The week’s biggest IPO news had nothing to do with Monday’s S-1 deluge

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Ready? Let’s talk money, startups and spicy IPO rumors.

The week’s biggest IPO news had nothing to do with Monday’s S-1 deluge

During Monday’s IPO wave I was surprised to see Asana join the mix. 

After news had broken in June that the company had raised hundreds of millions in convertible debt, I hadn’t guessed that the productivity unicorn wouldn’t give us an S-1 in the very next quarter. I was contentedly wrong. But the reason why Asana’s IPO is notable isn’t really much to do with the company itself, though do take the time to dig into its results and history. 

What matters about Asana’s debut is that it appears set to test out a model that, until very recently, could have become the new, preferred way of going public amongst tech companies. 

Here’s what I mean: Instead of filing to go public, and raising money in a traditional IPO, or simply listing directly, Asana executed two, large, convertible debt offerings pre-debut, thus allowing it to direct list with lots of cash without having raised endless equity capital while private.

The method looked like a super-cool way to get around the IPO pricing issue that we’ve seen, and also provide a ramp to direct listing for companies that didn’t get showered with billions while private. (That Asana co-founder Dustin Moskovitz’s trust led the debt deal is simply icing on this particular Pop-Tart).

This brief column was going to be all about how we may see unicorns follow the Asana route in time, provided that its debt-powered direct listing goes well. But then the NYSE got permission from the SEC to allow companies to raise capital when they direct-list.

In short, some companies that direct-list in the future will be able to sell a bloc of shares at a market-set value that would have previously set their “open” price. So instead of flogging the stock and setting a price and selling shares to rich folks and then finding out what public investors would really pay, all that IPO faff is gone and bold companies can simply offer shares at whatever price the market will bear. 

All that is great and cool, but as companies will be able to direct-list and raise capital, the NYSE’s nice news means that Asana is blazing a neat trail, but perhaps not one that will be as popular as we had expected.

The NASDAQ is working to get in on the action. As Danny said yesterday on the show, this new NYSE method is going to crush traditional IPOs, provided that we’re understanding it during this, its nascent period.

Market Notes

Look, this week was bananas, and my brain is scrambled toast. You, like myself, are probably a bit confused about how it is only finally Saturday and not the middle of next week. But worry not, I have a quick roundup of the big stuff from our world. And, notes from calls with the COO of Okta and the CEO of Splunk, from after their respective earnings report: 

• China-based fintech giant Ant is super profitable and super big and super powerful and is going to have a mega-IPO that matters, even if it isn’t happening Stateside. (This has long been expected.)
• As I write to you, the TikTok saga is not yet over, but between the lawsuits and smokescreens and other crap, it appears that Microsoft and perhaps Walmart are the leading bidding duo. What a year.
• SPACs for real companies are happening, and Boston unicorn Desktop Metal is pushing ahead with one. This is an event to watch, and if it goes well we could see a bunch more in rapid-fire fashion.
• Speaking of which, here’s a run-down of all the companies that filed to go public on Monday. You are welcome, as that post was annoying to compile. (I jest, it was fun as hell.)
• Also this week, Y Combinator had a two-day Demo Day confab that we wrote a lot about. Sure, these are early-stage companies, but their ranks will generate some material winners. So catch up here, with that link containing our chat about the startups and directions to all our coverage.
• And for fun, here are some slightly deeper looks at Snowflake and Sumo Logic’s respective IPO filings, and a contrarian take on why Palantir has problems, but also some merit.

Over to our chats, starting with Okta COO and co-founder Frederic Kerrest:

• Okta had a good quarter. But instead of noodling on just the numbers, we wanted to chat with its team about the accelerating digital transformation and what they are seeing in the market. 
• On the SMB side, Kerrest reported little to no change. This is a bit more bullish than we anticipated, given that it seemed likely that SMB customers would have taken the largest hit from COVID.
• Kerrest also told us some interesting stuff about how the wave of COVID-related spend has changed: “We actually have seen the COVID ‘go home and remote work very quickly’ [thing], we’ve actually seen that rush subside a little bit, because you know now we’re five months into [the pandemic], so they had to figure it out.”
• This is a fascinating comment for the startup world. 
• Okta is big and public and is going to grow fine for a while. Whatever. For smaller companies aka startups that were seeing COVID-related tailwinds, I wonder how common seeing “that rush subside a little bit” is. If it is very common, many startups that had taken off like a rocket could be seeing their growth come back to Earth.
• And if they raised a bunch of money off the back of that growth at a killer valuation, they may have just ordered shoes that they’ll struggle to grow into.

And then there was new McLaren F-1 sponsor Splunk, data folks who are in the midst of a transition to SaaS that is seeing the firm double-down on building ARR and letting go of legacy incomes:

• I spoke with CEO Doug Merritt, kicking off with a question about his use of the word “tectonic” regarding the shift to data-driven decisions from Splunk’s earnings report. (“As organizations continue to adapt to tectonic societal shifts brought on by COVID-19, one thing is constant: the power of data to radically transform business.”)
• I wanted to know how far down the American corporate stack that idea went; are mid-size businesses getting more data-savvy? What about SMBs? Merritt was pretty bullish: “We’re getting to tectonic,” he said during our call, adding that before “it really was the Facebooks, the Googles, the Apples, the DoorDashes, [and] the LinkedIns that were using [Splunk].” But now, he said, even small restaurant chains are using data to better track their performance. 
• Relating this back to the startup world, I’ve been curious if lots of stuff that you and I think is cool, like low-code business app development, will actually find as wide a footing in the market as some expect. Why? Because most small and medium-sized businesses are not tech companies at all. But if Merritt is right, then the CEO of Appian might be right as well about how many business apps the average company is going to have in a few years’ time.

And finally for Market Notes, my work BFF and IRL friend Ron Miller wrote about Box’s earnings this week, and how the changing world is bolstering the company. It’s worth a read. (Most public software companies are doing well, mind.)

Various and Sundry

We’re already over length, so I’ll have to keep our bits-and-bobs section brief. Thus, only the brightest of baubles for you, my friend:

• Y Combinator startups are focusing on revenue in this more uncertain world. Per The Information, the startup org has encouraged startups in its world to “focus on generating revenue” and how to juice enough cash from their operations to endure sans checks from private investors. 
• Given the pace of private investments into certain startup niches today, it’s almost odd advice. But what is true for late-stage SaaS companies (very hot!) might not hold true for smaller YC companies that are focused on consumers.
• Natasha wrote about a particularly hot startup from this YC batch, so I reached out to a hot company from a prior batch, namely Tandem. But they didn’t want to talk on the record, so no news there. Alas.
• The Fastly deal is super cool and you should read more about it. As was this $300 million investment.

And with that, we are out of room. Hugs, fist bumps and good vibes, 

Alex

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Presenting TechCrunch Disrupt’s Asia sessions

As you know by now, Disrupt is going completely virtual for its 10th anniversary. TechCrunch’s Asia team (me, Rita Liao and Manish Singh) will miss seeing everyone in Moscone Center, but this will be the most accessible Disrupt ever, and we are excited to bring a full roster of Asia-focused sessions to its agenda for the first time. The sessions, with people from some of Asia’s most influential tech companies, startups and investment firms, will be broadcast during the day in this part of the world, followed by live Q&A sessions. And of course, all Disrupt attendees will get full access to everything TechCrunch’s team has spent months working to bring online: the Disrupt and Extra Crunch stages, virtual networking at CrunchMatch and Digital Startup Alley.

Many of the most important recent startup trends and tech stories have come from Asia, or were driven by Asian companies. The continent is home to several of the world’s most complex and dynamic markets: China, India and Indonesia, to name just some of the biggest ones.

Available at a time that works best for you, catch these sessions Sept 15-18th from 1:00 PM – 2:00 PM HKT. Immediately after each interview, join the speakers for a live Q&A. So come with your questions!

India is Facebook’s biggest market by number of users, and our speakers will include its head of India, Ajit Mohan.

We also have Russell Cohen, regional head of operations at Grab, the ride-hailing company that acquired Uber’s Southeast Asia operations two years ago and is now also one of the region’s largest on-demand delivery platforms.

Byju Raveendran, founder of BYJU’s, India’s most highly-valued edtech startup, will talk about online learning, one of this year’s most important topics.

As another example of how tech innovations in Asia influence other parts of the world, we will speak to Kaisei Hamamoto, co-founder and chief operating officer of SmartNews, which runs versions of its news aggregator app in two very different markets, Japan and the United States.

Our lineup of founders include Sonny Vu, whose last startup, Misfit, was acquired by Apple, and is currently the chief executive officer of continuous carbon-fiber 3D printing company Arevo.

We’ll also talk to Steven Yang of Anker about how he built his company into one of the most popular and well-regarded smartphone charger and power bank brands.

Gillian Tee, founder of Singapore-based caregiving and telehealth startup Homage, will share insights about how tech can serve the world’s most vulnerable people.

On the investment side, we will hear from Edith Yeung, general partner at Race Capital, about emerging technology trends in China and Silicon Valley.

East Ventures, one of the most prolific and influential investment firms in Indonesia, Southeast Asia’s largest market, will be represented by Melisa Irene, the firm’s first female partner.

And Karthik Reddy, co-founder of Blume Ventures, will be on hand to talk about the challenges and opportunities of helping build India’s startup ecosystem.

Each session will be followed by a live Q&A, so attendees will get a chance to ask each speaker questions. Stay tuned for the final schedule. In the meantime, make sure to get your pass to attend these sessions and a whole bunch more! If you move quickly, you can take advantage of savings on your pro pass if you buy before Friday, September 11 at 11:59pm PT.

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Elon Musk confirms Tesla was target of foiled ransomware attack

Elon Musk called an attempted cyberattack against Tesla “serious,” a comment that confirms the company was the target of a foiled ransomware attempt at its massive factory near Reno, Nevada.

The Justice Department released a complaint Thursday that described a thwarted malware attack against an unnamed company in Sparks, Nevada. Tesla has a factory in Sparks that makes battery cells, packs and electric motors; while Tesla was not named in the complaint several blogs, including Electrek and Teslarati, reported that the company was the target.

Much appreciated. This was a serious attack.

— Elon Musk (@elonmusk) August 27, 2020

The Justice Department alleged that Russian national Egor Igorevich Kriuchkov, 27, attempted to recruit and bribe a Tesla employee to introduce malware in the company’s network.

The malware was designed to install ransomware, a kind of malware that encrypts a victim’s files in exchange for a ransom. Prosecutors said the ransomware used an increasingly popular new tactic that not only encrypt a victim’s files but also exfiltrates the data to the hacker’s servers. The hackers typically threaten to publish the victim’s files if the ransom isn’t paid.

An unnamed employee at the Tesla factory, known as the Gigafactory, met with Kriuchkov, who allegedly offered to pay him $1 million to introduce malware into the computer network. The employee informed Tesla, which then notified the Federal Bureau of Investigations. The FBI used the employee in a sting operation.

Kriuchkov was arrested August 22.

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Facebook removes ‘Kenosha Guard’ militia account after shooter kills two at protest

Facebook has removed a local self-declared militia’s page and a related event following the events that unfolded last night in Kenosha, Wisconsin.

Two people were killed and another was wounded when a man believed to be 17-year-old Kyle Rittenhouse allegedly began firing on a group protesting the police shooting of Jacob Blake, a Black man shot in the back while walking away from officers and approaching his car. Rittenhouse was arrested Wednesday in Antioch, Illinois and charged with first-degree intentional homicide.

A series of videos from the night depict law enforcement officers at the protest having friendly conversations with a group of men carrying guns, even offering them bottled water and expressing appreciation for their presence. Rittenhouse appears to have been among the armed group at the protest who said they were attending to protect property. How the armed counter-demonstrators organized their presence and what groups they are affiliated with has not yet been reported.

Prior to the night’s events, a Facebook account called Kenosha Guard published an event to gather “armed citizens to protect our lives and property.” According to the Milwaukee Journal Sentinel, a post by the now-removed account attempted to rally “patriots willing to take up arms and defend [our] City tonight from the evil thugs.”

Two different Facebook users reported the Kenosha Guard account last night before the shooting took place, but in both cases Facebook determined the event and account were not in violation of its policies, the Verge reported.

In a statement to TechCrunch, Facebook said that it removed the group, the event page and the suspected shooter’s accounts on Facebook and Instagram. The company did not find a connection between Rittenhouse’s own account and the Kenosha Guard page.

“At this time, we have not found evidence on Facebook that suggests the shooter followed the Kenosha Guard Page or that he was invited on the Event Page they organized,” a Facebook spokesperson said.

“However, the Kenosha Guard Page and their Event Page violated our new policy addressing militia organizations and have been removed on that basis.”

Facebook is currently monitoring its platform for content praising the shooting and plans to remove anything that meets its threshold for inciting serious violence.

Facebook bans ‘violent network’ of far-right boogaloo accounts

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The pandemic has probably killed VR arcades for good

A lagging trend of the past few months has been witnessing startups that COVID seemed poised to kill end up scaling back some of those deep cuts and taking off again. Not all spaces have been quite so lucky, in particular, lately we’ve seen a host of location-based virtual reality startups shut their doors.

Virtual reality arcades weren’t exactly crushing it pre-pandemic, the small industry was already a bit of a Hail Mary for the virtual reality market which has failed to push consumers to adopt headsets on their own and saw arcades as a way to warm up the general public to VR’s role in entertainment. Lackluster consumer interest and the throughput difficulties associated with quickly moving users through experiences were among their biggest challenges facing VR arcades.

Virtual reality scales back its real world presence

This week following a report from Protocol, Apple confirmed its acquisition of Spaces, a virtual reality arcade startup which had been forced to close its in-person arcades amid COVID and had attempted a pivot to creating virtual environments for video chat software. An Apple acquisition is hardly a mark of failure, but it is unlikely that the company has any interest in reviving the startup’s arcade business.

Earlier this month, The Wall Street Journal reported that the US subsidiary of Sandbox VR had filed for bankruptcy. Sandbox VR has raised quite a bit of money on the promise that they could revamp several industries at once. The idea was that mall operators on the decline would give great deals to some of these startups to set up physical storefronts as a loss leader to bring in a younger generation of consumers, while they could capitalize on mixed reality social media video to bring a level of viral growth to their VR offerings.

In July, UploadVR discovered documents that suggested Disney had terminated the lease of virtual reality startup The Void’s Downtown Disney location following months of COVID-related closures.

It was impossible to forecast the current pandemic when many of these investments were being made, but virtual reality arcades had already shown they were far from a sure bet. In late 2018, IMAX shut the doors of the last of its seven virtual reality arcades after investing tens of millions into its VR efforts.

IMAX pulls the plug on its dream of VR arcades

With the future of in-person entertainment unclear, the question is whether virtual reality arcades have any chance of a rebound.

The fact is many of these startups were pushing up against current realities on multiple fronts and were attempting to seriously shift the landscape of 21st century digital entertainment, attempts that seemed daunting from the start.

As massive movie theater chains struggle to see how the pandemic will affect their industries in the long-term, it isn’t surprising that many of these startups have failed to see a light at the end of the tunnel and have shut down operations or been sold off. I suspect investors will be reluctant to back new efforts in this space and that the time horizon of COVID-19 will force current entrants towards pivots that look dramatically different from pre-COVID era business models. (One caveat is that the VR arcade market certainly looks differently in the United States compared to markets in countries like China and Japan where virtual reality arcades seem to fit a bit more snugly into popular gaming culture.)

If VR arcades survive or are reborn, it will be due to some pretty massive shifts in consumer behavior and VR adoption.

Virtual reality, as an industry, is in a tough spot. In the United States, it’s essentially only Facebook keeping the space alive in a meaningful way and while the company seems to be barreling ahead in its efforts to build a mainstream future for the technology on its own terms. Earlier this summer, Facebook announced that it was pulling its top-selling title Beat Saber from arcades for good by August. Since the acquisition of Oculus back in 2014, the ecosystem that sprang up around Facebook’s VR efforts has receded meaningfully leaving the company in a lonely position once again.

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Cryptocurrency exchange FTX acquires portfolio tracker Blockfolio

FTX, a cryptocurrency exchange that offers derivatives, options and other sophisticated products, is acquiring a popular portfolio tracking app, Blockfolio.

FTX is spending $150 million for the acquisition. But take that price with a grain of salt as it’s a combination of cash, cryptocurrency and stock. Cryptocurrency (and stock) in particular might not be perfectly liquid.

While an exchange buying a portfolio tracking app seems to be a right fit, they don’t necessarily have the same audience right now. FTX is better positioned for professional traders as it lets you trade on futures markets and it even offers ERC-20 tokens that track the volatility of bitcoin.

Blockfolio is a consumer app and it has been downloaded over 6 million times on iOS and Android. The startup had previously raised $17 million from Founders Fund, Pantera Capital, Dan Matuszewski, DCM Ventures, Hashkey Digital Asset Group and others.

As the name suggests, Blockfolio lets you add your portfolio of cryptocurrencies and track their value over time. The app also lets you view market moves by searching for a token in the app. You can also automate portfolio tracking by connecting the app with your exchange accounts.

With today’s move, FTX wants to launch a simpler trading experience for retail customers. The teams behind FTX and Blockfolio are already working together on a Blockfolio-branded trading product.

And if FTX takes advantage of Blockfolio’s user base, it’s certainly going to be a big advantage when it comes to liquidity.

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Everyone filed to go public Monday

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

We’re back out of sequence, because literally every company you can name (well, almost) dropped an S-1 yesterday so we had to sit down and parse them out a bit. That so many filings dropped during the same two days when we had Y Combinator’s two-day Demo Day at the same time meant that we were all a bit punch drunk, but we rallied.

Natasha and Danny and Chris and myself all piled back onto the mics to dig through all the numbers. Here’s a rundown of the companies we went through:

• Palantir, which filed its formal S-1 during our recording session. Danny covered most of the news last Friday, but the public doc is now live, so happy sleuthing.
• Unity’s huge IPO that shows how big gaming is. Natasha connected it to the broader Apple-Epic dust-up, and we all reviled in its growth results.
• Snowflake had Danny so excited he was conjuring scripted segues, and we were all impressed at its historical growth. Sure, it lost a lot of money last year, but, hey, Snowflake has dialed that back as well.
• And then there was Asana, a company I’ve covered quite a lot over the years. Our general take is that the company’s growth has been good, if it is losing more money than we anticipated. Still, Asana could set a neat new precedent of raising debt ahead of a direct listing. This is one to watch.
• And then we spent a little time on JFrog and Sumo Logic (more here), because we are nothing if not completionists.

Got all of that? It was a lot of facts to get through, but we did our best and we hope this helps. More tomorrow as we talk Y Combinator with a special guest host. Chat tomorrow!

Equity drops every Monday at 7:00 a.m. PT and Friday at 6:00 a.m. PT, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

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Pinduoduo’s latest aim: sell $145 billion farm produce in 2025

Still working to turn a profit and shake off its fake-goods reputation, China’s e-commerce upstart Pinduoduo set itself another ambitious goal for 2025: surpass 1 trillion yuan or $145 billion annual gross merchandise volume of agricultural products.

The announcement arrived with the company’s Q2 results last Friday. For some context, online sales of agricultural goods in China in 2019 neared 400 billion yuan or $58 billion, a 27% increase from the year before according to stats from the Ministry of Commerce.

It’s important to note that GMV totals the dollar value of merchandise sold through a platform without factoring in discounts, refunds, returns, and so forth, so it’s not accepted as a standard accounting term for measuring revenues. The term is, however, useful for gauging the transaction size of a budding company like Pinduoduo that is still operating in the red.

The key message here is that Pinduoduo wants to lead the digitization of China’s agricultural sector. Just 2.5% of China’s agricultural goods were distributed online last year, with over half through traditional wet markets and about a third through supermarkets, said a report from research firm iiMedia.

Pinduoduo launched in 2015 as a group-buying service for fruits and has since grown into an all-purpose e-commerce service rivaling Alibaba and JD.com. Fruits and vegetables remain a key category, as over 240 million or 38% of its annual active users bought farm produce via its marketplace in 2019.

Pinduoduo believes its ‘pin’ or ‘group-buying’ approach can help standardize growing practices and bring economies of scale to small farms. Compared to countries like the U.S. where industrial farming prevails, China is dominated by small farms, for it has far less arable land per capita. As its newly appointed CEO Chen Lei said on the earnings call:

“We combine consumer demand on our platform [to] create scale, and we can leverage consumer insights we gain to help farmers make more informed decisions across planting cycles, including what to plant and when to harvest.”

Pinduoduo’s annual report dived into more details:

“We find ‘pin’ an effective solution to aggregate consumer demand, match them with batches of agricultural produce, and mobilize China’s well-penetrated and affordable logistics capability to have perishable and fresh produce shipped directly from farms to users and bypass multiple layers of distribution. This not only enhances user experience, but more importantly, helps to turn small scale agriculture production of different quality, variety, and volume into a semicustomized batch processing mechanism. It lowers the unnecessary costs of agricultural consumption and potentially makes small scale customized services viable.”

The firm’s farming push also includes bringing agricultural experts to train farmers and investing in precision-farming technologies like robots, IoT sensors, and low-powered data transmission.

Pinduoduo’s rise hs no doubt unnerved its rivals. The upstart logged 683 million annual active buyers in the year ended this June. For comparison, Alibaba claimed 742 million China-based active consumers in the year ended March, and JD.com racked up 417 million in the year ended August.

But Pinduoduo still lags far behind the others in per-customer spending. Using annual GMV and active buyer figures, our calculation shows that JD.com recorded roughly 5,760 yuan ($833) GMV per consumer, while the average was about 8,447 yuan for Alibaba (in China) and 1,127 yuan for Pinduoduo. Produce in China has notoriously thin profit margins, so the challenge for Pinduoduo is how to achieve a healthy bottom line as it works towards its dream to transform China’s agricultural industry.

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