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Startups Weekly: Will the real unicorns please stand up?

Posted by on Jun 1, 2019 in Aileen Lee, alex wilhelm, bluevoyant, Co-founder, CRM, crowdstrike, cybersecurity startup, dashlane, economy, editor-in-chief, entrepreneurship, eric lefkofsky, Finance, garry tan, Indonesia, initialized capital, money, neologisms, Pegasus, Private Equity, records, SoFi, Softbank, Southeast Asia, starbucks, Startup company, Startups, startups weekly, stewart butterfield, tiny speck, unicorn, valuation, Venture Capital, virtual reality | 0 comments

Hello and welcome back to Startups Weekly, a newsletter published every Saturday that dives into the week’s noteworthy venture capital deals, funds and trends. Before I dive into this week’s topic, let’s catch up a bit. Last week, I wrote about the sudden uptick in beverage startup rounds. Before that, I noted an alternative to venture capital fundraising called revenue-based financing. Remember, you can send me tips, suggestions and feedback to kate.clark@techcrunch.com or on Twitter @KateClarkTweets.

Here’s what I’ve been thinking about this week: Unicorn scarcity, or lack thereof. I’ve written about this concept before, as has my Equity co-host, Crunchbase News editor-in-chief Alex Wilhelm. I apologize if the two of us are broken records, but I think we’re equally perplexed by the pace at which companies are garnering $1 billion valuations.

Here’s the latest data, according to Crunchbase: “2018 outstripped all previous years in terms of the number of unicorns created and venture dollars invested. Indeed, 151 new unicorns joined the list in 2018 (compared to 96 in 2017), and investors poured more than $135 billion into those companies, a 52% increase year-over-year and the biggest sum invested in unicorns in any one year since unicorns became a thing.”

2019 has already coined 42 new unicorns, like Glossier, Calm and Hims, a number that grows each and every week. For context, a total of 19 companies joined the unicorn club in 2013 when Aileen Lee, an established investor, coined the term. Today, there are some 450 companies around the globe that qualify as unicorns, representing a cumulative valuation of $1.6 trillion. 😲

We’ve clung to this fantastical terminology for so many years because it helps us classify startups, singling out those that boast valuations so high, they’ve gained entry to a special, elite club. In 2019, however, $100 million-plus rounds are the norm and billion-dollar-plus funds are standard. Unicorns aren’t rare anymore; it’s time to rethink the unicorn framework.

Last week, I suggested we only refer to profitable companies with a valuation larger than $1 billion as unicorns. Understandably, not everyone was too keen on that idea. Why? Because startups in different sectors face barriers of varying proportions. A SaaS company, for example, is likely to achieve profitability a lot quicker than a moonshot bet on autonomous vehicles or virtual reality. Refusing startups that aren’t yet profitable access to the unicorn club would unfairly favor certain industries.

So what can we do? Perhaps we increase the valuation minimum necessary to be called a unicorn to $10 billion? Initialized Capital’s Garry Tan’s idea was to require a startup have 50% annual growth to be considered a unicorn, though that would be near-impossible to get them to disclose…

While I’m here, let me share a few of the other eclectic responses I received following the above tweet. Joseph Flaherty said we should call profitable billion-dollar companies Pegasus “since [they’ve] taken flight.” Reagan Pollack thinks profitable startups oughta be referred to as leprechauns. Hmmmm.

The suggestions didn’t stop there. Though I’m not so sure adopting monikers like Pegasus and leprechaun will really solve the unicorn overpopulation problem. Let me know what you think. Onto other news.

Image by Rafael Henrique/SOPA Images/LightRocket via Getty Images

IPO corner

CrowdStrike has set its IPO terms. The company has inked plans to sell 18 million shares at between $19 and $23 apiece. At a midpoint price, CrowdStrike will raise $378 million at a valuation north of $4 billion.

Slack inches closer to direct listing. The company released updated first-quarter financials on Friday, posting revenues of $134.8 million on losses of $31.8 million. That represents a 67% increase in revenues from the same period last year when the company lost $24.8 million on $80.9 million in revenue.

Startup Capital

Online lender SoFi has quietly raised $500M led by Qatar
Groupon co-founder Eric Lefkofsky just-raised another $200M for his new company Tempus
Less than 1 year after launching, Brex eyes $2B valuation
Password manager Dashlane raises $110M Series D
Enterprise cybersecurity startup BlueVoyant raises $82.5M at a $430M valuation
Talkspace picks up $50M Series D
TaniGroup raises $10M to help Indonesia’s farmers grow
Stripe and Precursor lead $4.5M seed into media CRM startup Pico

Funds

Maveron, a venture capital fund co-founded by Starbucks mastermind Howard Schultz, has closed on another $180 million to invest in early-stage consumer startups. The capital represents the firm’s seventh fundraise and largest since 2000. To keep the fund from reaching mammoth proportions, the firm’s general partners said they turned away more than $70 million amid high demand for the effort. There’s more where that came from, here’s a quick look at the other VCs to announce funds this week:

~Extra Crunch~

This week, I penned a deep dive on Slack, formerly known as Tiny Speck, for our premium subscription service Extra Crunch. The story kicks off in 2009 when Stewart Butterfield began building a startup called Tiny Speck that would later come out with Glitch, an online game that was neither fun nor successful. The story ends in 2019, weeks before Slack is set to begin trading on the NYSE. Come for the history lesson, stay for the investor drama. Here are the other standout EC pieces of the week.

Equity

If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase News editor-in-chief Alex Wilhelm and I debate whether the tech press is too negative or too positive in its coverage of tech startups. Plus, we dive into Brex’s upcoming round, SoFi’s massive raise and CrowdStrike’s imminent IPO.


Source: The Tech Crunch

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Slack narrows losses, displays healthy revenue growth

Posted by on May 31, 2019 in Accel, Airbnb, Andreessen Horowitz, Earnings, economy, Finance, initial public offering, Kleiner Perkins, operating systems, slack, Softbank, SoftBank Group, Spotify, t.rowe price, TC, U.S. Securities and Exchange Commission | 0 comments

Workplace messaging powerhouse Slack filed an amended S-1 with the U.S. Securities and Exchange Commission on Friday weeks ahead of a direct listing expected June 20.

In the document, Slack included an updated look at its path to profitability, posting first-quarter revenues of $134.8 million on losses of $31.8 million. Slack’s Q1 revenues represent a 67% increase from the same period last year when the company lost $24.8 million on $80.9 million in revenue.

For the fiscal year ending January 31, 2019, the company reported losses of $138.9 million on revenue of $400.6 million. That’s compared to a loss of $140.1 million on revenue of $220.5 million the year prior.

Slack is in the process of completing the final steps necessary for its direct listing on The New York Stock Exchange, where it will trade under the ticker symbol “WORK.” A direct listing is an alternative approach to the stock market that allows well-known businesses to sell directly to the market existing shares held by insiders, employees and investors, instead of issuing new shares. The method lets companies bypass the traditional roadshow process and avoid a good chunk of Wall Street’s IPO fees.

Spotify completed a direct listing in 2018; Airbnb, another highly valued venture capital-backed business, is rumored to be considering a direct listing in 2020.

Slack is currently valued at $7 billion after raising $1.22 billion in VC funding from investors, including Accel, which owns a 24% pre-IPO stake, Andreessen Horowitz (13.3%), Social Capital (10.2%), SoftBank, T. Rowe Price, IVP, Kleiner Perkins and many others.


Source: The Tech Crunch

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Madrona Venture Labs raises $11M to build companies from the ground up

Posted by on May 15, 2019 in alpha, Amazon, Artificial Intelligence, blake irving, eBay, economy, entrepreneurship, erik blachford, Facebook, Finance, GoDaddy, madrona venture group, Microsoft, money, Private Equity, Seattle, spencer rascoff, Startup company, TC, Trinity Ventures, Venture Capital, venture capital Firms, venture capital funds, Zillow | 0 comments

In regions where would-be entrepreneurs need a little more support and encouragement before they’ll quit their day job, the startup studio model is taking off.

In Seattle, Madrona Venture Labs (MVL), a studio founded within one the city’s oldest and most-celebrated venture capital firms, Madrona Venture Group, has raised $11.3 million. The investment brings the studio’s total funding to $20 million.

Traditional venture capital funds invite founders to pitch their business idea to a line-up of partners. Sometimes that’s a founder with an idea looking for seed capital, other times it’s a more mature company looking to scale. When it comes to startup studios, the partners themselves craft startup ideas internally, recruiting entrepreneurs to lead the projects, then building them from the ground up within their own safe, protective walls. After a project passes the studio’s litmus test, i.e. shows proof of traction, product-market fit and more, it’s spun out with funding from Madrona and other VCs within its large and growing investor network.

For aspiring entrepreneurs deterred by the risk factors inherent to building venture-backed startups, it’s a highly desirable route. In the Pacific Northwest, where MVL focuses its efforts, it’s a chance to lure Microsoft and Amazon employees into the world of entrepreneurship.

“We want to be an onboard for founders in our market,” MVL managing director Mike Fridgen, who previously led the eBay-acquired business Decide.com, tells TechCrunch. “In Seattle, everyone isn’t a co-founder or an angel investor. Not everyone has been at a startup. A lot of people coming here are coming to work at Amazon, Microsoft or one of the larger satellite offices like Facebook. We want to help them fast-track learning, fundraising and everything else that comes with launching a successful company.”

Fridgen, MVL managing director Ben Elowitz, who co-founded the online jewelry marketplace Blue Nile and chief technology officer Jay Bartot, the co-founder of Hulu-acquired Vhoto, lead Madrona’s studio effort.

The investment in MVL comes in part from its parent company, Madrona, and for the first time, outside investors have acquired stakes in the practice. Alpha Edison, West River Group, Founder’s Co-op partner Rudy Gadre, Zillow co-founder Spencer Rascoff, former GoDaddy CEO Blake Irving, Trinity Ventures venture partner Gus Tai, TCV venture partner Erik Blachford and others participated.

With $1.6 billion in assets under management, Madrona is known for investments in Seattle bigwigs like Smartsheet, Rover and Redfin. The firm, which recently closed on another $100 million for an acceleration fund that will expand its geographic reach beyond the Pacific Northwest, launched its startup studio in 2014. Since then, it’s spun-out seven companies with an aggregate valuation of $140 million.

“There are some 85 VCs that have $300 million-plus funds,” Fridgen said. “In Seattle, we have two of the most valuable companies in the world and we have just one [big fund], Madrona; it’s the center of gravity for Seattle technology innovation.”

Companies created within MVL include Spruce Up, an AI-powered personal shopping platform, and Domicile, a luxury apartment rental service geared toward business travelers. Domicile was co-founded by Ross Saario, who spent the three years ahead of launching the startup as a general manager at Amazon. The company recently raised a $5 million round, while Spruce Up, co-founded by serial founder Mia Lewin, closed a $3 million round in May.

Other spin-outs include MightyAI, which was valued at $71 million in 2017; Nordstrom-acquired MessageYes, Chatitive and Rep the Squad. The latter, a jersey rental business, was a failure, shutting down in 2018 after failing to land necessary investment, according to GeekWire.

MVL’s latest fundraise will be used to invest in operations. Though MVL does provide its spin-outs with some capital, between $100,000 to $200,000 Fridgen said, it takes a back seat when it comes time to raise outside capital and doesn’t serve as the lead investor in deals.


Source: The Tech Crunch

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Uber’s first day as a public company didn’t go so well

Posted by on May 10, 2019 in carsharing, Commuting, economy, Finance, Fundings & Exits, initial public offering, money, Transportation, Uber, Uber IPO, Venture Capital | 0 comments

Ouch. Yikes. Oof. Sigh.

Those are some of the friendlier phrases I imagine came out of the mouths of bankers, investors, executives and really anyone who has been paying close attention to Uber’s road to the stock markets today when the company debuted on the New York Stock Exchange below its initial public offering price.

The ride-hailing business (NYSE: UBER), previously valued at $72 billion by venture capitalists, priced its stock at $45 apiece for a valuation of $82.4 billion on Thursday. It began trading this morning at $42 apiece, only to close even lower at $41.57, or down 7.6% from its IPO price.

Still, the IPO was successful enough for Uber. The business now has $8.1 billion on its balance sheet to invest in growth and, ideally, transform into a profitable business.

Anyone who expected Uber to climb past $100 billion at its IPO is surely disappointed. And those who projected a valuation of some $120 billion, well, they’re probably feeling pretty dumb. Nonetheless, Uber’s new market cap makes its exit one of the most valuable in history, and represents a landmark event for tech, mobility and the gig economy at large.

Where the stock will go from here, who knows. Lyft, as we’ve observed, has taken quite a hit since it completed an IPO in March. The Uber competitor is currently trading at a higher price than Uber: $51 per share with a market cap of about $14.6 billion. Its stock has fallen all week long, however, after the company posted losses of more than $1 billion in the first quarter of 2019.


Source: The Tech Crunch

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Zoom, the profitable tech unicorn, prices IPO above range

Posted by on Apr 17, 2019 in board member, economy, Emergence Capital, Finance, Fundings & Exits, initial public offering, Li Ka-shing, NASDAQ, photo sharing, Pinterest, Private Equity, sequoia capital, Startups, TC, Venture Capital, video conferencing, zoom | 0 comments

Zoom, a relatively under-the-radar tech unicorn, has defied expectations with its initial public offering. The video conferencing business priced its IPO above its planned range on Wednesday, confirming plans to sell shares of its Nasdaq stock, titled “ZM,” at $36 apiece, CNBC reports.

The company initially planned to price its shares at between $28 and $32 per share, but following big demand for a piece of a profitable tech business, Zoom increased expectations, announcing plans to sell shares at between $33 and $35 apiece.

The offering gives Zoom an initial market cap of roughly $9 billion, or nine times that of its most recent private market valuation.

Zoom plans to sell 9,911,434 shares of Class A common stock in the listing, to bring in about $350 million in new capital.

If you haven’t had the chance to dive into Zoom’s IPO prospectus, here’s a quick run-down of its financials:

  • Zoom raised a total of $145 million from venture capitalists before filing to go public
  • It posted $330 million in revenue in the year ending January 31, 2019 with a gross profit of $269.5 million
  • It more than doubled revenues from 2017 to 2018, ending 2017 with $60.8 million in revenue and 2018 with $151.5 million
  • Its losses have shrunk from $14 million in 2017, $8.2 million in 2018 and just $7.5 million in the year ending January 2019

Zoom is backed by Emergence Capital, which owns a 12.2 percent pre-IPO stake; Sequoia Capital (11.1 percent); Digital Mobile Venture, a fund affiliated with former Zoom board member Samuel Chen (8.5 percent); and Bucantini Enterprises Limited (5.9 percent), a fund owned by Chinese billionaire Li Ka-shing.

Zoom will debut on the Nasdaq the same day Pinterest will go public on the NYSE. Pinterest, for its part, has priced its shares above its planned range, per The Wall Street Journal.


Source: The Tech Crunch

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Equity Shot: Pinterest and Zoom file to go public

Posted by on Mar 22, 2019 in alex wilhelm, Bessemer Venture Partners, ceo, Cisco, economy, Equity podcast, Eric Yuan, Finance, FirstMark Capital, Kate Clark, katy perry, Lyft, money, photo sharing, Pinterest, Startups, TC, TechCrunch, Uber, unicorn, Venture Capital, video conferencing, web conferencing, WebEX, zoom | 0 comments

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

What a Friday. This afternoon (mere hours after we released our regularly scheduled episode no less!), both Pinterest and Zoom dropped their public S-1 filings. So we rolled up our proverbial sleeves and ran through the numbers. If you want to follow along, the Pinterest S-1 is here, and the Zoom document is here.

Got it? Great. Pinterest’s long-awaited IPO filing paints a picture of a company cutting its losses while expanding its revenue. That’s the correct direction for both its top and bottom lines.

As Kate points out, it’s not in the same league as Lyft when it comes to scale, but it’s still quite large.

More than big enough to go public, whether it’s big enough to meet, let alone surpass its final private valuation ($12.3 billion) isn’t clear yet. Peeking through the numbers, Pinterest has been improving margins and accelerating growth, a surprisingly winsome brace of metrics for the decacorn.

Pinterest has raised a boatload of venture capital, about $1.5 billion since it was founded in 2010. Its IPO filing lists both early and late-stage investors, like Bessemer Venture Partners, FirstMark Capital, Andreessen Horowitz, Fidelity and Valiant Capital Partners as key stakeholders. Interestingly, it doesn’t state the percent ownership of each of these entities, which isn’t something we’ve ever seen before.

Next, Zoom’s S-1 filing was more dark horse entrance than Katy Perry album drop, but the firm has a history of rapid growth (over 100 percent, yearly) and more recently, profit. Yes, the enterprise-facing video conferencing unicorn actually makes money!

In 2019, the year in which the market is bated on Uber’s debut, profit almost feels out of place. We know Zoom’s CEO Eric Yuan, which helps. As Kate explains, this isn’t his first time as a founder. Nor is it his first major success. Yuan sold his last company, WebEx, for $3.2 billion to Cisco years ago then vowed never to sell Zoom (he wasn’t thrilled with how that WebEx acquisition turned out).

Should we have been that surprised to see a VC-backed tech company post a profit — no. But that tells you a little something about this bubble we live in, doesn’t it?

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercast, Pocket Casts, Downcast and all the casts.


Source: The Tech Crunch

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Uber reportedly raising $1B in deal that values self-driving car unit at up to $10B

Posted by on Mar 13, 2019 in AV, economy, funding, General Motors, Google, Lyft, Softbank, Softbank Vision Fund, t.rowe price, TC, the wall street journal, Toyota, TPG Growth, transport, Transportation, Uber, United States, Venture Capital, waymo | 0 comments

Uber is in negotiations with investors, including the SoftBank Vision Fund, to secure an investment as large as $1 billion for its autonomous vehicles unit. The deal would value the business at between $5 billion and $10 billion, according to a Tuesday report from The Wall Street Journal.

Uber declined to comment.

The news comes shortly after TechCrunch’s Mark Harris revealed the ridehailing firm was burning through $20 million a month on developing self-driving technologies, which means, according to our calculations, that Uber could have spent more than $900 million on automated vehicle research since early 2015.

According to the WSJ, the deal could close as soon as next month, shortly before Uber is expected to complete a highly-anticipated initial public offering. Uber, in December, filed the necessary paperwork with the US Securities and Exchange Commission to go public in 2019. The documents were submitted only hours after its competitor Lyft did the same; Lyft, for its part, unveiled its S-1 earlier this month and will debut on the Nasdaq shortly.

Uber, to date, has raised nearly $20 billion in a combination of debt and equity funding, reaching a valuation north of $70 billion. The business is said to be seeking funding for its self-driving business in order to tout the unit’s growth and valuation. After all, a $10 billion sticker price on its AV efforts may bandage its reputation, damaged by continued reports questioning its progress.

Alphabet-owned Waymo, meanwhile, is reportedly looking to raise capital, too. This would be the first infusion of outside funding for the autonomous vehicle business, rolled out of Alphabet’s Google X. According to The Information, which broke this news on Monday, Waymo would raise capital at a valuation “several times” that of Cruise, the AV company owned by General Motors.

Raising capital from outside investors would help limit costs and would allow Alphabet the opportunity to display Waymo’s valuation for the first time in several years. Alphabet, however, does not want to relinquish too much equity in the business, justifiably. Waymo, years ago, was valued at $4.5 billion, though analysts claim it could surpass a valuation as high as $175 billion based on future revenue estimates.

Waymo didn’t respond to a request for comment.

Other investors in Uber’s purported round include an “unnamed automaker,” per the WSJ. Uber’s existing backers include Toyota, SoftBank, T. Rowe Price, Fidelity and TPG Growth.

Uber’s net losses were up 32 percent quarter-over-quarter as of late last year to $939 million on a pro forma basis. On an EBITDA basis, Uber’s losses were $527 million, up about 21 percent. The company said revenue was up five percent QoQ sitting at $2.95 billion and up 38 percent year-over-year.

CXA, a health-focused digital insurance startup, raises $25M

Posted by on Mar 13, 2019 in Asia, asia pacific, b capital, Banking, ceo, China, Co-founder, cxa group, economy, Eduardo Saverin, Europe, Facebook, Finance, funding, Fundings & Exits, healthcare, Indonesia, insurance, Louisiana, money, North America, openspace ventures, singtel, SingTel Innov8, Southeast Asia, Venture Capital | 0 comments

CXA Group, a Singapore-based startup that helps make insurance more accessible and affordable, has raised $25 million for expansion in Asia and later into Europe and North America.

The startup takes a unique route to insurance. Rather than going to consumers directly, it taps corporations to offer their employees health flexible options. That’s to say that instead of rigid plans that force employees to use a certain gym or particular healthcare, a collection over 1,000 programs and options can be tailored to let employees pick what’s relevant or appealing to them. The ultimate goal is to bring value to employees to keep them healthier and lower the overall premiums for their employers.

“Our purpose is to empower personalized choices for better living for employees,” CXA founder and CEO Rosaline Koo told TechCrunch in an interview. “We use data and tech to recommend better choices.”

The company is primarily focused on China, Hong Kong and Southeast Asia where it claims to works with 600 enterprises including Fortune 500 firms. The company has over 200 staff, and it has acquired two traditional insurance brokerages in China to help grow its footprint, gain requisite licenses and its logistics in areas such as health checkups.

We last wrote about CXA in 2017 when it raised a $25 million Series B, and this new Series C round takes it to $58 million from investors to date. Existing backers include B Capital, the BCG-backed fund from Facebook co-founder Eduardo Saverin, EDBI — the investment arm of the Singapore Economic Development Board — and early Go-Jek backer Openspace Ventures, and they are joined by a glut of big-name backers in this round.

Those new investors include a lot of corporates. There’s HSBC, Singtel Innov8 (of Singaporean telco Singtel), Telkom Indonesia MDI Ventures (of Indonesia telco Telkom), Sumitomo Corporation Equity Asia (Japanese trading firm) Muang Thai Fuchsia Ventures (Thailand-based insurance firm), Humanica (Thailand-based HR firm) and PE firm Heritas Venture Fund.

“There are additional insurance companies and strategic partners that we aren’t listing,” said Koo.

Rosaline Koo is founder and CEO of CXA Group

That’s a very deliberate selection of large corporates which is part of a new strategy to widen CXA audience.

The company had initially gone after massive firms — it claims to reach a collective 400,000 employees — but now the goal is to reach SMEs and non-Fortune 500 enterprises. To do that, it is using the reach and connections of larger service companies to reach their customers.

“We believe that banks and telcos can cross-sell insurance and banking services,” said Koo, who grew up in LA and counts benefits broker Mercer on her resume. “With demographic and work life event data, plus health data, we’re able to target the right banking and insurance services.

“We can help move them away from spamming,” she added. “Because we will have the right data to really target the right offering to the right person at the right time. No firm wants an agent sitting in their canteen bothering their staff, now it’s all digital and we’re moving insurance and banking into a new paradigm.”

The ultimate goal is to combat a health problem that Koo believes is only getting worse in the Asia Pacific region.

“Chronic disease comes here 10 years before anywhere else,” she said, citing an Emory research paper which concluded that chronic diseases in Asia are “rising at a rate that exceeds global increases.”

“There’s such a crying need for solutions, but companies can’t force the brokers to lower costs as employees are getting sick… double-digit increases are normal, but we think this approach can help drop them. We want to start changing the cost of healthcare in Asia, where it is an epidemic, using data and personalization at scale in a way to help the community,” Koo added.

Talking to Koo makes it very clear that she is focused on growing CXA’s reach in Asia this year, but further down the line, there are ambitions to expand to other parts of the world. Europe and North America, she said, may come in 2020.


Source: The Tech Crunch

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U.S. rule changes could mean more startups would need government approval to hire immigrants

Posted by on Mar 11, 2019 in 3d printing, Artificial Intelligence, biotechnology, Business, China, Column, Department of Commerce, economy, encryption, engineer, national venture capital association, Startup company, TC, telecommunications, U.S. government, United States | 0 comments

Big changes in DC could mean that more startups will need the government’s permission before foreign nationals do work at the company.  In some cases, the foreign national will need to leave the company if the government is wary of granting that permission. 

This is tied up in the same new law that gave a once obscure government body—CFIUS—enhanced abilities to scrutinize minority, non-controlling investments by foreign entities. 

CFIUS changes have grabbed most of the headlines, but a Commerce Department process to define “emerging technologies” could have a huge effect on startups that employ foreign nationals.

Here’s what you need to know: the U.S. government has long controlled exports of sensitive technology for national security reasons.  This is done through the export controls regime, which impacts things like arms and ammunition, but also telecommunications and encryption software, among other items. 

Today, many venture-backed companies are not impacted by export controls because their technology is not on one of the control lists.  But that stands to change soon. 

Recent legislation requires the Commerce Department to evaluate controls on “emerging technologies.”  To kick off this process, in November the government identified 14 categories of technology it is looking at.  This included tech in the sweet spot of the bat for venture: AI/ML, robotics, 3D printing, and biotechnology to name a few.  It is an open question as to which of these technologies will ultimately be subject to controls and to what degree.

Image: Bryce Durbin/TechCrunch

Once something is determined to be emerging technology, the government can establish controls on the export, re-export, or transfer (in-country) of that technology.  Export controls is often thought of as the need to get a license from the government before sending a technology outside the U.S., and that is indeed a major part of what startups will need to contend with. 

But perhaps far more impactful for the startup ecosystem is what’s called “deemed exports,” or the release of controlled technology to foreign persons situated in the United States, which is “deemed” to be an export to the person’s country or countries of nationality. 

“The ramifications of these changes could be tremendous if the government does not appropriately tailor what it means to be an emerging technology.”

“Release” is defined broadly to include visual inspection and oral or written exchanges regarding the technology; in other words, typical actions an engineer or scientist at a young company does.  One saving grace for some startups will be that the deemed export rule does not apply to green card holders, though does apply to employer-based visas, like the H-1B or O visa.

Let’s think about how this might play out in practice.  Imagine the government decides to control artificial intelligence as an emerging technology and that a U.S.-based AI company employs an engineer on an H-1B visa.  Under these facts, it seems the company would need an export license for the foreign national to work at the company. 

A large company might be able to set up a wall that allows the foreign national to work on non-emerging technologies, but for a startup that only does AI the ability to separate the foreign national from the emerging technology work is severely limited, if not impossible.

Obtaining these licenses would present a tremendous burden for small, high-growth startups that often build teams by attracting the best and brightest from foreign countries.

But that burden could be the least of the company’s problems if the foreign national is from a country like China. The U.S. government could be very reluctant to grant a license for someone from China to work on an emerging technology since the major motivation behind recent foreign investment scrutiny has been China. The result might be the foreign national has to leave the company entirely, exacerbating the severe talent drought in some disciplines.

IvancoVlad via Getty Images

Those working in the startup ecosystem understand the volume of foreign nationals working at high-growth companies, but also how impactful their work is to make the United States the world’s scientific and technological leader. 

In comments to the government, a consortium of life science investors backing companies in oncology, cystic fibrosis, anemia, and other areas sounded the alarm of how deemed exports could make laboratory collaboration between U.S. and foreign nationals difficult or impossible.  Certainly, this is not the result policymakers are shooting for given the public policy imperative of eradicating diseases. The ramifications of these changes could be tremendous if the government does not appropriately tailor what it means to be an emerging technology.

Comments from the National Venture Capital Association, where I work, stressed that many of the technologies the Commerce Department called out in November are not yet well-defined, which of course makes regulating them challenging. 

In addition, because many of the technologies—like AI/ML—will be widely used across many companies and industries, a broad set of controls could sweep in many unintended target companies and technologies. To alleviate these concerns, we recommended a targeted approach to classification of emerging technologies that categorizes only those technologies that have significant defense uses, and not broad commercial applications.

The U.S. government needs to tread carefully. 

The golf professional Sam Snead advised that a golf club needs to be gripped like you’re holding a live bird: firm enough so it doesn’t fly out of your hands but not so tight that you kill it. American innovation is the same in this way. 

Yes, policymakers need to consider the impact of emerging technology on national security and perhaps create some controls. But if policymakers ratchet up pressure too much, then talent, capital, and companies will flock to other countries, which means the United States loses out on the incredible benefits that high-growth startups bring to our country.  The rules of the road on emerging technologies have not been written, and each of us has an opportunity to make our voice heard during the process.


Source: The Tech Crunch

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The next great debate will be about the role of tech in society and government

Posted by on Mar 10, 2019 in articles, Artificial Intelligence, basic income, chief technology officer, Column, economy, Energy, industrial, Lambda School, Obama, online courses, president, quantum computing, social security, United Kingdom, United States | 0 comments

The Industrial Revolution dramatically re-ordered the sociology of politics. In the US, the Populist Party in the United States was founded as a force in opposition to capitalism, wary of modernity. In the UK, the profound economic changes reshaped policy: from the Factory and Workers Act through to the liberal reforms of David Lloyd George, which ultimately laid the ground for the welfare state, the consequences were felt for the whole of the next century.

Today, another far-reaching revolution is underway, which is causing similar ripple effects. Populists of both left and right have risen in prominence and are more successful than their American forebearers at the turn of the 19th century, but similarly rejecting of modernisation. And in their search for scapegoats to sustain their success, tech is now firmly in their firing line.

The risk is that it sets back progress in an area that is yet to truly transform public policy. In the UK at least, the government machine looks little different from how it did when Lloyd George announced the People’s Budget in 1909.

The first politicians who master this tech revolution and shape it for the public goodwill determine what the next century will look like. Rapid developments in technologies such as gene-editing and Artificial Intelligence, as well as the quest for potential ground-breaking leaps forward in nuclear fission and quantum computing, will provoke significant changes to our economies, societies and politics.

Yet, today, very few are even asking the right questions, let alone providing answers. This is why I’m focusing on technology as the biggest single topic that policymakers need to engage with. Through my institute, I’m hoping to help curate the best thinking on these critical issues and devise politically actionable policy and strategy to deal with them. This will help put tech, innovation and investment in research and development at the forefront of the progressive programme. And we do so in the belief that tech is – and will continue to be – a generally positive force for society.

This is not to ignore the problems that surfaced as a result of these changes, because there are genuine issues around privacy and public interest.

NEW YORK, NY – APRIL 23: Monitors show imagery from security cameras seen at the Lower Manhattan Security Initiative on April 23, 2013 in New York City. At the counter-terrorism center, police and private security personel monitor more than 4,000 surveillance cameras and license plate readers mounted around the Financial District and surrounding parts of Lower Manhattan. Designed to identify potential threats it is modeled after London’s “Ring of Steel” system. (Photo by John Moore/Getty Images)

The shifts that have and will occur in the labour market as a result of automation will require far more thinking about governments’ role, as those who are likely to bear the brunt of it are those already feeling left behind. Re-training alone will not suffice, and lifelong investment in skills may be required. So too does a Universal Basic Income feel insufficient and a last resort, rather than an active, well-targeted policy solution.

“The first politicians who master this tech revolution and shape it for the public goodwill determine what the next century will look like.”

But pessimism is a poor guide to the future. It ends in conservativism in one form or another, whether that is simple statism, protectionism or nationalism. And so the challenge for those us of who believe in this agenda of harnessing the opportunities, while mitigating its risks is to put this in a way that connects with people’s lives. This should be a New Deal or People’s Budget type moment; a seismic change in public policy as we pivot to the future.

At the highest level this is about the role of the state in the 21st century, which needs to move away from ideological debates over size and spend and towards how it is re-ordered to meet the demands of people today. In the US, President Obama made some big strides with the role of the Chief Technology Officer, but it will require a whole rethinking of government’s modus operandi, so that it is able to keep up with the pace of change around it.

Photo courtesy of Shutterstock/Kheng Guan Toh

Across all the key policy areas we should be asking: how can tech be used to enable people to live their lives as they choose, increase their quality of life and deliver more opportunities to flourish and succeed?

For example, in education it will include looking at new models of teaching. Online courses have raised the possibility of changing the business of learning, while AI may be able to change the nature of teaching, providing more personalised platforms and free teachers to spend their time more effectively. It could also include new models of funding, such as the Lambda School, which present exciting possibilities for the future.

Similarly with health, the use of technology in diagnostics is well-documented. But it can be transformative in how we deploy our resources, whether that is freeing up more front-line staff to give them more time with patients, or even in how the whole model currently works. As it stands a huge amount of costs go on the last days of life and on the elderly. But far more focus should go on prevention and monitoring, so that people can lead longer lives, have less anxiety about ill health and lower the risks of illnesses becoming far more serious than they need to be. Technology, which can often feel so intangible, can be revolutionary in this regard.

In infrastructure and transport too, there are potentially huge benefits. Whether this is new and more efficient forms of transport or how we design our public space so that it works better for citizens. This will necessitate large projects to better connect communities, but also focus on small and simple solutions to everyday concerns that people have about their day to day lives, such as using sensors to collect data and improve services improve every day standard of living. The Boston Major’s office has been at the frontier of such thinking, and more thought must go into how we use data to improve tax, welfare, energy and the public good.

Achieving this will better align government with the pace of change that has been happening in society. As it stands, the two are out of sync and unless government catches up, the belief and trust in institutions to be seen to working for people will continue to fall. Populism thrives in this space. But the responsibility is not solely on politicians. It is not enough for those in the tech world to say they don’t get it.

Those working in the sector must help them to understand and support policy development, rather than allow misunderstandings and mistrust to compound. Because in little more than two decades, the digital revolution has dramatically altered the shape of our economies in society. This can continue, but only if companies work alongside governments to truly deliver the change that so many slogans aspire to.


Source: The Tech Crunch

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