Morning Report

What you need to know one minute before daylight

Silicon Valley and California Are Desperately Seeking New Models

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SILICON VALLEY

Lyft says it will be profitable by 2021 if it excludes “a bunch of costs”: “In its latest earnings results, the ride-hailing service’s chief executive, Logan Green, said that the company had made progress ‘on our path to profitability.’ … The focus on profit came as Lyft reported a 63 percent jump in revenue to $955.6 million for the third quarter from a year earlier, while its net loss nearly doubled to $463.5 million. The loss was driven by stock-based compensation costs and payroll tax expenses, the company said. Excluding those, Lyft’s operating loss was $121.6 million for the quarter, which was not as steep as Wall Street estimates. Lyft’s stock rose nearly 1.5 percent in after-hours trading on Wednesday. ‘We crushed revenue expectations,’ Brian Roberts, Lyft’s chief financial officer, said in an interview. ‘We have put out a firm date to achieve profitability. I think that is unique.’”

Well, in Silicon Valley, perhaps.

THE ECONOMY 

With the economy slowing to a 1.9 percent growth rate in the third quarter, the Commerce Department reports business investment is in decline: “The decline in business investment is a sign that the 2017 tax law isn’t having the effects its authors predicted and desired. The law cut corporate tax rates and allowed immediate deductions for capital investment, and raising the after-tax rate of return was supposed to encourage companies to spend on factories and equipment. After an early jump in 2018, investment has slumped. It has been dragged down by uncertainty over the trade war and global economy. In addition, companies may not see the current corporate tax rules as stable over the longer term because Democrats are proposing to raise the corporate tax rate.”

TECHNOLOGY

Gene Marks suggests you consider purchasing a project management application (like Asana) rather than a customer relationship management application (like Salesforce)? “Just this month, Asana introduced a new set of workflow rules that puts its platform on a more equal footing with many CRM applications. These workflows will auto-assign teammates to new tasks based on a custom field status (e.g. type of work) or on a parent project, set and shift due dates, assign work to the right people and trigger follow-ups when information changes. CRM companies will say that their offerings do much more and that their capabilities are far more robust than just a simple project manager and in many cases they’re right. Great CRM systems have advanced opportunity management, service desk capabilities and are customer communication capabilities that include website integrations, chat and email which leverage artificial intelligence algorithms. All of those features are great for larger organizations. But does the typical 50 or 100-person company – my company’s bread and butter client – need all that?”

Biotech firm LanzaTech turns refinery and steel mill emissions into fuel: “‘Instead of letting carbon emissions come out of a steel mill, we capture them, we put them in our bio reactor and fermentjust like making beerto make ethanol,’ said LanzaTech CEO Jennifer Holmgren. The key to the process is a gas-eating bacteria developed specifically for fermentation. The company says the bacteria feeds on the emissions, rather than feeding on sugar or corn, to generate ethanol. … Last year, LanzaTech installed its first system at a steel mill in China. The company says it’s recycled enough carbon to make 9 million gallons of ethanol, which can be combined with jet fuel to power commercial planes. In October 2018, LanzaTech partnered with Virgin Atlantic and Boeing to partially power the first commercial flight (from Orlando, Florida to Gatwick, England) using LanzaTech’s jet fuel.”

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VENTURE CAPITAL

Fundamental Group, a provider of virtual reality content production and consulting services, raised $5.6 million in a Series A round.

Faire, an operator of an online wholesale marketplace intended to mitigate the burden of inventory risk for retailers, raised $4.52 million in a Later Stage VC round.

STARTUPS 

Blue Canoe uses artificial intelligence  to help English learners pronounce words correctly: “Blue Canoe’s mobile app directs its users to repeat sentence prompts and record them. Speech-recognition technology then analyzes the recordings and uses machine-learning models to point out the differences. When users spend 10 minutes per day on the app, personalized feedback from an [AI] teacher informs students precisely how they mispronounced words. Since last year, Blue Canoe has sold its services to multinational companies in the professional services and tech sectors that provide the app to their employees. English-teaching companies in Japan, China and the U.S. also offer the app to clients for additional training.”

Curated assists customers in pursuing a new hobby or project: “The platform is designed for consumers who are about to embark on a new hobby or passion project but don’t know where to start. Instead of making products available on the site, Curated connects consumers with experts and enthusiasts in the field who can answer questions and steer a person toward the right product for them. … When a customer lands on the Curated website, they can answer a few questions about what they are looking for. They are then connected to a real live person, who has expertise in that product area. Curated brings on these experts, who talk to customers via text or email. A third of their income comes from a fixed fee, another third comes from making a commission on products, and the last third comes in the form of tips from happy customers. Since the platform launched in 2017, it has a nearly zero percent return rate, compared to the industry average of 30 percent.”

Workiz is a field service management tool for plumbers, landscapers, electricians, etc.: “The company says it grew 247 percent last year and CEO Adi Azaria told TechCrunch that the company currently has thousands of customers in the US and Canada. Many are home or equipment maintenance companies, including locksmiths, garage door repair, junk removal, appliance repair and carpet cleaning businesses. The software has also been used by medical transport companies, including Trinity Air Medical, to manage highly-time sensitive delivery of organ donations to their recipients. The company targets field services businesses with less than 50 employees, but can scale up to organization with much more technicians and franchises. … Workiz was created to give field service companies a full set of tools, including the ability to monitor interactions between technicians and customers, keep detailed records of client calls and texts, send clients reminders, track advertising spending and effectiveness and process credit card payments.”

M&A

Barry’s Bootcamp is considering a possible $700 million sale: “Since 2015, Barry’s has been majority-owned by North Castle Partners, a private equity firm based in Greenwich, Connecticut, that has invested in boutique fitness offerings such as pilates studio operator SLT and climbing-focused Brooklyn Boulders. The firm’s investments have also included more traditional gyms including Equinox and CR Fitness, a franchisee of Crunch Fitness. Private equity firms have increasingly been investing in fitness concepts, partly due to an increased focus by consumers on health and wellness.”

LOGISTICS

Grubhub missed sales expectations, signaling trouble ahead for online food ordering and delivery: “Grubhub said new customers aren’t ordering as frequently as earlier diners had in markets such as Chicago and New York. … Analysts have been queasy about whether Grubhub’s margins in its core business of online food ordering got diluted and complicated by the logistics of delivery. Grubhub confirmed those fears, saying, ‘What we concluded is that the supply innovations in online takeout have been played out, and annual growth is slowing and returning to a more normal longer-term state, … except that there are multiple players all competing for the same new diners and order growth.’

“After talking up the merits of restaurant deals with Taco Bell, KFC and, more recently, McDonald’s, Grubhub now is focusing on its core small and mid-sized customers. ‘The biggest enterprise brands don’t need Grubhub to bring them new diners in the same way independents and small chains do because they spend billions a year on developing their own brands. … Over 80 percent of our orders are generated by small-medium-sized businesses.’”

LOCATION, LOCATION, LOCATION

As the fires rage, a business columnist (and Californian) asks whether California is over: “The fires and the blackouts aren’t like the earthquakes, a natural threat we’ve all chosen to ignore. They are more like California’s other problems, like housing affordability and homelessness and traffic—human-made catastrophes we’ve all chosen to ignore, connected to the larger dysfunction at the heart of our state’s rot: a failure to live sustainably. Now choking under the smoke of a changing climate, California feels stuck. We are BlackBerry after the iPhone, Blockbuster after Netflix: We’ve got the wrong design, we bet on the wrong technologies, we’ve got the wrong incentives, and we’re saddled with the wrong culture. The founding idea of this place is infinitude—mile after endless mile of cute houses connected by freeways and uninsulated power lines stretching out far into the forested hills. Our whole way of life is built on a series of myths—the myth of endless space, endless fuel, endless water, endless optimism, endless outward reach and endless free parking. One by one, those myths are bursting into flame.”

And that’s what’s ahead.

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