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June 25, 2019
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As Amex scoops up Resy, a look at its history of acquisitions

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American Express (also commonly known as AmEx), a popular credit and banking company, recently announced that it purchased a company called Resy. Resy helps people get seats at restaurants, or as AmEx describes it, provides “a digital restaurant reservation booking and management platform.”

The deal might not be as big a surprise as it feels, given that the two have worked together since at least the start of 2018.

As a private company, five-year-old Resy raised a total of $45 million in its lifetime, according to its Crunchbase profile. Its investors include Lerer HippeauAirbnb and Slow Ventures. Resy was co-founded by Ben Leventhal, co-founder of Eater, which produces food news and dining guides. The startup is primarily focused on the United States, but it also has a presence in the United Kingdom, Europe, Canada and Australia.

In a press release, AmEx said the goal of the acquisition was to enhance its ability to help cardmembers have access to “new, notable and hard to get into restaurants across the globe, as well as help restaurants’ businesses grow and thrive.” It also noted that it’s the latest buy in a string of recent purchases “in the dining, travel and lifestyle space.”

However, this being Crunchbase News, let’s see what else we can find out about what AmEx is up to.

Swipe for all the startups

AmEx has been on a buying spree as of late. In March, we reported on its purchase of LoungeBuddy, a former partner that helped travelers with reviews of various airport lounge areas. Also this year, AmEx picked up Pocket Concierge, a firm that we wrote “helps book in-demand restaurants and is similar to OpenTable.”

The following chart details American Express’s known acquisitions over the past decade, as reported by Crunchbase:

The chart tell us two things:

  1. AmEx is not a company with a history of buying lots of companies. For a firm of its value ($98.3 billion), buying a few companies a year is more than manageable. And, often, American Express hasn’t even done that. Indeed, in five of the last 11 years, AmEx bought zero known companies.
  2. AmEx has picked up three companies according to Crunchbase data this year. That’s a record, and it’s only May.

So, there could be change in the wind over at the credit card giant. (And if so, I suspect there are a fair few companies that brush up against AmEx that would love to join forces.)

A different checkbook

AmEx also has a venture arm, creatively named American Express Ventures. That means it interfaces with young tech shops both while they are independent and when they are ready to be picked up.

American Express Ventures has made 54 known investments, according to Crunchbase, including 13 led rounds. Unsurprisingly, the firm’s most popular startup categories to invest in are fintech, financial services and e-commerce. AmEx puts money to work where it also plays.

And that’s all for now, but we have our eyes out. If American Express buys something else, we’ll let you know — especially if you are a fintech founder.

Big revenues, huge valuations and major losses: charting the era of the unicorn IPO

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We can make charts galore about the tech IPO market. Yet none of them diminish the profound sense that we are in uncharted territory.

Never before have so many companies with such high revenues gone public at such lofty valuations, all while sustaining such massive losses. If you’re a “growth matters most” investor, these are exciting times in IPO-land. If you’re the old-fashioned value type who prefers profits, it may be best to sit out this cycle.

Believers in putting market dominance before profits got their biggest IPO opportunity perhaps ever last week, with Uber’s much-awaited dud of a market debut. With a market cap hovering around $64 billion, Uber is far below the $120 billion it was initially rumored to target. Nonetheless, one could convincingly argue it’s still a rich valuation for a company that just posted a Q1 loss of around $1 billion on $3 billion in revenue.

So how do Uber’s revenues, losses and valuation stack up amidst the recent crop of unicorn IPOs? To put things in context, we assembled a list of 15 tech unicorns that went public over the past three quarters. We compared their valuations, along with revenues and losses for 2018 (in most cases the most recently available data), in the chart below:

 

Put these companies altogether in a pot, and they’d make one enormous, money-losing super-unicorn, with more than $25 billion in annual revenue coupled to more than $6 billion in losses. It’ll be interesting to revisit this list in a few quarters to see if that pattern changes, and profits become more commonplace.

History

It’s easy to draw comparisons to the decades-old dot-com bubble, but this time things are different. During the dot-com bubble, I remember penning this lead sentence:

“If the era of the Internet IPO had a theme song, it might be this: There’s no business like no business.”

That notion made sense for bubble-era companies, which commonly went public a few years after inception, before amassing meaningful revenues.

That tune won’t work this time around. If the era of the unicorn IPO had a theme song, it wouldn’t be nearly as catchy. Maybe something like: “There’s no business like lots of business and lots of losses too.”

I won’t be buying tickets to that musical. But when it comes to buying IPO shares, the unicorn proposition is a bit more appealing than the 2000 cycle. After all, it’s reasonably plausible for a company with dominant market share to tweak its margins over time. It’s a lot harder to grow revenues from nothing to hundreds of millions or billions, particularly if investors grow averse to funding continued losses.

Of course, the dot-com bubble and the unicorn IPO era do share a common theme: Investors are betting on an optimistic vision of future potential. If expectations don’t pan out, expect share prices to follow suit.

The case for corporates to fill the seed vacuum

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Over the past five years, there has been a clear drop in seed investing. Between 2010 and 2014 there was an influx of “micro” VCs, perfectly equipped to deploy seed capital. Since then, we have seen a gradual decline.

One key reason is that the Micro VCs were successful. Turns out that investing at the seed stage is a really strong strategy for generating returns. Their portfolios performed very well and, as a result, were able to raise a much larger second and third fund.

Unfortunately, once your fund size exceeds $75 million, I’d argue, it is very difficult to focus on the seed stage. It is simply too difficult to identify enough quality opportunities to deploy all that capital. Instead, you need to write bigger checks. In order to do that, you start to focus on later rounds. This leaves a gap at the seed stage, which I’d argue, is the most exciting.

Because of that, I believe there is an incredible opportunity for this gap to be filled by corporate venture funds. We, at dunnhumby, have invested here, successfully, for years. And by successfully, I don’t mean just financially, though we have returned far more than we have invested; I also mean strategically. There are incredible strategic benefits to investing at the seed stage.

Innovation

The seed stage is where the greatest innovation is happening. We invest to inform our own strategic direction and identify new technologies and business models prior to their impact on our own business. We also use it to identify and embed with emerging companies who could, one day, be great partners.

In the recent surge of corporate innovation efforts, venturing is not leveraged nearly enough. There are few ways of exposing innovation better than aligning with a company that is innovating daily as a means of survival. There is no better inspiration than watching a team of two grow into a team of 100-plus, often pulling the slower-moving corporate along for the ride.

Collaboration

There is a flexibility and eagerness with early-stage companies that allows for greater collaboration. They are not so large as to have their own, built-out bureaucracy, and are actively willing to work together. For many, it is why they take money from a strategic, in the hope that there is more than just capital that comes from the relationship.

In many cases, these synergies do not emerge right away. However, there is a closeness that forms between the two companies that begins to bear fruit, from my experience, about one year post-investment.

For the startup, there is increased exposure to the investor’s client base and resources. For the corporation, there is firsthand insight into the success of the startup’s business model, technology and market. From this, partnership and acquisition opportunities emerge.

M&A and partner pipeline

Because of the strategic nature behind these investments, they also act as an incubator for future partnerships and acquisitions.

Participating at the seed stage does not require significant capital contributions.

By aligning at the seed stage, you have the unique opportunity to watch the company grow. What is the market demand and is there an opportunity to enter a new space before others have realized the opportunity? Often, we will take a board or board observer position with the company, which brings even greater insight into their performance, as well as the potential upside of an even closer relationship.

Also, nearly as important, is that you gain an even greater insight into the company culture and their alignment with your own. In most cases, these discussions will emerge from early collaborations, where your broader teams will have the opportunity to interact and form a culture of their own. This cultural alignment will increase the likelihood of a successful outcome, whether that is a partnership or full acquisition.

Value

Participating at the seed stage does not require significant capital contributions. For one later-stage investment, you could make three to four seed investments, which increases your exposure to the above items and drastically reduces the financial impact on your balance sheet. If done right, within four to five years, the fund should contribute much more than it costs.

Does this mean that the corporate should finance the entire seed round? Not typically. In fact, for almost all of our investments to date, we are participating as part of a syndicate of investors. Often this syndicate is made up of other corporate investors (often referred to as “Strategics”). This reduces risk as well as the financial burden for each investor at this stage. The goal is to get a seat at the table. For strategic purposes, there is little difference between owning 5% versus 20% at this stage. Once the company grows larger, this dynamic will change.

Conclusion

At dunnhumby we invest in less than 2% of the companies we meet with. We are diligent about where we invest. However, I’d argue that the 98% we pass on are nearly as important. Because we have an investment arm, we are exposed to incredible innovation across a range of industries that most companies, that lack a seed investing strategy, do not see. At least, not until it is too late. Capital gives us a seat at the table.

These conversations provide signals into emerging trends in our industry, as well as our clients’ industries. When we pass, often the relationship does not end. Many times, they will lead to partnership discussions, referrals and introductions that are equally beneficial to the startup.

The opportunity is there. Corporations just need to seize it.

Reality Check: The marvel of computer vision technology in today’s camera-based AR systems

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British science fiction writer, Sir Arther C. Clark, once said, “Any sufficiently advanced technology is indistinguishable from magic.”

Augmented reality has the potential to instill awe and wonder in us just as magic would. For the very first time in the history of computing, we now have the ability to blur the line between the physical world and the virtual world. AR promises to bring forth the dawn of a new creative economy, where digital media can be brought to life and given the ability to interact with the real world.

AR experiences can seem magical but what exactly is happening behind the curtain? To answer this, we must look at the three basic foundations of a camera-based AR system like our smartphone.

  1. How do computers know where it is in the world? (Localization + Mapping)
  2. How do computers understand what the world looks like? (Geometry)
  3. How do computers understand the world as we do? (Semantics)

Part 1: How do computers know where it is in the world? (Localization)

Mars Rover Curiosity taking a selfie on Mars. Source: https://www.nasa.gov/jpl/msl/pia19808/looking-up-at-mars-rover-curiosity-in-buckskin-selfie/

When NASA scientists put the rover onto Mars, they needed a way for the robot to navigate itself on a different planet without the use of a global positioning system (GPS). They came up with a technique called Visual Inertial Odometry (VIO) to track the rover’s movement over time without GPS. This is the same technique that our smartphones use to track their spatial position and orientation.

A VIO system is made out of two parts.

Beyond costs, what else can we do to make housing affordable?

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This week on Extra Crunch, I am exploring innovations in inclusive housing, looking at how 200+ companies are creating more access and affordability. Yesterday, I focused on startups trying to lower the costs of housing, from property acquisition to management and operations.

Today, I want to focus on innovations that improve housing inclusion more generally, such as efforts to pair housing with transit, small business creation, and mental rehabilitation. These include social impact-focused interventions, interventions that increase income and mobility, and ecosystem-builders in housing innovation.

Nonprofits and social enterprises lead many of these innovations. Yet because these areas are perceived to be not as lucrative, fewer technologists and other professionals have entered them. New business models and technologies have the opportunity to scale many of these alternative institutions — and create tremendous social value. Social impact is increasingly important to millennials, with brands like Patagonia having created loyal fan bases through purpose-driven leadership.

While each of these sections could be their own market map, this overall market map serves as an initial guide to each of these spaces.

Social impact innovations

These innovations address:

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