Aaron Rodgers raises $50M for Rx3 Ventures, a consumer fund backed by influencers

Aaron Rodgers is an athlete, an influencer and now, a venture capitalist.

The football star, Super Bowl champion and long-time quarterback for the Green Bay Packers has teamed up with ROTH Capital Partners’ Nate Raabe and Byron Roth to launch Rx3 Ventures. Today, the trio are announcing a $50 million debut fund focused on the consumer market.

The fund is supported by influencers in the sports and entertainment market, with a goal of giving them a stake in the companies for which they are hired to be spokespeople. Influencer marketing continues to gain traction; Rx3 wants to ensure authentic, equitable relationships between brands and public figures.

“As professional athletes, we’re constantly approached with investment opportunities,” Rodgers said in a statement. “With more and more access to deal flow, it’s hard for any athlete or high-profile individual to adequately evaluate each opportunity. We are in a unique position to help drive positive outcomes for companies, particularly consumer brands, but the relationship needs to be authentic. With Rx3, I saw the opportunity to create an investment platform that brings together a group of like-minded influential investors and their respective networks with the backing of institutional resources.”

Rx3 has invested in a number of startups already, including VICIS, known for its $950 Zero1 football helmet designed for adult players. The startup raised a $28.5 million Series B in November, with participation from Rodgers, as well as other pro footballers, including Roger Staubach, Jerry Rice, Russell Wilson and Doug Baldwin.

Rx3, which invests alongside consumer private equity and growth capital funds, has also backed Hims, CorePower Yoga, glasses retailer Privé Revaux and Hydrow, a maker of indoor rowing machines.

Diving deep into Africa’s blossoming tech scene

Jumia may be the first startup you’ve heard of from Africa. But the e-commerce venture that recently listed on the NYSE is definitely not the first or last word in African tech.

The continent has an expansive digital innovation scene, the components of which are intersecting rapidly across Africa’s 54 countries and 1.2 billion people.

When measured by monetary values, Africa’s tech ecosystem is tiny by Shenzen or Silicon Valley standards.

But when you look at volumes and year over year expansion in VC, startup formation, and tech hubs, it’s one of the fastest growing tech markets in the world. In 2017, the continent also saw the largest global increase in internet users—20 percent.

If you’re a VC or founder in London, Bangalore, or San Francisco, you’ll likely interact with some part of Africa’s tech landscape for the first time—or more—in the near future.

That’s why TechCrunch put together this Extra-Crunch deep-dive on Africa’s technology sector.

Tech Hubs

A foundation for African tech is the continent’s 442 active hubs, accelerators, and incubators (as tallied by GSMA). These spaces have become focal points for startup formation, digital skills building, events, and IT activity on the continent.

Prominent tech hubs in Africa include CcHub in Nigeria, Pan-African incubator MEST, and Kenya’s iHub, with over 200 resident members. More of these organizations are receiving funds from DFIs, such as the World Bank, and aid agencies, including France’s $76 million African tech fund.

Blue-chip companies such as Google and Microsoft are also providing money and support. In 2018 Facebook opened its own Hub_NG in Lagos with partner CcHub, to foster startups using AI and machine learning.

Emily Weiss and Kirsten Green will join us on the Main Stage at TC Disrupt SF

Since forever, companies have made products for people to buy, but the evolution and reach of the internet has given rise to entirely new brands, some of which are growing at unprecedented speeds thanks to platforms like Instagram and other social media channels — not to mention strong storytelling.

Two of the people leading the e-commerce charge are Glossier’s Emily Weiss and Forerunner Ventures founding partner and managing director Kirsten Green . We’re thrilled to announce that both of them will sit down on stage at TC Disrupt SF to discuss Glossier’s continued rise and the evolution of e-commerce.

Emily Weiss – Glossier

Glossier isn’t even four years old yet, and the brand has already become a household name. The company was launched in 2014 off the back of Weiss’ staggeringly successful beauty blog Into The Gloss.

The premise of the brand is simple. Glossier products are designed for women who love makeup but don’t love looking garish. Part of selling that effortlessly beautiful aesthetic centers on marketing  a narrow product line, one that’s focused on skin care products; a handful of lipsticks, cream cheek colors, and eyebrow mascaras; and well as a single fragrance called “You” that comes in both liquid and solid form.

Beyond the success of the products, Weiss has become a role-model, even a superstar, to many of Glossier’s young customers. Weiss built a foundation of trust with her audience on Into The Gloss, and that has carried over to the Glossier brand.

The originally direct-to-consumer company has also started an offline business with a pop-up shop in NYC, a now converted Dunkin Donuts that generates more sales revenue per square foot than the average Apple Store, according to Weiss.

Glossier has attracted a number of large investments from VCs like Index Venture Partners, Thrive Capital and Forerunner Ventures, bringing its total amount raised to more than $86 million. And sitting on the board is none other than Kirsten Green.

Kirsten Green – Forerunner Ventures

Eight years ago, Kirsten Green launched Forerunner Ventures. Since then, she’s risen to be one of the most prominent and successful investors in Silicon Valley and beyond, with a particular knack for e-commerce investments.

Green has raised more than $300 million and invested in more than 50 companies. Portfolio companies include Glossier, Outdoor Voices, Ritual, Inturn and Indigo Fair, as well as exited companies like Jet.com, Dollar Shave Club, and Bonobos.

She’s a founding member of All Raise, a female mentorship collective, and has been named one of Time’s 100 Most influential people, in Forbes’ 2017 and 2018 Midas List and World’s 100 Most Powerful Women. And lest we forget, she was also named VC of the year at the 2017 Crunchies Awards.

Green’s ability to identify stellar founders and foster e-commerce brands is unparalleled across the ecosystem, and we’re thrilled to learn from her on the Disrupt SF stage.

Intel Capital pumps $72M into AI, IoT, cloud and silicon startups, $115M invested so far in 2018

Intel Capital, the investment arm of the computer processor giant, is today announcing $72 million in funding for the 12 newest startups to enter its portfolio, bringing the total invested so far this year to $115 million. Announced at the company’s global summit currently underway in southern California, investments in this latest tranche cover artificial intelligence, Internet of Things, cloud services, and silicon. A detailed list is below.

Other notable news from the event included a new deal between the NBA and Intel Capital to work on more collaborations in delivering sports content, an area where Intel has already been working for years; and the news that Intel has now invested $125 million in startups headed by minorities, women and other under-represented groups as part of its Diversity Initiative. The mark was reached 2.5 years ahead of schedule, it said.

The range of categories of the startups that Intel is investing in is a mark of how the company continues to back ideas that it views as central to its future business — and specifically where it hopes its processors will play a central role, such as AI, IoT and cloud. Investing in silicon startups, meanwhile, is a sign of how Intel is also focusing on businesses that are working in an area that’s close to the company’s own DNA.

It’s hasn’t been a completely smooth road. Intel became a huge presence in the world of IT and early rise of desktop and laptop computers many years ago with its advances in PC processors, but its fortunes changed with the shift to mobile, which saw the emergence of a new wave of chip companies and designs for smaller and faster devices. Mobile is area that Intel itself acknowledged it largely missed out.

Later years have seen still other issues hit the company. For example, the Spectre security flaw (fixes for which are still being rolled out). And some of the business lines where Intel was hoping to make a mark have not panned out as it hoped they would. Just last month, Intel shut down development of its Vaunt smart glasses and reportedly the entirety of its new devices group.

The investments that Intel Capital makes, in contrast, are a fresher and more optimistic aspect of the company’s operations: they represent hopes and possibilities that still have everything to play for. And given that, on balance, things like AI and cloud services still have a long way to go before being truly ubiquitous, there remains a lot of opportunity for Intel.

“These innovative companies reflect Intel’s strategic focus as a data leader,” said Wendell Brooks, Intel senior vice president and president of Intel Capital, in a statement. “They’re helping shape the future of artificial intelligence, the future of the cloud and the Internet of Things, and the future of silicon. These are critical areas of technology as the world becomes increasingly connected and smart.”

Intel Capital since 1991 has put $12.3 billion into 1,530 companies covering everything from autonomous driving to virtual reality and e-commerce and says that more than 660 of these startups have gone public or been acquired. Intel has organised its investment announcements thematically before: last October, it announced $60 million in 15 big data startups.

Here’s a rundown of the investments getting announced today. Unless otherwise noted, the startups are based around Silicon Valley:

Avaamo is a deep learning startup that builds conversational interfaces based on neural networks to address problems in enterprises — part of the wave of startups that are focusing on non-consumer conversational AI solutions.

Fictiv has built a “virtual manufacturing platform” to design, develop and deliver physical products, linking companies that want to build products with manufacturers who can help them. This is a problem that has foxed many a startup (notable failures have included Factorli out of Las Vegas), and it will be interesting to see if newer advances will make the challenges here surmoutable.

Gamalon from Cambridge, MA, says it has built a machine learning platform to “teaches computers actual ideas.” Its so-called Idea Learning technology is able to order free-form data like chat transcripts and surveys into something that a computer can read, making the data more actionable. More from Ron here.

Reconova out of Xiamen, China is focusing on problems in visual perception in areas like retail, smart home and intelligent security.

Syntiant is an Irvine, CA-based AI semiconductor company that is working on ways of placing neural decision making on chips themselves to speed up processing and reduce battery consumption — a key challenge as computing devices move more information to the cloud and keep getting smaller. Target devices include mobile phones, wearable devices, smart sensors and drones.

Alauda out of China is a container-based cloud services provider focusing on enterprise platform-as-a-service solutions. “Alauda serves organizations undergoing digital transformation across a number of industries, including financial services, manufacturing, aviation, energy and automotive,” Intel said.

CloudGenix is a software-defined wide-area network startup, addressing an important area as more businesses take their networks and data into the cloud and look for cost savings. Intel says its customers use its broadband solutions to run unified communications and data center applications to remote offices, cutting costs by 70 percent and seeing big speed and reliability improvements.

Espressif Systems, also based in China, is a fabless semiconductor company, with its system-on-a-chip focused on IoT solutions.

VenueNext is a “smart venue” platform to deliver various services to visitors’ smartphones, providing analytics and more to the facility providing the services. Hospitals, sports stadiums and others are among its customers.

Lyncean Technologies is nearly 18 years old (founded in 2001) and has been working on something called Compact Light Source (CLS), which Intel describes as a miniature synchrotron X-ray source, which can be used for either extremely detailed large X-rays or very microscopic ones. This has both medical and security applications, making it a very timely business.

Movellus “develops semiconductor technologies that enable digital tools to automatically create and implement functionality previously achievable only with custom analog design.” Its main focus is creating more efficient approaches to designing analog circuits for systems on chips, needed for AI and other applications.

SiFive makes “market-ready processor core IP based on the RISC-V instruction set architecture,” founded by the inventors of RISC-V and led by a team of industry veterans.

How did Thumbtack win the on-demand services market?

Earlier today, the services marketplace Thumbtack held a small conference for 300 of its best gig economy workers at an event space in San Francisco.

For the nearly ten-year-old company the event was designed to introduce some new features and a redesign of its brand that had softly launched earlier in the week. On hand, in addition to the services professionals who’d paid their way from locations across the U.S. were the company’s top executives.

It’s the latest step in the long journey that Thumbtack took to become one of the last companies standing with a consumer facing marketplace for services.

Back in 2008, as the global financial crisis was only just beginning to tear at the fabric of the U.S. economy, entrepreneurs at companies like Thumbtack andTaskRabbit were already hard at work on potential patches.

This was the beginning of what’s now known as the gig economy. In addition to Thumbtack and TaskRabbit, young companies like Handy, Zaarly, and several others — all began by trying to build better marketplaces for buyers and sellers of services. Their timing, it turns out, was prescient.

In snowy Boston during the winter of 2008, Kevin Busque and his wife Leah were building RunMyErrand, the marketplace service that would become TaskRabbit, as a way to avoid schlepping through snow to pick up dog food .

Meanwhile, in San Francisco, Marco Zappacosta, a young entrepreneur whose parents were the founders of Logitech, and a crew of co-founders including were building Thumbtack, a professional services marketplace from a home office they shared.

As these entrepreneurs built their businesses in northern California (amid the early years of a technology renaissance fostered by patrons made rich from returns on investments in companies like Google and Salesforce.com), the rest of America was stumbling.

In the two years between 2008 and 2010 the unemployment rate in America doubled, rising from 5% to 10%. Professional services workers were hit especially hard as banks, insurance companies, realtors, contractors, developers and retailers all retrenched — laying off staff as the economy collapsed under the weight of terrible loans and a speculative real estate market.

Things weren’t easy for Thumbtack’s founders at the outset in the days before its $1.3 billion valuation and last hundred plus million dollar round of funding. “One of the things that really struck us about the team, was just how lean they were. At the time they were operating out of a house, they were still cooking meals together,” said Cyan Banister, one of the company’s earliest investors and a partner at the multi-billion dollar venture firm, Founders Fund.

“The only thing they really ever spent money on, was food… It was one of these things where they weren’t extravagant, they were extremely purposeful about every dollar that they spent,” Banister said. “They basically slept at work, and were your typical startup story of being under the couch. Every time I met with them, the story was, in the very early stages was about the same for the first couple years, which was, we’re scraping Craigslist, we’re starting to get some traction.”

The idea of powering a Craigslist replacement with more of a marketplace model was something that appealed to Thumbtack’s earliest investor and champion, the serial entrepreneur and angel investor Jason Calcanis.

Thumbtack chief executive Marco Zappacosta

“I remember like it was yesterday when Marco showed me Thumbtack and I looked at this and I said, ‘So, why are you building this?’ And he said, ‘Well, if you go on Craigslist, you know, it’s like a crap shoot. You post, you don’t know. You read a post… you know… you don’t know how good the person is. There’re no reviews.’” Calcanis said. “He had made a directory. It wasn’t the current workflow you see in the app — that came in year three I think. But for the first three years, he built a directory. And he showed me the directory pages where he had a photo of the person, the services provided, the bio.”

The first three years were spent developing a list of vendors that the company had verified with a mailing address, a license, and a certificate of insurance for people who needed some kind of service. Those three features were all Calcanis needed to validate the deal and pull the trigger on an initial investment.

“That’s when I figured out my personal thesis of angel investing,” Calcanis said.

“Some people are market based; some people want to invest in certain demographics or psychographics; immigrant kids or Stanford kids, whatever. Mine is just, ‘Can you make a really interesting product and are your decisions about that product considered?’ And when we discuss those decisions, do I feel like you’re the person who should build this product for the world And it’s just like there’s a big sign above Marco’s head that just says ‘Winner! Winner! Winner!’”

Indeed, it looks like Zappacosta and his company are now running what may be their victory lap in their tenth year as a private company. Thumbtack will be profitable by 2019 and has rolled out a host of new products in the last six months.

Their thesis, which flew in the face of the conventional wisdom of the day, was to build a product which offered listings of any service a potential customer could want in any geography across the U.S. Other companies like Handy and TaskRabbit focused on the home, but on Thumbtack (like any good community message board) users could see postings for anything from repairman to reiki lessons and magicians to musicians alongside the home repair services that now make up the bulk of its listings.

“It’s funny, we had business plans and documents that we wrote and if you look back, the vision that we outlined then, is very similar to the vision we have today. We honestly looked around and we said, ‘We want to solve a problem that impacts a huge number of people. The local services base is super inefficient. It’s really difficult for customers to find trustworthy, reliable people who are available for the right price,’” said Sander Daniels, a co-founder at the company. 

“For pros, their number one concern is, ‘Where do I put money in my pocket next? How do I put food on the table for my family next?’ We said, ‘There is a real human problem here. If we can connect these people to technology and then, look around, there are these global marketplace for products: Amazon, Ebay, Alibaba, why can’t there be a global marketplace for services?’ It sounded crazy to say it at the time and it still sounds crazy to say, but that is what the dream was.”

Daniels acknowledges that the company changed the direction of its product, the ways it makes money, and pivoted to address issues as they arose, but the vision remained constant. 

Meanwhile, other startups in the market have shifted their focus. Indeed as Handy has shifted to more of a professional services model rather than working directly with consumers and TaskRabbit has been acquired by Ikea, Thumbtack has doubled down on its independence and upgrading its marketplace with automation tools to make matching service providers with customers that much easier.

Late last year the company launched an automated tool serving up job requests to its customers — the service providers that pay the company a fee for leads generated by people searching for services on the company’s app or website.

Thumbtack processes about $1 billion a year in business for its service providers in roughly 1,000 professional categories.

Now, the matching feature is getting an upgrade on the consumer side. Earlier this month the company unveiled Instant Results — a new look for its website and mobile app — that uses all of the data from its 200,000 services professionals to match with the 30 professionals that best correspond to a request for services. It’s among the highest number of professionals listed on any site, according to Zappacosta. The next largest competitor, Yelp, has around 115,000 listings a year. Thumbtack’s professionals are active in a 90 day period.

Filtering by price, location, tools and schedule, anyone in the U.S. can find a service professional for their needs. It’s the culmination of work processing nine years and 25 million requests for services from all of its different categories of jobs.

It’s a long way from the first version of Thumbtack, which had a “buy” tab and a “sell” tab; with the “buy” side to hire local services and the “sell” to offer them.

“From the very early days… the design was to iterate beyond the traditional model of business listing directors. In that, for the consumer to tell us what they were looking for and we would, then, find the right people to connect them to,” said Daniels. “That functionality, the request for quote functionality, was built in from v.1 of the product. If you tried to use it then, it wouldn’t work. There were no businesses on the platform to connect you with. I’m sure there were a million bugs, the UI and UX were a disaster, of course. That was the original version, what I remember of it at least.”

It may have been a disaster, but it was compelling enough to get the company its $1.2 million angel round — enough to barely develop the product. That million dollar investment had to last the company through the nuclear winter of America’s recession years, when venture capital — along with every other investment class — pulled back.

“We were pounding the pavement trying to find somebody to give us money for a Series A round,” Daniels said. “That was a very hard period of the company’s life when we almost went out of business, because nobody would give us money.”

That was a pre-revenue period for the company, which experimented with four revenue streams before settling on the one that worked the best. In the beginning the service was free, and it slowly transitioned to a commission model. Then, eventually, the company moved to a subscription model where service providers would pay the company a certain amount for leads generated off of Thumbtack.

“We weren’t able to close the loop,” Daniels said. “To make commissions work, you have to know who does the job, when, for how much. There are a few possible ways to collect all that information, but the best one, I think, is probably by hosting payments through your platform. We actually built payments into the platform in 2011 or 2012. We had significant transaction volume going through it, but we then decided to rip it out 18 months later, 24 months later, because, I think we had kind of abandoned the hope of making commissions work at that time.”

While Thumbtack was struggling to make its bones, Twitter, Facebook, and Pinterest were raking in cash. The founders thought that they could also access markets in the same way, but investors weren’t interested in a consumer facing business that required transactions — not advertising — to work. User generated content and social media were the rage, but aside from Uber and Lyft the jury was still out on the marketplace model.

“For our company that was not a Facebook or a Twitter or Pinterest, at that time, at least, that we needed revenue to show that we’re going to be able to monetize this,” Daniels said. “We had figured out a way to sign up pros at enormous scale and consumers were coming online, too. That was showing real promise. We said, ‘Man, we’re a hot ticket, we’re going to be able to raise real money.’ Then, for many reasons, our inexperience, our lack of revenue model, probably a bunch of stuff, people were reluctant to give us money.”

The company didn’t focus on revenue models until the fall of 2011, according to Daniels. Then after receiving rejection after rejection the company’s founders began to worry. “We’re like, ‘Oh, shit.’ November of 2009 we start running these tests, to start making money, because we might not be able to raise money here. We need to figure out how to raise cash to pay the bills, soon,” Daniels recalled. 

The experience of almost running into the wall put the fear of god into the company. They managed to scrape out an investment from Javelin, but the founders were convinced that they needed to find the right revenue number to make the business work with or without a capital infusion. After a bunch of deliberations, they finally settled on $350,000 as the magic number to remain a going concern.

“That was the metric that we were shooting towards,” said Daniels. “It was during that period that we iterated aggressively through these revenue models, and, ultimately, landed on a paper quote. At the end of that period then Sequoia invested, and suddenly, pros supply and consumer demand and revenue model all came together and like, ‘Oh shit.’”

Finding the right business model was one thing that saved the company from withering on the vine, but another choice was the one that seemed the least logical — the idea that the company should focus on more than just home repairs and services.

The company’s home category had lots of competition with companies who had mastered the art of listing for services on Google and getting results. According to Daniels, the company couldn’t compete at all in the home categories initially.

“It turned out, randomly … we had no idea about this … there was not a similarly well developed or mature events industry,” Daniels said. “We outperformed in events. It was this strategic decision, too, that, on all these 1,000 categories, but it was random, that over the last five years we are the, if not the, certainly one of the leading events service providers in the country. It just happened to be that we … I don’t want to say stumbled into it … but we found these pockets that were less competitive and we could compete in and build a business on.”

The focus on geographical and services breadth — rather than looking at building a business in a single category or in a single geography meant that Zappacosta and company took longer to get their legs under them, but that they had a much wider stance and a much bigger base to tap as they began to grow.

“Because of naivete and this dreamy ambition that we’re going to do it all. It was really nothing more strategic or complicated than that,” said Daniels. “When we chose to go broad, we were wandering the wilderness. We had never done anything like this before.”

From the company’s perspective, there were two things that the outside world (and potential investors) didn’t grasp about its approach. The first was that a perfect product may have been more competitive in a single category, but a good enough product was better than the terrible user experiences that were then on the market. “You can build a big company on this good enough product, which you can then refine over the course of time to be greater and greater,” said Daniels.

The second misunderstanding is that the breadth of the company let it scale the product that being in one category would have never allowed Thumbtack to do. Cross selling and upselling from carpet cleaners to moving services to house cleaners to bounce house rentals for parties — allowed for more repeat use.

More repeat use meant more jobs for services employees at a time when unemployment was still running historically high. Even in 2011, unemployment remained stubbornly high. It wasn’t until 2013 that the jobless numbers began their steady decline.

There’s a question about whether these gig economy jobs can keep up with the changing times. Now, as unemployment has returned to its pre-recession levels, will people want to continue working in roles that don’t offer health insurance or retirement benefits? The answer seems to be “yes” as the Thumbtack platform continues to grow and Uber and Lyft show no signs of slowing down.

“At the time, and it still remains one of my biggest passions, I was interested in how software could create new meaningful ways of working,” said Banister of the Thumbtack deal. “That’s the criteria I was looking for, which is, does this shift how people find work? Because I do believe that we can create jobs and we can create new types of jobs that never existed before with the platforms that we have today.”

BigCommerce raises $64 million to power e-commerce sites

Austin, Texas-based BigCommerce has completed a big round of funding.

The growth stage startup, which powers e-commerce sites for Sony, Toyota and 60,000 other merchants, has raised $64 million to accelerate its business. The investment was led by Goldman Sachs, with participation from General Catalyst, GGV Capital and Tenaya Capital. And it brings BigCommerce’s total raised to over $200 million since it was founded in 2009.

BigCommerce has developed a template for its customers to launch websites with manageable shipping and payments tracking. It also makes it easy to cross-sell on Amazon, eBay and Facebook. The company claims it is able to help e-tailers cut down on costs by as much as 80%.

“Every product company, brand company, physical retailer on the planet has decided they need to get serious about e-commerce,” said Jeff Richards, managing partner at GGV about why he’s invested. It’s a “huge category with a very big business that’s doing extremely well.”

BigCommerce has built a robust business in the United States and Australia, and hopes to use the capital to expand further internationally. It sees an opportunity to build out its presence in Europe.

The company also recently built an integration with Instagram to make it easier for consumers to purchase directly via the app. BigCommerce also has partnerships with PayPal and Google and plans to double down on cross-platform opportunities.

While BigCommerce’s business resembles Shopify and Salesforce’s recently-purchased Demandware, CEO Brent Bellm says that while the former focuses on small businesses and the latter targets large enterprises, BigCommerce’s sweet spot is somewhere in between. It aims to build sites for brands with between $1 million and $50 million in revenue.

Yet BigCommerce’s own revenue numbers exceed that of the clients it is targeting. Bellm said that the company is approaching $100 million in annualized revenue.

When asked about whether that meant the company is targeting an IPO, he said that BigCommerce is “on a track where that’s possible” and that he believed this financing would be “the last round as a private company.”

If Shopify’s stock performance is any indication, public investors are hot on the space. Shares have gone up over 600% since its IPO in 2015.

Competitor Magento, on the other hand, was taken private after spinning off from eBay. Bellm believes that BigCommerce is better positioned to take advantage of a growing preference for SaaS business models.

Seattle’s new venture firm, Flying Fish, holds a first close on its targeted $80 million fund

The founding partners of the new Seattle-based venture firm Flying Fish met as angel investors deploying capital in the talent-heavy, cash-light region around Amazon and Microsoft’s corporate headquarters.

“We’ve underperformed relative to the talent pool,” is how Heather Redman, one of the firm’s three founding partners describes the region.

Well, now Flying Fish has held a first close of $23 million on a targeted $80 million fund to bring some much needed institutional capital at the seed and Series A stage to a geography that’s seen a number of successful exits and a wealth of talented engineers crop up, but little in the way of regional investor talent to support it.

Seattle’s success extends beyond Microsoft’s Redmond, Wash. headquarters and Amazon’s downtown death star. There’re travel behemoths like Expedia, real estate riches pouring from Zillow and Redfin, titans of visualization and business intelligence software like Tableau, and up and coming success stories like Avalera.

All of those companies are bringing in talent from elsewhere to complement Seattle’s growing reputation as a hub for artificial intelligence and machine learning research and engineering talent thanks to programs at the University of Washington .

Joining Redman, a former executive at AtomShockwave, Inc., Getty Images, Inc., and PhotoDisc, Inc.; are two former Microsoft employees Geoff Harris, who served as General Manager for the Speech and Natural Language team, and Frank Chang. Harris and Chang met while working on natural language processing and machine learning for the gargantuan that Gates built before Chang absconded to Jeff Bezos’ Amazonian environs.

With its $28 million first close, Flying Fish is well on its way to joining a host of other investment firms that have launched or closed new investment funds in the Pacific Northwest since the beginning of the year. In all, at least $140 million in new capital has been committed to venture firms in the region like PSL Ventures, the venture capital firm started by development studio Pioneer Square Labs, and Founders Co-op, a longtime early stage investor on the Seattle scene.

“What we believe is that with the additional VC [firms] beginning to be formed here… that is going to increase the number of company starts geometrically,” says Redman. “The talent is here, the entrepreneurial spirit is here and the use is here… but [entrepreneurs] want to do it where there is the capital to support them.”

The firm is targeting around 25 investments for its $85 million first fund with a focus on machine learning, artificial intelligence and software services. Investments will range between $500,000 and $5 million, according to the firm’s partners.

Already, Flying Fish has put money to work in seven new deals.

  • Ad Lightning – Provides publishers a tool to manage bad ads on their sites
  • Otto Robotics – Robotic automation for the fast food industry. (still in stealth – no website)
  • MessageYes (Sold to Nordstrom) – Developers of an ecommerce chatbot over SMS, Facebook messenger etc.
  • Element Data – Developers of a decision engine that takes into account human emotion in the decision-making process
  • Tomorrow – Providing financial planning services such as wills, trusts and insurance 
  • Finn.ai – Pitching a financial services chatbot to engage with banks over Facebook messengers and other like platforms
  • Streem – Offering an augmented reality application connecting consumers with professionals in the home improvement and maintenance market

To win back consumers, big brands should invest in R&D and innovation

Ryan Caldbeck
Contributor

Ryan Caldbeck is the founder and chief executive of the consumer and retail investment marketplace CircleUp.

The world of consumer goods is changing. Consumer tastes are becoming more and more fragmented and big incumbents continue to lose market share to upstart brands. It’s often difficult for these incumbents to figure out how to respond. CPG is full of smart people but many of the biggest brands have seen their sales stagnate or decline over the past several years.

Consumer companies can increase profit and deliver shareholder value by either growing in revenue or cutting costs, but the strategies these companies have taken to try to turn the tide just aren’t working. When they innovate, they only make incremental changes to products (like reducing the fat of a potato chip), instead of offering consumers new products that they actually want.

Or they spend billions on advertising to convince consumers that they should buy already existing products. If they can’t increase revenue, they’ll cut spending by stripping out valuable business teams or merging with other consumer companies to slash costs (à la Kraft-Heinz). These strategies do not position Big CPG for long term success, I’d like to suggest a few that might.

Before I dig in here, I want to say upfront that I don’t have all the answers (or even most of them). I’m the CEO of a startup with 65 employees — not a massive corporation with 30,000 employees. The insights I hope to share are gathered from over a decade working in consumer investing and helping consumer companies grow, but they’re ultimately insights from the outside looking in.

Replace “Kellogg’s” with the name of PepsiCo, Estee Lauder, Nestlé, Kraft -Heinz or countless other big brands and the observations should still resonate. This isn’t about just one company, it’s about the dynamics that exist for virtually all CPG incumbents.

What I would do differently

On day one as CEO of Kellogg’s, I would take a hard look in the mirror and I would ask myself which Kellogg’s brands are still relevant and can grow. I recently had a conversation with a former VP of a major CPG company and he said that Big CPG is guilty of thinking that everything can be relevant if they bring the right news to it. I agree. As CEO, I would acknowledge up front that we have certain brands and products that are cash cows now-but are slowly dying.

An uncomfortable but proactive step would be to sell the legacy cash cows that are dying and invest the cash windfall into innovation. This week I was in another discussion with a 20 year veteran from a Fortune 100 consumer company who said “I think in 10 years our company will no longer exist. It will be broken up.” Conversations about selling legacy brands will make a lot of consumer executives squirm, but they are conversations that need to happen. Cutting the dying cash cows is the hardest but probably most important step in righting the ship.

After deciding which of our legacy brands to divest, my next step would be to publicly announce that we will shift focus away from cutting costs and towards investing in a culture of innovation to actually grow the business. This will likely cause our stock price to go down in the short term, but in the medium to long term this will help our company tremendously.

Simply put, we can’t survive by cutting costs forever. We need to grow. Our culture of innovation will be built and promoted in a variety of ways. What follows isn’t a sequential list but rather initiatives that should be pursued in parallel:

1)  Research and Development. We will signal to Wall Street that we are going to focus on growth and innovation, not cost-cutting. We’re going to go through a rehaul of the R&D process and pipeline and we will dare to dream bigger. In 2017, Kellogg’s spent $148 million  (1.1% of net revenue) on R&D. This may at first sound like a lot, but for comparison, Google spent $16.6 billion (15% of net revenue) on R&D during the same time period. The dichotomy between tech and consumer spending on this front is highlighted in the chart below.

R&D Spending as a Percentage of Annual Net Revenue

Source: Company 10-Ks for 2017

It’s no wonder that one of these companies has been making Frosted Flakes the same way for over 60 years (with goofy TV commercials for most of that time) while the other started as a search engine and now builds phones, maps, and self-driving cars. Imagine how comical it would be for a tech company to sell the same product for 5 years, let alone 50. R&D is not just about coming up with a new flavor or lowering the fat content of an existing product.

As one big CPG veteran told me recently – “consumers don’t care about ‘whiter whites’” anymore”. It involves building an adaptive infrastructure that truly listens to what consumers want and then relays that information to development teams in a way that allows them to be agile and effective. We need to have an R&D team that is focused on the category and consumer, not the product. Instead of Pepsi thinking about a lower fat potato chip, they need to be rethinking the snack category as a whole.

Why is it insane to imagine AB InBev developing a beer that doesn’t cause hangovers, but it isn’t crazy to imagine Elon Musk sending people to Mars? Why is it laughable for Clorox to invest a billion dollars into developing a non-toxic, safe substitute for bleach, but it’s normal to imagine investing $15 billion into Uber – a company that is trying to replace all taxis in the world and rethink transportation? Those comments are meant to push public CPG CEOs, not to degrade SpaceX or Uber.

Good R&D also involves keeping your ear to the ground for great ideas that may already be out there. There could be a toothpaste in India that would revolutionize the way we think about toothpaste in America, but we’ll never know if we aren’t listening. For an example of what can happen without this R&D infrastructure, look no further than the pharmaceutical industry where Big Pharma companies are now having to pay to outsource innovation because they can’t foster it in house. CPG is becoming Big Pharma.

2)  Incubation. In addition to investing in and partnering with great consumer companies, we will provide space and expertise in house to help them grow. Kellogg’s recently partnered with Conagra Brands and the City of Chicago to invest in a $34 million food incubator that is expected to support around 75 companies, 80% of which will be in the snack category. This is definitely a step in the right direction, but I’d want us to go bigger and take the operation in house. I’d like to incubate 100+ companies per year from a wide variety of categories and become the Y Combinator for consumer. This will be a win-win. We get to help great consumer companies grow and these companies get to leverage our expertise and infrastructure.

3)  Venture capital. Too many CPG companies only invest in brands once those brands are 5+ years old and end up paying a huge sum as a result. I would change our mandate to invest in companies that will be interesting 10 years out – not just companies that we think are going to contribute immediately to our revenue or existing product strategy. We need to take the long view here and data plays a big role. Kellogg’s will not identify innovation just by sending a dozen people to Expo West. We need a non-commoditized data and technology solution that can help us identify breakout brands early by looking at their growth potential- not their Expo sales booth. Kellogg’s is actually ahead of most CPGs when it comes to venture in that they have a venture arm of $100 million. But this is still too small.

I would start by having our venture arm manage assets of $500 million (less than 4% of net revenue but still 50x the AuM of many CPG corporate venture arms) and tell them that they are going to invest in 200-300 companies, focusing on early stage companies with less than $10 million in revenue over the next 2-4 years. If that sounds insane, look at Google’s GV for some inspiration. They build a diverse portfolio to foster innovation from many and sometimes unexpected angles. If tech VCs can have a portfolio of hundreds of companies, so can we. A venture arm in consumer is nothing new. Many large CPG companies have launched venture arms, but most of these consumer VCs only plan to invest around $5-$10 million across 3 to 4 companies. Then the CEO loses his or her nerve, succumbs to the pressure of short-term cost cutting, and bails on the strategy. We will dare to take the long view.

Beyond just capital, I would create a structure that provides these companies resources and support to help them be successful. We will create a program to allow for externships between Kellogg’s (and possibly our partners) and the portfolio companies we invest into. Hardly a week goes by that I don’t receive an email from a brand manager, marketer, supply chain expert, or others at one of these public CPGs who are looking to move to a smaller company. This externship program will be an asset for the smaller brands while also acting as a retention tool and bringing innovation back to Kellogg’s.

4)  M&A. I’m not against M&A, but I am against M&A for the sole purpose of stripping cost as a strategy to deliver long-term shareholder value. My belief is that in 10 years the revenue from the core existing products of many consumer companies will be much smaller than it is today. These products won’t be replaced by 1 or 2 new products, they’ll be replaced by hundreds – or thousands. That is the fragmentation of the consumer or what we have called in the past the Personalization of the Consumer. Big CPG can either buy these products (at an earlier stage) or lose to them. I would want our company to ingest a lot of smaller brands rather than forking out hundreds of millions (or billions) of dollars once these brands are already big. We will need to also invest in the infrastructure necessary to work with many more brands and benefit from their growth. The brands will join the Kellogg’s family rather than threatening it.

5)  Partnerships and joint ventures. Every now and then you will hear about a joint venture or partnership in consumer but they are few and far between. Why? I think a lot of times big consumer companies fear that partnering with another company will mean splitting profits which can negatively impact bottom line. This is not a productive attitude.  You see examples of successful partnerships in almost every other industry- whether it’s Google teaming up with Walmart to offer Walmart products on Google Express, or Chrysler teaming up with Waymo to work on driverless cars, partnering with a variety of stakeholders can often help foster the best innovation. I also think there is a big opportunity to partner with other consumer companies to foster education in the sector itself. We could host conferences that bring together the best consumer entrepreneurs and the brightest ideas and we would all benefit as a result.

Why this matters

If my plan as CEO were effectively implemented, I think we would see three powerful effects.  Firstly, by making more small bets on more emerging brands and building a culture of innovation, Kellogg’s would become a dominant player in consumer goods. They will no longer fear being displaced. They will be the ones creating and harnessing the disruption. Secondly, this roadmap would ensure that the best products make it into the hands of consumers and that everyone has access to a wider variety of foods and healthier options.  Finally, by building this infrastructure, Kellogg’s would be able to assist entrepreneurs with their distribution, brand, supply chain, and team. As these companies grow and succeed, this will also result in increased value for shareholders. Consumer is an extremely inefficient market, but Kellogg’s can be the public company that helps change that.

Again, it’s easy for me to suggest strategies like this. It’s much harder to implement them when you’re on the inside looking out. I think a lot of Big CPG CEOs probably do have bold ideas that would help their companies in the long run, they are just unable to pursue them in an environment that obsesses on the short term –  a board that demands immediate cost cuts and a market that demands immediate stock value.

So these CEOs are hamstrung and left to rearrange chairs on the deck of the Titanic while the whole ship is sinking. They fear that if they do too much to try to save the ship they won’t last long. Gates, Musk, and Bezos are free to be visionary and push their companies to the cutting edge of innovation while Cahillane (CEO of Kellogg’s), Hees (Kraft-Heinz), and Quincey (Coke) have to work within the box they are put in. I truly hope that big consumer companies will begin to innovate, be creative, and listen to what consumers want- and that corporate boards and Wall Street will realize the long-term value of these things. If the industry doesn’t evolve, you never know, Google might just step in with the next big breakfast cereal.

Ripple’s Brad Garlinghouse and Michael Arrington to talk cryptocurrency at Disrupt SF

Ripple CEO Brad Garlinghouse and Arrington XRP Capital founder (and TechCrunch founder) Michael Arrington will be joining us at TechCrunch Disrupt SF in September to talk money.

Garlinghouse has had a long and storied career in the tech industry, serving as a Senior Vice President at Yahoo!, President of Consumer Applications at AOL, and CEO of the file collaboration service Hightail. But in 2016, Garlinghouse was promoted from COO to CEO at payment services company Ripple.

Ripple’s goal is to try to make it as easy as possible to transfer money between two stores of value. Right now, that process is incredibly tedious, with no unifying structure to send money overseas or to underbanked communities. The notion of a unifying ledger is not a new one, but it’s one that’s transformed Ripple into a full-fledged company.

But Ripple also created the world’s third-largest digital token, XRP. The token has a current total market cap around $30 billion, and the company is working to expand the use cases for XRP, which has primarily been marketed as a tool for banks but has only attracted cross-border payment services.

As cryptocurrencies continue to evolve and gain mainstream attention, questions continue to mount around how these tokens will revolutionize the economy and gain utility.

TechCrunch founder and former Editor-In-Chief Michael Arrington will join Garlinghouse on stage to discuss the evolution of cryptocurrencies. Arrington left TechCrunch in 2011 and went on to start CrunchFund, which has invested in big name startups such as Uber, Airbnb, and Yammer.

In 2016, Arrington reduced his role at CrunchFund and has since started Arrington XRP Capital, a $100 million digital asset management firm in blockchain-based capital markets. Ripple is one of the first portfolio companies for Arrington XRP Capital.

This comes at a time when the SEC is doing everything it can to learn more about cryptocurrencies, sending out subpoenas to crypto funds far and wide, including Arrington XRP Capital.

This conversation is sure to be an interesting one, and one you won’t want to miss. Tickets to Disrupt SF (September 5 to September 7) are available now.

US early-stage investment share shrinks as China surges

The global early-stage investment pie is getting bigger… a lot bigger. Just four years ago, investors were putting less than $10 billion per quarter into early-stage deals (Series A and B). The past two quarters, however, have all come in over twice that level. Q1 2018, meanwhile, looks to be a record-setting one, with Crunchbase projecting $25 billion in global early-stage investment.

But while overall investment is on the rise, the U.S.’ share is dwindling. A few years ago, North American startups reliably received at least two-thirds of global early-stage investment. No more. For the past three quarters, North America’s share has dwindled to less than half, as the chart below illustrates:

The rise of China’s startup scene, combined with local investors’ penchant for jumbo-sized Series A rounds, goes a long way to explaining the shift. Venture ecosystems in Southeast Asia, Brazil and elsewhere have also been in growth mode, and thus accounting for a more significant share of global early-stage investment.

Huge Series A rounds are huge in China

Before we venture further, it should be noted that although we associate Series A with early-stage companies, this is not always the case. Some of the largest Series A rounds globally have gone to companies that were relatively mature but previously bootstrapped or spun out of large corporations.

Recent data shows both the U.S. and China have their share of spin-outs and older companies gobbling up so-called early-stage rounds. OneConnect and Ping An Healthcare, subsidiaries of Chinese insurance giant Ping An, which raised $650 million and $1.2 billion, respectively, are examples of such activity.

Venture investors in China also put far more into Series A and B deals than U.S. counterparts. A Crunchbase News analysis found that the average Series A round for a China-based startup in 2017 was $32.8 million, just over triple the size of the average Series A for a U.S. company.

The momentum is holding up in 2018. So far this year, at least 12 Chinese companies have raised early-stage rounds of $100 million or more, altogether bringing in more than $4 billion (see list). Recipients of some of the largest rounds include:

  • Ziroom, an apartment rental service provider based in Beijing, raised $621 million in its Series A round.
  • Black Fish, a consumer finance platform, raised a $145 million Series A round.
  • Pony.ai, an autonomous vehicle startup with significant operations in both Silicon Valley and China, raised a $112 million Series A.

U.S. is no slouch in big A and B rounds, either

The U.S. has also had a dozen startups (plus Pony.ai) bring in $100 million or more in early-stage rounds this year. However, the aggregate total these startups have raised — about $1.8 billion — is less than half that of Chinese counterparts.

As mentioned previously, many of the largest early-stage round recipients are mature companies or spin-outs of mature companies. The list includes two companies founded in 2009 that closed Series B rounds of around $100 million this year: Joby Aviation, a developer of electric planes, and Vacasa, a vacation property management company.

Healthcare spin-outs are also attracting big dollars, including Celularity, a developer of placental stem cell-based therapies, and Viela Bio, a developer of therapies for autoimmune diseases.

But while big rounds are still getting done, the number of U.S. early-stage rounds of all sizes has declined a bit over the past four years. Over the last two quarters, Crunchbase projects fewer than 900 early-stage rounds are closing quarterly. Globally, however, the number of early-stage rounds has been trending up:

Part of the pattern is that the dynamics of early-stage funding have changed over the years. In the past, Series A and B rounds were for startups to develop working prototypes, hone market segments to target and attract the earliest customers. Scaling on a national or international level was generally for later stages, after a company had proven demand and a working product.

These days, markets move faster, and it’s not uncommon to see startups move in just a few quarters from concept to scaling en masse. Just look at Bird, the scooter sharing company that raised $115 million after mere months of operation with a business model intended to terrorize pedestrians and motorists provide a last-mile transit solution.

The entire bike, scooter and moped sharing sector has blossomed over a couple of short years, with big early-stage rounds all around. And it’s an area where China was the early leader for scaling. But fintech, biotech, agtech and other fields are also providing fertile ground for substantial early-stage funding rounds.

Should we worry?

So is the declining share of North American early-stage funding a source of worry for founders and investors in the region? Or is it a predictable evolution following economic growth in China and elsewhere?

We won’t attempt to answer that here, but others have tried. Sequoia Capital’s Michael Moritz drew wide criticism earlier this year for an essay sounding the warning bell on what he perceived as superior work ethic among Chinese entrepreneurs compared to their U.S. counterparts.

Purely following the money, the takeaway is this: Investors globally have decided the early-stage opportunity is a lot bigger than they thought a couple of years ago. And while investors are putting a bit more into mature ecosystems like the U.S. and Silicon Valley, they are putting a lot more into China and other regions with underdeveloped venture markets relative to their size and technology prowess.