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Look Outside of Silicon Valley to See How Founders Can Be Successful Post-COVID-19

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500 Startups kicked off a new series called Innovation Coffee Breaks. Experts from leading companies, venture capital firms and startups join us every week to discuss how to innovate during this time of uncertainty. 

We caught up with Alex Lazarow, the investment director of Cathay Innovation, a global fund affiliated with Cathay Capital. Lazarow also teaches entrepreneurship at the Middlebury Institute for International Studies and is out with a new book called “Out-Innovate: How Global Entrepreneurs from Delhi to Detroit are Rewriting the Rules of Silicon Valley.” 

He believes that the best entrepreneurs in Chicago, Amsterdam or Bangalore have more in common with the best entrepreneurs in São Paulo than they do with those in San Francisco, but no one is telling their stories. For his book, he interviewed nearly 200 entrepreneurs who are leading some of the hottest companies around the world, primarily outside of Silicon Valley.

Vijay Rajendran: What kind of founders will be successful in a post-COVID-19 environment? Your book suggests that blitz-scaling doesn’t work in other parts of the world and unicorns should be replaced with what you describe as “camels.” Can you explain why camels and why they may be desirable?

Alex Lazarow: In the Valley, if the philosophy is to chase unicorns, it translates to an approach of growth at all costs. The context has changed a little bit in the last two months, but around the world the context is different. There’s less capital, there’s less depth of trained startup human capital. Often it’s an ecosystem that is more susceptible to macroeconomic shocks, particularly in emerging markets. I chose the camel because it’s a real animal. It doesn’t live in fictitious science. It can sprint when it needs, but it can survive the world’s harshest environments.

Entrepreneurs outside the Valley are infusing the business with sustainability and resilience from day one. It is about thinking very carefully about unit economics and making sure you’re not subsidizing acquisition.You’re charging for the value you create. Second is managing costs and managing burn, and third is taking a long-term view. The lessons won’t be from the ecosystem that has thrived in a context of abundance. 

Vijay Rajendran: To build that kind of sustainable early venture, do you need to focus on a hyper-local market or can you still have global aspirations from day one?

Alex Lazarow: The constraints that entrepreneurs operate in are often turned into advantages. They are starting their business in a smaller market. 500 Startups knows this firsthand with its funds around the world in many emerging markets. If the local market is smaller, it means that the opportunity must be much bigger by becoming global. It challenges entrepreneurs to build a culture, an organization and a product that can scale across borders. That’s a powerful skill set. 

Vijay Rajendran: To build that kind of organization, you’re also now trying to do that in a current state, but probably in a future state that involves remote work and distributed teams. Does that accelerate or decelerate the kinds of companies that you’ll need to see camels?

Alex Lazarow: [COVID-19] will be a catalyst for it. My Twitter feed is exploding with everyone showing me their fancy Zoom rigs in the Valley, but building distributed teams has often been par for the course for many startups outside of the Valley since the get go. Now we can learn from their best practice around doing this successfully.

Vijay Rajendran: We definitely have much to learn in the Valley; it isn’t the sole source of all expertise.

Alex Lazarow: What is happening today is learning in bi-directions. Take ride-sharing. Uber and Lyft pioneered the model [and] we saw that model get replicated all over the world. It got adapted in [different] ways. Think of Indonesia’s Gojek. It got adapted to ride sharing on ojeks, little motorcycle taxis. The CEO, Nadiem Makarim, thought about drivers as an ecosystem–driving people to work, delivering food, offering mobile money. 

Vijay Rajendran: I couldn’t agree more, particularly if you consider how other societies are leapfrogging many of the legacies that we have here.

Alex Lazarow: If you think about it, the world leader in mobile banking is probably in Kenya. One of the biggest digital banks is in Brazil, Nubank. Some of the leaders on super apps are in China. India is now inspiring a lot of new models that are getting replicated. 

Vijay Rajendran: To build that, it means that startups have to build either the full stack or bigger stack than maybe we would be accustomed to in the U.S. or many other markets like the Valley. What does it mean to have to build the full stack rather than just the micro services or the application layer?

Alex Lazarow: In the book, I talk about GuiaBolso, which is trying to build the Mint.com of Brazil. For Mint.com, we have Yodlee and Plaid for the bank interconnection layer. That didn’t exist in Brazil, so the first thing they had to do is build that. Flipkart (India) wasn’t just an e-commerce player. It had to do cash on collection, cash on delivery, logistics and a whole range of other services. Amazon has built this already, but didn’t have to build it from day one. We’re seeing a lot of startups build not just the one product, but an ecosystem around it to fill institutional voids. 

Vijay Rajendran: Incumbents more likely write off the startups as insignificant. Are there any cautionary tales? Is there something that leaders in big companies and institutions can take away from this?

Alex Lazarow: Think of Tencent and Alibaba, which are not only investing in startups, but through the WeChat ecosystem or through Alipay are actually helping them scale. How can corporates think about that model and infuse some of their businesses with that? There’s obviously this threat narrative, but there’s a big opportunity narrative as well to reinvent and reinvigorate businesses.

Vijay Rajendran: In the context of what is happening around the world, are there also some good alternatives to venture capital? And do you have any predictions of how funding companies will be different in the future?

Alex Lazarow: The venture capital model emanated from the whaling industry. One of the reasons it’s called carried interest is because it used to be literally what you carried off the boat. That model has worked extraordinarily well for a particular context and for a particular type of startup. Today there are 480 startup ecosystems around the world. There are going to be different models and as a result, there will be different ways to support those entrepreneurs.

I’ll give you three areas that are interesting. The first is reinventing this whaling model with something else. Another industry would have been the mining industry, which also funds high-risk ventures and if you adapt that model, you might get a revenue share, which is like a royalty. We’re seeing some funds getting built like that and startups getting built to do that. 

The second is thinking about the structure of the fund. The 2 and 20,10-year fund works well, but are there ways that you can take a longer term view? Naspers made arguably the most successful venture investment in history when they invested in Tencent and held it for two decades. 

Third, are there other tools to invest and assess companies? I’m taking all these meetings with entrepreneurs from all over the world and Zoom is an incredible leveler. It doesn’t matter if you’re in San Francisco or in North Dakota. One [tool] that is exciting is computerized decision making, where you can ingest a lot of information and make an impartial decision. This will become increasingly important, giving voice and increasing diversity in the venture industry. 

Vijay Rajendran is Director of Innovation and Partnerships at 500 Startups.

This interview has been edited for brevity and clarity.

This post is intended solely for general informational or educational purposes only. 500 Startups Management Company, L.L.C. and its affiliates (collectively “500 Startups”) makes no representation as to the accuracy or information in this post and while reasonable steps have been taken to ensure that the information herein is accurate and up-to-date, no liability can be accepted for any error or omissions. All third party links in this post have not been independently verified by 500 Startups and the inclusion of such links should not be interpreted as an endorsement or confirmation of the content within. Under no circumstances should any content in this post be construed as investment, legal, tax or accounting advice by 500 Startups, or an offer to sell or solicitation of interest to purchase any securities advised by 500 Startups. Prospective investors considering an investment into any 500 Startups fund should not consider or construe this content as fund marketing material. All views and opinions presented by guest speakers are the views and opinions of the relevant guest speaker and do not represent those of 500 Startups or any of its affiliates or representatives. 

Source: https://500.co/look-outside-of-silicon-valley-to-see-how-founders-can-be-successful-post-covid-19/

Gaming

Unity, a gaming startup and maker of software used to create 50% of all new mobile games, raises over $1.3 billion in IPO at $13.6 billion valuation

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Last month, we wrote about Unity Technologies (Unity) after the gaming startup filed to go public. For the first time, Unity also revealed its financials after it filed its S-1 statement with the U.S. Securities and Exchange Commission. As of 2018, Unity software is used to create more than 50% of all new mobile games.

Today, Unity finally made its public debut. Its stock surges as shares of Unity opened at $75 in Friday morning trading, up 44% from its initial-public-offering price of $52 a share. The initial public offering (IPO) price came above a raised expected range of $44 to $48 a share. Unity share later settled at $68.85 raising more than $1.3  at a $13.6 billion valuation.

The San Francisco-based Unity makes 3D gaming software and tools that enable developers to create games and other computer-generated entertainment, and its game engine runs thousands of console, mobile, and PC titles. As of 2018, Unity has been used to create 60 percent of augmented reality and virtual reality content.

Unity’s rival, Epic Games, is currently in a fight with Apple after the Fortnite game’s maker announced new payment options that allow players to buy in-game credits direct from Epic Games. Epic has since sued Apple in court. The ongoing saga with Apple could put Epic’s Unreal Engine in jeopardy and open more opportunities for Unity to increase its market share.

Unity was founded in Denmark in 2004 by David Helgason, Joachim Ante, and Nicholas Francis as Over the Edge Entertainment. The company later changed its name to Unity Technologies in 2007. Unity is the creator of the world’s leading real-time 3D development platform, giving users the most powerful and accessible tools to create, operate, and monetize experiences for the real-time world. The 16-year old gaming startup boasts business from game makers such as EA, Microsoft, and Zynga. Unity is based in San Francisco. It has 3,379 employees as of June 30. Backers include DFJ, Sequoia Capital, and Silver Lake Partners.

Unity’s technology software is by over 1.5M monthly active creators. In 2019 more than half of the top 1,000 games in the App Store and Google’s Play Store were built with Unity, the company said in Monday’s filing. In addition to offering the game engine for development, Unity derives revenue from service that can help companies monetize their content, including through advertising. Customers include BMW, EA, Microsoft, Niantic, Sony, Tencent, and Zynga.


Source: https://techstartups.com/2020/09/18/unity-gaming-startup-maker-software-used-create-50-new-mobile-games-raises-1-3-billion-ipo-13-6-billion-valuation/

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FBI finally arrested NS8 founder and CEO Adam Rogas after SEC fraud investigation found he defrauded investors of $123 million

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A little over a week ago, we wrote about cyber fraud protection tech startup NS8 after SEC started a fraud investigation about the startup and its CEO following the company’s $100+ million summer financing. A week earlier, NS8 CEO, Adam Rogas, abruptly left the company and the company laid off hundreds of employees.

Finally, justice is about to be served. Today, the U.S. Department of Justice (DOJ) announced that “Adam Rogas, founder, and CEO of a cyber fraud prevention startup has been arrested and charged with the securities fraud scheme.” DOJ said, “Adam Rogas allegedly raised $123 million from investors using financial statements that showed tens of millions of dollars of revenue and assets that did not exist.”

According to DOJ, ROGAS, 43, of Las Vegas, Nevada, is charged with one count of securities fraud, which carries a maximum sentence of 20 years in prison, one count of fraud in the offer or sale of securities, which carries a maximum sentence of five years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison.  The maximum potential sentences, in this case, are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

In a statement, DOJ said:

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that ADAM ROGAS, the co-founder and former CEO, CFO, and member of the board of directors of Las Vegas-based cyberfraud prevention company NS8, Inc. (“NS8”), was charged in a Complaint in Manhattan federal court with securities fraud, fraud in the offer and sale of securities, and wire fraud. ROGAS used fraudulent financial data to obtain over $123 million in financing for NS8, of which he personally obtained approximately $17.5 million. ROGAS was arrested today in the District of Nevada and is expected to be presented before a judge there tomorrow.

Acting Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Adam Rogas was the proverbial fox guarding the henhouse. While raising over $100 million from investors for his fraud prevention company, Rogas himself allegedly was engaging in a brazen fraud. Today’s arrest of Rogas ensures that he will be held accountable for his alleged scheme.”

FBI Assistant Director William F. Sweeney Jr. said:  “It seems ironic that the co-founder of a company designed to prevent online fraud would engage in fraudulent activity himself, but today that’s exactly what we allege Adam Rogas did. Rogas allegedly raised millions of dollars from investors based on fictitious financial affirmations, and in the end, walked away with nearly $17.5 million worth of that money. Within our complex financial crimes branch, securities fraud cases remain among our top priorities. We’ve seen far too many examples of unscrupulous actors engaging in this type of criminal activity, and we continue to work diligently to weed out this behavior whenever and wherever we find it.”

Back in June, we wrote about NS8 after the fraud prevention startup raised $123 million Series A funding to provide online fraud detection and prevention for small-and-medium-sized businesses. The round was led by Lightspeed Venture Partners and AXA Venture Partners (AVP).

Founded in 2016 by Adam Rogas, NS8’s fraud prevention platform combines behavioral analytics, real-time scoring, and global monitoring to help merchants of all sizes optimize order processing and minimize risk. Built on the Protect API, this app integrates directly into NS8’s platform and allows merchants to begin fighting fraud within minutes.

ADAM ROGAS was a co-founder of NS8 and served as its CEO, CFO, and a member of its board of directors.  ROGAS was also primarily responsible for the company’s fundraising activities.  NS8, based in Las Vegas, Nevada, is a cyberfraud prevention company that developed and sold electronic tools to help online vendors assess the fraud risks of customer transactions.  In the fall of 2019 and the spring of 2020, NS8 engaged in fundraising rounds through which it issued Series A Preferred Shares and obtained approximately $123 million in investor funds.


Source: https://techstartups.com/2020/09/18/fbi-finally-arrested-ns8-founder-ceo-adam-rogas-sec-fraud-investigation-found-founder-cyber-fraud-prevention-tech-startup-defrauded-investors-123-million/

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Berlin-based Infarm raises $170M to bring urban farming to cities so everyone can grow fresh produce right in their neighborhoods

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Infarm, a  Berlin, Germany-based AgTech startup announced that it has raised $170 million in Series C funding that it will use for infrastructure, R&D, and hiring. Infarm said it expects to raise an additional $30 million for a total of $200 million in Series C funding.

The round, which the company’s total funding to date to more than $300 million, was led by LGT Lightstone, with participation by investors Hanaco, Bonnier, Haniel, and Latitude, and was supported by existing Infarm investors Atomico, TriplePoint Capital, Mons Capital, and Astanor Ventures.

The company’s massive funding underscores consumer and retailer appetite for Infarm’s innovative approach to fresh, sustainable, and local food production in the wake of this year’s pandemic. By 2025, Infarm’s farming network is expected to reach more than 5,000,000 square feet to become the largest distributed farming network in the world as it builds towards helping cities become self-sufficient in their food production.

Founded in 2013 by Osnat Michaeli and the brothers Erez and Guy Galonska, Infarm builds and distributes highly efficient vertical farms throughout cities to grow fresh produce right in their neighborhoods. The farms are placed in various locations in the city, like supermarkets, restaurants, and distribution centers, so that vegetables grow and are harvested close to the moment of purchase or consumption.

Infarm combines highly efficient vertical farms with IoT technologies and Machine Learning, to offer an alternative food system that is resilient, transparent, and affordable. The company distributes its smart modular farms throughout the urban environment to grow fresh produce for the city’s inhabitants. With cutting edge R&D, patented technologies, and a leading multi-disciplinary team, Infarm was founded on a visionary mission: helping cities become self-sufficient in their food production while significantly improving the safety, quality, and environmental footprint of our food.

Infarm said it will also use the fresh capital infusion to deepen the regional and local penetration of Infarm’s global farming network and complete development of Infarm’s new generation of vertical cloud-connected farms.

Commenting on the funding, Erez Galonska, Co-founder and CEO of Infarm, said: “The coronavirus pandemic has put a global spotlight on the urgent agricultural and ecological challenges of our time. At Infarm, we believe there’s a better, healthier way to feed our cities: increasing access to fresh, pure, sustainable produce, grown as close as possible to people. As we scale to 5,000,000 sq ft in farming facilities across Europe, North American and Asia by 2025, this investment will help us make a truly global impact through our network, preserving the thousands of acres of land, millions of liters of water, and ultimately change the way people grow, eat and think about food.”

With operations across 10 countries and 30 cities worldwide, Infarm harvests 500,000+ plants monthly and growing while using 99.5% less space than soil-based agriculture, 95% less water, 90% less transport, and zero chemical pesticides. Today, 90% of electricity use throughout the Infarm network is from renewable energy and the company has set a target to reach zero emission food production next year.


Source: https://techstartups.com/2020/09/18/berlin-based-infarm-raises-170m-bring-urban-farming-cities-anyone-can-grow-fresh-produce-right-neighborhoods/

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