It’s Not Just Cap Table Management

Before Carta became the company “capable of building Nasdaq for private markets,” getting investors to understand the potential of their vision was one of their greatest roadblocks. “Nobody believed that this could be a big business,” said the CEO, Henry Ward. “They all called it a lifestyle business.” For the nay-sayers, it was hard to envision a billion dollar market in cap tables. However, Henry’s vision encompassed much more than that.

Carta’s first product provided startups and startup employees with digital records of their cap table records, leveraging technology to provide a more seamless and centralized way to track share issues, manage equity, and issue securities. Through this first product, they created a wedge for themselves, an entry point into the tech stacks and workflows of startups nationwide. But this, for Carta, was just the beginning.

Two years after its founding, Carta moved into the 409A space, providing fair market valuations of private company stocks. In short, 409As set a strike price (the price at which an option can be exercised) for the stock in question. 409As were a traditionally arduous and opaque process for startup employees looking to value or exercise their stock options. Carta brought transparency and efficiency to the process.

Carta has grown rapidly since, providing more products and services for all parts of the ecosystem, not only startups but venture capital funds as well. For venture capital funds, Carta helps with fund administration, portfolio management, limited partner coordination and communication, reporting, analytics, cash management, data room and most recently even SPV formation.

In Carta’s 1st phase, they focused on startups through the aforementioned digital records and 409A services. In their 2nd phase, they focused on venture capital funds through their fund end to end administration services. Now in their 3rd phase, they are focused on connecting these 2 parts of the ecosystem and building a liquidity platform on top of it to democratize access to the private markets for startup employees and others.

Pure income is a form of labor. If you get laid off or leave your job, you stop earning that income. Your income is bound by the amount of labor you can provide. Equity, in contrast, is a form of true capital. Once you own it, the value can grow and actually compound without a restrictive linear relationship to your direct input. Carta wants to empower everyone to be equity owners.

If At First You Don’t Succeed

Though the path to success in building startups is never easy, for those with the “entrepreneurial bug,” it’s these very high-stakes challenges they crave. Before founding Carta, the learnings from struggle and failure in Henry’s previous startup — Second Sight, informed much of his later pursuits and path to success. Henry spent a year and a half working on his first company. But, after being rejected by hundreds of investors, he was unable to get the startup past the seed round and had to pull the plug.

In spite of his unsuccessful first attempt, he kept dreaming of starting another company. The idea for Carta was kickstarted by one of the investors he worked with when founding Second Sight — Manoj Kumar. Catching up over coffee, Manoj shared his reflections on that meeting and the vision Henry painted early on for Carta. At first, it appeared to be a legal workflow documentation idea. Even to Henry, the idea didn’t seem like much. But as they continued to discuss the idea over the next few months, Henry thought deeply about the cause of this problem. The underlying issue, he realized, “…the paper certificate problem is a symptom of an underlying problem, which is that there is no financial infrastructure in the private world.” This was the problem he felt excited to build a company around.

The Fundraising Hurdles

Though the company was able to close the seed round and launch their product in 2014, raising the Series A was one of the hardest phases of their growth. They were turned down by dozens of venture funds before their first term sheet. Henry spent a lot of time trying to convince investors who simply didn’t get the idea, until he realized he needed to find investors that were excited about the idea and understood where he was going with it. In an interview, he said:

“…one of the lessons I learned in the fundraising process is…a lot of entrepreneurs feel like their job is to convince an investor that they should invest. I think it’s actually more your job to find investors that get excited about your idea. …finding investors is really a filtering exercise versus a convincing exercise.”

Many investors couldn’t see past their seemingly niche services. But those who thought more deeply about the future understood how Carta’s products could transform private markets with the system of record as just the first step. As an early seed-stage investor in the company, TSVC invested in Carta because we saw the practical necessity of modernizing and digitizing equity ownership, and believed in Henry’s clear-cut vision that his idea could become a platform for a new secondary marketplace.

After finding the right investors, Carta’s growth gained greater momentum. In just five years, they managed to reach a total value of $800 million, becoming a unicorn that very few saw coming.

Just Getting Started

As the fastest growing fund admin business in history, Carta has emerged as the main tool for the fintech industries, and created the first marketplace for the private world. The stocks of private companies are inaccessible to most except for select VCs and wealthy individuals. But CartaX, launched earlier this year, will disrupt the binary world that companies have existed in for over 100 years — private or public. On this platform, the vision that Henry pitched back in 2013 is coming to life. CartaX will unlock liquidity for all market participants. Having been with Carta since the seed round, we’re grateful and excited to watch this company as they redefine the operations of Wall Street, Silicon Valley, and the world through transforming private markets.

Carta and Cap Tables: How One Simple Idea Created a New Market was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

This blog is based on the conversation our investment team held during our weekly Clubhouse Beer Bash, where we dissected the asset management firm ARK (mostly ARKK’s technology portfolio and positions). We shared our thoughts on the underlying investment thesis for ARK’s top-position holdings, combined with our views on the early stage opportunities. There will be two parts of the article and we will give our thoughts on three top holdings of ARKK in each part. All our opinions for these public companies are provided for informational purposes only, and should not be relied upon as legal, business, investment or tax advice.

Innovation and technology disruption have been the hidden drivers behind every strong growth engine. In recent years, an acute sense for boldly innovative companies has no longer been limited to private investors anymore. Public investors’ mindsets have also evolved from benchmarking and passive strategies to seeking future innovations capable of reshaping the landscape and fueling growth for next-gen mogul companies.

ETFs under ARK have been one of the publicly traded technology-oriented ETFs that caught the eyes of a lot of investors in 2020 due to its astonishing performance and its tech-oriented positions. As an early stage investor, we’ve noticed a growing trend of public intermingling and the private market as the public market’s performance has been rippling down to the decision, thesis, and valuation in the private company investment world. On the other side, a growing buy-in and well-educated, tech-oriented mentality has inversely penetrated the public investors’ portfolio strategy.

Let’s start with some background information for the ARK Invest.

ARK was founded by Cathie Wood in 2014 with an operating history of six years, and unlike a lot of traditional ETF or traditional public market investors, the strategy of ARK is focused on disruptive innovation. The flagship fund, ARKK ETF has $28B in size today, but from 2014 to 2017 its performance was on par with the S&P 500 and even underperformed. However, from 2017 to 2021, ARKK drastically out-performed the S&P 500 with jaw-dropping returns. Today, with six ETFs, ARK now has AUM exceeding $60B, compared to $3.6B one year ago. Besides Tesla, we will share six portfolios in the ARK that take up 20% holdings but have created 80% of returns, and how its evolved fundamentals can be relevant to early stage opportunities.

Shopify (Infrastructure-as-a-Service and the platform economy )

The infrastructure behind each industry has been so siloed in the past 10 years that it needs some digitized solutions to rebuild most of its legacy parts. We believe the backbone of each industry and each vertical will ultimately be rebuilt. We’ve been looking for infrastructures that handle the dirtiest work and engineer the most heavy lifting as an entry point from cloud infrastructure providers to APIs and SDKs offerings.

Shopify started by offering subscription-based infrastructure for E-commerce, and targeted small to midsize businesses for conducting their online business. Their major revenue came from combined subscription solutions and merchants solutions. The underlying strength of Shopify’s business model lies in the consistent revenue growth coming from each customer cohort without too much requirement for retention. The math here is that revenue comes from remaining merchants growing within a cohort, offsetting the decrease in revenue from merchants canceling the service. By heavy lifting merchants’ multi-channel front face, integrated backend, and aggregated data, Shopify has gone far beyond the infrastructure powerhouse and moved faster into the deep merchant value-add spaces including logistics, inventory, fulfillment, shipping, payment and ultimate platform plus marketplace that would directly compete with Amazon. All around, Shopify seems to have had deeper connections with these merchants from day one, the stickiness and high switching costs the whole infrastructure Shopify has built for them have become a strong defensible moat for the business.

On the other side, the marketplace middleman may be eliminated from the consumer game in the near future as D2C takes off on every platform, and merchants are looking into more liquid options. And that’s why we’re seeing lots of ventures tapping into the roll-up business of FBA’s (Fulfillment by Amazon) top sellers in order to reach the scalability those single cash-cow sellers can’t reach. By buying a lot of existing sellers’ cash flow and FBA assets, these ventures consolidate them into an independent, well-branded and marketable box with more scalable supply chains, higher bargaining power with manufacturers, more reliable fulfillment service, and stronger brand awareness. The imagination for e-commerce and the infrastructure behind it will be unstoppable and will transform everything — especially when considering Jeff Bezos’ claim that Amazon is only taking 1% of the global E-commerce market compared to Shopify’s worldwide footprint (the North American market accounts only 56% of its 1.7M merchant base, and there are 12M-24M merchants worldwide with an aggressive growth rate).

Zoom (Tool — Platform -Ecosystem )

As the earliest institutional investor for Zoom 10 years ago, we saw it as an app that would rewrite the cloud video conferencing experience for users. The market of synchronized video communication was big enough to address a strong new entrant. Today, seeing Zoom as one of the most successful video conferencing apps would only be seeing one star in the solar system — what really matters to this empire is becoming an all-around platform with several asteroids in its orbit, and every addition would serve the growth of Zoom’s core offerings. Platform economy has also been a very important angle. Early stage companies expand into adjacent areas by building a platform derived from its core products. For example, Snowflake started as a data warehouse, and it will ultimately become a data cloud. The data cloud Snowflake sits on will inversely empower all the applications’ development with its rich data.

Academia-Enterprise

Travel restrictions have put a huge damper on university life in the United States and beyond. Educators are expanding into online education, and a growing number of people now earn their credentials virtually. With education and earning credentials changing format, the US and the world’s top universities will be opening up enrollment to global students via Zoom. Zoom’s collaboration with academia will not be limited to virtual online class, but the whole academic enterprise can be built on Zoom’s engine. Tapping into education would open up a whole new world for Zoom’s platform. Students from all over the world will be sitting in Zoom’s hybrid AR class as Zoom is also creating a more frictionless Zoom University to onboard, engage, deliver content, and help students get their degrees online.

An all-in-one virtual hybrid collaborative workplace

The world is moving into remote or hybrid work, and every manager wants their employees to remain as productive as they would be in the office. Employees also don’t want to be stuck in meeting after meeting without quantifiable results from each virtual meeting. Productivity tools, asynchronous communication, team offline collaboration tools, and project management tools would be the most adjacent market for Zoom to tap into. Zoom will not only serve as the tool for people to conduct a meeting, but an all-in-one centralized place. Users will be able to deliver information with ease to prepare for meetings. They can alternate between different apps within Zoom in the meeting. They can capture key information from the meeting with products like Avoma (one of our portfolios), an AI transcription and natural language processing technology. With the newly developed Zoom Apps, Zoom will be able to become the next-gen collaboration platform that transforms people’s workflow and productivity. Slack and Zoom have a large percentage of overlapping users. Slack’s value is a fifth of Zoom’s market cap now, and if Zoom is capable of consolidating and eventually snapping up the collaboration, how much more revenue multiple will the market be willing to give to this new empire?

Zoom Platform-as-a-Service for all walks of creators

On-Zoom has been a savvy move by Zoom that not only serves the needs of online event browsers, but creates a whole new world of embedded applications (payment, user management, and even customer relationship management). The immersive experience can empower all walks of creators and their activities with Zoom. Yoga teachers, chefs, florists, influencers, and anyone who wants to create and share their content will be able to use Zoom’s platform to monetize their online video-based business. Tens of thousands of yoga teachers are migrating from traditional Yoga studios to their own online classes with the clients gained from their in-person classes. People can register an online class through Zoom, attend the class online, and pay online using Zoom’s embedded payment processor. With the popularization of online classes, every enterprise has been working on becoming a payment facilitator themselves. By becoming a PaaS for creators or even e-commerce platforms in the future, Zoom would be able to convert these marginal users from its core video offering into their loyal users as well as extend the LTV of these users.

Twilio (The standardized API-first world)

Welcome to the API-first world. API (application programming interface) is a computing interface that defines interactions between multiple softwares. In other words, it is a standardized language format in which different systems/softwares can interact with each other. Based on that common language, the connected APIs network would enable a set of new business models operating on the secure exchange of data. It would also give access to extra functionality. What we’re seeing today is the API-enabled democratization of different industries. Entrenched financial institutions are exploring open banking platforms that unbox payment, card issuance, checkings/savings accounts to credit, lending, and investing — such as Hydrogen and Moove. Legacy insurance providers are being questioned as new entrants such as Angle Health, one of our portfolio companies that provides next-gen new digital health insurance. It’s built entirely on the centralized API stack, enabling interoperability and seamless data transfer from all relevant players in the healthcare ecosystem. This contrasts the traditional carriers that leverage EDI integrations (Electronic Data Interchange — a decades old form of data transfer). Though it started as an enabler to cross the chasm for disconnected systems, defining and becoming a standardized product by themselves, ultimately it seeks to empower the whole system by acquiring different capabilities to become more competitive. The API economy is just getting started.

Twilio began as a cloud communication platform, starting by taking on the most hard-core problems of human communication for businesses. The platform provided an array of programmable applications, from programmable voice, programmable message to programmable contact centers (Twilio Flex). The API-based contact centers doesn’t offer a full-stack contact service, but instead offers a granular API-first contact center building blocks for businesses of all sizes to customize their customer communication service that fits. But that’s not the case anymore — Twilio isn’t just taking steps to become the next API-first Salesforce. They’re aiming to become something even more tremendous and value-recurring than Salesforce. After Twilio planted its API in most business’ customer communication engines for years, we’re finally getting to see the fundamentals of API business evolve and prepare to transform the whole scene. Twilio’s channel APIs have been playing the role of omni-channel enablers and connectors. Twilio flex is an aggregation of all that seating on top of Twilio’s all channel APIs. If this is the whole equation, the elasticity of API business won’t stress any of these incumbents with a couple hundred market cap, as Twilio is not handling any of these customer engagement data. And unlike Salesforce’s service cloud, Twilio started with the infrastructure, not the full-stack product cloud. But from the acquisition of Segment, what Twilio is heading towards is a full-stack engagement cloud, not Oracle’s engagement cloud but the entire cloud CRM service provided by Salesforce.

Twilio has emphasized several times in their investors call that they’re only the Lego pieces linking their customer’s service center with the micro-service they provide. While this acquisition leaves more room for investors’ ongoing imagination, Wall Street did reward Twilio for its ambition. While it’s true that APIs streamline and connect the silo source, whole APIs are simply a gateway. They’re truly innovative back ends that effect real transformation. Such internal streamlining and the platform formation efforts may be the next battleground for competing digital services. Some day in the near future when that lego is no longer a lego, the whole web glued together by Twilio’s infrastructure will start to cannibalize the kingdom of Salesforce and become a better version of it.

In Part 2, we will talk more about how we see opportunities in Bitcoin, younger generation’s social investing behavior by digging deeper into CashApp, and incremental changes in healthcare. Follow TSVC on Linkedin to get the earliest access to Part2.

What Early Stage Opportunities We See by Dissecting ARK Invest’s Portfolio (Part I) was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

By Laura Ma

Ginkgo Bioworks is a Boston-based analytics company that engineers organisms for customers across multiple industries. Now a TSVC unicorn, they were founded in 2009 by a few fresh MIT graduates and seasoned scientist Tom Knight. The self-proclaimed “Organism Company” has since grown into one of the world’s largest privately held biotech companies. As the team creates products that have the potential to address pressing environmental and industrial challenges in our world today, we had the opportunity to interview co-founder Austin Che to get the story on how the Organism Company grew up.

AN UNLIKELY TIME TO STARTUP

Despite the stock market crash in 2008, Ginkgo Bioworks’ co-founder Austin Che says taking the risk to pursue a startup company wasn’t a tough decision for him and fellow MIT companions Reshma Shetty, Jason Kelly, and Barry Canton. In fact, the newly graduated team found themselves a bit bored of the conventional routes ahead of them. “The default option was to get a postdoc, but none of us were that excited to do that,” he said. After perusing the job market, nothing seemed too interesting at the time either. Thus, guided by what was the most exciting path, along with the leadership of Tom Knight, the group decided the startup route was the way to go.

For the first several years, their path was full of challenges. “2008 was a great time to start a company,” Che jokes, looking back on their first six years of bootstrapping. “We did try to talk to investors a bit at that time. We got plenty of no’s, and we got turned down a lot,” he recalls. “We entered a lot of business plan competitions and got rejected from all of them. ” At times, they would offer customers products for free and they’d still get turned down. Applying for government contracts and grants helped keep their company going. But it turned out that the first six years of rejection helped create conditions that later lead to their success. “It was probably good that we did not raise much money in the first couple years. It would have hampered our exploration. The first couple years we were in an experimental mindset; we were scientists.”

AN ENGINEER’S APPROACH TO BIOLOGICAL SYSTEMS

Tom Knight — engineer, scientist, “godfather of synthetic biology,” and co-founder of Ginkgo Bioworks — has been a crucial member in shaping what the company is today. “In the early days, there weren’t that many that believed in Tom’s vision for synthetic biology,” says Che. Knight had an early start at MIT; he started taking classes there in high school, and later on became a professor at MIT before going back to take undergraduate courses in biology. Given Knight’s background in computer science and engineering, he was coming into the field of biology with a different problem-solving approach than most biologists. He wanted to use biology as a technology, not just a system to study. “The way he’d say it, the biologists are out there to look for complexity, and if you find something interesting, you can write a paper about it. That’s the dream of a biologist — to find something new and complex and write a science paper. But the job of an engineer is to get rid of that complexity. [The engineer] wants it to be understandable, repeatable, and boring.” And so, with the combined ingenuity of Tom Knight and the Ginkgo team, the startup crew was gearing up for some promising new ideas.

WHEN THE BOOTSTRAPPING PAID OFF

2014 was an exciting year for the startup — after six years of experimentation, rejection, and bootstrapping, things finally began to change. For one, joining Y Combinator brought the right kind of exposure to their company. The team was able to pitch their ideas to a new audience of investors that were more open to and interested in their vision than any previous biotech investor. Gingko, at last, was getting inbound projects from customers. And of course, 2014 was also when TSVC discovered the company. Things were finally taking off.

What caught TSVC’s attention was one of Ginkgo’s earlier projects — using synthetic biology to engineer flavors and fragrances that are usually derived from a natural source, like plants — which had significant potential in changing the industry. Whatever nature’s biological or chemical processes could make, the team sought to replace it with biological systems created in the lab. “The problem with [deriving flavors and fragrances from plant extracts] is it’s really inefficient to grow a plant,” explains Che. Instead, the goal was to be able to have on-demand production of these products using microbes instead of relying on nature to produce the necessary ingredients, which could pave the way for cutting huge costs and saving resources. The idea of using microbes to produce what would usually come from natural biological or chemical processes, however, isn’t new — it’s been long used in the pharmaceutical industry to create insulin, for example. But that’s where Gingko was diverging from; their goal was to apply the on-demand production of microbes to as many different industries as possible.

GINKGO’S SMORGASBORD OF PROJECTS

Today, Ginkgo Bioworks is doing just that. While other synthetic-bio companies create products and brands to sell to customers, Gingko offers itself as a platform for customers to decide what they want to create. “What we’re trying to do is to engineer organisms, program cells, and to be able to do that for a wide range of industries.” With that approach, the possibilities are endless. The team’s scope of work has burgeoned into a whole network of different projects. Just to name a few, they’ve partnered with Synlogic to engineer probiotics to treat disease. Their collaboration with Allonia is developing new ways to manage waste. Their joint venture with Bayer Crop Science aims to reduce the use of chemical fertilizers. They’ve also joined with Motif Ingredients to make veggie burgers taste better. “Those are all the applications, but at the core of what’s common to all that is that they use the same A’s, C’s, G’s, and T’s of DNA…. We have the best organism designers, and the ability to synthesize and test a bunch of constructs and reuse these parts across [different projects]. So, as we do more and more projects, we get better in all these different areas.” In March 2020, they also committed their resources to support the fight against Covid-19. Much like the organisms they engineer, Ginkgo Bioworks will continue to adapt and respond to our world’s problems as they find innovative minds to partner with.

THE POTENTIAL WE’RE EXCITED ABOUT

Some say the industrial age is coming to a close, making way for a new age of biological engineering. Along with already starting to help solve our planet’s pressing issues in waste remediation, agriculture, biosecurity, the food industry and more, we are looking forward to the potential ways in which Gingko Bioworks will expand its impact in as many different industries as possible. “Gingko Bioworks is the AWS (Amazon Web Services) for biology,” explains TSVC’s founding partner Eugene Zhang, who recognized the potential of Gingko Bioworks the moment he heard their story. Much like the way cloud computing provides on-demand delivery of IT resources via the internet and offers a platform for customers to build anything they want, our Silicon Valley minds saw that the Organism Company could imitate this — but with biological systems.

Although the company has some manufacturing capabilities, currently it isn’t their core. “[Creating product and brand] is not the direction we’ve been focused on, for better or for worse. We want to be the platform. We want to be agnostic to the industry and not go that far if we can. I would distinguish us by how much Gingko is a platform compared to other companies. We are not trying to develop our own products and put them out there, but to allow the ingenuity of what the customer wants to take, and sort of be agnostic to that.” While that may be their current approach, it doesn’t mean that our tech-minds here at TSVC didn’t recognize its manufacturing potential — it could become the TSMC for biotechnology. Given the variety of their projects, synthetic biology companies like Gingko Bioworks have the potential to manufacture cells and organisms for many applications, much like the way TSMC manufactures and mass produces complex computer chips for clients around the world. And even if they don’t become the manufacturers, they’d still be the original designers of these biological chips that could become so ubiquitous in our daily lives that we hardly realize they’re there. Just as Tom Knight said, “The interesting thing to program in the 21st century isn’t going to be computers — it’s biology.”

Ginkgo Bioworks: How the Organism Company Grew Up was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

Sometimes, when we rifle through our bag for cash to pay for a latte, I wonder if there will be a day in my lifetime when I’ll miss the feel of a wrinkled dollar bill in my hand. Even before Covid-19 pushed consumers to seek less corona-risky ways of making transactions, touchless payment was already trending in Europe, Asia, and North America. In China especially, cashless solutions have taken off. As opposed to spending habits in the US, the credit card trend was practically skipped altogether in China as citizens have preferred the ease of WeChatPay, AliPay, and UnionPay with their mobile banking solutions, eliminating the need for a physical wallet altogether. Lightening the load even more, Alipay’s facial recognition payment technology was released in hospitality locations like bakery WeiDuoMei, where a customer just needs a few seconds for the specialized device (which resembles a giant iPhone) to pay for their baked treats. No wallet or cellphone required — just a smile. US consumers, on the other hand, have remained reluctant to adopt this new technology. Companies like Paypal have long had their sights set on expanding into retail businesses with touchless payment, but with US spending habits lagging behind in new tech trends, that idea has been on hold.

Moving Away From Credit Cards

Over the years, America has lagged behind in adopting contactless payment technology. As mentioned previously, this 20-year-old technology has already gained massive popularity in Asia, and has especially bloomed in China and South Korea. The world’s first contactless payment system was actually launched in Seoul for transit purposes in 1995, offering riders a quick and easy way to pay for bus trips without the hassle of carrying change. In fact, according to a 2018 report from consultancy firm A.T. Kearney, roughly 20% of the transactions in Australia, Canada, South Korea and the UK already use contactless payment. So why have Americans been so slow to adopt this clearly relevant technology?

America’s predisposition to payment cards could be one of the most prominent explanations to this trend. In general, Americans have become accustomed to paying with credit cards, lessening the need for contactless payments. Also, the fragmented nature of the American market and its infrastructure has made it difficult for contactless payments to be universally incorporated as quickly as some other countries. Despite this state of affairs, the US is slowly but surely coming to terms with the fact that contactless payments are, in fact, the way of the future. The global pandemic has forced Americans to realize the benefits. It has unleashed the germaphobe within every one of us, causing people to reach for the hand sanitizer as soon as they’ve touched a dollar bill. Although the pandemic has certainly taken a heavy toll on a large amount of businesses and industries, it has boosted the American adoption of contactless payment technology by a substantial margin.

The Big Break

Covid-19’s impact on spending habits may be the break companies like Paypal — and the US mobile banking sector — have been waiting for. According to the NRF, usage of touchless payment is up 70% since January 2020 in the states. Since acquiring Venmo in 2013, Paypal has yet to see the popular peer-to-peer app turn into the money machine they’ve hoped for. But with the pandemic creating proper conditions for expansion into retail with touchless payment technology, Paypal’s opportunity to take on the retail frontier and plug in Venmo’s forty million plus users has finally arrived, and their game-changing ambitions are being backed by leading mobile payment and commerce solution provider, Citcon, a company TSVC supported back in 2016.

Enter CITCON — the Engineers of US Mobile Banking

Right now, Venmo’s consumer-facing platform isn’t tailored to handle day-to-day retail and hospitality transactions; local taxes and fees as well as tipping servers go unaccounted for in its peer-to-peer payment system. That’s where Citcon comes in — by creating Venmo’s QR-based backend technology for businesses, merchants can have the customer’s payment go directly into the POS system by scanning their Venmo QR code. With Citcon’s help, millions of WeChatPay, AliPay, and UnionPay users will be able to use their preferred mobile wallets at US retail locations.

Heading Towards Our Future’s Seamless Commerce

The digitization of all walks of life is continuing to change our day-to-day habits at a break-neck pace. Being able to adapt to change with industry leading and customer favored solutions is a necessity for merchants to capitalize on the market’s growing demands, said CEO, Chuck Huang when Citcon raised five million dollars in 2019 to power their global expansion of mobile payments. And not to mention the other benefits — reduced tax evasion and money laundering crimes, fewer cash robberies, and saving some of our planet’s dwindling greenery, just to name a few. With Paypal’s millions of built-in users and Citcon’s tech-savvy support, the duo is moving forward to pave the way for the world’s clean, seamless, and efficient global commerce.

How Citcon and Paypal Are Teaming Up to Power America’s Touchless Payment Systems was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

The global digital health market size reached US$106 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 27.7% from 2019 to 2025. Money has been poured into the healthcare sector as deals and dollars set new records.

Digital Health Defined

Different terms such as digital health, e-health, mHealth, and telehealth have been used in the field which can sometimes cause confusion. Let’s clarify a bit first.

The term “digital health” originally referred to the use of interactive media, tools, platforms, applications, and solutions on the Internet to address health concerns of providers as well as consumers. While mHealth emphasizes the use of mobile phones in healthcare, telehealth means using technology to remotely deliver clinical health services to patients. According to the FDA, “the broad scope of digital health includes categories such as mobile health (mHealth), health information technology (IT), wearable devices, telehealth and telemedicine, and personalized medicine.” CBinsights, a popular business database and analytics platform, includes over 8,000 digital health companies globally in its digital health database.

We understand digital health as the use of information and communication technologies (ICT) in healthcare to improve medical diagnosis, disease treatment, and health care delivery for individuals. The long existing and newly emerging ICT tools include software, platforms, cloud computing, sensors, voice technology, 5G, AI, blockchain, etc., and can combine a few elements together to take the forms of wearable devices, telemedicine, mobile health, genetic testing, etc., developing into cyber-physical systems similar to those in industrial electronics.

Why digital health

Digital health can help supplement the growing demand for physicians. According to AAMA, there will be a shortage of 120,000 physicians in the US by 2030. Therefore health systems — hospitals, clinics, and post-acute care facilities — are turning to digital health to combat labor shortages.

Another benefit of digital health is that it can provide solutions in saving costs. Healthcare costs have been skyrocketing, with U.S. health care spending having reached $3.81 trillion in 2019 — 17.8% of GDP. An analysis of 14 randomized controlled clinical trials with a total of 4,264 patients showed that remote monitoring systems decreased hospital readmission rates by 21% and all-cause mortality by 20%.

The emergence of value-based healthcare promotes the reimbursement model that ties payments for care delivery to the quality of care provided and rewards providers for efficiency and effectiveness. Governments have taken major steps to reduce friction for businesses offering digital health. For instance, in March 2019, US government officials relaxed privacy restrictions under the Health Insurance Portability and Accountability Act (HIPAA) to allow Apple, Google, and Microsoft to facilitate virtual doctors’ visits through their existing chat and video apps, including FaceTime and Skype.

Finally and most urgently, the disastrous pandemic has become an unexpected catalyst pushing both providers and patients to seek digital solutions to maintain social distancing. CMS has broadened access to Medicare telehealth services so that beneficiaries can receive a wider range of services from their doctors remotely. FDA also approved virtual clinical trials to allow for ongoing drug development while facilities are closed down.

Why Healthlane

These discussions apply well to medical demands in Africa. Problems caused by the pandemic and the long-lasting severe shortage of doctors and quality medical services are driving digital health solutions and innovations in Sub- Saharan Africa especially, facilitated by the increasing prevalence of mobile phone usage.

Problem and product

In the Y Combinator Winter 2020 batch, a startup named Healthlane came into our sight. Founded in 2019, Healthlane offers both online and offline healthcare services in Africa. It has operations in 5 cities and 28 locations in Cameroon and Nigeria. Healthlane started with focuses on pregnancy, pediatric and chronic diseases, where the need is prevalent and consistent, and demand is relatively inelastic during the pandemic. In the overburdened public hospitals, pregnant women or other patients often have to wait 5 to 6 hours for a medical visit. The startup can help patients book fast track appointments in public medical facilities, significantly reducing patients’ visiting times and increasing hospital efficiency. Considering the current doctor to patient ratio in Africa is 1:5000 with every physical-site doctor visit, the company will further offer digital consultancy by assigning specific doctors for patients to provide high quality healthcare and disease prevention.

Business model

Modeling after Ping An Good Doctor (1833:HK, with a market capitalization of more than US 15 $billion) in China and One Medical in the US, Healthlane will ultimately serve as a personal health record aggregator that covers full spectrums of records — including medication, lab testing results, health insurance claims and patient electronic health records. The demand for online healthcare platforms in Africa is paramount. It’s comparable to Ping An Good Doctor for the Chinese market in this sense. Healthlane has already formed partnerships with local hospitals and adopted a revenue sharing model with local hospitals that can highly incentivize them by bringing extra revenue streams. The current business model also intensively uses existing hospital resources, including midwives, staff, and facilities. Sharing 50% of the consultation revenue with hospitals, HealthLane is able to quickly on-board hospitals with its effective go-to-market strategy in about a week’s time. They reached a net revenue of $51K in February 2020. They claim to have $0 CAC, while One Medical CAC is around $600. However, the estimation of $0 CAC ought to be taken with a grain of salt since costs might be under-calculated by Healthlane, but it does evidence much lower customer acquisition efforts needed and more promising profit margins.

Team and risks

Healthlane was founded by two African-native entrepreneurs. The CEO, Alain Nteff, had experience in building and selling EHR systems to the African government. As our first Africa-based startup in our fund’s portfolio, there are a few risks to consider. First of all, the African market is completely new to us. Although the potential is huge, there are a lot of unknown factors. Regulations can also be a challenge. Going to different countries in Africa may require more domain knowledge regarding regulations and know-hows, especially for their interactions with local hospitals. COVID-19 has reached Africa and we don’t know yet how well it can be controlled. Online doctor services may offer solutions as more people would prefer using online options and/or get VIP healthcare services instead of waiting in the long hospital lines. For us, collaborating with a team 10,000 miles away could still be an obstacle even with digital communication. On the upside, its offline fast track medical service continues to flourish, highlighting the uniqueness of the African market.

By the end of Q2 2020, Healthlane had over 60,000 medical consultations done across 30 locations in Nigeria and Cameroon, generating $307,000 in revenue. It achieved +620% Y/Y growth in the midst of the pandemic despite more than half of the team members contracting COVID-19 (thankfully, they have all recovered).

Ultimately, we have chosen to put down our money to support the dedicated young African entrepreneurs who have deep passion and grandiose dreams to bring improved and affordable healthcare to Africa. We wish Healthlane all the best.

HealthLane: Get quality and affordable healthcare in Africa was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

We are living in the age of data. Growth in the world’s available data since 2000 has been impressive, but the ability to turn data into value has been far greater. With artificial intelligence, machine learning, and a collection of data technologies, the scope of data science is expanding at a rate we can hardly keep up with.

I’ve lost count of the number of startups I’ve met that promise to “disrupt industry_foo using AI.” They’re all right about one thing: the industries they’re targeting are going to be reinvented in the 2020s — whether by these startups, by their competitors, or by the incumbents they’re trying to displace. Data science has already begun transforming dozens of industries, and what’s been done so far represents a tiny fraction of what’s possible. Intelligent use of data can make a real dent in some of our world’s biggest problems, like improving health outcomes, economic prosperity, physical and information security — the list goes on.

But here’s the thing: data science is still science. Meaning that for every new problem, there’s still a need for scientists who develop hypotheses and run experiments to test those hypotheses.

A data scientist’s hypothesis is a model, and each experiment tests how well a model predicts the real world. Like other sciences, in data science your first hypothesis might be proven right, or you might make ten attempts, or a hundred, before finding one that works. And like in other sciences, a hypothesis being “right” means it predicts the real world better than other hypotheses, but no predictor is ever perfect. However good your model is, another more accurate, more efficient hypothesis may come along tomorrow. A data scientist will improve a model until it’s accurate enough, or efficient enough, but has never had a way of knowing how much better it could be. Because there hasn’t been a way to see how good models are, data scientists also haven’t known when to stop improving them.

Until now.

Enter Brainome, a company TSVC invested in earlier this year.

Based on the research of Dr. Gerald Friedland, Brainome has a tool that makes data scientists dramatically more productive.

Gerald started out researching a key problem in data science: what is the lower bound on how efficient a model can be while still being accurately predictive? What he discovered in working with hundreds of real-world datasets is that it’s a lot smaller than people think. He took these datasets and the applied models, and proved there are equally accurate models that are ten to a hundred times smaller. That alone is a huge step forward — knowing that a better model exists is helpful in deciding whether or not to create it. The company has since made three even more revolutionary advances:

1) They’re able to measure the relative contribution of different features in the dataset, pre-training. For many problems and datasets, Brainome reduces feature-engineering time from days to minutes.

2) They can evaluate a dataset for sufficiency, answering the questions “do I have enough data to build a model that’s worthy?” and “do I need all this data or does a subset suffice?” This step also can be done pre-training.

These two capabilities mean that, instead of an iterative cycle of compute-intensive auto-ML experiments, a data scientist can use Brainome to fully characterize the dataset before investing in any sort of training.

3) And the pièce de resistance: Brainome’s developed a way to construct a radically efficient model from the given dataset.

Well, let me put it in business terms: companies that use Brainome can cut weeks or months off their R&D schedules. Pharmaceutical companies can identify promising drugs faster. Quantitative trading shops can verify new algorithms faster. Adtech companies can adapt faster and deliver better targeting.

CEO and cofounder Bertrand Irissou, himself a veteran of machine learning research [BI1], says the company is challenging the unexamined beliefs that more data and compute power are the answer to data scientists’ problems. Brainome replaces the brute force, state-of-the-art with a “measure-first” approach that’s orders of magnitude more efficient.

TSVC sees a huge opportunity here, and we’re delighted to be a part of Brainome’s journey. If your company uses AI or data science, check them out!

About TSVC

Founded in 2010, TSVC (formerly TEEC Angel Fund) is an early-stage venture capital fund in Silicon Valley. By investing in forward-thinking ideas and cutting-edge technologies, and partnering with exceptional founders, we work toward the common goal of making the world a better place through innovation.

Brainome: Making data scientists 10x more productive was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

Geospatial Data Balloons: The Uplifting Solution to Aerial Monitoring Challenges

With 2020’s unexpected changes disrupting our world and way of life, people all over the planet are feeling the strain as we concede to the new abnormal. The need for new and affordable modes of communication and gathering information is now higher than ever. TSVC’s new program, The Alpha Program, could not have arrived at a greater time — aiming to empower bright entrepreneurs with category defining ideas, the venture capital company is proud to kick-off the first recipient of 150k: Stratodyne, Corp, founded by engineering major and spacecraft innovator, Edward Ge.

Even though Ed and his CTO Amit Pinnamaneni’s days of shooting rockets into the troposphere for giggles are long gone, their lifelong passion for space has yet to fizzle out. Teamed up with fellow UM Columbia students, finance major Bryce Edmonson and aeronautics major Victoria Lofland, the four young colleagues are combining their unique skills to launch Stratodyne to success.

“The thing I like about our team is that…they can do a whole variety of roles,” says Ed, who is currently on a gap year to raise his start-up. “They can be engineers, salespeople, they can help with disbursement — that’s important, especially in a start-up, since you’re limited in how many people you can have.”

Given what the four entrepreneurs are working to accomplish, a savvy, jack-of-all-trades team is exactly what they need. For industries that maintain substantial assets on the ground, such as agriculture, real-estate, forestry, and utilities, aerial data monitoring is a crucial technology that helps prevent billions of dollars in losses every year. Even so, the high cost of utilizing this technology has tethered its potential. With traditional aircrafts and satellites prohibitively expensive and under tight regulations, the needs of our 21st century economy are demanding a user-accessible and affordable solution. Luckily for us, Stratodyne, Corp, is delivering the answer by balloon.

Called StratoSats, these autonomous balloons are getting ready to become the future of aerial data monitoring. “The payload is quite simple,” says start-up founder, Ed. “It’s essentially the same equipment you’d find in a satellite, except it’s being lifted by a balloon.”

But don’t let the straightforward design fool you — the benefits outfly its competitors. Aircrafts and satellites are burdened with numerous costs — the pilot and aircraft itself, its maintenance, and fuel, just to name a few. StratoSats, on the other hand, eliminate those overhead costs and can be manufactured for a fraction of the price. The balloon is made of a UV resistant, temperature resistant, low-gas permeable, polyethylene film that NASA also uses for its balloons. By using additive materials, Ed’s team can further cut costs and enable rapid manufacturing.

The start-up also wants to empower its users by putting the technology directly in their hands. Introduce StratoPortal — a modern, clean interface where users can select different types of data, view current coverage, check platform status, and compare datasets captured through time. The agricultural industry is only one area that would greatly benefit from this technology. Having an early adopter mindset is crucial for survival in this industry, and while corporate factory farms may have access to cutting edge tech, small family farms lose out on this. Despite how vital geospatial data is in agriculture, according to Ed, “There’s nearly 2.1 million farms in the US., but less than 10% of them use services comparable to ours.” Having access to aerial data would help prevent huge losses in crop damage. Ed’s team aims to make StratoPortal as user-friendly as possible, lifting any user to a level of performance they need not just to stay afloat, but to soar.

It doesn’t stop there — Stratodyne has even bigger plans for the balloons. Beyond farming, these devices have extremely strong application in security and surveillance. The StratoSats would be able to hover for months at a time and provide a constant stream of data at an affordable price, compared to the thousands of dollars that flying a drone or aircraft would need to do the same job and for a shorter duration. In fact, someday, one could have access to live geospatial data at all times, all over the world. “Essentially,” Ed says, “We are trying to live stream the entire planet.”

Shocking, but not when you recall that Ed’s childhood dream was to blast through the galaxy in a spaceship, nor when one considers our increasingly techified world. Ed’s parents, both graduates of Zhejiang University, took him to visit NASA when he was a kid. “Beyond my hopes and dreams of playing out StarWars and becoming a jedi,” joked Ed, “I think it’s a new horizon, a new frontier. I think space is possibly the last thing that would unite humanity with a common purpose, and it’s important for our survival as a species.” Big dreams, big ideas — the Stratodyne team has come a long way in crafting an ideal geospatial data system that will provide people with a tool that educates, empowers, and soars to success in the market free of heavy materials and financial weights. Learn more about the team and their ideas at stratodyne.space.

The Alpha Program, Co-founded by TSVC and SAF (Sinovel Angel Fund), awards 150k to entrepreneurs at the pre-seed, alpha stage, who are committed to their category-defining tech ideas and plan to incorporate their company in the US. To apply and receive the resources you need to launch your game-changing designs, visit our website here.

【A for Alpha】 Introducing Architects of Our Future was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

TSVC first connected with Zoom in the startup’s infancy, as the only institutional investor in its initial round of funding. Throughout the years, many have asked us why we bet on the nascent team that became the extraordinary video-conferencing unicorn.

In this article, I’d like to share the start of Zoom’s entrepreneurial journey as viewed from across the table (or, in these days, across the conference call). Indeed, what in hindsight turned out to be such a clear winner — Zoom was 2019’s strongest IPO even before Covid struck — was not so obvious in July of 2011, when we signed the check for $250k.

Let’s first introduce my side of the table. Back then, TSVC was itself a newcomer in the investment community, having just raised our inaugural fund (officially named TEEC Angel Fund). Our investment committee was a small but mighty team of four partners: Eugene Zhang, Chun Xia, James He, and Michael Jin. Among us, we held expertise in network systems, enterprise software, and semiconductors. More importantly, we each had more than fifteen years of business and entrepreneurial experience.

The Chance Meeting

One day in the summer of 2011, on the 4th floor of a Santa Clara office building, I ran into a familiar face. I had met Eric Yuan through HYSTA, an organization for Chinese tech professionals working in the US. He was the 41-year old vice president of engineering at Cisco/Webex — except, to my surprise, he was that no longer!

Apparently, frustrated by the lack of innovation at the then-industry leader in web conferencing, he had quit his (very lucrative) job and started his own venture, Saasbee.

His product?

A new web conferencing platform.

Did he have funding?

Not a drop. Would TSVC be interested in investing?

He sent me his pitch deck, which, like that of many early-stage startups, touted big ideas with scant proof. Saasbee was going to build “Skype 2.0” and be the “poor man’s telepresence”. They planned to build a consumer-focused video chat app in addition to a B2B strategy that better matched their enterprise experience.

Saasbee’s pitch sized the overall “web collaboration” market at $34 billion. This was ambitious, and in a different case we might have divided that TAM into subsegments and evaluated their potential against a smaller portion, but it was evident from Eric’s passion that they intended to solve the problem just as broadly as they had scoped it. (In June 2020, Zoom’s market cap reached $58 billion.)

Still, to make sure I wasn’t blindly smitten, I invited my partner James He to join me for a lunch meeting with Eric. James agreed that there was something there: seeing the urgency with which Eric worked, one got a sense that his vision simply could not wait until tomorrow.

The Decision

Alas, in the unforgiving world of tech startups, passion alone is not enough. Building the next WebEx would not be an easy task, and investors knew it. Saasbee was turned away by almost all the early-stage VC firms it engaged and TSVC ended up as the sole institutional investor in its seed round.

Truth be told, it was not an easy decision for us either.

During the investment committee meeting, my partners and I found ourselves in an intense debate. Saasbee was entering a crowded market dominated by big brands. They had no product and no customer, only a potentially powerful idea that had not yet sprouted feet.

What was more alarming was the stark contrast between Eric’s product development mentality and the zeitgeist of Silicon Valley in the past decade. Most software startups had adopted a “try fast, fail fast” mantra and were building and launching products in iterative cycles as short as 2–3 weeks. Saasbee, on the other hand, chose to focus on building on a deep, high quality tech stack. They projected 9 months to reach beta.

Yet, there was reason for hope.

Chun, the most knowledgeable among us in enterprise software, expressed doubt about their consumer-focused strategy, but sensed that the company could pivot successfully towards the enterprise market. We were also familiar with Cisco‘s habit of acquiring startups that had spun off from its own internal teams. This gave me confidence of having at least one viable, albeit conservative, exit strategy. To top it all off, Eric, the ever-fervent entrepreneur, promised repeatedly and unwaveringly, “Trust me, we will at least bring you a 10x return”.

In the end, we decided to move forward with the investment upon a 3 out of 4 positive vote. The remaining partner abstained due to concerns over the harsh competitive landscape.

An extra note here on the composition of the investment committee. At that time, we had our Fund I, officially named TEEC Angel Fund. The two general partners of the fund were Dr. Chun Xia and myself and later we formed a four-person voting body (investment committee) to vote on investment decisions. Our members’ distinct entrepreneurial perspectives were instrumental to making the final call to invest in Zoom. To this day, TSVC values such balance: we ensure room for different points of view even, and especially, when they diverge. This has served us well over the years, yielding four more unicorns along the way. Stay tuned for future articles in our How to Spot a Unicorn series.

And the Rest is History?

10 months after we wrote the check, Saasbee changed its name to Zoom, de-emphasized its consumer focus, and launched its first product.

They found an early advocate in Wall Street Journal tech columnist Walt Mossberg, who endorsed Zoom’s service after comparing it to offerings by established players like Skype and Google. In particular, he praised its ease of use and reliable streaming across a variety of devices — advantages that would help secure Zoom’s reputation in the following years.

What Zoom had recognized was that existing products were not good enough in fundamental ways, and that solving a few hard technical problems could yield a materially better experience. In this case, the company’s insistence on high quality and steady product development did, truly, win the race.

From 2012 onwards, Zoom enjoyed year after year of steady growth. Eric’s promised 10x return soon turned into a lowball figure while Cisco Webex scrambled to catch up with the idea that slipped through their fingers.

But let’s not call the rest history yet, for even as Zoom has established itself firmly and phenomenally within our present world, it still cannot — and will not — wait until tomorrow.

How to Spot a Unicorn: Walk before You Zoom was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

As the battle against COVID-19 rages on in our hospitals and communities, startups have been faced with increasingly tough decisions as they navigate through its social and economic consequences.

In a virtual town hall meeting this week, partners at our VC firm met with portfolio company CEO’s to discuss the future of funding, the importance of cost structure, and potential opportunities in these uncertain times.

Here, we’d like to share the main takeaways with the broader startup community, where many companies may be facing similar trials.

How will this change the availability of VC funding?

Many VC firms in our network have been slowing down in terms of new investment, while strategically reserving funds to further deploy in existing portfolio companies. Some are “window shopping” — looking but not investing — for the next few months. The lack of in-person meetings adds insult to injury, as getting to know the team is often a key step to closing a deal.

Of course, some VC’s are still active — our team, for example, closed two seed stage deals in March. But even the remaining investors are becoming more selective, with a higher bar for a startup’s traction and financial performance. We also expect to see some downward adjustments in valuation.

In the end, there are always exceptions (especially when things go topsy turvy), but it may be wise to ask prospective investors to share their current stance.

How else can startups get funding then?

Look into debt financing options. The founders at our town hall discussion shared positive experiences obtaining credit lines through Bank of America, Citibank, and WTI. For those with existing loans, some banks are offering more lenient terms such as delayed interest payments. Overall, now is a good chance for startups to further develop their relationship with their bank.

Seek loans and tax benefits through the CARES Act* and other government aid programs.

Summary below:

1.IRS Employee Retention Credit

What: A tax credit worth “50% of up to $10,000 in wages” for qualifying companies (see here for details).

How: “Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.” In certain cases, employers may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

2.SBA Economic Injury Disaster Loan (EIDL)

What: Loans of up to $2M, with a $10,000 advance paid within 3 days of a successful application

How: Apply and submit materials on the linked website.

3.CARES Act Paycheck Protection Program

What: Forgivable loans to small businesses to cover expenses like payroll, rent, and utilities (detailed FAQ here)

How: Starting April 3, 2020, “Apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Visit www.sba.gov for a list of SBA lenders.”

Some implementation details of the CARES Act are still in flux, so we encourage companies to work closely with their legal teams in addition to their bankers, to gain a more holistic understanding on the developing policy. For very young startups, now may also be a good time to build a relationship with external legal counsel.

Finally, as the legislation currently stands, some VC-backed firms may be excluded from CARES aid, but the National Venture Capital Association (NVCA) is pushing lawmakers for more inclusion of VC-backed companies.

Should startups cut costs at the expense of growth trajectory?

In our view, “growth at any cost” is an increasingly outdated concept, the perils of which have been clearly demonstrated by the Wework debacle. In fact, many VC firms are now working to clean up the balance sheets of their portfolio companies and reform lax attitudes towards profitability. The current crisis will likely accelerate this trend.

So, companies that are not yet cash flow positive should re-evaluate their cost structure, or else it may be difficult to raise money in the near future. CEO’s can try this simple exercise: wipe out your entire top line and see how much runway is left. Can you survive 18–24 months, in the worst case scenario, before another round of funding? If not, consider cutting costs.

Derek Wang, founder of business analytics startup Stratifyd, offers the following advice for CEO’s facing the difficult task of shrinking their employee base:

“Be respectful but decisive. Avoid ‘peanut butter’ layoffs. In other words, don’t spread things out across many months. Then, make sure to send the right message to the employees you keep. Provide them with transparency and clarity as soon as possible. This is key to preserving morale.”

Jack Jia, a seasoned VC investor who also runs healthcare startup Musely, shared his own company’s response to the current situation:

“Being in the telemedicine space, we’ve seen recent revenue increases of 3–4x. But we’re still making contingency plans. At some point, people will spend less because their incomes are dropping. We’re flattening our own growth curve, because it’s easier to ramp up than it is to ramp back down.”

Are there opportunities in the chaos?

The current situation is a test of a founder’s creativity and adaptability. Many are finding ways for their company’s expertise to serve urgent needs in the public health response. Others are adjusting their business model to better support their customers, for example, by offering development partnerships with low upfront cost to both sides. For those lucky companies with excess liquidity in the bank, high churn in the market may give rise to hiring and M&A opportunities. Finally, as paradoxical as it may seem in the era of social distancing, now is the time to invest in relationships, with your employees, your customers, and your communities.

Weathering the COVID-19 Storm: TSVC’s Answer 4 Key Questions from Startup CEO’s was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.

TSVC November Newsletter

@Carl Wang （TSVC Investment Partner ）

Overview of Childcare Software Market

The childcare software industry is on the cusp of new transitions that potential investors and entrepreneurs should keep an eye on. It’s a relatively new industry where exciting market players are capitalizing on untapped opportunities.

Childcare management software is also referred to as childcare administrative software and daycare software. The software facilitates pre-school and daycare centers to efficiently complete daily operational activities. The underlying purpose of the tool is to bring childcare facilities and parents on the same page, and also to allow administrative authorities to regulate new tasks for employees.

Although the popularity of the software is rampant throughout the world, most of the major market players are from North America. In fact, the usage of childcare management software is higher in the U.S. than in any other country.

Market Size and Trends

The annualrevenue of the childcare software industry is expected to top $57 billionin 2019. With market growth, the new players are seeking better profit margins. As of now, the market is swarming with 692,722 new businesses. Furthermore, the annual growth rate of 4% is expected to continue until 2024. In addition, the childcare industry provided 1,627,464 jobs in 2019 alone.

The implementation of childcare software revolves around cloud-based and on-premises segmentation throughout North America. However, on-premise has the most significant market share. The majority of the population utilizes the software to have complete control over the activities. Besides, there’s practically no breach or hacking risk attached to the software, which makes it even more ideal.

The cloud-based childcare software, on the other hand, has somewhat different segmentation and market potential. It is expected that the cloud-based approach will take over most of the market in the foreseeable future. Today, the childcare management software market consists of cloud, SaaS, web, mobile, android native, and iOS devices. In terms of revenue growth, North America is projected to have the highest global market share. However, the growth is interconnected with constant technological developments in the region. Additionally, the reliance on smartphones is another crucial factor.

With better integration of mobile devices, the childcare industry will continue to see exciting trends. Contemporarily, the application systems are based on native apps that can be utilized for administrative reasons for better connectivity with parents. And this is where the tracking mechanism of the software takes center stage. Most of the software tools, for instance, offer tracking visibility of children. As a result, parents can check-in and out via smartphone in the blink of an eye.

Customer Profiles

The customer segmentation of the childcare management software consists of parents, daycare centers, and pre-schools.

The most significant factor that companies can leverage for growth is the trust and over-dependency of individual staff.And that’s because these folks often have two jobs and in dire need of a system that can handle toddlers with attentiveness.

Apart from engaging parents, school administrators lean towards the all-in-one applications that cater to their needs. Naturally, head of the schools want the freedom to use software to educate and empower their staff. Administrative officials can create different tuition plans and receive payments from parents. The process to collect payments is also streamlined to avoid errors or duplication of payments.

As security concerns begin to vanish in the minds of the parents, more usage of childcare management software is expected that ensures the utmost confidentiality. The shift pattern of the market also depends on the restrictiveness and applicability of the software. The economic position of women in today’s economy makes childcare management software invaluable.

The concept of the childcare system hasn’t been changed. Instead, the tools are now focusing on those values through new technological advancements. This process is gradually becoming a standard for parents to monitor the daily activities of their children without hassle.

Company Quick Review

1. Kangrootime

Kangrootime was founded in 2015 and has raised $5.5M venture funding. The accessibility of the software is arguably its best component. It can help businesses communicate and bridge the gap between educators and parents. Also, the tool is relatively more affordable for end-users than other market competitors. The clean enterprise dashboard and classroom automation allow parents to form a new level of connectivity.

2. Brightwheel

Brightwheel is one of the newest software platforms for childcare, daycare, and pre-schools. The app is targeted towards administrative authorities that run midsize and small childcare centers. Brightwheel has an excellent attendance tracking mechanism, spontaneous daily reports, and paperless billing. The company is based in San Francisco and raised its Series-B of $21 million in 2018.

3. EZCare

EZCarepioneered child care management software more than 30 years ago, and it is one of the industry leaders. The company provides cloud-based childcare management software that adds better functionality for billing, scheduling, and parents’ connectivity. The software allows parents to make online payments and upgrade a child’s information via mobile or in-person easily. Apart from a multitude of features, EZCare runs an online forum that is highly beneficial for small businesses.

Opportunities and Challenges

Employed single fathers and mothers, for instance, can’t properly take care of their children and ultimately would need childcare service software to fill that gap during the workday. The market players can also capitalize on the low unemployment rate.

Just like social services require job training, childcare apps need to explore more possibilities to support the administrative officials. And since the federal budget in the U.S. is likely to decrease in 2020, it can threaten the growth of the industry as a whole.

Although market saturation of the childcare software industry is plausible, it can create confusion among parents because the majority of the companies offer similar products and services. The changing tide of the market competitiveness may alter the behavior of the parents to avail the services of childcare software.

Recommendations

Software providers should reach for the dominance of a product feature. There is still room to improve mobile integration and improve the functional response of the tools. Cloud-based software will eventually render on-premise software obsolete. Investors in this industry should focus on the growth rate and ability of the childcare management industry to evolve as a whole.

The software has paved the way for better reporting, billing, payment, and scheduling system to boost efficiency & productivity and reduce operational costs. Though the childcare software market might have new regulatory guidelines, there is no doubt that the next generation of software will bring better monitoring and management features for different customers.

🔍TSVC Insights || Childcare Software Industry was originally published in TSVC on Medium, where people are continuing the conversation by highlighting and responding to this story.