17 October, 2024
Egypt’s Cartona raises $8.1M even as investors pull back from B2B e-commerce in Africa
When Egyptian B2B e-commerce platform Cartona last raised money in 2022, global and local investors were eager to invest in African startups solving the supply chain and operational challenges for retailers and suppliers in the fast-moving consumer goods (FMCG) industry.
Two years on, investors aren’t as enthused anymore as the business models of such startups, both asset-light and asset-heavy, across the continent have come under pressure, leading to retreats, closures, downsizing and mergers.
Yet, Cartona, which is “very close to reaching full EBITDA profitability,” according to founder and CEO Mahmoud Talaat, has managed to raise more money — this time, $8.1 million in a Series A extension ($5.6 million equity and $2.5 million debt) from new and existing investors.
Egyptian VC firm Algebra Ventures led the round, which brings Cartona’s total Series A to $20.1 million. Silicon Badia, lead investor from the first Series A tranche, and SANAD Fund for MSME also participated. Camel Ventures and GlobalCorp, on the other hand, provided the debt component.
Talaat told TechCrunch that the 4-year-old e-commerce platform raised from a significant cash position.
“We have double what we raised now in equity,” he said. That capital will be used to grow its market share in Egypt by deepening its operations in FMCG and HORECA (hotel, restaurant and cafe/catering), a vertical it launched over a year ago. In addition, Cartona may be looking to expand into other regional markets, including Saudi Arabia, and to explore other product lines within Egypt, the chief executive added.
Egyptian B2B e-commerce platform Cartona raises $12M to scale and explore new verticals
Exploring new verticals with the asset-light model
Cartona first launched as an asset-light B2B platform connecting FMCG suppliers and wholesalers with retailers. A common criticism then was that asset-light models would find it difficult to retain customers and compete against asset-heavy B2B e-commerce platforms, which basically had more control of their tech and supply chain.
Asset-light marketplaces, including Cartona and Nigeria’s Omnibiz, have fairly dispelled such notions.
Talaat, in an interview with TechCrunch, said Cartona spent its first two years focusing on improving its tech, user experience, and fulfillment rates to the point where it matched the service level of some asset-heavy models, allowing it to raise money in 2022.
Afterward, the B2B e-commerce outfit turned its attention to improving its unit economics in an industry where volumes are high but making each order profitable is often challenging. Achieving progress on that front over the past two years and almost reaching full profitability, especially with the devaluation of the Egyptian pound against the dollar, made Cartona attractive to investors, according to Talaat.
Unsurprisingly, Cartona’s asset-light model is a contributing factor behind its push toward profitability. Talaat explains that Egypt’s informal market has a significant network of suppliers, wholesalers, and distributors that don’t need to be displaced or competed against but rather made more efficient with the tech tools that B2B e-commerce platforms provide.
“Our mission from day one was to support and enhance these partners instead of competing with them. We focus on technology, embedded finance, and other exciting product enhancements and features we’ve developed while they’re strong in operations, buying, and selling inventory,” Talaat remarked. “They already have good prices and experience and can locally deliver very fast for their clients. Because we partnered with these suppliers, we’ve not only scaled and grown to be the largest marketplace connecting all these suppliers in one place but also built a strong reputation.”
What African B2B e-commerce startups can learn from OmniRetail’s profitable run
According to Talaat, over 30-40% of Cartona’s partner suppliers’ sales now come through the platform.
When a platform contributes a significant margin to suppliers, they’ll actively support its growth. Similar success can be replicated in other verticals.
Take, for instance, Cartona’s expansion into serving hotels, restaurants, and cafes. The vertical leverages the synergies between FMCG and restaurant supply bases, as many items needed by these businesses overlap, including fresh meat, chicken, fish and vegetables.
“We check our supply base and see what could work. For example, since we already have cosmetics in our marketplace, we could maybe add pharmacies that sell not only medicines but also cosmetics,” added Talaat, who founded Cartona with CTO Mahmoud Abdel-Fattah.
Business is growing
Cartona’s annualized gross merchandise volume (GMV) is about EGP 10 billion ($210 million), up from EGP 2.3 billion ($120 million) in 2022.
Interestingly, while the HORECA vertical, launched last year, represents a small part of Cartona’s business (around 7% of the company’s annualized gross merchandise volume), its blended take rates and average order value from 3,000+ customers are double what the platform receives from its FMCG customers. Talaat expects the vertical to contribute 15% of the startup’s GMV by the end of the year.
More than 180,000 retailers (up from 60,000+ in 2022) from both verticals manage over 40,000 SKUs on Cartona. These retailers, who get their orders from 4,500 suppliers across 17 Egyptian cities, handle stock and working capital via cash or credit orders.
Initially, Cartona facilitated retailers’ credit orders using equity because its local currency debt portfolio had not matured. But as the platform grew, it secured local currency financing, which now makes up over 90% of its portfolio, with only 10% coming from equity, Talaat explained during the call. Embedded finance now constitutes more than 20% of Cartona’s GMV, up from just 2-3% in 2022. As Cartona’s transaction volume increasingly involves credit, using local currency facilities is expected to expand in tandem with the platform’s growth.
“The asset-light nature of its model creates a scalable infrastructure that can quickly be adapted for entry into new markets and adjacencies. Cartona has also been a driving force for financial inclusion in the retail sector as more and more of its small merchants take advantage of inventory financing options,” Omar Khashaba, general partner at Algebra Ventures, said in a statement.
Challenging market but a massive opportunity
Egypt has over 400,000 shops and thousands of international and local brands, and the sector grows annually by 8%. Reports indicate that the overall retail market size is $120 billion, with the food and beverage market worth $70 billion.
Venture capital has driven market digitization in the country, spurring growth and competition among players like Cartona, the now-defunct Capiter, and MaxAB, which is currently in merger talks with Wasoko. Despite the millions of dollars of funding and the presence of similar companies across Africa, they have barely scratched the surface or created significant value for stakeholders in the supply chain and investors backing them.
However, Talaat believes it’s only a matter of time before this changes.
“All the companies combined represent a very small part of the market, which is still predominantly offline. I would say we only cover around 2-4% of the entire market. Despite knowing the market is huge, our real competition remains the offline transactions between companies, wholesalers, and retailers,” said Talaat. The education and penetration of B2B e-commerce is still in its early stages. It’s coming, and it will come, because we add real value to those retailers and suppliers, but it will take time given the market’s vast size.”
Sources: Wasoko-MaxAB e-commerce merger faces delays amid headwinds in Africa
The biggest trends young NYC investors are bullish about — and why
As twenty-something-year-old investors enter the venture landscape, they bring fresh vibes and spot new trends that could become the next multibillion-dollar tech businesses. Already, we are seeing some young investors carving out new niches.
Alex Chung, 26, is an investor at Chai Ventures. Her firm has backed companies like consumer health platform Unfabled and emotional well-being company MentalHappy. Chung says she’s taken an interest in how the broader ecosystem has reframed women’s health in the past few years. Women’s health companies were long thought to only address menstrual health, maternal health or menopause management. But Chung and her firm are interested in much more.
Consider that drug companies were not legally required to include women in clinical trials in the U.S. until 1993, meaning the impact of many popular drugs and medical devices was never originally studied. That enormous research hole creates opportunities today, and there are many others that are very much worth pursuing. Deloitte found that women are typically the ones in charge of a family’s medical decisions, making at least 80% of a household’s medical spending decisions.
“We’re bullish on the expanded definition of women’s health to include companies that are creating innovative solutions to help manage chronic conditions that disproportionately affect women,” Chung says, citing certain thyroid disorders, endometriosis and osteoporosis as examples. “Increasing recognition of women’s unique healthcare needs, coupled with advances in technology, makes women’s health a compelling space for investment and development.”
Over at Female Founders Fund (FFF), investor Layla Alexander, 25, says she’s interested in the care economy and enterprise climate solutions. She’s also quite bullish on women’s health. Though her firm is technically generalist, given its focus on women, it has always seen women’s health as an underserved market. FFF has Maven Clinic in its portfolio, the first unicorn in the women’s health space. Last year, women’s health companies raised 4.3% of the $26.5 billion invested into healthcare companies, according to a Forbes article. That is a substantial increase from the years prior, but there is still much work to be done, Alexander says.
“Despite the success of Maven and other businesses in this category, women’s healthcare remains underfunded and overlooked, presenting a massive market opportunity,” she tells TechCrunch.
Then there is AI
Young investors are having a love-hate relationship with artificial intelligence and are looking for ways to make this revolution more grounded in reality.
Zehra Naqvi, 25, an investor at Headline Ventures who writes the popular newsletter No GPs Allowed, is dead set on the consumer sector.
She likes technologies like the a16z-backed party-planning app Partiful, which helps merge the online world with the in-person — an effort she calls “IRL to URL.” She’s also into “AI social rehab,” or looking for tools that can make people better people and citizens of the world. She says right now that many of the AI companion apps, those that purport to be one’s friend or partner, are reinforcing self-isolation. Because of this, some form of social rehab is necessary, especially since so many young people — Gen Z and Gen Alphas — spent critical formative years online during the pandemic.
“Think AI therapy apps, AI journaling, AI mental health, AI well-being apps, that encourage and facilitate human-to-human connections with guided self-reflection,” says Naqvi, whose firm’s investments include Bumble, the fintech Acorns, and the e-commerce platform Elyn. “It’s like prosumer tools but for greater efficiency, development and progress with who we are as people.”
Plus, young people are going to be spending so much time online anyway, there might as well exist tools to make them feel less lonesome amid what has become America’s loneliness epidemic.
Naqvi also believes that every creator is bound to become a small business owner — a “solopreneur” — and that every “solopreneur” will inevitably become a creator. Naqvi sees a world where solopreneur tools become advanced enough to sustain individually operated businesses at massive scales. AI has a part in that too.
“As Sam Altman said, we’re getting closer to a one-person-operated billion-dollar business,” Naqvi said. “To get there, we need a whole new generation of solopreneur tools and gig economy platforms.”
Besart Copa, a principal at the accelerator Antler who also has a consumer newsletter, The Zero State, has similar thoughts. “We are at the precipice of a Cambrian explosion in consumer apps,” he tells TechCrunch. “Artificial intelligence has given visionary founders new possibilities to reimagine how consumers live their lives. AI has also made it cheaper, faster and easier than ever to ship.”
Lori Berenberg, 29, at Bloomberg Beta, is excited about another, perhaps simpler, aspect of AI. Her companies include legal timekeeper Ajax and construction payroll company Trayd. She is interested in software and user-centric applications that use AI as a tool, like Figma Slides’ tone dial, which uses AI to adjust sentence structure and language.
She says AI reveals what humans are good at, like strategy, problem-solving, and having gut intuition. But AI is in a good position to better software development, handling everything from data management to cloud setup, freeing developers from their most tedious work.
“Once the ‘wow’ factor of AI started to cool off and businesses seriously started looking at implementing new AI tools, many got stuck on the unreliable inconsistent results they get from generative AI,” Berenberg tells TechCrunch. “It’s exciting to see how many founders have started using clever product touches or different system architectures to get more deterministic responses, both for end-user interactions and backends that use AI.”
As TechCrunch previously reported, AI companies made up 41% of all U.S. deals in the first half of 2024. AI and machine learning companies raised $38.6 billion out of the $93.4 billion invested in the first half of the year, PitchBook reported. Last year, AI companies raised $27 billion, much of that money coming from Big Tech, the Financial Times reported. The flush of capital into the sector has some people debating on whether or not an AI bubble is coming for the industry.
And a reconsideration of some trends
Then come the trends that these young investors don’t believe will be successful.
Chung is not too keen on circular commerce — which is the process in which resources are kept in circulation to reduce waste — saying the industry still faces too many hurdles like consumer adoption and supply chain bottlenecks.
Copa has a problem with free apps. “Stop making free apps,” he says point blank. “Consumers are more willing than ever to subscribe to things. Put up a paywall and make money. If people are not willing to pay, pivot to something they will.”
Berenberg, meanwhile, thinks companies are prematurely focusing on optimizing infrastructure for AI agents, rather than building an AI agent that people want. Berenberg says people looking to build for specific sectors should take a step back and see how that industry would actually want to use an AI agent. That’s why she backed Ajax, which helps lawyers automate their billing timekeeping, something that should directly impact their revenue.
Alexander says she’s interested in AI tools that help advance research and health care delivery but, at the same time, she feels that many AI investments today are just “extremely capital intensive,” requiring so much infrastructure, talent and data, without clarity about their return on investment. It’s led to inflated valuations and what she considers to be “unsustainable funding strategies.”
“While I’m bullish on AI’s potential across investing categories, it’s crucial that we remain disciplined and focus on backing founders with sound, scalable business models,” she said.
Their fears match what many others have noticed. Naqvi is always wary of tech that becomes a trend and has seen a few of them — the web3 revival, and now the AI revolution. “I am not inherently against any particular trend, but I feel that AI is naturally at risk of overindulgence and may become too frothy soon.”
Egypt’s Cartona raises $8.1M even as investors pull back from B2B e-commerce in Africa
When Egyptian B2B e-commerce platform Cartona last raised money in 2022, global and local investors were eager to invest in African startups solving the supply chain and operational challenges for retailers and suppliers in the fast-moving consumer goods (FMCG) industry.
Two years on, investors aren’t as enthused anymore as the business models of such startups, both asset-light and asset-heavy, across the continent have come under pressure, leading to retreats, closures, downsizing and mergers.
Yet, Cartona, which is “very close to reaching full EBITDA profitability,” according to founder and CEO Mahmoud Talaat, has managed to raise more money—this time, $8.1 million in a Series A extension ($5.6 million equity and $2.5 million debt) from new and existing investors.
Egyptian VC firm Algebra Ventures led the round, which brings Cartona’s total Series A to $20.1 million. Silicon Badia, lead investor from the first Series A tranche, and SANAD Fund for MSME also participated. Camel Ventures and GlobalCorp, on the other hand, provided the debt component.
Talaat told TechCrunch that the four-year-old e-commerce platform raised from a significant cash position.
“We have double what we raised now in equity,” he said. That capital will be used to grow its market share in Egypt by deepening its operations in FMCG and HORECA (hotel, restaurant and cafe/catering), a vertical it launched over a year ago. In addition, Cartona may be looking to expand into other regional markets, including Saudi Arabia, and to explore other product lines within Egypt, the chief executive added.
Egyptian B2B e-commerce platform Cartona raises $12M to scale and explore new verticals
Exploring new verticals with the asset-light model
Cartona first launched as an asset-light B2B platform connecting FMCG suppliers and wholesalers with retailers. A common criticism then was that asset-light models would find it difficult to retain customers and compete against asset-heavy B2B e-commerce platforms, which basically had more control of their tech and supply chain.
Asset-light marketplaces, including Cartona and Nigeria’s Omnibiz, have fairly dispelled such notions.
Talaat, in an interview with TechCrunch, said Cartona spent its first two years focusing on improving its tech, user experience, and fulfillment rates to the point where it matched the service level of some asset-heavy models, allowing it to raise money in 2022.
Afterwards, the B2B e-commerce outfit turned its attention to improving its unit economics in an industry where volumes are high but making each order profitable is often challenging. Achieving progress on that front over the past two years and almost reaching full profitability, especially with the devaluation of the Egyptian pound against the dollar, made Cartona attractive to investors, according to Talaat.
Unsurprisingly, Cartona’s asset-light model is a contributing factor behind its push toward profitability. Talaat explains that Egypt’s informal market has a significant network of suppliers, wholesalers, and distributors that don’t need to be displaced or competed against but rather made more efficient with the tech tools that B2B e-commerce platforms provide.
“Our mission from day one was to support and enhance these partners instead of competing with them. We focus on technology, embedded finance, and other exciting product enhancements and features we’ve developed while they’re strong in operations, buying, and selling inventory,” Talaat remarked. “They already have good prices and experience and can locally deliver very fast for their clients. Because we partnered with these suppliers, we’ve not only scaled and grown to be the largest marketplace connecting all these suppliers in one place but also built a strong reputation.”
What African B2B e-commerce startups can learn from OmniRetail’s profitable run
According to Talaat, over 30-40% of Cartona’s partner suppliers’ sales now come through the platform.
When a platform contributes a significant margin to suppliers, they’ll actively support its growth. Similar success can be replicated in other verticals.
Take, for instance, Cartona’s expansion into serving hotels, restaurants, and cafes. The vertical leverages the synergies between FMCG and restaurant supply bases, as many items needed by these businesses overlap, including fresh meat, chicken, fish and vegetables.
“We check our supply base and see what could work. For example, since we already have cosmetics in our marketplace, we could maybe add pharmacies that sell not only medicines but also cosmetics,” added Talaat, who founded Cartona with CTO Mahmoud Abdel-Fattah.
Business is growing
Cartona’s annualized gross merchandise volume (GMV) is about EGP 10 billion ($210 million), up from EGP 2.3 billion ($120 million) in 2022.
Interestingly, while the HORECA vertical, launched last year, represents a small part of Cartona’s business (around 7% of the company’s annualized gross merchandise volume), its blended take rates and average order value from 3,000+ customers are double what the platform receives from its FMCG customers. Talaat expects the vertical to contribute 15% of the startup’s GMV by the end of the year.
More than 180,000 retailers (up from 60,000+ in 2022) from both verticals manage over 40,000 SKUs on Cartona. These retailers, who get their orders from 4,500 suppliers across 17 Egyptian cities, handle stock and working capital via cash or credit orders.
Initially, Cartona facilitated retailers’ credit orders using equity because its local currency debt portfolio had not matured. But as the platform grew, it secured local currency financing, which now makes up over 90% of its portfolio, with only 10% coming from equity, Talaat explained during the call. Embedded finance now constitutes more than 20% of Cartona’s GMV, up from just 2-3% in 2022. As Cartona’s transaction volume increasingly involves credit, using local currency facilities is expected to expand in tandem with the platform’s growth.
“The asset-light nature of its model creates a scalable infrastructure that can quickly be adapted for entry into new markets and adjacencies. Cartona has also been a driving force for financial inclusion in the retail sector as more and more of its small merchants take advantage of inventory financing options,” Omar Khashaba, general partner at Algebra Ventures, said in a statement.
Challenging market but a massive opportunity
Egypt has over 400,000 shops and thousands of international and local brands, and the sector grows annually by 8%. Reports indicate that the overall retail market size is $120 billion, with the food and beverage market worth $70 billion.
Venture capital has driven market digitization in the country, spurring growth and competition among players like Cartona, the now-defunct Capiter, and MaxAB, which is currently in merger talks with Wasoko. Despite the millions of dollars of funding and the presence of similar companies across Africa, they have barely scratched the surface or created significant value for stakeholders in the supply chain and investors backing them.
However, Talaat believes it’s only a matter of time before this changes.
“All the companies combined represent a very small part of the market, which is still predominantly offline. I would say we only cover around 2-4% of the entire market. Despite knowing the market is huge, our real competition remains the offline transactions between companies, wholesalers, and retailers,” said Talaat. The education and penetration of B2B e-commerce is still in its early stages. It’s coming, and it will come, because we add real value to those retailers and suppliers, but it will take time given the market’s vast size.”
Investors are optimistic about 2024
Welcome back, and welcome to 2024!
We’re starting the year off on a high note: After a mediocre 2023, investors are optimistic about exit activity picking back up in 2024. Some think M&A activity will skyrocket, while others think we will see the IPO market bounce back.
Full TechCrunch+ articles are only available to members.
Use discount code TCPLUSROUNDUP to save 20% off a one- or two-year subscription.
But the biggest question on our minds: When will we start seeing all this activity? “While VCs aren’t sure of the timing, they do know the overarching factors that will play a large role in determining that timeline,” writes venture reporter Rebecca Szkutak.
Thanks for reading!
Karyne
VCs anticipate more exits in 2024 but have no consensus on when or how
YL Ventures details the challenges facing Israeli cybersecurity startups
“There were several impressive funding rounds and acquisitions of Israeli cybersecurity startups in the final quarter of 2023, despite the circumstances,” writes Nadav Lev, the CTO at YL Ventures, “and the effects of these events will most likely be evident only in the first half of 2024.”
YL Ventures details the challenges facing Israeli cybersecurity startups
Debunking the myth that crowdfunding is only good for cash
Though investors often look down on it, equity crowdfunding can be a good way for startups to get capital. In fact, some founders think that taking this uncommon path can yield a better growth story than chasing a venture capital investor.
Debunking the myth that crowdfunding is only good for cash
Get the TechCrunch+ Roundup newsletter in your inbox!
To receive the TechCrunch+ Roundup as an email each Tuesday and Friday, scroll down to find the “sign up for newsletters” section on this page, select “TechCrunch+ Roundup,” enter your email, and click “subscribe.”
Click here to subscribe
Climate tech might be the hot job market in 2024
Layoffs rocked the tech world in 2023, but climate tech seems to be the sole bastion of hope. Companies in the sector have been on a hiring spree over the past year, and it doesn’t look like they’ll slow down in 2024.
Climate tech might be the hot job market in 2024
Ask Sophie: What changes are in store for PERM?
Dear Sophie,
Our HR and operational consulting firm works primarily with tech startups. Would you provide an update on what we should look out for in the new year when it comes to the PERM process? Thanks!
— Hopeful HR
Ask Sophie: What changes are in store for PERM?
Investors are optimistic about 2024
Welcome back, and welcome to 2024!
We’re starting the year off on a high note: After a mediocre 2023, investors are optimistic about exit activity picking back up in 2024. Some think M&A activity will skyrocket, while others think we will see the IPO market bounce back.
Full TechCrunch+ articles are only available to members.
Use discount code TCPLUSROUNDUP to save 20% off a one- or two-year subscription.
But the biggest question on our minds: When will we start seeing all this activity? “While VCs aren’t sure of the timing, they do know the overarching factors that will play a large role in determining that timeline,” writes venture reporter Rebecca Szkutak.
Thanks for reading!
Karyne
VCs anticipate more exits in 2024 but have no consensus on when or how
YL Ventures details the challenges facing Israeli cybersecurity startups
“There were several impressive funding rounds and acquisitions of Israeli cybersecurity startups in the final quarter of 2023, despite the circumstances,” writes Nadav Lev, the CTO at YL Ventures, “and the effects of these events will most likely be evident only in the first half of 2024.”
YL Ventures details the challenges facing Israeli cybersecurity startups
Debunking the myth that crowdfunding is only good for cash
Though investors often look down on it, equity crowdfunding can be a good way for startups to get capital. In fact, some founders think that taking this uncommon path can yield a better growth story than chasing a venture capital investor.
Debunking the myth that crowdfunding is only good for cash
Get the TechCrunch+ Roundup newsletter in your inbox!
To receive the TechCrunch+ Roundup as an email each Tuesday and Friday, scroll down to find the “sign up for newsletters” section on this page, select “TechCrunch+ Roundup,” enter your email, and click “subscribe.”
Click here to subscribe
Climate tech might be the hot job market in 2024
Layoffs rocked the tech world in 2023, but climate tech seems to be the sole bastion of hope. Companies in the sector have been on a hiring spree over the past year, and it doesn’t look like they’ll slow down in 2024.
Climate tech might be the hot job market in 2024
Ask Sophie: What changes are in store for PERM?
Dear Sophie,
Our HR and operational consulting firm works primarily with tech startups. Would you provide an update on what we should look out for in the new year when it comes to the PERM process? Thanks!
— Hopeful HR
Ask Sophie: What changes are in store for PERM?
Activist investors are coming for Etsy
Activist investors are coming for Etsy.
Elliott Management, the investment management firm known for its aggressive governance tactics, has built a roughly 13% position in Etsy’s stock, CNBC reports — a mix of shares and options. It makes Elliott Etsy’s largest investor after Vanguard, which has an 11% share, and the asset management giant BlackRock (5%).
And — as of today — Elliott has representation on Etsy’s board of directors. The company announced this morning that Marc Steinberg, an Elliot partner, will join the 10-person board effective February 5.
“Etsy has a highly differentiated position in the e-commerce landscape and a uniquely attractive business model, supported by a distinctive and engaged community,” Steinberg said in a press release. “We became a sizable investor in Etsy and I am joining its board because I believe there is an opportunity for significant value creation. I’ve looking forward to working with the Board and supporting Josh and the team as they execute on initiatives to improve the customer experience, accelerate top- and bottom-line growth, and drive long-term value.”
Elliott, which had about $59 billion in assets as of June 2023, operates like most activist investors: by acquiring a sizeable stake in what it perceives to be an undervalued company and exerting pressure on management to meet its demands.
Early in its history, Elliot restructured firms including Enron, TWA and WorldCom. But over the past few decades, the firm’s turned its attention to the lucrative tech sector.
In 2020, Elliot acquired $2 billion in Twitter shares and nominated three directors to the company’s board, attempting to replace then-CEO Jack Dorsey. Elliot has engaged in a “turnaround” effort at Pinterest. And it encouraged Salesforce, in which it has a multibillion-dollar investment, to harsh new policies for engineers and salespeople aimed at reducing headcount.
Etsy, to be fair, hasn’t had the strongest go of it lately, ending last year with mass layoffs.
The retailer finds itself fighting a battle on multiple fronts, trying to beat back competition from low-cost Chinese retailers Temu and Shein while keeping poorly made products and scam artists off its marketplace. On a recent earnings call, Etsy CEO Josh Silverman admitted that Temu and Shein — which have pumped billions into ads for their services — were driving up Etsy’s marketing expenditures. Meanwhile, outlets report that AI-generated junk is flooding Etsy, worsening the search experience on the platform.
Still known as a marketplace for artisanal and handmade goods from small businesses, Etsy has also struggled to regain its footing after a pandemic-era boost in sales and revenue proved fleeting. Attempting to grow new lines of business, Etsy has made several acquisitions in recent years, snatching up resale platform Depop; Brazil-based marketplace Elo7; and Reverb, a marketplace for new and used instruments. But the M&A strategy has had mixed results, with Etsy offloading Elo7 only two years after acquiring the company for $217 million.
In its most recent earnings call, Etsy told investors to expect its gross merchandise sales to decline between 1% and 2% and revenue to tick up by a measly 2% to 3%. Perhaps it’s no surprise, then, that the promise of steep cost-cutting from Elliot drove Etsy’s stock up 10% this morning.
Byju’s investors vote to remove founder
A group of Byju’s investors on Friday voted to remove the edtech group’s founder and chief executive Byju Raveendran and separately filed an oppression and management suit against the leadership at the firm to block the recently launched rights issue in a surreal moment for the startup, once India’s most valuable.
At an emergency general meeting (EGM) that concluded earlier today, a group of investors including Prosus Ventures and Peak XV Partners voted to change the leadership at the startup. The participating shareholders — whose combined ownership in Byju’s exceeded 60%, according to an investor source familiar with the matter — also passed the resolution to reconstitute Byju’s board. (Two people close to Byju’s disputed that participating shareholders held over 60% ownership in the firm. Neither of the sides have issued an official statement on the figures.)
Raveendran and other board members didn’t attend the EGM Friday. In a statement earlier this month, Byju’s asserted that its shareholders didn’t have the voting rights to enact leadership changes at the edtech group.
“At today’s Extraordinary General Meeting shareholders unanimously passed all resolutions put forward for vote. These included a request for the resolution of the outstanding governance, financial mismanagement and compliance issues at BYJU’s; the reconstitution of the Board of Directors, so that it is no longer controlled by the founders of T&L; and a change in leadership of the Company,” the shareholder group said in a statement, provided by Prosus, one of the largest investors in Byju’s.
“As shareholders and significant investors, we are confident in our position on the validity of the EGM meeting and its decisive outcome, which we will now present to the Karnataka High Court in line with due process.” Separately, four investors of Byju’s, representing about 25% ownership in the startup, earlier on Friday filed a suit at the National Company Law Tribunal on Friday to halt the rights issue.
The decision on Friday comes after more than a year of unrest among some of Byju’s largest investors, who assert that the $22 billion Indian edtech startup has played fast and loose with accountability.
In a statement on Friday, Byju’s questioned the legitimacy of the resolutions passed in the EGM, saying only a “small cohort of select shareholders” attended the meeting and termed their decisions “invalid and ineffective.”
Byju’s, which has raised over $5 billion to date, spent more than $2.5 billion in 2021 and 2022 on acquisitions alone. The startup, founded a decade ago, sought to go public in early 2022 through a SPAC deal that would have valued the Bengaluru-headquartered firm at about $48 billion. But as the market turned, Byju’s was forced to abandon its plan for the IPO.
Byju’s has been chasing new funding for more than a year. The startup was in the final stages to raise about $1 billion last year, but the talks derailed after the auditor Deloitte and three key board members (representatives of Prosus, Peak XV and Chan Zuckerberg Initiative) abruptly quit the startup.
Instead, Byju’s ended up raising less than $150 million in debt from Davidson Kempner and had to repay the investor the full committed amount after making a technical default in a separate $1.2 billion term loan B.
Late last month, Byju’s launched a rights issue where it sought to raise about $200 million at a massively discounted rate. Raveendran told shareholders earlier this week that the rights issue had been fully subscribed and requested all existing investors to participate and maintain their ownership.
“We have built this company together and I want us all to participate in this renewed mission. Your initial investment laid the foundation for our journey and this rights issue will help preserve and build greater value for all shareholders,” he wrote in the letter. “[…] I understand that participating in this rights issue may seem like a Hobson’s choice. However, this is the only viable option in front of us today to prevent permanent value erosion.”
Compete or cooperate? Five deep tech investors opt for shared gain over sharp elbows
The prisoner’s dilemma is a classic thought experiment that explores how people can collaborate for mutual gain — or how one might screw the other over for a lesser reward.
Can you guess which outcome venture capital might resemble? A group of Boston investors wishes it were different.
This week, a group of five venture capitalists and the head of a real estate consultancy launched Venx (or venx), a collaborative group that focuses on deep tech investments. The five investors hail from four different firms — Anzu Partners, Hitachi Ventures, Myriad Venture Partners and SkyRiver Ventures — and they still make individual decisions on when to write a check. But it could be the start of something bigger.
“The need for partnerships for deep tech investments, and the need to work together, it seemed obvious,” Hyuk-Jeen Suh told TechCrunch.
Suh, general partner at SkyRiver, was inspired by startup accelerators like Greentown Labs in the Boston area, which began with a handful of climate tech founders and has grown into one of the largest deep tech incubators in the world. Initially, Greentown’s founders were looking for lab space, but they quickly realized the benefits of the shared space went far beyond lower rent payments.
“If you look at the startup ecosystem, they’ve figured out that working together is better. There are economies of scale,” Suh said. Plus, such incubators and other shared spaces can serve as a one-stop shop for investors looking for startups.
Until now, venture capital has been lacking something similar. Yes, there’s Sand Hill Road in Silicon Valley, but Suh felt that thoroughfare was more like a collection of car dealerships along an “automobile mile” than anything resembling a collaborative group. “They’re all competing. I felt like there has to be a different way.”
Part of what allowed Venx to coalesce, Suh said, was the fact that the four firms run the gamut of investment stages, from pre-seed to later stages, and represent a range of interests within deep tech, including climate tech, AI and biotech.
The fact that the collaborative emerged among deep tech investors isn’t surprising. The sort of problems deep tech startups face favors cooperation over cutthroat competition. They tend to require deep pools of capital, expensive lab equipment and other pricey infrastructure. The problems they’re trying to tackle often send them into uncharted territory. And the solutions they arrive at tend to benefit from a diversity of thinking.
For investors, there’s so much blue sky in deep tech that Suh doesn’t think secrecy and jealousy give anyone an edge. “Why do VCs feel like they need to compete? Do we not have enough carbon to remove? Plastics to recycle or remove? Breast cancer to cure? Not enough challenges in AI?” The shared knowledge and access to deals should benefit LPs, too, Suh said.
If this sounds like a syndicate, it is — sort of.
Like syndicates, the group shares leads, and each investor brings their own perspective and expertise to a pitch meeting. But unlike syndicates, which at the venture stage tend to be informal and ad hoc, Venx is a more formalized arrangement with the sort of intimacy only shared space can provide.
For now, Venx consists of an office space where the partners sit, rub elbows and talk shop over lunch. There’s a meeting room where they can collectively hear pitches from founders, after which they gather to share their thoughts. The group is open to new members as long as the majority of their investments are directly in startups (not other funds).
It’s easy to imagine Venx morphing into something more. More partners, more funds, perhaps a shared fund from which the group can write checks, similar to an angel syndicate. Whatever it ends up becoming, Venx’s collaborative approach is an intriguing experiment that’s worth watching.
Lordstown Motors charged with misleading investors about the sales potential of its EV pickup
The Securities and Exchange Commission has charged bankrupt Lordstown Motors with misleading investors about the sales prospects of its Endurance electric pickup truck.
Lordstown has agreed to pay $25.5 million as a result — money that the SEC says will go toward settling a number of pending class action lawsuits against the company.
“We allege that, in a highly competitive race to deliver the first mass-produced electric pickup truck to the U.S. market, Lordstown oversold true demand for the Endurance,” Mark Cave, associate director of the SEC’s Division of Enforcement said in a statement. “Exaggerations that misrepresent a public company’s competitive advantages distort the capital markets and foil investors’ ability to make informed decisions about where to put their money.”
The SEC says its investigation into Lordstown Motors — which began in 2021 — is ongoing. Lordstown is still in the process of Chapter 11 bankruptcy. Steve Burns recently purchased the majority of the assets related to the Endurance and is using it to promote a new startup called LandX. He is not specifically charged in the SEC’s order.
“Although I have not been charged by the SEC, they have falsely characterized my actions in their settlement today with Lordstown Motors,” Burns said in a statement provided to TechCrunch. “I categorically reject the suggestion that my actions constituted wrongdoing. The facts and the truth are supposed to matter. This is not the way our system is supposed to work.”
According to the SEC, Lordstown and its founder Steve Burns not only misrepresented how many preorders it had for the Endurance, but also lied about having access to all the parts required to build the truck.
“These statements told investors that Lordstown would be first-to-market with a viable electric pickup truck targeted for the commercial fleet market, and Lordstown already had an established base of customer demand evidenced by tens of thousands of ‘pre-orders’ from commercial fleet customers,” the commission writes in the order announcing the charges. “Knowing that this first-mover advantage would be critical to the company’s success, Lordstown and Burns misrepresented the true nature of the pre-orders for the truck, whether Lordstown had access to the key parts it needed to make the truck, and when the company would be able to deliver the truck to customers.”
The SEC explains that Lordstown’s sales team started contacting potential fleet customers in early 2020 and asked them to sign nonbinding letters of intent to buy the Endurance. The company then turned around and represented those letters as preorders in public statements and regulatory filings.
Giving the impression of a large order book was crucial to making the startup appear legitimate, and at one point the SEC says Burns “directed Lordstown’s salesteam to obtain additional pre-orders from customers to increase the total amount because pre-orders were
‘[r]eally important to the investment community and to our prospect[ive] fleet customers.’”
But Lordstown’s sales team was “comprised mostly of individuals with no sales experience in the automotive industry, [and] were not given any instructions or guidance to determine whether a customer was a commercial fleet customer,” the SEC writes. By January 2021, Burns was touting 100,000 preorders for the Endurance, which he said was “unprecedented in automotive history.”
It all started crashing down three months later, when short-selling research firm Hindenburg Research published a report about Lordstown alleging that most of the preorders were fake. An internal probe conducted by Lordstown’s board of directors discovered that this was largely true, as one supposed large purchaser “did not appear to have the resources to complete large purchases of trucks,” according to the SEC’s account of the events. The internal probe also discovered many other customers had only provided “commitments that appeared too vague or infirm” to be included in the total count.
Ultimately, between 40% and 71% of the preorders were misleading. Burns’ comments that the preorders were “very serious” and “very sticky” were also misleading.
Lordstown had said when it went public in a 2020 merger with a special purpose acquisition company (SPAC) that it would have access to parts from GM, which sold a factory to the startup and provided it with financial backing. It was supposed to be another legitimizing aspect of Lordstown’s business. But it wasn’t really the case, according to the SEC.
Instead, “the parts were made by GM’s suppliers under GM’s authorization, which was a complex, time-consuming process with no certainty as to whether GM would ultimately authorize Lordstown to use the parts,” according to the order. Lordstown management knew this before completing the SPAC merger. One officer told Burns in October that it had authorization for just four of 90 parts it had requested and that the timing of the Endurance “is now in jeopardy” as a result.
In fact, GM told Lordstown and Burns in December of that year that Lordstown’s parts request could burden the auto giant’s own supply chain and told them to find a backup option. But Lordstown kept promoting in regulatory filings that it had access to the parts, and Burns said in a November CNBC interview that GM “has opened up their parts bin.”
“The parts bin is very very valuable to us,” he said.
The SEC says that not only was this misleading, but that Lordstown did have to source parts from other suppliers, adding an additional $150 million in cost to the Endurance program.
Through all of this, Lordstown and Burns kept promoting a ship date of September 2021, and it stuck to that date in order to promote the idea of being the first electric pickup truck to market — even though it knew internally it could not hit that date, according to the SEC.
This story has been updated to include a statement from Steve Burns.