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The trust dilemma of continuous background checks

First, background checks at startups, then Huawei’s finance chief is arrested, SoftBank’s IPO is subscribed and I am about to record our next edition of TechCrunch Equity. It’s Thursday, December 6, 2018. TechCrunch is experimenting with new content forms. This is a rough draft of something new — provide your feedback directly to the author (Danny at danny@techcrunch.com) if you like or hate something here. The dilemma of continuous background checks My colleague John Biggs covered the Series A round for Israel-based Intelligo, a startup that provides “Ongoing Monitoring” — essentially a continuous background check that can detect if (when?) an employee has suddenly become a criminal or other deviant. That’s a slight pivot from the company’s previous focus of using AI/ML to conduct background checks more efficiently. Background checks are a huge business. San Francisco-based Checkr, perhaps the most well-known startup in the space, has raised $149 million according to Crunchbase, driven early on by the need to on-board thousands of contingent workers at companies like Uber. Checkr launched what it calls “Continuous Check,” which also actively monitors all employees for potential problems, back in July. Now consider a piece written a few weeks ago by Olivia Carville at Bloomberg that explored the rise of “algorithmic auditors” that actively monitor employee expenses and flags ones it feels are likely to be fraudulent: U.S. companies, fearing damage to their reputations, are loath to acknowledge publicly how much money they lose each year on fraudulent expenses. But in a report released in April, the Association of Certified Fraud Examiners said it had analyzed 2,700 fraud cases from January 2016 to October 2017 that resulted in losses of $7 billion. Here’s a question that bugs me though: We have continuous criminal monitoring and expense monitoring. Most corporations monitor web traffic and email/Slack/communications. Everything we do at work is poked and prodded to make sure it meets “policy.” And yet, we see vituperative attacks on China’s social credit system, which …. monitors criminal records, looks for financial frauds and sanctions people based on their scores. How long will we have to wait before…

Foxconn or Foxgone? Tariffs, Wisconsin and iPhone fires

First some notes on SoftBank’s rumored expansion into China and its weird fund math, then Foxconn and then quick notes on tech depression, Huawei and more. TechCrunch is experimenting with new content forms. This is a rough draft of something new — provide your feedback directly to the author (Danny at danny@techcrunch.com) if you like or hate something here. SoftBank has fund visions (and a Vision Fund) for China? That, and more money Kane Wu at Reuters reported overnight that SoftBank is looking to open an office and hire an investment team in China, which Wu says will be based in Shanghai. That’s following the fund’s recent global expansion with new targeted offices in Saudi Arabia and India. When I saw this, I sort of did a double-take: SoftBank doesn’t have a presence in China? The fund has reportedly been seeking investments in some of China’s leading unicorn stars, including controversial face recognition startup SenseTime, and leading edtech startup Zuoyebang (作业帮, which literally translates as “school assignment help”). (Hat-tips to Selina Wang at Bloomberg, who seems to just be sitting in Vision Fund partner meetings). And of course, it dumped a pretty penny into WeWork China, where it was part of a $500 million syndicate, and is a huge investor in Didi. It’s sort of obvious that SoftBank would expand to China. What will be interesting though is to see how the fund structures itself long-term. As far as I know, the Vision Fund is a singular “fund” that invests worldwide (send me an email if I am wrong on this count). China has a thicket of regulations on funds and companies, which is one of several reasons we see specifically China-focused vehicles (such as Lightspeed and Lightspeed China or Sequoia and Sequoia China). If the Vision Fund continues to be a unified fund, that would be a notable strategy shift that might be cloned by other trans-Pacific funds. Aside: SoftBank Vision Fund math is complicated Rajeev Misra, board director of SoftBank Group and CEO of SoftBank Investment Advisors. Photo by Drew Angerer/Getty Images. When it first closed the Vision…

Cloud communications platform Agora closes $70M Series C to create new developer tools

Agora, a developer of cloud communication APIs, will create products for new markets and verticals after raising a $70 million Series C led by Coatue Management. Existing investors SIG, Morningside Capital and Shunwei Capital also returned for the round, which brings Agora’s total funding so far to $125 million. The startup’s APIs are used by customers, including The Meet Group, Xiaomi, Hike Messenger and Momo, to insert voice, video and group calling or broadcasting features into their apps. Agora claims it recently surpassed two billion installations of its SDKs and routes through its 200 distributed data centers around the world an average of 10 billion minutes of live communications each month. The company is raising capital at a relatively fast pace to support its growth goals. Agora’s last funding announcement was made five months ago, when Agora said it had added a $30 million extension to its Series B, bringing that round to a total of $50 million. Agora was started in 2014 by CEO Tony Zhao, who was a founding engineer at online communication platform WebEx, acquired by Cisco in 2007, and former CTO of Chinese live-streaming video platform YY. Headquartered in Santa Clara, Calif., with offices in Shanghai, Agora is a relatively new entrant to a market that includes competitors like Twilio and Tokbox. Agora’s core product is an SDK that enables developers to insert into their apps voice, video and group calling, as well as interactive broadcasting features, but it also recently added SDKs designed specifically for game developers and Facebook’s React Native framework.

China is funding the future of American biotech

Silicon Valley is in the midst of a health craze, and it is being driven by “Eastern” medicine. It’s been a record year for US medical investing, but investors in Beijing and Shanghai are now increasingly leading the largest deals for US life science and biotech companies. In fact, Chinese venture firms have invested more this year into life science and biotech in the US than they have back home, providing financing for over 300 US-based companies, per Pitchbook. That’s the story at Viela Bio, a Maryland-based company exploring treatments for inflammation and autoimmune diseases, which raised a $250 million Series A led by three Chinese firms. Chinese capital’s newfound appetite also flows into the mainland. Business is booming for Chinese medical startups, who are also seeing the strongest year of venture investment ever, with over one hundred companies receiving $4 billion in investment. As Chinese investors continue to shift their strategies towards life science and biotech, China is emphatically positioning itself to be a leader in medical investing with a growing influence on the world’s future major health institutions. Chinese VCs seek healthy returns We like to talk about things we can interact with or be entertained by. And so as nine-figure checks flow in and out of China with stunning regularity, we fixate on the internet giants, the gaming leaders or the latest media platform backed by Tencent or Alibaba. However, if we follow the money, it’s clear that the top venture firms in China have actually been turning their focus towards the country’s deficient health system. A clear leader in China’s strategy shift has been Sequoia Capital China, one of the country’s most heralded venture firms tied to multiple billion-dollar IPOs just this year. Historically, Sequoia didn’t have much interest in the medical sector.  Health was one of the firm’s smallest investment categories, and it participated in only three health-related deals from 2015-16, making up just 4% of its total investing activity.  Recently, however, life sciences have piqued Sequoia’s fascination, confirms a spokesperson with the firm.  Sequoia dove into six health-related deals in 2017 and has already participated in 14 in 2018 so far.  The firm…

Cryptocurrency wallet startup Cobo raises $13M Series A to enter the U.S. and Southeast Asia

Cobo, a cryptocurrency wallet startup headquartered in Beijing, has raised a $13 million Series A to enter new international markets. The round was led by DHVC and Wu Capital, a family office based in China. Cobo plans to expand in the United States and Southeast Asia, in particular Vietnam and Indonesia. Cobo is also now taking pre-orders for Cobo Vault, a hardware wallet (pictured above) that it claims is military grade. Cobo’s Series A brings its total funding to $20 million so far. Cobo Wallet allows users to store both proof-of-stake and proof-of-work coins. One incentive for people to pick the app over its competitors is the ability to pool proof-of-stake assets with other users so they can increase their chances of mining and validating new blocks on the blockchain. Since launching earlier this year, Cobo says its digital wallet has gained more than 500,000 users. The startup was founded last year by CEO Shixing Mao, who is known as Discus Fish in the crypto community, and CTO Changhao Jiang, a former platform engineer at Facebook and Google who co-founded Bihang, a cryptocurrency wallet acquired by OKCoin in 2013. Discus Fish, meanwhile, is known for launching F2Pool, China’s first mining pool. Cobo Vault, which will retail for $479, meets the MIL-STD-810G U.S. military standard for equipment, Cobo’s head of hardware Lixin Liu said in an email, adding that it was built with proprietary firmware created especially for the device, a bank-grade encryption chip and military-grade aluminum. Cobo Vault’s creation was prompted by an August 2017 incident in which F2Pool was hacked and more than 8,000 ETH was stolen from Discus Fish’s account. Fish also refunded customers’ lost ETH from his own assets. “As a result, Discus Fish was resolute on the fact that for crypto to gain mass market adoption, products had to be made to be hacker-resistant and truly safe,” said Liu.

The real-life Emery and Evan from “Fresh off the Boat” launch Batu Capital for cannabis, crypto and big data startups

Brothers Evan and Emery Huang, founders of Batu Capital Restaurateur and raconteur Eddie Huang is the best known of the three “Fresh off the Boat” brothers (it was his memoir that inspired the ABC sitcom), but his younger brothers Emery and Evan remain relatively mysterious even to its most loyal viewers. Though the two’s namesake characters are also prominently featured on the show, their real-life counterparts have kept a much lower public profile, making sporadic appearances on Eddie’s social media. Emery and Evan, however, have been busy investing in real estate and recently branched into tech startups. Though their multi-family investment office Batu Capital just launched this year, it reached a big milestone this week when one of their first investments, MJ Freeway, an enterprise software developer for the cannabis industry, entered into a merger agreement with MTech that will make it part of a Nasdaq-listed holding company. The fictionalized versions of Evan and Emery Huang, portrayed on “Fresh off the Boat” by Ian Chen and Forrest Wheeler. (Photo by Vivian Zink/ABC via Getty Images) In an interview, the two brothers told TechCrunch about moving into the tech sector and the startups they want to fund in the United States, China and Southeast Asia. Batu Capital is focused on finding companies in the cannabis, blockchain and crypto sectors, as well as big data. In addition to MJ Freeway, which provides enterprise resource planning and compliance tracking software for the cannabis businesses, its portfolio also includes Vidy, a startup building a new approach to video ads on Ethereum, and Sora Ventures, a crypto-backed blockchain and digital currency venture fund. Batu Capital invests in seed or Series A stage companies or Series C and pre-IPO and its typical check size will be about $500,000 to $2 million. Though Batu isn’t a single family office, instead raising capital from a network of limited partners for each investment, its creation was motivated by Emery and Evan’s desire to protect their family’s assets after several generations of political and social upheaval. “Long story short, our family has made and lost fortunes more than five times…

Study says the US is quickly losing its entrepreneurial edge

Photographer: Daro Sulakauri/Bloomberg According to a new study conducted by the Center for American Entrepreneurship and NYU’s Shack Institute of Real Estate, the US may be losing its competitive advantage as the dominant nucleus of the startup and venture capital universe.  The analysis, led by senior Brookings Institution fellow Ian Hathaway and “Rise of the Creative Class” author Richard Florida, examines the flow of venture capital over 100,000 deals from 2005 to 2017 and details how the historically US-centric practice of venture capital has become a global phenomenon. While the US still appears to produce the largest amount of venture activity in the world, America’s share of the global pie is falling dramatically and doing so quickly. In the mid-90s, the US accounted for more than 95% of global venture capital investment.  By 2012, this number had fallen to 70%. At the end of 2017, the US share of total venture investment had fallen to just 50%.    Over the last decade, non-US countries have propelled growth in the global startup and venture economy, which has swelled from $50 billion to over $170 billion in size.  In particular, China, India and the UK now account for a third of global venture deal count and dollars – 2-3x the share held ten years ago.  And with VC dollars increasingly circulating into modernizing Asia-Pac and European cities, the researchers found that the erosion in the US share of venture capital is trending in the wrong direction. Growth of global startup cities and the myth of the American “rise of the rest” We’ve spent the summer discussing the notion of Silicon Valley reaching its parabolic peak – Observing the “rise of the rest” across smaller American tech hubs.  In reality, the data reveals a “rise in the rest of the world”, with startup ecosystems outside the US growing at a faster pace than most US hubs. The Bay Area remains the world’s preeminent beneficiary of VC investment, and New York, Los Angeles, and Boston all find themselves in the top ten cities contributing to global venture growth.  However, only six of the top 20 cities are located in the US, while 14 are in Asia or Europe.  At the…

China’s secret startup advantage: liquidity

This year’s rush of IPOs from Chinese tech companies has dominated headlines, but what’s more interesting is how quickly they got there. Traditionally, “going public” represented the gratifying culmination of sleepless nights and missed birthdays that went into building a company. The peak of a lengthy climb, where founders and VCs would finally see the fruits of their labor.  However, Chinese companies appear to be reaching that peak much quicker than their American peers, heading to the public markets only a few years after initial venture investments, and often with little operating history.  Analyzing twenty of the most high profile Chinese tech IPOs this year, the average time from first venture investment to IPO was only around three to five years. Take e-commerce platform Pinduoduo, which pulled in $1.6 billion less than three years after its Series A.  Or the recent IPO of EV-manufacturer NIO, which raised a billion dollars just three-and-a-half years after its Series A and having just delivered its first car in June. China IPO data for 2018 compiled from NASDAQ, Pitchbook, and Crunchbase That’s less than half the average 10-year timeline for venture-backed US tech companies that went public in 2018, including Dropbox, Eventbrite, and DocuSign, which all IPO’d more than a decade after their initial investments. Differences in market maturity, government involvement, and support from large tech incumbents all undoubtedly play a factor, but the speed to liquidity for the Chinese companies is still astounding. Faster liquidity can push cycle of returns, fundraising, reinvestment Speed to liquidity is a critical metric for the health of a startup ecosystem. It creates a positive cycle where faster liquidity can drive faster fundraising, faster reinvestment, faster startup building, and faster public liquidity again.  An accelerated cycle could be especially appealing for funds with LPs that require faster returns due to cash commitments or otherwise. It’s important to note that venture returns are a function of capital and time, so quicker exits will also drive higher returns for the same amount invested.  For example, a $1 million investment with a $5 million exit after ten years would generate an Internal Rate of…

VCs say Silicon Valley isn’t the gold mine it used to be

In the days leading up to TechCrunch Disrupt SF 2018, The Economist published the cover story, ‘Why Startups Are Leaving Silicon Valley.’ The author outlined reasons why the Valley has “peaked.” Venture capital investors are deploying capital outside the Bay Area more than ever before. High-profile entrepreneurs and investors, Peter Thiel, for example, have left. Rising rents are making it impossible for new blood to make a living, let alone build businesses. And according to a recent survey, 46 percent of Bay Area residents want to get the hell out, an increase from 34 percent two years ago. Needless to say, the future of Silicon Valley was top of mind on stage at Disrupt. “It’s hard to make a difference in San Francisco as a single entrepreneur,” said J.D. Vance, the author of ‘Hillbilly Elegy’ and a managing partner at Revolution’s Rise of the Rest Fund, which backs seed-stage companies based outside Silicon Valley. “It’s not as a hard to make a difference as a successful entrepreneur in Columbus, Ohio.” In conversation with Vance, Revolution CEO Steve Case said he’s noticed a “mega-trend” emerging. Founders from cities like Pittsburgh, Detroit or Portland are opting to stay in their hometowns instead of moving to U.S. innovation hubs like San Francisco. “The sense that you have to be here or you can’t play is going to start diminishing.” “We are seeing the beginnings of a slowing of what has been a brain drain the last 20 years,” Case said. “It’s not just watching where the capital flows, it’s watching where the talent flows. And the sense that you have to be here or you can’t play is going to start diminishing.” J.D. Vance says that most entrepreneurs don’t need to move to Silicon Valley. Here’s why. #TCDisrupt pic.twitter.com/0mFPeTuHLe — TechCrunch (@TechCrunch) September 6, 2018 Farewell, San Francisco “It’s too expensive to live here,” said Aileen Lee, the founder of seed-stage VC firm Cowboy Ventures, amid a conversation with leading venture capitalists Spark Capital general partner Megan Quinn and Benchmark general partner Sarah Tavel . “I know that there are a lot of people in the Bay…

Brazilian startup Yellow raises $63M — the largest Series A ever for a Latin American startup

After selling their ridesharing startup, 99, to Didi Chuxing for $1 billion last year, Ariel Lambrecht and Renato Freitas didn’t waste any time throwing their hats back in the ring. Months after their big exit, the pair joined forces with Eduardo Musa, who spent two decades in the bicycle industry, to start another São Paulo-based mobility startup. Yellow, a bike- and scooter-sharing service, quickly captured the attention of venture capitalists, raising a $12.3 million seed round in April and now, the company is announcing the close of a $63 million Series A. The round is the largest Series A financing ever for a startup in Latin America, where tech investment, especially from U.S.-based firms, has historically remained low. 2017, however, was a banner year for Latin American startups; 2018, it seems, is following suit. More than $600 million was invested in the first quarter of 2018, partly as a result of increased activity from international investors. And just last month, on-demand delivery startup Rappi brought in $200 million to become the second Latin American company to garner a billion-dollar valuation. GGV Capital has led the round for Yellow . The Silicon Valley firm is a backer of several other mobility companies, including Grab, Lime, Hellobike and Didi Chuxing. Yellow represents the firm’s first foray into the Latin American tech ecosystem. Brazilian VC firm Monashees, Grishin Robotics, Base10 Partners and Class 5 also participated. “We think there’s a new economy emerging in Latin America,” GGV managing partner Hans Tung told TechCrunch. “A lot of people are more cautious but what we’ve seen with our experience in China, when internet penetration started to happen, a new economy started to emerge that’s more efficient.” The tech investment wave has reached Latin America Yellow’s bikes and e-scooters are only available in São Paulo. With the investment, the startup plans to expand to Mexico City, Colombia, Chile and Argentina, as well as add e-bikes to its portfolio of micro-mobility options. The company also plans to tap into local resources by building a scooter manufacturing facility in the region. Yellow CEO Eduardo Musa told me the company doesn’t want to be reliant…

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