Author: Richard Dal Porto

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Dear Sophie: What type of visa should we get to fundraise in Silicon Valley?

Sophie Alcorn Contributor
Sophie Alcorn is the founder of Alcorn Immigration Law in Silicon Valley and 2019 Global Law Experts Awards’ “Law Firm of the Year in California for Entrepreneur Immigration Services.” She connects people with the businesses and opportunities that expand their lives.
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Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.
“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”

Extra Crunch members receive access to weekly “Dear Sophie” columns; use promo code ALCORN to purchase a one- or two-year subscription for 50% off.

Dear Sophie:

A friend and I founded a tech startup last year. Like a lot of other startups, we’re looking for funding. Should we come to Silicon Valley to meet with venture capitalists?

How should we begin that process? What type of visa should we get and how easy is it to get?

—Logical in Lagos

Dear Logical:

Thanks for reaching out to me from the entrepreneurial hotspot of Lagos!

In a recent episode of my podcast, I spoke with Esther Tricoche, director of investments at Kapor Capital, who offered up many words of wisdom to founders. She also mentioned that in many emerging entrepreneurial markets, including Lagos, accelerator funding and Series A funding are relatively easy to find, but pre-seed and seed funding are not.

Getting yourselves and your startup in front of Silicon Valley investors that focus on pre-seed and seed funding will be important to rapidly scale. Esther mentioned that even in U.S. cities, such as Atlanta, that are entrepreneurial hotspots, investment dollars are not as plentiful as they are in Silicon Valley. Moreover, investors outside of Silicon Valley tend to be more risk-averse.

A composite image of immigration law attorney Sophie Alcorn in front of a background with a TechCrunch logo.

Image Credits: Joanna Buniak / Sophie Alcorn (opens in a new window)

So, yes, you should meet with Silicon Valley investors, but be aware that most U.S. embassies and consulates remain closed to routine visa and green card processing due to the ongoing pandemic. Given that, you can start requesting virtual meetings now; and you will have to wait until the U.S. consulate in Lagos comes back to full capacity to apply for a visa to come to the U.S. I like checking for visa availability through the Waypoint Embassy and Consulate Directory (full disclosure: I am an advisor to Waypoint).

As always, I recommend that you consult an experienced immigration attorney when you’re ready to take the step of actually applying for a visa.

Once U.S. consular offices reopen, if you aren’t eligible for ESTA, you can apply for a B-1 visitor visa for business. With a B-1 visa, you can request an initial stay of up to six months. This is a great status for business meetings such as to talk to prospective investors, negotiate contracts and incorporate a new business. However, you can’t work in the U.S. You must be aware that no hands-on work for pay (or even the chance of future remuneration) by a U.S. entity is allowed.

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Address cybersecurity challenges before rolling out robotic process automation

Alan Radford Contributor
Alan Radford is regional CTO of One Identity and has a passion for helping organizations solve unique challenges in the identity and access management space.

Robotic process automation (RPA) is making a major impact across every industry. But many don’t know how common the technology is and may not realize that they are interacting with it regularly. RPA is a growing megatrend — by 2022, Gartner predicts that 90% of organizations globally will have adopted RPA and its received over $1.8 billion in investments in the past two years alone.

Due to the shift to remote work, companies across every industry have implemented some form of RPA to simplify their operations to deal with an influx of requests. For example, when major airlines were bombarded with cancellation requests at the onset of the pandemic, RPA became essential to their customer service strategy.

Throughout 2021, security teams will begin to realize the unconsidered security challenges of robotic process automation.

According to Forrester, one major airline had over 120,000 cancellations during the first few weeks of the pandemic. By utilizing RPA to handle the influx of cancellations, the airline was able to simplify its refund process and assist customers in a timely matter.

Delivering this type of streamlined cancellation process with such high demand would have been extremely challenging, if not impossible, without RPA technology.

The multitude of other RPA use cases that have popped up since COVID-19 have made it evident that RPA isn’t going away anytime soon. In fact, interest in the usage of RPA is at an unprecedented high. Gartner inquiries related to RPA increased over 1,000% during 2020 as companies continue to invest.

However, there’s one big issue that’s commonly overlooked when it comes to RPA — security. Like we’ve seen with other innovations, the security aspect of RPA isn’t implemented in the early stages of development — leaving organizations vulnerable to cybercriminals.

If the security vulnerabilities of RPA aren’t addressed quickly, there will be a string of significant RPA breaches in 2021. However, by realizing that these new “digital coworkers” have identities of their own, companies can secure RPA before they make the headlines as the latest major breach.

Understanding RPA’s digital identity

With RPA, digital workers are created to take over repetitive manual tasks that have been traditionally performed by humans. Their interaction directly with business applications mimics the way humans use credentials and privilege — ultimately giving the robot an identity of its own. An identity that is created and operates much faster than any human identity but doesn’t eat, sleep, take holidays, go on strike or even get paid.

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Why do SaaS companies with usage-based pricing grow faster?

Kyle Poyar Contributor
Kyle Poyar is VP of Growth at OpenView.
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Today we know of HubSpot — the maker of marketing, sales and service software products — as a preeminent public company with a market cap above $17 billion. But HubSpot wasn’t always on the IPO trajectory.

For its first five years in business, HubSpot offered three subscription packages ranging in price from $3,000 to $18,000 per year. The company struggled with poor churn and anemic expansion revenue. Net revenue retention was near 70%, a far cry from the 100%+ that most SaaS companies aim to achieve.

Something needed to change. So in 2011, they introduced usage-based pricing. As customers used the software to generate more leads, they would proportionally increase their spend with HubSpot.  This pricing change allowed HubSpot to share in the success of its customers.

In a usage-based model, expansion “just happens” as customers are successful.

By the time HubSpot went public in 2014, net revenue retention had jumped to nearly 100% — all without hurting the company’s ability to acquire new customers.

HubSpot isn’t an outlier. Public SaaS companies that have adopted usage-based pricing grow faster because they’re better at landing new customers, growing with them and keeping them as customers.

Image Credits: Kyle Povar

Widen the top of the funnel

In a usage-based model, a company doesn’t get paid until after the customer has adopted the product. From the customer’s perspective, this means that there’s no risk to try before they buy. Products like Snowflake and Google Cloud Platform take this a step further and even offer $300+ in free usage credits for new developers to test drive their products.

Many of these free users won’t become profitable — and that’s okay. Like a VC firm, usage-based companies are making a portfolio of bets. Some of those will pay off spectacularly — and the company will directly share in that success.

Top-performing companies open up the top of the funnel by making it free to sign up for their products. They invest in a frictionless customer onboarding experience and high-quality support so that new users get hooked on the platform. As more new users become active, there’s a stronger foundation for future customer growth.

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Investors are missing out on Black founders

Craig J. Lewis Contributor
Craig J. Lewis is the founder and CEO of Gig Wage, a simplified fintech payroll platform built for contract workers.

I’m a Black man in America — that’s hard. Black founders, and uniquely Black founders in tech, are facing insurmountable odds.

As the recipients of less than 1% of venture capital raise, institutionalized systems are visibly at play. Within almost 10 years of my entrepreneurial journey, I have encountered just as many setbacks and failures as I have successes.

However, I have pressed forward despite the disparities that often plague the Black entrepreneurial community. From imbalances in fundraising to minimal capital and access, Black brilliance and its cloak of resilience continues to rise.

Now, as a CEO who has ambitiously raised nearly $13 million for my current venture, against the odds, I posit that it is not the Black founders who are missing out the most — it is the investors who are at a loss, not comprehending that they have underestimated the power of these founders’ Black brilliance.

Black founders need to own their resiliency and leverage the power that has resulted from their unique experiences.

When you think about the intersection of venture capital and technology, and specifically how it works — it is being led from an engineering perspective. Developers and coders historically go to specific schools and colleges, entering a funnel that guides them to success.

Historically, many Black students (more so Black male students), are influenced by sports as a vehicle to higher education and not necessarily the institutions recognized for technological prowess.

Their parents and community encourage athleticism because that is the only thing they know — as an institutionalized mindset reinforced over time. Unless they are guided into the accepted foundations for technology, or get into a Cal Berkeley, Stanford or Harvard, where many of the technology companies are built, they are immediately funneled outside of the “circle,” which sets the first of many ongoing obstacles for a Black tech founder.

I offer, however, that these “obstacles” are not in fact barriers but the crucial catalyst for these founders’ superpowers.

Admittedly, there were no entrepreneurs in my family. I did not have access to information about the best colleges. Despite having great grades and graduating with honors, I was completely unaware of how valuable an Ivy League education could be.

As a star basketball player, with my skills and grades, I could have played and graduated from somewhere like Yale, Brown, Columbia or even a school like Southern Methodist University where I was offered a full scholarship. But because of the lack of knowledge that I could actually do so and benefit from being inside the Ivy League “circle,” I didn’t.

I was in college from 2000 to 2004. A lot of great companies were started at elite schools during that period. It is this institutional blocking of information from myself and many other Black students that molded our overall perspective and created our glass ceilings.

Breaking through that glass ceiling, overcoming these odds to press forward relentlessly, with unyielding focus, and to hold conversations with the types of investors I have had to sit in front of, with the type of company that I have built, takes a different level of brilliance that only the Black experience can provide. For 2021 and beyond, Black founders need to not only recognize, but unlock that power as they look to fundraise and catapult their tech companies to success. It would be smart, and incredibly beneficial for investors, venture capitalists and the entire entrepreneurial ecosystem to take heed.

For Black founders, a paradigm shift is evident, but it can only manifest if implemented in these five ways.

Black founders: Forget what you think works in fundraising

Black founders and specifically Black tech founders are fed a monotonous script of how to raise money “the right way,” in light of disparaging statistics highlighting a lack of funding — so much that there is a robotic approach to the process. They try to become this cookie-cutter entrepreneur that is designed to raise money from investors, with their playbook and by their rules.

Black founders capitulate and conform to what society has dictated as appropriate fundraising, often glorifying the investor with the fate of their startup in their hands, without realizing that they hold the negotiating power. Their playbook hasn’t won us any games. As of today, own your power.

Become an irresistible force: Leverage your expertise

Set the playbook aside and lean more into your expertise and uniqueness.

Years ago, Mark Cuban delivered a keynote address at Dallas Startup Week that chronicled his road to success. One of his main points was to “Know your business, and know your business cold.” It was so simple, yet so impactful.

Early on in my career, I learned about venture capital from my experiences working for a startup. While I did not know the area in depth, I referenced what little knowledge I had as I raised for my own company years later. Although I was limited in my dealings with venture capitalists, I was confident in my background and expertise (at that time as a payroll technology sales professional) to truly stake my claim and seat at the table.

So while they may have sold a company for $7 billion or have $35 billion AUM (assets under management), I knew that they were not as well-versed in payroll or payroll technology than I was. It was this tenacious mindset that made me look at investors, rather than up to them, thereby positioning us on equal footing.

Connect in the common goal of brilliance

As a Black founder in tech, I have encountered many injustices — from networking to fundraising to the game of business as a whole. Even among those sitting at the table, there is a plethora of worldviews, political preferences, religious propensities and more that create a melting pot of divisiveness. However, recognizing that the common thread between all of the players in the game is the desire to be part of the brilliant business opportunity at hand is what will ultimately prevail.

It served me well not to overindex whether the venture capitalists liked me or on our differences. Locking in on the ambition of my entrepreneurial spirit and focusing on my brilliance — my Black brilliance — made them want to invest in me. Simplistically, investors want to give their money to founders who will make them money — passionately and ambitiously. Be you and find the investor that appreciates you.

Get in front of as many investors as you can

Black founders are not getting in front of enough investors. Systemically, the venture capital landscape has marginalized this community and has failed to expand their network for inclusiveness. Currently, ethnic minorities are severely underrepresented in the venture capital industry. Eighty percent of investment partners are white, with only a staggering 3% being Black or African-American.

Regardless, Black entrepreneurs must press forward and still show up. The sheer number of people that entrepreneurs must face during the fundraising process is astronomical, so one must not be swayed by the disillusionment of opportunity.

Realistically speaking, it takes a long time to raise money. Period. I have talked to thousands of potential investors to raise nearly $13 million for my current company. If you are a Black founder, it is going to take you longer to fundraise and you are going to have to get in front of more people. So I ask, “Do you have enough oxygen in the tank to withstand the obstacles, for a long enough period of time, to attract the venture capital that you need?” The wealth gap says no.

When I first started Gig Wage, the number one question I received from investors is, “How much runway do you have?” I would answer, “Until I get to where I need to get.” They would then rephrase, “How much money do you have in the bank? How long is your wife going to let you do this?” I would reply, “It does not matter how much money I have in the bank because I’m going to keep going until this happens.”

Discriminatively, there was this unspoken expectation that I lacked the financial wherewithal and stamina to withstand the fundraising process, and at times it was extremely discouraging — because to be honest, when I looked in the bank account, I realistically had about nine to 12 months of runway.

The reason Black people raise less than 1% of venture capital is because the racism weaved into the fabric of American society bleeds over into the entrepreneurial ecosystem. Despite it all, I took thousands of meetings. I was willing to endure with an ambitious conviction that I was going to win. Again, this is Black brilliance.

Own your resiliency, own your power 

As a Black man, I have personally endured challenges to build resiliency — mirroring similar realities of other Black men in America. Whether it was dealing with the police or witnessing men in my family struggle with drugs, violence, poverty or the like — I often think, “Why would I be intimidated by an investor meeting or a term sheet?” The construct of America has dealt me much worse.

Black founders need to own their resiliency and leverage the power that has resulted from their unique experiences. The victory mentality that ensues thereafter is the type of mindset that venture capitalists should want to invest in, and if they do not, they are undoubtedly missing out.

The unyielding focus of “The world is stacked against me but I’m not going to quit. I’m going to pivot. I’m going to be resourceful. I’m going to figure it out — even if I’m scared,” is a person you need to invest in. It is not necessarily that they have a groundbreaking business idea, but culturally, Black people have a passion and a perspective that is unmatched, with limitless possibilities that venture capitalists are overlooking.

So for 2021 and well beyond, Black founders, and those especially in tech, need to shift their respective paradigms, own their place within the entrepreneurial space, take back their power and continue to operate at the utmost in Black brilliance. It is the investors, not the founders, that are missing out. Be bold. Be courageous. Be audacious.

As for me, the best thing that I can do right now is to continue to drive the conversation, illuminate the disparities and be as successful for Black entrepreneurs, Black professionals and the world at large as possible. I am owning my power and I’m committed to epitomizing and evangelizing Black brilliance.

This public spreadsheet lists Black founders who have raised VC, and the investors backing them

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4 strategies for deep tech startups recruiting top growth marketers

Jessica Li Contributor
Jessica is on the growth marketing team at Zageno, a multivendor, online marketplace for life science products, and is head of content at Elpha, a Y Combinator-backed community of 40,000+ women in tech.
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In an earlier article, I wrote about how and when to build go-to-market teams at deep tech companies. There, I noted that it is more important for growth hires at deep tech companies to have functional expertise than industry expertise.

But how do deep tech companies connect and cultivate strong relationships with talented nontechnical growth people outside of their industry? In this article, I answer this question, articulating exactly how to:

  • Write role descriptions that entice talented growth people.
  • Create company marketing materials that brands your startup well to talent.
  • Craft thoughtful end-to-end candidate experiences for growth talent.
  • Close top growth candidates.

Incredible growth people are independent and creative and are drawn to environments that explicitly value these traits.

Write a job description that explains how you operate

Underscore the autonomy. Incredible growth people are independent and creative and are drawn to environments that explicitly value these traits. Growth talent wants to know that they have room to experiment, fail and iterate with the support and trust of their company. Highlight the creative agency you give to your growth team. Paint the role as one of managing a subset of the startup and its initiatives.

Show you are ready for a growth marketer. Do not expect your growth person to be a panacea for the company. Growth people work cross-functionally, but there are boundaries where the growth role starts and ends. Growth people cannot sell a product that is not ready. Growth people cannot fix product bugs. Growth people cannot replace excellent customer service. Ensure your role description is clear on what the growth person would do and what they would lean on other teams for. Demonstrate that you have a team structure in place where a growth marketer could fit in and thrive.

Articulate your talent needs. Growth is a broad category. Some growth marketers are more creative. Others are more quantitative. Some have more industry experience. Others have more functional experience. Be clear on what type of growth marketer you need and how this person’s talents would complement those of the existing team.

Use marketing to share your history and chart the future

Generate excitement and establish credibility. People can naturally be skeptical about new technologies and younger companies. Do anything you can to ameliorate these concerns. Link to relevant news articles from well-known publications and thought leaders in your industry. Incorporate customer testimonials that speak to the transformative impact your product creates. Name drop well-known advisors, investors and team members.

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European VC funds are building community around ESG initiatives

Johannes Lenhard Contributor
Dr. Johannes Lenhard is Centre Coordinator at the Max Planck Cambridge Centre for Ethics, Economy and Social Change.
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In general, ESG stands for “environment-social-governance” and comprises a set of principles that touches on issues from diversity and board structures to labor relations, supply chain, data ethics, environmental impact and legal requirements.

Unlike impact investing, which is squarely focused on the (external) effects of a business, ESG concerns mostly internal practices and processes that could support both a fund and its portfolio companies to make them more sustainable.

While other asset classes from buyout funds to public equities have seen a big push toward ESG ratings and initiatives, venture capital has been lagging behind. What has changed recently?

Over the last several months, quite a few mostly European funds have stepped forward with initiatives to tackle ESG. Balderton, for instance, announced its Sustainable Future Goals with a bang at the startup event Slush in early December 2020. Their efforts are focused both internally on the fund and externally on investment decisions and portfolio support. I asked Colin Hanna, one of the leaders of the development internally and a principal at the firm, how this initiative came about:

While our efforts on this front preceded COVID, this year we saw that a real impact was possible on climate-change-related goals […] we have become accustomed to doing virtual board meetings, cutting down on travel; the challenge will be to continue those efforts going forward and rolling them out to our portfolio companies even as the world returns to normal. Having a framework helps us do that.

This rationale also recently brought a group of about 25 VCs to form a community around ESG for VC for the first time. The initiative is led by GMG Ventures and Houghton Street Venture, a new firm affiliated with the London School of Economics that met for the first time in December with representatives from LocalGlobe and Latitude, Kindred Capital, Balderton, the Westly Group and Blisce. The group’s stated goal is to share expertise from the bottom up and fill the gap where existing frameworks don’t quite work.

This is direly needed right now, says Sophia Bendz, partner at Berlin-based firm Cherry Ventures:

Beginning with topics around DEI and climate issues, we are really keen on upping our ESG game. ESG involves such important issues and we have to dedicate the time to learn more to ultimately do more on these fronts now. Yet, I also believe that true impact doesn’t result from knowledge silos. It’s great that we are learning from and supporting each other to have more societal impacts in our day-to-day roles. I am really passionate about this.

What are the main drivers for this push? 

I asked Susan Winterberg, an ESG consultant who recently finished a two-year fellowship at Harvard producing a groundbreaking report on the subject of ESG for VCs specifically about the “why now”:

There are broadly two sets of reasons why investors and company leaders adopt ESG. The first set relates to increased awareness of how their activities impact external events happening in the world such as climate change and social justice. The second relates to increased awareness of how adopting ESG can advance specific business goals they have such as increasing sales, attracting top talent, and reducing operating risks.”

Obviously, 2020 was a watershed year to drive change based on both of these sets of rationales. Social justice issues — from Black Lives Matter and racial equity, COVID-19 and healthcare to freedom of expression and democracy — were prevalent across the spectrum. Startup leaders and investors were influenced by these societal movements as much as by new research helping them understand how ESG can help advance business objectives in venture capital. The two reports published by CDC/FMO and the Belfer Center are only two examples of this evidence.

What do VCs say, how has change happened for them? Hana told me that at Balderton a combination of factors mentioned by Winterberg above, worked together to start the process:

It was both a push and a pull within Balderton. Our investors and the leaders at the top of our firm were proponents of this change but the efforts were also driven by the younger generation within the firm; they felt it was important. Overall, we were silent about climate change and sustainability for a long time, which was not really an option anymore.

For Martin Weber, founding partner at HV Capital that’s working with the St. Gallen-based ESG initiative ROSE, the conversation really started with Leaders for Climate Action. Weber admits: “We didn’t think about ESG enough […] beyond our own horizon really […] sometimes you really need a kick in the butt, that’s what Leaders for Climate Action did for us; a small change started our awareness and commitment to ESG.”

ESG concerns mostly internal practices and processes that could support both a fund and its portfolio companies to make them more sustainable.

For HV Capital but also some funds in the U.S. such as the Westly Group a specific ESG vector started the journey — that could be the E as in environment but also DEI as part of the S and G of ESG.

I also spoke to several LPs recently among others moderating a panel at the U.K.-based Allocate conference; the atmosphere seems to be shifting more drastically toward “doing business better” among the asset owners, too. Particularly family offices managing their own money are outspoken already, but big asset owners are becoming aware (and active) as well.

Michael Cappucci, managing director of Compliance and Sustainable Investing at the Harvard Management Company — Harvard’s endowment — thinks that “we are long past the time to ‘wait and see’ if ESG integration is a worthwhile undertaking for investors” (see the UNPRI report for more context).

The movement here seems to be coming even stronger from Europe again, however. As a result, the same group around Houghton Street Ventures and GMG Ventures pushing ESG for VCs is also in the process to get more LPs on board with a special workshop in February, as I learned. The tempo on the LP front is increasing as we speak.

What is still missing?

While lots of progress has been made on the level of individual funds, individual LPs and in baby steps toward a more general industry-wide push, there are still some core elements that are not in place. I believe the five key gaps concern a clear differentiation of ESG from impact, finding the right language, establishing a common framework, agreeing on metrics and real LP commitment.

  1. Know what ESG is: Many investors (and LPs) I speak with still don’t really know the difference between impact and ESG. In very simple terms, ESG principles are about the (internal) processes (of a fund, portfolio company, etc.) while impact investing is about outcomes (sometimes operationalized through the Sustainable Development Goals (SDGs)). While impact will likely remain a niche asset class for the foreseeable future, ESG principles should inform the practices of all investors in one way or the other.
  2. Find the right language: On a related note, finding the right language to talk about what ESG (versus impact) is, might help us to differentiate better. As Sarah Drinkwater of Omidyar Network made very clear in her post from September last year, we simply don’t have a good word to describe (and own) what ESG expresses in the world of venture capital and technology — principled, progressive, equitable? Possibly, “setting a standard” can help with this issue, too.
  3. Somebody, set a standard: ESG (and impact) frameworks developed and deployed slowly in the venture industry are still all over the place; they are influenced by all kinds of other frameworks (from other asset classes and related activities, such as impact) and mostly made up by individual funds themselves. There is certainly a risk of green washing if it stays that way; (self-proclaimed and reported) marketing is one thing but if we really want to change the industry, an authoritative body will have to step forward. What the biggest European anchor investor — the European Investment Fund — has done on that front so far with a very high-level questionnaire is not enough. How about, for instance, the UNPRI descends from the plane of high level down to individual industry principles?
  4. What isn’t measured: One part of what could really lead to an industry standard is a set of widely accepted and benchmarkable metrics; what are the most important measurements across early-stage and late-stage VC portfolio companies? The group of funds in London has for good reason announced that this particularly question will be one of the focus points they are working on next. But how will this again be adopted and spread industrywide? Another set of players might get involved in that again: LPs. If they make their GPs report on ESG on an annual basis, this will surely shift the industry as a whole and make the next generation of startups more equitable, responsible and stakeholder-focused.
  5. LPs really need to bite: So far, we are still missing real LP commitments when it comes to ESG. On the one hand, many GPs I spoke with that have recently been fundraising reported that LPs in general still don’t ask about ESG. In fact, some LPs particularly in the U.S. believe ESG might be a distraction from generating returns. In any case, ESG still has not become a must-have but is merely regarded a nice-to-do. The ESG questionnaires that do exist — like the EIF framework — are so far really high level and unspecific. When big anchor LPs like the EIF and BBB in Europe or big foundations and university endowments ask about it in their due diligence meetings, GPs will have to comply — all of them. Their influence as agenda setters might in the medium term be the biggest driving factor toward making ESG for VC the normal way of doing business. Given that there is state-money, all of our money, involved here, it seems an absolute no-brainer to take that step.

Why don’t more VCs care about good tech (yet)?

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Subscription-based pricing is dead: Smart SaaS companies are shifting to usage-based models

Kyle Povar Contributor
Kyle Povar is VP of Growth at OpenView.

Software buying has evolved. The days of executives choosing software for their employees based on IT compatibility or KPIs are gone. Employees now tell their boss what to buy. This is why we’re seeing more and more SaaS companies — Datadog, Twilio, AWS, Snowflake and Stripe, to name a few — find success with a usage-based pricing model.

The usage-based model allows a customer to start at a low cost, while still preserving the ability to monetize a customer over time.

The usage-based model allows a customer to start at a low cost, minimizing friction to getting started while still preserving the ability to monetize a customer over time because the price is directly tied with the value a customer receives. Not limiting the number of users who can access the software, customers are able to find new use cases — which leads to more long-term success and higher lifetime value.

While we aren’t going 100% usage-based overnight, looking at some of the megatrends in software —  automation, AI and APIs — the value of a product normally doesn’t scale with more logins. Usage-based pricing will be the key to successful monetization in the future. Here are four top tips to help companies scale to $100+ million ARR with this model.

1. Land-and-expand is real

Usage-based pricing is in all layers of the tech stack. Though it was pioneered in the infrastructure layer (think: AWS and Azure), it’s becoming increasingly popular for API-based products and application software — across infrastructure, middleware and applications.

API-based products and appliacation software – across infrastructure, middleware and applications.

Image Credits: Kyle Povar / OpenView

Some fear that investors will hate usage-based pricing because customers aren’t locked into a subscription. But, investors actually see it as a sign that customers are seeing value from a product and there’s no shelf-ware.

In fact, investors are increasingly rewarding usage-based companies in the market. Usage-based companies are trading at a 50% revenue multiple premium over their peers.

Investors especially love how the usage-based pricing model pairs with the land-and-expand business model. And of the IPOs over the last three years, seven of the nine that had the best net dollar retention all have a usage-based model. Snowflake in particular is off the charts with a 158% net dollar retention.

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The road to smart city infrastructure starts with research

Dominik Schiener Contributor
Dominik Schiener is co-Founder and Chairman of the IOTA Foundation. He has been in the blockchain space since 2011, with several startups in Switzerland, UK and Germany. His primary focus is how to improve physical infrastructure with digital infrastructure such as DLT and AI.
Mathew Yarger Contributor
Mathew is Head of Mobility and Automotive at the IOTA Foundation, where he develops strategy and solutions around the use of data with distributed ledger technology-based innovations. These solutions focus on enabling flexible and privacy-centric data and value transfer within the public sector for use in smart cities, critical infrastructure, environmental and energy systems, and mobility-focused data industries.

In the United States, critical city, state and federal infrastructure is falling behind. While heavy investment, planning and development have gone into the U.S. infrastructure system, much of it is not keeping up with the pace of new technology, and some of it hasn’t had a proper update in decades, instead just adding new systems onto old systems. This can be allotted to a combination of liability structures in the U.S., difficulty in enabling interconnection between infrastructure in different jurisdictions, worry over introducing large-scale security risks and an attempt to mitigate that risk.

There is interest in upgrading city systems to be more efficient, to be more in line with real-time demand and to move into the 21st century, but it’s going to take work. It’s also going to take new technology.

Distributed ledger technology (DLT), when applied correctly, can do for a city’s infrastructure what existing technologies cannot. Where existing technologies are heavy, requiring expensive servers and a larger energy draw, distributed ledger technology is light and can be implemented on individual nodes (code environments) and directly onto things like traffic light sensors. It also allows for more oversight from a privacy perspective. The ability to bring distributed ledger technology into lightweight frameworks allows for more security and upgrades to critical infrastructure.

Benefits of smart infrastructure

The biggest impact of smart infrastructure is that it enables local governments to focus on the reason they’re there in the first place; to increase the quality of life of the local residents, bring stability and culture to local businesses, and create a welcoming and frictionless environment for tourists or visitors. Governments can create stability, streamline sources of revenue, and integrate a frictionless operational environment for people and organizations in their jurisdiction.

Consider transportation infrastructure. A lot of revenue in cities and states comes from things like tolls and roadside parking, and of course taxes. States control the highways, interstates, and tolling infrastructure commonly through collaboration with service providers. Cities control the local roadside and passthrough streets and the revenue accrued through parking solutions. With the pandemic, these resources have dried up due to people staying at home, social distancing, using less public transit and working remotely.

This now offers an opportunity for an expanded example of the desire to understand the transportation flow. If cities had more real time insights into this, they’d be able to understand the demand and have a more fluidly flowing traffic condition. This can be done through new technologies such as what are seen deployed in Singapore like green link determinings systems, parking guidance systems, and expressway monitoring systems allowing for enhanced traffic awareness and guidance.

There are also keen ways to incentivize traffic guidance while bringing stability to local small and medium businesses throughout cities such as using parking guidance systems to enable local businesses to offer discounts for parking nearby.

An open transportation grid (in the sense of data points gathered for streamlining and managing) can create smoother traffic patterns in cities with smaller road grids. Transportation centers could communicate with delivery services, understanding their routes and setting up parking reservation windows. Traffic flow could be managed so that delivery services are able to get in and out without causing back-ups on tight, busy roads.

Another offering of smart infrastructure can be seen with cross border connections for transportation of goods and services. The ownership of infrastructure in the U.S. is highly fragmented; with cities owning local and neighborhood roadsides, and states owning highways and interstates. This also means that the infrastructure supporting this is highly distributed, because each entity has to have it’s own systems in place to support their infrastructure, typically using different solutions, services and data structures.

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I’m a software engineer at Uber and I’m voting against Prop 22

Kurt Nelson Contributor
Kurt Nelson is a mobile engineer at Uber based in San Francisco. These are his personal views.

I’ve been a software engineer at Uber for two years, and I’ve also been a ride-hail driver. I regularly drove for Lyft in college, and while my day job involves writing code for the Uber Android app, I still make deliveries for app-based companies on my bike to understand the state of the gig economy.

These experiences have made me realize a crucial factor in the gig economy: Uber works because it’s cheap and it’s quick. The instant gratification when we book a ride and a car shows up only minutes later gives us a sense of control. It’s the most convenient thing in the world to go to your friend’s house, the grocery store or the airport at the click of a button.

But it’s become clear to me that this is only possible because countless drivers are spending their personal time sitting in their cars, waiting to pick up a ride, completely unpaid. Workers are subsidizing the product with their free labor.

I’ve decided to speak out against my employer because I know what it’s like to work with no benefits. Before joining Uber, I worked a range of low-wage jobs from customer service at Disneyland to delivering pizza with no benefits. Uber is one of several large companies bankrolling California’s Proposition 22. They’ve now contributed $47.5 million dollars to the campaign. At work, management tells us that passing Prop 22 is for the best because it is critical for the company’s bottom line. Yet, a corporation’s bottom line will not and should not influence my vote.

Uber claims Prop 22 would be good for drivers, but that depends on Uber the company treating drivers better. I know from my experience working as an Uber engineer there is a slim chance of that happening. At the beginning of the pandemic, we learned Uber was about to embark on a round of layoffs. For weeks we sat around not knowing if we’d keep our jobs and health insurance.

Ultimately the company laid off 3,500 workers in the middle of a pandemic, and they did it via a three-minute Zoom call. For many of us, the layoffs seemed random and arbitrary, as if managers had been given a quota of people they should fire, not dissimilar to the way in which Uber deactivates drivers without recourse. The entrenched culture of not caring about workers had extended to engineers. We realized we too are a fungible resource.

As a software engineer, I have a very different experience working for Uber than drivers do. Being classified as an employee affords me benefits including healthcare, a retirement plan, stock vesting and the ability to take paid vacation and sick leave. Uber drivers are not afforded these benefits, since Uber misclassifies them as independent contractors. Since January 1 of this year, the law has been clear: Gig drivers should be classified as employees. Yet Uber refuses to obey the law and is now seeking to get Prop 22 passed so they can write a new set of rules for themselves.

There’s a misconception that all Uber drivers are part-time. Maybe they drive as a fun hobby in retirement or pick up a few hours after class in college, as I did. These drivers exist, but the drivers who are essential to Uber’s business are full-time workers. A study commissioned by the city of San Francisco released in May found that 71% of the city’s gig drivers work at least 30 hours per week. It is these drivers who give the majority of the rides. California legally requires employers to provide benefits to all workers working at least 30 hours per week, so 71% of daily drivers are currently denied benefits required by the state.

Were it not for my background as a Lyft driver, I would have accepted my employer’s argument at face value. This was never about disrupting an industry; their business model is the same as any other company’s — cut costs no matter what in order to increase profits. I’ve been lucky to meet some of Uber’s fantastic drivers while organizing with the advocacy organization Gig Workers Rising. Everyone knows about the high cost of living in San Francisco — these folks are often trying to make do on less than minimum wage. I’ve met drivers who have to sleep in their cars, risk financial ruin over a single doctor’s appointment or go without life-saving medication. There’s no way around it, Uber’s Prop 22 is a multimillion dollar effort to deny these workers their rights.

My message to other tech workers and to the public at large is this: Research ballot propositions on your own. When your employer tells you to vote for something because it’s what is best for the company, consider that your employer’s interests might not align with your own, or with society’s.

To employees at Uber, Lyft, DoorDash or other gig economy companies: Get to know the drivers who use your product every day. In many ways, we have more in common with these workers than we do with the executives making millions from our labor.

In November, you will have a choice to either stand with other workers and vote no on Prop 22, or align yourself with executives and billionaires by voting yes.

Stand with workers — vote no on Prop 22.

Uber is laying off 3,700 as rides plummet due to COVID-19

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Build products that improve the lives of inmates

Nik Milanovic Contributor
Nik Milanovic is a fintech and financial inclusion enthusiast, with a decade of work across mobile payments, online lending, credit and microfinance. The opinions expressed in his articles do not reflect those of his employer(s).
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Those of us who work in technology should always be asking ourselves, “Who we are really building for?” Do we design products to make ourselves more comfortable, or do we innovate to be the change in the world we want to see? One group perennially left out of tech conversations — moved out of sight and out of mind — is the 2.3 million people in the U.S. prison system. As tech becomes such a critical driver of progress in the world, we should be building products that improve inmates’ lives and help them reintegrate into society without the risk of relapse.

I recently stumbled across an essay I wrote following my work at the Stanford Criminal Justice Center, analyzing Norway’s humane prison systems and asking, “Could they work here?” These prisons are designed to replicate life outside their walls. They incorporate features like yoga classes and recording studios. They give inmates a chance to pursue higher education so that they can be meaningfully employed when they reenter the outside world. Anyone who has seen the documentary 13th knows that American prisons are very different. Why?

(Quick disclaimer: This is a fraught and emotional topic. It is hard to appreciate the complexity of incarceration and recidivism in a 1,000-word op-ed. I appreciate the input and forbearance of those with different perspectives.)

Writ-large, the corrections system has five goals:

  1. Punish offenders.
  2. Incapacitate them (keep them off the streets).
  3. Deter crime.
  4. Repay society.
  5. Rehabilitate people so that they don’t commit more crimes.

But sadly, per criminologist Bob Cameron, “Americans want their prisoners punished first and rehabilitated second.”

This is why Norway has a recidivism rate of 20% while the U.S. rate hovers at around 75%. That is staggering. Three out of every four former inmates is at-risk of committing a crime after leaving prison. This is a huge deadweight loss for society. How much lower could that rate be if we invested in prisoners’ potential? If we gave them the tools to seamlessly reenter the world? Is there a role for private, for-profit enterprises here, and if so, how could technology be used to help people exit the corrections system permanently?

What’s being done today

Most tech coverage just focuses on tools used to predict recidivism and keep past offenders, many of whom are trying to reform their lives, behind bars. But there are many startups building products to help them successfully move on.

New York-based APDS recently raised a $5 million Series B to provide tablets that inmates can use for learning purposes. The tablets are now in-use in 88 correctional facilities in 17 states. Inmates can use the software to learn English, get their GEDs or learn entrepreneurship. North Carolina startup Pokket helps inmates plan for life outside of prison in the six months leading up to their release date.

Mission: Launch is an organization that hosts demo days and hackathons for inmates. They teach financial literacy, entrepreneurship and community engagement. Hackathon participants so far have built an app to convert online messages from friends and family into written postcards for inmates (who are shut off from social media) and an app to help people leaving the corrections system to seal their records so that they can get hired again.

Maintaining connections with friends and loved ones outside of prison makes a significant difference when it comes to reentering society. Technology company Securus recently announced free messaging on its 290,000 tablets so that inmates can communicate with relatives without having to pay exorbitant fees. Prison Voicemail in the U.K. provides a cheap phone service that families can pay. In all cases when it comes to implementing technology to reduce recidivism, the financial burden should not fall on inmates, a captive population with limited agency and earning potential.

Prison Scholars, a nonprofit founded by a former inmate, teaches entrepreneurship to inmates and helps them create post-incarceration business plans. They estimate that inmates who receive education are 43% less likely to return to prison, an implied ROI of $18.36 to society for every dollar invested. Defy Ventures boasts of 82% employment for program graduates and a 7.2% recidivism rate. Other programs to teach digital literacy and coding, which make resources like textbooks and Wikipedia available offline, have found similar success.

There are many similar examples of tech and education directly lowering recidivism. But why stop here? What else could tech do to make an impact?

What we could still do

The U.S. spends $80 billion to keep inmates behind bars. This creates an enormous financial incentive for taxpayers to reduce recidivism. Two related questions need to be addressed: Can tech companies actually make money on products to improve the lives of those in the prison system? And should they?

To answer the first question — and at the risk of sounding crass — a very simplified business model could look like this: State governments pay companies somewhere between $0 and the cost of keeping an inmate in jail for one year (~$81,000) for each inmate who successfully uses an educational product to prep for leaving prison.

The payment could be split across multiple years, so that the longer someone is able to go without reoffending, the more the provider makes. If taxpayers paid tech providers just 50% of the cost to house an inmate for one year, the tech company would make a per-user LTV of over $40,000 (!). This kind of financial incentive could easily attract more talented entrepreneurs to the goal of improving the lives of people in the corrections system. (The opposite of the for-profit prison business model, which creates a perverse incentive to maintain a constant prison population.)

The question of whether it is morally permissible for for-profit tech companies to sell products built for this demographic is a more difficult one. While there is no right answer, there are guidelines that companies could follow:

  1. Don’t charge inmates or their families. Taxpayers have the largest financial incentive to reduce recidivism — and all the associated costs of the prison — so it is to state corrections budgets that tech companies should look for revenue opportunities.
  2. No Goodhart’s law or perverse incentives. Products have to be designed and sold based on principles, e.g., “help former inmates reintegrate into society and live full lives,” and not numeric targets, e.g., “keep former inmates from committing a felony within three years of leaving prison.” Numbers-based targets can always be gamed. Force companies to keep the end-goal in mind of giving people the tools to improve their lives.
  3. Collect user feedback. Award contracts only to the companies with high user affinity. Unlike standard consumers, inmates experience a principal/agent problem: The purchaser of the services (taxpayers) is not the user (the inmate). States should require tech providers to collect anonymous feedback from the users of their products, and only award contracts to those that get the highest ratings.
  4. Your product’s job-to-do does not end when the sentence does. If products built to reduce recidivism are truly successful, it means that the providers of those products will be slowly eliminating their own markets as prison populations go down. These products should be built not just to get people out of prison, but to help them build meaningful lives for the years after they leave.

There are so, so many great products yet to be built for this demographic. A LinkedIn or Craigslist Jobs equivalent populated by the employers who hire former inmates. Live-streamed religious services so that inmates can continue to participate in their community faith organizations. Nonvocational hobby education platforms. Limited versions of MasterClass or Udemy or Coursera . Closed-loop online games.

Lastly — and needless to say — tech doesn’t even begin to scratch the surface when it comes to righting the wrongs of our corrections system. The reinstatement of voting rights, employment on-ramps and limits to background checks, the elimination of for-profit private prisons, adjustments to prison wages that tacitly amount to indentured servitude … the list of things we could improve is long. But tech can still play a critical role in improving the lives of fellow citizens in the corrections system.

Mohandas Gandhi quipped that “The true measure of any society can be found in how it treats its most vulnerable members.” Almost one-third of Americans have some criminal history. The U.S. accounts for 25% of the world’s prison population. Let’s stop ignoring this demographic and build tools that really make the world better for those who need it most.