How growth investing grew so big so quickly

It was 2013, and I’d been camping out in Uber’s San Francisco offices for weeks. Our team wanted to invest in the company on behalf of my private equity firm, but was utterly daunted by its “eye-popping” $1 billion valuation.

Back then, unicorns were a rarity and that was a far steeper price tag than we felt comfortable offering to a company in an as yet unproven market with no cash flow to speak of. After spending an additional two weeks in their offices conducting diligence sessions, the price tag rose even higher — to $3 billion. Despite our valuation concerns, we ended up making the investment. At the time, I never would have imagined that not only were we participating in the vanguard of a new industry — namely, ridesharing — but also, surprisingly, a transformation of the venture ecosystem.

Fast-forward a few years, and growth funds, defined as investments into companies that have achieved product-market fit and are primed to scale with further capital, have become significant forces in the tech ecosystem. They’ve invested in every major tech company that has gone public — Zoom, Slack, Uber and CrowdStrike, to name a few — as well as almost every single billion-dollar plus technology firm on its way to IPO. Given the current scale — growth funds poured $360 billion into startups in 2019 — it can be hard to comprehend that these funds were nascent only a decade ago.

Despite being relatively new to market, this investment category has quickly become one of the most active. It has also become one of the most confusing, as lines have blurred among early-stage VCs, private equity firms, hedge funds and dedicated growth-stage firms, all offering an abundance of capital and similar sounding value-add to high-growth startups. Based on my experience as a former private-equity-investor-turned-growth-stage VC, here’s a quick history on this young but massive industry, thoughts on where it’s going next, and suggestions for founders and startup executives seeking to understand the important but little understood nuances that will help them determine the right partner.

Reflecting back on any 10-year period in the capital markets can lead you to believe you’ve found new, unique, secular shifts in the way markets function. Zoom out 50 years and you’ll often find capital markets have a tendency to repeat themselves. Today, for example, later-stage funds, including those that primarily trade public stocks, are building teams to scout seed and Series A investments. Early-stage funds have assembled later-stage growth funds to double down on early-stage winners. While today lines are blurring across investment stages and funds, the reality is that private markets have seen similar trends before.

As an example, between the 1960s and 1980s, VCs moved later and ultimately invested nearly 90% of their capital in leveraged buyouts and late-stage financings before ultimately refocusing on early-stage bets in the 1990s at the dawn of the internet. As well-established funds cycled back and forth between early- and late-stage investing, “growth” emerged as a distinct asset class to target investments sitting in between early- and late-stage financings (roughly Series B to pre-IPO rounds).

This current growth cycle began in 2009 when Facebook accepted a $200 million check at a $10 billion valuation from DST. At the time, Facebook’s valuation shocked many investors, but then it went public in 2012 at a $100-billion-dollar valuation and is of course worth over $700 billion today.

But Facebook was only the start. There was also Uber and Airbnb. When I helped spearhead an investment in Airbnb in 2014, I was completely distraught over the “massive” $10 billion valuation. Of course, these big bets paid off — so much so that the entire growth category reoriented itself toward hypergrowth, capital-consumptive business models. The momentum clearly continues today.

Deciphering each firm type’s version of value-add

Companies now have a broad array of funds from which to choose when evaluating private market financings. Here are the four broad categories of funds most active in growth investing and the use cases in which they can provide the most value to their investments:

Dedicated growth firms

Funds like CapitalG came into their own in the 2010s and were built to support Series B to pre-IPO companies. These firms were created specifically to support high-velocity startups with the capital and resources to scale. Because many of these growth firms were built over the past decade, they typically have a relatively small number of funds under their purview and retain low partner-to-investment ratios, enabling each partner to focus on each company’s success.

Since companies in the growth phase tend to encounter familiar growing pains (e.g., maturing sales and customer success functions, building out new product lines and R&D centers of excellence), growth funds tend to invest heavily in in-house stage-specific marketing and sales; people and talent; and product and engineering resources in order to improve their portfolio companies’ odds of success.

Singapore-based digital business assistant Osome raises $3 million

Osome’s founding team, Anton Roslov, Victor Lysenko and Konstantin Lange

Osome’s founding team, Anton Roslov, Victor Lysenko and Konstantin Lange

Osome, a Singapore-headquartered business assistant app that digitizes accounting and compliance tasks, has raised $3 million. An extension of Osome’s seed round, the new funding was led by XA Network and AltaIR Capital.

The startup currently has about 4,500 SME clients across Singapore, Hong Kong and the United Kingdom, founder and chief executive officer Victor Lysenko told TechCrunch. The new funding brings Osome’s total raised to $8 million from investors including Target Global. “We are in a good place in terms of cash reserves and operational performance so we used this opportunity to raise funding before a much larger Series A planned for 2021,” Lysenko said.

When the startup launched in 2018, he said it reached $1 million in annual recurring revenue (ARR) by the end of the year, then increased that amount to $4 million in December 2019. Osome expects to hit $8 million ARR by the end of this year.

Osome’s platform uses machine learning-based tech to automate administrative, accounting, payroll and tax-related work. Depending on subscription tier, it also gives businesses access to chartered accountant services.

Osome's digital business assistant

Osome’s digital business assistant

The startup started two years ago in Singapore, where it also offers incorporation services, before expanding to the United Kingdom and Hong Kong.

Lysenko told TechCrunch that Osome launched in Singapore because the country’s “simple business rules and a simple tax system allowed us to offer clients a ready-made solution quickly.” The city-state’s small size also made it easier to get quick client feedback and arrange partnerships.

Osome is now looking at Australia as a potential new market, because of its proximity to its Singapore headquarters and its similar accounting and corporate service rules.

Thanks to the country’s relatively digital and streamlined process for incorporating businesses, several other tech-based business service platforms are also based in Singapore. These include Sleek, Lanturn and Bluemeg. Despite competing with each other, Lysenko said the number of companies “is an excellent support for our thesis that this market is ripe for disruption.”

“Having said that, we believe that while all our competitors are looking at this space from a digital perspective, our special sauce is that we digitize the process to a much deeper extent and do not rely on third-party solutions as much as others do,” he added.

The COVID-19 pandemic and lockdowns prompted some companies to start using Osome, particularly in the e-commerce segment. About one in 10 of Osome’s clients earn most of their revenue online, and that share is growing, Lysenko said.

“We found ourselves in a very stable industry,” he added. “We saw a slight 10% drop in revenue in April and May, but in June, growth resumed, and we returned to our previous trajectory. We have tripled our revenue in the last 12 months.”

Pivoting in the pandemic, Citysocializer relaunches as a ‘Get Your Guide for virtual events’

Citysocializer, previously a platform for promoting real-world socializing in cities, has relaunched, becoming something akin to a ‘Get Your Guide for virtual events’. Just as other startups have pivoted to ‘lean in’ to current circumstances, this startup has turned its attention to how people can monetize their skills and passions from home doing the COVID-19 era.

As many of us have seen, personal trainers, yoga teachers and similar types of freelance professionals have all had to shift to offering virtual sessions over Zoom and similar platforms. But until recently, these sessions were hard to monetize.

Since the pandemic arrived, Citysocializer recognized this phenomenon and quickly pivoted to a hybrid model, which they describe as being somewhere between Airbnb’s Online experiences and Meetup.com.

It’s now become a platform for virtual fitness classes, learning workshops, and the like, with users in the UK, Europe, US and Canada participating in hundreds of live, virtual group events, classes, and workshops. The company has previously raised a £1.5m VC funding from PROfounders Capital and EC1 Capital.

CEO and founder Sanchita Saha says she has seen per person event bookings increase 300% from an average of two to six events per person per month. She said: “Because the world is set to be in various stages of lockdown over the next six months or more, now more than ever people need and want to feel connected, be entertained, creatively inspired, stay fit and on top of their mental health – and the easiest and safest way to do that is virtually… Enabling workers from these industries to monetize their skills and talents by hosting their own virtual events for a captive audience who are stuck at home is a win-win situation.”

She said former workers in the hospitality and entertainment industries – hit hard by the pandemic – are switching to offering things like cocktail classes; chefs are hosting cooking classes; and singers, musicians and entertainers are using the platform to host live virtual gigs. Other activities include Games nights (Pictionary, Articulate, Bingo..); Theatre, Performance & Storytelling Workshops; Wine Workshops; Beauty & skincare classes and Guided Meditations.

But why would someone not just throw up an Eventribe page or similar to achieve this? Speaking to TechCrunch, Saha said: “We have a social networking and community piece that sits around the events, who are already actively attending virtual events, classes and workshops and inviting their friend networks on Citysocializer to join them as well. There are also higher repeat bookings because of this. If someone joins an event once and enjoys it, we make it easy (and they are more likely) to join future events. Hosts can build a following for their events amongst the community.”

Most events and experiences are priced £4 – £15 per household, or discounted with Citysocializer membership that starts from £9.99/month. Commercial event hosts earn 100% of the net revenue from their event bookings and can host multiple events for international users across multiple time zones.

Another startup that has appeared during the pandemic to take advantage of this switch to virtual events has been Livelink, which offers ‘tailored recommendations for live content and events’ via email. Curators, who don’t even have to be running the actual virtual events, find the live content available and send their selection to subscribers via the platform.

Reliance Retail raises $1.3 billion from PIF

The Public Investment Fund, which has this year invested $1.5 billion in Mukesh Ambani’s telecom venture Jio Platforms and more than half a billion dollars in his fiber-optic business, has returned to back yet another empire built by India’s richest man.

The sovereign wealth fund is investing $1.3 billion in Reliance Retail for a 2.04% equity stake in the largest retail chain in India. The investment values Reliance Retail, which was founded in 2006, at $62.4 billion (up from about $58 billion last month), the Indian firm said.

Reliance Retail, which serves more than 3.5 million customers each week (as of early this year) through its nearly 10,000 physical stores in more than 6,500 cities and towns in the country, has now raised over 6.4 billion since September this year.

“We at Reliance have a long-standing relationship with the Kingdom of Saudi Arabia. PIF is at the forefront of the economic transformation of the Kingdom of Saudi Arabia. I welcome PIF as a valued partner in Reliance Retail and look forward to their sustained support and guidance as we continue our ambitious journey to transform India’s retail sector for enriching the lives of 1.3 billion Indians and millions of small merchants,” said Ambani, who runs Reliance Retail’s parent firm, Reliance Industries, in a statement.

More to follow…

WhatsApp now lets you post disappearing messages, which go away after 7 days

Facebook recently announced that WhatsApp passed the whopping milestone of 100 billion messages sent per day, but not everyone wants those chats to stick around forever. Now, Facebook’s wildly popular messaging app with 2 billion users is adding a feature to give people more control on how their words and pictures live within the app. From today, messages — including photos and videos — can now be marked to disappear after 7 days.

The feature is being rolled out globally across Android and iOS starting today, WhatsApp said. While it’s starting with a 7 day lifespan, it is already looking at playing around with the time limits.

“We will keep an eye on feedback about how people are using it and liking it and see if it needs adjusting in the future,” a spokesperson said. “For now we are starting with seven days, because it feels like a nice balance between the utility you need for global text based conversations and the feeling of things not sticking around forever.”

And just to be clear, the 7-day limit will exist regardless of whether the message gets read or not. (The clock starts counting when the message is sent, as it does on other apps like Telegram.)

“The way it’s currently designed is to give the sender confidence that after 7 days their message is gone. The messages have no concept of being seen, for them to disappear, so they will disappear regardless of read status,” said the spokesperson.

Users can turn on the feature for direct messages, but in groups it’s the admin that has to enable disappearing messages for it to work.

Although today is the “official” announcement, eagle eyed WhatsApp watchers had spotted the company posting FAQs on the feature some days ago. And tests of the feature actually first started to appear — and,  fittingly, disappear — as early as March of this year.

This isn’t WhatsApp’s first rodeo with disappearing content. In 2017, the company first dabbled in the idea with the launch of Status — an encrypted clone of Snapchat’s Stories feature, which let people set up short updates on themselves — in the form of some text and/or a GIF — as essentially a “profile” for all of their contacts to see for a set period of 24 hours, with the Statuses existing in their own tab in the app separate from your chats.

It’s not clear how popular the Status feature is: we’ve reached out to ask. Anecdotally, I’ve seen younger people using it a lot, older people less so.

WhatsApp said that one of the reasons it’s taken its developers so long to bring that feature to the wider chat experience is in part because of the encrypted aspect of the app:

“[End-to-end encryption] was partly why it took us so long to implement this feature, because we wanted to retain the e2e capabilities that WhatsApp users expect and love,” the spokesperson said.

But in any case it’s a very long time in coming. Ephemerality has been one of the most radical and sticky features in messaging in years, and has arguably been the defining feature for one of the runaway, viral hits of the genre, Snapchat — so much so that it has spawned clones of the feature in a number of other apps, from those focused first and foremost on privacy like Signal and Telegram, through to those that are aimed at more casual consumer audiences, like WhatsApp.

The new disappearing messaging feature is coming amid some other notable additions in the app that appear to be in aid of the general purpose of giving more control to users.

Earlier this week, WhatsApp announced that it would enable a new storage feature in the app: specifically, an easier way to control how and where photos and other media that you are sent live. This is especially important for active (but perhaps not deep) users of the app, who find their storage is getting gobbled up by innocuous GIFs, photos and videos sent over the app by friends and acquaintances. At the same time, it has also been beefing up the services it offers to businesses, and testing out business models for charging them, one way to stick to their commitment not to put ads into the service.

As with the storage changes, the new disappearing feature will not be switched on for users by default: you have to proactively change the settings.

Vivid Money raises $17.6 million for its European challenger bank

German fintech startup Vivid Money has raised a $17.6 million Series A funding round (€15 million). Ribbit Capital is leading the investment. Today’s funding round gives Vivid Money a valuation of $117 million (€100 million).

Vivid Money is quite a young startup as the company started accepting customers just a few months ago. Built on top of Solarisbank for the banking infrastructure, Vivid Money is a challenger bank with a few nifty features.

When you sign up, you get a current account and a metal debit card. You can control the card from the app — for instance, you can lock and unlock it. It also works in Apple Pay and Google Pay.

Users can also create sub-accounts called pockets. Each pocket has its own IBAN. You can invite other users to specific pockets and you can associate your card with one pocket or another. Alternatively, you can order additional physical card for €20 per card, or get a virtual card for €1.

The startup also analyzes your transactions to identify your recurring subscriptions. This way, you can block future charges. Vivid Money users can also send money to other users from the app. They can also generate a link so that the recipient can enter their banking details.

There are also some cashback features as well with partner brands. Soon, you’ll be able to invest from the same app. You’ll be able to buy shares and ETFs.

There are two plans — a free plan and a premium subscription for €9.90 per month. Prime users get higher limits on cashback, more ways to earn cashback, higher limits on cash withdrawals and a free virtual card.

Right now, Vivid Money is only available in Germany. But the company has plans to expand to other European countries.

ByteDance to pump $170 million into e-book reader Zhangyue

While short videos are what drive ByteDance’s revenues and give the Chinese startup international recognition, the firm is expanding into numerous new areas like other tech giants to fuel growth. It’s dabbled in enterprise software and online learning, and the news came this week that ByteDance will invest in one of China’s largest e-book readers and publishers, Zhangyue.

Zhangyue announced Wednesday evening that a ByteDance wholly-owned subsidiary plan to acquire about 11% of its shares for 1.1 billion yuan or $170 million. The China-listed online literature company, with a current market cap of 12 billion yuan, operates an app where 170 million users read novels, magazines, anime and listen to audiobooks every month during H1.

For comparison, its immediate rival China Literature, a Tencent spinoff, claimed 217 million monthly users in the same duration.

The partners are targeting a booming online reading market driven by China’s smartphone penetration. In 2019, users spent nearly an hour a day on their e-reading apps, according to market insight provider iResearch. The sector is projected to generate 20.6 billion yuan in revenue, which includes subscription and licensing fees, by 2020; that’s up from 6.6 billion yuan in 2015. Meanwhile, e-book users in the country will reach 510 million this year, the researcher said.  

The deal will form a close alliance between Zhangyue and China’s leading digital entertainment titan. Under the agreement, ByteDance gets to assign one board member to Zhangyue and will be able to license the publisher’s intellectual property.

In return, Zhangyue will get ByteDance support in areas like ad buying, monetization, and other technologies. The success of Douyin, TikTok and newsreader Toutiao, which collectively claim users in the hundreds of millions, have turned ByteDance into a new darling for brands and advertisers.

In all, the collaboration will incur 470 million yuan worth of transactions between the partners in the following year, up from 270 million yuan a year before the equity acquisition.

CVE-2020-27387

An unrestricted file upload issue in HorizontCMS through 1.0.0-beta allows an authenticated remote attacker (with access to the FileManager) to upload and execute arbitrary PHP code by uploading a PHP payload, and then using the FileManager’s rename function to provide the payload (which will receive a random name on the server) with the PHP extension, and finally executing the PHP file via an HTTP GET request to /storage/<php_file_name>. NOTE: the vendor has patched this while leaving the version number at 1.0.0-beta.