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Solve the ‘dead equity’ problem with a longer founder vesting schedule

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The four-year vesting schedule that the typical startup uses today is a problem waiting to happen. If one founder ends up quitting a year or two before the last cliff, they still own a large share of the cap table through many rounds to come. The departing founder might consider that fair, but the remaining founder(s) are the ones adding on the additional value — and resentment is not the only issue.

“The opportunity cost of dead equity is talent and capital,” Jake Jolis of Matrix Partners explains in a guest post for us this week. “Compensating talent and raising capital are the (only) two things you can use your startup’s equity for, and you need to do both in order for your company to grow large. If you want to build a big business, the road ahead is still long and windy, and you’re going to need every bit of help you can get. If your competitors don’t have dead equity you’re literally competing with a handicap.”

Instead, he argues that founders who are just starting out should consider doubling the vesting schedule to eight years or so. In one example he gives, a founder who leaves after two and a half years on a four-year plan could end up with 22% of the company even after a big new funding round, the creation of an employee stock option pool, and additional shares set aside for a replacement cofounder-level hire. On an eight-year plan, that would be only 11%, and there would be a lot more remaining to entice new cofounders.

Example cap table with eight-year cofounder vesting.

The full article is on Extra Crunch, but I’m including more key parts here given the broad value:

Given the risks still ahead of the business, this level of compensation is often much more fair from a value-creation standpoint. With less dead equity on the cap table, the startup is still attractive in the eyes of VCs and well-positioned to attract a strong co-founder replacement to take the company forward. The alternative can cripple the company, and even co-founder B won’t be happy owning a larger percent of zero. While it’s better to do it when you start the company, a co-founder unit can elongate their vesting later on as well. The main requirement is that all the co-founders believe it’s in their best interest and agree to it. Most repeat founders I’ve talked to agree that four years is too short. Personally, if I started another company, I’d pick something like eight. You definitely don’t need to. You might decide four or six is better for your co-founder unit and your company.

One final thought, from my startup cofounder years. The departing cofounder should still want to see the company succeed as big as possible to maximize the value of their own shares. On the steep slope between failure and success in this business, vesting longer is a powerful way to help the company will deliver the most back to them after the hard work of the early days.

Image Credits: FirstMark

Why one successful early-stage VC firm is getting into SPACs now

SPACs are an exciting development for any type of investor, public or private, Amish Jani of FirstMark Capital tells Connie Loizos. Indeed, his firm has historically focused on writing early-stage checks, so at first it is a bit jarring to see the FirstMark Horizon Acquisition SPAC raise $360 million and head out looking for the right unicorn. But he explains it all quite well an extensive interview this week:

TC: Why SPACs right now? Is it fair to say it’s a shortcut to a hot public market, in a time when no one quite knows when the markets could shift?

AJ: There are a couple of different threads that are coming together. I think the first one is the possibility that [SPACs] work, and really well. [Our portfolio company] DraftKings  [reverse-merged into a SPAC] and did a [private investment in a public equity deal]; it was a fairly complicated transaction and they used this to go public, and the stock has done incredibly well.

In parallel, [privately held companies] over the last five or six years could raise large sums of capital, and that was pushing out the timeline [to going public] fairly substantially. [Now there are] tens of billions of dollars in value sitting in the private markets and [at the same time] an opportunity to go public and build trust with public shareholders and leverage the early tailwinds of growth.

He goes on to explain why public markets are likely to stay hot for the right SPACs far into the future.

AJ: I think a bit of a misconception is this idea that most investors in the public markets want to be hot money or fast money. There are a lot of investors that are interested in being part of a company’s journey and who’ve been frustrated because they’ve been frozen out of being able to access these companies as they’ve stayed private longer. So our investors are some of are our [limited partners], but the vast majority are long-only funds, alternative investment managers and people who are really excited about technology as a long-term disrupter and want to be aligned with this next generation of iconic companies.

Check out the whole thing on TechCrunch.

Peter Reinhardt SegmentDSC00311

SaaS continues to boom with Databricks funding, Segment acquisition

Maybe Segment would have gone public sometime soon, but instead Twilio has scooped it up for $3.2 billion this week. The popular data management tool will now be a part of Twilio’s ever-expanding suite of customer communication products. Perhaps it’s another sign of a consolidation phase taking hold in the sector, after a Pre-Cambrian explosion of SaaS startups over the last decade? Alex Wilhelm dug into the financials of the deal for Extra Crunch and came away thinking that the deal was not too expensive — in fact he thinks Segment may have been able to hold out for a little more, especially considering the multiplication of Twilio’s stock price this year.

Databricks, meanwhile, has evolved from an open-source data analytics platform that struggled to make revenues to a run rate of $350 million. Per an interview that Alex did for EC with chief executive Ali Ghodsi, the factors in this growth included a shift to focus on more proprietary code, big customers and sophisticated features. It’s now aiming for an IPO next year.

And what about that IPO market, which was a bit quieter this week? Alex gives a letter grade to each of the 18 most notable tech companies that have gone public this year, and observes that most them are continuing to stay in positive territory from their initial prices.

Image Credits: Brent Franson for Paystack

Nigeria startup scene gets watershed exit with Paystack deal

Lagos has been building a strong local startup scene for years, and this week that translated into a win that could mark a new era for the city, country and beyond. Stripe has agreed to acquire payments provider Paystack in a deal that Ingrid Lunden hears was worth more than $200 million. With Stripe’s own aims for a massive IPO, Paystack is poised to produce ongoing returns for the company and its investors, as well as providing Nigeria with a new generation of investors, founders and highly skilled employees who are tightly interlinked with Silicon Valley and other innovation centers.

A startup hub just needs one or two of the right deals to change everything. Readers who were paying attention when Google bought YouTube almost exactly 14 years ago today will remember the ensuing surge in fundings, foundings, acquisitions and overall consumer internet industry activity that helped the Silicon Valley internet scene get back on its feet (and helped this site get on the map, too). Stripe has said it is planning more global expansion that could include additional deals like this, so more cities around the world could be getting their moments this way.

Donau City development area - Vienna, Austria

Donau City development area – Vienna, Austria

Vienna startups finding new opportunities during the pandemic

In this week’s European investor survey for Extra Crunch, Mike Butcher checks in on Vienna, Austria, which has been tallying up growth in local startup activity recently. Here’s Eva Ahr of Capital 300, which focuses on Germanic and Central Eastern European investments, regarding about the impact of the pandemic on the local markets:

Telemedicine, online education has been accelerated. We see a shift that otherwise would have taken years, especially in the relatively conservative German-speaking area. As mentioned previously, mental health solutions, hiring and employing remotely are some of the opportunities highlighted by COVID-19. Companies that are heavily exposed are those that have been serving the long tail of companies, small merchants, and local businesses that were closed down or experienced much less traffic in past months and hence are extremely sensitive around their cost base, discontinuing services that are not 110% essential.

Mike is also working on a Lisbon survey and we’d love to hear from any investors focused on the city and Portugal in general.

Around TechCrunch

Discuss the unbundling of early-stage VC with Unusual Ventures’ Sarah Leary & John Vrionis

Across the week

TechCrunch:

If the ad industry is serious about transparency, let’s open-source our SDKs

Brazil’s Black Silicon Valley could be an epicenter of innovation in Latin America

South Korea pushes for AI semiconductors as global demand grows

The need for true equity in equity compensation

Trump’s latest immigration restrictions are bad news for American workers

Extra Crunch:

How COVID-19 and the resulting recession are impacting female founders

Startup founders set up hacker homes to recreate Silicon Valley synergy

Brighteye Ventures’ Alex Latsis talks European edtech funding in 2020

Dear Sophie: I came on a B-1 visa, then COVID-19 happened. How can I stay?

What the iPhone 12 tells us about the state of the smartphone industry in 2020

#EquityPod

From Alex:

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

The whole crew was back today, with Natasha and Danny and I gathered to parse over what was really a blast of news. Lots of startups are raising. Lots of VCs are raising. And some unicorns are shooting to go public. It’s a lot to get through, but we’re here to catch you up.

Here’s what we got into:

And with that, we’re off until Monday morning. Chat soon, and stay safe.

Equity drops every Monday at 7:00 a.m. PDT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

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Review: iPad Air, smooth criminal

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The 2020 iPad Air comes at an interesting time in Apple’s release cycle. The iPad Pro is still strong from a specs perspective but is now technically a half generation or so behind in CPU. The new pro models won’t arrive for (theoretical) months. 

So what you end up with is a device that shares the design philosophy of the iPad Pro and inherits some of its best features while simultaneously leaping ahead of it in raw compute power. This makes the Air one of the better overall values in any computing device from Apple in some time. In fact, it’s become obvious that this is my top choice to recommend as a casual, portable computer from Apple’s entire lineup including the MacBooks. 

The clean new design has a thin, pleasantly colored simplicity to it. It matches the new iPhone 12 aesthetic quite well. The smoothly bullnosed corners and dusty blue peened finish make this one of the better looking iPads since the original. For years, Apple moved to try to “pull” the casing of the iPads around the back, making it disappear. This new design is a nice balance between the original’s frank simplicity and the new iPad Pro direction. A bit less sharp-edged and a bit more ‘friendly’ while still crisp.

One thing that I love a lot about the Air is that it lives up to its name and clocks in at the lightest weight of any of Apple’s portables at 1.0lb flat. This plus the Magic Keyboard is just such a killer portable writing machine it’s wild. 

Apple didn’t fix the camera position on this, something that still stinks about the iPad Pro because you have to use Face ID to unlock it and your hand is always in the way in landscape mode. Instead, they straight up ditched the entire True Depth camera and Face ID altogether and tucked Touch ID into the power button.

The initial scanning process to set up a finger seemed ever so slightly more reluctant to grab my fingerprint here than it used to on the home button. My guess is that it’s to do with the oblong shape of the sensor or its housing. But once it was scanned and input, I’m happy to report that it works exactly as well if not better than any iPhone home button version. I set a finger on my left hand here because I only use iPads in horizontal mode. But if you aren’t a keyboard person and are doing a lot of reading, the right hand would be appropriate. 

I actually found this to be a more natural feeling activation gesture than swiping up only to remember that my hand is in the way and having to move it and look at the camera. If the camera was placed along the horizontal edge of the iPad Pro or even in the corner I might feel differently. But as a compromise so that Apple doesn’t have to ship a True Depth camera in this unit, it works plenty fine. 

The surface of the Touch ID button is covered by an opaque sapphire crystal cover that blends well with the casing but allows the print to be read through it. 

Once you have the iPad Air unlocked, it falls right into the ‘X’ style navigation system. Swipes to open and navigate and move around. This is great because it brings near parity of navigation across Apple’s device lineup (minus the iPhone SE.)

The camera is fine. Do you shoot pictures on an iPad? Really you do? Wow, interesting, ok. Maybe buy the iPad Pro which has a full LiDAR array, a Wide and an Ultra Wide lens. Great for artists, scanning, reference work etc. On the iPad Air the camera is just fine but is really a formality. It can be used in all of those ways and the quality is on par, but it’s there because it has to be there. 

Those of you that travel with an iPad and an iPhone will be happy to know that you can charge an iPhone from the USB-C port on the iPad Air. And yep, it works fine with USB-C hubs and card readers too.

The iPad Air has 4GB of RAM where the iPad Pro 2020 has 6GB. It has a Liquid Retina display, but no ProMotion 120hz refresh. The lack of ProMotion is unfortunate but understandable. It requires another whole layer of display technology that is quite a bit more expensive. Having gotten used to it now I would say that on a larger screen like this it’s easily the best excuse for spending the extra $150-200 to bump up to the 11” Pro model. It’s just really damn nice. If you’ve never had one, you’ll be a lot less likely to miss this obviously.

But it also has an A14 Bionic chip where the iPad Pro 2020 models are still on the A12Z. Because that ‘Z’ is related to the fact that it has an extended number of graphics cores (8-core CPU/8-core GPU), the performance gap isn’t as big as you’d think.

Though the iPad Air edges out the iPad Pro in single-core performance, the multi-core numbers are essentially on parity. This speaks to the iPad Pro being tuned to handle multiple processes in simultaneous threads for processing images and video. If you’re running Photoshop or Premiere Rush or LumaFusion on an iPad, you want the Pro. For most other uses, you’re gonna be just fine with the Air.

I do really wish that the Air started at 128GB instead of 64GB for the base $599 price. Apple has finally gotten the iPhone to a great place for minimum storage across the lineup, and I wish that the iPad Air matched that. If a ton of space is important to you, it’s important to note that you cannot get anything over 256GB in this unit, unlike the iPad Pro that is offered up to 1TB. 

The two speaker system in the iPad Air is arranged in the much better horizontal array but it’s half the amount that are in the iPad Pro and it shows. It’s a bit less loud overall but honestly the top volume is still way more than you need for typical iPad viewing distance.

Much of what I wrote about using Apple’s iPad Pro over the course of 10,000 miles of travel applies directly here. I still find it to be a great experience that, once you’ve adjusted for workflows, is just as powerful as any laptop. The additional features that have shipped in iOS 14 since that review have only made the iPad a better platform for legitimate work. 

And now you get the Gen 2 pencil and the fantastic Magic Keyboard in an iPad outside of the Pro lineup and it honestly adds a ton of the utility. 

Here’s my advice: Buy this if you want a portable iPad Pro to use alongside a MacBook or desktop computer for those times you don’t want to carry or can’t carry it. If you want an iPad Pro as your only computer, get the big iPad Pro but probably wait until they update that one in a few months.

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Adobe’s Project Sharp Shots uses AI to deblur your videos with one click

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Every year at its MAX user conference, Adobe shows off a number of research projects that may or may not end up in its Creative Cloud apps over time. One new project that I hope we’ll soon see in its video apps is Project Sharp Shots, which will make its debut later today during the MAX Sneaks event. Powered by Adobe’s Sensei AI platform, Sharp Shots is a research project that uses AI to deblur videos.

Shubhi Gupta, the Adobe engineer behind the project, told me the idea here is to deblur a video — no matter whether it was blurred because of a shaky camera or fast movement — with a single click. In the demos she showed me, the effect was sometimes relatively subtle, as in a video of her playing ukulele, or quite dramatic, as in the example of a fast-moving motorcycle below.

With Project Sharp Shots, there’s no parameter tuning and adjustment like we used to do in our traditional methods,” she told me. “This one is just a one-click thing. It’s not magic. This is simple deep learning and AI working in the background, extracting each frame, deblurring it and producing high-quality deblurred photos and videos.”

Image Credits: AdobeGupta tells me the team looked at existing research on deblurring images and then optimized that process for moving images — and then optimized that for lower-memory usage and speed.

It’s worth noting that After Effects already offers some of these capabilities for deblurring and removing camera shake, but that’s a very different algorithm with its own set of limitations.

This new system works best when the algorithm has access to multiple related frames before and after, but it can do its job with just a handful of frames in a video.

Image Credits: Adobe

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Syte, an e-commerce visual search platform, gets $30 million Series C to expand in the U.S. and Asia

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Syte’s cofounders, chief executive Ofer Freyman, chief revenue officer Lihi Pinto-Fryman and chief operating officer Idan Pinto

Syte’s cofounders, chief executive Ofer Freyman, chief revenue officer Lihi Pinto-Fryman and chief operating officer Idan Pinto

Tel Aviv-based visual search and product discovery platform Syte, already used by brands like Farfetch and Fashion Nova, plans to expand in the United States and Asia-Pacific region after its latest funding. The startup announced today it has raised a $30 million Series C, with an additional $10 million in debt.

The round was led by Viola Ventures, with participation from LG Tech Ventures, La Maison, MizMaa Ventures, Kreos Capital, and returning investors Magma, Naver Corporation, Commerce Ventures, Storm Ventures, Axess Ventures, Remagine Media Ventures and KDS Media Fund. Syte’s last round of funding, a $21.5 million Series B, was announced in September 2019. The startup has now raised a total of $71 million.

Launched in 2015 to focus on visual search for clothing, Syte’s technology now covers other verticals like jewelry and home decor, and is used by brands including Farfetch, Fashion Nova, Castorama and Signet Jewelers. Syte says that its solutions can increase conversion by 177% on average.

The company’s platform includes three main products: Visual Discovery to let brands add camera search, recommendation engines and discovery buttons; “Searchendising,” which automatically generates tags based on visual AI to improve search and recommendation results; and a Discovery Marketplace used by publishers, smart devices manufacturers and social platforms to increase the reach of product advertisements.

Since the beginning of 2020, Syte says its customer base has grown 38%, partly because of the increase in e-commerce traffic caused by COVID-19 movement restrictions.

In the company’s press announcement, chief executive officer and co-founder Ofer Fryman said Syte will focus on developing or acquiring product discovery technology “spanning the full range of our senses—visual, text, voice, and more” to create types of personalized recommendations.

A lot of Syte’s current customers are in Europe, the Middle East and Africa, so its new funding is also earmarked to increase its presence in the U.S. and Asia-Pacific markets.

More social media platforms and e-commerce platforms, including Amazon, Target, IKEA, Walmart, eBay, Snap, and Pinterest, are using visual search and recognition technology to give users an alternative to keyword searches. By simplifying the search process or automatically generating tags, visual recognition technology can help improve search results and product recommendations, resulting in more conversions.

There is a roster of other companies that are also working on AI-based visual recognition and search technology for e-commerce. Other startups in the same space that have raised venture capital funding include Donde Search, ViSenze and Slyce.

Gal Fontyn, Syte’s vice president of marketing, told TechCrunch that it differentiates with visual AI algorithms developed by co-founder and chief technology officer Helge Voss, who previously worked as a physicist at CERN (the European Organization for Nuclear Research).

Voss’ background in neural networks and machine learning allowed Syte to build a visual search solution that can produce results with over 95% accuracy in object-matching within less than a second, Fontyn said. Its algorithms have also been trained on millions of products from vendors around the world, which Syte claims gives it the “largest vertical-specific lexicon in the industry.” This is what allows it to recognize several objects within an image, and assign them detailed tags.

Brands that use Syte see a 423% increase on average on ROI, Fontyn added.

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