Month: August 2021

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. 

Hey friends! This week was more than hectic, so we have a lot of ground to cover. Below are more notes on the Brazilian IPO market, more coverage of the Chicago startup scene and a host of numbers from startups concerning their recent growth results. So, if you like early-stage or later-stage startups, international startups or domestic startups, we have just what you want!

Another week, another Twitter conversation about funding rounds. To catch you up, this week saw more folks complaining about the media covering funding rounds over other examples of startup activity. My contention for years has been that we, the scribbling classes, cover funding rounds because they are the rare moment that startups are willing to actually share results of their operations.

That VCs will occasionally complain about this is particularly rich, given that investors would hardly be willing to invest in a company based on a short call with a founder about how they came up with an idea. And yet they tell founders to not tell the media anything at all. Alas.

Regardless, all this shook out to me saying, “Hey startups, send in your data!” And some folks did! Others sent in notes about stuff that they had announced before, but that we’d missed.

So here’s a digest of startup growth from a number of stages, markets and the like:

CopyAI: The company recently crossed the $2 million ARR threshold. CopyAI is busy building its business in public, which we love, sharing metrics as it goes. And it has raised external capital and grown rapidly while doing so, providing a proof point that you can share information and not have your startup instantly burst into flames.

I asked CEO Paul Yacoubian if growth has kept up with his expectations, and he said that it has. Our next question: How long until the company can double in size yet again? CopyAI reached $1 million ARR earlier this year.

TextNow: Now over the $100 million ARR mark. The company, essentially bootstrapped after raising less than $2 million during its life, also recently hired a CFO. You know what that means — an IPO is coming. Frankly TextNow is not a company I know well, but thanks to it sharing information, I now want to learn more about it. See!

Kalendar AI: This company helps folks book sales meetings using AI, it appears. And the model is showing some traction, according to founder and CEO Ravi Vadrevu. He shared a host of metrics with The Exchange, including its bank balance and growth charts. (Hell yeah, data!) The company is generating ARR in the six figures and raised $700,000 in a recent round.

And per its charts, subscriber signups appear to be accelerating. Per a different dataset shared, August is going to be the company’s busiest month yet when it comes to meetings booked, the key non-GAAP metric for its business. That figure is growing at 30% monthly, the startup said.

In Vadrevu’s own phrasing, Kalendar AI wants to “democratize growth for companies like how AWS democratized innovation with virtualization.”

Balto: Balto is a St. Louis-based startup that has raised just over $50 million. The company reached out with some neat data from its recent round, a $37.5 million Series B. Per the company’s COO Chris Kontes, “Jump Capital, OCA Ventures and Sandalphon” took part in the round. Which matters if you read our recent dig into the Chicago market.

Regardless, Balto said that it grew its customer base by 84% and its revenue by 200% since it raised its Series A in Q3 2020. I asked if the ∆ between the company’s customer and revenue growth was driven by net dollar retention (NDR) or larger customers. Per Kontes, “the answer is a bit of both” with a bias toward NDR. He didn’t share an absolute number, but did say that Balto’s “NDR is north of 150%.” Hot dang.

The company, by the by, built tech to help support agents know what to say during calls. Which, it appears, is big business.

HostiFi: Headquartered near Detroit, HostiFi helps customers “remotely monitor and manage UniFi Network devices.” I do not know what that means, sadly, and don’t have the minutes right now to dig in more deeply.

But in better news, HostiFi’s founder Reilly Chase dropped a grip of metrics into our inbox. His company will reach $1 million in ARR in the “next few weeks,” and wants to hit $10 million ARR in “the next 3 years,” which we dig. The company raised $100,000 from what was previously known as Earnest Capital, a group that we’ve covered. HostiFi has 1,700 customers, it says, and a fully remote team of six.

Fun, yeah? Private companies being more open with their financial performance is good for the world as the activity has a way of making the opaque startup world just a bit more limpid.

Brazil

Our dive into the Brazilian startup market and its impending IPOs was good fun to write. But as we went to press, Brazil’s B3 stock exchange got back to our questions with answers. They just missed our timeline, but we’d be remiss to not share some of their notes here.

Regarding the present state of the Brazilian technology IPO market, B3’s Rafaela Vesterman Araujo wrote the following (minor edits for clarity):

We are passing through a period of records in the Brazilian Capital Markets. Through the first half of August 2021 we had 44 IPOs (for comparison purposes, in all of 2020 we had 28) and around 30% of these IPOs were technology companies, which is very interesting, considering that before 2020, the technology sector was underrepresented at B3.

This is precisely the trend that we were trying to highlight, and note, so it’s nice to see the data back us up.

Next up, how big does a company have to be to list on B3? Here’s Vesterman Araujo (minor edits for clarity):

Around 70% of 2020 and 1H21 technology IPOs raised between [$110 million] and [$367 million]. In addition, 70% of these companies had a net income up to [$55 million]. In some of the cases, even with a lower net revenue compared to other sectors, we have noticed that many of them have been raising a greater amount of capital, probably reflecting the growth expectations.

Hello, growth premium! That’s great news for local Brazilian startups hoping to get public in their home market. With Nubank and Nuvemshop growing huge while private, where the country’s companies will go public is no small matter.

Chicago

We dug into the Chicago boom this week, tracking the Windy City’s huge venture capital results from the past few quarters and asking locals precisely what was driving the wave of funding and startup activity. As we got that into WordPress, another set of answers came in that we want you to read.

Techstars’ Neal Sáles-Griffin, managing director of its Chicago operations, had this to say about why Chicagoland startups have excelled in attracting capital since late 2020:

It’s a flight to quality. For too long, there’s been a concentration of capital in one hub and VCs following the decentralization of innovation after the COVID [lockdowns]. The pandemic broke old habits and brought investors to mature markets like Chicago. [ … ] For years, Chicago has grown as a national, top-tier destination for startups. The national VC community is finally catching up, exploring our amazing community of founders who are scaling fast in the Midwest.

I went to school in Chicago, so am pretty aware of the density of schools in the area. I was curious if that fact was beneficial to local startups. Per Sáles-Griffin, the answer is a hard yes:

Absolutely, we’re home to two of the top five MBA programs (UChicago, Northwestern), home to a top-five engineering college (UIUC) and [to] one of the most diverse engineering colleges in the country (UIC). But we’re also home to one of the largest city college districts in the region (City Colleges) and historically Black institutions like Chicago State — both home to several engineering and IT programs, training the next generation of talent.

Where should we look for the next generation of startups from Chicago? The Techstars denizen listed healthcare and life sciences as a key market, as well as food tech and companies building in the larger transit space.

So many other things!

Sadly, we are way over our word count for this newsletter, so we have to stop. But lots of other things out there are worth your attention. Like Indianapolis-based Lessonly being acquired by Seismic. Lessonly had raised just under $30 million while operating on its own, helmed by the dynamo-like Max Yoder. And Aspiration Partners — backed by a number of well-known actors — is going public via a SPAC. The deal will provide hundreds of millions in fresh capital to the company.

More next week.

— Alex

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.

This week, investors’ concerns mount as news came that the Chinese government has taken a stake ByteDance, TikTok’s parent and one of the world’s largest private internet firms. Meanwhile, Amazon’s crackdown on Chinese sellers continues and is forcing many traders in southern China out of business, and the government passed a sweeping data protection law that will take effect in November.

A state stake

The Chinese government’s grand plan to assert more control over the country’s internet behemoths continues. This week, The Information reported that a domestic entity of ByteDance sold a 1% stake to a government affiliate in April. The deal was also recorded on Tianyancha, a database of publicly available corporate information, as well as the official enterprise registration index.

The move didn’t come abruptly. Beijing was mulling over small shares in private tech firms as early as 2017. The Wall Street Journal reported at the time that internet regulators discussed taking 1% stakes in companies including WeChat operator Tencent, Twitter-like Weibo and YouTube-like Youku.

In April 2020, WangTouTongDa, a subsidiary of China Internet Investment Fund, which is in turn controlled by China’s top internet watchdog, acquired a 1% stake in Weibo for 10 million yuan, according to Weibo’s filing to the U.S. securities regulator. Weibo did not mention WangTouTongDa’s relationship with the state in its filing.

Similarly, ByteDance sold a 1% stake to three entities set up by top regulatory bodies: China Internet Investment Fund; China Media Group, controlled by the Communist Party’s propaganda department; and the Beijing municipal government’s investment arm.

In response to Beijing’s move on ByteDance, Republican senator Marco Rubio urged President Joe Biden this week to block TikTok in the U.S.

Exactly how much power Beijing gains over ByteDance from taking the small stake remains fuzzy, but Weibo’s disclosure to investors offers some clues.

It’s critical to note that the government holds stakes in the domestic operating entity of both Weibo and ByteDance. Internet companies in China often set up offshore entities that are entitled to the financial benefits of their mainland Chinese operations through contractual agreements. The framework is called a variable interest entity or VIE. While the structure allows Chinese firms to seek overseas funding due to China’s restrictions on foreign investments, it has come under increasing scrutiny by Beijing.

Weibo said in the filing that WangTouTongda, its state-owned investor, will be able to appoint a director to the three-member board of its Chinese entity and veto certain matters related to content and future financings.

ByteDance likely has a similar arrangement with its state investor. The government did not obtain a stake in TikTok, which is a subsidiary of a separate offshore entity incorporated in the Cayman Islands, The Information pointed out. This should provide some reassurance to U.S. regulators, though concerns about Beijing’s sway in Chinese companies abroad probably won’t go away.

Indeed, the Biden administration in June replaced the Trump-era orders to ban ByteDance and WeChat with a more measured policy requiring the Commerce Department to review apps with ties to “jurisdiction of foreign adversaries” that may pose national security risks.

TikTok has been fighting accusations that it hands over user data to Beijing. ByteDance is the fourth-largest lobbying spender in the U.S. so far this year, just after Amazon, Facebook and Alphabet. Beijing’s investment is going to cost it more campaign efforts.

Beleaguered Amazon sellers

In May, I reported that Amazon shuttered some of its largest sellers from China over violations of platform rules, including using fake reviews and incentives to solicit positive reviews from customers. The crackdown drove China’s online exporters into a panic, and as it turned out, it wasn’t a one-off ambush from Amazon but a prolonged war. While the exact number of Chinese stores affected is not disclosed, industry observers such as Marketplace Pulse said “hundreds of” top Chinese sellers had been suspended as of early July.

Punished accounts are suspended, with their goods withheld and deposits frozen by Amazon. Companies in Shenzhen, home to the majority of the world’s Amazon sellers, laid off thousands of staff in recent months. The owner of a sizable seller in Shenzhen recently died by suicide due to the debacle, according to an acquaintance of the owner.

To sellers that have survived the crackdown, the attack by Amazon “would have happened sooner or later.” Most of the exporters I talked to came to the same conclusion: The Seattle-based titan now wants quality and design over generic products that compete solely on price and manipulation of ranking.

The Chinese government has taken note of the incidents. An official from the Ministry of Commerce compared the wave of store closures as Chinese exporters being “fish out of water” during a press conference in July.

“Due to differences in laws, culture and business practices around the world, [Chinese] companies are facing risks and challenges as they go overseas,” said Li Xingqian, director of foreign trade at the Commerce Ministry.

“We will help companies improve their risk control and comply with international trade standards.” Meanwhile, the official called for “the platform/platforms to cherish the important contribution from various companies and fully respect different trade entities.”

Data protection

And finally, China passed a sweeping data protection law this week that will strictly limit how tech companies collect user information, but the rules won’t likely have an impact on state surveillance. The regulation, which was proposed last year, will take effect on November 1. Read more about the rules here:

Source: Tech Crunch

Software as a service is one of the most important sectors in tech today. While its transformative potential was quite clear before the pandemic, the sudden pivot to distributed workforces caused interest in SaaS products to skyrocket as medium and large enterprises embraced digital and remote sales processes, significantly expanding their utility.

This phenomenon is global, but India in particular has the opportunity to take its SaaS momentum to the next level. The Indian SaaS industry is projected to generate revenue of $50 billion to $70 billion and win 4%-6% of the global SaaS market by 2030, creating as much as $1 trillion in value, according to a report by SaaSBOOMi and McKinsey.

There are certain important long-term trends that are fueling this expansion.

The rise of Indian SaaS unicorns

The Indian SaaS community has seen a flurry of innovation and success. Entrepreneurs in India have founded about a thousand funded SaaS companies in the last few years, doubling the rate from five years ago and creating several unicorns in the process. Together, these companies generate $2 billion to $3 billion in total revenues and represent approximately 1% of the global SaaS market, according to SaaSBOOMi and McKinsey.

These firms are diverse in terms of the clients they serve and the problems they solve, but several garnered global attention during the pandemic by enabling flexibility for newly remote workers. Zoho helped streamline this pivot by providing sales teams with apps for collateral, videos and demos; Freshworks offered businesses a seamless customer experience platform, and Eka extended its cloud platform to unify workflows from procurement to payments for the CFO office.

Other SaaS firms stayed busy in other ways. Over the course of the pandemic, 10 new unicorns emerged: Postman, Zenoti, Innovacer, Highradius, Chargebee and Browserstack, Mindtickle, Byju, UpGrad and Unacademy. There were also several instances of substantial venture funding, including a $150 million deal for Postman, bringing the total amount raised by the Indian SaaS community in 2020 to around $1.5 billion, four times the investment in 2018.

India’s path to leadership

While the Indian SaaS community has made admirable progress in recent years, there are several key growth drivers that could lead to as much as $1 trillion in revenue by 2030. They include:

The global pivot to digital go-to-market

The number of enterprises that are comfortable with assessing products and making business decisions via Zoom is increasing rapidly. This embrace of digital go-to-market fundamentally levels the playing field for Indian companies in terms of access to customers and end markets.

Source: Tech Crunch

If viral TikTok songs like Dr. Dog’s “Where’d All the Time Go?” or Bo Burnham’s “Bezos I” weren’t already stuck in your head on loop, now they could be. Today SiriusXM launched a TikTok Radio channel, which features TikTok creators as channel hosts. The station is designed to sound like a “radio version of the platform’s ‘For You’ feed,” Sirius XM said.

SiriusXM, parent company to Pandora, announced this music channel in May, teasing the launch with curated Pandora playlists from influencers like Bella Poarch, whose lipsync video of Millie B’s “Soph Aspin Send [M to the B]” is the most liked video on TikTok.

With its TikTok partnership, SiriusXM is looking to capture a younger audience — on the TikTok app itself, DJ Habibeats (@djhabibeats) and DJ CONST (@erinconstantineofficial) will each go live on TikTok each week while DJing on TikTok Radio. Other creator hosts on TikTok Radio — like Billy (@8illy), Cat Haley (@itscathaley), HINDZ (@hindzsight), Lamar Dawson (@dirrtykingofpop) and Taylor Cassidy (@taylorcassidyj) — will deliver “The TikTok Radio Trending Ten,” a weekly countdown of songs trending on TikTok. To promote the station during its first week, artists like Ed Sheeran, Lil Nas X and Normani will appear on air.

Music has such a strong footing in TikTok culture that it regularly influences the Billboard charts — Fleetwood Mac’s “Rumours,” originally released in 1978, appeared in the top 10 Billboard albums again in 2020 after it was featured in a viral TikTok. Even a Fortnite-themed parody of Estelle’s “American Boy” — originally uploaded in 2018 to YouTube — had a beautiful moment on TikTok. 

“We’re so excited to launch TikTok Radio on SiriusXM, which opens up artists and creators like this amazing group of hosts to new audiences,” said Ole Obermann, TikTok’s global head of Music, in a statement. “Now SiriusXM subscribers will have a new road to discover the latest trends in music and get a first listen to tomorrow’s musical superstars. The channel captures song-breaking music culture that creates so much joy and entertainment on TikTok through video in an all-audio format.”

Though SiriusXM’s subscriber base continues to expand — it saw a 34% year-over-year growth from last year to now — it still dwarfs in comparison to streaming giants like Spotify, which has 165 million paid users. SiriusXM reported a total of 34.5 million subscribers as of Q2 this year, the most it’s ever had, but even Apple Music and Amazon Music have reported nearly double the subscribers. Pandora has 6.5 million paid subscribers. Over the last few years, SiriusXM and Pandora have struck deals with companies like SoundCloud, Simplecast and Stitcher to become more competitive in both music and podcast streaming. 

Still, other streaming companies have also shown interest in the market of Gen Z-ers on TikTok who want to listen to full versions of the catchy songs they hear in short videos. Apple Music and Spotify both host curated “viral hits” playlists. But a full-time satellite music channel is taking the trend a step further.

Source: Tech Crunch

Less than three months after announcing a $300 million Series E, Brazilian proptech QuintoAndar has raised an additional $120 million.

New investors Greenoaks Capital and China’s Tencent co-led the round, which included participation from some existing backers as well. São Paulo-based QuintoAndar is now valued at $5.1 billion, up from $4 billion at the time of its last raise in late May. With the extension, the startup has now raised more than $700 million since its 2013 inception. Ribbit Capital led the first tranche of its Series E.

QuintoAndar describes itself as an “end-to-end solution for long-term rentals” that, among other things, connects potential tenants to landlords and vice versa. Last year, it also expanded into connecting home buyers to sellers. Its long-term plan is to ​​evolve into a one-stop real estate shop that also offers mortgage, title insurance and escrow services.

To that end, earlier this month, the startup acquired Atta Franchising, a 7-year-old São Paulo-based independent real estate mortgage broker. Specifically, acquiring Atta is designed to speed up its ability to offer mortgage services to its users. QuintoAndar also plans to explore the possibility of offering a product to perform standalone transactions outside of its marketplace in partnership with other brokers, according to CEO and co-founder Gabriel Braga.

This year, QuintoAndar expanded operations into 14 new cities in Brazil. Eventually, QuintoAndar plans to enter the Mexican market as its first expansion outside of its home country, but it has not yet set a date for that step. Today, the company has more than 120,000 rentals under management and about 10,000 new rentals per month. Its rental platform is live in 40 cities across Brazil, while its home-buying marketplace is live in four (São Paulo, Rio de Janeiro, Belo Horizonte and Porto Alegre) and seeing more than 10,000 sales in annualized terms.

QuintoAndar, he said, is open to acquiring more companies that it believes can either help it accelerate in a particular way or add something it had not yet thought about.

“We’re receptive to the idea but our core strategy is to focus on organic growth and our own innovation and accelerate that,” Braga said.

Why raise more money so soon?

The Series E was oversubscribed with investors who got in and “some who could not join,” according to Braga.

Greenoaks and Tencent, he said, couldn’t participate because of “timing issues.”

“We kept talking and they came back to us after the round, and wanted to be involved so we found a way to have them on board,” Braga said. “We did not need the money. But we have been constantly overachieving on the forecast that we shared with our investors. And that’s part of the reason why we had this extension.”

Greenoaks’ long-term time horizon was appealing because the firm’s investment was designed to be “perpetual capital with no predefined time frame,” Braga said.

“We’re doing our best to build an enduring company that will be around for many, many years, so it’s good to have investors who share that vision and are technically aligned,” he added.

Greenoaks partner Neil Shah said his firm believes that what QuintoAndar is building will “fundamentally reshape real estate transactions, enhancing transparency, expanding options for Brazilians seeking housing, dramatically simplifying the experience for landlords and driving increased investment into real estate across the country.” He also believes there is big potential for the company to take its offering to other parts of Latin America.

“We look forward to being partners for decades to come,” he added. 

Tencent’s experience in China is something QuintoAndar also finds valuable.

“We believe we can learn a lot from them and other Chinese companies doing interesting stuff there,” Braga said.

QuintoAndar isn’t the only Brazilian proptech firm raising big money: In March, São Paulo digital real estate platform Loft announced it had closed on $425 million in Series D funding led by New York-based D1 Capital Partners. Then, about one month later, it revealed a $100 million extension that valued the company at $2.9 billion.

Source: Tech Crunch

Disinformation, misinformation, infotainment, algowars — if the debates over the future of media the past few decades have meant anything, they’ve at least left a pungent imprint on the English language. There’s been a lot of invective and fear over what social media is doing to us, from our individual psychologies and neurologies to wider concerns about the strength of democratic societies. As Joseph Bernstein put it recently, the shift from “wisdom of the crowds” to “disinformation” has indeed been an abrupt one.

What is disinformation? Does it exist, and if so, where is it and how do we know we are looking at it? Should we care about what the algorithms of our favorite platforms show us as they strive to squeeze the prune of our attention? It’s just those sorts of intricate mathematical and social science questions that got Noah Giansiracusa interested in the subject.

Giansiracusa, a professor at Bentley University in Boston, is trained in mathematics (focusing his research in areas like algebraic geometry), but he’s also had a penchant of looking at social topics through a mathematical lens, such as connecting computational geometry to the Supreme Court. Most recently, he’s published a book called “How Algorithms Create and Prevent Fake News” to explore some of the challenging questions around the media landscape today and how technology is exacerbating and ameliorating those trends.

I hosted Giansiracusa on a Twitter Space recently, and since Twitter hasn’t made it easy to listen to these talks afterwards (ephemerality!), I figured I’d pull out the most interesting bits of our conversation for you and posterity.

This interview has been edited and condensed for clarity.

Danny Crichton: How did you decide to research fake news and write this book?

Noah Giansiracusa: One thing I noticed is there’s a lot of really interesting sociological, political science discussion of fake news and these types of things. And then on the technical side, you’ll have things like Mark Zuckerberg saying AI is going to fix all these problems. It just seemed like, it’s a little bit difficult to bridge that gap.

Everyone’s probably heard this recent quote of Biden saying, “they’re killing people,” in regards to misinformation on social media. So we have politicians speaking about these things where it’s hard for them to really grasp the algorithmic side. Then we have computer science people that are really deep in the details. So I’m kind of sitting in between, I’m not a real hardcore computer science person. So I think it’s a little easier for me to just step back and get the bird’s-eye view.

At the end of the day, I just felt I kind of wanted to explore some more interactions with society where things get messy, where the math is not so clean.

Crichton: Coming from a mathematical background, you’re entering this contentious area where a lot of people have written from a lot of different angles. What are people getting right in this area and what have people perhaps missed some nuance?

Giansiracusa: There’s a lot of incredible journalism; I was blown away at how a lot of journalists really were able to deal with pretty technical stuff. But I would say one thing that maybe they didn’t get wrong, but kind of struck me was, there’s a lot of times when an academic paper comes out, or even an announcement from Google or Facebook or one of these tech companies, and they’ll kind of mention something, and the journalist will maybe extract a quote, and try to describe it, but they seem a little bit afraid to really try to look and understand it. And I don’t think it’s that they weren’t able to, it really seems like more of an intimidation and a fear.

One thing I’ve experienced a ton as a math teacher is people are so afraid of saying something wrong and making a mistake. And this goes for journalists who have to write about technical things, they don’t want to say something wrong. So it’s easier to just quote a press release from Facebook or quote an expert.

One thing that’s so fun and beautiful about pure math, is you don’t really worry about being wrong, you just try ideas and see where they lead and you see all these interactions. When you’re ready to write a paper or give a talk, you check the details. But most of math is this creative process where you’re exploring, and you’re just seeing how ideas interact. My training as a mathematician you think would make me apprehensive about making mistakes and to be very precise, but it kind of had the opposite effect.

Second, a lot of these algorithmic things, they’re not as complicated as they seem. I’m not sitting there implementing them, I’m sure to program them is hard. But just the big picture, all these algorithms nowadays, so much of these things are based on deep learning. So you have some neural net, doesn’t really matter to me as an outsider what architecture they’re using, all that really matters is, what are the predictors? Basically, what are the variables that you feed this machine learning algorithm? And what is it trying to output? Those are things that anyone can understand.

Crichton: One of the big challenges I think of analyzing these algorithms is the lack of transparency. Unlike, say, the pure math world which is a community of scholars working to solve problems, many of these companies can actually be quite adversarial about supplying data and analysis to the wider community.

Giansiracusa: It does seem there’s a limit to what anyone can deduce just by kind of being from the outside.

So a good example is with YouTube — teams of academics wanted to explore whether the YouTube recommendation algorithm sends people down these conspiracy theory rabbit holes of extremism. The challenge is that because this is the recommendation algorithm, it’s using deep learning, it’s based on hundreds and hundreds of predictors based on your search history, your demographics, the other videos you’ve watched and for how long — all these things. It’s so customized to you and your experience, that all the studies I was able to find use incognito mode.

So they’re basically a user who has no search history, no information and they’ll go to a video and then click the first recommended video then the next one. And let’s see where the algorithm takes people. That’s such a different experience than an actual human user with a history. And this has been really difficult. I don’t think anyone has figured out a good way to algorithmically explore the YouTube algorithm from the outside.

Honestly, the only way I think you could do it is just kind of like an old-school study where you recruit a whole bunch of volunteers and sort of put a tracker on their computer and say, “Hey, just live life the way you normally do with your histories and everything and tell us the videos that you’re watching.” So it’s been difficult to get past this fact that a lot of these algorithms, almost all of them, I would say, are so heavily based on your individual data. We don’t know how to study that in the aggregate.

And it’s not just that me or anyone else on the outside who has trouble because we don’t have the data. It’s even people within these companies who built the algorithm and who know how the algorithm works on paper, but they don’t know how it’s going to actually behave. It’s like Frankenstein’s monster: they built this thing, but they don’t know how it’s going to operate. So the only way I think you can really study it is if people on the inside with that data go out of their way and spend time and resources to study it.

Crichton: There are a lot of metrics used around evaluating misinformation and determining engagement on a platform. Coming from your mathematical background, do you think those measures are robust?

Giansiracusa: People try to debunk misinformation. But in the process, they might comment on it, they might retweet it or share it, and that counts as engagement. So a lot of these measurements of engagement, are they really looking at positive or just all engagement? You know, it kind of all gets lumped together.

This happens in academic research, too. Citations are the universal metric of how successful research is. Well, really bogus things like Wakefield’s original autism and vaccines paper got tons of citations, a lot of them were people citing it because they thought it’s right, but a lot of it was scientists who were debunking it, they cite it in their paper to say, we demonstrate that this theory is wrong. But somehow a citation is a citation. So it all counts towards the success metric.

So I think that’s a bit of what’s happening with engagement. If I post something on my comments saying, “Hey, that’s crazy,” how does the algorithm know if I’m supporting it or not? They could use some AI language processing to try but I’m not sure if they are, and it’s a lot of effort to do so.

Crichton: Lastly, I want to talk a bit about GPT-3 and the concern around synthetic media and fake news. There’s a lot of fear that AI bots will overwhelm media with disinformation — how scared or not scared should we be?

Giansiracusa: Because my book really grew out of a class from experience, I wanted to try to stay impartial, and just kind of inform people and let them reach their own decisions. I decided to try to cut through that debate and really let both sides speak. I think the newsfeed algorithms and recognition algorithms do amplify a lot of harmful stuff, and that is devastating to society. But there’s also a lot of amazing progress of using algorithms productively and successfully to limit fake news.

There’s these techno-utopians, who say that AI is going to fix everything, we’ll have truth-telling, and fact-checking and algorithms that can detect misinformation and take it down. There’s some progress, but that stuff is not going to happen, and it never will be fully successful. It’ll always need to rely on humans. But the other thing we have is kind of irrational fear. There’s this kind of hyperbolic AI dystopia where algorithms are so powerful, kind of like singularity type of stuff that they’re going to destroy us.

When deep fakes were first hitting the news in 2018, and GPT-3 had been released a couple years ago, there was a lot of fear that, “Oh shit, this is gonna make all our problems with fake news and understanding what’s true in the world much, much harder.” And I think now that we have a couple of years of distance, we can see that they’ve made it a little harder, but not nearly as significantly as we expected. And the main issue is kind of more psychological and economic than anything.

So the original authors of GPT-3 have a research paper that introduces the algorithm, and one of the things they did was a test where they pasted some text in and expanded it to an article, and then they had some volunteers evaluate and guess which is the algorithmically-generated one and which article is the human-generated one. They reported that they got very, very close to 50% accuracy, which means barely above random guesses. So that sounds, you know, both amazing and scary.

But if you look at the details, they were extending like a one line headline to a paragraph of text. If you tried to do a full, The Atlantic-length or New Yorker-length article, you’re gonna start to see the discrepancies, the thought is going to meander. The authors of this paper didn’t mention this, they just kind of did their experiment and said, “Hey, look how successful it is.”

So it looks convincing, they can make these impressive articles. But here’s the main reason, at the end of the day, why GPT-3 hasn’t been so transformative as far as fake news and misinformation and all this stuff is concerned. It’s because fake news is mostly garbage. It’s poorly written, it’s low quality, it’s so cheap and fast to crank out, you could just pay your 16-year-old nephew to just crank out a bunch of fake news articles in minutes.

It’s not so much that math helped me see this. It’s just that somehow, the main thing we’re trying to do in mathematics is to be skeptical. So you have to question these things and be a little skeptical.

Source: Tech Crunch

Music streaming service Spotify today said it will spend up to $1 billion between now and April 21, 2026 to repurchase its own shares. The dollar amount represents just under 2.5% of Spotify’s market cap, with the company valued at $41.06 billion this morning as its shares rose 5.1% following the repurchase news.

The company previously executed a similar buyback program in 2018.

A public company using some of its cash to repurchase its shares is nothing new. Many public companies, including Apple, Alphabet and Microsoft, have active share repurchase programs, and it is common to see mature or nearly mature companies devoting a fraction of their balance sheet or a regular percentage of their free cash flow to buying back their own equity.

The goal of such efforts is to return cash to shareholders. Buybacks, along with dividends, are among the key ways that companies can use their wealth to reward shareholders. Also, by buying their own stock, companies can boost the value of their individual shares. By limiting the shares in circulation, the company’s share count declines and the value of each share consequently rises, in theory, as it represents a larger fraction of ownership in the corporation.

Spotify shares have traded as high as $387.44 apiece in the past 12 months, but are now worth just $215.84, inclusive of today’s gains. From that perspective, seeing Spotify decide to deploy some cash to repurchase its own equity makes sense — the company is buying low.

But if you ask a recently public company what it intends to do with its excess cash, buybacks are not usually the answer. For example, TechCrunch asked Root Insurance CEO Alex Timm if his company intended to use cash reserves to purchase its own equity after its recent Q2 2021 earnings report. Root’s share price has declined in recent months, perhaps making it an attractive time to reward shareholders through buybacks. Timm demurred on the idea, saying instead that his company is building for the long-term. That translates to: That cash is earmarked for growth, not shareholder return.

But isn’t Spotify still a growth company? It certainly isn’t valued on the weight of its profits. In the first half of 2021, for example, Spotify posted net profit of a mere €3 million on revenues of €4.5 billion.

If Spotify is still a growth-focused company, shouldn’t it preserve its capital to invest in exclusive podcasts and the like — efforts that may grant it pricing power in the future and allow for stronger revenue growth and gross margins over time?

To answer that, we’ll have to check the company’s balance sheet. From its Q2 2021 earnings, here are the key numbers:

• Spotify closed out the second quarter with “€3.1 billion in cash and cash equivalents, restricted cash, and short term investments.”
• And in the second quarter, Spotify generated free cash flow of €34 million. That figure was up €7 million from a year earlier despite “higher working capital needs arising from select licensor payments (delayed from Q1), podcast-related payments, and higher ad-receivables”.

More simply, despite paying up for efforts that are generally understood to be key to Spotify’s long-term ability to improve its gross margins — and therefore its net profitability — the company is still throwing off cash. And with a huge bank account earning little, thanks to globally low prices for cash and equivalent holdings, Spotify is using a chunk of its funds to buy back stock.

By spending $1 billion over the next few years, Spotify won’t materially harm its cash position. Indeed, it will remain incredibly cash-rich. However, the move may help defend its valuation and keep itchy investors happy. Moreover, as the company is buying its stock at a firm discount to where the market valued it recently, it could get something akin to a deal, given Spotify’s long-term faith in the value of its own business.

Perhaps the better question at this juncture is not whether Spotify is a weird company for deciding to break off a piece of its wealth for shareholders, but instead why we aren’t seeing other breakeven-ish tech companies with neutral cash flows and fat accounts doing the same.

Source: Tech Crunch

Have you ever tried to share a funny tweet with a few friends via Twitter DM, only to accidentally start a group chat? You’re not alone. Today, Twitter announced that it will roll out a few quality of life improvements to its direct messaging system over the next few weeks, including the ability to DM a tweet to multiple people at once in individual conversations. Researcher Jane Manchun Wong noticed that Twitter was working on this functionality last month.

A potential downside of this update is that it might invite more spam — you can’t send a message to more than 20 people at once, but that’s still a lot of people. And users receiving these messages now may not realize they were a part of group spam, as the individual DMs will seem like private 1:1 messages.

Twitter says Android users will have to wait a bit longer than iOS and web tweeters to gain access to this feature — and it’s unclear how long that will take, because in the past, it’s taken years for iOS DM updates to reach Android. But as a consolation prize, on both Android and iOS, if you scroll up in a DM conversation, you’ll be able to return to the latest message by pressing a down arrow button to quick-scroll.

Twitter’s other two DM improvements are only rolling out so far on iOS — instead of timestamping individual messages with the date and time, messages will be grouped by day. Individual DMs will still have a timestamp, but Twitter says that this change will yield “less timestamp clutter.”

Finally, in DMs, iOS users will be able to access the “add reaction” menu from both double-tapping and long-pressing on a message. Long-pressing a friend’s message also gives you the option to delete the message on your account only, report the message, or copy the text.

Image Credits: Twitter, screenshot by TechCrunch

Twitter also announced today that it’s testing a feature that puts users’ Revue newsletters on their profile (Twitter acquired the newsletter platform earlier this year). But last week, it unveiled more noticeable UI updates that experts believe made the platform less accessible. Within two days of the update, Twitter made contrast changes on its buttons and identified issues with its proprietary font Chirp on Windows.

Source: Tech Crunch

OnlyFans has announced that it will ban sexually explicit content starting in October. The platform was not built specifically for porn but that has grown to be its most popular and visible use case, but pressure from “banking partners and payout providers” means the company will have to leave the adult content world behind and focus solely on SFW material going forward.

The news, first reported by Bloomberg, was confirmed by the company in a statement:

Effective 1 October, 2021, OnlyFans will prohibit the posting of any content containing sexually-explicit conduct. In order to ensure the long-term sustainability of the platform, and to continue to host an inclusive community of creators and fans, we must evolve our content guidelines. Creators will continue to be allowed to post content containing nudity as long as it is consistent with our Acceptable Use Policy.

These changes are to comply with the requests of our banking partners and payout providers.

We will be sharing more details in the coming days and we will actively support and guide our creators through this change in content guidelines.

OnlyFans did not respond to TechCrunch’s inquiries as to its definition of sexually explicit content or how it expected this would impact the company’s bottom line.

The OnlyFans platform has become the de facto standard for independent creators doing adult content. Over the pandemic it grew increasingly popular as the adult industry, like others, had its normal operations interrupted. It has proved an invaluable asset for many creators, professional and aspiring, who used the platform to directly monetize fans without interacting with notoriously predatory established adult industry companies.

But sex work has always been risky in online operations. The practical risk of hosting illegal content means platforms must exert constant vigilance for things like child sex abuse material, malicious content like revenge porn and unwanted leaks, and everyday internet threats like piracy.

At the organizational level, however, the companies may find it difficult to scale due to the trepidation of investors and banks, both of which tend to avoid the industry in general as a “vice,” much the way cannabis and sex toy startups have faced challenges. Pushback from financial backers and payment processors can effectively sink an entire business model.

OnlyFans in this case says openly that it is abandoning adult content due to exactly this type of pressure. While the company has recently debuted and promoted its OFTV app, a SFW alternative to the main OnlyFans site, and of course there are many creators on the platform who do not produce sexually explicit content, this will be an enormous blow to both the sex work industry and to the company itself. Affected creators were not notified ahead of time.

“This is going to shatter a lot of people’s main source of income, the foundation of their entire business,” said Tristan West, who as dreamboytristan is a top creator of adult content on OnlyFans. “Me and a lot of people have got to do a lot of work to secure our business, move our assets, move our content to another platform. It’s not the end of the world, but this is a huge setback.”

West noted that other platforms are finding ways to monetize adult content as well, such as Twitter adding its paid follows and sites like PornHub building out direct monetization opportunities as well. But OnlyFans holds all the cards and will need to make that transition possible.

“I’d like to see them do what’s needed — it’s weird that they haven’t come to us and talked to us in any way,” said West. “Offer a quick option to download all your content on OnlyFans — that’s your asset, that’s your business. That’s the bare minimum that they can do for creators.”

It’s a serious question whether OnlyFans will be able to survive this transition in any recognizable form. The choice to abandon their most lucrative and loyal segment of customers and creators may poison the well, with others declining to rely on a platform that failed to support others. Investors, once wary of the risk of putting money into a sex-adjacent product, may now be wary of paying to board a sinking ship. That $1 billion valuation may be farther away than ever.

The obvious and immediate answer from the tech community is to operate OnlyFans or something like it using cryptocurrencies, which are generally speaking not subject to these limitations. This may represent a way forward for the next platform, but for OnlyFans it may be too late to adapt.

“Thankfully, we have a couple months,” West said. “OnlyFans was the top platform in this market but they’re not the only one. It’s an opportunity for someone else to come around and do better for sex workers and online creators.”

This story is developing and may be updated in the near future with more information.

Source: Tech Crunch