Author: Natasha Mascarenhas

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Extra Crunch Live: Join Anu Duggal for a live Q&A on August 20 at 11am PT/2pm ET

Rent the Runway and Glossier became unicorns within the same week in June 2019. That same year, only 2.7% of venture capital dollars went toward female-founded companies.

Silicon Valley’s disconnect between the monetary success of female-founded companies and funding them in the first place is disheartening. The conversation is there, but the dollar sign momentum remains missing.

Anu Duggal founded the Female Founders Fund before both were even a tangible reality. In 2014, the entrepreneur launched her first fund to invest in female-led startups. It took her 700 meetings over two years to make that first close, she said. Years later, venture capital has slightly taken note. But the Female Founders Fund, or “F Cubed,” has tracked female-led wins and bet big on the underestimated asset class.

Her early focus on female founders hasn’t evolved, but the landscape has. And in an unprecedented world of remote deals and democratization of venture capital, we’re even more excited to have Duggal join us on Extra Crunch Live this upcoming Thursday at 11 a.m. PT/2 p.m. EST/6 p.m. GMT

Those tuning in and taking notes are encouraged to ask questions, but you have to be an Extra Crunch member to access the chat. If you still haven’t signed up, now’s your chance! With the subscription, you’ll also be able to check out all of our stellar previous guests on-demand (watch those episodes here).

Female Founders Fund has provided seed institutional capital to entrepreneurs with over $3 billion in enterprise value. The firm has cut checks into women-led companies such as Rent the Runway, Billie, Tala, Peanut, Thrive Global and Zola. The fund has also attracted limited partners like Melinda Gates and Girls Who Code founder Reshma Saujani.

Duggal herself has a fascinating trajectory into technology investing. At 25, she started a wine bar in Bombay called The Tasting Room. She went on to get an MBA from London Business School, and co-founded Exclusively.in, an e-commerce company that got acquired by Indian fashion e-commerce company Myntra in 2011.

Hear from Duggal on August 20 about how the investment landscape has changed for female founders, what she thinks of as a success story and if 2020 feels different than 2014. And Extra Crunch fam, make sure to bring your thoughtful questions for me to ask her live on air.

You can find the full details of the conversation below the jump.

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Edtech exits are increasing, but by how much?

Before the coronavirus made edtech more relevant, companies in the sector were historically likely to see slow, low exits. Despite successful IPOs by 2U, Chegg and Instructure in the United States, public markets are not crowded with edtech companies.

Some of the largest exits in the space include LinkedIn’s scoop of Lynda for a $1.5 billion in cash and stock and TPG’s purchase of Ellucian for $3.5 billion.

But both of those deals happened in 2015. Five years later, edtech is cooler and surging — but is it seeing exits? Are Lynda and Ellucian one-off success stories?

2U’s co-founder and CEO, Chip Paucek, said he is optimistic.

“We are a rare edtech IPO,” he told TechCrunch last week. “For a long time in edtech it was either ‘sell to Pearson or not.’”

Despite the sector’s slow past, Paucek said now is a good time to start an edtech company because the sector “is finally starting to hit its stride” with more back-end infrastructure and demand for online education.

This morning, let’s use some data to paint a picture of the landscape of edtech exits and bring some balance to this stodgy stereotype.

Boot the growth

There have been approximately 225 acquisitions in edtech between 2003 and 2018, according to Crunchbase data. RS Components sent me a graph in March to contextualize this timeframe a bit more:

Edtech deals over time. Graph credit: RS Components.

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Labster lands new cash to bring its virtual reality science lab software to Asia

You could Zoom call into your science class, or you could conduct a lab experiment in virtual reality. During the coronavirus pandemic, the latter has never felt more full of potential.

The global need for learning solutions beyond Zoom is precisely why Labster, a Copenhagen-based startup that helps individuals engage in STEM lab scenarios using virtual reality, is growing rapidly. Since March, the usage of Labster’s VR product has increased 15X.

On the heels of this unprecedented momentum, Labster joins a chorus of edtech startups raising right now, and announced it has brought on $9 million in equity venture funding. The round was led by GGV, with participation from existing investors Owl Ventures, Balderton and Northzone.

“COVID-19 has been a great awareness builder of Labster, opening teachers’ eyes to the good sides of online learning as opposed to Zoom-only learning, which is largely failing,” CEO and co-founder Michael Jensen told TechCrunch.

Labster sells its e-learning solution to support and enhance in-person courses. Based on the subscription an institution chooses, participants can get differing degrees of access to a virtual laboratory. Imagine a range of experiments, from understanding bacterial growth and isolation to exploring the biodiversity of an exoplanet. Along with each simulation, Labster offers 3D animations for certain concepts, re-plays of simulations, quiz questions and a virtual learning assistant.

Photo credit: Labster.

While the majority of Labster’s customers are private institutions, the company landed a deal with all of California’s community colleges during the pandemic. The partnership added 2.1 million students to Labster’s customer base, which Jensen said has been bolstered by a broader growth in annual license deals and partnerships.

With GGV on board, Labster is looking to strengthen position in Asia. Breaking into new markets often requires a strategic investor with eyes on the ground on how that market works, thinks and, most importantly, learns. Asian markets are specifically lucrative for edtech companies because consumer spend is higher compared to the North American market.

Jenny Lee, a Shanghai-based partner with GGV, will take a board seat at Labster.

Lee has expressed interest in how automation, virtual and AI-based teachers can help bridge the gap between K-12 markets and lack of good-quality teachers everywhere.

Jensen said that the capital will also be used to bolster the company’s mobile offering, since Asian markets have high mobile usage compared to North American and European markets.

The round is significantly smaller than Labster’s previous $21 million Series B, closed in April of 2019. And it contrasts sharply to the momentum that has benefited edtech companies like MasterClass, Coursera and, reportedly, Udemy into raising nine-figure rounds.

So naturally, I asked Jensen: why the conservative raise?

Jensen says that the $9 million check was a strategic growth check to bring on GGV (all existing investors in Labster also participated in the round). Since being founded in 2012, the company has been relatively conservative in raising cash. To date, inclusive of this round, Labster has raised $40 million in venture capital.

He argues the new money, thus, is offensive capital instead of defensive capital. It’s a strategic check to open a global door.

This isn’t the first time an edtech company has raised a smaller round than expected during the coronavirus pandemic. In April, edtech unicorn Duolingo raised a short $10 million to expand into Asia and bring on General Atlantic as an investor to expand into global markets.

Duolingo, however, is cash-flow positive. Jensen did not comment on if Labster has turned a profit, but adds that it was a “significant up round” that brought the company’s valuation to above $100 million.

“Our primary objectives continue to be rapid growth and global impact, not profits,” he told TechCrunch.

Edtech startups flirt with unicorn-style growth

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Does 👁👄👁 illustrate the power of meme culture in fundraising?

Fundraising was once a formal process.

A decade ago, founders would make pilgrimages to the stodgy investor offices that line Sand Hill Road. Now, as the coronavirus ravages the world and venture capital grows as an asset class, a first “yes” can come from an investor-matching tool built on Notion, or an entire fund can come together over a Zoom call. In this era, Twitter DMs are better for deal flow than walking around a conference.

As startup-land becomes more informal, a new generation of early-stage founders are searching for ways to make the relaxed new world work in their favor. One way this is happening?

Meme culture as a signaling mechanism.

Before Gefen Skolnick, founder of Couplet Coffee, launched her company and Slack channel for underrepresented and underresourced groups in tech, she established credibility in a unique way.

Skolnick was part of the Eye Mouth Eye ( 👁👄👁) campaign that rocked Silicon Valley in June 2020. The cryptic effort was a statement on how FOMO and hype culture dominate venture capital conversations. Participants in the campaign changed their Twitter names, tweeted cryptically and earned more than 20,000 email subscribers for a product that did not even exist.

Skolnick says Eye Mouth Eye gave her a larger platform, which she’s leveraging by stepping up the pace of posting new content and launching products. She said the stunt gave her “sign-offs” from high-profile individuals, and investors have been blowing up her inbox.

“My fundraising experience has just been angel investors DMing me to tell me they’re investing,” she said.

Meme culture, she says, is the “best way the younger generation can showcase their insights, humor and commentary in a more digestible and shareable format.”

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Can learning pods scale, or are they widening edtech’s digital divide?

Lucia, a six-year old, hides from Zoom calls and has rejected every edtech tool from Seesaw to Khan Academy. She will spend all of first grade in quarantine.

Her mother, Claire Díaz-Ortiz, says her daughter fits squarely into the “distance learning death zone.” The idea is that younger children are too young to do distance learning solo, even with tools meant to make it easier. Here’s one kindergartner’s remote fall class schedule:

“And unfortunately for my daughter, I’m a VC, not a Zoom mom,” Díaz-Ortiz said.

The impact of the distance learning death zone, as Díaz-Ortiz calls it, is one of the reasons why many wealthy families with young children are considering a new solution: learning pods.

Learning pods are small clusters of children within the same age range who are paired with a private instructor. Depending on a parent’s preferences, learning pods could be an in-home or virtual experience and be either a full-time school replacement or supplemental learning.

In recent weeks, the concept has taken off all across the country, from suburbs to cities. There’s a Facebook group for Boulder, Colorado school districts; organizers launched Pandemic Pod San Diego to “connect families looking for in-home, teacher-led learning groups.” Some households are offering teachers a retainer. Among working mom groupchats, pods are taking off as a sanity lifesaver, especially as childcare responsibilities fall disproportionately on women.

Startups are pivoting to keep up with the demand for private teachers. But because of high costs, only affluent families are able to form or join learning pods, which may limit the model’s ability to reach scale while extending the existing digital divide.

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The story behind Rent the Runway’s first check

When Rent the Runway co-founders Jennifer Fleiss and Jennifer Hyman got their first term sheet, it had an exploding clause in it: If they didn’t sign the offer in 24 hours, they would lose the deal.

The co-founders, then students at Harvard Business School, were ready to commit, but their lawyer advised them to pause and attend the meetings they had previously set up with other investors.

Twelve years later, Rent the Runway has raised $380 million in venture capital equity funding from top investors like Alibaba’s Jack Ma, Temasek, Fidelity, Highland Capital Partners and T. Rowe Capital. Fleiss gave up an operational role in the company to a board seat in 2017, as the company reportedly was eyeing an IPO.

But the shoe didn’t always fit: Earlier this year, Rent the Runway struggled with supply chain issues that left customers disgruntled. Then, the pandemic threatened the market of luxury wear more broadly: Who needs a ball gown while Zooming from home? In early March, the business went through a restructuring and laid off nearly half of its workforce, including every retail employee at its physical locations.

In 2009, Fleiss and Hyman were successful Harvard Business School students. Hyman’s father knew a prominent lawyer who agreed to advise them on a contingency basis in exchange for connecting them with potential investors.

Still, fundraising “was extremely hard,” Hyman said. “We were in the middle of a recession and we were two young women at business school who had never really done anything before.”

Fleiss said venture capital firms often sent junior associates, receptionists and assistants to take the meeting instead of dispatching a full-time partner. “It was clear they weren’t taking us very seriously,” Fleiss said, recounting that on one occasion, a male investor called his wife and daughter on speaker to vet their thoughts.

In an attempt to test their thesis that women would pay to rent (and return) luxury clothing, Fleiss and Hyman started doing trunk pop-up shows with 100 dresses. On one occasion, they rented out a Harvard undergraduate dorm room common hall and invited sororities, student activity organizations and a handful of investors.

Only one person showed up, said Fleiss: A guy “who was 30 years older than anyone else in the room.”

Old-fashioned meets nontraditional

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Gumroad founder Sahil Lavingia launches new seed fund in collaboration with AngelList

Gumroad founder Sahil Lavingia has teamed up with AngelList to launch his debut $5 million rolling fund to invest in early-stage entrepreneurs.

He is cutting $100,000 to $250,000 checks for startups and has a particular interest in B2B, SaaS, future of work, video, and developer tools. Limited partners include Arlan Hamilton, Josh Kopelman, and AngelList founder Naval Ravikant.

But, here’s the twist: Lavingia raised $5 million using just a Notion memo, a few tweets, and a Zoom call with over 1,800 registrants.

“It’s the power of Zoom and Twitter in the COVID era,” Lavingia said.

Still, two months ago, Lavingia didn’t even know he wanted to be a VC. The entrepreneur has made some angel investments in Lambda School, Figma, Haus, Clubhouse, and HelloSign (which was acquired by Dropbox). Eventually, though, he says angel investing got too expensive for him to do so he stopped.

Then, following George Floyd’s murder, he followed the lead of other investors rushing to invest in Black founders and tweeted this:

As a result of the tweet, he invested in 4 startups founded by Black entrepreneurs. Since some were looking on follow-on capital, he tapped into his network, including AngelList founder Naval Ravikant. Ravikant, seeing the deals, floated the concept of a rolling fund by him.

Rolling funds via Zoom

In February, AngelList launched a so-called rolling venture fund product to help emerging venture capitalists close their first funds, faster. The fund structure allows fund managers to raise new capital commitments on a regular basis and invest as they go, ergo the “rolling” aspect. Lavingia worked with AngelList to create his fund, and has capital commitments of $1.25 million per quarter in a $5 million per year fund.

The rolling fund structure can be a bit volatile because limited partners have to “re-up” their investments on a quarterly basis. It could put a fund’s investing ability in flux and thus impact portfolio construction, too.

One way to battle this volatility is that limited partners must commit to at least four consecutive quarters when investing in a rolling fund. After that, investors can choose on a quarter by quarter basis if they want to invest in the fund. Lavingia says that on this first close, he could have raised 5 to 10 times the capital, but chose to pick smaller checks from exceptional people. The smallest check in is $55,000 a year split over four quarters, he said.

Lavingia also claims that the rotating nature of check acceptance will allow him to continually invite a more diverse limited partner base as time goes on. He declined to share specific numbers on the current diversity of his LP base, but said that 30 percent of his portfolio companies to date are founded by Black entrepreneurs.

One other note on rolling funds, an SEC regulation — 506(c) — allows investors to publicly fundraise.Traditional venture capital funds are usually raised in private which disproportionately benefits those who already have their foot in the door. Lavingia says the 506(c) regulation allows him, as a first-time fund manager, to raise publicly on Zoom.

Lavingia hosted a Q&A about his new fund with a group of his buddies: Work Life Ventures’ Brianne Kimmel, AngelList’s Sunil Pai, and Earnest Capital’s Tyler Tringas.

Lavingia says that there were around 600 to 700 people live on the call, which is larger than most conferences he’s spoken at.

Lavingia was the second employee at Pinterest and left to start building Gumroad, a platform to help creators sell products to consumers. The company went through a gutting round of layoffs and restructuring in 2015, inspiring Lavingia to pen a viral blog post about his “failure to build a billion-dollar company.” Today, Gumroad is at $10 million ARR and is growing 100% year over year with a team of 10 people.

While Lavingia will continue to work on Gumroad, he says that his failure and transparency around it “is actually growing the company faster.”

‘I think it gives me a little bit more bandwidth to do an experiment along these lines,” he said, of the fund.

First-time fund managers have had to turn to unique ways to de-risk themselves in this volatile time. Lavingia’s story is no different, and showcases that the power of remote deals isn’t just a phenomenon that founders will benefit from.

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Y Combinator Demo Day to remain virtual and will be streamed live

After feedback from the investor and founder communities, Y Combinator is making a change to how it does Demo Days in a remote world. The accelerator announced today that it will keep its two-day Demo Day virtual, but instead of offering pre-recorded pitches on-demand, the entire program will be streamed live.

In an e-mail, Y Combinator said the feedback was that “founders enjoyed the bonding experience involved in prepping for a live demo day and investors like seeing the founder pitch their businesses personally.”

“We’ve decided that a live Demo Day is an important part of founders’ YC experience,” Michael Seibel, Y Combinator’s CEO, wrote in a blog post.

The thirty-first Demo Day will be live over Zoom, splitting the batch between two days. Each company will have one minute to present, with a single-slide summary, description and team bio available on the website for attendees to peruse. If you can’t attend, recordings will be published at the end of the week.

The accelerator told TechCrunch that presentations will kick off at 9 a.m. PST and end at noon, with breaks scheduled throughout the day. Similar to past Demo Days, investors will be able to indicate interest in investing and share contact information with founders through YC Demo Day software.

Startups that deferred Demo Day in years past will present at the upcoming Demo Day. Deferring to present on Demo Day is fairly common and happens when founders are not yet ready to present their startup to the VC and tech press community. In a remote world, some startups may opt for this route until things turn back to normal (if that ever happens, of course).

For founders participating in remote accelerators, a question remains: Is the new format worth the equity? Y Combinator says that the most recent cohort is the first batch to participate in an entirely remote program, run entirely through the COVID-19 lockdown.

Founders recently shared with me the ups and downs of this accelerator season. One founder, Michael Vega-Sanz, recommends that first-time founders attend a physical accelerator instead of a virtual one for the energy it brings.

“If you’re a competitive person, like we were, you’ll see other companies kicking butt, getting praised in front of everybody,” he said. “I know this sounds a bit narcissistic, but we were like, ‘Damn, we really need to pick our game up.’ ” Peer competition might sound insignificant, but founders, much like investors, thrive on FOMO and rivalries.

Y Combinator going live feels like an attempt at bringing excitement and earnestness to the pitch experience. Techstars did a live, virtual demo day earlier in the pandemic, even bringing on Ice-T to congratulate the founders participating through a Cameo.

YC Demo Day will be August 24 and 25.

Without desks and a demo day, are accelerators worth it?

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Boston’s Q2 shows that the startup rebound isn’t ahead of us, it’s upon us

The coronavirus caused some disagreement amongst Boston’s venture capital community. Looking back at our mid-2020 survey of its VCs, some saw the city’s strength in biotech and healthcare as a competitive advantage, while others saw Boston’s diverse startup ecosystem as key to its survival.

And some were worried that activity was about to clamp down. Jeff Bussgang, Flybridge Ventures, put it most frankly: “Q2 financing for Boston is going to fall off a cliff. The biotech industry may see some bright spots […] but the financing market has frozen up as solid as the Charles River in February.”

With fresh data in hand, it appears that the more bullish were more right than the bears and that, in a good turn of affairs for Boston startups, Bussgang was wrong.

The city, much like the country, did not see the sharply negative quarter that many anticipated. Boston posted record venture capital investment in the period, its highest total since at least Q3 2018 according to CB Insights data.

The same dataset also says that Boston-area companies raised $3.7 billion across 126 deals. Indeed, the good news from Boston’s Q1 bested better-than-anticipated-results from both the global venture capital community, and the domestic VC world in Q2.

Bussgang sent an updated metaphor to the TechCrunch team in response to this data: “It was a tundra in March and April but, as happens in Boston, April showers and May flowers kicked in and the financing markets started to gush again in the late spring/early summer, just in time to save Q2 .”

While the data isn’t historically definitive due to reporting lags, it can be used as a directional sign that Boston’s rebound isn’t ahead of us, it’s upon us.

The solid numbers are a sign that COVID-19 and economic turmoil have put many startups in greater demand than before, which means that they need to amass money to meet growth needs.

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Without desks and a demo day, are accelerators worth it?

As a result of the pandemic, accelerators have moved operations fully remote to abide by social distancing. The shift has forced well-known programs like 500 Startups, Y Combinator and Techstars to go fully online, while encouraging existing venture capital firms to launch new digital-only fellowships like Cleo Capital and NextView Ventures.

Before the pandemic, accelerators could advertise their value by lending desk space once used by Airbnb, Twilio and Brex’s co-founders, plus a glitzy demo day. Now, stripped of their in-person element, the actual value of an accelerator program — and the network they provide — is being tested in new ways.

So a question remains for participating founders: Are they getting the benefits of what they thought they signed up for?

In the Zoom where it happened

The last thing Michael Vega-Sanz wanted to do was was join another Zoom get-together for entrepreneurs. But the car-sharing company he co-founded with twin brother Matthew was in the middle of a pivot, so they joined NextView Ventures’ inaugural remote accelerator program.

“I envisioned an accelerator with awkward happy hours, mass Zoom calls,” Vega-Sanz said. Fast-forward one month into the program, he says it “has been quite the opposite.”

Before joining NextView’s accelerator, Vega-Sanz did an in-person incubator at Babson College in Boston, but there’s “a lot less fluff” in being virtual, he told TechCrunch.

“[With in-person] the reality was you’d go to lunch, and by the time you drove over there and had all your side talk, small talk, chit-chat and actually got into the nitty-gritty of the event, there was a lot of time loss,” he said. “You could have been working for your company during that time.”

If possible, Vega-Sanz still recommends that first-time founders attend a physical accelerator instead of a virtual one for the energy it brings, even with the downside of useless events.