India’s path to SaaS leadership is clear, but challenges remain

Manav Garg
Contributor

Manav Garg is CEO and founder of Eka Software Solutions and is founding partner of SaaSboomi and Together Fund.

Software as a service is one of the most important sectors in tech today. While its transformative potential was quite clear before the pandemic, the sudden pivot to distributed workforces caused interest in SaaS products to skyrocket as medium and large enterprises embraced digital and remote sales processes, significantly expanding their utility.

This phenomenon is global, but India in particular has the opportunity to take its SaaS momentum to the next level. The Indian SaaS industry is projected to generate revenue of $50 billion to $70 billion and win 4%-6% of the global SaaS market by 2030, creating as much as $1 trillion in value, according to a report by SaaSBOOMi and McKinsey.

The Indian SaaS industry is projected to generate revenue of $50 billion to $70 billion and win 4%-6% of the global SaaS market by 2030.

There are certain important long-term trends that are fueling this expansion.

The rise of Indian SaaS unicorns

The Indian SaaS community has seen a flurry of innovation and success. Entrepreneurs in India have founded about a thousand funded SaaS companies in the last few years, doubling the rate from five years ago and creating several unicorns in the process. Together, these companies generate $2 billion to $3 billion in total revenues and represent approximately 1% of the global SaaS market, according to SaaSBOOMi and McKinsey.

These firms are diverse in terms of the clients they serve and the problems they solve, but several garnered global attention during the pandemic by enabling flexibility for newly remote workers. Zoho helped streamline this pivot by providing sales teams with apps for collateral, videos and demos; Freshworks offered businesses a seamless customer experience platform, and Eka extended its cloud platform to unify workflows from procurement to payments for the CFO office.

Other SaaS firms stayed busy in other ways. Over the course of the pandemic, 10 new unicorns emerged: Postman, Zenoti, Innovacer, Highradius, Chargebee and Browserstack, Mindtickle, Byju, UpGrad and Unacademy. There were also several instances of substantial venture funding, including a $150 million deal for Postman, bringing the total amount raised by the Indian SaaS community in 2020 to around $1.5 billion, four times the investment in 2018.

India’s path to leadership

While the Indian SaaS community has made admirable progress in recent years, there are several key growth drivers that could lead to as much as $1 trillion in revenue by 2030. They include:

The global pivot to digital go-to-market

The number of enterprises that are comfortable with assessing products and making business decisions via Zoom is increasing rapidly. This embrace of digital go-to-market fundamentally levels the playing field for Indian companies in terms of access to customers and end markets.

California’s gig worker Prop 22 ruled unconstitutional by superior court

In a late Friday night blow to Uber, Lyft and other gig worker-centered companies, a superior court judge ruled that California’s Proposition 22, which was passed in 2020 and designed to overrule the state’s controversial AB-5 law on the employment status of gig workers, violates the state’s constitution.

Frank Roesch, a superior court judge in Alameda County, which encompasses Oakland, Berkeley and much of the East Bay, ruled that the law would limit “the power of a future legislature” to define the employment status of gig workers. The lawsuit was filed by the Service Employees International Union (SEIU) in January, after a similar lawsuit was rebuffed by the California Supreme Court and referred to a lower court.

The court’s decision will almost certainly be appealed and further legal arguments are to be expected.

“Today’s ruling by Judge Roesch striking down Proposition 22 couldn’t be clearer: The gig industry-funded ballot initiative was unconstitutional and is therefore unenforceable,” said Bob Schoonover, President of SEIU California State Council in a statement. “For two years, drivers have been saying that democracy cannot be bought. And today’s decision shows they were right.”

The superior court’s decision is just the latest in a long line of victories and defeats in the battle between companies that heavily rely on gig workers like Uber and DoorDash, and unions and advocates representing workers. Much of the debate centers on the legal distinction between a freelancer and an employee, and to what extent companies are responsible for the care and benefits of their workers.

Such a distinction is big business: Uber, Lyft and other companies spent more than $200 million collectively to push Prop 22 to victory last year. California voters passed the proposition roughy 59% to 41% in what was widely perceived as a major victory for gig worker platforms.

Such fights are not limited to merely Silicon Valley’s home state, however. Earlier this year in the United Kingdom, Uber lost a legal battle over its employment classification decisions and ultimately reclassified tens of thousands of its drivers as workers, a decision which offered them a range of benefits not previously guaranteed.

Updated August 20, 2021 to include a statement from SEIU.

Daily Crunch: Alerzo lands $10.5 million Series A for digitizing Nigeria’s mom-and-pop stores

To get a roundup of TechCrunch’s biggest and most important stories delivered to your inbox every day at 3 p.m. PDT, subscribe here.

Hello and welcome to Daily Crunch for August 20, 2021. The week is finished, but our work to catch up with the torrent of technology, startup and venture capital news is not. Today we have software companies investing in hotels, profitable scooters, at-home rowing machines and TikTok radio? Oh, and apparently Elon is building a robot. It’s a great group of stories! — Alex

The TechCrunch Top 3

  • Microsoft backs OYO: A while back TechCrunch broke the news that Microsoft might back Indian hotel upstart OYO. It was a bit of a wild story, as it didn’t seem to make that much sense. Well, the deal happened. Microsoft has invested $5 million into the company at a $9.6 billion valuation. Notably, that is only a slight discount from the company’s old $10 billion valuation. Next up for OYO is an IPO, we presume.
  • Bird shows improving scooternomics: American scooter company Bird is going public via a SPAC — more here — and we got a look at the company’s most recent financial performance. In short, a shake-up of its operating model has improved its economics, even if the company still has a long way to go to turning a real profit.
  • China shakes up its data privacy rules: For companies, that is, not the state; don’t expect the CCP to start respecting privacy anytime soon. But for companies in the country, a strict new law called the Personal Information Protection Law is coming into effect November 1. Per TechCrunch, the new set of rules will require “app makers to offer users options over how their information is or isn’t used, such as the ability not to be targeted for marketing purposes or to have marketing based on personal characteristics.”

Startups/VC

  • Alerzo raises $10.5M to digitize Nigeria’s economy: Nigeria’s expanding startup scene got another boost today with Alerzo’s latest round. The “B2B e-commerce retail” startup wants to help bring the country’s informal economy online. According to TechCrunch that part of the Nigerian economy is worth some $100 billion.
  • São Paulo-based QuintoAndar puts points on the board for Brazil: What does one do after raising a $300 million round? Well, if you are a Brazilian property technology company, you raise another $120 million. That’s what QuintoAndar just did, at an eye-popping $5.1 billion valuation. The company connects demand and supply in the country’s rental and home markets.
  • For more on Africa’s startup market, head here. And if you want more notes on Brazil, we’ve got you covered.
  • Breef wants to connect brands and agencies: Normally we’d try to make a pun about how we hope that this startup’s life is not, ahem, breef, but we’re more mature than that. Instead, we’ll note that the Greycroft-backed company just raised $3.5 million, and it connects teams at boutique agencies with larger, more long-term contracts with brands than what most freelance platforms offer.
  • Cardiomatics does just what it says on the tin: Yes, Cardiomatics is an electrocardiogram-reading automation company, like you surmised from its name. And it just loaded its accounts with $3.2 million. The company helps “GPs and smaller practices offer ECG analysis to patients without needing to refer them to specialist hospitals,” TechCrunch reports.
  • Rutter is building the Plaid of e-commerce data: API-delivered startups are hot these days. Connecting various services in a particular niche via API is a popular idea as well. And e-commerce is booming. At the intersection of those three trends is Rutter, which just raised $1.5 million and is building a “unified e-commerce API that enables companies to connect with data across any platform.” Very cool.
  • If you need more startup news, we have just what you require on this week’s Equity podcast.

4 common mistakes startups make when setting pay for hybrid workers

In a recent survey, 58% of workers said they plan to quit if they’re not allowed to work remotely.

Startups that don’t offer employees work-from-home flexibility are at a competitive disadvantage, but figuring out how to pay hybrid workers raises a complex set of questions:

  • Should you localize salaries for workers in different areas?
  • How should you pay workers who have the same job when one is WFH and the other is at their desk?
  • Are you being transparent with your staff about how their compensation is set?

(Extra Crunch is our membership program, which helps founders and startup teams get ahead. You can sign up here.)

Big Tech Inc.

  • Peloton wants to get into erging: Do you like the Peloton model, but aren’t interested in stationary biking? Don’t worry, the company is building a rowing machine, it appears. We hope that the machine is a bit safer than the Peloton treadmill turned out to be. Frankly the decision makes sense as erging is popular and healthy and good, and it’s not like folks who row are famous for not having money.
  • Sirius wants to be TikTok cool: This is the “How do you do fellow kids?” meme, but IRL. Sirius, the satellite radio company that is well known in the United States, has launched a radio station that plays songs popular on the social platform hosted by well-known TikTokers. Parents, get ready for rather annoying road trips.
  • Spotify wants to retire shares: Spotify is spending another $1 billion buying its own shares back from the public markets. In short, Spotify is wealthy and generates enough cash to power all of its work without dipping into its reserves. So it is spending some of its extra cash buying back its own stock, which has seen its value decline in recent months.
  • Elon Musk dressed a dude in a suit and promised a future robot: When are we going to stop falling for Elon vaporware? Around when those solar roofs launch, I reckon. This time Tesla chatted about a future humanoid robot. And the company dressed up a human in an unconvincing suit to demonstrate what it will look like? Er, sure. Not that we’re opposed to the tech. We aren’t. But what a weird way to announce a future product.

TechCrunch Experts: Growth Marketing

Illustration montage based on education and knowledge in blue

Image Credits: SEAN GLADWELL (opens in a new window) / Getty Images

We’re reaching out to startup founders to tell us who they turn to when they want the most up-to-date growth marketing practices. Fill out the survey here.

Read one of the testimonials we’ve received below!

Marketer: Fernando Vitti, Nexforce

Recommended by: Raphael Freitas, Intuit

Testimonial: “Fernando is a strategic thinker. He’s a hard-working, data-driven and customer-obsessed individual that really contributed to our company’s growth.”

Community

The cover of "After Cooling On Freon, Global Warming, and the Terrible Cost of Comfort"

Image Credits: Simon and Schuster

Join Danny Crichton on Tuesday August 24, at 3 p.m. PDT/6 p.m. EDT for a Twitter Spaces interview with Eric Dean Wilson, author of, “After Cooling: On Freon, Global Warming, and the Terrible Cost of Comfort.”

Growth roundup: Mail privacy protection and growth marketing beyond the tactics

“Email impacts marketing strategy and enables better overall business success. It’s the lifeblood of an effective multichannel campaign,” says Melissa Sargeant, CMO at Litmus. “However, Apple’s Mail Privacy Protection — announced earlier this summer with its iOS 15 update — attempts to eliminate metrics and data associated with email.”

This week in marketing, Sargeant dives into the changes that Apple is making through the new privacy protection in iOS 15 and how these updates affect marketers. Sergeant leaves no stones unturned, covering the impact on consumers and how marketers can prepare for this. Anna Heim, Extra Crunch daily reporter, interviewed some team members at Ascendant, a London-based agency, about the methods they use when working with startups, no matter what stage they’re in.

Ascendant was recommended to us through our Experts Survey. If there’s a growth marketer that you’ve enjoyed working with, we’d love to hear about them. Please fill out our survey.

Marketer: Jack Abramowitz
Recommended by: Frida Leibowitz, Debbie
Testimonial: “Jack is personable, sharp and overall a super helpful guy. He genuinely wanted to help and started adding value before we even formalized our relationship. Whether it’s making useful intros, or getting into the nitty-gritty details of campaign strategies, he rolls up his sleeves and gets right in the trenches together with the team. He’s really treated our project as his own.”

Marketer: Nate Dame, Profound Strategy
Recommended by: Diana Tamblyn, Danaher
Testimonial: “[I] did a fairly extensive search for a content partner. [I] was impressed with their expertise, their references (I spoke to three), and their growth forecasting.”

Marketer: Kyle Lacy
Recommended by: Natalie Beaulieu, Seismic
Testimonial: “Kyle is a marketing master of none, and successfully built a brand that is fun, engaging and lively out of the otherwise dull ‘sales readiness’ and ‘corporate LMS’ industries. When’s the last time a B2B brand had a llama for a mascot and sent golden llamas to its customers? He leads a team of writers, creatives, performance marketers and more as one cohesive team, fueling Lessonly’s growth through to its acquisition by Seismic. Can’t wait to see what he does at Seismic!”

(Extra Crunch) Apple is changing Mail Privacy Protection and email marketers must prepare: Melissa Sargeant wrote a guest column about email privacy changes and what it means for marketers. Sargeant says, “Litmus data collected from over a billion email opens worldwide found Apple Mail held a 48.6% total share across iPhones, Macs and iPads in June 2021. Though down slightly from April (51.1%), the data still suggests Apple’s Mail Privacy Protection will significantly impact email marketers, entire marketing teams and especially consumers.” Sergeant also covers how marketers can prepare for these changes.

For British agency Ascendant, growth marketing is much more than a set of tactics: Anna Heim spoke with Ascendant, a British growth agency, about their experience working with startups. Gus Ferguson, co-founder of Ascendant tells us, “We also know that probably one of the biggest barriers to growth is marketers being dependent on developers, which are such a rare resource. We address that by implementing marketing frameworks at a basic level of the business whereby marketers are able to at least control basic marketing operations directly.”

Is there a startup growth marketing expert that you want us to know about? Let us know by filling out our survey.

Social platforms wrestle with what to do about the Taliban

With the hasty U.S. military withdrawal from Afghanistan underway after two decades occupying the country, social media platforms have a complex new set of policy decisions to make.

The Taliban has been social-media-savvy for years, but those companies will face new questions as the notoriously brutal, repressive group seeks to present itself as Afghanistan’s legitimate governing body to the rest of the world. Given its ubiquity among political leaders and governments, social media will likely play an even more central role for the Taliban as it seeks to cement control and move toward governing.

Facebook has taken some early precautions to protect its users from potential reprisals as the Taliban seizes power. Through Twitter, Facebook’s Nathaniel Gleicher announced a set of new measures the platform rolled out over the last week. The company added a “one-click” way for people in Afghanistan to instantly lock their accounts, hiding posts on their timeline and preventing anyone they aren’t friends with from downloading or sharing their profile picture.

4/ We’ve launched a one-click tool for people in Afghanistan to quickly lock down their account. When their profile is locked, people who aren’t their friends can’t download or share their profile photo or see posts on their timeline. pic.twitter.com/pUANh5uBgn

— Nathaniel Gleicher (@ngleicher) August 19, 2021

Facebook also removed the ability for users to view and search anyone’s friends list for people located in Afghanistan. On Instagram, pop-up alerts will provide Afghanistan-based users with information on how to quickly lock down their accounts.

The Taliban has long been banned on Facebook under the company’s rules against dangerous organizations. “The Taliban is sanctioned as a terrorist organization under U.S. law … This means we remove accounts maintained by or on behalf of the Taliban and prohibit praise, support and representation of them,” a Facebook spokesperson told the BBC.

The Afghan Taliban is actually not designated as a foreign terrorist organization by the U.S. State Department, but the Taliban operating out of Pakistan has held that designation since 2010. While it doesn’t appear on the list of foreign terrorist organizations, the Afghanistan-based Taliban is defined as a terror group according to economic sanctions that the U.S. put in place after 9/11.

While the Taliban is also banned from Facebook-owned WhatsApp, the platform’s end-to-end encryption makes enforcing those rules on WhatsApp more complex. WhatsApp is ubiquitous in Afghanistan and both the Afghan military and the Taliban have relied on the chat app to communicate in recent years. Though Facebook doesn’t allow the Taliban on its platforms, the group turned to WhatsApp to communicate its plans to seize control to the Afghan people and discourage resistance in what was a shockingly swift and frictionless sprint to power. The Taliban even set up a WhatsApp number as a sort of help line for Afghans to report violence or crime, but Facebook quickly shut down the account.

Earlier this week, Facebook’s VP of content policy Monika Bickert noted that even if the U.S. does ultimately remove the Taliban from its lists of sanctioned terror groups, the platform would reevaluate and make its own decision. “ … We would have to do a policy analysis on whether or not they nevertheless violate our dangerous organizations policy,” Bickert said.

Like Facebook, YouTube maintains that the Taliban is banned from its platform. YouTube’s own decision also appears to align with sanctions and could be subject to change if the U.S. approach to the Taliban shifts.

“YouTube complies with all applicable sanctions and trade compliance laws, including relevant U.S. sanctions,” a YouTube spokesperson told TechCrunch. “As such, if we find an account believed to be owned and operated by the Afghan Taliban, we terminate it. Further, our policies prohibit content that incites violence.”

On Twitter, Taliban spokesperson Zabihullah Mujahid has continued to share regular updates about the group’s activities in Kabul. Another Taliban representative, Qari Yousaf Ahmadi, also freely posts on the platform. Unlike Facebook and YouTube, Twitter doesn’t have a blanket ban on the group but will enforce its policies on a post-by-post basis.

If the Taliban expands its social media footprint, other platforms might be facing the same set of decisions. TikTok did not respond to TechCrunch’s request for comment, but previously told NBC that it considers the Taliban a terrorist organization and does not allow content that promotes the group.

The Taliban doesn’t appear to have a foothold beyond the most mainstream social networks, but it’s not hard to imagine the former insurgency turning to alternative platforms to remake its image as the world looks on.

While Twitch declined to comment on what it might do if the group were to use the platform, it does have a relevant policy that takes “off-service conduct” into account when banning users. That policy was designed to address reports of abusive behavior and sexual harassment among Twitch streamers.

The new rules also apply to accounts linked to violent extremism, terrorism or other serious threats, whether those actions take place on or off Twitch. That definition would likely preclude the Taliban from establishing a presence on the platform, even if the U.S. lifts sanctions or changes its terrorist designations in the future.

General Motors issues third recall for Chevrolet Bolt EVs, citing rare battery defects

General Motors is recalling even more Chevrolet Bolt electric vehicles due to possible battery cell defects that could increase the risk of fire. This latest recall, announced by the automaker on Friday, marks the third time GM has issued the consumer notice for the Bolt.

The second recall, which was issued in July, covered 2017 to 2019 Bolt EVs. Now, GM is expanding that recall to include an additional 9,335 2019 model year Bolts, as well as 63,683 2020–2022 Bolt EV and EUV vehicles.

“In rare circumstances, the batteries supplied to GM for these vehicles may have two manufacturing defects — a torn anode tab and folded separator — present in the same battery cell, which increases the risk of fire,” the company said in a news release. It added that it was working with its cell supplier, South Korea’s LG, regarding the issue.

This recall is expected to cost GM an additional $1 billion — that’s on top of the $800 million the company has already estimated for the prior recalls. Costs associated with fixing defective Bolt batteries made up the lion’s share of GM’s $1.3 billion in warranty expenses last quarter, the automaker said in an earnings call earlier this month.

GM is recommending that included Bolt drivers set vehicle to a 90% state of charge limitation and avoid depleting the battery below a 70 mile range. The automaker also suggests parking the vehicle outside right after charging and not leaving the vehicle charging indoors overnight — likely due to the risk of fire. The National Highway Traffic and Safety Administration released its own recommendation to Bolt drivers to park their vehicles away from their homes to reduce fire risk.

When it comes to diversity in hiring, businesses are their own worst enemy

Jonathan McBride
Contributor

Jonathan McBride is the former global head of inclusion and diversity at BlackRock and previously served as director of the Presidential Personnel Office in the White House.

Rasheed Sabar
Contributor

Rasheed Sabar is co-founder and co-CEO of Correlation One.

Over the past year, companies have continued to make ambitious pledges to address bias and systemic racism in the hiring process. But the track record of previous corporate diversity efforts is shaky at best. Is this time going to be different?

The answer will depend on whether companies are able to look inward to understand and dismantle the long-standing practices that too often keep skilled workers locked out of opportunities. That’s because when it comes to equity and inclusion in hiring, businesses are often standing in their own way.

It’s not that hiring managers and corporate executives don’t want to effect change. Rather, over the past year, well-meaning business and HR leaders invested in short-term, one-time solutions — like hosting events or donating to nonprofits. Make no mistake: Those aren’t necessarily bad ideas. But they’re not systemic and they’re not sustainable. It’s like saying where you’re going on vacation without building the roads you need to get there.

Today’s business leaders are using yesterday’s tactics in an attempt to address tomorrow’s problems.

This reliance on tried-and-true solutions is common across nearly every facet of society — hence the popular proverb that military generals “fight the last war, not the next one.” Today’s business leaders are using yesterday’s tactics in an attempt to address tomorrow’s problems. And if companies don’t take a more strategic, data-driven approach to diversity, we’re going to look back a year from now and find that despite the best of intentions, no more progress has been made.

What will it take to make good on our good intentions and put that systemic change into action? Research — and our own experience as corporate leaders — points to a few potential solutions.

First, stop thinking of the college degree as the best proxy for skills. A body of research indicates that the correlation between educational attainment and job performance is weaker than we might think — and that degree requirements systematically disenfranchise Black and Hispanic candidates.

Not only that, but screening based on a bachelor’s degree automatically leaves out 60% of American workers, including the more than 70 million people without four-year degrees who have the skills to succeed in higher-wage jobs (sometimes called STARs, for Skilled Through Alternative Routes).

Companies can take action right away to address this challenge. That could include new strategies that measure skills directly. IBM has long been a pioneer in this space through its commitment to skills-based hiring, which enables the company to make hiring decisions based on what candidates can do, not the pedigrees they’ve earned.

It could also include following the lead of companies like Capital One, which hires based on aptitude — and provide internal learning and development and on-the-job training opportunities to help new hires learn the skills they need to succeed on the job. The advantages of these approaches are obvious: Hiring based on skills rather than degrees opens up a much wider talent pool, increases value in terms of wages and can lead to more loyal employees and higher retention rates.

Second, recognize that when it comes to how you invest your budget and effort, training is at least as important as recruiting. As the pace of technological change accelerates and the need for digital talent grows, it’s become increasingly clear that talent poaching is an “expensive zero-sum game” that leaves companies scrambling — and paying a premium — for the same small pool of talent.

This challenge is even more acute in the context of diversity and inclusion. If Company X recruits a minority candidate who’s already had a successful career at Company Y, has that really contributed to building a more inclusive workforce in any meaningful way? The net number of workers in the industry is the same — you’re just playing musical chairs with the labor market. That may be appropriate for senior leadership roles, but it will never grow the top of the funnel if the same strategy is applied to entry-level or more junior positions.

The real way to move the needle isn’t simply to commit to hitting diversity numbers for your organization — which all too often incentivizes lateral hiring from competitors — but to provide jobs and career advancement opportunities to those who otherwise are unemployed or underemployed. Investing in training can support these efforts by both expanding the talent pool and giving companies a better return on their investment than traditional recruiting models.

Last but not least, facilitate better communication within the enterprise. No one sets out to build inequitable talent pipelines. But talent-acquisition professionals — like most professionals — have limited time and huge remits. As a result, especially in technology and data-oriented fields, there is a growing disconnect between HR departments that post jobs and the business departments that leverage the talent.

For understandable reasons, HR departments aren’t directly connected to the workflows for specific roles, which often leads to job descriptions that include laundry lists of requirements and look like “buzzword salad.” This ends up turning away the best and the most diverse talent, who often screen themselves out because they don’t meet every single requirement.

Building stronger connections between hiring managers and the rest of the enterprise can help create a clearer understanding of what skills are most important — and keep businesses from screening out qualified candidates before they even get a chance to prove themselves.

Systemic change is never easy. And that’s especially the case in a recovering economy and a tightening labor market, where businesses are under more pressure than ever to fill open roles. But inflection points like this one also create opportunities to think and act differently, rather than falling back on the status quo. From the C-suite to hiring managers and other frontline decision-makers, times of turmoil and transformation may be the best opportunity to translate aspiration into meaningful action.

That’s the challenge that stands before U.S. businesses now: investing in a more systemic approach to equity and inclusion so that we can build a world of work that reflects the values to which we all aspire.

Relativity is pushing back the demo launch of its Terran 1 rocket to early 2022

3D rocket printing company Relativity Space has pushed back the date of the demonstration launch of its lightweight Terran 1 rocket from winter 2021 to early 2022. The company announced the updated schedule on Twitter, while also confirming that the launch will take place out of Cape Canaveral in Florida.

A few updates on #Terran1:

?We’re excited to share that Stage 2 passed cryo pressure proof + hydro mechanical buckling test on our structural test stand. Up next: S1 structural testing!

?Terran 1’s demonstration launch is now set for early 2022 from Cape Canaveral LC-16. pic.twitter.com/nrv1mUCl2t

— Relativity Space (@relativityspace) August 20, 2021

Relativity also said Stage 2 passed its cryogenic pressure and hydromechanical buckling test. Stage 1 structural testing is to follow.

The news of the delay comes just two months after Relativity said (also on Twitter) that the Terran 1 would launch in winter of this year. The rocket that will perform the orbital demonstration flight will not be carrying any payload, but the company has already scheduled a second launch to take place June 2022. That rocket will carry CubeSats to low-Earth orbit as part of NASA’s Venture Class Launch Services Demonstration 2 (VCLS Demo 2) contract.

A company spokesperson told TechCrunch that there is “no one single reason” why the launch date has been pushed back. “Over the past year, Relativity has … refined Terran 1’s architecture, developed a brand new engine and upgraded its material while COVID slowed a few of its processes down,” the spokesperson added. “They updated the demonstration launch to early 2022 so they can better coordinate with partners.”

The launch will mark the world’s first of an entirely 3D-printed rocket. Relativity’s tech has garnered quite a lot of interest from investors — so much that its valuation vaulted to $4.2 billion after a $650 million funding round this summer. In addition to the Terran 1, the company is also developing a second heavy-lift, fully reusable rocket it’s calling Terran R. It aims to launch that rocket as early as 2024.

Peloton’s Android app hints at long-rumored rowing machine

Conducting an APK teardown of the latest version of the Peloton Android app, 9to5Google found evidence the company is preparing the software to support a rowing machine in the near future. The outlet found various code snippets that mentioned a device codenamed “Caesar” and “Mazu.” The latter is a reference to a Chinese sea goddess. Like the company’s stationary bike, it appears the rowing machine will include a “scenic rides” feature that will showcase waterways from around the globe. And if you want to just row, that will be an option too.

Another set of snippets reference the four positions of a proper rowing technique. “This is the drive position of your stroke,” the app explains. “Sit tall on the rower with your arms straight and your back upright. Your knees should be just above the ankles.” Digging deeper into the updated software, 9to5 also found code suggesting the app will track metrics like your average and max stroke rates.

A rowing machine is something Peloton has been rumored to be working for a while now, with a recent job listing mentioning the device. We’ve reached out to Peloton for confirmation, but we’ll note here what we say with all APK teardowns: the fact there’s code pointing to a new hardware release doesn’t mean a company will follow through on that work or that a launch is imminent.

Editor’s note: This post originally appeared on Engadget.

Extra Crunch roundup: Corp dev handbook, Chicago startups, Brazil’s e-commerce landscape

If you’re a founder who finds yourself in a meeting with a VC, try to remember two things:

  1. You’re the smartest person in the room.
  2. Investors are looking for a reason to say “yes.”

Even so, many entrepreneurs squander this opportunity, often because they direct questions or fail to understand their BATNA (best alternative to a negotiated agreement).

“As the venture landscape becomes more a meritocratic environment where resumes and institutional affiliations matter less, these strategies can make the difference between a successful fundraise and a fruitless meeting,” says Agya Ventures co-founder Kunal Lunawat.

Whether you’re already in the fundraising process or plan to be in the future, be sure to read “A crash course on corporate development” that Venrock VP Todd Graham shared with us this week.

“If you’re going to get acquired, chances are you’re going to spend a lot of time with corporate development teams,” says Graham. “With a hot stock market, mountains of cash and cheap debt floating around, the environment for acquisitions is extremely rich.”


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The cover of "After Cooling On Freon, Global Warming, and the Terrible Cost of Comfort"

On Wednesday, August 24 at 3 p.m. PDT/6 p.m. EDT/11 p.m GMT, Managing Editor Danny Crichton will host a conversation on Twitter Spaces with Eric Dean Wilson, author of “After Cooling: On Freon, Global Warming, and the Terrible Cost of Comfort.”

Wilson’s book explores the history of freon, a common refrigerant that was later banned due to its devastating impact on the ozone layer. After their discussion, they’ll take questions from the audience.

Thanks very much for reading Extra Crunch this week! I hope you have an excellent weekend.

Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist

Apple is changing Mail Privacy Protection and email marketers must prepare

Image of a yellow envelope with a red notification dot.

Image Credits: Carol Yepes (opens in a new window) / Getty Images

Apple iPhone, Apple Mail and Apple iPad account for nearly half of all email opens, but the privacy features included with iOS 15 will allow consumers to block marketers from seeing their physical location, IP address and tracking data like invisible pixels.

Email marketers rely heavily on these and other metrics, which means they should prepare now for the changes to come, advises Litmus CMO Melissa Sargeant.

In a detailed post, she shares several action items that will help marketing teams leverage their email analytics so they can “continue delivering personalized experiences consumers crave.”

Let’s make a deal: A crash course on corporate development

Meeting room with a big polished table and arm-chairsOther photos from this business series:

Image Credits: Cimmerian (opens in a new window) / Getty Images

Venrock Vice President Todd Graham has some frank advice for founders at venture-backed startups: “It would be wise to generate a return at some point.”

With that in mind, he authored a primer on corporate development that lays out the three most common categories of acquisitions, tips for dealing with bankers, and explains why striking a partnership with a big company isn’t always the best way forward.

Regardless of the path you choose, “you need to take the meeting,” advises Graham.

“In the worst-case scenario, you’ll get a few new LinkedIn connections and you’re now a known quantity. The best-case scenario will be a second meeting.”

When VCs turned to Zoom, Chicago startups were ready for their close-up

The pandemic failed to slow the momentum of venture capitalists pouring money into startups, but Chicago stands out as an “outlying benefactor of accelerating venture capital activity and the rise of remote investing,” Alex Wilhelm and Anna Heim write for The Exchange.

When the world shut down and it didn’t matter if you were in NYC or SF (because everyone was on Zoom), the Windy City was ready to present itself as the venture champion of the Midwest.

What does Brazil’s new receivables regulation mean for fintechs?

Female hand holding brazilian money (Real/Reais)

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The Brazilian Central Bank made a major reform to the way payments are processed that may throw the doors open for e-commerce in South America’s largest market.

Historically, merchants who accepted credit card payments had two options: Receive the full payment distributed over two to 12 installments, or offer a deep discount to receive a smaller sum up front.

But in June 2021, the BCB created new “registration entities” that permit “any interested receivables buyer/acquirer to make an offer for those receivables, forcing buyers to become more competitive in their discount offers,” says Leonardo Lanna, head of payment products at Monkey Exchange.

The new framework benefits consumers and sellers, but for the region’s startups, “it opens the door to a plethora of opportunities and new business models, from payments to credit.”

As its startup market accelerates, Brazil could be in for an IPO bonanza

An inflow of VC dollars, notable acquisitions and rising unicorn counts are all features of the Brazilian tech startup market, Anna Heim and Alex Wilhelm note in The Exchange.

“The IPO market in Brazil is changing,” they write. “TechCrunch noted last year that in the decade leading up to 2020, just two of the 56 IPOs in Brazil were technology companies. More recently, the number of technology companies listed in the country has swelled to at least 16, up from just four in 2019.”

Insider hacks to streamline your SOC 3 certification application

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“For good reason, security certifications like the SOC 3 really put you through the wringer,” Waydev CEO Alex Cercei writes in a guest column.

Waydev, a Git analytics tool that helps engineering leaders measure team performance automatically, just attained the SOC 3 certification.

“We learned so much from the process, we felt it was right to share our experience with others that might be daunted by the prospect,” Cercei writes.

“So here’s our advice on how teams can smoothly reach an SOC 3 while simultaneously balancing workloads and minimizing disruption to users.”

Dear Sophie: Tips on EB-1A and EB-2 NIW?

lone figure at entrance to maze hedge that has an American flag at the center

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Dear Sophie,

I’m on an H-1B living and working in the U.S. I want to apply for a green card on my own. I’m concerned about only relying on my current employer and I want to be able to easily change jobs or create a startup. I’ve been looking at the EB-1A and EB-2 NIW.

I’m not sure if I would qualify for an EB-1A, but since I was born in India, I face a much longer wait for an EB-2 NIW.

Any tips on how to proceed?

— Inventive from India

How to establish a health tech startup advisory board

Most startups could use an advisory board, but in health tech, it’s a core requirement.

Founders seeking to innovate in this area have a unique need for mentors who have experience navigating regulations, raising capital and managing R&D, to name just a few areas.

Based on his own experience, Patrick Frank, co-founder and COO of PatientPartner, shared some very specific ideas about who to recruit, where to find them and how to fit them into your cap table.

“You want to leverage these individuals so you are able to focus on the full view of the company to ensure it is something that both the market and investors want at scale,” says Frank.

Crypto world shows signs of being rather bullish

There’s no shortage of tech news to analyze, Alex Wilhelm notes, but this week, he took a fresh look at crypto.

How come?

“Because there are some rather bullish trends that indicate the world of blockchain is maturing and creating a raft of winning players,” he writes.

4 common mistakes startups make when setting pay for hybrid workers

Organization Chart or Organizational Graph for Human Resources

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In one recent survey, 58% of workers said they plan to quit if they’re not allowed to work remotely.

Startups that don’t offer employees work-from-home flexibility are at a competitive disadvantage, but figuring out how to pay hybrid workers raises a complex set of questions:

  • Should you localize salaries for workers in different areas?
  • How should you pay workers who have the same job when one is WFH and the other is at their desk?
  • Are you being transparent with your staff about how their compensation is set?

SiriusXM launches ‘TikTok Radio,’ a music channel featuring viral hits hosted by TikTok stars

If viral TikTok songs like Dr. Dog’s “Where’d All the Time Go?” or Bo Burnham’s “Bezos I” weren’t already stuck in your head on loop, now they could be. Today SiriusXM launched a TikTok Radio channel, which features TikTok creators as channel hosts. The station is designed to sound like a “radio version of the platform’s ‘For You’ feed,” Sirius XM said.

SiriusXM, parent company to Pandora, announced this music channel in May, teasing the launch with curated Pandora playlists from influencers like Bella Poarch, whose lipsync video of Millie B’s “Soph Aspin Send [M to the B]” is the most liked video on TikTok.

With its TikTok partnership, SiriusXM is looking to capture a younger audience — on the TikTok app itself, DJ Habibeats (@djhabibeats) and DJ CONST (@erinconstantineofficial) will each go live on TikTok each week while DJing on TikTok Radio. Other creator hosts on TikTok Radio — like Billy (@8illy), Cat Haley (@itscathaley), HINDZ (@hindzsight), Lamar Dawson (@dirrtykingofpop) and Taylor Cassidy (@taylorcassidyj) — will deliver “The TikTok Radio Trending Ten,” a weekly countdown of songs trending on TikTok. To promote the station during its first week, artists like Ed Sheeran, Lil Nas X and Normani will appear on air.

Music has such a strong footing in TikTok culture that it regularly influences the Billboard charts — Fleetwood Mac’s “Rumours,” originally released in 1978, appeared in the top 10 Billboard albums again in 2020 after it was featured in a viral TikTok. Even a Fortnite-themed parody of Estelle’s “American Boy” — originally uploaded in 2018 to YouTube — had a beautiful moment on TikTok. 

“We’re so excited to launch TikTok Radio on SiriusXM, which opens up artists and creators like this amazing group of hosts to new audiences,” said Ole Obermann, TikTok’s global head of Music, in a statement. “Now SiriusXM subscribers will have a new road to discover the latest trends in music and get a first listen to tomorrow’s musical superstars. The channel captures song-breaking music culture that creates so much joy and entertainment on TikTok through video in an all-audio format.”

Though SiriusXM’s subscriber base continues to expand — it saw a 34% year-over-year growth from last year to now — it still dwarfs in comparison to streaming giants like Spotify, which has 165 million paid users. SiriusXM reported a total of 34.5 million subscribers as of Q2 this year, the most it’s ever had, but even Apple Music and Amazon Music have reported nearly double the subscribers. Pandora has 6.5 million paid subscribers. Over the last few years, SiriusXM and Pandora have struck deals with companies like SoundCloud, Simplecast and Stitcher to become more competitive in both music and podcast streaming. 

Still, other streaming companies have also shown interest in the market of Gen Z-ers on TikTok who want to listen to full versions of the catchy songs they hear in short videos. Apple Music and Spotify both host curated “viral hits” playlists. But a full-time satellite music channel is taking the trend a step further.

 

São Paulo’s QuintoAndar real estate platform raises $120M, now valued at $5.1B

Less than three months after announcing a $300 million Series E, Brazilian proptech QuintoAndar has raised an additional $120 million.

New investors Greenoaks Capital and China’s Tencent co-led the round, which included participation from some existing backers as well. São Paulo-based QuintoAndar is now valued at $5.1 billion, up from $4 billion at the time of its last raise in late May. With the extension, the startup has now raised more than $700 million since its 2013 inception. Ribbit Capital led the first tranche of its Series E.

QuintoAndar describes itself as an “end-to-end solution for long-term rentals” that, among other things, connects potential tenants to landlords and vice versa. Last year, it also expanded into connecting home buyers to sellers. Its long-term plan is to ??evolve into a one-stop real estate shop that also offers mortgage, title insurance and escrow services.

To that end, earlier this month, the startup acquired Atta Franchising, a 7-year-old São Paulo-based independent real estate mortgage broker. Specifically, acquiring Atta is designed to speed up its ability to offer mortgage services to its users. QuintoAndar also plans to explore the possibility of offering a product to perform standalone transactions outside of its marketplace in partnership with other brokers, according to CEO and co-founder Gabriel Braga.

This year, QuintoAndar expanded operations into 14 new cities in Brazil. Eventually, QuintoAndar plans to enter the Mexican market as its first expansion outside of its home country, but it has not yet set a date for that step. Today, the company has more than 120,000 rentals under management and about 10,000 new rentals per month. Its rental platform is live in 40 cities across Brazil, while its home-buying marketplace is live in four (São Paulo, Rio de Janeiro, Belo Horizonte and Porto Alegre) and seeing more than 10,000 sales in annualized terms.

QuintoAndar, he said, is open to acquiring more companies that it believes can either help it accelerate in a particular way or add something it had not yet thought about.

“We’re receptive to the idea but our core strategy is to focus on organic growth and our own innovation and accelerate that,” Braga said.

Why raise more money so soon?

The Series E was oversubscribed with investors who got in and “some who could not join,” according to Braga.

Greenoaks and Tencent, he said, couldn’t participate because of “timing issues.”

“We kept talking and they came back to us after the round, and wanted to be involved so we found a way to have them on board,” Braga said. “We did not need the money. But we have been constantly overachieving on the forecast that we shared with our investors. And that’s part of the reason why we had this extension.”

Greenoaks’ long-term time horizon was appealing because the firm’s investment was designed to be “perpetual capital with no predefined time frame,” Braga said.

“We’re doing our best to build an enduring company that will be around for many, many years, so it’s good to have investors who share that vision and are technically aligned,” he added.

Greenoaks partner Neil Shah said his firm believes that what QuintoAndar is building will “fundamentally reshape real estate transactions, enhancing transparency, expanding options for Brazilians seeking housing, dramatically simplifying the experience for landlords and driving increased investment into real estate across the country.” He also believes there is big potential for the company to take its offering to other parts of Latin America.

“We look forward to being partners for decades to come,” he added. 

Tencent’s experience in China is something QuintoAndar also finds valuable.

“We believe we can learn a lot from them and other Chinese companies doing interesting stuff there,” Braga said.

QuintoAndar isn’t the only Brazilian proptech firm raising big money: In March, São Paulo digital real estate platform Loft announced it had closed on $425 million in Series D funding led by New York-based D1 Capital Partners. Then, about one month later, it revealed a $100 million extension that valued the company at $2.9 billion.

 

A mathematician walks into a bar (of disinformation)

Disinformation, misinformation, infotainment, algowars — if the debates over the future of media the past few decades have meant anything, they’ve at least left a pungent imprint on the English language. There’s been a lot of invective and fear over what social media is doing to us, from our individual psychologies and neurologies to wider concerns about the strength of democratic societies. As Joseph Bernstein put it recently, the shift from “wisdom of the crowds” to “disinformation” has indeed been an abrupt one.

What is disinformation? Does it exist, and if so, where is it and how do we know we are looking at it? Should we care about what the algorithms of our favorite platforms show us as they strive to squeeze the prune of our attention? It’s just those sorts of intricate mathematical and social science questions that got Noah Giansiracusa interested in the subject.

Giansiracusa, a professor at Bentley University in Boston, is trained in mathematics (focusing his research in areas like algebraic geometry), but he’s also had a penchant of looking at social topics through a mathematical lens, such as connecting computational geometry to the Supreme Court. Most recently, he’s published a book called “How Algorithms Create and Prevent Fake News” to explore some of the challenging questions around the media landscape today and how technology is exacerbating and ameliorating those trends.

I hosted Giansiracusa on a Twitter Space recently, and since Twitter hasn’t made it easy to listen to these talks afterwards (ephemerality!), I figured I’d pull out the most interesting bits of our conversation for you and posterity.

This interview has been edited and condensed for clarity.

Danny Crichton: How did you decide to research fake news and write this book?

Noah Giansiracusa: One thing I noticed is there’s a lot of really interesting sociological, political science discussion of fake news and these types of things. And then on the technical side, you’ll have things like Mark Zuckerberg saying AI is going to fix all these problems. It just seemed like, it’s a little bit difficult to bridge that gap.

Everyone’s probably heard this recent quote of Biden saying, “they’re killing people,” in regards to misinformation on social media. So we have politicians speaking about these things where it’s hard for them to really grasp the algorithmic side. Then we have computer science people that are really deep in the details. So I’m kind of sitting in between, I’m not a real hardcore computer science person. So I think it’s a little easier for me to just step back and get the bird’s-eye view.

At the end of the day, I just felt I kind of wanted to explore some more interactions with society where things get messy, where the math is not so clean.

Crichton: Coming from a mathematical background, you’re entering this contentious area where a lot of people have written from a lot of different angles. What are people getting right in this area and what have people perhaps missed some nuance?

Giansiracusa: There’s a lot of incredible journalism; I was blown away at how a lot of journalists really were able to deal with pretty technical stuff. But I would say one thing that maybe they didn’t get wrong, but kind of struck me was, there’s a lot of times when an academic paper comes out, or even an announcement from Google or Facebook or one of these tech companies, and they’ll kind of mention something, and the journalist will maybe extract a quote, and try to describe it, but they seem a little bit afraid to really try to look and understand it. And I don’t think it’s that they weren’t able to, it really seems like more of an intimidation and a fear.

One thing I’ve experienced a ton as a math teacher is people are so afraid of saying something wrong and making a mistake. And this goes for journalists who have to write about technical things, they don’t want to say something wrong. So it’s easier to just quote a press release from Facebook or quote an expert.

One thing that’s so fun and beautiful about pure math, is you don’t really worry about being wrong, you just try ideas and see where they lead and you see all these interactions. When you’re ready to write a paper or give a talk, you check the details. But most of math is this creative process where you’re exploring, and you’re just seeing how ideas interact. My training as a mathematician you think would make me apprehensive about making mistakes and to be very precise, but it kind of had the opposite effect.

Second, a lot of these algorithmic things, they’re not as complicated as they seem. I’m not sitting there implementing them, I’m sure to program them is hard. But just the big picture, all these algorithms nowadays, so much of these things are based on deep learning. So you have some neural net, doesn’t really matter to me as an outsider what architecture they’re using, all that really matters is, what are the predictors? Basically, what are the variables that you feed this machine learning algorithm? And what is it trying to output? Those are things that anyone can understand.

Crichton: One of the big challenges I think of analyzing these algorithms is the lack of transparency. Unlike, say, the pure math world which is a community of scholars working to solve problems, many of these companies can actually be quite adversarial about supplying data and analysis to the wider community.

Giansiracusa: It does seem there’s a limit to what anyone can deduce just by kind of being from the outside.

So a good example is with YouTube — teams of academics wanted to explore whether the YouTube recommendation algorithm sends people down these conspiracy theory rabbit holes of extremism. The challenge is that because this is the recommendation algorithm, it’s using deep learning, it’s based on hundreds and hundreds of predictors based on your search history, your demographics, the other videos you’ve watched and for how long — all these things. It’s so customized to you and your experience, that all the studies I was able to find use incognito mode.

So they’re basically a user who has no search history, no information and they’ll go to a video and then click the first recommended video then the next one. And let’s see where the algorithm takes people. That’s such a different experience than an actual human user with a history. And this has been really difficult. I don’t think anyone has figured out a good way to algorithmically explore the YouTube algorithm from the outside.

Honestly, the only way I think you could do it is just kind of like an old-school study where you recruit a whole bunch of volunteers and sort of put a tracker on their computer and say, “Hey, just live life the way you normally do with your histories and everything and tell us the videos that you’re watching.” So it’s been difficult to get past this fact that a lot of these algorithms, almost all of them, I would say, are so heavily based on your individual data. We don’t know how to study that in the aggregate.

And it’s not just that me or anyone else on the outside who has trouble because we don’t have the data. It’s even people within these companies who built the algorithm and who know how the algorithm works on paper, but they don’t know how it’s going to actually behave. It’s like Frankenstein’s monster: they built this thing, but they don’t know how it’s going to operate. So the only way I think you can really study it is if people on the inside with that data go out of their way and spend time and resources to study it.

Crichton: There are a lot of metrics used around evaluating misinformation and determining engagement on a platform. Coming from your mathematical background, do you think those measures are robust?

Giansiracusa: People try to debunk misinformation. But in the process, they might comment on it, they might retweet it or share it, and that counts as engagement. So a lot of these measurements of engagement, are they really looking at positive or just all engagement? You know, it kind of all gets lumped together.

This happens in academic research, too. Citations are the universal metric of how successful research is. Well, really bogus things like Wakefield’s original autism and vaccines paper got tons of citations, a lot of them were people citing it because they thought it’s right, but a lot of it was scientists who were debunking it, they cite it in their paper to say, we demonstrate that this theory is wrong. But somehow a citation is a citation. So it all counts towards the success metric.

So I think that’s a bit of what’s happening with engagement. If I post something on my comments saying, “Hey, that’s crazy,” how does the algorithm know if I’m supporting it or not? They could use some AI language processing to try but I’m not sure if they are, and it’s a lot of effort to do so.

Crichton: Lastly, I want to talk a bit about GPT-3 and the concern around synthetic media and fake news. There’s a lot of fear that AI bots will overwhelm media with disinformation — how scared or not scared should we be?

Giansiracusa: Because my book really grew out of a class from experience, I wanted to try to stay impartial, and just kind of inform people and let them reach their own decisions. I decided to try to cut through that debate and really let both sides speak. I think the newsfeed algorithms and recognition algorithms do amplify a lot of harmful stuff, and that is devastating to society. But there’s also a lot of amazing progress of using algorithms productively and successfully to limit fake news.

There’s these techno-utopians, who say that AI is going to fix everything, we’ll have truth-telling, and fact-checking and algorithms that can detect misinformation and take it down. There’s some progress, but that stuff is not going to happen, and it never will be fully successful. It’ll always need to rely on humans. But the other thing we have is kind of irrational fear. There’s this kind of hyperbolic AI dystopia where algorithms are so powerful, kind of like singularity type of stuff that they’re going to destroy us.

When deep fakes were first hitting the news in 2018, and GPT-3 had been released a couple years ago, there was a lot of fear that, “Oh shit, this is gonna make all our problems with fake news and understanding what’s true in the world much, much harder.” And I think now that we have a couple of years of distance, we can see that they’ve made it a little harder, but not nearly as significantly as we expected. And the main issue is kind of more psychological and economic than anything.

So the original authors of GPT-3 have a research paper that introduces the algorithm, and one of the things they did was a test where they pasted some text in and expanded it to an article, and then they had some volunteers evaluate and guess which is the algorithmically-generated one and which article is the human-generated one. They reported that they got very, very close to 50% accuracy, which means barely above random guesses. So that sounds, you know, both amazing and scary.

But if you look at the details, they were extending like a one line headline to a paragraph of text. If you tried to do a full, The Atlantic-length or New Yorker-length article, you’re gonna start to see the discrepancies, the thought is going to meander. The authors of this paper didn’t mention this, they just kind of did their experiment and said, “Hey, look how successful it is.”

So it looks convincing, they can make these impressive articles. But here’s the main reason, at the end of the day, why GPT-3 hasn’t been so transformative as far as fake news and misinformation and all this stuff is concerned. It’s because fake news is mostly garbage. It’s poorly written, it’s low quality, it’s so cheap and fast to crank out, you could just pay your 16-year-old nephew to just crank out a bunch of fake news articles in minutes.

It’s not so much that math helped me see this. It’s just that somehow, the main thing we’re trying to do in mathematics is to be skeptical. So you have to question these things and be a little skeptical.

Spotify to spend $1B buying its own stock

Music streaming service Spotify today said it will spend up to $1 billion between now and April 21, 2026 to repurchase its own shares. The dollar amount represents just under 2.5% of Spotify’s market cap, with the company valued at $41.06 billion this morning as its shares rose 5.1% following the repurchase news.

The company previously executed a similar buyback program in 2018.

A public company using some of its cash to repurchase its shares is nothing new. Many public companies, including Apple, Alphabet and Microsoft, have active share repurchase programs, and it is common to see mature or nearly mature companies devoting a fraction of their balance sheet or a regular percentage of their free cash flow to buying back their own equity.

The goal of such efforts is to return cash to shareholders. Buybacks, along with dividends, are among the key ways that companies can use their wealth to reward shareholders. Also, by buying their own stock, companies can boost the value of their individual shares. By limiting the shares in circulation, the company’s share count declines and the value of each share consequently rises, in theory, as it represents a larger fraction of ownership in the corporation.

Spotify shares have traded as high as $387.44 apiece in the past 12 months, but are now worth just $215.84, inclusive of today’s gains. From that perspective, seeing Spotify decide to deploy some cash to repurchase its own equity makes sense — the company is buying low.

But if you ask a recently public company what it intends to do with its excess cash, buybacks are not usually the answer. For example, TechCrunch asked Root Insurance CEO Alex Timm if his company intended to use cash reserves to purchase its own equity after its recent Q2 2021 earnings report. Root’s share price has declined in recent months, perhaps making it an attractive time to reward shareholders through buybacks. Timm demurred on the idea, saying instead that his company is building for the long-term. That translates to: That cash is earmarked for growth, not shareholder return.

But isn’t Spotify still a growth company? It certainly isn’t valued on the weight of its profits. In the first half of 2021, for example, Spotify posted net profit of a mere €3 million on revenues of €4.5 billion.

If Spotify is still a growth-focused company, shouldn’t it preserve its capital to invest in exclusive podcasts and the like — efforts that may grant it pricing power in the future and allow for stronger revenue growth and gross margins over time?

To answer that, we’ll have to check the company’s balance sheet. From its Q2 2021 earnings, here are the key numbers:

  • Spotify closed out the second quarter with “€3.1 billion in cash and cash equivalents, restricted cash, and short term investments.”
  • And in the second quarter, Spotify generated free cash flow of €34 million. That figure was up €7 million from a year earlier despite “higher working capital needs arising from select licensor payments (delayed from Q1), podcast-related payments, and higher ad-receivables”.

More simply, despite paying up for efforts that are generally understood to be key to Spotify’s long-term ability to improve its gross margins — and therefore its net profitability — the company is still throwing off cash. And with a huge bank account earning little, thanks to globally low prices for cash and equivalent holdings, Spotify is using a chunk of its funds to buy back stock.

By spending $1 billion over the next few years, Spotify won’t materially harm its cash position. Indeed, it will remain incredibly cash-rich. However, the move may help defend its valuation and keep itchy investors happy. Moreover, as the company is buying its stock at a firm discount to where the market valued it recently, it could get something akin to a deal, given Spotify’s long-term faith in the value of its own business.

Perhaps the better question at this juncture is not whether Spotify is a weird company for deciding to break off a piece of its wealth for shareholders, but instead why we aren’t seeing other breakeven-ish tech companies with neutral cash flows and fat accounts doing the same.