere to get it, and yet it was entirely possible,” he said. “But it was only being talked about in science fiction, so I’ve dedicated the last six years or so to make this thing real.”

Building such a product required a diverse set of talent, including hardware engineering, neuroscience, firefighting, product design and more. “We started tinkering and building this prototype. And it very interestingly got the attention of the firefighting community,” Cossman said.

Qwake offers a helmet-based IoT product that firefighters wear to collect data from environments. Image Credits: Qwake Technologies

Qwake at the time didn’t know any firefighters, and as the founders did customer calls, they learned that sensors and cameras weren’t really what responders needed. Instead, they wanted more operational clarity: not just more data inputs, but systems that can take all that noise, synthesize it, and relay critical information to them about exactly what’s going on in an environment and what the next steps should be.

Ultimately, Qwake built a full solution, including both an IoT device that attaches to a firefighter’s helmet and also a tablet-based application that processes the sensor data coming in and attempts to synchronize information from all teams simultaneously. The cloud ties it all together.

So far, the company has design customers with the fire departments of Menlo Park, California and Boston. With the new funding, the team is looking to advance the state of its prototype and get it ready for wider distribution by readying it for scalable manufacturing as it approaches a more public launch later this year.

When the Earth is gone, at least the internet will still be working

News: Superhuman’s Rahul Vohra explains how to optimize your startup’s products for lasting growth

July 14, 2021
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Superhuman worked to optimize and refine their product early to create a version of ‘growth hacking’ that would not only help the company attract users, but serve them best and retain them, too.

Superhuman co-founder and CEO Rahul Vohra joined us last week at TechCrunch Early Stage to provide an in-depth look at how he and his company worked to optimize and refine their product early to create a version of “growth hacking” that would not only help Superhuman attract users, but serve them best and retain them, too. Vohra articulated a system that other entrepreneurs should be able to apply to their own businesses, regardless of area or focus.

The only good hack isn’t a hack at all

Vohra started off by explaining that he’s happy to discuss anything relating to the early stages of startup growth (and welcomed DMs to his Twitter if you have any specific questions). He identified a number of key areas of concern early on in company-building, including growth, pricing and even traditional growth hacking, but he noted that one area of focus is more important than any other:

The most important of these is product-market fit. And this is sort of the standard disclaimer that anyone who you would ever talk to about growth would ever give you, which is you shouldn’t try and grow a thing that isn’t yet ready to grow. (Timestamp: 01:11)

Product-market fit is the No. 1 reason why startups succeed. And the lack of product-market fit is the No. 1 reason why startups fail. (Timestamp: 02:02)

Strong stuff, but Vohra backs up this assertion with endorsements from startup industry heavyweights like Paul Graham, Sam Altman and Marc Andreessen underlying the key importance of product-market fit — and prioritizing it early in a startup’s existence. Also, he points out that it can be easy to mistake the “feeling” of having good product-market fit as a leading indicator, when in fact it’s usually a lagging one.

News: Nooks set to seed its own in the world of virtual HQs

July 14, 2021
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After operating in beta for a year, Nooks, a virtual workspace space targeting distributed teams, has attracted thousands of users and millions of dollars in venture capital. The Stanford student-led upstart has raised a $5 million seed round led by Tola Capital, with participation from Floodgate and investors such as Julia and Kevin Hartz (CEO

The financing signals yet another cadre of investors betting on a company within the world of virtual HQs, a cohort that includes dozens of startups that believe distributed employees are ready to graduate from Zoom and into “metaverses” built with productivity and gamification in mind. This is Kevin Hartz’s second investment in a virtual HQ, with his first in Gather. As of today, Sequoia Capital, Andreessen Horowitz, Menlo, Battery Ventures, Index Ventures, Y Combinator, Homebrew and Floodgate all have stakes in different virtual HQ startups.

In other words: Even with investors pouring money in, Nooks has its work cut out for it.

Nooks was launched in May 2020 by Stanford students Daniel Lee and Rohan Suri, and Rensselaer Polytechnic Institute’s Andrew Qu. Like nearly every other person unexpectedly flung into the world of remote work, the trio experienced Zoom fatigue through school and classes. They soon saw a necessity to build a space for higher-performing teams and like-minded communities to enjoy working together.

Virtual HQs race to win over a remote-work-fatigued market

The co-founders first piloted Nooks within Stanford, giving it to teaching assistants to use as an engaging layer to summer virtual classes. The initial use case for Nooks looked like office hours, and homework parties, says Lee. Since initially piloting in schools, Nooks has grown to focus more on helping distributed teams work, but the ethos has stayed consistent.

“There should be this persistent space where, instead of just being in an ephemeral space like a meeting, you can go somewhere to create more spontaneous connections,” Lee said.

Nooks’ hooks

When a user enters Nooks, they are greeted by a Slack-like interface. Instead of a panel of channels on the left, though, employees are invited to enter “spaces.” Each space can vary in purpose, from a front-desk mock-up to a beach hangout or a design huddle. Nooks has a space dedicated to bashing bugs that show up in code. Upon first entry into the platform, the Nooks UX stood out as different from some of its competitors. While companies like Branch and Gather look like video games with a productivity element, Nooks skips the avatar feel altogether, looking closer to Teamflow or Tandem. The company uses a video API to let each person take up little orbs of space, and adds integrations of platforms like Google Docs, YouTube, Asana or GitHub.

Image Credits: Nooks

Co-founder Suri said that the company decided to go for a simpler aesthetic to promote conversation, not more clicking.

“We don’t actually believe that in order to talk to someone you need to be a video gamer, have your avatar around and go walk up to them,” he said. “It should be as simple as seeing them in a room, and entering that room.”

Image Credits: Nooks

Of course, the company is working to balance that simplicity with an engaging environment, and includes customization of spaces and background music. There’s a “whisper feature” that allows peers to talk to each other during a presentation, virtual sales floors where Nooks creates leaderboards of top sellers and co-working spaces to promote cross-pollination of ideas.

Simplicity can come at the cost of spontaneity. While other virtual HQ platforms use spatial audio to create the feeling of a “bump in” — voices get louder when you are near other co-workers and quieter when you toggle away — Lee said that Nooks promotes impromptu collaboration and casual conversations by always making it so that there’s only “one click to talk to anyone.”

While frictionless communication is an important feature, it can’t be Nooks’ only hook. Platforms like Slack, Hangouts and even Twitter DMs only require one click (max two!) for a user to communicate with someone. Not to mention that Slack is releasing a series of communication tools around spontaneity and live communication.

Still, Nooks currently has thousands of weekly active users from teams and organizations like Stanford, Embroker and Workato. Teams using Nooks spend an average of six hours a day on the platform, the company said.

Do we need so many virtual HQ platforms?

Hybrid work’s virtual growing pains

As the pandemic fades in parts of the world, startups like Nooks will need to figure out ways to adapt to the return of hybrid teams after a long stint of mostly remote work. The new challenge for these startups is how they position themselves to embed well into the new culture of work.

And proximity bias might make that hard to do.

Proximity bias is the idea that employees who go in-person are valued higher than employees who work virtually. It’s one of the realities that make hybrid work so hard to pull off at scale: Equity suffers when a group of employees is positioned as more important or prized only because they can travel to an office.

Virtual workspace startups, especially the ones that want to bring work culture online, could accidentally overly fragment those who work from home versus those who work in-person. The fragmentation will disproportionately impact historically overlooked individuals, which include minorities and women. Notably, of the virtual HQs out there, most have been built, run and funded by men.

3 views on the future of meetings

When asked about how they are combating proximity bias, Lee said that “more frequent, fluid and casual conversation with remote employees helps them build stronger bonds with the rest of the team.” Sure enough, there’s an argument that many virtual HQ startups launched to extinguish proximity bias by bringing everyone in an office to the same digital world.

Ultimately, equalizing the playing field will require aggressive intention. How can a startup make sure virtual HQ employees have access to a spontaneous, in-person stand-up in Conference Room A? How does a platform give any employee, regardless of location, the chance to give input, disagree or share post-meeting banter? Can avatars, or floating video orbs, start to give subtle physical cues beyond a clap or thumbs up?

I’d wager that these features are the moonshot, and survival hack, for virtual HQ startups long-term.

News: How to make the math work for today’s sky-high startup valuations

July 14, 2021
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Do low startup revenues compared to their valuations indicate that there are many houses of cards set to fall in time? The answer is maybe, but probably not. Let’s discuss why the math can work.

Venture capital price discipline is out the window; venture funds are looking to make faster, earlier deals; and more unicorns were minted in the last three months than during any quarter in history. It’s a busy time for startups and their financial backers. Now weeks into July, it’s increasingly clear that 2021 is shaping up to be a record-setter for venture capital investment. And investors don’t expect the frenetic pace to slow.

The Exchange explores startups, markets and money. Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.

But while the dollars flowing into global startups are setting all-time records, deal volume is not tracking similar extremes. Global deal volume reached a record in the second quarter, but it just barely eked out a win over several quarters from 2018 and Q1 2021.

A flood of money invested against more modest deal flow has helped drive up startup valuations this year, along with deal sizes.

CB Insights data indicates, for example, that median Series A valuations rose to $42 million thus far in 2021. That’s far above 2020’s median Series A valuation of $33 million, also beating the previous record set in 2019 of $39 million. The same dataset indicates that Series B, C, D and E rounds also reached new highs in 2021 compared to years going back to at least 2015.

So startups are getting larger checks, earlier. Does that mean that many startups are landing investments with smaller revenues than their stage (or capital base) would normally require? Yep.

Yesterday in a public discussion of startups valued at $1 billion or more — unicorns, in our modern parlance — Boldstart Ventures’ Shomik Ghosh said something that matched what The Exchange has heard from other investors, albeit in more private conversations. The Exchange estimated that the percentage of unicorns with valuations between $1 billion and $2 billion with $100 million in revenue was small. Ghosh took note of that approximation and wrote the following:

Let me translate: Here the Boldstart investor is saying that it’s now common to invest in startups at a valuation that works out to 40 to 50 times those companies’ annual recurring revenue, or ARR. LTM stands for last 12 months, indicating in a somewhat slang fashion that we’re not discussing forward numbers.

That’s what NTM means: next 12 months. Ghosh’s statement indicates that some startups are actually able to raise capital at even higher multiples of their current revenue, enjoying pricing that can work out to 100 times their ARR for next year.

This yields some questions. For example, The Wall Street Journal’s Christopher Mims asked if low startup revenues compared to their valuations indicates that there are a great many houses of cards set to fall in time. The answer is maybe, but probably not. Let’s talk about why the math can work out for startups with minimal revenues, rich valuations and lots of cash.

News: Massachusetts startup OPT Industries is perfecting a 3D-printed nasal swab for COVID-19 tests

July 14, 2021
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In 2020 and 2021, we all became well-acquainted with nasal swabs. But small sticks we stuck up our noses, it turns out, were harder to come by than anyone could have predicted. A May 2020 survey of 118 labs in the US found that 60 percent reported limited swab supplies – making lack of swabs

One small company that stepped into the fray of swab production was the two year old OPT Industries, a Massachusetts-based company with fifteen employees involved in additive manufacturing (think 3D printing) of dense microfiber structures. The company’s printers and software can print more than just swabs, but the first product the company has focused on since 2020 is the InstaSwab – a 3D printed swab used in COVID-19 tests.

In four months in 2020, OPT Industries manufactured 800,000 nasal swabs for commercial partners like Kaiser Permanente and medical products distributor Henry Schein. After that trial run, the company foresees an uptick in production capability. Using newer, modular machines, Ou notes that each machine can now produce about 30,000 swabs per day.

“I think the pandemic has given us an opportunity to show a specific medical area where our technology can shine,” Ou tells TechCrunch.

While the pandemic is still a global disaster, the vaccines have changed the game when it comes to testing. OPT Industries is betting that it will survive a downturn in COVID-19 testing in the US by creating a superior swab, and pivoting to a home-testing market.

The pandemic was an early test-run for OPT, which at this point, has raised about $5 million in seed funding. The company is currently not seeking investment, notes founder Jifei Ou, but rather has moved into another testing phase for their swab products, the results of which were released today.

Statistics released today by OPT Industries, the company reports that on average their 3D printed nasal swabs were able to transfer 63 percent of viral genes into detection assays. Meanwhile in those tests, flocked fiber swabs transferred 36 percent and polyester swabs about 14 percent.

The performance of OPT Industries’ InstantSwab compared to two traditional swabs

These tests were performed at Boston University Medical Center, but the results were not published in a peer-reviewed journal (though Ou has more studies that are striving for this). They were also not conducted in human COVID-19 patients, but in vitro.

In theory, the InstaSwabs are better at picking up traces of the virus in the back of the nose and throat. Ou’s argument is that with the right type of swab, specifically, one designed with his dense microfiber structures, may help capture more of the virus and help prevent false negatives – Especially in the early days of infection, when there’s a lower viral load in the body to begin with.

There are countless studies looking to estimate the false negative rates for the litany of COVID-19 tests used. Case in point: one systematic review of 34 studies found estimates ranging from a 2 percent false negative rate to a 29 percent.

There is also evidence linking low viral load to false negatives. One study conducted at the Public Health Laboratory in Alberta Canada, analyzed 100,001 COVID-19 tests taken from about 95,000 patients (some patients were tested two or three times). Of that group, the authors were able to confirm five false negative test results.

The false negatives were attributed to low amounts of viral RNA in the body, which the authors note, was a factor of when the samples were collected. It’s not that the swabs missed the virus, it’s that there wasn’t much virus there to pick up in the first place.

When it came to analyzing how the swabs themselves influenced test results, the authors found that both swab types used by the laboratory had produced false negative results. Though that may imply that swab type didn’t influence false negative rate, the authors argue that more data was needed to reach that conclusion definitively.

That’s not to say that improving the way that samples are collected and stored can’t influence testing accuracy. One June 2021 paper argued that using less transport medium fluid (which would result in less dilution of samples) and redesigning swabs to pick up more virus and spend less time in patients’ noses could also help optimize testing.

What OPT will need to prove is that a superior swab can truly pick up significant amounts of viral RNA in the early stages of disease and that this greater pickup rate actually has an impact on false negatives.

While OPT Industries’ study (not peer-reviewed) seems to suggest the swabs can collect more virus, it doesn’t have enough information to prove that secondary thesis: that these swabs improve the accuracy of COVID-19 tests done in humans.

“We are right now working with two clinical partners to do clinical research on that,” Ou notes. “The result of this study and the result of the coming one will be combined together and we are preparing a manuscript to be published in a peer-reviewed publication.”

Should OPT prove that they can 3D print a superior swab, the bigger question is what market they’ll be poised to enter. As vaccines began to proliferate in early Spring of 2021, demand for Covid-19 tests plunged by about 46 percent nationwide, The Wall Street Journal reported (strangely, this didn’t seem to slow the explosion of testing startups, though).

The US is conducting an average of 504,048 new COVID-19 tests per day as of July 2021, down from an average of about 1,992,273 in January. (Even with the spread of the more transmissible Delta variant upon us, the CDC still notes that vaccinated people can refrain from routine testing.)

Ou still sees potential growth in the world of at-home testing – in this case, for COVID-19, though Ou notes that the company can 3D swabs for pretty much any bodily excretion that needs swabbing.

“One of the things that we’ll observe is that in the US, the majority of testing is shifting from a point of care or at a hospital to home testing. So this is our current focus and we’re looking at partnering and collaborating with the home testing kit company,” he says.

The company has secured “several” partnerships with home-testing companies, though an NDA prevents him from naming the companies, says Ou.

At-home testing in general (for both COVID-19 and other maladies) does have some interesting players entering the market, most recently, Amazon. Amazon plans to offer at-home testing kits for COVID-19 as well as STIs.

Perhaps OPT will be able to ride a new at-home swab wave beyond the pandemic.

Monthly Archives: July 2021