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Transcript

Alex Wilhelm  0:10  

Hello, and welcome back to Equity, the TechCrunch podcast about the business of startups, where we unpack the numbers and the nuance behind the headlines. This is our Monday show looking back at the weekend and looking at the week ahead, but today is Tuesday because yesterday was a holiday in the US. Good morning. This is Alex. Today is February 20, 2024. And we have a bangin’ show for you today.

On the pod we have stocks and crypto, a very cool Series C, TikTok in trouble, Walmart buying Vizio, a massive ransomware story, the future of MariaDB and then AI talent and San Francisco. Let’s go!

0:50

Let’s start in the world of money and that means stocks. Shares are mixed in Asia but up in China where a key loan rate was cut more than anticipated as the country looks to bolster its economy. This could be the starting gun of a global change in interest rates heading down. Stocks are largely higher in Europe today and they are set to open lower here in the U.S. to kick off this short week’s trading. On the earnings front fewer names than last week. You’re very welcome. Today we’re going to hear from Palo Alto Networks, Workiva and Sprout Social. Wednesday will bring us numbers from Nvidia and Etsy, Wix, Five9, DigitalOcean, Olo and Vimeo. And then Thursday we’ll hear from Intuit, Block aka Square, Nubank, Grab, Carvana and Fiver. I have my eyes on Sprout Social for SaaS, Nvidia for AI chips, Digital Ocean for Cloud Storage. And then of course Nubank for fintech.

1:49

Next up crypto, where there is once again good news to report — second week in a row. This time bitcoin is up nearly 5% in the last week to just over $52,000 and Ethereum’s token is up nearly 10% in the last week to just under $3,000. Spot trading volume is trending back up after a material dip to start the year. And just rewinding the clock a little bit, Coinbase earnings last week were a banger, and some are saying that the crypto winter is over.

2:24

To kick off my favorite part of the show, aka big news that matters, I want to talk about a French startup called Planity. It just put together a $48 million Series C. So a very hefty round. And it was led by InfraVia Capital Partners, while existing investors Crédit Mutuel Innovation, Revaia and Bpifrance’s Digital Venture fund also participated. What does the company do? Well, it’s building vertical SaaS for hair salons, barbers and similar personal grooming businesses. I love a vertical SaaS deal because it just feels so startupy: find an industry that’s using old technology, build them a bunch of software and bring them out of the Stone Age. And it turns out that Planity really was onto something because today, more than 40,000 businesses use its software; that adds up to a lot of tasty recurring revenue. But Planity has something else up its sleeve, namely payments. Now Stripe, which is the vendor that Planity uses for payments, has a bit of a white paper on the company. So we got some more stats. Stripe claimed that Planity had 8 million monthly users across its service back when it had 35,000 business customers. So now with more than 40,000, that figure has likely risen, and that many monthly users means lots of payments, which means lots of revenue for the startup. Toast, which has a somewhat similar model, albeit more restaurant-focused than hair, of course, is worth about $12 billion today for an example. Essentially, vertical SaaS plus payments is just a good business model. And if you want even more data to make that point, just ask Shopify.

4:03

Turning the page let’s talk about TikTok. the company is once again in trouble and this time the European Union is formally investigating the company’s compliance with its Digital Services Act, or DSA. The investigation of TikTok is looking at the protection of minors, advertising transparency, data access for researchers and risk management of addictive design and potentially harmful content. That’s what TechCrunch says. Now, what is the DSA? It’s the EU’s online governance and content moderation rulebook, which since Saturday has applied broadly to thousands of platforms and services. But scale here matters because since last summer, larger platforms like TikTok have faced an extra set of requirements in areas like transparency and risk. And it’s those rules that the video-sharing platform is now being investigated under. Why do we care about  TikTok being in trouble everywhere? Well, penalties for breaches of the DSA can reach up to 6% of global revenue. So we have TikTok does get into trouble here. It’s going to be very, very expensive. TikTok, of course does face regulatory pressure around the world, including concerns about its parent company and possible government influence? Add the new DSA matter to that list.

5:20

Next up, Walmart is buying Vizio. And I know you’re thinking to yourself, why is this on Equity? But don’t worry, I’ll explain. To kick things off, American retail giant Walmart is going to drop about $2.3 billion for Vizio, the well-known maker of televisions, however, this deal is not designed so that Walmart can juice more margin from selling consumer hardware. No, instead, it’s all about ads. And yes, you can sigh now. I pulled data from Walmart’s latest earnings report that it dropped this morning. And I can put this all into perspective for you. The company grew 5.7% in its last quarter. Not bad, not great. It’s kind of okay, given where the global economy is. However, Walmart’s global advertising business grew by 33% in the quarter, even faster than its reported 23% e-commerce growth. So why does that matter? Well, not only are ads driving key growth for Walmart, they’re actually higher margin than its trad business and are making the overall company’s gross margins improve. So it makes sense to invest more in advertising work. But why do we care about a TV deal on equity? Simple, one thing we’ve noticed in recent years is how important advertising-based incomes and profits are for tech giants, regardless of where they start in that sector, so long as they interact with consumers they kind of become ad companies in time. Microsoft is putting ads into Windows, Amazon makes a ton of money on advertising. Instacart makes a lot of money off ads, Uber makes a lot of money off ads, the list just goes on. And Walmart, it seems is no different. It’s just coming to the same conclusion from a different sector starting point. Maybe we should update our thinking to the point that any company that offers a screen of sorts is going to eventually make its user experience more cluttered by stuffing it with ads. And the reason is simple. Who doesn’t want more profit?

7:14

And then how about some good news? I have good news from the ransomware front, which is probably a sentence you’ve never heard before. But hear me out. A coalition of international law enforcement agencies, including the U.S.’s FBI and the U.K.’s National Crime Agency have disrupted the prolific ransomware game called LockBit. Good news, and an announcement on Tuesday, Europol confirmed that the months-long operation has quote, resulted in the compromise of LockBits, primary platform and other critical info that enabled their criminal enterprise. In practice that worked out to a couple of dozen servers across the Europe, U.K. and the U.S. And critically, I think the seizure of more than 200 cryptocurrency wallets. Why do we care about this? Well, since it first emerged as a ransomware, as a service operation back in late 2019, TechCrunch writes, LockBit has become one of the world’s most prolific cybercrime gangs. And according to the U.S. Department of Justice, LockBit has been used in approximately 2,000 ransomware attacks against victim systems in the U.S. and worldwide, which earned it — and this kind of shocked me — more than $120 million in ransom payments. That’s a lot of money, a lot of incentive to behave poorly. Now, I think that LockBit and other forms of ransomware are one of the reasons why we have seen cybersecurity software companies grow so much in recent years. And up until the venture bust raised so much capital. I’m always just kind of curious about the cause and effect here, like let’s say LockBit gets taken down and fully destroyed. Does that mean that we have less of a market for cybersecurity products or more given the long term threat horizon?

8:54

But enough about regulation and cybercrime, let’s get back to deals. MariaDB is a company that built its business on a fork of MySQL, raised $230 million while private and eventually went public via SPAC back in late 2022. And since then, well as with many SPAC companies, MariaDB has seen its value evaporate. Why? Well, its earnings reports have left quite a lot to be desired. And it’s currently worth too little to remain a public company on the New York Stock Exchange. You have to have a $50 million market cap for that. And MariaDB does not but there is a potential buyer on the horizon. California-based K1 investment management has submitted, and I quote, an unsolicited non-binding indicative proposal that would value the company at about $37 million. So this is a mess and not the way we thought this company’s public life was going to go and sure SPACs have been bad but oh my god, poor MariaDB. You feel bad for it. But I do think there’s something else here that really matters. This deal I believe could indicate that we’re going to see more investors looking to pick off cheap assets before they potentially get more expensive later in the year when interest rates come down. So kind of a side note from MariaDB and its backers and employees that struggling this much, but it may be good news for deal volume in the back half of the year.

10:20

Closing out I want to talk about a Wall Street Journal report that came out over the weekend and drove a good amount of chatter over on Twitter. Essentially, it said that AI is bringing talent and investors back to San Francisco. The pandemic shook up where tech folks lived and worked. But now founders and their backers are heading back to the city by the bay. Why? Well, customers, talent and, I would say, simple proximity to the epicenter of AI work in the U.S. and perhaps the world, just those handful of reasons. Now, I lived in San Francisco through much of the last tech cycle. And I have to admit that I have a huge soft spot for the city and the Bay Area more generally. But something I learned while I was there, and something that people forget, is that San Francisco is a boom town. It booms and then it busts, people will flock there and then they leave and it happens in waves that happen again and again and again and again. For now. However today, as the venture market itself contracts around the world, it’s getting back to its own concentrated roots. And that means Northern California in 2024 is kind of once again the NorCal in the years past this time, we’re just focused on AI.

11:38

And that is our show for this lovely start to the week. But if you need even more equity before we are back in your ears, you can check out Equity pod over on X and Threads. And if you want even more of me I am Alex over on X. This show has two sister shows, including Found, all about founder stories, and Chain Reaction, digging into the future of the crypto economy. We’ll talk to you soon; Equity’s back on Wednesday. And we’re back on Friday.

Equity is hosted by myself, Alex Wilhelm and TechCrunch Senior Reporter Mary Ann Azevedo. We are produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator and a big thank you to the audience development team and Henry Pickavet who manages TechCrunch audio products. Thank you so much for listening, and we’ll talk to you next time.