Hear from Sequoia Capital and Kleiner Perkins this week on TechCrunch Live

You’re not going to want to miss this week’s TechCrunch Live events. The startup industry is experiencing unprecedented headwinds, and we want to talk about it. There are two events scheduled, and we’re working on reshaping the conversations to make them relevant in this post-SVB world.

First, on Wednesday at 12:00pm, TC+ Editor in Chief and Equity co-host Alex Wilhelm is talking with Mamoon Hamid, partner at Kleiner Perkins, and Arianna Huffington, founder and CEO of Thrive Global. The two are longtime veterans of navigating the Silicon Valley waters and can speak directly to founders who are uneasy about the future. What’s more, Huffington’s company is focused on improving employee wellness, which itself is a timely topic with uncertainty in the air.

Then, on Thursday at 12:00pm, TechCrunch’s top security editor Zack Whittaker speaking with Andrew Reed, partner at Sequoia, and Christina Cacioppo, co-founder and CEO of Vanta. Christina Cacioppo started Vanta in 2016 and has raised $202.95 million to date including a $150 million Series B it closed in October 2022. The company is fascinating to me because it does the most boring but important work around compliance and security automation.

Both of these events are free to attend. Register here. And if you’re a startup founder, register for the event and apply to pitch your company during each event’s Pitch Practice segment. Selected participants have two minutes to pitch the guests and receive four minutes of feedback on the pitch.

TechCrunch Live records live each week on Wednesday at noon Pacific.

Hear from Sequoia Capital and Kleiner Perkins this week on TechCrunch Live by Matt Burns originally published on TechCrunch

As tensions build, Silicon Valley’s Chinese affiliates invest in sensitive space tech

Chinese subsidiaries of American venture capital firms are investing money from U.S.-based funds into Chinese space startups, even as the Pentagon warns of Beijing’s growing activity in the space arena, according to data reviewed by TechCrunch. 

The data, collected by PitchBook, includes information on past limited partners and investments of the Chinese units of Sequoia Capital, Matrix Partners and Lightspeed Venture Partners. Space industry investments represent a very small but notable portion of these firms’ portfolios, with Sequoia Capital China and Lightspeed China investing in two companies each and Matrix China investing in eight. Startups that have landed funding include companies working on launch, satellite manufacturing and Earth observation. 

According to recent reporting from The Wall Street Journal and Politico, the White House is considering new screening requirements on U.S. investment flowing to foreign-based technologies that could be sensitive to national security, like semiconductors, though it’s unclear whether space technologies would be considered as part of a future order. But one investor, who asked to remain anonymous, citing co-investments with Sequoia Capital, told TechCrunch that the stakes are high.

As tensions build, Silicon Valley’s Chinese affiliates invest in sensitive space tech by Aria Alamalhodaei originally published on TechCrunch

Sequoia and Andreessen Horowitz invested more in fintech than any other sector in 2022

Welcome to The Interchange! If you received this in your inbox, thank you for signing up and your vote of confidence. If you’re reading this as a post on our site, sign up here so you can receive it directly in the future. Every week, I’ll take a look at the hottest fintech news of the previous week. This will include everything from funding rounds to trends to an analysis of a particular space to hot takes on a particular company or phenomenon. There’s a lot of fintech news out there and it’s my job to stay on top of it — and make sense of it — so you can stay in the know. — Mary Ann

Storied venture firms Sequoia Capital and Andreessen Horowitz (a16z) invested more in fintech than any other category in 2022, according to research from CB Insights. I’m not going to lie — upon learning this, my fintech-loving ears perked up.

Sequoia apparently was fairly active overall last year despite the global downturn, with over 100 investments. And fintech represented nearly a quarter of the firm’s deals.

We saw a similar trend at a16z. According to CB Insights, of the 206 deals that a16z participated in last year, almost a quarter went to fintech companies — more than any other industry. Sixty percent of these fintech investments closed in the first half of 2022, with the remainder closing in the second half of the year.

Sequoia backed 25 companies in the financial services space last year. Its top three fintech targets, as identified by CB Insights, were capital markets, payments and payroll and benefits — with each category representing 16% of its investments.

A16z backed 49 companies in the fintech space last year and its top three fintech targets were payments (28%), blockchain (22%) and digital lending (12%).

Three out of Sequoia’s four deals in the capital markets space were follow-on investments, a reflection of the firm’s “faith in the future of capital markets tech,” noted CB Insights. Deals it participated in included Citadel Securities’ $1.2 billion round; Capitolis’ $110 million Series D; Watershed’s $70 million Series B; and Ledgy’s $22 million Series B.

More than a quarter (28%) of a16z’s fintech investments in 2022 went to the payments category. For example, it participated in SpotOn’s $300 million Series F; Jeeves’ $180 million Series C; and Tally Technologies’ $80 million Series C.

Meanwhile, Sequoia’s investments in payments tech companies spanned both consumer and business payments and operate in four distinct markets: buy now, pay later (BNPL), expense management, peer-to-peer (P2P) payments, and online payments acceptance. Two of the four deals are at the seed stage. Specifically, Sequoia participated in Klarna’s $800 million financing; Yokoy’s $80 million Series B; Telda’s $20 million seed round; and Cococart’s $4 million seed financing.

While blockchain and crypto arguably fall under the fintech category, I usually leave analysis of those segments to our crypto team, so I won’t go into a16z’s blockchain investments. But a16z’s third most popular fintech category in 2022 was digital lending companies, with the firm having participated in Point Digital Finance’s $115 million Series C; Valon’s $60 million Series B; and Vesta’s $30 million Series A.

Sequoia’s third most popular category was payroll and benefits, with the firm having backed four such companies — all at later stages — and participating in CaptivateIQ’s $100 million Series C; Rippling’s $250 million Series D; Remote’s $300 million Series C; and Truework’s $50 million Series C.

Now, we know that investments in fintech companies were far lower in 2022 compared to 2021. But wasn’t that true for every sector? Sequoia’s and a16z’s continued bets in the space are just one indication that fintech may be down, but definitely not out.

Weekly News

I interviewed Klarna CEO and co-founder Sebastian Siemiatkowski about the Swedish payment giant’s momentum in the U.S. Highlights of the interview, which you can read about in more detail here, include (1) the fact that the U.S. has overtaken Germany as Klarna’s largest market by revenue, (2) the company’s fastest-growing revenue stream is actually marketing, not BNPL and (3) Sebastian really views Klarna and Affirm as being “very different” companies in terms of loan duration and amount. On the topic of Klarna and Affirm, I also spoke this past week with Tyson Hendricksen, CEO and founder of a new company called Notice that tracks secondary market trade activity in the private markets. He told me that based on secondary market activity, Klarna appears to be currently valued at around $7.5 billion, which is actually higher than the $6.7 billion it was valued at last July, but also still significantly lower than the $45 billion it was valued at in 2021. By comparison, Affirm is currently valued at $3.84 billion. Below is a chart Hendricksen provided that illustrates trading activity at the two companies. Affirm is public so the chart shows share price as recorded in the public markets. It also shows a composite price for Klarna that takes into  account secondary market trades and open bids and offers. Says Hendricksen: “Think of it as an approximation of the current stock price and valuation using multiple private market data sets.”

To view it more interactively, click here.

Image Credits: Notice

Reports Tage Kene-Okafor: “African cross-border payments platform Chipper Cash conducted a second round of layoffs…just 10 weeks after it cut approximately 12.5% of its workforce (affecting its engineering team the most). The company’s VP of revenue shared the news on LinkedIn, saying “all areas” across Chipper Cash’s markets were impacted this time. “Friday was a sad day for Chipper Cash, as many talented people were let go,” his post read. More here.

Reports Manish Singh: “India and Singapore have linked their digital payments systems, UPI and PayNow, to enable instant and low-cost fund transfers in a major push to disrupt the cross-border flow of money between the two nations that amounts to more than $1 billion each year.” More here.

Reports Ingrid Lunden: “Stripe, the payments and financial services upstart, made waves in the world of mobile commerce last year when it became Apple’s first payment partner for “Tap to Pay,” the iPhone giant’s move to turn any iOS device into a payment-making or payment-taking terminal. Now, Stripe is expanding that business by a factor of googol. From today, businesses that use Stripe Terminal to take in-person payments now will be able to carry out Tap to Pay transactions on NFC-equipped Android devices, too.” More on that here.

MagicCube co-founder Sam Shawki points out in an email interview with me that Stripe is actually not the only payments company providing Tap to Pay on Android currently. He says that his startup, MagicCube, was first to market with Tap to Pay on Android devices in 2021 in the U.K., which has been transacting for a while now. Adds Shawki: “Since then we have many deployments around the world and a few new deployments in the US coming up shortly with major processors in the US, Canada and EMEA that are using Apple on iOS and MagicCube on Android.…We welcome Stripe to the market as it confirms our vision and lights the fire under other processors, merchant acquirers, and financial institutions to more quickly move to adoption in order to maintain their market share. We believe that this year will be the year of massive shift to using our product on Android and on Apple’s iOS to capture the $140 billion a year opportunity of Tap to Phone.” I wrote about MagicCube in 2021 here.

Samantha “Sam” Eisler has joined Lightspeed Venture Partners’ NYC fintech team. Prior to Lightspeed, which she joined in late 2022, Eisler was an investor at Tusk Venture Partners, where she focused on investments in fintech and digital health. Prior to that, she spent five years at Google, working on go-to-market strategies for the company’s machine-learning-driven ad solutions, as well as helping to build an accelerator program for startups in emerging markets. More here.

Reports Bloomberg: “JPMorgan Chase & Co. has curbed its staff’s use of the ChatGPT chatbot, according to a person familiar with the matter. The artificial intelligence software is currently restricted, the person said, who asked not to be identified because the information is private. The move, which impacts employees across the firm, wasn’t triggered by any specific incident.”

Varo Bank announced the appointment of Wook Chung as chief product officer. A statement from a spokesperson said that Chung will lead Varo’s product vision and strategy initiatives and will play a key role in the expansion of Varo Tech, the innovation arm of the company, “which meets at the intersection of product, technology, data, and design.” According to Varo, Chung has an “extensive background” in product management through roles at Facebook, Twitter, Google, and most recently SoFi. More here.

Across the sea, as reported by Silicon Canals, “Amsterdam-based challenger bank Bunq announced on Tuesday, February 21, that it has reached a pre-tax profit of €2.3M in the last quarter of 2022. In Q4 2022, Bunq’s net fee income grew by 37 per cent compared to Q4 2021, and user deposits grew by 64 per cent compared to €1.8B at the end of 2022.” More on Bunq here.

Mastercard has tapped five startups to participate in its Start Path Emerging Fintech program. Here are the five startups, as described by the credit card giant: EMERGE Esports (Singapore) provides its network of gaming content creators and brands across Southeast Asia with commercialization options through its talent database. Mintoak (India) provides a software-as-a-service platform that enables banks to expand their value proposition for merchants through payment acceptance and commerce enablement solutions. Optty (Singapore) offers a single integration and orchestration solution that connects merchants directly to buy now, pay later solutions; wallets; and other alternative payment methods globally. PayCaddy (Panama) offers an all-in-one banking-as-a-service solution for digital banking and express card issuance. Finally, Prosperas (United States) enables lenders to deliver credit opportunities directly to a mobile phone using anonymized, nonbiased data to match and prequalify consumers.

Rob Galtman, senior director of Fitch Ratings, noted that Block (formerly known as Square) had a “solid” Q4 despite macro- and recession-related fears. Via email, he added that the company is among other large tech players that have focused more on profitability in light of tougher capital market conditions, with management revealing slower hiring trends in 2023. Galman added: “Market concerns around BNPL are not evident to date, with loan loss rates remaining low. However, BNPL remains an area to focus on, given low-income consumers are especially pressured with inflation pressures. If a recession or macro pullback arrives, Block is well positioned given exposure to secular growth areas including digital payments and omnichannel commerce, as well as a strong balance sheet.”

Opendoor Technologies continues to face challenges. As reported by Barron’s: The real estate tech company “reported a narrower fourth-quarter loss than expected after the market closed on Thursday, February 23. The earnings beat caps a year of change in both the housing market and the company, which buys and sells houses. Opendoor (ticker: OPEN) said it lost 63 cents per share on revenue of about $2.9 billion in the quarter, beating consensus estimates…In full-year 2022, Opendoor lost $2.16 per share on revenue of about $15.6 billion. Consensus had anticipated a loss of $2.33 on sales of roughly $15.2 billion. While the fourth-quarter results beat estimates, they were down significantly from year-ago levels. The company lost 31 cents per share on sales of about $3.8 billion in the final quarter of 2021.”

Fundings and M&A

Seen on TechCrunch

YC-backed HR-payroll provider Workpay raises $2.7M to scale in Africa

Nestment raises $3.5M to help friends and family buy homes together

Trust & Will secures $15M after doubling revenue: Amex Ventures, USAA are among the digital estate planning startup’s new backers

Telecom giant Airtel eyes a stake in Paytm

And elsewhere

Marijuana fintech firm Green Check Verified raises $6 million

Mexican startups Minu and Plerk merge to strengthen the benefits market. TechCrunch covered Minu’s recent raise here.

Goldman Sachs’ One Million Black Women and Now®️ launch $225M credit facility to accelerate growth of small and historically underserved businesses. TechCrunch covered Now’s 2021 raise here.

Nuvei finalizes $1.3B Paya purchase

Fintechs that are hiring

The good news is that I was inundated with DMs and emails from people letting me know that their fintech company is hiring. The bad news is that there is no way I can include all of them in this week’s newsletter. So if you reached out and don’t see your company here, check out upcoming editions of The Interchange. I’m making my way down the list!

  • Mesh Payments has about a dozen openings; the financial management startup announced a $60 million raise last September.
  • Highnote, an embedded finance and payments technology company that emerged from stealth with $54 million in funding in September of 2021, is hiring for a head of customer success, senior core infrastructure engineer, senior data platform engineer, senior software engineer, and a technical writer. More details here.
  • EarnIn is currently hiring across engineering, product, business development and finance among other departments in the U.S., LatAm, and Bangkok. It most recently raised a $125 million Series C.
  • Branch, a full-stack home and auto insurer that leverages data and technology, currently has more than 30 open roles throughout the company. The company raised $147 million at a $1.05 billion valuation last June.
  • Corporate spend management company Ramp, which was valued at $8.1 billion last year, is hiring for 30+ roles.
  • NorthOne, a small business-focused neobank, is currently hiring for nine roles in product, engineering, marketing, and compliance. The company raised $67 million in Series B funding last October.
  • Nova Credit, a consumer-permissioned credit bureau, has six open positions that are remote across engineering and marketing. In September, it received a $10 million investment from HSBC Ventures.
  • Silicon Valley–based neobank Upgrade is hiring for over two dozen roles. The company raised $280 million at a $6 billion valuation in 2021 and says it offers “affordable and responsible” credit, mobile banking, and payment products to consumers.
  • Prodigal, which has developed a cloud-based consumer finance intelligence solution that analyzes agent and customer conversations, is hiring for several roles across most of its departments, including for a VP of sales and chief of staff.
  • Stake, a digital real estate investment platform in MENA that raised $8 million last August, has 13 current positions to fill between Dubai and Cairo. More details can be found on its careers page.
  • Viva Wallet has a total of 188 openings across Europe. JPMorgan acquired a stake in the Athens-based SMB-focused fintech in early 2022.

It was a busy week in the world of fintech, so I’m looking forward to some downtime this weekend and hope you’re enjoying some, too! Let me end with a personal photo taken at the end of a walk the other day. Gotta admit that Austin sunsets are pretty breathtaking. Until next week, take good care. xoxoxo, Mary Ann

Image Credits: Mary Ann Azevedo / Austin sunset

Sequoia and Andreessen Horowitz invested more in fintech than any other sector in 2022 by Mary Ann Azevedo originally published on TechCrunch

Sequoia backs open source data-validation framework Pydantic to commercialize with cloud services

Pydantic, the popular Python library and open source data-validation framework used by some of the world’s biggest companies, has a new commercial namesake and the backing of one of Silicon Valley’s most storied venture capital (VC) firms.

Pydantic Services Inc. emerges from stealth today with $4.7 million in seed funding led by Sequoia, with participation from ParTech, Irregular Expressions and a host of angel investors, including Zapier co-founder Bryan Helmig, dbt Labs founder Tristan Handy and Sentry co-founder David Cramer.

London-based software developer Samuel Colvin started Pydantic as an experiment back in 2017, and in the intervening years the project has gone from strength to strength, used by developers at major tech companies including Alphabet, Amazon, Apple, Meta and Microsoft.

Its adoption has been driven in large part by FastAPI, a web framework for building APIs that integrates with Pydantic under the hood. However, Pydantic’s growth more broadly can also be attributed to the explosion of Python, which overtook Java in 2019 to become the second most popular programming language after JavaScript.

According to Colvin, Pydantic now garners some 48 million downloads each month and is used by 19 of the top 25 Nasdaq-listed companies.

“Right now, 12% of professional web developers use Pydantic across a wide range of applications,” Colvin explained to TechCrunch. “The pace at which developers have come to use and trust the tool showed me the scale of the problem and appetite for a better solution.”

So what, exactly, do developers use Pydantic for?

Well, there are myriad scenarios where online applications need to check and validate the type of data a user enters. For example, a simple online form that requests a name, email address and phone number will need to reduce the chances of someone entering the wrong kind of data, so it can be helpful if the form can automatically check the email is in a valid format, or the name-field is not left blank. Similarly, a bank might build a new system for processing transfers that collects data from multiple internal and external sources — this system has to ensure that the data is in the right format before any money transfer is executed.

To do this, Pydantic enforces Python’s “type hints” at runtime, which validates the data and serves up user-friendly error messages when an input is invalid.

“Pydantic allows developers to process external, untrusted data, making sure it conforms to an expected schema, and if it doesn’t, raises a helpful error,” Colvin said. “In essence, Pydantic makes working with real-world data much easier, and therefore faster — this saves many hours of work and avoids errors.”

‘Inspired by Pydantic’

Pydantic’s new commercial entity will incorporate a swath of new tools and services that are both “powered-by and inspired-by the Pydantic library,” according to Colvin, who said that he expects the first fruits of this labor to be made available later this year.

“We’re building cloud services, and we’ll have a generous free tier and usage-based pricing after that,” Colvin continued. “We’ll make developing and deploying applications to the cloud easier, safer, faster and ultimately more enjoyable for developers. We’ll start by helping engineers with small applications or functions, but long-term our aim is to be a force-multiplier for all developers — giving them the tools that allow them to improve the world for everyone.”

So, what we’re probably talking about here, in the longer term at least, is something akin to a platform-as-a-service (PaaS) along the similar kind of lines as Salesforce-owned Heroku.

Colvin has already been working on Pydantic full-time since last March, funded through a combination of savings and corporate sponsorships, including cash infusions from industry heavyweights such as GitHub (Microsoft), AWS and Salesforce.

On top of that, the open source project has garnered significant code contributions from more than 351 separate entities, including developers at Google, AWS, Visa, and Stripe. This positions Pydantic strongly as it looks to build out a full-time team — any open source project that has such industrial gravitas usually stands a good chance of attracting top technical talent.

“Pydantic’s contributors would be the envy of any major tech company, and my first few hires will all be developers who’ve made significant contributions to the project,” Colvin said. “In effect, the network and reputation of Pydantic allows me to hire engineers who would otherwise only be available to companies with the biggest names and deepest pockets.”

Pydantic will start with an initial team of six, with the first three engineers based in Montana, Chicago and Berlin.

“I’m hiring the best developers I’ve met in open source, hence they’re all over the world,” Colvin noted.

Show me the money

Securing the backing of one of Silicon Valley’s most illustrious VCs is a major coup for any fledgling startup. Indeed, Sequoia has previously backed the likes of Apple, Google, Cisco, Dropbox, Electronic Arts, PayPal, Zoom and WhatsApp, while in recent years it has been doubling down on its European efforts with new region-specific partners.

Today, Sequoia has five partners based out of its Marylebone office, however, its investment in Pydantic was led by U.S. partner Bogomil Balkansky, who was keen to highlight Sequoia’s history of investing in startups with open source foundations, including MongoDB, Confluent and dbt Labs (formerly Fishtown Analytics).

“Sequoia has been thinking about the ‘rise of the developer’ for more than a decade, and we have partnered with many open source-based companies,” Balkansky said in a statement issued to TechCrunch. “We are thrilled to partner with Samuel because of this amazing track record creating the widely used and beloved Python data validation library Pydantic.”

Today’s news comes just a few weeks after Sequoia announced a $195 million fund dedicated to seed-stage startups in the U.S. and Europe. Its fifth seed fund, Sequoia also said that the money would help fund startups in its Arc program, a London and Silicon Valley-based program it launched last year to discover and mentor so-called “outlier” startups across the U.S. and Europe.

However, Sequoia didn’t confirm whether its investment in Pydantic stems from that new fund.

It’s worth noting here that although Sequoia has been looking to invest in European founders, the new Pydantic Services Inc. entity will be incorporated in the U.S., though Colvin will remain in the U.K. for the time-being.

“A number of the early employees are based in the U.S., and it’s easier to give them share options if it’s a U.S. company,” Colvin said. “If the company is successful, it’s likely we’d need to move it to the U.S. in the future, [and] I’m told that’s complex and expensive, so it seemed sensible to start off with a U.S.-based company.”

With $4.7 million in the bank, Colvin said that they’re continuing to rewrite parts of Pydantic in Rust, with a view toward making it more efficient via a ten-fold performance improvement. So while Pydantic 2.0, which is scheduled to be released later this year, will still be a library for Python developers, some of its core logic will be written in Rust.

“Making Pydantic faster should significantly reduce the amount of energy consumed by the servers running applications which are built on Pydantic,” Colvin said. “I’m a strong believer that Python is a great language for application development, but as library developers, we can significantly improve those libraries — make them faster, safer and less energy-intensive to run — by building tools and services for those applications using fast and secure languages like Rust.”

Sequoia backs open source data-validation framework Pydantic to commercialize with cloud services by Paul Sawers originally published on TechCrunch

If Sequoia, Paradigm and Thoma Bravo settle a new lawsuit, it could upend VC; here’s why

It was only a matter of time before frustrated customers of the fallen crypto exchange FTX went after its deep-pocketed venture backers. Indeed, the most surprising thing about a class-action lawsuit flagged earlier by Bloomberg — one that accuses Sequoia Capital, Paradigm, and Thoma Bravo of promoting FTX to the detriment of its users — is that it was filed yesterday and not sooner.

Still, VCs at every firm had better hope that nothing comes of it or the entire venture industry is in big trouble. A trial — even a settlement — could have widespread ramifications.

Here’s the potential problem: the new complaint specifically accuses the three firms of bestowing FTX with the “air of legitimacy” through their various actions, including a glowing piece about FTX founder Sam Bankman-Fried that Sequoia Capital commissioned (and later took down from its website), a Startup Grind event last year where Sequoia partner Michelle Bailhe interviewed Bankman-Fried for a session titled “The Unstoppable Rise of FTX,” and boosterish tweets by Paradigm cofounder Matt Huang and Thoma Bravo founder Orlando Bravo. (In response to a 2021 tweet by MicroStrategy Michael Saylor, warning people to “Only trade #bitcoin on a legitimate exchange you trust,” Bravo then tweeted to his Twitter followers: “Only trade #bitcoin with @FTX_Official.”)

The legal complaint also refers to several media outlets where these investors were quoted singing Bankman-Fried’s praises, including a MarketWatch piece where Bravo was quoted as saying that Bankman-Fried “combines being visionary with being a phenomenal operator . . . That is rare.”

None of what is cited in the complaint is new information. All of it makes the investors look foolish in retrospect. None of it suggests the investors did anything out of the ordinary in terms of their public comments. They actively promoted an investment, and is there a single investor who doesn’t do the same? Take a look at Twitter or TechCrunch or Bloomberg TV at nearly any time of day and you’ll see or read investors blathering on about how wonderful their portfolio companies are.

Is such promotion crime? If it is, the entire industry is guilty of it. VCs see part of their “value add” as helping to extend the brand of the startups they fund. They’ve been “talking their book” since the industry got off the ground many decades ago. With the advent of social media, it only became much more annoying.

Does it prove that these specific investors were trying to dupe anyone — that they were trying to attract attention to an exchange that they secretly believed was a house of cards? I really doubt it. More important, while I’m not a lawyer, I don’t see that case being made in the filing (see below).

There is no question that the institutional investors in FTX royally screwed up. The three firms named in this new suit alone lost a stunning $550 million on FTX, which has since been accused of orchestrating “old-fashioned embezzlement” by the lawyer-CEO now steering the company through bankruptcy.

But VCs don’t tend to screw up on purpose; public humiliation isn’t good for business. You could argue that for all the credit it gets for its investing savvy, Sequoia Capital in particular should have known better. FTX is now believed to have been freely commingling funds with another outfit that was founded by Bankman-Fried, Alameda Research, right under the firm’s nose.

At the same time, Alfred Lin, the Sequoia partner who led the firm’s investment in FTX, has said explicitly that the firm believes it was “misled” by Bankman-Fried, and that he feels personally deceived by Bankman-Fried, not because of the investment itself but because he thought he knew Bankman-Fried. “It’s the year and a half working relationship afterwards, that I still didn’t see it. And that is difficult,” Lin said at an event I hosted last month.

Asked about Sequoia’s due diligence at this same event, he defended it, in fact, suggesting there is little a venture firm can do when it isn’t being presented with the whole picture by a founder. “We looked at balance sheets, we looked at organizational charts of the subsidiaries, we looked at how [big a percentage] Alameda was of FTX’s volume. We looked at a variety of things. The company Alameda we knew was a hedge fund. We knew that they were trading on FTX. But it was not on any of FTX’s organizational charts. [And] when we asked, ‘Are these two companies independent?’ We were told that they were.”

The new lawsuit is being spearheaded by the law firm Robbins Geller Rudman & Dowd of San Diego.

In 2014, the same law firm helped wring a $590 million settlement out of three private equity firms —  Kohlberg Kravis Roberts, The Blackstone Group, and TPG Capital —  after they were accused of colluding with one another to drive down the prices of corporate takeover targets.

We reached out to the Robbins Geller Rudman & Dowd last night for comment about the complaint and have yet to hear back. In the meantime, it has filed another class action lawsuit against Avaya Holdings, a business communications company that filed bankruptcy yesterday, five years after emerging from its previous bankruptcy.

Pictured above: Alfred Lin of Sequoia Capital at a 2016 TechCrunch Disrupt event

Class-action lawsuit filed on behalf of FTX investors by TechCrunch on Scribd

If Sequoia, Paradigm and Thoma Bravo settle a new lawsuit, it could upend VC; here’s why by Connie Loizos originally published on TechCrunch

Sequoia injects $195 million into an ever-eager seed environment

Sequoia Capital, a storied venture capital firm, announced today that it has launched a $195 million dedicated seed fund, its fifth. The vehicle will be used to back founders across the United States and Europe; the capital will also be used to invest in future cohorts or its Arc program, an internal Sequoia initiative that invests between $500,000 and $1 million into rising founders across the world and that’s currently accepting applications.

The capital comes as the pre-seed and seed world, already a growing part of the startup ecosystem, becomes even more attractive to investors who want to steer clear of the turbulence of the later-stage market. AngelList data, released today, tells part of the story, noting median pre-seed valuations held consistent quarter over quarter last year while later-stage deals, such as Series B, fell by nearly a third.

Jess Lee, a Sequoia partner and All Raise co-founder, said on Twitter that the firm will be looking at all verticals for potential outlier founders, but specifically called out artificial intelligence and consumer social as two areas she’s investing in.

In a blog post announcing the seed fund, other partners similarly hinted at areas of interest. Alfred Lin pointed to augmented reality and virtual reality as the makings of the “next consumer platform to drive wide-scale innovation.” Shaun Maguire said that “hardware will always have my heart.” Roelof Botha, the recently-appointed global head of Sequoia, kept it simple, writing in the post that he’s looking for founders who are taking advantage of a more disciplined market, and the decreasing cost of automation, artificial intelligence, and even genetic sequencing.

In an email exchange this morning, Sequoia partner Stephanie Zahn said that it’s “never too early to partner with Sequoia. We want to meet founders right at the beginning of their thought process” and to “play an active role early on: fleshing out ideas, posing questions as food for thought, introducing them to potential customers, and dreaming together about their vision.”

Zahn noted that Sequoia has written seed checks into a number of once-fledgling startups that developed into major brands, including Airbnb (Sequoia initially invested around $600,000 in the company); Dropbox (it plugged in around $950,000 early on) and Nubank ($1 million).

Zahn observed that Sequoia also partnered with the still-private payments giant Stripe “when they didn’t have a single line of code”; it was the first investor in Whatsapp; and Palo Alto Networks and YouTube were incubated at its offices.

Sequoia, like many firms, has seen its portfolio humbled during the downturn, which may impact how partners are handling due diligence and sourcing in the year ahead. Just this past week, Sequoia-backed company GoMechanic cut 70% jobs, with its founder admitting in a LinkedIn post that the outfit made “grave errors in judgment as we followed growth at all costs.”

Other Sequoia portfolio companies with sizable cuts include Bounce, Ola, and well, FTX. Indeed, Sequoia’s $200 million investment in FTX has brought fair criticism to the firm’s decision-making track record.

Lin, who TechCrunch’s Connie Loizos interviewed last week at her StrictlyVC event, said the experience hasn’t soured Sequoia’s interest in crypto. Though he said that just 10% of Sequoia’s crypto fund has been deployed one year after it was launched, he added that Sequoia remains “long-term optimistic” about crypto.

Lin also told Loizos that “not-so-fun years are the best times to invest, because all of the tourists are gone,” a sentiment that Zahn echoed today in her exchange with TC.

Wrote Zahn: “The end of the frothy market of recent years is a positive. Constraints breed creativity and discipline. Many of today’s most transformative companies were founded during periods of uncertainty, and we believe the same to be true now.”

Sequoia injects $195 million into an ever-eager seed environment by Natasha Mascarenhas originally published on TechCrunch

Sequoia’s Carl Eschenbach, who led deals for Zoom and Snowflake, to run Workday as co-CEO

Carl Eschenbach, a longtime enterprise software executive who joined Sequoia Capital in 2016 and went on to lead a number of lucrative deals for the venture firm, is going back to an operating role.

As the new co-CEO of Workday, Eschenbach will co-lead the enterprise cloud applications giant with its co-CEO, cofounder and company chair Aneel Bhusri, until 2024, at which point Eschenbach will take over as sole CEO.

Chano Fernandez, a former SAP executive who joined Workday in 2014 and has served as its co-CEO since 2020, has “stepped down” as co-CEO and relinquished his seat on the company’s board, “effective immediately,” says Workday.

Before joining Sequoia, Eschenbach spent his career with a variety of software companies. Most notably, before diving into VC, he was the president and COO of VMware, the cloud computing and virtualization technology company, where he spent more than 14 years. Before joining VMware, he served as a VP at Inktomi, a dot-com era company that was acquired in 2002 by Yahoo.

Eschenbach will remain a venture partner at Sequoia Capital, but he isn’t expected to lead new deals. While at Sequoia, he struck a number of deals that ultimately produced huge returns for the firm, including persuading Zoom founder and CEO Eric Yuan to accept $100 million in Series D funding entirely from Sequoia in 2017.

The venture firm owned 11.4% of Zoom at the time of its 2019 IPO; Zoom’s shares skyrocketed afterward as COVID-19 gained traction the following year, shutting down much of the world, which turned largely to Zoom’s video communication’s platform.

Thanks largely to Eschenbach, along Sequoia partner Pat Grady, Sequoia also owned an 8.4% stake in Snowflake heading into its 2020 IPO (it was the biggest software IPO ever).

Eschenbach joined the board of Workday in 2018. It is not a Sequoia portfolio company, but Sequoia’s partners are often asked to take outside board seats and on rare occasions, the firm green-lights these moves. (Longtime partner Jim Goetz — who persuaded Eschenbach to join Sequoia — is on the board of Intel, as another example.)

The co-CEO role can be controversial. Oracle seemed to pull off such a pairing successfully with top executives Safra Catz and Mark Hurd, until his death last year. SAP, meanwhile, tried a co-CEO setup and abandoned it fairly quickly.

Salesforce’s experiments with co-CEOs have also not been successful. Earlier this month, almost a year to the day after becoming co-CEO of the CRM giant, Bret Taylor stepped down in a stunning announcement that appeared to come out of the blue.

Taylor wasn’t the first co-CEO of Salesforce to throw in the towel for one reason or another. In 2018, Salesforce founder Marc Benioff named Keith Block co-CEO. Block lasted in the position slightly longer than Taylor, stepping down in 2020.

Possibly, Eschenbach and Bhusri will understand one another better than most given they have similar histories. Before cofounding Workday in 2005, Bhusri was himself a venture capitalist with the firm Greylock Partners, investing on the firm’s behalf for more than 23 years.

Sequoia’s Carl Eschenbach, who led deals for Zoom and Snowflake, to run Workday as co-CEO by Connie Loizos originally published on TechCrunch

Was Sam Bankman-Fried’s appearance a performance?

FTX founder Sam Bankman-Fried talked from an undisclosed location in the Bahamas today with reporter Andrew Ross Sorkin for a DealBook event, a discussion that his legal team “very much” did not approve of, he told Sorkin with a boyish grin.

Hedge fund billionaire Bill Ackman tweeted afterward that he felt “SBF” was “telling the truth.” But we’re not so sure. In fact, having watched the live-stream, we’re still wrestling with whether he was credible.

Throughout the back-and-forth, Bankman-Fried sounded almost studiously amateurish, insisting he didn’t knowingly commingle funds between FTX and the trading firm he controlled, Alameda Research, where it has since been discovered that the exchange had funneled $10 billion in customer assets to Alameda for use in trading, lending and investing activities.

Though between $1 billion and $2 billion appears to be missing, and though company executives reportedly set up a bookkeeping “back door” to circumnavigate red flags, when Sorkin asked about the outfits’ reliance on one another, Bankman-Fried said that he was “frankly surprised by how big Alameda’s position was, which points to another failure of oversight on my part, and a failure to appoint someone to be chiefly in charge of that.”

Notably, Bankman-Fried ultimately used “oversight” nine times, even as he appeared to blame others. Asked if he should have taken money from FTX’s users’ accounts at all, he pointed the finger at Alameda, saying, “I wasn’t running [it], I didn’t know exactly what was going on. I didn’t know the size of their position. A lot of these are things that I’ve learned over the last month that I learned as I was sort of frantically digging into this.” Obviously, he added, “that’s a pretty big mistake. I mark that as a pretty big oversight that I wasn’t more aware of.”

At many points during his back and forth with Sorkin, Bankman came across, too, as delusional. He said that before FTX filed for bankruptcy — a move he authorized grudgingly four days after it was first proposed — “There had been a lot of interest in financing [FTX]. A lot of fairly strong interest, you know, many billions of dollars’ worth.”

It really didn’t seem that way. There wasn’t interest from Binance, as was well-documented. There wasn’t interest from his scorched venture backers, who, by the way, Bankman-Fried spared today in the interview. (Asked by Sorkin whether “Sequoia Capital, Paradigm and some very big venture capital firms” that funded FTX ever asked Bankman-Fried about how much risk he was taking on and “whether they bear any responsibility,” he answered, “I don’t think that they’re responsible . . . most of what they were focused on was . . .what might FTX become . . .”)

Indeed, in many ways, Bankman-Fried behaved today very much like someone who doesn’t comprehend that his life just changed dramatically and who instead believes he can still steer the outcome of FTX, despite the fact that he was forced to resign. (FTX’s new chief executive, a corporate turnaround specialist, has called Bankman-Fried’s stewardship a “complete failure of corporate control.”)

He talked of “a lot of assets that are on hand [still at FTX], although many of them are not liquid. They were worth quite a bit more than the new liabilities a month ago, even, a lot of them a year ago.” Bankman-Fried relatedly suggested that he hasn’t accepted that his customers will lose everything.

He said toward the end of the interview, “I can’t promise you and I can’t promise anyone anything there, and it’s not really in my hands to a large extent. But I would think that it would make sense to be exploring [a pathway forward] because I think there’s a chance that customers could end up a lot more whole — I don’t know, maybe even fully whole — if there was a really strong, concerted effort.”

It was such a strange showing, we wondered why some of the most sophisticated investors in the world put him on a pedestal in the first place.

Sure, he has “had a bad month,” as he told Sorkin, to audience laughter. Yet it’s just as likely that Bankman-Fried and his circle are busily making the argument that he was simply inept — in over his head — and never intentionally participated in artifice.

It makes a big difference. U.S. prosecutors can pursue a civil action against someone accused of ineptitude or negligence, and that individual might face significant financial consequences. But if it’s proven that an individual schemed to mislead others, then fraud crimes are on the table, which also means jail time is on the table. It could mean a far bleaker future for Bankman-Fried.

Already, the U.S. Attorney’s Office in Manhattan has reportedly launched an investigation into FTX; the SEC and the Justice Department are also, naturally, poking around and trying to determine whether Bankman-Fried’s maneuverings intended to deceive or were instead an astonishing series of blunders.

It’s tempting to conclude the former, that Bankman-Fried made his decisions knowingly. Given his “crypto genius” status until recently, it’s hard to imagine he was so in the dark. But it was quite a performance today if so.

Was Sam Bankman-Fried’s appearance a performance? by Connie Loizos originally published on TechCrunch

Drive Capital’s investors hit a fork in the road

Drive Capital was founded by two former Sequoia Capital Partners looking to start anew in the Midwest. But investors in the Columbus, Oh.-based firm have had a bumpy ride of late, and according to our sources, they aren’t enjoying it.

It’s a dramatic turn for Drive, which announced $1 billion in capital commitments back in June, a healthy amount for a 10-year-old firm whose mission it is to invest nearly everywhere in the U.S. outside of Silicon Valley. In fact, in June, the firm — cofounded by veteran VCs Mark Kvamme and Chris Olsen — seemed to be riding high, with a couple of apparent wins and news funds that brought Drive’s assets under management to more than $2 billion.

Yet dating back to September — soon after we talked with Olsen about VCs doubling back to California — we heard rumblings about a rift, along with separate plans that Kvamme was making. Then came the announcement last month that the team was splitting up.

At first, the story was that Kvamme, who logged more than twice as many years at Sequoia than Olsen, was transitioning to “partner emeritus” because, as he told the regional outlet Columbus Business First, 10 years and four funding cycles was longer than he originally planned to lead Drive Capital. (This came as news to Drive’s investors.)

This week, the other shoe dropped. Columbus Business First reported that Kvamme, who races cars, is not zipping off to semi-retirement but instead talking with potential backers about a new fund, the Ohio Fund, which will apparently invest in multiple asset classes, including other funds, public stocks, private companies in Ohio, and infrastructure. The idea is to  “focus on the future economic vitality of Ohio,” said an unnamed source to the outlet.

Olsen now says that he’s surprised by this development. We obtained a letter that Drive sent out to its limited partners tonight that reads:

Dear Limited Partner:

This week an article was published indicating that our Partner Emeritus Mark Kvamme is launching a new investment fund. All of us at Drive were surprised by this news, as we are sure you were too. While we will not send you a note each time a new article about Mark is published, we feel that in the spirit of being a good partner, it’s appropriate to provide you with a transparent update about this situation and our relationship with Mark.

After the article was published we spoke with Mark and learned that the prospect of him raising a new fund was leaked to a journalist from an unknown source. According to Mark, he has not yet determined what he is going to do next. Raising a new type of fund is something he is considering, along with other options in public service and personal endeavors.

We have a formal separation agreement with Mark that prevents him from starting a competitive firm or fund to Drive. Please know that this was a heavily negotiated agreement to ensure that it substantially protects Drive, our Limited Partners’ interests, and everything we are building toward at Drive.

Again, we do not intend to communicate with you each time a new article is written about Mark, but in this instance, we thought it appropriate to provide clarification. Should you have any questions, please do not hesitate to reach out [contact information redacted by TechCrunch].

The Drive Team

Olsen declined to comment for this story; we reached out to Kvamme and did not receive a response. But it’s complicated, to say the least.

According to our sources, part of the split traces to a relationship between Olsen and Yasmine Lacaillade, who was Drive’s COO for nearly seven years before leaving the firm in April to launch her own investment outfit.

Asked about this, a Drive spokesman downplayed any tensions that may have arisen from a romantic relationship between the two, writing: “Yes you heard right in that Chris and Yas are in a relationship. That’s been public knowledge for some time. No comments beyond that.”

Like most venture outfits right now, Drive also finds its portfolio in rougher shape than a year or two ago. One of Drive’s biggest exits to date has been that of Root Insurance, a now seven-year-old, Columbus, Oh.-based insurance company that specializes in automotive coverage and that staged a traditional IPO in November 2020. Though the shares performed initially, they’ve tanked since, currently priced at roughly $7 each after a reverse stock split, down from $486 per share the day the company went public. Olsen stepped off the board in November of last year.

The other big star of Drive’s portfolio currently — Olive AI — is trying to overcome its own challenges. The Columbus-based healthcare automation startup, founded in 2012, has long framed its extensive history of pivots (more than 30 to date) as an inspirational story of trying, then trying again. Olive was rewarded by investors for its willingness to shift gears, too. It has raised a staggering $902 million over the years and said last year that it was valued at $4 billion.

But the outfit was never all that it appeared, according to a series of damning Axios pieces, and by September, the wheels were fast loosening. Most notably, the company’s chief financial officer and chief product officer were abruptly fired, following out the door numerous C-level executives who also left this fall, including its president, a senior director of operations, its EVP of operations and its SVP of payer product strategy.

Olive AI has since said it will sell a portion of its products and services to Rotera, a company built out of Olive’s own venture studio.

Limited partners aren’t happy about these collective developments, but as far as we’re aware, they have not talked about taking action and it seems unlikely that they will.

First, it’s exceedingly rare for limited partners to organize against a venture firm to which they’ve committed capital and only slightly more common for VCs to extend LPs the courtesy of scaling back their commitments.

They might expect that Olsen will land on his feet. He does have 16 years of venture investing experience and a staff of roughly 20 at Drive.

Further, there isn’t much interest in creating headaches for Kvamme, who borders on VC royalty. (His father was a partner at Kleiner Perkins; his first wife is the daughter of another famed VC, former Sequoia Capital partner Pierre Lamond.)

Kvamme is very connected in Ohio, after being lured there originally by his longtime friend John Kasich to take an economic development job. He may have political aspirations of his own, too. Indeed, one regional investor recently told Business Insider that Kvamme may be launching a fund meant to bolster Ohio’s economy as groundwork for a future campaign.

There is a playbook if so. Investor JD Vance set up a venture firm in Cincinnati called Narya in late 2019 before announcing his bid for Senate roughly 1.5 years later. In late September, according to Cleveland.com, Kvamme co-hosted one of the fundraisers that helped Vance win that race earlier this month.

Drive Capital’s investors hit a fork in the road by Connie Loizos originally published on TechCrunch

Personal carbon-cutting app Joro raises $10M Series A from Sequoia, Jay-Z’s Arrive

Cutting your own carbon footprint isn’t easy, even for the most motivated person. Tracking, tallying, investigating, researching.

For Sanchali Pal, though, that was part of the fun.

Pal, who had been working in international development, wanted to start trimming her footprint. “I started building an Excel spreadsheet of the carbon emissions in my life, starting with food, and I ended up becoming this massive spreadsheet and ended up using it over six years to lower my emissions by about 30%.”

Pal knew, though, that not everyone would go to those lengths. “I found it incredibly satisfying, but I’m a very particular kind of person.” Even still, she said the process was still “difficult and frustrating.”

That’s what got Pal started on what would eventually become Joro, an app that helps people track and reduce their carbon footprints. Founded in 2018, Pal raised a $1 million pre-seed in 2019 and another $2.5 million in a 2020 seed round. Sequoia participated in both, leading the second round.

Image of Joro founder Sanchali Pal.

Image Credits: Cayce Clifford

Those investments have helped Joro triple its monthly active users over the past few months, reaching an average compound monthly growth rate of 25%. Now, TechCrunch has exclusively learned that Joro raised a $10 million Series A led by existing investors Sequoia Capital and Amasia. They were joined by Norrsken, Nest co-founder Matt Rogers’ Incite, Jay-Z’s Arrive, and Mike Einziger, the lead guitarist of Incubus.

The new funding will not only help build the Joro team, but it’ll also help continue the company’s shift from helping people track their footprints to helping them take action on what they learn.

While Joro users can get general advice on how to cut their carbon footprint, the real power of the app happens when the user connects their financial records, synced via Plaid. From there, Joro works to estimate their carbon footprint by studying payments and amounts, like how much spending happens at gas stations or on airfare, for example. From there, it offers more personalized suggestions for how the user might cut their own carbon footprint. (Pal said that Joro never sells this data outside the platform “and never will.”)

Sometimes those cuts are simple, like eating less meat, while others can be more challenging. For users with family scattered across the country, for example, eliminating air travel would be a difficult thing to ask. In that case, Joro then offers users the ability to offset their emissions.

For a fee, users can offset part or all of their emissions. To make it simple, Joro offers a subscription. For users on a budget, they can set a ceiling on how much they’re willing to pay per month. Most people using the app pay about $30 per month, Pal said. Some pay as little as $10, while others with more extravagant lifestyles pay as much as $1,000 per month.

Joro takes 17% of monthly subscription fees to help pay for the app’s services and — more importantly from the user’s perspective — for vetting offsets.

Finding high-quality offsets is incredibly challenging for individuals. I went down that path years ago and eventually gave up because the ones that I felt were suitably additional, verifiable and permanent were only available to large buyers. I didn’t want to be throwing my money after questionable offsets, so I didn’t buy any. Because Joro aggregates its purchases across users, it can buy the types that I couldn’t access on my own.

Pal said that Joro evaluates offsets every few months to ensure they’re living up to the company’s standards. In addition to the usual requirements — additionality, verifiability and permanence — the team also looks for what Pal calls “transformative potential.”

“How does this affect local ecosystems? Environmental justice considerations? Especially as a consumer, as a person, if you’re buying into offsets, things you might care about more than a company.”

The offsets cost Joro anywhere from $12 to $600 per metric ton. Some are nature-based solutions, while others are technological. The entire portfolio is balanced at an average of $25 per metric ton, Pal said.

The startup will use its new funding to build its team and continue the shift from tracking carbon footprints to helping people take action to reduce them. The new focus not only satisfies a frequent request from users — it also should open new opportunities.

“We think it could be another path to revenue, where people are actually changing things, switching to lower-carbon vendors or to lower-carbon ways of living. That’s a really great alignment of our impact model and our revenue model,” Pal said, saying that it would likely take the form of affiliate relationships between Joro and the vendors it features in the app.

Pal is optimistic that the new infusion of cash and recent growth trends will help broaden Joro’s impact. Already, though, she’s stunned by how the landscape has changed recently.

“Even three years ago, it was really hard to explain to people what Joro was,” she said. “The concept of climate tech barely existed, right? There was clean tech, and there was software. But software for climate? It’s been incredible to see how quickly it’s happened.”

Personal carbon-cutting app Joro raises $10M Series A from Sequoia, Jay-Z’s Arrive by Tim De Chant originally published on TechCrunch