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Discontent and disruption in the world of content delivery networks

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As content delivery networks (CDN) market leaders like Akamai and Cloudflare grapple with technological shifts, some innovators like Teridion, Signal Sciences and Section.io (in which I am an investor) are making rapid advances.

The CDN market, estimated at $5 billion today, is anticipated to be more than $10 billion by 2019. While the market is growing rapidly, can the giants learn to dance? How are the startups aiming slingshots at the legacy Goliaths? Newcomers like StackPath aim to win by offering a “security first” CDN, which, in the wake of the #CloudBleed can be a marketing differentiator. Above all, how will that elephant in the room — Amazon CloudFront — trample all the unicorns?

Looking back: A brief history of CDNs

The first wave of CDNs started with Akamai almost two decades ago in 1998. CDNs were designed to accelerate web content. In the world of constrained bandwidth, speed of delivery is affected by a variety of factors, including page content and effective routing of traffic. Web companies that experience heavy web traffic needed a reliable, rapid mechanism to ensure uninterrupted service. Akamai promised all that, and then some.

Within a year of its launch, Akamai went IPO and had Apple Computer as its logo customer. At the time, Apple constituted 45 percent of its total $1.2 million revenues. Limelight Networks was a fast-follower to Akamai and was launched in 2001. It went public in 2007 but has not been able to catch up with Akamai. In 2016, Akamai posted $2.3 billion in revenues with a market cap of more than $10 billion. (Limelight Networks posted $170 million revenues in 2016 with a market cap of $290 million. Private equity shops, take note.)

Over time, websites became more dynamic and bloated, and we entered the SaaS / application era. And then, the shifts of cloud and mobility changed the way content was delivered and consumed. CDNs started to mitigate DDOS attacks. Add the growing demand for security to that mix and slowly but surely, the CDN universe is getting disrupted.

Amazon launched its own CDN, CloudFront, in 2008. Cloudflare started circa 2009 offering content delivery, security and analytics. In 2011, Fastly got launched and recently announced a new $50 million funding round. StackPath raised $180 million in a single round to disrupt CDN markets. Its CEO, Lance Crosby, is a badass who started SoftLayer and sold it to IBM for $2 billion. Having that kind of an exit made it easier for Lance to raise a war chest of $180 million.

Company

Year Started

Capital Raised

Investors

Cloudflare

July 2009

$182 million

NEA, Union Square Ventures, Fidelity

Fastly

March 2011

$179 million

Battery Ventures, August Capital, Iconiq, Sapphire Ventures

StackPath

2015

$180 million

ABRY Partners

These newcomers have created headaches for Akamai, eating into its margins, steadily forcing the price down. Akamai’s Media Delivery Solutions revenue for 2016 was down 9 percent year-over-year. As CDNs supply-demand curve shifts, customers are enjoying price drops of 20-40 percent.

Grappling with changes

As we enter the new applications- / DevOps-driven world, the developers will drive the next-gen CDN consumption. Dynamic microservices, Continuous Integration / Continuous Delivery (CI/CD) and, of course, performance and security remains paramount.

Let’s look at some of the technological shifts:

Bloated web pages: We are fat, getting fatter. Average bytes per web page has grown ~3X to 2.4 MB in the past five years, as reported by httparchive.org.

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An Akamai study shows web page load times for desktops have increased by 63.8 percent in two years, from 7.2 seconds (2013) to 11.8 seconds (2015). And when it comes to dynamic content, customized to enhance the user experience, all bets are off. Steven Sinofsky, the former president of the Windows division of Microsoft, tweeted recently about LinkedIn slow load time as his “favorite new feature.”

https://lh3.googleusercontent.com/B6wV-63lDxDGb8wj_avw8ynxz2IKUp-ofQ3RqICIXIl7Ze9z9L9nR9OkHWS97MRaEo9ZWq7rBwjknve6hR_pSs-9FJVXGN-BaXrTya_t1xQEvZ1TPFIp37QgklmlIxDp-SUbYnlJ

The growth of video: As the CDNs attempt to deliver bloated pages, the type of content has shifted. The demand for video / live streaming / dynamic application content continues to grow. Video is expected to grow 4X by 2020, when Cisco predicts 82 percent of all IP traffic will be video. Video consumption during busy-hour internet traffic (7pm-11pm) is expected to grow nearly fivefold from 2015 to 2020. Dynamic content and bandwidth peaks is the new CDN game, away from static cached content.

Mobile consumption increases: By 2020, ~30 percent of traffic is expected to come from smartphones. The average load time for mobile sites is much more worse — 19 seconds over 3G connections. In a September 2016, “The Need for Mobile Speed” study, Google found that 53 percent of mobile site visits are abandoned if pages take longer than three seconds to load. The data, based on analysis of more than 10,000 mobile Web domains, suggested that mobile sites load in five seconds earn up to two times more mobile ad revenue than those whose sites load in 19 seconds.

So publishers are motivated to drive for speed. And we all know that a one-second delay in Amazon’s web page load time could burn $1.6 billion in sales. Accelerating content for mobile is a headache for CDNs.

Not too far away in the future are gaming, VR/AR and IoT companies. The times they are a changing — and getting messier. Such technological changes are forcing CDNs to improve speed, while dealing with dynamic content.

Optimizing traffic routes over diverse network pathways (ISP, 3G, mobile), balancing load / peak demand and ensuring security is now expected of CDNs. While legacy CDNs are slow to react, several upstarts are tackling traffic optimization, next-gen WAF and DevOps-friendly CDNs.

Optimization of routing: The routing of internet traffic is determined by an archaic Border Gateway Protocol (BGP), which does not factor in timing for data routing. It only looks at the number of hops between two networks. But what if the route with the least number of hops is congested? Or the protocol picks a physically longer route?

For example, a packet may traverse from San Francisco to Los Angeles via Brazil. What if there was a route with multiple hops but was much faster? BGP works really well in terms of reliability. It is a fundamental technology on which the internet is built, but BGP is sub-optimal from a latency (delays, jitter and image freezing) standpoint.

Teridion acts like the “Waze of internet traffic” and optimizes traffic routes using third-party cloud. Its platform helps make real-time packet routing decisions to avoid congested paths. Unlike CDNs, its solution scales on demand and is not limited by upstream communication, pre-provisioned PoPs, geography or cloud providers. It is therefore much quicker to provision. As there is no caching of data, SSL certificate management, security and compliance issues are non-existent. It extends to each and every end-user of a cloud-delivered service.

Chris Keene, chief executive of Teridion says, “As you add more options for acceleration, each has its own security implications and possible trade-offs. Some companies do not want to share SSL Certificates and give up the keys to their kingdom. CDNs cannot do much for such companies.”

Egnyte, an Enterprise File Sync and Sharing (EFSS) upstart, beat some of the giants of file share companies such as Box, Citrix, Google and Microsoft. It was faster by 30 percent in speed over Box and as much as 60 percent for larger 4GB files.

Egnyte was ranked one of the top vendors achieving high marks in an IDC study of sync performance of file share and storage vendors. Kris Lahiri, co-founder of Egnyte says, “The IDC speed test looked at the time to ‘synchronize’ content between the local client and the cloud. This is bidirectional, so any changes made on endpoints needed to be synchronized ASAP. We used a robust web socket connection, smart clients and Teridion’s network acceleration. All these different optimizations got reflected in the results observed by IDC.”

Instead of the conventional CDN path, Egnyte created its own PoPs and partnered with Teridion to optimize the route dynamically in a continuously optimized fashion. In such a scenario, no SSL off-loading was required and that reduced the potential attack surface.

Peter Christy of 451 Research pointed out that Teridion is clever non-obvious technology, and for any CDN it would take time and effort to replicate it. “Even then, it will likely be inferior initially. And then time and effort will be required to operate, maintain and improve such an offering.” While optimized routing is one of the CDN areas of innovation, security is another hot area.

Content + security = better CDN

CDNs moved into security by offering DDoS protection. A site could be taken down with a flood of requests. With a CDN fronting the traffic, the netflow traffic patterns can be analyzed and scrubbed inline. In recent times, CDNs have started to push into offering Web Application Firewalls (WAF) and bot mitigation. Enterprise customers now look to CDNs to manage web security. Akamai’s Cloud Security Solutions 2016 revenue was up 43 percent year-over-year.

While CDNs aim for improved security, CDNs themselves can be vulnerable. In his blog post, David Hobbs writes about several CDN security challenges that include dynamic content attacks, SSL-based attacks and direct IP attacks. The recent Cloudbleed incident shows that infrastructure complexity has its trade-offs. Peter Christy of 451 Research says, “Cloudbleed was frightening because it leaked private information for some Cloudflare customers. I’m sure most people didn’t think it even possible.”

Cloudbleed and the recent AWS S3 problems were both good ole “bugs” — longstanding interactions between complex systems that often go unnoticed. Cloudbleed and Heartbleed (a 2014 bug) were examples where customer data that should have been shielded got leaked.

In another study, 16 CDNs failed in a simulated forwarding loop attack. Here, a malicious customer of any CDN can create forwarding loops inside CDNs. Forwarding loops can cause CDNs to process one client request repetitively, effectively launching a DoS attacks against CDNs.

So far, DDoS attacks against web sites was well-known, but this was the first time when a DoS attack can be launched against a CDN itself by one of its customers. It’s often easy to sign up for a CDN and get a free account. Launching a forward loop attack is not too difficult.

Andrew Petersen, CEO of Signal Sciences, is building the next-generation Web Access Firewall (WAF) that combines security with usability for the DevOps world. Having faced these challenges in his previous life at Etsy, Andrew and his team have taken a bottoms-up approach.

“CDNs can’t get deployed on internal apps. As multiple security tools have to be used it gets harder to manage quickly. If we take a step back, CDNs’ primary focus is speed. Philosophically and technically, this creates trade-offs with performance” Petersen says.

In his blog post, Zane Lackey, co-founder of Signal Sciences, identified six appsec challenges that CDNs may struggle to solve. The development environment is unlikely to have the same configuration as production due to cost and architecture restrictions.

As these environments don’t match, a CDN-based WAF will often trigger false positives in production that are completely unreproducible in development. Debugging failures at this level is frustrating, because access to the CDN console is restricted to the operations team. In practice, a CDN-based WAF is not very friendly to those pursuing DevOps.

From centralized to dispersed: The cloud becomes the edge

Ernie Regalado, editor-in-chief of market research publication Bizety, says, “Edge security as a business model has taken off and it is the fastest growing segment in the industry. Companies like Cloudflare, Incapsula and Distil Networks are pushing to offer DDoS Mitigation, WAF and Bot Mitigation.” Window Snyder, chief security officer at Fastly, echoes the sentiment, “We see data / traffic patterns, understand vulnerabilities and can enhance edge security to further protect our customers in specific ways.”

In this classic innovator’s dilemma, the newcomers are able to start with a clean slate, while incumbents work from their position of strength. Fastly recently announced a $50 million funding round claiming a $100 million annual run rate. Yet Fastly could become slowly if another “edge CDN” StackPath continues down its war path. With 45 PoPs in 25 cities, StackPath has grown rapidly via five acquisitions, including MaxCDN and Highwinds, offering integrated acceleration and security.

 

Macintosh HD:Users:MR:Desktop:Screen Shot 2017-05-29 at 6.30.15 AM.png

The modern-day CDN should do a lot more (Image Courtesy: StackPath)

James Leaverton, VP Ecosystem Development, StackPath, says, “Legacy CDNs are not ready for the shifts to online video and IoT. They have Frankenstein platforms — a user might have to log into a dozen different portals. They have aging infrastructures that were optimized for CDN, but not built to adapt or scale. That’s why companies like ours exist. The StackPath platform is an integrated response to a fragmented problem created by too many delivery and security solutions.”

The DevOps-friendly CDN

As developers become the prime focus for some startups, a DevOps-friendly CDN based in Colorado, Section.io, is slowly but surely establishing its roots. (Disclosure: I am an investor in Section.io via Secure Octane seed fund.)

Backed by Techstars Ventures, Section.io CEO Stewart McGrath wanted to build a platform for developers. Dev teams need new control tools and flexibility in staging and testing their content. “They really have no idea how the site will run until they get into production. And then you need the visibility / metrics once you are in production,“ says Stewart.

To manage traffic, CDNs use different types of reverse proxies such as squid cache, Nginx or Varnish Cache. In a containerized environment, you could have multiple reverse proxies to choose from. In his blog post titled CDNs are dying, Stewart argues that engineers should not feel locked into any one proxy software stack at any one time. Rather, they should be able to pick and choose the tools that work best for their website.

The multi-tenancy also allows isolation, reducing risk of contamination. Section.io aims to decouple proxy software from the networks and takes a software-driven approach to configuration, management and deployment of reverse proxies. “We believe this is the future of a web application delivery platform. Developers can have full control over reverse proxy configuration and experiment in a testing environment,” says Stewart.

The ease of installation, testing, performance and troubleshooting changes how developers can manage their processes from end to end. For legacy CDNs, this will be a challenge in the long run.

As technology needs evolve, innovators are often able offer better solutions and expand certain markets. Ernie Regalado of Bizety writes that the CDN market is likely to be much larger, especially as hungry CDNs invade other’s tech sectors seeking new revenue streams. He expects the overall market to grow to $12 billion by 2019.

This is driven by a convergence (or a collision) between several markets, such as CDNs, multiprotocol label switching (MPLS), Software Defined Wide Area Networks (SD-WAN) market and the Cloud Radio Access Network (RAN) market. Companies like Cato Networks, Aryaka and Versa Networks have raised significant rounds of capital and are making strides in these segments.

Betting on the winners

On one end, web companies like Facebook, Netflix, Pandora and even Apple have shifted to managing their own content delivery. Legacy CDNs are left with no choice but to evolve. Should the giant Akamai worry about the cold CloudFront blowing in from Seattle? According to Datanyze research on CDN markets, AWS CloudFront is eating its way up from the bottom of the market and leads in the Alexa top 1 million domains, while Akamai is strong in the top 100 domains.

# of Akamai Domains

# of AWS CloudFront Domains

Alexa Top 100

20

8

Alexa Top 1000

182

79

Alexa Top 100,000

3004

6275

Alexa Top 1 million

8,738

35,902

Meanwhile, Amazon has steadily crept up and added AWS WAF in 2015 and AWS Shield (DDoS mitigation) in 2016. How this battle plays out remains to be seen. Ernie Regalado says, “AWS is the dominant provider of centralized cloud compute services. Akamai is the leader in edge services, including delivery, security and streaming. As processing, data and business logic move to the edge, Akamai has the advantage and can even disrupt AWS.”

Cloudflare, StackPath and Fastly have raised enough capital. Who gets acquired or goes public remains to be seen. My hunch is Lance will aim for an IPO for StackPath — it’s unlikely he will be content with anything less, especially knowing his last exit was a $2 billion outcome. That could create some heartburn for Cloudflare and Fastly. The young Turks like Distil Networks, Section.io, Teridion and Signal Sciences could raise mucho dinero and become standalone companies.

Telecom carriers and service providers will likely make some moves as networks converge with “software-driven everything.” Those in the enviable nimbler / innovators category will win, no matter which way the wind blows.


Organizing your marketing tech stack

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Figuring out how to organize your marketing stack is almost like putting together a 1,000 piece blank jigsaw puzzle — impossible.

A Q1 ‘17 survey by CMO Council and RedPoint Global revealed only 3% of respondents felt all of their automation, engagement and deployment tools were fully connected, with data, metrics and insights traveling freely between different technologies.

This stat was staggering to me. Rather than just sit on my hands I’ve put together this infographic, which will help marketers better make sense on how to potentially organize these tools and get closer to achieving cross-channel marketing nirvana.

Organize and focus your team:

You need a team that is organized and led at the level of the New England Patriots. Both your quant marketers and creative teams need systems and processes that help foster trust, harmony, commitment, accountability and orientation towards results (check out The 5 Dysfunctions of Team for more). Marketing specific collaboration tools are taking stabs at addressing these needs and should be incorporated into how you organize your teams.

Know your message:

It’s very easy to get lost in all the process and organization of marketing and totally lose track of the appropriate message you should be communicating to your target customer. Don’t fall into this trap! Put content first as all the effort you put into everything else will be wasted if you fail in crafting the right message. There are a lot of tools that can help you work through the content creation process.

Establish an Intelligence Hub:

Create one centralized view of the customer and apply analytics, data science and orchestration against it so you can enable advanced communication. This is the heart of integrating most of your tools. Create sophisticated automation orchestrating messages within and across channels. Keep in mind your approach should allow for 1 to 1, 1 to many and 1 to all forms of messaging.

At Upfront, we recently invested in Cordial which aims to take this approach allowing marketers to take disparate data sources and create advanced marketing automation campaigns across all the dominant messaging channels in this type of manner. It’s something that’s been incredibly difficult to do with legacy systems until now.

Master the basic channels first:

While there are many exciting new types of marketing campaigns to drive growth, core channels such as email, social, web, search and offline still should be the main centers of focus for marketers. Be careful about getting distracted by next gen tactics like chatbots or VR if you haven’t even figured out the simple channels of reach.

Always be testing:

Invest in tools that test and optimize the performance of existing channels. You should always be searching for incremental lift in every tactic and tool you employ. If you fail in creating a test driven culture it will be very difficult to understand whether some of your new initiatives are really helping or hurting.

Wow the customer:

Focus on the customer experience and strive to make it a magical one. Leverage all data and insights available in order to delight the customer. However, don’t be afraid from time to time to take radical chances by throwing all customer feedback out the door and surprise them with something transformational that they never would expect. Its those types of moments that separate good marketers from great ones.

Keep in mind that this overview is just that — an overview (it’s a lot in some places and over-simplified in others). How you will digest all of this information will, in part, depend upon your expertise. If you’re just starting out, take it slow and don’t get overwhelmed. If you’re an expert, send along some feedback on how this can be improved (there’s an interactive version coming!).

What’s important to remember is that there has never been a more exciting time to be a marketer — and technology is playing a pivotal part in fostering better relationships with customers.

Sprinklr hires former fed CIO Vivek Kundra as COO

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Sprinklr, the unicorn startup best known for helping customers interpret social signals has been moving into the broader customer experience market in the last year. Today it announced is was hiring a heavy hitter as Chief Operating Officer, bringing in former federal CIO and Salesforce executive Vivek Kundra. He began working at his new position just this week.

Kundra says that he sees a company that is in a good position and poised for growth. It will be part of his job to work with CEO Ragy Thomas to make sure that happens. “When I look at the 1200 customers we have today, I see a massive opportunity to provide technology to change the way [our users] interact with customers,” Kundra told TechCrunch.

He says that, with his background, whether working under President Obama or with Salesforce CEO Marc Benioff, the focus has always been on the customer, however you defined that, whether in the context of delivering government services or selling cloud software.

He said that to achieve that you have to be ruthlessly focused on execution. “Ideas are cheap, but how do you bring them to life in a way that inspires and motivates? I think that’s really important,” he said.

It’s worth noting that Kundra is not the first COO, however. The company hired Tim Page, who was a founder and COO at VCE before joining Sprinklr in 2016. That was apparently not a good fit.

Thomas says that landing Kundra was part of an extensive 9-month executive search where they looked at people who had worked at SaaS companies that had scaled over a billion dollars in revenue, concentrating on Salesforce, Workday and ServiceNow. “If you look at people in the driver’s seat at those companies, there is a finite number of people. Salesforce is a great company and a great partner. That experience is relevant and unique,” Thomas said.

Kundra pointed out that as part of his responsibilities at Salesforce he built a business unit from scratch that included driving adoption for the company’s Government Cloud and other verticals. “Now I have ability to draw on those experiences,” he said.

Firming up the COO position, much like the CFO, is crucial ahead of going public. With the company valued at $1.8 billion in 2016, they would seem to be of sufficient size to make that move, but Thomas wasn’t ready to commit to anything definitive (much as you would expect).

Instead, he talked of building a strong foundation as preparation to become a public company at some point. “It’s a question of when, not if [we go public], but for a company of our size and scale, it’s logical for us to go public. We aren’t talking about when and how, and we are trying to pour a strong foundation [before we do]” he said. Bringing in Kundra appears to be part of that.

Airbnb, Automattic and Pinterest top rank of most acquisitive unicorns

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It takes a lot more than a good idea and the right timing to build a billion-dollar company. Talent, focus, operational effectiveness and a healthy dose of luck are all components of a successful tech startup. Many of the most successful (or, at least, highest-valued) tech unicorns today didn’t get there alone.

Mergers and acquisitions (M&A) can be a major growth vector for rapidly scaling, highly valued technology companies. It’s a topic that we’ve covered off and on since the very first post on Crunchbase News in March 2017. Nearly two years later, we wanted to revisit that first post because things move quickly, and there is a new crop of companies in the unicorn spotlight these days. Which ones are the most active in the M&A market these days?

The most acquisitive U.S. unicorns today

Before displaying the U.S. unicorns with the most acquisitions to date, we first have to answer the question, “What is a unicorn?” The term is generally applied to venture-backed technology companies that have earned a valuation of $1 billion or more. Crunchbase tracks these companies in its Unicorns hub. The original definition of the term, first applied in a VC setting by Aileen Lee of Cowboy Ventures back in late 2011, specifies that unicorns were founded in or after 2003, following the first tech bubble. That’s the working definition we’ll be using here.

In the chart below, we display the number of known acquisitions made by U.S.-based unicorns that haven’t gone public or gotten acquired (yet). Keep in mind this is based on a snapshot of Crunchbase data, so the numbers and ranking may have changed by the time you read this. To maintain legibility and a reasonable size, we cut off the chart at companies that made seven or more acquisitions.

As one would expect, these rankings are somewhat different from the one we did two years ago. Several companies counted back in early March 2017 have since graduated to public markets or have been acquired.

Who’s gone?

Dropbox, which had acquired 23 companies at the time of our last analysis, went public weeks later and has since acquired two more companies (HelloSign for $230 million in late January 2019 and Verst for an undisclosed sum in November 2017) since doing so. SurveyMonkey, which went public in September 2018, made six known acquisitions before making its exit via IPO.

Who stayed?

Which companies are still in the top ranks? Travel accommodations marketplace giant Airbnb jumped from number four to claim Dropbox’s vacancy as the most acquisitive private U.S. unicorn in the market. Airbnb made six more acquisitions since March 2017, most recently Danish event space and meeting venue marketplace Gaest.com. The still-pending deal was announced in January 2019.

WordPress developer and hosting company Automattic is still ranked number two. Automattic  href="https://www.crunchbase.com/acquisition/automattic-acquires-atavist--912abccd">acquired one more company — digital publication platform Atavist — since we last profiled unicorn M&A. Open-source software containerization company Docker, photo-sharing and search site Pinterest, enterprise social media management company Sprinklr and venture-backed media company Vox Media remain, as well.

Who’s new?

There are some notable newcomers in these rankings. We’ll focus on the most notable three: The We CompanyCoinbase and Lyft. (Honorable mention goes to Stripe and Unity Technologies, which are also new to this list.)

The We Company (the holding entity for WeWork) has made 10 acquisitions over the past two years. Earlier this month, The We Company bought Euclid, a company that analyzes physical space utilization and tracks visitors using Wi-Fi fingerprinting. Other buyouts include Meetup (a story broken by Crunchbase News in November 2017) reportedly for $200 million. Also in late 2017, The We Company acquired coding and design training program Flatiron School, giving the company a permanent tenant in some of its commercial spaces.

In its bid to solidify its position as the dominant consumer cryptocurrency player, Coinbase has been on quite the M&A tear lately. The company recently announced its plans to acquire Neutrino, a blockchain analytics and intelligence platform company based in Italy. As we covered, Coinbase likely made the deal to improve its compliance efforts. In January, Coinbase acquired data analysis company Blockspring, also for an undisclosed sum. The crypto company’s other most notable deal to date was its April 2018 buyout of the bitcoin mining hardware turned cryptocurrency micro-transaction platform Earn.com, which Coinbase acquired for $120 million.

And finally, there’s Lyft, the more exclusively U.S.-focused ride-hailing and transportation service company. Lyft has made 10 known acquisitions since it was founded in 2012. Its latest M&A deal was urban bike service Motivate, which Lyft acquired in June 2018. Lyft’s principal rival, Uber, has acquired six companies at the time of writing. Uber bought a bike company of its own, JUMP Bikes, at a price of $200 million, a couple of months prior to Lyft’s Motivate purchase. Here too, the Lyft-Uber rivalry manifests in structural sameness. Fierce competition drove Uber and Lyft to raise money in lock-step with one another, and drove M&A strategy as well.

What to take away

With long-term business success, it’s often a chicken-and-egg question. Is a company successful because of the startups it bought along the way? Or did it buy companies because it was successful and had an opening to expand? Oftentimes, it’s a little of both.

The unicorn companies that dominate the private funding landscape today (if not in the number of deals, then in dollar volume for sure) continue to raise money in the name of growth. Growth can come the old-fashioned way, by establishing a market position and expanding it. Or, in the name of rapid scaling and ostensibly maximizing investor returns, M&A provides a lateral route into new markets or a way to further entrench the status quo. We’ll see how that strategy pays off when these companies eventually find the exit door .

Microsoft, Adobe and SAP prepare to expand their Open Data Initiative

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At last year’s Microsoft Ignite conference, the CEOs of Microsoft, Adobe and SAP took the stage to announce the launch of the Open Data Initiative. The idea behind this effort was to make it easier for their customers to move data between each others’ services by standardizing on a common data format and helping them move their data out of their respective silos and into a single customer-chosen data lake. At this week’s Adobe Summit, the three companies today announced how they plan to expand this program as they look to bring in additional partners.

“The intent of the companies joining forces was really to solve a common customer problem that we hear time and time again, which is that there are high-value business data tends to be very siloed in a variety of different applications,” Alysa Taylor, Microsoft’s corporate vice president, Business Applications & Global Industry, told me. “Being able to extract that data, reason over that data, garner intelligence from that data, is very cost-prohibitive and it’s very manual and time-consuming.”

The core principle of the alliance is that the customers own their data and they should be able to get as much value out of it as they can. Ideally, having this common data schema means that the customer doesn’t have to figure out ways to transform the data from these vendors and can simply flow all of it into a single data lake that then in turn feeds the various analytics services, machine learning systems and other tools that these companies offer.

At the Adobe Summit today, the three companies showed their first customer use case based on how Unilever is making use of this common data standard. More importantly, though, they also stressed that the Open Data Initiative is indeed open to others. As a first step, the three companies today announced the formation of a partner advisory council.

“What this basically means is that we’ve extended it out to key participants in the ecosystem to come and join us as part of this ODI effort,” Adobe’s VP of Ecosystem Development Amit Ahuja told me. “What we’re starting with is really a focus around two big groups of partners. Number one is, who are the other really interesting ISVs who have a lot of this core data that we want to make sure we can bring into this kind of single unified view. And the second piece is who are the major players out there that are trying to help these customers around their enterprise architecture.”

The first 12 partners that are joining this new council include Accenture, Amadeus, Capgemini, Change Healthcare, Cognizant, EY, Finastra, Genesys, Hootsuite, Inmobi, Sprinklr and WPP . This is very much a first step, though. Over time, the group expects to expand far beyond this first set of partners and include a much larger group of stakeholders.

“We really want to make this really broad in a way that we can quickly make progress and demonstrate that what we’re talking about from a conceptual process has really hard customer benefits attached to it,” Abhay Kumar, SAP’s global vice president, Global Business Development & Ecosystem, noted. The use cases the alliance has identified focus on market intelligence, sales intelligence and services intelligence, he added.

Today, as enterprises often pull in data from dozens of disparate systems, making sense of all that information is hard enough, but to even get to this point, enterprises first have to transform it and make it usable. To do so, they then have to deploy another set of applications that massages the data. “I don’t want to go and buy another 15 or 20 applications to make that work,” Ahuja said. “I want to realize the investment and the ROI of the applications that I’ve already bought.”

All three stressed that this is very much a collaborative effort that spans the engineering, sales and product marketing groups.

T2D3 Software Update: Embracing the Founder to CEO (F2C) Journey

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It’s been four years since TechCrunch published my blog post The SaaS Adventure, which introduced the concept of a “T2D3” roadmap to help SaaS companies scale — and, as an aside, explored how well my mom understood my job as an “adventure capitalist.” The piece detailed seven distinct stages that enterprise cloud startups must navigate to achieve $100 million in annualized revenue. Specifically, the post encouraged companies to “triple, triple, double, double, double” their revenue as they hit certain milestones.

I was blown away by the response to the piece and gratified that so many founders and investors found the T2D3 framework helpful. Looking back now, I think a lot of the advice has stood the test of time. But plenty has also changed in the broader tech and software markets since 2015, and I wanted to update this advice for founders of hyper-growth companies in light of the market shifts that have occurred.

Perhaps the most notable change in the last four years is that the number of playbooks for companies to follow as they sell software has expanded. Today, more companies are embracing product-led growth and a less-formal, bottoms-up model — employees are swiping credit cards to buy a product, and not necessarily interacting with a human salesperson.

Many of the most high-profile, recent software IPOs structure their go-to-market operations this way. T2D3’s stages, by contrast, focus quite a bit on scaling a company’s internal sales function to grow. Indeed, both a product-led and a sales-led approach are viable in today’s growing B2B-tech market.

What’s more, the revenue needed for a software company to go public has increased dramatically in the last four years. This means that software founders need to focus not only on building a scalable product and finding scalable go-to-market channels, but also building a scalable org chart. These days, what is scarce for software founders isn’t money from investors; it’s great human talent.

So in addition to T2D3, my firm and I are now focusing on another founder journey: F2C, or the transition from founder/CEO to CEO/founder. This journey can take many paths, but ideally it starts with the traditional hustle to find early product/market fit.

Sprinklr raises $200M on $2.7B valuation four years after last investment

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Sprinklr has been busy the last few years acquiring a dozen companies, then rewriting their code base and incorporating them into the company’s customer experience platform. Today, the late-stage startup went back to the fundraising well for the first time in four years, and it was a doozy, raising $200 million on a $2.7 billion valuation.

The money came from private equity firm Hellman & Friedman, which also invested $300 million in buying back secondary shares. Meanwhile the company also announced $150 million in convertible securities from Sixth Street Growth. That’s a lot of action for a company that’s been quiet on the fundraising front for years.

Company founder and CEO Ragy Thomas says he sought the investment now because after building a customer experience platform, he was ready to accelerate and he needed the money to do it. He expects the company to hit $400 million in annual recurring revenue by year’s end and he says that he sees a much bigger opportunity on the horizon.

“We think it’s a $100 billion opportunity and our large public competitors have validated that and continue to do so in the customer experience management space,” he said. Those large competitors include Salesforce and Adobe.

He sees customer experience management as having the kind of growth that CRM has had in the past, and this money gives him more options to grow faster, while working with a big private equity firm.

“So what was appealing in this market for us was not just putting some more money in the bank and being a little more aggressive in growth, innovation, go to market and potential M&A, but what was also appealing is the opportunity to bring someone like a Hellman & Friedman to the table,” Thomas said.

The company has 1,000 clients, some spending millions of dollars a year. They currently have 1,900 employees in 25 offices around the world, and Thomas wants to add another 500 over the next 12 months — and he believes that $1 billion in ARR is a realistic goal for the company.

As he builds the company, Thomas, who is a person of color, has codified diversity and inclusion into the company’s charter, what he calls the “Sprinklr Way.” “For us, diversity and inclusion is not impossible. It is not something that you do to check a box and market yourself. It’s deep in our DNA,” he said.

Tarim Wasim a partner at investor Hellman & Friedman, sees a company with tremendous potential to lead a growing market. “Sprinklr has a unique opportunity to lead a Customer Experience Management market that’s already massive — and growing — as enterprises continue to realize the urgent need to put CXM at the heart of their digital transformation strategy,” Wasim said in a statement.

Sprinklr was founded in 2009. Before today, it last raised $105 million in 2016 led by Temasek Holdings. Past investors include Battery Ventures, ICONIQ Capital and Intel Capital.

Customer experience startup Sprinklr files confidential S-1 with SEC

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Sprinklr, a New York-based customer experience company, announced today it has filed a confidential S-1 ahead of a possible IPO.

“Sprinklr today announced that it has confidentially submitted a draft registration statement on Form S-1 with the Securities and Exchange Commission (the ‘SEC”) relating to the proposed initial public offering of its common stock,” the company said in a statement.

It also indicated that it will determine the exact number of shares and the price range at a later point after it receives approval from the SEC to go public.

The company most recently raised $200 million on a $2.7 billion valuation last year. It was its first fundraise in 4 years. At the time, founder and CEO Ragy Thomas said his company expected to end 2020 with $400 million in ARR, certainly a healthy number on which to embark as a public company.

He also said that Sprinklr’s next fundraise would be an IPO, making him true to his word. “I’ve been public about the pathway around this, and the path is that the next financial milestone will be an IPO,” he told me at the time of the $200 million round. He said that with COVID, it probably was a year or so away, but the timing appears to have sped up.

Sprinklr sees customer experience management as a natural extension of CRM, and as such a huge market potentially worth $100 billion, according to Thomas. But he also admitted that he was up against some big competitors like Salesforce and Adobe, helping explain why he fundraised last year.

Sprinklr was founded in 2009 with a focus on social media listening, but it announced a hard push into customer experience in 2017 when it added marketing, advertising, research, customer and e-commerce to its social efforts.

The company has raised $585 million to date, and has also been highly acquisitive, buying 11 companies along the way as it added functionality to the base platform, according to Crunchbase data.


Equity Tuesday: Everyone is raising money at the same time

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Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

This is Equity Monday Tuesday, our weekly kickoff that tracks the latest private market news, talks about the coming week, digs into some recent funding rounds and mulls over a larger theme or narrative from the private markets. You can follow the show on Twitter here and myself here.

We are back from a long weekend here in America. But no break here in the States can stop the flow of global tech news. So, here’s the rundown:

Welcome back, America, to the week. It’s nice to see you, everyone else. Maybe Robinhood will file this week.

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 AM PST, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts!

Sprinklr’s IPO filing shows uneven cash flow but modest growth

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Another week, another unicorn IPO. This time, Sprinklr is taking on the public markets.

The New York-based software company works in what it describes as the customer experience market. After attracting over $400 million in capital while private, its impending debut will not only provide key returns to a host of venture capitalists but also more evidence that New York’s startup scene has reached maturity. (More evidence here.)


The Exchange explores startups, markets and money. 

Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.


Sprinklr last raised a $200 million round at a $2.7 billion valuation in September 2020. That round, as TechCrunch reported, also included a host of secondary shares and $150 million in convertible notes. Inclusive of the latter instrument, Sprinklr’s total capital raised to date soars above the $500 million mark.

Temasek Holdings, Battery Ventures, ICONIQ Capital, Intel Capital and others have plugged funds into Sprinklr during its startup days.

Sure, Robinhood didn’t file last week as many folks hoped, but the Sprinklr IPO ensures that we’ll have more than just SPACs to chat about in the coming days. But one thing at a time. Let’s discuss what Sprinklr does for a living.

Sprinklr’s business

Sprinklr’s IPO filing and corporate website suffer from a slight case of corporate speak, so we have some work to do this morning to determine what the company does. Here’s what the company says about itself in its filing:

Sprinklr empowers the world’s largest and most loved brands to make their customers happier.

We do this with a new category of enterprise software — Unified Customer Experience Management, or Unified-CXM — that enables every customer-facing function across the front office, from Customer Care to Marketing, to collaborate across internal silos, communicate across digital channels, and leverage a complete suite of modern capabilities to deliver better, more human customer experiences at scale — all on one unified, AI-powered platform.

Not very clear, yeah? Don’t worry, I’ve got you. Here’s what the company actually does:

4 proven approaches to CX strategy that make customers feel loved

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Customers have been “experiencing” business since the ancient Romans browsed the Forum for produce, pottery and leather goods. But digitization has radically recalibrated the buyer-seller dynamic, fueling the rise of one of the most talked-about industry acronyms: CX (customer experience).

Part paradigm, part category and part multibillion-dollar market, CX is a broad term used across a myriad of contexts. But great CX boils down to delighting every customer on an emotional level, anytime and anywhere a business interaction takes place.

Great CX boils down to delighting every customer on an emotional level, anytime and anywhere a business interaction takes place.

Optimizing CX requires a sophisticated tool stack. Customer behavior should be tracked, their needs must be understood, and opportunities to engage proactively must be identified. Wall Street, for one, is taking note: Qualtrics, the creator of “XM” (experience management) as a category, was spun-out from SAP and IPO’d in January, and Sprinklr, a social media listening solution that has expanded into a “Digital CXM” platform, recently filed to go public.

Thinking critically about customer experience is hardly a new concept, but a few factors are spurring an inflection point in investment by enterprises and VCs.

Firstly, brands are now expected to create a consistent, cohesive experience across multiple channels, both online and offline, with an ever-increasing focus on the former. Customer experience and the digital customer experience are rapidly becoming synonymous.

The sheer volume of customer data has also reached new heights. As a McKinsey report put it, “Today, companies can regularly, lawfully, and seamlessly collect smartphone and interaction data from across their customer, financial, and operations systems, yielding deep insights about their customers … These companies can better understand their interactions with customers and even preempt problems in customer journeys. Their customers are reaping benefits: Think quick compensation for a flight delay, or outreach from an insurance company when a patient is having trouble resolving a problem.”

Moreover, the app economy continues to raise the bar on user experience, and end users have less patience than ever before. Each time Netflix displays just the right movie, Instagram recommends just the right shoes, or TikTok plays just the right dog video, people are being trained to demand just a bit more magic.

Extra Crunch roundup: Inside Sprinklr’s IPO filing, how digital transformation is reshaping markets

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Despite a recent history of uneven cash flow and moderate growth, SaaS customer experience management platform Sprinklr has filed to go public.

In today’s edition of The Exchange, Alex Wilhelm pores over the New York-based unicorn’s S-1 to better understand exactly what Sprinklr offers: “Marketing and comms software, with some machine learning built in.”

Despite 19% growth in revenue over the last fiscal year, its deficits increased during the same period. But with more than $250 million in cash available, “Sprinklr is not going public because it needs the money,” says Alex.

Since we were off yesterday for Memorial Day, today’s roundup is brief, but we’ll have much more to recap on Friday. Thanks very much for reading Extra Crunch!

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist


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Once a buzzword, digital transformation is reshaping markets

Digital transformation concept. Binary code. AI (Artificial Intelligence).

Image Credits: metamorworks / Getty Images

The changes brought by a global shift to remote work and schooling are myriad, but in the business realm, they have yielded a change in corporate behavior and consumer expectations — changes that showed up in a bushel of earnings reports last week.

Startups have told us for several quarters that their markets are picking up momentum as customers shake up buying behavior with a distinct advantage for companies helping users move into the digital realm.

Public company results are now confirming the startups’ perspective. The accelerating digital transformation is real, and we have the data to prove it.

3 views on the future of meetings

In a recent episode of TechCrunch Equity, hosts Danny Crichton, Natasha Mascarenhas and Alex Wilhelm connected the dots between multiple funding rounds to sketch out three perspectives on the future of workplace meetings.

Each agreed that the traditional meeting is broken, so we gathered their perspectives about where the industry is heading and which aspects are ripe for disruption:

  • Alex Wilhelm: Faster information throughput, please.
  • Natasha Mascarenhas: Meetings should be ongoing, not in calendar invites.
  • Danny Crichton: Redesign meetings for flow.

Extra Crunch roundup: Guest posts wanted, ‘mango’ seed rounds, Expensify’s tech stack

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Prospective contributors regularly ask us about which topics Extra Crunch subscribers would like to hear more about, and the answer is always the same:

  • Actionable advice that is backed up by data and/or experience.
  • Strategic insights that go beyond best practices and offer specific recommendations readers can try out for themselves.
  • Industry analysis that paints a clear picture of the companies, products and services that characterize individual tech sectors.

Our submission guidelines haven’t changed, but Managing Editor Eric Eldon and I wrote a short post that identifies the topics we’re prioritizing at the moment:

  • How-to articles for early-stage founders.
  • Market analysis of different tech sectors.
  • Growth marketing strategies.
  • Alternative fundraising.
  • Quality of life (personal health, sustainability, proptech, transportation).

If you’re a skillful entrepreneur, founder or investor who’s interested in helping someone else build their business, please read our latest guidelines, then send your ideas to guestcolumns@techcrunch.com.

Thanks for reading; I hope you have a great weekend.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist


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Use discount code ECFriday to save 20% off a one- or two-year subscription


Opting for a debt round can take you from Series A startup to Series B unicorn

Image of a tree in a field, with half barren to represent debt and half flush with cash to represent success.

Image Credits: olegkalina (opens in a new window) / Getty Images

Debt is a tool, and like any other — be it a hammer or handsaw — it’s extremely valuable when used skillfully but can cause a lot of pain when mismanaged. This is a story about how it can go right.

Mario Ciabarra, the founder and CEO of Quantum Metric, breaks down how his company was on a “tremendous growth curve” — and then the pandemic hit.

“As the weeks following the initial shelter-in-place orders ticked by, the rush toward digital grew exponentially, and opportunities to secure new customers started piling up,” Ciabarra writes. “A solution to our money problems, perhaps? Not so fast — it was a classic case of needing to spend in order to make.”

If companies want to preserve equity, debt can be an advantageous choice. Here’s how Quantum Metric did it.

4 proven approaches to CX strategy that make customers feel loved

CX is the hottest acronym in business

Image Credits: mucahiddin / Getty Images

People have been working to optimize customer experiences (CX) since we began selling things to each other.

A famous San Francisco bakery has an exhaust fan at street level; each morning, its neighbors awake to the scent of orange-cinnamon morning buns wafting down the block. Similarly, savvy hairstylists know to greet returning customers by asking if they want a repeat or something new.

Online, CX may encompass anything from recommending the right shoes to AI that knows when to send a frustrated traveler an upgrade for a delayed flight.

In light of Qualtrics’ spinout and IPO and Sprinklr’s recent S-1, Rebecca Liu-Doyle, principal at Insight Partners, describes four key attributes shared by “companies that have upped their CX game.”

Twitter’s acquisition strategy: Eat the public conversation

woman talking with megaphone

Image Credits: We Are (opens in a new window) / Getty Images

What is a microblogging service doing buying a social podcasting company and a newsletter tool while also building a live broadcasting sub-app? Is there even a strategy at all?

Yes. Twitter is trying to revitalize itself by adding more contexts for discourse to its repertoire. The result, if everything goes right, will be an influence superapp that hasn’t existed anywhere before. The alternative is nothing less than the destruction of Twitter into a link-forwarding service.

Let’s talk about how Twitter is trying to eat the public conversation.

Reading the IPO market’s tea leaves

Although it was a truncated holiday week here in the United States, there was a bushel of IPO news. We sorted through the updates and came up with a series of sentiment calls regarding these public offerings.

Earlier this week, we took a look at:

  • Marqeta‘s first IPO price range (fintech).
  • 1st Dibs‘ first IPO price range (e-commerce).
  • Zeta Global‘s IPO pricing (martech).
  • The start of SoFi trading post-SPAC (fintech).
  • The latest from BarkBox (e-commerce).

How Expensify hacked its way to a robust, scalable tech stack

Image Credits: Nigel Sussman

Part 4 of Expensify’s EC-1 digs into the company’s engineering and technology, with Anna Heim noting that the group of P2P pirates/hackers set out to build an expense management app by sticking to their gut and making their own rules.

They asked questions few considered, like: Why have lots of employees when you can find a way to get work done and reach impressive profitability with a few? Why work from an office in San Francisco when the internet lets you work from anywhere, even a sailboat in the Caribbean?

It makes sense in a way: If you’re a pirate, to hell with the rules, right?

With that in mind, one could assume Expensify decided to ask itself: Why not build our own totally custom tech stack?

Indeed, Expensify has made several tech decisions that were met with disbelief, but its belief in its own choices has paid off over the years, and the company is ready to IPO any day now.

How much of a tech advantage Expensify enjoys owing to such choices is an open question, but one thing is clear: These choices are key to understanding Expensify and its roadmap. Let’s take a look.

Etsy asks, ‘How do you do, fellow kids?’ with $1.6B Depop purchase

GettyImages 969952548

Image Credits: Getty Images

The news this week that e-commerce marketplace Etsy will buy Depop, a startup that provides a secondhand e-commerce marketplace, for more than $1.6 billion may not have made a large impact on the acquiring company’s share price thus far, but it provides a fascinating look into what brands may be willing to pay for access to the Gen Z market.

Etsy is buying Gen Z love. Think about it — Gen Z is probably not the first demographic that comes to mind when you consider Etsy, so you can see why the deal may pencil out in the larger company’s mind.

But it isn’t cheap. The lesson from the Etsy-Depop deal appears to be that large e-commerce players are willing to splash out for youth-approved marketplaces. That’s good news for yet-private companies that are popular with the budding generation.

Confluent’s IPO brings a high-growth, high-burn SaaS model to the public markets

Image Credits: Andriy Onufriyenko / Getty Images

Confluent became the latest company to announce its intent to take the IPO route, officially filing its S-1 paperwork this week.

The company, which has raised over $455 million since it launched in 2014, was most recently valued at just over $4.5 billion when it raised $250 million last April.

What does Confluent do? It built a streaming data platform on top of the open-source Apache Kafka project. In addition to its open-source roots, Confluent has a free tier of its commercial cloud offering to complement its paid products, helping generate top-of-funnel inflows that it converts to sales.

What we can see in Confluent is nearly an old-school, high-burn SaaS business. It has taken on oodles of capital and used it in an increasingly expensive sales model.

How to win consulting, board and deal roles with PE and VC funds

Jumping to the highest level - goldfish jumping in a bigger bowl - aspiration and achievement concept. This is a 3d render illustration

Image Credits: Orla (opens in a new window) / Getty Images

Would you like to work with private equity and venture capital funds?

There are relatively few jobs directly inside private equity and venture capital funds, and those jobs are highly competitive.

However, there are many other ways you can work and earn money within the industry — as a consultant, an interim executive, a board member, a deal executive partnering to buy a company, an executive in residence or as an entrepreneur in residence.

Let’s take a look at the different ways you can work with the investment community.

The existential cost of decelerated growth

Even among the most valuable tech shops, shareholder return is concentrated in share price appreciation, and buybacks, which is the same thing to a degree.

Slowly growing tech companies worth single-digit billions can’t play the buyback game to the same degree as the majors. And they are growing more slowly, so even a similar buyback program in relative scale would excite less.

Grow or die, in other words. Or at least grow or come under heavy fire from external investors who want to oust the founder-CEO and “reform” the company. But if you can grow quickly, welcome to the land of milk and honey.

Even among the most valuable tech shops, shareholder return is concentrated in share price appreciation, and buybacks, which is the same thing to a degree.

Slowly growing tech companies worth single-digit billions can’t play the buyback game to the same degree as the majors. And they are growing more slowly, so even a similar buyback program in relative scale would excite less.

Grow or die, in other words. Or at least grow or come under heavy fire from external investors who want to oust the founder-CEO and “reform” the company. But if you can grow quickly, welcome to the land of milk and honey.

Hormonal health is a massive opportunity: Where are the unicorns?

uterus un paper work.Pink backgroundArt concept of female reproductive health

Image Credits: Carol Yepes (opens in a new window) / Getty Images

There is a growing group of entrepreneurs who are betting that hormonal health is the key wedge into the digital health boom.

Hormones are fluctuating, ever-evolving, and diverse — but these founders say they’re also key to solving many health conditions that disproportionately impact women, from diabetes to infertility to mental health challenges.

Many believe it’s that complexity that underscores the opportunity. Hormonal health sits at the center of conversations around personalized medicine and women’s health: By 2025, women’s health could be a $50 billion industry, and by 2026, digital health more broadly is estimated to hit $221 billion.

Still, as funding for women’s health startups drops and stigma continues to impact where venture dollars go, it’s unclear whether the sector will remain in its infancy or hit a true inflection point.

3 lessons we learned after raising $6.3M from 50 investors

Image of businesspeople climbing ladders up an arrow toward three increasingly tall piles of cash.

Image Credits: sorbetto (opens in a new window)/ Getty Images

Two years ago, founders of calendar assistant platform Reclaim were looking for a “mango” seed round — a boodle of cash large enough to help them transition from the prototype phase to staffing up for a public launch.

Although the team received offers, co-founder Henry Shapiro says the few that materialized were poor options, partially because Reclaim was still pre-product.

“So one summer morning, my co-founder and I sat down in his garage — where we’d been prototyping, pitching and iterating for the past year — and realized that as hard as it was, we would have to walk away entirely and do a full reset on our fundraising strategy,” he writes.

Shapiro shares what he learned from embracing failure and offers three conclusions “every founder should consider before they decide to go out and pitch investors.”

For SaaS startups, differentiation is an iterative process

For SaaS success, differentiation is crucial

Image Credits: Kevin Schafer / Getty Images

Although software as a service has been thriving as a sector for years, it has gone into overdrive in the past year as businesses responded to the pandemic by speeding up the migration of important functions to the cloud, ActiveCampaign founder and CEO Jason VandeBoom writes in a guest column.

“We’ve all seen the news of SaaS startups raising large funding rounds, with deal sizes and valuations steadily climbing. But as tech industry watchers know only too well, large funding rounds and valuations are not foolproof indicators of sustainable growth and longevity.”

VandeBoom notes that to scale sustainably, SaaS startups need to “stand apart from the herd at every phase of development. Failure to do so means a poor outcome for founders and investors.”

“As a founder who pivoted from on-premise to SaaS back in 2016, I have focused on scaling my company (most recently crossing 145,000 customers) and in the process, learned quite a bit about making a mark,” VandeBoom writes. “Here is some advice on differentiation at the various stages in the life of a SaaS startup.”

Investors’ thirst for growth could bode well for SentinelOne’s IPO

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Turning the page from the early-stage venture capital market to the super late-stage exit market, this morning we’re talking about endpoint security company SentinelOne’s IPO in the context of Sprinklr’s own. We’ll have more on the public offering market later today when Doximity and Confluent price their respective IPOs after the close of trading.


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


SentinelOne’s IPO, expected to price on June 29 and trade June 30, is a fascinating debut. Why? Because the company sports a combination of rapid growth and expanding losses that make it a good heat check for the IPO market. Its debut will allow us to answer whether public investors still value growth above all else. And this week, the company gave us an early dataset regarding its market value in the form of an IPO price range. This means we can do some unpacking and thinking.

A reminder regarding why we dwell on the exit market for unicorns: We care because the value of late-stage startups when they reach a liquidity point helps set valuation comps for myriad smaller startups. Furthermore, the level of public-market enthusiasm for loss-making, growth-focused companies will determine the scale of returns for many a venture capitalist, founder and early employee.

So, let’s talk about SentinelOne’s cybersecurity IPO price range; Sprinklr’s social-media software debut will play foil.

The price of growth

It can make good sense to pay up for a quickly growing company’s shares. This is why you may hear of a startup raising an early-stage round at a very high revenue multiple.

Why put a $50 million price tag on a startup that just crossed the $1 million annual recurring revenue (ARR) threshold? If it’s growing sufficiently quickly, the math can pencil out. If that startup was growing at 300% per year, say, the revenue multiple that you paid in the round valuing the startup at $50 million would fall sharply over the next year, at which point other investors would probably scramble to put more capital into the firm at a higher price.

Bingo! You just got a markup on your initial investment, and the company has found someone else to lead their next round at a higher price, giving it even more capital to keep its growth game going and make your early investment appear prescient. See? Venture capital is easy.1

The same general idea applies to companies going public. Growth matters, and the more rapidly a company is adding revenue, the more money it will be worth because investors can anticipate its future scale (within reason). Some companies that sport quick growth can have other issues that impact their value. Extensive debt, for example, a history of uneven growth, or deteriorating economics could come into play. Or simply very high losses.

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