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While TechCrunch was busy producing our first-ever online Disrupt this week, the IPO market got even more exciting than expected — so here’s a quick look. Snowflake, Jfrog, Sumo Logic and Unity each raised price ranges days before IPO, to meet what had seemed like growing enthusiasm from public markets. Yet each still opened higher than its offering price, with cloud data-warehousing company Snowflake’s value doubling to make it the largest software IPO in history and Unity up 30%.

Despite the pandemic and various major turmoils around the world, the promise of these companies is helping to maintain optimism from retail investors to people thinking about founding a company.

Here’s a quick look at our coverage of the main companies in the IPO process this week, in chronological order:

Snowflake and JFrog raise IPO ranges as tech markets stay hot (EC)

As it heads for IPO, Palantir hires a chief accountant and gets approval from NYSE to trade

What’s ahead in IPO land for JFrog, Snowflake, Sumo Logic and Unity (EC)

JFrog and Snowflake’s aggressive IPO pricing point to strong demand for cloud shares (EC)

Unity raises IPO price range after JFrog, Snowflake target steep debut valuations

Go public now while software valuations make no sense, Part II

In its 4th revision to the SEC, Palantir tries to explain what the hell is going on

It’s game on as Unity begins trading

Unity Software has strong opening, gaining 31% after pricing above its raised range

And don’t miss Alex Wilhelm’s additional notes coming later today over on The Exchange weekend newsletter.

Image Credits: Canix

Disrupt 2020

Our tenth annual startup conference was remote-first this year, but it managed to capture the same sort of vibe in my humble opinion.

First, a cannabis SaaS company took home the grand prize at the Startup Battlefield competition… we are truly living in the cloud these days. Here’s more, from Matt Burns:

Growing cannabis on an industrial scale involves managing margins while continually adhering to compliance laws. For many growers, large and small, this consists of constant data entry from seed to sale. Canix’s solution employs a robust enterprise resource planning platform with a steep tilt toward reducing the time it takes to input data. This platform integrates nicely with common bookkeeping software and Metrc, an industry-wide regulatory platform, through the use of RFID scanners and Bluetooth-enabled scales. Canix launched in June 2019, and in a little over a year (and during a pandemic), acquired over 300 customers spanning more than 1,000 growing facilities and tracking the movement of 2.5 million plants.

Next, here’s an especially pithy take on the future of startups, from senior Benchmark partner Peter Fenton.

I think this opportunity to build the tools for a world that’s ‘post place’ has just opened up and is as exciting as anything I’ve seen in my venture career. You walk around right now and you see these ghosts towns, with gyms, classes you might take [and so forth] and now maybe you go online and do Peloton, or that class you maybe do online. So I think a whole field of opportunities will move into this post-place delivery mechanism that are really exciting. [It] could be 10 to 20 years of innovation that just got pulled forward into today.

The truth is that I have not had time to watch all of the talks — I was busy with the Extra Crunch stage and other stuff, and that’s not even counting other programming we had going on. So check out the quick selection of picks below. To catch up more, you can browse the full agenda and watch the videos here.

We’ll also be offering coverage of the EC stage plus analysis from our conversations in the coming weeks, for subscribers (which includes anyone who bought a ticket and redeemed it for an annual subscription).

Quantum startup CEO suggests we are only five years away from a quantum desktop computer

Daphne Koller: ‘Digital biology is an incredible place to be right now’

Dropbox CEO Drew Houston says the pandemic forced the company to reevaluate what work means

Airtable’s Howie Liu has no interest in exiting, even as the company’s valuation soars

Indian decacorn Byju’s CEO talks about future acquisitions, coronavirus and international expansion

Fabletics’ Adam Goldenberg and Kevin Hart on what’s next for the activewear empire

Southeast Asia’s East Ventures on female VCs, foreign investment, consolidation

Ride-hailing was hit hard by COVID-19 — Grab’s Russell Cohen on how the company adapted

(Photo Illustration by Sheldon Cooper/SOPA Images/LightRocket via Getty Images)

Tik Tok and geopolitics

Over in the real world, Tik Tok is still on track for a full shut-down despite the frantic dealmaking efforts by innumerable parties. At one point this week, it looked like Oracle and various business interests had a plan to keep Tik Tok alive as an independent company that would IPO (with some sort of national security oversight), and maybe that will still come about? I doubt Trump and his advisers will go along with that plan, given the national security problem of leaving algorithms controlled from China, and the long-term trade problem of US consumer tech being banned there too.

Meanwhile, the Bytedance-owned company also just announced 100 million users in Europe. Apparently it was a press push to counter the bad news, but as Ingrid Lunden notes, it’s hard to know what this user base means without the US. To which I’d add, European regulators are already busy going after foreign tech companies. I can’t imagine that they’ll leave an app this popular alone.

It’s another reminder that the next era will not offer startups the same possibilities for global success.

How to hire your first engineer (if you’re a nontechnical founder)

Lucas Matney talked with technical leaders and startup founders to figure out a key problem that many readers of this newsletter have had before (including me). How to get someone who can make your company a tech company? Here’s the intro, with the full thing on Extra Crunch:

Their advice spanned how to handle technical interviews, sourcing technical talent, how to decide whether your first engineering hire should become CTO  — and how to best kick the can down the road if you’re not ready to start worrying about bringing on an engineer quite yet. Everyone I spoke to was quick to caution that their tips weren’t one-size-fits-all and that overcoming limited knowledge often comes down to tapping the right people to help you out and lend a greater understanding of your options.

I’ve broken down these tips into a digestible guide that’s focused on four areas:

• Sourcing technical candidates.
• How to conduct interviews.
• Making an offer.
• Taking a nontraditional route.

Across the week

TechCrunch

Calling VCs in Zurich & Geneva: Be featured in The Great TechCrunch Survey of European VC

Opendoor to go public by way of Chamath Palihapitiya SPAC

Black Tech Pipeline proves the ‘pipeline problem’ isn’t real

Gaming companies are reportedly the next targets in the US government’s potentially broader Tencent purge

Equity Monday: The TikTok mess, two funding rounds and Nvidia will buy ARM

Extra Crunch

3 VCs discuss the state of SaaS investing in 2020

The stages of traditional fundraising

Making sense of 3 edtech extension rounds

Facebook investor Jim Breyer picks Austin as Breyer Capital’s second home

Are high churn rates depressing earnings for app developers?

#EquityPod: Schools are closing their doors, but Opendoor isn’t

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

This week Natasha Mascarenhas, Danny Crichton and myself hosted a live taping at Disrupt for a digital reception. It was good fun, though of course we’re looking forward to bringing the live show back to the conference next year, vaccine allowing.

Thankfully we had Chris Gates behind the scenes tweaking the dials, Alexandra Ames fitting us into the program and some folks to watch live.

What did we talk about? All of this (and some very, very bad jokes):

• The Great American SPAC-Off: As both Opendoor and Desktop Metal approach the public markets on the wings of SPACs, we ask why. And why we have to keep talking about SPACs, which we do not want to do.
• But the public markets are hot and active, with companies like JFrog and Snowflake going public to great effect. JFrog had a great IPO. Snowflake had an insane IPO.
• But there was a lot of action from the private markets as well, including Airtable raising $185 million, ApplyBoard raised a $55 million extension and Tonal raised $110 million, because connected fitness is hotter than SaaS at the moment.
• We also riffed on Natasha’s venture trends’ piece, digging into how to get to conviction in a remote-only world. As it turns out, we have notes on video games.
• And there were two new funds, including one from the Chainsmokers (hot, fun, great) and another from Greylock (traditional, Victorian and huge). In more serious commentary, the Greylock raise continues the mega-fund era.

And then we tried to play a game that may or may not make it into the final cut. Either way, it was great to have Equity back at Disrupt. More to come. Hugs from us!

Equity drops every Monday at 7:00 a.m. PT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

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Whoever said you can’t make money playing video games clearly hasn’t taken a look at Unity Software’s stock price.

On its first official day of trading, the company rose more than 31%, opening at $75 per share before closing the day at $68.35. Unity’s share price gains came after last night’s pricing of the company’s stock at $52 per share, well above the range of $44 to $48 which was itself an upward revision of the company’s initial target.

Games like “Pokémon GO” and “Iron Man VR” rely on the company’s software, as do untold numbers of other mobile gaming applications that use the company’s toolkit for support. The company’s customers range from small gaming publishers to large gaming giants like Electronic Arts, Niantic, Ubisoft and Tencent.

Unity’s IPO comes on the heels of other well-received debuts, including Sumo Logic, Snowflake and JFrog .

TechCrunch caught up with Unity’s CFO, Kim Jabal, after-hours today to dig in a bit on the transaction.

According to Jabal, hosting her company’s roadshow over Zoom had some advantages, as her team didn’t have to focus on tackling a single geography per day, allowing Unity to “optimize” its time based on who the company wanted to meet, instead, of say, whomever was free in Boston or Chicago on a particular Tuesday morning.

Unity IPO aims to fuel growth across gaming and beyond

Jabal’s comments aren’t the first that TechCrunch has heard regarding roadshows going well in a digital format instead of as an in-person presentation. If the old-school roadshow survives, we’ll be surprised, though private jet companies will miss the business.

Talking about the transaction itself, Jabal stressed the connection between her company’s employees, value  and their access to that same value. Unity’s IPO was unique in that existing and former employees were able to trade 15% of their vested holdings in the company on day one, excluding “current executive officers and directors,” per SEC filings.

That act does not seemed to have dampened enthusiasm for the company’s shares, and could have helped boost early float, allowing for the two sides of the supply and demand curves to more quickly meet close to the company’s real value, instead of a scarcity-driven, more artificial figure.

Bear and bull cases for Unity’s IPO

Regarding Unity’s IPO pricing, Jabal discussed what she called a “very data-driven process.” The result of that process was an IPO price that came in above its raised range, and still rose during its first day’s trading, but less than 50%. That’s about as good an outcome as you can hope for in an IPO.

One final thing for the SaaS nerds out there. Unity’s “dollar-based net expansion rate” went from very good to outstanding in 2020, or in the words of the S-1/A:

Our dollar-based net expansion rate, which measures expansion in existing customers’ revenue over a trailing 12-month period, grew from 124% as of December 31, 2018 to 133% as of December 31, 2019, and from 129% as of June 30, 2019 to 142% as of June 30, 2020, demonstrating the power of this strategy.

We had to ask. And the answer, per Jabal, was a combination of the company’s platform strength and how customers tend to use more of Unity’s services over time, which she described as growing with their customers. And the second key element was 2020’s unique dynamics that gave Unity a “tailwind” thanks to “increased usage, particularly in gaming.”

Looking at our own gaming levels in 2020 compared to 2019, that checks out.

This post closes the book on this week’s IPO class. Tired yet? Don’t be. Palantir is up next, and then Asana .

Most venture capital firms are based in hubs like Silicon Valley, New York City and Boston. These firms nurture those ecosystems and they’ve done well, but SaaS Ventures decided to go a different route: it went to cities like Chicago, Green Bay, Wisconsin and Lincoln, Nebraska.

The firm looks for enterprise-focused entrepreneurs who are trying to solve a different set of problems than you might find in these other centers of capital, issues that require digital solutions but might fall outside a typical computer science graduate’s experience.

Saas Ventures looks at four main investment areas: trucking and logistics, manufacturing, e-commerce enablement for industries that have not typically gone online and cybersecurity, the latter being the most mainstream of the areas SaaS Ventures covers.

The company’s first fund, which launched in 2017, was worth $20 million, but SaaS Ventures launched a second fund of equal amount earlier this month. It tends to stick to small-dollar-amount investments, while partnering with larger firms when it contributes funds to a deal.

We talked to Collin Gutman, founder and managing partner at SaaS Ventures, to learn about his investment philosophy, and why he decided to take the road less traveled for his investment thesis.

A different investment approach

Gutman’s journey to find enterprise startups in out of the way places began in 2012 when he worked at an early enterprise startup accelerator called Acceleprise. “We were really the first ones who said enterprise tech companies are wired differently, and need a different set of early-stage resources,” Gutman told TechCrunch.

Through that experience, he decided to launch SaaS Ventures in 2017, with several key ideas underpinning the firm’s investment thesis: after his experience at Acceleprise, he decided to concentrate on the enterprise from a slightly different angle than most early-stage VC establishments.

Collin Gutman, founder and managing partner at SaaS Ventures (Image Credits: SaaS Ventures)

The second part of his thesis was to concentrate on secondary markets, which meant looking beyond the popular startup ecosystem centers and investing in areas that didn’t typically get much attention. To date, SaaS Ventures has made investments in 23 states and Toronto, seeking startups that others might have overlooked.

“We have really phenomenal coverage in terms of not just geography, but in terms of what’s happening with the underlying businesses, as well as their customers,” Gutman said. He believes that broad second-tier market data gives his firm an upper hand when selecting startups to invest in. More on that later.

We started this competition with 20 impressive startups. After five days of fierce pitching in a wholly new virtual Startup Battlefield arena, we have a winner.

The startups taking part in the Startup Battlefield have all been hand-picked to participate in our highly competitive startup competition. It was an unprecedented year as we moved all of the nail-biting excitement of our physical contest to a virtual stage. They all presented in front of multiple groups of VCs and tech leaders serving as judges for a chance to win $100,000 and the coveted Disrupt Cup.

After hours of deliberations, TechCrunch editors pored over the judges’ notes and narrowed the list down to five finalists: Canix, Firehawk Aerospace, HacWare, Jefa and Matidor.

These startups made their way to the finale to demo in front of our final panel of judges, which included: Caryn Marooney (Coatue Management), Ilya Fushman (Kleiner Perkins), Michael Seibel (Y Combinator), Sonali De Rycker (Accel), Troy Carter (Q&A) and Matthew Panzarino (TechCrunch).

We’re now ready to announce that the winner of TechCrunch Battlefield 2020 is…

Winner: Canix

Canix has built a robust enterprise resource planning platform designed to reduce the time it takes cannabis growers to input data. It integrates nicely with common bookkeeping software, as well as Metrc, an industry-wide regulatory platform. The founders say their platform can help growers increase margins through improved labor costs.

You can read more about Canix here.

Runner-up: Matidor

Matidor is building a project platform for consultants and engineers to keep track of projects and geospatial data in a single dashboard. It offers an all-in-one data visualization suite for customers in the energy and environmental services fields.

You can read more about Matidor here.

Watch the announcement below:

Jacob Eiting Contributor Share on Twitter Jacob Eiting is CEO of RevenueCat, a platform for managing cross-platform in-app purchases, products and subscribers and analyzing in-app-purchase data.

Ever since Apple opened up subscription monetization to more apps in 2016 — and enticed developers with an 85/15 split on revenue from customers that remain subscribed for more than a year — subscription monetization and retention has felt like the Holy Grail for app developers. So much so that Google quickly followed suit in what appeared to be an example of healthy competition for developers in the mobile OS duopoly.

But how does that split actually work out for most apps? Turns out, the 85/15 split — which Apple is keen to mention anytime developers complain about the App Store rev share — doesn’t have a meaningful impact for most developers. Because churn.

No matter how great an app is, subscribers are going to churn. Sometimes it’s because of a credit card expiring or some other billing issue. And sometimes it’s more of a pause, and the user comes back after a few months. But the majority of churn comes from subscribers who, for whatever reason, decide that the app just isn’t worth paying for anymore. If a subscriber churns before the one-year mark, the developer never sees that 85% split. And even if the user resubscribes, Apple and Google reset the clock if a subscription has lapsed for more than 60 days. Rather convenient… for Apple and Google.

Top mobile apps like Netflix and Spotify report churn rates in the low single digits, but they are the outliers. According to our data, the median churn rate for subscription apps is around 13% for monthly subscriptions and around 50% for annual. Monthly subscription churn is generally a bit higher in the first few months, then it tapers off. But an average churn of 13% leaves just 20% of subscribers crossing that magical 85/15 threshold.

In practice, what this means is that, for all the hype around the 85/15 split, very few developers are going to see a meaningful increase in revenue:

Image Credits: RevenueCat (opens in a new window)

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The tagline from today’s announcement from the United States Attorney’s office for the Southern District of New York says it all: “Adam Rogas Allegedly Raised $123 Million from Investors Using Financial Statements that Showed Tens of Millions of Dollars of Revenue and Assets that Did Not Exist.”

Rogas, the co-founder and former chief executive and chief financial officer and board member of the Las Vegas-based fraud prevention company, NS8, was arrested by the Federal Bureau of Investigation and in Manhattan court earlier today charged with securities fraud, fraud in the offer of sale of securities and wire fraud.

Last week, the company laid off hundreds of staff as reports of an investigation by the Securities and Exchange Commission surfaced, according to a report in Forbes.

“This is a rapidly evolving situation,” Lightspeed Ventures told Forbes in a statement. “We are shocked by the news and have taken steps to inform our LPs. It would be premature to comment further at this time.” Lightspeed Ventures helped lead NS8’s $123 million Series A this June. Other investors include Edison Partners, Lytical Ventures, Sorenson Ventures, Arbor Ventures, Hillcrest Venture Partners, Blu Venture Investors and Bloomberg Beta, per Crunchbase data.

The allegations are, indeed, shocking.

“As alleged, Adam Rogas was the proverbial fox guarding the henhouse,” said Audrey Strauss, the acting U.S. Attorney for the Southern District of New York, in a statement. “While raising over $100 million from investors for his fraud prevention company, Rogas himself allegedly was engaging in a brazen fraud.  Today’s arrest of Rogas ensures that he will be held accountable for his alleged scheme.”

Allegedly, while Rogas was in control of the bank accounts and spreadsheets that detailed its transactions with customers, he cooked the books to show millions in transactions that did not exist.

From January 2019 through February 2020, the FBI alleges that somewhere between 40% and 95% of the purported total assets on NS8’s balance sheet were fictitious, according to the statement. Over the same period Rogas altered bank statements to reflect $40 million in revenue that simply was not there, according to the Justice Department’s allegations.

On the back of that fake financial data, NS8 was able to raise more than $120 million from some top-tier investment firms, including Lightspeed Venture Partners and AXA Ventures. 

NS8 raises $123M led by Lightspeed for its suite of online fraud prevention tools

Rogas managed to hoodwink not just the investment firms, but the auditors who were conducting due diligence on their behalf. After the round was completed, NS8 did a secondary offering, which let Rogas cash out of $17.5 million through personal sales and through a company he controlled, according to the statement from the DOJ.

“It seems ironic that the co-founder of a company designed to prevent online fraud would engage in fraudulent activity himself, but today that’s exactly what we allege Adam Rogas did. Rogas allegedly raised millions of dollars from investors based on fictitious financial affirmations, and in the end, walked away with nearly $17.5 million worth of that money,” said FBI Assistant Director William F. Sweeney Jr. “Within our complex financial crimes branch, securities fraud cases remain among our top priorities. We’ve seen far too many examples of unscrupulous actors engaging in this type of criminal activity, and we continue to work diligently to weed out this behavior whenever and wherever we find it.”

John Biggs Contributor Share on Twitter John Biggs is a former TechCrunch editor and is currently the editor-in-chief of Gizmodo. He's started and run a number of startups. More posts by this contributor

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Eric Villines Contributor Eric Villines is a communications and fundraising professional. He's currently head of PR at Anker.

Funding comes in stages.

Understanding these will help you know when and where to go for funding at each stage of your business. Further, it will help you communicate with funders more precisely. What you think when you hear “seed funding” and “A rounds” might be different from what investors think. You both need to be on the same page as you move forward.

Early money stage

The first stage is early money, when cash is invested in exchange for large amounts of equity. This cash, which ranges between $1,000 and $500,000, typically, comes from the three Fs: friends, family and (we don’t like this nomenclature) fools. The last-named folks are essentially “giving” you cash, and these investors are well-aware that you will most likely fail — hence, “fools.”

Your earliest investors should reap the biggest rewards because they are taking the most risk. The assumption is that, ultimately, you’ll make good or improve their investment. The reality, they understand, is that you probably won’t.

Your first money may come from bootstrapping or F&F, and your first big checks may come from an accelerator that pays you about $50,000 for a fairly large stake in your company. Accelerators are essentially greenhouses — or incubators — for startups. You apply to them. If accepted, you get assistance and a small amount of funding.

Why do investors give early money? Because they trust you, they understand your industry and they believe you can succeed. Some are curious about what you are doing and want to be close to the action. Others want to lock you up in case you are successful. In fact, many accelerators have this in mind when they connect with new startups. At its core, the funding landscape is surprisingly narrow. When you begin fundraising, you’ll hear a lot of terminology including descriptions of various funding categories and investors. Let’s talk about them one by one.

Bootstrapping

As the old saying goes, if you need a helping hand, you’ll find it at the end of your arm. With that adage in mind, let’s begin with bootstrapping.

Bootstrapping comes from the concept of “pulling yourself up by your own bootstraps,” a comical image that computer scientists adapted to describe how a computer starts from a powered-down state. In the case of an entrepreneur, bootstrapping is synonymous with sweat equity — your own work and money that you put into your business without outside help.

Bootstrapping is often the only way to begin a business as an entrepreneur. By bootstrapping, you will find out very quickly how invested you are, personally, in your idea.

Bootstrapping requires you to spend money or resources on yourself. This means you either spend your own cash to build an early version of your product, or you build the product yourself, using your own skills and experience. In the case of service businesses — IT shops, design houses and so on — it requires you to quit your day job and invest, full time, in your own business.

Bootstrapping should be a finite action. For example, you should plan to bootstrap for a year or less and plan to spend a certain amount of money bootstrapping. If you blow past your time or money budget with little to show for your efforts, you should probably scrap the idea.

Some ideas take very little cash to bootstrap. These businesses require sweat equity — that is, your own work on a project that leads to at least a minimum viable product (MVP).

Consider an entrepreneur who wants to build a new app-based business in which users pay (or will pay) for access to a service. Very basic Apple iOS and Google Android applications cost about $25,000 to build, and they can take up to six months to design and implement. You could also create a simpler, web-based version of the application as a bootstrapping effort, which often takes far less cash — about $5,000 at $50 an hour.

You can also teach yourself to code and build your MVP yourself. This is often how tech businesses begin, and it says plenty about the need for founders to code or at least be proficient in the technical aspects of their business.

You can’t bootstrap forever. One entrepreneur we encountered was building a dating app. She had dedicated her life to this dating app, spending all of her money, quitting her job to continue to build it. She slept on couches and told everyone she knew about the app, networking to within an inch of her life. Years later it is a dead app in an app store containing millions of dead apps. While this behavior might get results one in a thousand times, few entrepreneurs can survive for a year of app-induced penury, let alone multiple years.

Another entrepreneur we knew was focused on nanotubes. He spent years rushing here and there, wasting cash on flights and taking meetings with people who wanted to sell him services. Many smart investors told him that he should go and work internally at a nanotube business and then branch out when he was ready. Instead, he attacked all angles for years, eventually leading to exhaustion. He’s still at it, however, which is a testament to his intensity.

In the midst of IPO week we have to add another name to our future debuts list, namely Chime, which announced a huge new round of capital today. The $485 million Series F values the consumer fintech giant at $14.5 billion, a huge figure given that Chime was most recently worth $5.8 billion after raising $700 million last December.

Even more stark is the company’s $1.5 billion valuation set in early 2019. From $1.5 billion to $14.5 billion in less than two years is quite a run for any startup. Powering the latest round there were a host of familiar names, including Tiger, ICONIQ and General Atlantic, along with Dragoneer and DST Global. Names I’m less familiar with like Whale Rock Capital and Access Technology Ventures also took part.

Tucked inside a CNBC article that broke the story was news that Chime is now EBITDA profitable and could be “IPO-ready” in its CEO’s eyes in around a year’s time.

TechCrunch reached out to Chime for clarification on the EBITDA point, asking if the figure is adjusted or not, as many EBTIDA metrics remove the cost of share-based compensation given to their employees. According to Chime, the metric is “true EBITDA,” to which we award an extra five points. In response to a growth question, Chime said that its “transaction and top-line” has tripled compared to the year-ago period.

US mobile bank Chime raises $200 million, valuing its business at $1.5 billion

The Chime round and news of its nascent, non-GAAP profitability comes on the heels of a grip of reports on the financial health of a number of European neobanks, or challenger banks as they are often called. The numbers showed huge growth, and steep losses. If Chime’s numbers hold up when we get its eventual S-1 — start your countdowns — it will be among the healthiest of the startups in its cohort in financial terms, we reckon.

Finally, the company is trying to paint itself as something of a software company, and not a fintech company. This is a move to attract better revenue multiples when it comes time to defend its new $14.5 billion valuation. Software companies have flat-out bonkers multiples these days, as evinced by the blockbuster Snowflake debut.

Here’s how Chime thinks of itself, via CNBC:

“We’re more like a consumer software company than a bank,” Britt said. “It’s more a transaction-based, processing-based business model that is highly predictable, highly recurring and highly profitable.”

The key phrases there are “software company” and “highly predictable, highly recurring and highly profitable.” In effect Chime will argue that interchange revenues should fit under the SaaS umbrella given their regularity. Investors will decide how to view that pitch. If it works, maybe fintechs are more valuable than expected. And those fintechs with obvious SaaS components, like Acorns, could be sitting pretty when it comes to making the fintech versus SaaS argument.

Regardless, it’s another huge round for Chime, which makes it a good day for the highly-valued fintech sector.

The tale of 2 challenger bank models

Unity Software, which sells a game development toolkit primarily for mobile phone app developers, raised $1.3 billion in its initial public offering.

The company, which will begin trading today with the ticker symbol “U,” priced its shares at the top end of its expected range, selling 25 million shares at $52 per share.

The company’s final IPO price came in far ahead of what Unity initially anticipated. The company initially expected to price its public offering between $34 and $42 per share, later raising its offering to $44 and $48 per share.

The public offering values the company at around $13.7 billion, a good step up from its final private valuation of around $6 billion.

For Unity, the journey to the public markets has been long. The company was founded as a business that creates software for developers to make and manage their games. In that sense, the company is more like an Adobe or an Autodesk than a game studio like Activision Blizzard or King.com.

As TechCrunch explained in an earlier story profiling Unity and its public offering:

Users import digital assets (often from Autodesk’s Maya) and add logic to guide each asset’s behavior, character interactions, physics, lighting and countless other factors that create fully interactive games. Creators then export the final product to one or more of the 20 platforms Unity supports, such as Apple iOS and Google Android, Xbox and PlayStation, Oculus Quest and Microsoft HoloLens, etc.

The company organizes its business into two areas: tools for content creation and tools for managing and monetizing content. In actuality, the revenue from the managing and monetizing content actually outstrips the revenue the company makes from content creation.

Unity IPO aims to fuel growth across gaming and beyond

The Unity public offering will be the first big test of investor appetite for this new approach to game development and the business-to-business tools that enable the new wave of gaming.

And it’s important to note (as we do here) that Unity doesn’t generate a lot of revenue off of its position as arguably the most popular game development platform. In fact, Unity has been pretty bad at monetizing the game development engine. It’s the ancillary services for in-game advertising, player matchmaking and other features that have made Unity the bulk of its money.

Bear and bull cases for Unity’s IPO

And there’s still the company’s biggest competitor, Epic Games, waiting in the wings. Here again, the analysis from TechCrunch’s previous reporting is helpful:

[Unity] also will want to benefit from comparisons to Epic Games, given [Epic] was just valued at $17 billion and has much greater public name recognition and hype.

To accomplish this, Unity seems to be underplaying the significance of its advertising business (adtech companies trade at much lower revenue multiples). In the past, Unity referred to its operations in three divisions: Create, Operate and Monetize. At the start of August, the SVP and VP leading the Monetize business switched titles to SVP and VP of Operate Solutions, respectively, and then Unity reported the monetization business as a subset of its Operate division in the S-1.

Consolidating Operate and Monetize into one reporting segment obscures specifics about how much revenue the ads business and the live services portfolio each contribute. As noted above, this segment appears to be dominated by ad revenue which means anywhere from 30% to 50% of Unity’s overall revenue is from ads. That should reduce the revenue multiple public investors are willing to value Unity at relative to recent and upcoming SaaS IPOs.

There isn’t a publicly-traded game engine company to directly benchmark Unity against, nor a roster of equity research analysts at big banks who have expertise in gaming infrastructure. Adobe and Autodesk appear to be relevant businesses to benchmark Unity against with regard to the nature of the non-advertising components of the business and Unity’s stated vision. Compared to Unity, those companies have lower growth rates and generate operating profits though; more recent public listings of SaaS companies like Zscaler and Cloudflare are likely to be valuation comps by investors to the extent they focus on its subscription and usage-based revenue streams since their revenue growth and margins are closer to Unity’s.

Both Epic and Unity are moving to meet each other, Epic by moving downstream, and Unity by moving to higher-end applications. And both companies are looking beyond core gaming at other applications as well.

As companies like Facebook, Microsoft, Niantic and others evolve their augmented and virtual reality ecosystems, Epic and Unity may find new worlds to conquer. If public markets can find the cash.

Outschool, which started in 2015 as a platform for homeschooled students to bolster their extracurricular activities, has dramatically widened its customer base since the coronavirus pandemic began.The platform saw its total addressable market increase dramatically as students went home or campus to abide by COVID regulations instituted by the CDC.

Suddenly, live, small-group online learning classes became a necessity for students. Outschool’s services, which range from engineering lessons through Lego challenges to Spanish teaching by Taylor Swift songs, are now high in demand.

“When the CDC warned that school closures may be required, they talked about ‘internet-based tele-schooling,’” co-founder Amir Nathoo said. “We realized they meant classes over video chat, which is exactly what we offer.”

From August 2019 to August 2020, the online educational class service saw a more than 2,000% increase in bookings. But the surge isn’t just a crop of free users piling atop the platform. Outschool’s sales this year are around $54 million, compared to $6.5 million the year prior. It turned its first profit as a result of the COVID-19 crisis, and is making more than $100 million in annual run rate.

While the profitability and growth could be a signal of the COVID-19 era, today Outschool got a vote of confidence that it isn’t just a pandemic-era boom. Today, Jennifer Carolan of Reach Capital announced at TechCrunch Disrupt that Outschool has raised a $45 million Series B round, bringing its total known capital to $55 million.

The round was led by Lightspeed Venture Partners, with participation from Reach Capital, Union Square Ventures, SV Angel, FundersClub, Y Combinator and others.

The cash gives Outschool the chance to grow its 60-person staff, which started at 25 people this year.

Founder Amir Nathoo was programming computer games from the age of five. So when it came to starting his own company, creating a platform that helped other kids do the same felt right.

In 2015, Nathoo grabbed Mikhail Seregine, who helped build Amazon Mechanical Turk and Google Consumer Surveys, and Nick Grandy, a product manager at Clever, another edtech company and YC alum. The trio drummed up a way to help students access experiences they don’t get in school.

To gauge interest, the company tried in-person classes in the SF Bay area, online content and tested across hundreds of families. Finally, they started working with homeschoolers as an early adopter audience, all to see if people would pay for non-traditional educational experiences.

“Homeschooling was interesting to us because we believed that if some new approach is going to change our education system radically for the better, it was likely that it would start outside the existing system,” Nathoo said.

He added that he observed that the homeschooling community had more flexibility around self-directed extracurricular activities. Plus, those families had a bigger stake in finding live, small-group instruction, to embed in days. The idea landed them a spot in Y Combinator in 2016, and, upon graduation, a $1.4 million seed round led by Collab+Sesame.

“We’d all been on group video calls with work, but we hadn’t seen this format of learning in K12 before,” he said. Outschool began rolling out live, interactive classes in small groups. It took off quickly. Sales grew from $500,000 in 2017 to over $6 million in 2019.

The strategy gave Outschool an opportunity to raise a Series A from Reach Capital, an edtech-focused venture capital fund, in May 2019. They began thinking outwards, past homeschooling families: what if a family with a kid in school wants extra activities, snuck in afterschool, on weekends or on holidays?

Today feels remarkably different for the startup, and edtech more broadly. Nathoo says that 87% of parents who purchase classes on Outschool have kids in school. The growth of Outschool’s total addressable market comes with a new set of challenges and goals.

When the pandemic started, Outschool had 1,000 teachers on its platform. Now, its marketplace hosts 10,000 teachers, all of whom have to get screened.

“That has been a big challenge,” he said. “We aren’t an open marketplace, so we had to rapidly scale our supply and quality team within our organization.” While that back-end work is time-consuming and challenging, the NPS score from students has remained high, Nathoo noted.

Outschool has a number of competitors in the live learning space. Juni Learning, for example, sells live small-group classes on coding and science. The company raised $7.5 million, led by Forerunner Ventures, and has around $10 million in ARR. Note earlier that Outschool is at $100 million in ARR.

“We provide a much broader range of learning options than Juni, which is focused just on coding classes,” Nathoo said. Outschool currently lists more than 50,000 classes on its website.

Varsity Tutors is another Outschool competitor, which is more similar to Outschool. Varsity Tutors sells online tutoring and large-group classes in core subjects such as Math and English. Nathoo says that Outschool’s differentiation remains in its focus of small-group teaching and a variety of topics.

As for what’s ahead for Outschool, Nathoo flirts with the idea of contradiction: what if the platform goes in schools?

“When I think about our strategy going forward, I think of new types of classes, international embedding and embedding ourselves back into school,” he said.

Outschool might use its growing consumer business as an engine to get into school districts, which are notoriously difficult to land deals with due to small budgets. But, to Nathoo, it’s important to get into schools to increase access to learning.

“Our vision is to build a global education community that supplements local school,” he said.

Edtech startups find demand from an unlikely customer: Public schools

While Checkout.com has kept a low profile for many years, the company raised $380 million within a year and reached an impressive valuation of $5.5 billion. It wants to build a one-stop shop for all things related to payments, such as accepting transactions, processing them and detecting fraud.

You might think that it sounds a bit like Stripe. In an interview at TechCrunch Disrupt, I asked founder and CEO Guillaume Pousaz what makes Checkout.com different from Stripe, Adyen and other companies in the payment space. It comes down to a very different philosophy when it comes to product and market approach.

“We only do enterprise. We really only work with the big merchants. There are a few exceptions here and there but it’s mostly enterprise-only and it’s purely online,” Pousaz said.

“I once met [Stripe CEO] Patrick Collison and I joked with him. I said ‘you might have a million merchants, I have 1,200 merchants but I know every single one by name and they all process tens of millions every year.’ So I think it’s just a different business,” he added later in the interview.

Checkout.com now has a ton of money sitting in its bank account, but it has been a long and slow journey to reach that level. The company has been around for many years and reached profitability in 2012. It has been spending very meticulously over the years.

When talking about the early days of the company, Pousaz said the team grew really slowly. “We can hire one employee this month. Now we can hire two employees this month,” he said.

Today, the company still tries to remain as lean as possible. “It’s really a matter of discipline. All these companies, they raise a lot of money, they spend a lot of money and I don’t challenge that model. For us, embedding that discipline and frugality in the company in how we run it is something that was important to us,” Pousaz said.

“There’s no problem with spending. Just make sure that when you’re spending, you’re wise about it. You just don’t spray and pray. You see this unfortunately too much with tech companies.”

That’s why Checkout.com mostly invests in its own product. Nearly two-thirds of the company is working in product, IT and engineering. Only 13% of the company is working in sales, which is much less than some of its competitors.

But why did Checkout.com raise hundreds of millions of dollars then? “At some point, you need validation. And the validation was really important for us. When you have Insight, DST, Coatue, GIC, Blossom it changes your dimension,” Pousaz said.

When talking about regulators, Checkout.com has licenses in Brazil, the U.K. and France (for contingency), Hong Kong, Singapore, etc. It’s a never-ending process as the company is still working on licenses in other key markets, such as Japan.

“These regulators are super thorough. You don’t pass because you’re a nice guy, you pass because you have the right processes,” Pousaz said.

I challenged that notion and mentioned the Wirecard collapse. He obviously thinks that Wirecard and Checkout.com are in a different position right now.

“All my money is sitting with JP Morgan, it’s pretty simple. There’s no bank account in the Philippines and funny stuff,” Pousaz said. “The Wirecard story is so big that the real question is — go and ask the question to the auditors. Because the auditors that I have, which for the record is PwC, ask me to show them the bank statements and everything. And they are super thorough, it’s a super long process.”

“How did the Wirecard story happen? I don’t know,” he added.

Yesterday during Disrupt 2020 I sat down with three investors who know the SaaS startup market very well, hoping to get my head around how hot things are today. Coming on the heels of the epic Snowflake IPO (more to come on that in this weekend’s newsletter), it was a great time for a chat.

The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.

I’ve boiled our 40-minute discussion down to my favorite parts, getting you the goods in quick fashion.

What follows are notes on:

• how fast the SaaS investing market is today
• why Snowflake priced where it did and what that tells us about today’s market
• how SaaS companies are seeing different growth results based on their sales motion
• why some private-market SaaS multiples can get so high
• which software sectors are accelerating
• and what I learned about international SaaS.

There are more things to pull out later, like the investors’ thoughts regarding diversity in their part of the venture world and SaaS startups, but I want to give that topic its own space.

So, into today’s SaaS market with an eye on the future, guided by commentary from Canaan’s Maha Ibrahim, Andreessen Horowitz’s David Ulevitch and Bessemer’s Mary D’Onofrio.

Inside SaaS

To help us get through a good bit of the written word without slowing down, I’ll introduce an idea, share a quote and provide a little commentary. This should be good fun.

Growing technological advancements in VoIP and wireless communication standards are the major driving factor behind the growth of the market.

Market Study Report, LLC offers a latest study on ' Explosion-Proof VoIP Portable Phones market' featuring a holistic view of the market size, industry ...

The COVID-19 outbreak is currently going the world over, this report covers the impact of the corona-virus on leading companies in the VoIP Services ...