10 August 2017

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Atomico Need-to-Know

This is a regularly-updated collection of things we (@atomico) found interesting and important in tech and VC land, but that didn’t necessarily get the attention they deserve. We think of them as our hidden little gems. We’ll add to the collection over time, so bookmark the page and keep coming back for updates or to dig into the archive.

Lovingly put together by @twehmeier & @stephen2206

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● Will the number of GPs joining early moves proliferate and what investment models will LPs be prepared to back? Will we see more funds outside US move, especially given the level of non-US engineering driving innovation?

● What role will greater regulatory oversight have on the nascent market? Will it serve as a brake, or perhaps, as a catalyst for accelerated progression?

● While there are many (many) reasons to be cautious about the ICO model, what is not in question is that the cryptocurrency world is attracting top-class talent and that there are high potential projects being worked upon among a ‘mixed’ field

● While greater regulatory oversight may put a brake on what has been termed a ‘wild west’, the ICO model as a mechanism to raise funds is unlikely to disappear

● As such, if VCs want access to companies pursuing this route, they will need to decide not only on the right structure to do so (equity v tokens, direct or via fund, etc), as well as think about how they will position themselves to founding teams in a market with an evolved set of expectations

● Funds such as Polychain & MetaStable have attracted dollars, not only because they’ve arguably developed the strongest understanding of the market, but because their networks enable preferential access to best-in-class token offerings

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What do you need to know?

Why does it matter?

Key questions

● Initial Coin Offerings (ICOs) have been used by companies to raise $1.6B in seven months in 2017, with July again breaking records with $500M raised.

● Last week, Bessemer became the latest high profile VC to disclose (via WSJ) that it has committed capital to a blockchain hedge fund, MetaStable (co-founded by Naval Ravikant), as a means to access token-based cryptoassets

● Other VCs that are thought to have made commitments to funds include Sequoia Capital, Founders Fund, Andreessen Horowitz, USV. The two main funds to have attracted VC $ are Polychain Capital & MetaStable, with VCs either backing the firm, their funds or both (e.g. USV).

● Meanwhile, more than 70 crypto-focused hedge funds are said to be in the process of being raised, attracted by the volatile swings that have helped driven huge returns for earlier investors as blockchain ecosystem grown to $115B

VCs dip toes in token-based cryptoassets via hedge funds

Source: https://www.wsj.com/articles/lps-bless-bessemers-move-into-crypto-investing-1501241400?mod=djemVentureCapitalPro&tpl=vc https://medium.com/@etiennebr/my-token-ico-blockchain-capital-markets-landscape-617e6ff1eae1

Token / ICO ‘capital market’ landscape (via @ebrunet)

● How quickly can CRISPR technology move from being lab-based to ready for the clinic?

● What role should different stakeholders, whether governments, entrepreneurs, investors or consumers - play in balancing a desire to speed commercialisation of AI/CRISPR with ensuring that due attention is paid to ethical considerations?

● We will so-called ‘jurisdictional competition’ play out with countries ‘competing’ to create a framework to promote the accelerated development of technology in their jurisdictions?

● Any sufficiently disruptive new technology has always raised huge ethical questions, from the printing press to the atom bomb. Indeed, this has given rise to a whole branch of research, technoethics, dedicated to exploring the role of ethics in technology

● AI and genetic engineering hold incredible potential to change the future of humanity, but with the possibility of huge potential economic, social, political and technical consequences. Beyond the inevitable debate about ‘designer babies’, some of the lives ethical debates driven by AI incl. algorithmic bias or prejudice in legal systems, automation & employment, autonomous vehicles, but also more recently, the ‘rights of robots’

● While there is huge investment to drive these technologies forward, many are concerned that we’re not paying sufficient attention to ensuring morality/ethics are integrated into the development of these technologies “before it is too late”

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What do you need to know?

Why does it matter?

Key questions

● Researchers, led by a team from the Oregon Health & Science University, claim to have successfully edited a viable human embryo to edit and replace a mutation in a gene called MYBPC3 that causes a deadly genetic heart defect, known as hypertrophic cardiomyopathy, a cause of sudden death in young people

● In doing so, the team is said to have shown progress against two important safety hurdles that have impacted the application of CRISPR-Cas9 in gene therapy - off-target mutations and generating mosaics

● Meanwhile, the high profile exchange of words between Elon Musk and Mark Zuckerberg serve more than anything to highlight just how contentious - and increasingly mainstream - the ethical debate around AI is becoming. This is prompting increased funds being channelled into research into AI-related ethics, as well as governments launching their own efforts to better understand the impacts, e.g. a UK House of Lords Select Committee

As human embryo successfully ‘edited’, coupling of ethics and tech becoming more tightly integrated than ever

Source: http://www.nature.com/news/crispr-fixes-disease-gene-in-viable-human-embryos-1.22382

● What impact will the UK and others’ bans have on oil companies, carmakers, and oil rich-states?

● How realistic are the timelines put forth by these countries? Will the EV infrastructure support these timelines?

● What opportunities will be created in the first- and second-order supporting infrastructure required to transition to a full-EV world?

● European is positioning itself as a clear leader in autotech both through technological development and support by government policies

● After pulling out of the Paris Climate Agreement it seems highly unlikely that the US government will implement any new policies

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What do you need to know?

Why does it matter?

Key questions

● The U.K. will ban the sale of new gasoline- and diesel-driven vehicles starting in 2040 as a push towards 100% electric vehicles

○ Follows similar announcements by Netherland (2025), Norway (2025), India (2030), and France (2040)

● Not only in government policy, but European consumers are also leading the way in electric vehicle adoption

○ 24% of new vehicles sold in Norway are battery-electric and 6% in the Netherlands (vs. US at <2%)

○ Germany is expected to soon come out with a similar ban with car manufacturers meeting recently with government officials to discuss stopping development of combustion engines in 2023

Europe leading in push for Electric Vehicle adoption

Sources: https://www.axios.com/the-u-k-joins-a-growing-ban-on-gasoline-powered-cars-2465682467.html http://www.thisismoney.co.uk/money/cars/article-3835857/Britain-biggest-electric-car-buyer-Europe-nears-500-000-road.html

Europe represents #2 market for EVs

EVs forecasted to be 50% of new sales by 2040

● What implications are there for other marketplace categories? Will we see regional champions push more aggressively to win in their local markets?

● Will we see a phase of consolidation or alliances emerge in other marketplace categories where it may make sense to build “roaming” footprints?

● What are the next categories within AutoTech that hold promise? 6

What do you need to know?

Why does it matter?

Key questions

● Past month has seen a clear spike in AutoTech investments across a number of different sub-categories

● There’s been a surge of deal activity in the ridesharing market ○ Softbank emerging as key source of capital for the category ○ Lyft growing faster than Uber in US○ Uber exiting Russia via a deal with Yandex.Taxi ○ Didi Chuxing announced an investment in Taxify

● Outside ridesharing, Carspring (Rocket-founded used car buying platform) announced a Series B raise including Rocket and Channel 4 Growth Fund, while Carwow (already backed by Accel and Balderton) raised a Series C led by Vitruvian Partners. Shift also raised a large round from BMW iVentures.

● Looking at tech focused on vehicle maintenance, Caroobi (from Germany) announced its round, while Booster raised a $20m Series B to fill your car at work

Spike in AutoTech investment activity; challenge to the thesis of global winner-takes-all marketplaces

Sources: https://www.theverge.com/2017/7/25/16026216/lyft-gross-booking-growth-faster-uber-2017https://techcrunch.com/2017/08/01/chinas-didi-invests-in-taxify/https://techcrunch.com/2017/07/30/carwow-series-c/https://techcrunch.com/2017/08/01/carspring-2/https://techcrunch.com/2017/08/01/booster-raises-20-million-to-fill-your-car-at-work/

Car Buying PlatformsVehicle Maintenance Tech

Ride-Sharing and Finding

vs.

● The growing challenge to Uber - and its retreat from a growing number of geographies - is providing a challenge to the oft-cited thesis that “marketplaces tend towards global winner-takes-all dynamics. While dominant players are emerging, they increasingly look to be at a regional level. Outside of ridesharing, it’s hard to identify marketplaces that have truly won ‘globally’. Airbnb? Amazon?

● Auto industry focused technologies and marketplaces continue to attract investor attention particularly those companies making used car buying easier. Even as ride sharing and finding platforms grow, continues to be a market for technologies serving traditional auto transport market

● What other policies or programs can the UK government put in place to support startups?

● What are the international best practices that the UK should adopt?

● What’s the timeline for starting investments out of the fund?

● How will the National Investment Fund fit alongside other UK Government-backed vehicles?

● Fund was originated based off data suggesting a £4b funding gap between US and UK startups with <10% of UK firms raising 4+ rounds of funding vs. 25% of US startups

● UK government also wants to ensure access to capital if Brexit ends the relationship with the European Investment Fund

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What do you need to know?

Why does it matter?

Key questions

● Earlier this week, the UK government announced a National Investment Fund to “help cutting-edge British startups become world-leading unicorns”

○ Fund size is expected to >$1bn (£760m)

○ Structure is still unknown and could be set up as a public-private partnership or be placed fully on the government’s balance sheet

● Mains goals of the fund are commercializing research from UK universities, supporting investments from pension funds, and increasing investment into startups outside of London

○ Part of broader initiative around “Patient Capital” and examining better ways to supply and deploy capital

UK National Investment Fund Announced

Sources: https://www.gov.uk/government/news/new-national-investment-fund-to-back-innovative-uk-firms https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/634338/financing_growth_in_innovative_firms_consultation_web.pdf

UK Government Analysis of Startup Ecosystem

● Will these startups campuses materially impact the competitive advantage of the ecosystem? Where will the next “startup campus” be built in Europe?

● Is there a need for this type of co-location in Asia or other geographies, as well?

● Reflects another example of a city working to achieve efficiency through co-locating startups in huge, campus-like, facilities

● An example of recreating the type of human capital density of the Valley to facilitate knowledge sharing, problem solving through shared experiences, and talent interchange with the added collaboration of policy makers and large corporates

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What do you need to know?

Why does it matter?

Key questions

● Startup Lisboa, the Lisbon government backed accelerator, announced that international real estate develop Factory will be building a massive new startup campus, Hub Criativo do Beato

● Lisbon’s project will challenging Paris’ Station F to be the world’s largest startup campus

○ Station F is 34,000m2 whereas Hub Criativo do Beato is expected to be 35,000m2 after phase I almost tripling to 100,000m2 when complete

● Factory previous built two smaller-scale startup campuses in Berlin

Expansion of European Startups Campuses

Source: https://techcrunch.com/2017/07/25/startup-hub-builder-factory-plans-gargantuan-new-campus-in-lisbon/

Renderings of Hub Criativo do Beato & Station F

General News In Brief

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Footnotes

Companies What happened?

Kleiner

Kleiner announced it has recruited Mamoon Hamid as a new GP. Mamoon was a co-founder of Social Capital before joining Kleiner. Earlier, KPCB had announced the closure of its seed fund, KPCB Edge, which had been set up two years earlier. All seed investing will now go through its core fund. It also announced the departure of Mike Abbott and Arielle Zuckerberg, as well as three other Partners that had worked on the Edge fund.

AltspaceVR

AltspaceVR, a company building a social platform for VR, and one of the higher profile companies to building apps for virtual reality, announced it it shutting down. The company was one of the better funded app devs in the space (raised $16M from Lux Capital, Maven, Comcast, others) and so its inability to raise follow-on funding has been taken a negative signal for the category, which continues to see only modest growth in hardware adoption.

Grab Southeast Asia-focused ridesharing company Grab raised $2.5B in a huge new funding round, largely taking the money from Softbank, which continues to be a key source of capital for ridesharing companies (e.g. Ola, Didi)

Cryptocurrencies

SEC released its investigative report into the DAO token sale, ruling that offers and sales of digital assets by “virtual” organizations are subject to the requirements of federal securities laws, although individual investment transactions will depend on the facts and circumstances on a case-by-case basis; Shortly afterwards, the Monetary Authority of Singapore also issued a ruling clarifying its view that some digital assets/cryptoassets also fall under their definition of ‘security’ and that issuers and intermediaries would need to register and subject themselves to securities law/licensing requirements

China/RussiaBoth China and Russia announced measures to restrict use of VPNs, as both nations seek to exert greater censorship of citizens’ Internet access. In China, Apple removed all VPN apps from the Chinese App Store, while in Russia, President Putin has now enacted a law to ban VPNs used

Amazon Announced it is doubling its R&D employee base in London from 450 to 900. This is part of a wider expansion of its UK-based workforce to 24k by end-2017. Outside London, it has R&D team in Edinburgh & Cambridge.

Prosper

Said to raise a new financing round of ca. $50 million that will value the company at $550 million, down from$1.9B when it last raised back in 2015. The new investor is unknown, although said to be Chinese. Prosper had already reduced its common stock valuation and repriced employee stock options to $0.22 per share, down from $2.14, according to securities filings.

M&A Wrap Up

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Acquiror Target Target desc. Amt Comments

Internet Brands WebMD Health Health information portal $2.8bWebMD has been exploring potential sale since February; Internet Brands (owned by KKR) plans to combine WebMd with other smaller platforms (DentalPlans.com, VeinDirectory.org, and AllAboutCounseling.com).

Global Payments ACTIVE Network Global marketplace for activities and events $1.2b Global Payments acquired communities and sports division of Active Network from Vista Equity

Sage Intacct Cloud-based financial management and accounting applications $805m Sage, an almost 20-yr old enterprise software company, acquired Intacct to bolster its cloud-based

offerings; interesting example of UK-based legacy player buying a US player

GrubHub Eat24 Web-based food and delivery service $288m Yelp sold Eat24 to GrubHub; Yelp shares were up +20% post announcement as the street sees this as Yelp to focus more on its core business

Stripe Payable 1099 compliance software N/A Stripe acquired long-time partner Payable to better support on-demand and marketplace businesses to process payments to contractors and vendors

Metro MissFresh Fresh produce e-commerce mobile application N/A Canadian food retailer Metro acquired Montreal-based meal-kit maker MissFresh; appears to be

following in trend of prepared meal delivery (e.g. BlueApron, HelloFresh, etc.)

Modern Times Group Kongregate Mobile and online game publisher and web gaming portal $55m Strategic move by Modern Times Group to build their online gaming offers through acquisition of

Kongregate from Gamestop

Wyndham Worldwide Love Home Swap Home-swapping website $53m RCI, a division of Wyndham Worldwide, acquired Love Home Swap; co-founder and CEO will step down from the company as part of the deal

Prodea Arrayent IoT connectivity platform N/A Prodea Systems, a cloud services firm, has acquired Arrayent to build out a IoT services platform helping companies gather data from sensors that can then be used for enterprise applications

Facebook Source3 Licensing and rights management platform for distribution of 3D content N/A FB plans to use Source3’s technology to crack down on users that post intellectual property without

permission

Facebook Ozlo Personal AI assistant for finding information from a user's phone N/A Appears to be a move to augment the capabilities of M, Facebook’s virtual assistant for Messenger

Beyond Pricing Smart Host Analytics platform for home renting N/A Beyond Pricing is acquired the assets and technology of Smart Host to improve pricing algorithm; Smart Host team will not be joining the company post-acquisition

NASDAQ Sybenetix Surveillance software for individual traders N/A Nasdaq plans to integrate Sybenetix’s technology into its current “reg-tech” offerings

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