Useful News for You

Two years ago, we talked with Lior Susan, the founder of now six-year-old Eclipse Ventures in Palo Alto, Ca. At the time, the outfit believed that the next big thing wasn’t another social network but instead the remaking of old-line industries through full tech stacks — including hardware, software and data — capable of bring them into the 21st century.

Fast forward, and nothing has changed, not inside of Eclipse anyway. While the world has gone through a dramatic transformation owing to the coronavirus pandemic — never has the U.S.’s crumbling infrastructure been so apparent to so many – Eclipse is backing exactly the same kinds of companies that it always has and with the same size fund. Indeed, after closing its second and third funds with $500 million, the firm quietly closed its fourth vehicle earlier this month with $500 million in capital commitments from predominantly endowments.

This morning, we talked with Susan about Eclipse’s focus on revitalizing old industries that remain largely untouched by tech, and why the pitch of Lior and the rest of Eclipse’s team has never been more powerful. Excerpts from that conversation follow, edited lightly for length and clarity.

TC: Because of where Eclipse focuses, you were long aware of the coming supply chain crises that the pandemic brought to the fore. Have your priorities changed at all as an investor? Did you have a to-do list going into 2020 and has that changed?

LS: Not really. We’ve been saying from inception that the infrastructure that we are living in is 50 to 60 years old across the board. We’ve been all of this time in those social software and fintech, new ideas and consumer trends. But we don’t live in the internet, we actually live in the physical world. And the physical world is not [receiving investment] at all. But much of that innovation can be applied to the world in which we are living, and what we want to do is bring that $65 trillion backstage economy into the digital age.

TC: In this go-go market, not a lot of funds are raising the same amounts as they have previously. Why did you choose to do so?

LS: We have a very specific strategy. We only lead early-stage investments in around 22 companies per fund, we [want] 20% to 25% with our initial check, and we double down on companies that we think are breaking out and try to lead two or three rounds in a row. And we know how to run the spreadsheets and we know how to make an assumption [about] what is the enterprise value we need to create in order to deliver alpha returns, and [that math leads us to] $500 million.

TC:  The last time we’d talked, Eclipse had also helped created and funded a company, Bright Machines, which primarily develops software for robotic systems inside of manufacturing companies. Have you launched any other companies in the last couple of years? I remember you don’t like the word ‘incubate.’

LS: We call it venture equity internally, but basically, we are very thesis oriented, so a lot of our investments start with us [circling around] an investment thesis and an area that we believe is getting really interesting. I’m right now working on a thesis around insurance in the manufacturing space [that will cover] working comp, facilities, assets . . . It [always] will start with a one-page thesis and we’ll talk inside the firm about it, and we’ll go hunt. But we don’t find what we like in a lot of cases. This is where we’re like, ‘Okay, we come from operating backgrounds. Why not roll up our sleeves and figure out how we can go and build these companies?’

You’re right that we did Bright Machines. We’ve also done Bright Insight (an IoT platform for biopharma and medtech that just raised $101 million in Series C funding led by General Catalyst), Chord (a commerce-as-a-service software for direct-to-consumer brands that just raised $18 million in Series A funding), and Metrolink (a new company that helps organizations design and manage their data flows). We’ve done [this model] a [few] times where we didn’t just invest in the company but we’re part of the founding team or we’re carving out assets. We’re trying to keep it very flexible.

TC: Interesting that you couldn’t find an insurance company focused on the manufacturing industry that you like.

LS: We have a lot of theses like that. We see a lot of horizontal business models and tech that [could work well] in the verticals where we’re playing and that we know need solutions. So, can you do a Slack for construction, or can you find the right people to build a Lemonade for manufacturing, or can you find the Shopify for industrial assets or spare parts?

TC: What size checks are you writing?

LS: I’d say $3 million to $4 million initial checks and up to $20 million or $25 million in a Series B, but you will find a lot of our companies where we invested $150 million plus over the lifetime of the company.

TC: Which company has attracted the most from Eclipse?

LS: I’d guess Cerebras [Systems, which reportedly makes the world’s largest computer chip].

TC: What do you make of what we’re hearing from the new administration in the U.S. on the infrastructure front. Do you think it’s talking about pouring money into the right verticals?

LS:  I was on a call with the manufacturing task force on Monday, and I will tell you — without getting into politics at all, because that’s above my pay grade — that the current administration is going to pour hundreds of billions of dollars, if not trillions of dollars, into upgrading the infrastructure of this country. And it’s going to be semiconductors, batteries, manufacturing, industrial infrastructure as a whole . . .

[I think last year’s ventilator shortage made clear] that we’d lost 100% of the manufacturing capabilities of this country and Western countries as a whole. And I think everyone now understands that you’re going to see a massive swing of investment in infrastructure and the only way to do it is through technology, because we actually don’t have a million people here that want to [work on an assembly line].  We actually need automation lines and software and computer vision and machine learning and everything that Silicon Valley is really good at.

TC: You have insight into what’s happening on the semiconductor front through Cerebras and other bets. There’s obviously a huge chip shortage that’s impacting everyone, including the auto industry. How long will it take for supply to catch up to demand?

LS: I think we’re going to see some big changes, but it’s  going to take many, many, many years. This is not software, we cannot bring everything up [to speed overnight] as you actually need fabs and cleaning rooms and assets. It’s pretty complicated.

It’s going to get worse in the next couple of quarters. It’s good for some of our companies that are working on the problem, but overall, as an economy, it’s pretty bad news.

Once the uncool sibling of a flourishing fintech sector, insurtech is now one of the hottest areas of a buoyant venture market. Zego’s $150 million round at unicorn valuation in March, a rumored giant incoming round for WeFox, and a slew of IPOs and SPACs in the U.S. are all testament to this.

It’s not difficult to see why. The insurance market is enormous, but the sector has suffered from notoriously poor customer experience and major incumbents have been slow to adapt. Fintech has set a precedent for the explosive growth that can be achieved with superior customer experience underpinned by modern technology. And the pandemic has cast the spotlight on high-potential categories, including health, mobility and cybersecurity.

This has begun to brew a perfect storm of conditions for big European insurtech exits. Here are four trends to look out for as the industry powers toward several European IPOs and a red-hot M&A market in the next few years.

Full-stack insurtech continues to conquer

Several early insurtech success stories started life as managing general agents (MGAs). Unlike brokers, MGAs manage claims and underwriting, but unlike a traditional insurer, pass risk off their balance sheet to third-party insurers or reinsurers. MGAs have provided a great way for new brands to acquire customers and underwrite policies without actually needing a fully fledged balance sheet. But it’s a business model with thin margins, so MGAs increasingly are trying to internalize risk exposure by verticalizing into a “full-stack” insurer in the hope of improving their unit economics.

This structure has been prevalent in the U.S., with some of the bigger recent U.S. insurtech IPO successes (Lemonade and Root), SPACs (Clover and MetroMile), and more upcoming listings (Hippo and Next) pointing to the prizes available to those who can successfully execute this expensive growth strategy.

Nearly a year after its last layoff, online coding bootcamp Lambda School just announced more cuts amid a broader structuring. In a blog post, CEO and founder Austen Allred said that the startup, which raised a $74 million Series C in August, is laying off 65 employees. 

The roles that were cut span senior product, engineering, design, community management, or instructional staff. There is a Google form for companies to post job opportunities for new Lambda School alumni. 

“We have been working for years on making incentive-aligned education work,” Allred wrote in a tweet. “It’s harder than we initially thought; we’ve had to invent a lot from scratch simultaneously and we have to get a lot of things exactly right.”

Lambda School creates online bootcamps in the career and technical space — and it’s also a pioneer of the ISA, an income share agreement, touting it as a vital way to finance employment-ready education. ISAs essentially allow students to avoid paying upfront fees to attend a bootcamp, and then ultimately pay back class fees through a percent of their future income. A number of startups have taken the ‘Lambda School for X’ format, such as Henry and Microverse. Other companies also offer ISAs such as Pursuit, V School, Launch School, and the Grace Hopper Program, one analysis shows. 

The pandemic, and volatile economic circumstances, have made ISAs a harder route. Allred said that some startups pivoted from the model, but it appears that Lambda School will not. It’s still a hard thing to finance as a startup, since the company is essentially in a waiting game of debt until students pay. The company might be looking at a variety of ways to fund the ISA business, one of which got them in hot water years ago. 

 “We have a lot of interest in purchasing the income share agreements at the point of graduation, from investment funds and that kind of thing,” Allred said back in April 2020. 

We don’t know how exactly the restructuring will look from a strategy perspective, beyond the fact that Lambda School is pausing new enrollment in part-time programs. . Earlier this month, Lambda School announced a new partnership with Amazon: a back-end engineering program that will last for nine months. Since the program is full-time, it is likely not impacted by the restructuring. 

Today’s call by Lambda School illustrates how hard it is to build an edtech company that is truly doing something new. The company has a lot of stakeholders with different incentives to consider: students saving money, businesses making money, and venture capitalists who have given millions and millions to the company expecting some type of exit one day. 

“Despite these changes, our mission remains the same. As we move forward, we will continue to focus on unlocking opportunity, regardless of circumstance, for everyone willing to put in the work,” the blog post reads. Allred didn’t immediately respond to request for comment

Cybersecurity nightmares like the SolarWinds hack highlight how malicious hackers continue to exploit vulnerabilities in software and apps to do their dirty work. Today a startup that’s built a platform to help organizations protect themselves from this by running threat detection and response at the network level is announcing a big round of funding to continue its growth.

Vectra AI, which provides a cloud-based service that uses artificial intelligence technology to monitor both on-premise and cloud-based networks for intrusions, has closed a round of $130 million at a post-money valuation of $1.2 billion.

The challenge that Vectra is looking to address is that applications — and the people who use them — will continue to be weak links in a company’s security set-up, not least because malicious hackers are continually finding new ways to piece together small movements within them to build, lay and finally use their traps. While there will continue to be an interesting, and mostly effective, game of cat-and-mouse around those applications, a service that works at the network layer is essential as an alternative line of defense, one that can find those traps before they are used.

“Think about where the cloud is. We are in the wild west,” Hitesh Sheth, Vectra’s CEO, said in an interview. “The attack surface is so broad and attacks happen at such a rapid rate that the security concerns have never been higher at the enterprise. That is driving a lot of what we are doing.”

Sheth said that the funding will be used in two areas. First, to continue expanding its technology to meet the demands of an ever-growing threat landscape — it also has a team of researchers who work across the business to detect new activity and build algorithms to respond to it. And second, for acquisitions to bring in new technology and potentially more customers.

(Indeed, there has been a proliferation of AI-based cybersecurity startups in recent years, in areas like digital forensics, application security and specific sectors like SMBs, all of which complement the platform that Vectra has built, so you could imagine a number of interesting targets.)

The funding is being led by funds managed by Blackstone Growth, with unnamed existing investors participating (past backers include Accel, Khosla and TCV, among other financial and strategic investors). Vectra today largely focuses on enterprises, highly demanding ones with lots at stake to lose. Blackstone was initially a customer of Vectra’s, using the company’s flagship Cognito platform, Viral Patel — the senior MD who led the investment for the firm — pointed out to me.

The company has built some specific products that have been very prescient in anticipating vulnerabilities in specific applications and services. While it said that sales of its Cognito platform grew 100% last year, Cognito Detect for Microsoft Office 365 (a separate product) sales grew over 700%. Coincidentally, Microsoft’s cloud apps have faced a wave of malicious threats. Sheth said that implementing Cognito (or indeed other network security protection) “could have prevented the SolarWinds hack” for those using it.

“Through our experience as a client of Vectra, we’ve been highly impressed by their world-class technology and exceptional team,” 
John Stecher, CTO at Blackstone, said in a statement. “They have exactly the types of tools that technology leaders need to separate the signal from the noise in defending their organizations from increasingly sophisticated cyber threats. We’re excited to back Vectra and Hitesh as a strategic partner in the years ahead supporting their continued growth.”

Looking ahead, Sheth said that endpoint security will not be a focus for the moment because “in cloud there is so much open territory”. Instead it partners with the likes of CrowdStrike, SentinelOne, Carbon Black and others.

In terms of what is emerging as a stronger entry point, social media is increasingly coming to the fore, he said. “Social media tends to be an effective vector to get in and will remain to be for some time,” he said, with people impersonating others and suggesting conversations over encrypted services like WhatsApp. “The moment you move to encryption and exchange any documents, it’s game over.”

Gr4vy, (pronounced ‘gravy’) is a cloud-native payments company with a “payment orchestration platform (POP)” that merges a Cloud platform with payments infrastructure. It’s also announcing a Series A funding round of $11.1M, led by Nyca Partners (a VC with a bench of partners who are ex-Visa ), with participation from Activant Capital (a fintech investor), Global Founders Capital, and Firestartr bringing its total funding to $12.2M.

So what is Gr4vy tackling here?

Over a video call, John Lunn, founder and CEO of Gr4vy outlined how it works.

He told me that having worked in the payments space since the mid 1990s (Lunn is a veteran of PayPal) he saw the same problem over and over again: every retailer in the world is building the same piece of software.

He said retailers often start with one payment processor, grow and expand, but basically end up building what is now known as an ‘orchestration’ platform. Essentially it’s like an internal router to route your payments wherever they need to go in the world. But the problem is that it all gradually becomes much and more complex to maintain.

He said: “I looked at the problem. I realized we need to create a piece of software that the retailer can run that will mean that payments get out of the way and it can all can be managed and orchestrated the way the retailer wants to do it… I thought there are two ways to do this: you can either get an endpoint SAAS to connect to this. But the more I thought about it, the more I felt like that’s actually not the solution here. We needed to give you something that allows you to do it yourself and fits into your infrastructure. So what we built with Gravy is essentially a cloud, where we spin you up an instance of Gravy on the cloud, wherever, whatever cloud you need it to be on, whether it’s, Google, Amazon, Microsoft, or even in your own data center. That essentially gives you a platform to manage and control how your payments flow, both on the front end and the back end.”

Thus Gr4vy is quite a new idea: it combines Cloud and payment orchestration together on the one platform.

Gr4vy wil compete to some extent with Spreedly and modo. However, Gr4vy claims to be the only payments provider that will spin up a cloud instance for a customer.

It says, this gives a lot of flexibility for managing a payments stack as a company scales and removes a lot of the risks caused by a single point of failure or shared infrastructure. It also means it can be deployed across geographies, putting ‘Edges’ closer to customers. This, says Gr4vy, means fewer abandoned shopping carts, lost payments, and stronger compliance with local regulations. The platform also offers centralized reporting, monitoring, and management.

Lunn added: “We are the only payment orchestration platform built natively in the cloud… Retailers can expand and control their payment stack from anywhere. Gr4vy is also payment service provider agnostic. Retailers can mix and match providers, payment methods and route their transactions without being locked into a single ecosystem.”

So, Gr4vy, acts as a conduit between retailers’ shopping carts and payment providers. By offering instances – says the startup – it can give retailers individualized infrastructure in the cloud.

The launch of Gr4vy comes at a key time for online retailers as the world moves from part online shopping to almost 100% due to the pandemic.

GR4vy says its benefits include flexibility, customized workflows, a PCI1 Certified Gr4vy vault, a universal API, an easy modern checkout, no-code admin and centralized Transaction Reports.

Hans Morris, managing partner of Nyca Partners said in a statement: “Very few people in the world have as much experience and insight in international payments as John and his team. And their vision of what is needed for merchants is spot-on: a cloud-native tool to let businesses orchestrate and optimize their payments using their intuitive interfaces (no engineering!), robust security, and simple, seamless implementation. Much easier than managing today’s menu of complex, multiple payment platforms.”

“As investors focused on the future of commerce infrastructure, we’re eager to continue working with John and the Gr4vy team as they simplify payments orchestration for merchants and marketplaces of all sizes,” added Steve Sarracino, founder and partner at Activant Capital.

Google today announced the launch of Grow with Google Career Readiness for Reentry. The initiative — created in partnership with nonprofits The Last Mile, Center for Employment Opportunities (CEO), Defy Ventures, Fortune Society and The Ladies of Hope Ministries — is designed to offer job readiness and digital skill training for formerly incarcerated individuals.

As the company notes in a blog post today, returning citizens have an unemployment rate 5x higher than the national average — and returning citizens who are Black experience this at an even higher rate, due to discriminatory practices. In all, some 600,000 Americans attempt to make the transition from incarceration to employment every year.

Beginning this year, the initiative is set to train 10,000 people with a combination project-based and video learning curriculum. The learnings revolve around five points, per Google,

1. Getting Started with the Basics
2. Job Search
3. Job Readiness,
4. Online Safety
5. “Next Step” Job Readiness Skills

“Lack of access to digital skills training and job coaching puts formerly incarcerated individuals at a severe disadvantage when trying to reenter the workforce and increase their economic potential,” said YouTube’s Global Head of Human Rights Malika Saada Saar in a statement tied to the news. “We are thrilled to work alongside program partners who have demonstrated true expertise and leadership in supporting successful reentry through digital skills training to men and women, mothers and fathers, impacted by incarceration.”

The company notes that the program is part of a broader initiative that has found it investing $40 million in criminal justice reform nonprofits, as well as $60 million for computer science learning.

Growing up, did you ever wonder how many chairs you’d have to stack to reach the sky?

No? I guess that’s just me then.

As a child, I always asked a lot of “how many/much” questions. Some were legitimate (“How much is 1 USD in VND?”); some were absurd (“How tall is the sky and can it be measured in chairs?”). So far, I’ve managed to maintain my obnoxious statistical probing habit without making any mortal enemies in my 20s. As it turns out, that habit comes with its perks when working in product.

My first job as a product designer was at a small but energetic fintech startup whose engineers also dabbled in pulling data. I constantly bothered them with questions like, “How many exports did we have from that last feature launched?” and “How many admins created at least one rule on this page?” I was curious about quantitative analysis but did not know where to start.

I knew I wasn’t the only one. Even then, there was a growing need for basic data literacy in the tech industry, and it’s only getting more taxing by the year. Words like “data-driven,” “data-informed” and “data-powered” increasingly litter every tech organization’s product briefs. But where does this data come from? Who has access to it? How might I start digging into it myself? How might I leverage this data in my day-to-day design once I get my hands on it?

Data discovery for all: What’s in the way?

“Curiosity is our compass” is one of Kickstarter’s guiding principles. Powered by a desire for knowledge and information, curiosity is the enemy of many larger, older and more structured organizations — whether they admit it or not — because it hinders the production flow. Curiosity makes you pause and take time to explore and validate the “ask.” Asking as many what’s, how’s, why’s, who’s and how many’s as possible is important to help you learn if the work is worth your time.