Month: August 2021

It’s been a busy summer for Clubhouse. The hit social audio app rolled out new messaging features and an Android app over the last few months and now the company is turning its attention to enhancing its core audio experience. Clubhouse announced Sunday that its rooms will now be infused with spatial audio to give the app’s listeners a richer sense of hanging out live with a group of other people.

TechCrunch spoke with Clubhouse’s Justin Uberti about the decision to add spatial audio, which has the effect of making different speakers sound like they’re coming from different physical locations instead of just one spot.

Uberti joined Clubhouse in May as its head of streaming technology after more than a decade at Google where he created Google Duo, led the Hangouts team and most recently worked on Google’s cloud gaming platform Stadia. Uberti also created the WebRTC standard that Clubhouse was built on top of.

“One of the things you realize in these group audio settings is that you don’t get quite the same experience as being in a physical space,” Uberti said.

While Clubhouse and other voice chat apps bring people together in virtual social settings, the audio generally sounds relatively flat, like it’s emanating from a single central location. But at the in-person gatherings Clubhouse is meant to simulate, you’d be hearing audio from all around the room, from the left and right of a stage to the various locations in the audience where speakers might ask their questions.

To pull off the new audio tricks, Clubhouse is integrating an API from Second Life creator Philip Rosedale’s spatial audio company High Fidelity and blending it with the company’s own custom audio processing, tuned for the chat app.

High Fidelity’s HRTF technology, which stands for “Head Related Transfer Function,” maps speech to different virtual locations by subtly adding a time delay between stereo channels and replicating the way that high and low frequencies would sound entering the ear depending on a sound’s origin.

The result, long used in social VR, gives virtual social experiences a sense of physical presence that good records have been pulling off for ages. Think listening to Pink Floyd’s Dark Side of the Moon in stereo with good headphones but instead of sound effects and instruments playing around your head, you’re hearing the people you’re hanging out with arrayed in virtual space.

According to Uberti, Clubhouse’s implementation will be subtle, but noticeable. While the audio processing will “gently steer conversation” to put most speakers in front of the listener, Clubhouse users should have a new sense that people are speaking from different physical locations.

The new audio features will roll out Sunday to the majority of iOS users, reaching the rest of Clubhouse’s iOS and Android users within the next few weeks. The experience will be available to everyone in time, but users will also have the ability to toggle spatial audio off.

Clubhouse will use the same virtual soundstage techniques to give large rooms a sense of sounding large while making more intimate rooms sound like they’re actually happening in a smaller physical space. And because most people use headphones to participate on Clubhouse, most of the app’s users can benefit from the effects possible through two-channel stereo sound.

“You have this notion of people [being] in a space, in a room… We try to mimic the feel of how it would be in a circle with people standing around talking.”

Uberti also notes that spatial audio could give regular Clubhouse users a less obvious benefit. It’s possible that regular, non-spatialized audio in social apps contributes to the pandemic-era phenomenon of Zoom fatigue. As the human brain processes virtual audio like a phone call or group audio room, it differentiates between speakers in a different way than it would in a natural in-person setting.

“Your mind has to figure out who’s talking. Without spatial cues you have to use timbre… that requires more cognitive effort,” Uberti said. “This could actually make for a more enjoyable experience aside from more immersion.”

It’s too early to know how Clubhouse’s many subcommunities will take to the spatial audio effects, but it could enhance experiences like comedy, music and even ASMR on the app quite a bit.

“Someone tells a joke and it often feels really flat,” Uberti said. “But on Clubhouse, when you feel the laughter come from all around you, it feels a lot like a comedy club experience.”

Source: Tech Crunch

Hello and welcome back to TechCrunch’s China roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world.

The biggest news of the week again comes from Beijing’s ongoing effort to dampen the influence of the country’s tech giants. Regulators are now going after the exploitative use of algorithm-powered user recommendations. We also saw a few major acquisitions this week. Xiaomi is acquiring an autonomous vehicle startup called Deepmotion, and ByteDance is said to be buying virtual reality hardware startup Pico.

Algorithmic regulation

Beijing has unveiled the draft of a sweeping regulation to rein in how tech companies operating in China utilize algorithms, the engine of virtually all lucrative tech businesses today from short videos and news aggregation to ride-hailing, food delivery and e-commerce. My colleague Manish Singh wrote an overview of the policy, and here’s a closer look at the 30-point document proposed by China’s top cyberspace watchdog.

Beijing is clearly wary of how purely machine-recommended content can stray away from values propagated by the Communist Party and even lead to the detriment of national interests. In its mind, algorithms should strictly align with the interest of the nation:

Algorithmic recommendations should uphold mainstream values… and should not be used for endangering national security (Point 6).

Regulators want more transparency on companies’ algorithmic black boxes and are making them accountable for the consequences of their programming codes. For example:

Service providers should be responsible for the security of algorithms, create a system for… the review of published information, algorithmic mechanisms, security oversight… enact and publish relevant rules for algorithmic recommendations (Point 7). 

Service providers… should not create algorithmic models that entice users into addiction, high-value consumption, or other behavior that disrupts public orders (Point 8).

The government is also clamping down on discriminative algorithms and putting some autonomy back in the hands of consumers:

Service providers… should not use illegal or harmful information as user interests to recommend content or create sexist or biased user tags (Point 10).

Service providers should inform users of the logic, purpose, and mechanisms of the algorithms in use (Point 14).

Service providers… should allow users to turn off algorithmic features (Point 15).

The regulators don’t want internet giants to influence public thinking or opinions. Though not laid out in the document, censorship control will no doubt remain in the hands of the authorities.

Service providers should not… use algorithms to censor information, make excessive recommendations, manipulate rankings or search results that lead to preferential treatment and unfair competition, influence online opinions, or shun regulatory oversight (Point 13).

Like many other aspects of the tech business, certain algorithms are to obtain approval from the government. Tech firms must also hand over their algorithms to the police in case of investigations.

Service providers should file with the government if their recommendation algorithms can affect public opinions or mobilize civilians (Point 20).  

Service providers… should keep a record of their recommendation algorithms for at least six months and provide them to law enforcement departments for investigation purposes (Point 23). 

If passed, the law will shake up the fundamental business logic of Chinese tech companies that rely on algorithms to make money. Programmers need to pore over these rules and be able to parse their codes for regulators. The proposed law seems to have even gone beyond the scope of the European Union’s data rules, but how the Chinese one will be enforced remains to be seen.

Lei Jun bets on autonomous cars

In Xiaomi’s latest earnings call, the smartphone maker said it will acquire DeepMotion, a Beijing-based autonomous driving startup, to aid its autonomous driving endeavor. The deal will cost Xiaomi about $77.3 million, and “a lot of that will be in terms of stock” and “a lot of these payments will be deferred until certain milestones are hit,” said Wang Xiang, Xiaomi president on the call.

Xiaomi’s founder Lei Jun earlier hinted at the firm’s plan to enter the crowded space. On July 28, Lei announced on Weibo, China’s Twitter equivalent, that the company is recruiting 500 autonomous driving experts across China.

Automation has become a selling point for China’s new generation of electric vehicle makers, often with companies conflating advanced driver-assistance systems (ADAS) with Level 4 autonomous driving. Such overstatements in marketing material mislead consumers and make one question the real technical capability of these nascent EV players.

Xiaomi has similarly unveiled plans to manufacture electric cars through a separate car-making subsidiary. The ADAS capabilities brought by DeepMotion are naturally a nice complement to Xiaomi’s future cars. As Wang explained:

We believe that there’s a lot of synergies with [DeepMotion’s ADAS] technology with our EV initiatives. So I think it tells you a couple of points. Number one is, we will roll out EV business. And I said in our prepared remarks, we’ve been very focused on hiring the right team for the EV business at this point in time, formulating our strategy, formulating our product strategy, et cetera, et cetera. But at the same time, we are not afraid to apply it and integrate other teams if we find that those will help us accelerate our plan right.

It’s noteworthy that DeepMotion, founded by Microsoft veterans, specializes in perception technologies and high-precision mapping, which puts it in the vision-driven autonomous driving camp. A number of major Chinese EV makers rely on consumer-grade lidar to automate their cars.

ByteDance goes virtual

ByteDance is said to be buying Beijing-based VR hardware maker Pico for 5 billion yuan ($770 million), according to Chinese VR news site Vrtuoluo. ByteDance could not be immediately reached for comment.

Advanced VR headsets are often expensive due to the cost of high-end processors. Experts observe that most VR hardware makers are yet to enter the mass consumer market. They are hemorrhaging cash and living off generous venture money and corporate deals.

ByteDance might be buying a money-losing business, but Pico, one of the major VR makers in China, provides a fast track for the TikTok parent to enter VR manufacturing. As the world’s largest short video distributor and an aggressive newcomer to video games, ByteDance has no shortage of creative talent. We will see how it works on producing virtual content if the Pico deal goes through.

Source: Tech Crunch

This is the second post in a series on the Facebook monopoly. The first post explored how the U.S. Federal Trade Commission should define the Facebook monopoly. I am inspired by Cloudflare’s recent post explaining the impact of Amazon’s monopoly in its industry.

Perhaps it was a competitive tactic, but I genuinely believe it more a patriotic duty: guideposts for legislators and regulators on a complex issue. My generation has watched with a combination of sadness and trepidation as legislators who barely use email question the leading technologists of our time about products that have long pervaded our lives in ways we don’t yet understand.

I, personally, and my company both stand to gain little from this — but as a participant in the latest generation of social media upstarts, and as an American concerned for the future of our democracy, I feel a duty to try.

Mark Zuckerberg has reached his Key Largo moment.

In May 1972, executives of the era’s preeminent technology company — AT&T — met at a secret retreat in Key Largo, Florida. Their company was in crisis.

At the time, Ma Bell’s breathtaking monopoly consisted of a holy trinity: Western Electric (the vast majority of phones and cables used for American telephony), the lucrative long distance service (for both personal and business use) and local telephone service, which the company subsidized in exchange for its monopoly.

Over the next decade, all three government branches — legislators, regulators and the courts — parried with AT&T’s lawyers as the press piled on, battering the company’s reputation in the process. By 1982, a consent decree forced AT&T’s dismantling. The biggest company on earth withered to 30% of its book value and seven independent “Baby Bell” regional operating companies. AT&T’s brand would live on, but the business as the world knew it was dead.

Mark Zuckerberg is, undoubtedly, the greatest technologist of our time. For over 17 years, he has outgunned, outsmarted and outperformed like no software entrepreneur before him. Earlier this month, the U.S. Federal Trade Commission refiled its sweeping antitrust case against Facebook.

Its own holy trinity of Facebook Blue, Instagram and WhatsApp is under attack. All three government branches — legislators, regulators and the courts — are gaining steam in their fight, and the press is piling on, battering the company’s reputation in the process. Facebook, the AT&T of our time, is at the brink. For so long, Zuckerberg has told us all to move fast and break things. It’s time for him to break Facebook.

If Facebook does exist to “make the world more open and connected, and not just to build a company,” as Zuckerberg wrote in the 2012 IPO prospectus, he will spin off Instagram and WhatsApp now so that they have a fighting chance. It would be the ultimate Zuckerbergian chess move. Zuckerberg would lose voting control and thus power over all three entities, but in his action he would successfully scatter the opposition. The rationale is simple:

1. The United States government will break up Facebook. It is not a matter of if; it is a matter of when.
2. Facebook is already losing. Facebook Blue, Instagram and WhatsApp all face existential threats. Pressure from the government will stifle Facebook’s efforts to right the ship.
3. Facebook will generate more value for shareholders as three separate companies.

I write this as an admirer; I genuinely believe much of the criticism Zuckerberg has received is unfair. Facebook faces Sisyphean tasks. The FTC will not let Zuckerberg sneeze without an investigation, and the company has failed to innovate.

Given no chance to acquire new technology and talent, how can Facebook survive over the long term? In 2006, Terry Semel of Yahoo offered $1 billion to buy Facebook. Zuckerberg reportedly remarked, “I just don’t know if I want to work for Terry Semel.” Even if the FTC were to allow it, this generation of founders will not sell to Facebook. Unfair or not, Mark Zuckerberg has become Terry Semel.

The government will break up Facebook

It is not a matter of if; it is a matter of when.

In a speech on the floor of Congress in 1890, Senator John Sherman, the founding father of the modern American antitrust movement, famously said, “If we will not endure a king as a political power, we should not endure a king over the production, transportation and sale of any of the necessities of life. If we would not submit to an emperor, we should not submit to an autocrat of trade with power to prevent competition and to fix the price of any commodity.”

This is the sentiment driving the building resistance to Facebook’s monopoly, and it shows no sign of abating. Zuckerberg has proudly called Facebook the fifth estate. In the U.S., we only have four estates.

All three branches of the federal government are heating up their pursuit. In the Senate, an unusual bipartisan coalition is emerging, with Senators Amy Klobuchar (D-MN), Mark Warner (D-VA), Elizabeth Warren (D-MA) and Josh Hawley (R-MO) each waging a war from multiple fronts.

In the House, Speaker Nancy Pelosi (D-CA) has called Facebook “part of the problem.” Lina Khan’s FTC is likewise only getting started, with unequivocal support from the White House that feels burned by Facebook’s disingenuous lobbying. The Department of Justice will join, too, aided by state attorneys general. And the courts will continue to turn the wheels of justice, slowly but surely.

In the wake of Facebook co-founder Chris Hughes’ scathing 2019 New York Times op-ed, Zuckerberg said that Facebook’s immense size allows it to spend more on trust and safety than Twitter makes in revenue.

“If what you care about is democracy and elections, then you want a company like us to be able to invest billions of dollars per year like we are in building up really advanced tools to fight election interference,” Zuckerberg said.

This could be true, but it does not prove that the concentration of such power in one man’s hands is consistent with U.S. public policy. And the centralized operations could be rebuilt easily in standalone entities.

Time and time again, whether on Holocaust denial, election propaganda or vaccine misinformation, Zuckerberg has struggled to make quick judgments when presented with the information his trust and safety team uncovers. And even before a decision is made, the structure of the team disincentivizes it from even measuring anything that could harm Facebook’s brand. This is inherently inconsistent with U.S. democracy. The New York Times’ army of reporters will not stop uncovering scandal after scandal, contradicting Zuckerberg’s narrative. The writing is on the wall.

Facebook is losing

Facebook Blue, Instagram and WhatsApp all face existential threats. Pressure from the government will stifle Facebook’s efforts to right the ship.

For so long, Facebook has dominated the social media industry. But if you ask Chinese technology executives about Facebook today, they quote Tencent founder Pony Ma: “When a giant falls, his corpse will still be warm for a while.”

Facebook’s recent demise begins with its brand. The endless, cascading scandals of the last decade have irreparably harmed its image. Younger users refuse to adopt the flagship Facebook Blue. The company’s internal polling on two key metrics — good for the world (GFW) and cares about users (CAU) — shows Facebook’s reputation is in tatters. Talent is fleeing, too; Instacart alone recently poached 55 Facebook executives.

In 2012 and 2014, Instagram and WhatsApp were real dangers. Facebook extinguished both through acquisition. Yet today they represent the company’s two most promising, underutilized assets. They are the underinvested telephone networks of our time.

Weeks ago, Instagram head Adam Mosseri announced that the company no longer considers itself a photo-sharing app. Instead, its focus is entertainment. In other words, as the media widely reported, Instagram is changing to compete with TikTok.

TikTok’s strength represents an existential threat. U.S. children 4 to 15 already spend over 80 minutes a day on ByteDance’s TikTok, and it’s just getting started. The demographics are quickly expanding way beyond teenagers, as social products always have. For Instagram, it could be too little too late — as a part of Facebook, Instagram cannot acquire the technology and retain the talent it needs to compete with TikTok.

Imagine Instagram acquisitions of Squarespace to bolster its e-commerce offerings, or Etsy to create a meaningful marketplace. As a part of Facebook, Instagram is strategically adrift.

Likewise, a standalone WhatsApp could easily be a $100 billion market cap company. WhatsApp has a proud legacy of robust security offerings, but its brand has been tarnished by associations with Facebook. Discord’s rise represents a substantial threat, and WhatsApp has failed to innovate to account for this generation’s desire for community-driven messaging. Snapchat, too, is in many ways a potential WhatsApp killer; its young users use photography and video as a messaging medium. Facebook’s top augmented reality talents are leaving for Snapchat.

With 2 billion monthly active users, WhatApp could be a privacy-focused alternative to Facebook Blue, and it would logically introduce expanded profiles, photo-sharing capabilities and other features that would strengthen its offerings. Inside Facebook, WhatsApp has suffered from underinvestment as a potential threat to Facebook Blue and Messenger. Shareholders have suffered for it.

Beyond Instagram and WhatsApp, Facebook Blue itself is struggling. Q2’s earnings may have skyrocketed, but the increase in revenue hid a troubling sign: Ads increased by 47%, but inventory increased by just 6%. This means Facebook is struggling to find new places to run its ads. Why? The core social graph of Facebook is too old.

I fondly remember the day Facebook came to my high school; I have thousands of friends on the platform. I do not use Facebook anymore — not for political reasons, but because my friends have left. A decade ago, hundreds of people wished me happy birthday every year. This year it was 24, half of whom are over the age of 50. And I’m 32 years old. Teen girls run the social world, and many of them don’t even have Facebook on their phones.

Zuckerberg’s newfound push into the metaverse has been well covered, but the question remains: Why wouldn’t a Facebook serious about the metaverse acquire Roblox? Of course, the FTC would currently never allow it.

Facebook’s current clunky attempt at a hardware solution, with an emphasis on the workplace, shows little sign of promise. The launch was hardly propitious, as CNN reported, “While Bosworth, the Facebook executive, was in the middle of describing how he sees Workrooms as a more interactive way to gather virtually with coworkers than video chat, his avatar froze midsentence, the pixels of its digital skin turning from flesh-toned to gray. He had been disconnected.”

This is not the indomitable Facebook of yore. This is graying Facebook, freezing midsentence.

Facebook will generate more value for shareholders as three separate companies

Zuckerberg’s control of 58% of Facebook’s voting shares has forestalled a typical Wall Street reckoning: Investors are tiring of Zuckerberg’s unilateral power. Many justifiably believe the company is more valuable as the sum of its parts. The success of AT&T’s breakup is a case in point.

Five years after AT&T’s 1984 breakup, AT&T and the Baby Bells’ value had doubled compared to AT&T’s pre-breakup market capitalization. Pressure from Japanese entrants battered Western Electric’s market share, but greater competition in telephony spurred investment and innovation among the Baby Bells.

AT&T turned its focus to competing with IBM and preparing for the coming information age. A smaller AT&T became more nimble, ready to focus on the future rather than dwell on the past.

Standalone Facebook Blue, Instagram and WhatsApp could drastically change their futures by attracting talent and acquiring new technologies.

The U.K.’s recent opposition to Facebook’s $400 million GIPHY acquisition proves Facebook will struggle mightily to acquire even small bolt-ons.

Zuckerberg has always been one step ahead. And when he wasn’t, he was famously unprecious: “Copying is faster than innovating.” If he really believes in Facebook’s mission and recognizes that the situation cannot possibly get any better from here, he will copy AT&T’s solution before it is forced upon him.

Regulators are tying Zuckerberg’s hands behind his back as the company weathers body blows and uppercuts from Beijing to Silicon Valley. As Zuckerberg’s idol Augustus Caesar might have once said, carpe diem. It’s time to break Facebook.

Source: Tech Crunch

The ownership of startups is often a mystery. In the absence of a public registry, it is difficult to figure out who owns what. Since most startups incorporate in Delaware, the Delaware Division of Corporations holds relevant information, but you may not be able to get all the information you need, and putting it together from the legal paperwork will be challenging.

To understand a startup’s capital structure, you must have access to its capitalization table, also known as cap table. The cap table shows shareholder information, current ownership stakes along with economic and voting rights, future equity purchase rights, vesting schedules and purchase prices. All of this information is compiled into a format that founders and investors can digest easily, allowing them to calculate payouts in various exit scenarios, analyze equity dilution from new hire equity grants, and understand the impact of additional funding rounds.

Initially, startups might collect this data using Excel spreadsheets, but as the ownership structure grows more complex, it becomes more difficult to follow and document, and the cost of errors become a big problem. This has led to the development of a cap table management software industry.

However, the way in which various cap table data items are organized and accounted for varies among the different service providers. Without a standard, it is impossible to automatically synchronize data between software platforms, making it difficult to switch vendors as well as to ensure that all parties are on the same page.

Now, a coalition of Silicon Valley law firms and startup vendors is forming to address this issue. In a Medium post from July 27, the Open Cap Table Coalition stated its intention to “improve the interoperability, transparency, and portability of startup cap table data.” Since standardization means fewer billable hours for lawyers and less lock-in for software platforms, it may go against the short-term interest of some participants. However, the coalition reflects Silicon Valley’s way of doing business – as AnnaLee Saxenian, the Dean of the UC Berkeley School of Information noted in her influential 1994 book “Regional Advantage”, the Valley is a place where intense competitors become partners and informal co-operation and exchange become institutionalized.

As such, the founding members certainly deserve praise. Eliminating inefficiencies allows the ecosystem to move faster and allows players to concentrate on creating value. However, if only founders and investors can see the data, the open cap table coalition will fall short of its potential. For the open cap table to be truly open, the information that determines equity value must be accessible to all equity holders, including startup employees.

I have written on TechCrunch in the past about the abuse potential of startup equity compensation, a highly opaque and practically unregulated market. Employees are often swayed by the allure of stock options without understanding what these securities are and how they are valued. Successful IPO stories portraying employees as instant millionaires create an impression that startup equity offers a fast track to financial prosperity. However, success is the exception, not the rule, when it comes to startups, and wrong investment decisions can result in an employee going into debt. Further, it can be damaging to the startup and the ecosystem in the long term if employees’ expectations are not in line with the startup’s financial reality.

“Pretty much nothing destroys trust between shareholders and startups quicker than poor communication, especially around issues such as the status of the cap table,” wrote Aaron Solomon, head of strategy for Esquire Digital, in support of the open cap table initiative. The exact same is true for employee trust in the company and its leadership — miscommunication around equity issues can be detrimental. As Travis Kalanick discovered first hand, messing with employee equity can backfire.

“We are going to IPO as late as humanly possible,” Kalanick said in June 2016. “It’ll be one day before my employees and significant others come to my office with pitchforks and torches. We will IPO the day before that.” However, waiting for employees to lose their temper is a risky game; you may wake up a day too late instead of the day before. Nowadays, when it is harder to find good employees than to raise money, transparency with both capital and human capital providers is vital.

A couple of years ago, I interviewed startup lawyers and founders in Silicon Valley to understand why they don’t share more information with employees. There was a recurring fear of liability as well as disagreement over disclosure formats. Now, when the industry’s influential players decide on a cap table format, it is possible to also form an agreement on how these data should be shared with employees. If the coalition takes on this challenge, it could easily change the industry by establishing a voluntary standard that everyone can rally around.

Capital/labor relationships in startups are inherently imbalanced, since employees contribute human capital but are denied information and voting rights. It is possible to partially rectify this imbalance by providing employee equity-holders with bottom-line information on what they stand to gain under various exit scenarios. Making information accessible and easy to understand for employees can help startups attract talent and maintain positive culture.

Saxenian’s book on Silicon Valley’s regional advantage describes also how employee stock options contributed to the transformation of Silicon Valley in the 1970s. However, as capital markets and regulations have changed, employee, entrepreneur, and investor relationships have been negatively impacted, resulting in ongoing friction over liquidity and risk allocation. Today, by establishing real equity transparency, Silicon Valley can retain its competitive edge. Until the Open Capital Table Coalition engages in this challenge, it cannot claim to foster a genuinely open community.

Source: Tech Crunch

Startups have a seemingly intractable problem: a lack of diversity. Despite research showing that diverse founding teams have a higher rate of return than white founding teams, one characteristic of startups remains relatively unchanged: the dearth of BIPOC and women founders, investors, board members, and counsel in the venture capital (VC) ecosystem.

Why should we care? Venture capital has provided early funding for the most innovative and profitable companies of our time — Apple, Amazon, Google (now Alphabet), just to name a few. These companies have changed the way we live, work and play by impacting how we communicate, how we process information, and how we buy goods. With approximately one-quarter of U.S. professionals employed by the high-tech sector — comprising about 5% to 6% of the total workforce, according to the U.S. Equal Employment Opportunity Commission — imagine how much more innovation could happen with more diverse individuals at the table who bring different life experiences and perspectives. And we’re already seeing states enacting laws, and companies changing their practices, to help make this happen in the public company realm.

Many founders of VC-backed startups are white, male, and Ivy League or internationally educated. Women-founded companies receive a fraction of VC investments compared to all-male founded companies. In 2020, women-led startups received only 2.3% of all VC money. As of June 2021, less than 20% of total VC deals went to a startup with at least one female founder.

When looking at BIPOC representation in the VC ecosystem, the numbers are even more abysmal. Three percent of VC investors are Black and 1.7% of VC-backed startups have a Black founder. The number of Latinx founders in VC-backed startups is even lower — 1.3%. Plus, only 2.4% of funding was allocated to Black and Latinx founders from 2015 to August 2020. And, on the startup boards of high tech companies, women hold a mere 8% of the board seats.

But the lack of diversity extends beyond who gets funding or who is in the boardroom; it is also a problem in the executive suite. In California, Asian Americans were among the least likely to be promoted to manager or executive positions, and less than 2% of high-tech executives are Black.

This lack of diversity in the VC ecosystem is a structural problem that has no easy solution. While some VC firms have begun allocating funds for trainings and mentorship programs, additional steps need to be taken.

For example, laws on board diversity have already passed in a few states, but they apply only to public companies and typically focus on gender diversity. The laws generally fall into one of three categories — they mandate, encourage, or require disclosure of board diversity. In 2018, California led the way with SB 826, California’s board gender diversity law, which required public companies headquartered in California (irrespective of where they were incorporated) to have a minimum of one woman on each of their boards by the end of 2019. By the end of this year, the minimum threshold increases to two if the board has five directors and three if it has six or more directors. (In the statute, female is defined as “an individual who self-identifies her gender as a woman, without regard to the individual’s designated sex at birth.”)

The law has already had an impact: between 2018 and March 2021, the number of board seats held by women in such companies increased by a whopping 93.6%, but the law is currently being challenged in the courts.

While legislation regarding gender diversity on public company boards has been passed in certain states, even fewer laws address the issue of the lack of minorities on boards. Only 12.5% of the board members of the 3,000 largest public companies come from underrepresented ethnic and racial groups despite the fact that these groups comprise 40% of the U.S. population. Deloitte and the Alliance for Board Diversity reported data that Fortune 500 board seats were held by individuals identified as African American/Black, Hispanic/Latino(a), and Asian/Pacific Islander at the rates of 8.7%, 4.1%, and 4.6%, respectively, in 2020.

In order to address this underrepresentation, California’s AB 979 requires that a public company headquartered in California has at least one director from an “underrepresented community” by the end of 2021, with the minimum number increasing by the end of 2022. That definition includes someone who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.

In addition to California, Colorado, Illinois, Maryland, New York, Pennsylvania, and Washington have also enacted some type of board diversity measure. Connecticut, Hawaii, Massachusetts, Michigan, New Jersey, Oregon, and Ohio have proposed legislation, too. 

Non-governmental initiatives are also being considered. As an example, NASDAQ proposed new listing standards to the SEC requiring disclosure of board diversity. Goldman Sachs announced that it would manage initial public offerings only for companies with at least one diverse board member.

These kinds of laws, however, may be difficult to implement in startups. In order to change the narrative on diversity in startups, change cannot be limited to the board but rather should have a multi-pronged approach focused on diversifying (1) employees in middle and executive management, (2) directors in the boardroom, and (3) the VC firms and other funders.

With startups, board diversity mandates similar to the one passed in California would likely not work in the early stages given the size of these boards. However, creating a culture where diversity is prioritized can manifest itself in other ways.

For example, limited partners who invest in VC funds could contractually obligate their general partners to consider diverse candidates for their firms as well as the board and management of any portfolio companies. VCs can also continue to diversify the limited partners that invest in their funds by eschewing their immediate networks and more actively reaching out to groups historically underrepresented in the startup ecosystem, such as HBCUs. In fact, some VCs are using diversity riders in term sheets to do just that. VCs also need to take a hard look at what type of questions they ask their BIPOC and female founders and consider how they may differ in ways that are detrimental to those historically underrepresented in startups.

We are missing opportunities to foster further innovation by not taking more concrete action to add diversity to the startup ecosystem. There is no magic bullet to address the lack of diversity in the startup ecosystem. However, there are steps that founders, VCs, and limited partners can take to make strides in the right direction.

Source: Tech Crunch

When Salesforce announced its streaming platform Salesforce+, the CRM Playaz’ Paul Greenberg and Brent Leary interviewed Colin Fleming, SVP of Global Brand Experiences at the CRM company (disclosure: I work at Salesforce). Later, I asked Brent about his show on this episode of the Gang.

Brent: With all the things going on with data privacy and cookies going away, companies are going to have to figure out a way to get first—and that third party, but first party data in a clean way.
Me: Can you describe the difference?
Well, a third party, you go to a website and this website has partners that you have nothing to do with, and all of a sudden you land on a website and the next thing you know, you might be getting hit up with an ad or an email from a company you didn’t even expect, you don’t have a relationship with. But that company has a relationship with the website owner. So all of this stuff, all of these interactions or nuisance breakup of your day because of ads and notifications you’re getting, you’re getting it not because you had a direct relationship, but you landed on a site that has potentially thousands of relationships with other companies that want to get at you.
And that’s the third party cookies way of doing things. Well, that’s going away. And one of the things that [Fleming] pointed out is that what Salesforce wants to do is create great content in order to be able to build a direct relationship and not have to depend on the traditional third party backroom deals. And I thought that was really great. I was really excited to hear that part of it, because I think it’s another way of forcing people to actually get away from this third party stuff and and be more direct about what their intentions are and what they’re trying to do.

I asked Keith Teare how quickly third party data is going to go away.

Keith: Well, it’s already starting to go away because of Apple’s implementation on iOS blocking things. Microsoft’s browser [market share] is quite small these days, but it also blocks things. So you’re moving from these common pools, lakes of data, to what you could think more of as a walled garden data, meaning first person data. Companies can’t rely on targeting through the network anymore unless they themselves know the users and then they can.
So that leads to this big question, which is: what is the right balance between content marketing (which is what I really think Salesforce is doing) where you’ve got a direct audience, versus advertising, where you pay somebody to show an ad? The targeting on ads is going to deteriorate and content marketing, which is what you could think of as earned media—that is to say, you work to get the attention—is going to grow. So this is really a fairly major shot in the arm of what some people call the creator economy and spreading it out into the enterprise. Every enterprise is going to have to become a creator in this world.

Denis Pombriant added:

Denis: I read an interesting report this week. It was the seventh edition of the Salesforce Marketing Survey. The first half of it was very positive about using new technology to support work from anywhere and a variety of other things that free you from the office. But the second part of it had some very interesting data about where investments were going by corporations into new marketing. In about a dozen categories, no category had more than a 50 percent response. Basically saying, yeah, we’re investing enough or we’re actively pursuing this. So the conclusion I draw from is that everything we seem to be doing about being more tech savvy out on the Web and addressing customers and colleagues and cohorts or whatever it is, is somewhat lagging and will lag until organizations invest in the skills and the people to support some of the new things like content development, audio content development, video content development, AI, and quite a few other things as well.

I think that’s right. It’s not whether there’s a creator economy or not. The investments made by vendors, while significant and market-making, depend on the market expanding beyond its roots. Blogs and podcasts began as a kind of extension of the mainstream media, but foundered when readers and listeners moved to social authority as a measure of credibility. Newsletters and livecasting suffer when the value proposition of the ad hoc media looks too much like the mainstream media it hopes to replace. Instead, we turn the mute button on and eventually escape to fictionalized stories where good triumphs over evil or the reverse.

The creator economy has produced a kind of vaudeville, where talent bubbles up to feed a hungry niche. Where real success comes is when that consensus of what is right for the emotional center mitigates the extremes of the partisan groups and the controversy that drives the current mainstream model. The Rachel Maddow negotiations and the lumbering infrastructure deals suggest a progress of moderate success. Maddow is moving toward a weekly show with creator spinoffs yet to be defined, and Congress is developing a half a loaf plus a little legislative strategy to carve up an unachievable agenda into small successes loosely joined. Not too left, not too right, but enough to beat back the assault on voter rights while protecting the middle. Half a loaf is better than none.

the latest Gillmor Gang Newsletter

__________________

The Gillmor Gang — Frank Radice, Michael Markman, Keith Teare, Denis Pombriant, Brent Leary and Steve Gillmor. Recorded live Friday, August 13, 2021.

Produced and directed by Tina Chase Gillmor @tinagillmor

@fradice, @mickeleh, @denispombriant, @kteare, @brentleary, @stevegillmor, @gillmorgang

Subscribe to the new Gillmor Gang Newsletter and join the backchannel here on Telegram.

The Gillmor Gang on Facebook … and here’s our sister show G3 on Facebook.

Source: Tech Crunch

When Headspace merged with on-demand mental healthcare platform Ginger, I was surprised. After all, Ginger raised $100 million in Series E funding just a few months ago — and last time I spoke to CEO Russell Glass, he stressed the importance of integrating into employer-paid health plans. To me, Headspace’s meditation app is about as direct to consumer as one could go, so what business did Ginger have to get into literal business with it? Fragmentation, much?

Turns out, there’s precedent, and, per a slew of health tech investors and techies, there is more consolidation and commodification to come in behavioral health. I love learning things!

As we discussed during a Twitter Spaces about the merger, Headspace has been pursuing clinical validation for mindfulness for quite a while. That validation could help it pitch its somewhat-fresh employee benefit program and compete with its closest rival, Calm. By merging with an on-demand mental healthcare platform such as Ginger, Headspace can now offer a more holistic approach to mental health. Ginger, for those who don’t know, specializes in helping people access care when they need it, ranging from text-based support to escalation to trainers in real time.

But beyond the news, what does this mean? There are a few main takeaways I had after the Spaces. First, in the best-case scenario, Headspace and Ginger’s merger could show us what a holistic and integrative approach to mental health could look like. As Omers Ventures’ Chrissy Farr said, some patients could use a combination of approaches that vary over time. The industry is evolving so that users have more options when it comes to mental health care; from meditation to texts to Zoom therapy sessions. Second, and this came up throughout the chat, parts of behavioral health are going to get commoditized as the sector grows. Now, it’s no longer enough to just connect a user to a specialist. How do platforms more thoughtfully connect nuanced patients to nuanced options? It’s more than holistic, it’s integrative, says Lux Capital’s Deena Shakir.

Finally, 2021 is all about consolidation — and that includes digital health. 7WireVenture’s Alyssa Jaffe noted that 80% of the cost and complexity in mental health is with severe mental illnesses, but 80% of startups begin with lower acuity care. The new combined entity could become more acquisitive in what it aspires to address, now, beyond non-acute conditions.

In the rest of the newsletter, we’ll get into fintech’s friendly foes, edtech turning into SaaS and a must-read LatAm deep dive. As always, you can support me by following me on Twitter @nmasc_, where I post all my work throughout the week.

For the love of fintech

Image Credits: Malte Mueller (opens in a new window) / Getty Images

On Equity this week, we spoke about how fintech startups Ramp and Brex are growing into their massive valuations. The conversation bubbled up because Ramp raised money at a $3.9 billion valuation, while Brex announced the launch of a $150 million debt venture business within days of each other.

Here’s what to know: Ryan Lawler and Alex Wilhelm dug into Brex and Ramp’s diverging M&A strategies for deeper insight on how to differentiate in the corporate management space.

From the story:

While Ramp seems primarily interested in providing customers a detailed view into company finances with an eye toward cost control, many of Brex’s big announcements and initiatives lately have focused on helping provide small businesses — particularly e-commerce sellers — faster access to cash flows through instant payouts.

Personal finance for startups: 

• Why fintechs are buying up legacy financial services companies
• Israel’s maturing fintech ecosystem may soon create global disruptors
• Embedded finance won’t make every firm into a fintech company

 Hiring is (still) hard 

Image Credits: alashi (opens in a new window) / Getty Images (Image has been modified)

I wrote two stories this week that underscore two realities about the hiring landscape today. First, I reported that tech bootcamp Flockjay cut at least half of its workforce as it pivoted away from its original job placement focus. Second, Workstream raised $48 million for its text-based recruitment platform for hourly workers.

Here’s what to know: Flockjay’s entire premise was helping non-tech workers break into tech through sales jobs. Its recent pivot to a B2B SaaS tool tells us how hard of a business job placement may be, even in high-demand roles such as sales operations. A day later, Workstream raised money for its recruitment software for the hourly worker. The $48 million Series B is a note on how employers facing high turnover are willing to spend money on recruitment tools that meet candidates where they are, which may be their cell phones.

While one story tells us hiring is a hard business to do at scale, another shows that existing gaps still need focused attention.

Dear Seedlings, take note: 

• You can’t hack your YC application, but here’s what to avoid
• Andreessen Horowitz just rolled out a $400 million fund that’s expressly for seed deals
• Future tech exits have a lot to live up to

Around TC

TechCrunch Disrupt is less than a month away. And I’m shook.

Use “Mascarenhas20” for a sweet, sweet discount code when you buy your ticket. It’s a stacked line up of candid speakers and no-BS questions. But, in case you need more convincing on why it’s worth attending, check this out:

• Find trends, advice and value at these special breakout sessions during TC Disrupt 2021
• Seth Rogen is coming to TechCrunch Disrupt to talk about the weed business
• Canva CEO Melanie Perkins will tell us about the journey to a $15B valuation at Disrupt
• Discover how Duolingo started with CEO Luis von Ahn at Disrupt 2021

Newsroom top picks

Favorites from TechCrunch

• It’s time for the VC community to stop overlooking the childcare industry
• With more cash and a launch, Vannevar Labs is reconnecting Silicon Valley to its defense industry roots
• Zeit’s early warning wearable for sleep strokes could save hours and lives 
• Bankers chase Byju’s for IPO, valuation pegged up to $50 billion
• Tuna raises $3M to address complexity of e-commerce payments in Latin America
• Sugar raises $2.5M in seed funding to connect apartment residents

Favorites from Extra Crunch

• India’s path to SaaS leadership is clear, but challenges remain
• Why global investors are flocking to back Latin American startups
• Zūm CEO Ritu Narayan explains why equity and accessibility works for mobility services
• Why have the markets spurned public neoinsurance startups?

To end, a friendly reminder that it’s still hard for most people to raise capital these days. The boom, my friends, is uneven.

Till next week,

N

Source: Tech Crunch

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s inspired by what the weekday Exchange column digs into, but free, and made for your weekend reading. Want it in your inbox every Saturday? Sign up here. 

The debate over remote work, office culture, how to manage teams of distributed staff and the like continues. With the delta variant of COVID-19 pushing back office return dates for many companies, there’s still a healthy argument over what the future of work will look like.

But while large companies hem and haw their way through the present, it’s my view that the debate is largely over and that startups have won it.

I’ve been on a huge number of calls with startup founders since the onset of COVID-19, and in the last few quarters, it seems that nearly every time I talk to an early-stage company they have a remote, distributed team. Some of these startups were literally founded during the COVID era, so it makes sense. But the trend is broader than just those firms.

Thinking only about the startup market for a moment, I think that in time it will be just as weird a concept for startups to raise equity capital to spend on rent as it would be for a startup today to raise equity capital to buy a rack of servers and pay co-location fees. We have AWS and Azure for that now. And regarding offices, we have remote work now. Why shell out shares for square footage?

We’re being simplistic to some degree, but spending seed or Series A money on rent makes early office space some of the most expensive real estate in the world. For successful startups, at least. The savvy will avoid the tax.

There’s more to this: The talent market is incredibly tight for many key roles today. Ask anyone trying to hire machine learning talent. Or senior dev roles. Or marketing team leads. The list goes on. The sort of talent that startups are on the hunt for is scarce, and ‘spensive.

Even worse for upstart tech companies, Big Tech companies have never been more wealthy. So what’s a young company to do? Offer what the big guns appear loath to offer, namely remote-friendly work. This will also help startups poach talent from the bigger tech companies. Talent that they don’t want to shed.

In time, I suspect that softer retention numbers for HR staffs will lead to more workplace flexibility everywhere. And many startups that are remote today will scale while sticking to the model, becoming the big companies of tomorrow with fully remote teams. So the conversation about remote work or returning to high-priced office space is still happening, but it feels more like doomed-cruiseliner deckchair-shuffling than real debate.

Are you going to go back to commuting by car, or a mixture of car and public transit, so that you can put on headphones and try to focus in the office? I doubt it. I’m not.

More on Boston

The Exchange is spending time digging into the various startup hubs of the world, with a focus on some U.S. markets that are worth giving more time to. We’ve looked at Chicago, for example, and most recently Boston.

After that Boston piece went live, a few more sets of comments came in. Let’s chew on their key bits.

Glasswing Ventures’ Rudina Seseri provided us with a look at what is ahead for Boston in the coming quarters, saying that “the number of companies coming to market and raising new rounds is high and they are operationally strong. So unless there is a market correction — which would extend far beyond Boston­­ — the funding appetite will remain.”

And if market conditions persist, startup venture activity could get even more heated in Boston. Seseri told The Exchange via email that “the number of pre-seed and seed-stage companies are increasing dramatically. In fact, we have seen 2x growth [year over year] in the number that are highly qualified for funding.”

In her view, the volume of neat startups that Boston is creating is “a testament to the entrepreneurial spirit in early tech and the market opportunities that COVID-19 has initiated and accelerated.”

Finally, Ari Glantz of the New England Venture Capital Association said that after “a slowdown in H1 2020, both founders and funders have seen a historic flow of capital as new needs and opportunities emerged due to pandemic-era shifts,” and that with “companies and their backers continuing to adapt, the prospects remain bright.”

I included that final quote as it applies to, well, nearly everywhere. Startups have never had it so good!

More next week.

— Alex

Source: Tech Crunch

Linux is set for a big release this Sunday August 29, setting the stage for enterprise and cloud applications for months to come. The 5.14 kernel update will include security and performance improvements.

A particular area of interest for both enterprise and cloud users is always security and to that end, Linux 5.14 will help with several new capabilities. Mike McGrath, vice president, Linux Engineering at Red Hat told TechCrunch that the kernel update includes a feature known as core scheduling, which is intended to help mitigate processor-level vulnerabilities like Spectre and Meltdown, which first surfaced in 2018. One of the ways that Linux users have had to mitigate those vulnerabilities is by disabling hyper-threading on CPUs and therefore taking a performance hit. 

“More specifically, the feature helps to split trusted and untrusted tasks so that they don’t share a core, limiting the overall threat surface while keeping cloud-scale performance relatively unchanged,” McGrath explained.

Another area of security innovation in Linux 5.14 is a feature that has been in development for over a year-and-a-half that will help to protect system memory in a better way than before. Attacks against Linux and other operating systems often target memory as a primary attack surface to exploit. With the new kernel, there is a capability known as memfd_secret () that will enable an application running on a Linux system to create a memory range that is inaccessible to anyone else, including the kernel.

“This means cryptographic keys, sensitive data and other secrets can be stored there to limit exposure to other users or system activities,” McGrath said.

At the heart of the open source Linux operating system that powers much of the cloud and enterprise application delivery is what is known as the Linux kernel. The kernel is the component that provides the core functionality for system operations. 

The Linux 5.14 kernel release has gone through seven release candidates over the last two months and benefits from the contributions of 1,650 different developers. Those that contribute to Linux kernel development include individual contributors, as well large vendors like Intel, AMD, IBM, Oracle and Samsung. One of the largest contributors to any given Linux kernel release is IBM’s Red Hat business unit. IBM acquired Red Hat for $34 billion in a deal that closed in 2019.

“As with pretty much every kernel release, we see some very innovative capabilities in 5.14,” McGrath said.

While Linux 5.14 will be out soon, it often takes time until it is adopted inside of enterprise releases. McGrath said that Linux 5.14 will first appear in Red Hat’s Fedora community Linux distribution and will be a part of the future Red Hat Enterprise Linux 9 release. Gerald Pfeifer, CTO for enterprise Linux vendor SUSE, told TechCrunch that his company’s openSUSE Tumbleweed community release will likely include the Linux 5.14 kernel within ‘days’ of the official release. On the enterprise side, he noted that SUSE Linux Enterprise 15 SP4, due next spring, is scheduled to come with Kernel 5.14. 

The new Linux update follows a major milestone for the open source operating system, as it was 30 years ago this past Wednesday that creator Linus Torvalds (pictured above) first publicly announced the effort. Over that time Linux has gone from being a hobbyist effort to powering the infrastructure of the internet.

McGrath commented that Linux is already the backbone for the modern cloud and Red Hat is also excited about how Linux will be the backbone for edge computing – not just within telecommunications, but broadly across all industries, from manufacturing and healthcare to entertainment and service providers, in the years to come.

The longevity and continued importance of Linux for the next 30 years is assured in Pfeifer’s view.  He noted that over the decades Linux and open source have opened up unprecedented potential for innovation, coupled with openness and independence.

“Will Linux, the kernel, still be the leader in 30 years? I don’t know. Will it be relevant? Absolutely,” he said. “Many of the approaches we have created and developed will still be pillars of technological progress 30 years from now. Of that I am certain.”

Source: Tech Crunch