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May 26, 2019
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Utah’s Divvy raises $200M to eliminate expense reports

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In February 2016, Blake Murray wrote down an idea for a business expense and budgeting platform on the back of a napkin. Today, that’s Divvy, a tech-enabled replacement of monthly expense reports.

The company, not to be confused with Divvy Homes or Divvy Bikes, has raised an additional $200 million in venture capital funding as part of Series C financing led by NEA with participation from Pelion Venture Partners and Insight Venture Partners. Murray, Divvy’s co-founder and chief executive officer, declined to disclose Divvy’s valuation though he did confirm it’s grown 4x from the company’s $35 million Series B. According to PitchBook, the Series B financing valued Divvy at $173 million, suggesting a new valuation of nearly $700 million.

For a business headquartered in Lehi, Utah — for a Silicon Valley startup even — that’s a seriously rapid growth rate. Divvy only launched its platform, which allows customers to send and request funds, create virtual credit cards, manage team spending and more, in January 2018. Its valuation has grown 1000 percent since then across three rounds of equity funding. Murray tells TechCrunch the business hasn’t adopted a hypergrowth strategy, opting instead to spend nearly two years carefully crafting and iterating the product before its public launch.

Divvy co-founders Alex Bean (left) and Blake Murray.

“We aren’t taking the route of build fast and break fast,” Murray said. “If you want to disrupt a market you have to be very deliberate in your approach and you have to build powerful experiences that really pull the rug out from under your competition.”

Divvy’s expense tools are free. The business makes money from every transaction thanks to a fee paid by the merchant. That fee is split between Divvy, MasterCard and the issuing bank. The company’s key competitors are legacy expense system Concur and Expensify, a decade-old fellow venture-backed expense manager. Divvy, however, sets itself apart with a user-friendly mobile app and its corporate credit card, features that allow customers real-time visibility into their spending.

“It doesn’t take a genius to recognize that there’s been incredible innovation with B2B software that gives you real-time data,” Murray said. “Whether intentional or not, Divvy is creating a new category. Divvy took what looked like a bunch of disparate ideas, combined them and said holy crap that all makes a lot of sense.”

The company currently counts 200 employees and 3,000 customers on revenue growth of 30 percent quarter-over-quarter. Divvy plans to use the latest investment to bolster product and engineering teams, as well as launch a bill pay product. Next year, Divvy will expand internationally.

The round brings Divvy’s total raised to $245.5 million, not including a $250 million credit facility it secured in January. NEA managing general partner Scott Sandell is joining Divvy’s board of directors as part of the transaction.

The company has previously landed financial support from Utah’s tech unicorn CEOs Domo founder Josh James and Pluralsight co-founder Aaron Skonnard .

 

Taxing your privacy

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Data collection through mobile tracking is big business and the potential for companies helping governments monetize this data is huge. For consumers, protecting yourself against the who, what and where of data flow is just the beginning. The question now is: How do you ensure your data isn’t costing you money in the form of new taxes, fees and bills?  Particularly when the entity that stands to benefit from this data — the government — is also tasked with protecting it?

The advances in personal data collection are a source of growing concern for privacy advocates, but whereas most fears tend to focus on what type of data is being collected, who’s watching and to whom is your data being sold, the potential for this same data to be monetized via auditing and compliance fees is even more problematic.

The fact is, you don’t need massive infrastructure to now track/tax businesses and consumers. State governments and municipalities have taken notice.

The result is a potential multi-billion dollar per-year business that, with mobile tracking technology, will only grow exponentially year over year.

Yet, while the revenue upside for companies helping smart cities (and states) with taxing and tolling is significant, it is also rife with contradictions and complications that could, ultimately, pose serious problems to those companies’ underlying business models and for the investors that bet heavily on them.

Photo courtesy of Getty Images/chombosan

The most common argument when privacy advocates bring up concerns around mobile data collection is that consumers almost always have the control to opt out. When governments utilize this data, however, that option is not always available. And the direct result is the monetization of a consumer’s privacy in the form of taxes and tolls. In an era where states like California and others are stepping up as self-proclaimed defenders of citizen privacy and consent, this puts everyone involved in an awkward position — to say the least.

The marriage of smart cities and next-gen location tracking apps is becoming more commonplace.  AI, always-on data flows, sensor networks and connected devices are all being employed by governments in the name of sustainable and equitable cities as well as new revenue.

New York, LA and Seattle are all implementing (or considering implementing) congestion pricing that would ultimately rely on harvesting personal data in some form or another. Oregon, which passed the first gas tax in 1919, began it’s OreGo Program two years ago utilizing data that measured miles driven to levy fees on drivers so as to address infrastructure issues with its roads and highways.

Image Courtesy of Shutterstock

As more state and local governments look to emulate these kinds of policies the revenue opportunity for companies and investors harvesting this data is obvious.  Populus, (and a portfolio company) a data platform that helps cities manage mobility, captures data from fleets like Uber and Lyft to help cities set policy and collect fees.

Similarly, ClearRoad  is a “road pricing transaction processor” that leverages data from vehicles to help governments determine road usage for new revenue streams.  Safegraph, on the other hand, is a company that daily collects millions of trackers from smartphones via apps, APIs and other delivery methods often leaving the business of disclosure up to third parties. Data like this has begun to make its way into smart city applications which could impact industries as varied as the real estate market to the Gig Economy.

“There are lots of companies that are using location technology, 3D scanning, sensor tracking and more.  So, there are lots of opportunities to improve the effectiveness of services and for governments to find new revenue streams,” says Paul Salama, COO of ClearRoad . “If you trust the computer to regulate, as opposed to the written code, then you can allow for a lot more dynamic types of regulation and that extends beyond vehicles to noise pollution, particulate emissions, temporary signage, etc.”

While most of these platforms and technologies endeavor to do some public good by creating the baseline for good policy and sustainable cities they also raise concerns about individual privacy and the potential for discrimination.  And there is an inherent contradiction for states ostensibly tasked with curbing the excesses of data collection then turning around and utilizing that same data to line the state’s coffers, sometimes without consent or consumer choice.

Image courtesy Bryce Durbin

“People care about their privacy and there are aspects that need to be hashed out”, says Salama. “But we’re talking about a lot of unknowns on that data governance side.  There’s definitely going to be some sort of reckoning at some point but it’s still so early on.”

As policy makers and people become more aware of mobile phone tracking and the largely unregulated data collection associated with it, the question facing companies in this space is how to extract all this societally beneficial data while balancing that against some pretty significant privacy concerns.

“There will be options,” says Salama.  “An example is Utah which, starting next year, will offer electric cars the option to pay a flat fee (for avoiding gas taxes) or pay-by-the-mile.  The pay-by-the-mile option is GPS enabled but it also has additional services, so you pay by your actual usage.”

Ultimately, for governments, regulation plus transparency seems the likeliest way forward.

Image courtesy Getty Images

In most instances, the path to the consumer or tax payer is either through their shared economy vehicle (car, scooter, bike, etc.) or though their mobile device.  While taxing fleets is indirect and provides some measure of political cover for the governments generating revenue off of them, there is no such cover for directly taxing citizens via data gathered through mobile apps.

The best case scenario to short circuit these inherent contradictions for governments is to actually offer choice in the form of their own opt-in for some value exchange or preferred billing method, such as Utah’s opt-in as an alternative way to pay for road use vs. gas tax.   It may not satisfy all privacy concerns, particularly when it is the government sifting through your data, but it at least offers a measure of choice and a tangible value.

If data collection and sharing were still mainly the purview of B2B businesses and global enterprises, perhaps the rising outcry over the methods and usage of data collection would remain relatively muted. But as data usage seeps into more aspects of everyday life and is adopted by smart cities and governments across the nation questions around privacy will invariably get more heated, particularly when citizen consumers start feeling the pinch in their wallet.

As awareness rises and inherent contradictions are laid bare, regulation will surely follow and those businesses not prepared may face fundamental threats to their business models that ultimately threaten their bottom line.

Location-based virtual reality is increasing its footprint in the U.S.

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Earlier this year, in a small, grey-walled storefront inside a very large mall in Torrance, Calif. (just past the AMC Center) , the virtual reality game-maker Survios planted its first flag in the market for location-based gaming.

It’s one of several companies (many based in Los Angeles) that are turning the city into a hub for anyone looking to experience the thrill of immersive gaming.

While Survios’ offering is more akin to the virtual arcades cropping up in cities across the country and around the world (including Dubai, New York, Seoul, and Tokyo), other companies like the Los Angeles-based Two Bit Circus and Lindon, Utah’s The Void are creating site specific game experiences that promise a different kind of approach to virtual reality.

For Survios and other companies that have placed multi-million dollar bets on the viability of virtual reality, the move to location-based gaming isn’t a matter of choice. It’s a matter of survival thanks to the persistent lack of demand from consumers. 

Sales of head-mounted displays began to climb out of their doldrums late last year, and are expected to surpass 1.5 million head mounted displays sold in 2018, according to data from Canalys. But that’s still a far smaller market than the 10 million game consoles that were sold in the U.S. alone in 2017 (not to mention the roughly 32 million consoles sold at the market’s peak in 2008), according data on the Statista website

The benefits of location-based experiences are clear. The cost of premium headsets and gaming systems prohibit most U.S. households from getting the gear in their hands and until those costs come down, out-of-home experiences provide the best way to get consumers comfortable with the technology.

That’s been the tactic ever since Nolan Bushnell and Ted Dabney launched Computer Space in 1971 with the first coin-operated computer game for arcades.

And one that VRWorld brought (with much fanfare) to virtual reality in the U.S. with the debut of its three-floor gaming hub near the Empire State Building in the heart of New York.

That experience, a more extravagant investment than Survios’ humble multi-bay storefront, was one of the first in the U.S. to commit to the sensory overload that is virtual reality. By 2018, New York was home to at least seven virtual reality spaces where users could experience the technology, according to The New York Times.

And while it’s hard to recreate a truly immersive, mobile game experience in the home, the ability to access cinematic quality production values, a physical space purpose-built for immersive game play, and the intellectual property of some of Hollywood’s most enduring brands (like The Void’s Star Wars experience) can make for a compelling pitch to consumers.

That’s the hope of people like Nancy Bennett, an entertainment industry veteran who was brought on as the Chief Creative Officer at Two Bit Circus.

“What’s cool about VR and a differentiator of the medium is that it gives you embodiment,” Bennett says. “There’s no other medium that does that.”

Bennett knows a thing or two about entertainment. A producer with MTV Networks, the founder of the collaborative game development platform Squarepushers Inc. and a celebrated creator of virtual reality projects for the National Football League, the National Basketball Association, Bennett won the Lumiere award for best music VR experience for her work on the “One At a Time” video for Alex Aiono. 

From haptic platforms and motion floors that simulate the ability to walk around a space, the location based experience will offer a more fully immersive platform that can lend itself to more interesting narratives, says Bennett.

For Bennett, the vision of a place like Two Bit Circus, or the experiences on offer from other location based platforms are about the combination of narrative and technology in a way that can provide verisimilitude to someone strapped into a headset.

She, and others in the location-based community, look to immersive theater like Sleep No More as a model for how to proceed. “Immersive theater is absolutely the platform that will help drag us along,” Bennett says. 

At Two Bit Circus, which raised $15 million from investors last January, virtual reality will be about 20% of the experiences on offer. The company’s inaugural space in Los Angeles will also avail itself of projection mapping, augmented reality and other ways to immerse and entertain, Bennett promises.

But immersion will be at the heart of it all, she said. “Those kinds of mixed immersive experiences are going to be de rigueur,” according to Bennett. “And locations are going to be the only places where you can pull that off.”

Bennett sees the industry offering different tiers of immersive entertainment. With virtual reality arcades like Survios’ in Torrance operating on one level and more highly immersive experiences like The Void and Baobab Studios operating on another.

It’s one reason why companies like Cinemark have announced that they’re working with The Void and other immersive, location-based virtual reality companies to create experiences in their theaters.

“Really it’s about what serves the creative goal,” says Bennett. “What I think is really cool is the opportunity to mash up the fast prototyping of the community into one space to get people to play. It isn’t just VR. There’s also new forms of play and arcades that are possible and interactive audience participation for content creation.”

Even with the wow-factor of the experience, it may not be enough to buck industry trends. IMAX was one of the first companies to carve out immersive virtual reality spaces in its theaters, but given its woeful performance in the first quarter of 2018, those efforts are now on hold, according to it chief executive Richard Gelfond.

“At this time, we do not anticipate opening additional VR centers, or making a meaningful future investments in the initiative,” he told analysts during the company’s first quarter earnings call.

It’s a dramatic change for a company that was touting its entrance into the location based market just a year earlier.

IMAX’s stumble belies the international success of location-based gaming. In this, Asia leads the way with virtual reality outposts like the Viveland theme park in China. An existing infrastructure of internet cafes meant that Asian gaming hubs could just throw virtual reality hardware into their mix of offerings and continue to attract an audience.

Meanwhile, companies in the U.S. need to depend on purpose built spaces for virtual reality gaming thanks to the dominance of in-home gaming consoles (which overtook arcade gaming at least a decade ago). The lack of similar out-of-home spaces led to IMAX deciding to set up their own experiences — and other movie theaters and amusement parks following suit.

And there’s still the chance that in-home virtual reality will be able to pick up the pace and boost adoption more quickly than the market expects.

Analysts for the industry tracker Canalys forecast that the industry will sell nearly 10 million units in 2021, on par with the (shrinking) console market. Standalone virtual reality headsets are expected to push the market to 7.6 million units sold by the end of 2018, according to Canalys.

Still, for the immediate future, for those looking to get the full benefit of a virtual reality experience, their best bet is to find the nearest Void experience and battle some storm troopers, check out an arcade, or wait for the unveiling of Two Bit Circus’ first facility later this year.

Broadening education investments to full-stack solutions

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As an education investor, one of my favorite sayings is that education is the next industry to be disrupted by technology, and has been for the past twenty years.

When I started my career at Warburg Pincus, I inherited a portfolio of technology companies that senior partners naively believed would solve major problems in our education system.

It would have worked out fine, of course, except for all the people. Teachers weren’t always interested in changing the way they taught. IT staff weren’t always capable of implementing new technologies. And schools weren’t always 100% rational in their purchasing decisions. And so while, given the size of the market, projections inexorably led to $100M companies, sales cycles stretched asymptotically and deals never seemed to close, particularly in K-12 education.

My current firm, University Ventures, began life in 2011 with the goal of funding the next wave of innovation in higher education. Much of our early work did revolve around technology, such as backing companies that helped universities develop and deploy online degree programs. But it turned out that in making traditional degree programs more accessible, we weren’t addressing the fundamental problem.

At the time, America was in the process of recovering from the Great Recession, and it was clear that students were facing twin crises of college affordability and post-college employability. The fundamental problem we needed to solve was to help individuals traverse from point A to point B, where point B is a good first job – or a better job – in a growing sector of the economy.

Once we embarked on this journey, we figured out that the education-to-employment missing link was in the “last mile” and conceptualized “last-mile training” as the logical bridge over the skills gap. Last-mile training has two distinct elements.

The first is training on the digital skills that traditional postsecondary institutions aren’t addressing, and that are increasingly listed in job descriptions across all sectors of the economy (and particularly for entry-level jobs). This digital training can be as extensive as coding, or as minimal as becoming proficient on a SaaS platform utilized for a horizontal function (e.g., Salesforce CRM) or for a particular role in an industry vertical. The second is reducing friction on both sides of the human capital equation: friction that might impede candidates from getting the requisite last-mile training (education friction), and friction on the employer side that reduces the likelihood of hire (hiring friction). Successful last-mile models absorb education and hiring friction away from candidates and employers, eliminating tuition and guaranteeing employment outcomes for candidates, while typically providing employers with the opportunity to evaluate candidates’ work before making hiring decisions. Today we have eight portfolio companies that take on risk themselves in order to reduce friction for candidates and employers.

The first clearly viable last-mile training model is the combination with staffing. Staffing companies are a promising investment target for our broadened focus because they have their finger on the pulse of the talent needs of their clients. Moreover, staffing in the U.S. is a $150B industry consisting of profitable companies looking to move up the value chain with higher margin, differentiated products.

Because fill rates on job reqs can be as low as 20% in some skill gap areas of technology and health care, there is no question that differentiation is required; many companies view staffing vendors as commodities because they continue to fish in the same small pool of talent, often serving up the exact same talent as competitors in response to reqs.

Adding last-mile training to staffing not only frees the supply of talent by providing purpose-trained, job-ready, inexpensive talent at scale, but also increases margins and accelerates growth. It is this potential that has prompted staffing market leader Adecco (market cap ~$12B) to acquire coding bootcamp leader General Assembly for $412.5M. The acquisition launches Adecco down a promising new growth vector combining last-mile training and staffing.

We believe that staffing is only the most obvious last-mile training model. Witness the rise of pathways to employment like Education at Work. Owned by the not-for-profit Strada Education Network, Education at Work operates call centers on the campuses of universities like University of Utah and Arizona State for the express purpose of providing last-mile training to students in sales and customer support roles. Clients can then hire proven talent once students graduate. Education at Work has hired over 2,000 students into its call centers since its inception in 2012.

Education at Work is the earliest example of what we call outsourced apprenticeships. For years policy makers have taken expensive junkets to Germany and Switzerland to view their vaunted apprenticeship models – ones we’ll never be able to replicate here for about a hundred different reasons. This week, Ivanka Trump’s Task Force on Apprenticeship Expansion submitted a report to the President with a “roadmap… for a new and more flexible apprenticeship model,” but no clear or compelling vision for scaling apprenticeships in America.

Outsourced apprenticeships are a uniquely American model for apprenticeships, where service providers like call centers, marketing firms, software development shops and others decide to differentiate not only based on services, but also based on provision of purpose-trained entry-level talent. Unlike traditional apprenticeship models, employers don’t need to worry about bringing apprentices on-site and managing them; in these models, apprentices sit at the service provider doing client work, proving their ability to do the job, reducing hiring friction with every passing day until they’re hired by clients.

America leads the world in many areas and outsourcing is one of them. Outsourced apprenticeships are an opportunity for America to leapfrog into leadership in alternative pathways to good jobs. All it will take is service providers to recognize that clients will welcome and pay for the additional value of talent provision. We foresee such models emerging across a range of industries and intend to invest in companies ideally positioned to launch them.

All of these next generation last-mile training businesses will deliver education and training – predominantly technical/digital training as well as soft-skills where employers also see a major gap. They’ll also be highly driven by technology; technology will be utilized to source, assess and screen talent – increasingly via methods that resemble science fiction more than traditional HR practices – as well as to match talent to employers and positions. But they’re not EdTech businesses as much as they are full-stack solutions for both candidates and employers: candidates receive guaranteed pathways to employment that are not only free – they’re paid to do it; and employers are able to ascertain talent and fit before hiring.

While last-mile solutions can help alleviate the student loan debt and underemployment plaguing Millennials (and which put Gen Z in similar peril), they also have the potential to serve two other important social purposes. The first is diversity.

Just as last-mile providers have their finger on the pulse of the skill needs of their clients, they can do the same for other needs, like diversity. Last-mile providers are sourcing and launching cohorts that directly address skill needs, as well as diversity needs.

The second is retraining and reskilling of older, displaced workers. For generations, college classrooms were the sole option provided to such workers. But we’re unlikely to engage those workers in greatest need of reskilling if college classrooms – environments where they were previously unsuccessful – are the sole, or even initial modality. As last-mile training models are in simulated or actual workplaces, they are much more accessible to displaced workers.

Finally, the emergence of last-mile full-stack solutions like outsourced apprenticeships raises the question of whether enterprises might not only seek to outsource entry-level hiring, but all hiring. Why even hire an experienced worker from outside the company if there’s an intermediary willing to source, assess and screen, upskill, match, and provide workers on a no-risk trial basis? As sourcing, screening, skill-building, and matching technologies become more advanced, why not offload the risk of a bad hire to an outsourced talent partner? Most employers would willingly pay a premium to reduce the risk of bad hires, or even mediocre hires. If the market does evolve in this direction, education investors with a full-stack focus have the potential to create value in every sector of the economy, making traditional investment categories of “edtech” seem not only naïve, but also quaint.

 

Drug discovery startup Recursion raises $60 million in Series B from Data Collective 

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Recursion, a drug discovery startup out of Salt Lake City, Utah has announced a $60 million Series B round, led by Data Collective (DCVC).

Recursion started out in 2014 on a mission to identify 100 new treatments in 10 years. That’s a lofty goal, considering the discovery for just one drug can traditionally take decades and tens of millions of dollars, with a high rate of failure before anything comes of the research.

However, the startup uses machine learning to process and rapidly discover new drug treatments for diseases in a fraction of the time and cost.

“What we’re doing is turning biology into a data science problem,” Gibson tells TechCrunch.

That’s something Silicon Valley investors are getting behind as more venture funds have started to pour money into biotech startups over the past few years.

Recursion’s approach is similar to Y Combinator’s Notable Labs in that it uses imaging of cells combined with machine learning to identify which drugs will work best without waiting years to go through trial and error. However, Notable focuses on just one particular kind of disease — cancer. Recursion takes a broader approach, sifting through possible chemical combinations for an average of eight diseases a week, according to co-founder Chris Gibson.

“It’s the inverse of what the industry typically does,” Gibson says. “They spend a lot of time upfront trying to understand the disease and then two to three years down the road they look to see if they have a compound that might work. Sometimes they do and sometimes they don’t.”

However, Recursion spends very little time focusing on the disease at the beginning. Instead, it uses that image-based approach to look at promising compounds.

Of course, identifying possible compounds is just the first part. Recursion will still need to take those drugs through clinical trial.

It’s also in a crowded industry with a lot of competition from bigger drug makers. But, Gibson points out, Recursion owns all the data it uses and there are thousands of diseases still out there without a treatment so the opportunity is wide.

But even with lots of good data, machine learning technology and a big field, biotech still takes much more capital to get it off the ground. Of course, discovering a new drug can be very lucrative and margins in the pharmaceuticals industry continue to soar.

Lux Capital, which led Recursions Series A round, jumped in again for this round, along with previous participants Obvious Ventures, Advantage Capital, Felicis, Epic, and AME. New investors include Mubadala, Menlo Ventures, CRV, Two Sigma and various angel investors.

Recursion had previously raised $20 million, bringing the total in the coffers up to $80 million.

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