Shared housing startups are taking off

When young adults leave the parental nest, they often follow a predictable pattern. First, move in with roommates. Then graduate to a single or couple’s pad. After that comes the big purchase of a single-family home. A lawnmower might be next.

Looking at the new home construction industry, one would have good reason to presume those norms were holding steady. About two-thirds of new homes being built in the U.S. this year are single-family dwellings, complete with tidy yards and plentiful parking.

In startup-land, however, the presumptions about where housing demand is going looks a bit different. Home sharing is on the rise, along with more temporary lease options, high-touch service and smaller spaces in sought-after urban locations.

Seeking roommates and venture capital

Crunchbase News analysis of residential-focused real estate startups uncovered a raft of companies with a shared and temporary housing focus that have raised funding in the past year or so.

This isn’t a U.S.-specific phenomenon. Funded shared and short-term housing startups are cropping up across the globe, from China to Europe to Southeast Asia. For this article, however, we’ll focus on U.S. startups. In the chart below, we feature several that have raised recent rounds.

Notice any commonalities? Yes, the startups listed are all based in either New York or the San Francisco Bay Area, two metropolises associated with scarce, pricey housing. But while these two metro areas offer the bulk of startups’ living spaces, they’re also operating in other cities, including Los Angeles, Seattle and Pittsburgh.

From white picket fences to high-rise partitions

The early developers of the U.S. suburban planned communities of the 1950s and 60s weren’t just selling houses. They were selling a vision of the American Dream, complete with quarter-acre lawns, dishwashers and spacious garages.

By the same token, today’s shared housing startups are selling another vision. It’s not just about renting a room; it’s also about being part of a community, making friends and exploring a new city.

One of the slogans for HubHaus is “rent one of our rooms and find your tribe.” Founded less than three years ago, the company now manages about 80 houses in Los Angeles and the San Francisco Bay Area, matching up roommates and planning group events.

Starcity pitches itself as an antidote to loneliness. “Social isolation is a growing epidemic—we solve this problem by bringing people together to create meaningful connections,” the company homepage states.

The San Francisco company also positions its model as a partial solution to housing shortages as it promotes high-density living. It claims to increase living capacity by three times the normal apartment building.

Costs and benefits

Shared housing startups are generally operating in the most expensive U.S. housing markets, so it’s difficult to categorize their offerings as cheap. That said, the cost is typically lower than a private apartment.

Mostly, the aim seems to be providing something affordable for working professionals willing to accept a smaller private living space in exchange for a choice location, easy move-in and a ready-made social network.

At Starcity, residents pay $2,000 to $2,300 a month, all expenses included, depending on length of stay. At HomeShare, which converts two-bedroom luxury flats to three-bedrooms with partitions, monthly rents start at about $1,000 and go up for larger spaces.

Shared and temporary housing startups also purport to offer some savings through flexible-term leases, typically with minimum stays of one to three months. Plus, they’re typically furnished, with no need to set up Wi-Fi or pay power bills.

Looking ahead

While it’s too soon to pick winners in the latest crop of shared and temporary housing startups, it’s not far-fetched to envision the broad market as one that could eventually attract much larger investment and valuations. After all, Airbnb has ascended to a $30 billion private market value for its marketplace of vacation and short-term rentals. And housing shortages in major cities indicate there’s plenty of demand for non-Airbnb options.

While we’re focusing here on residential-focused startups, it’s also worth noting that the trend toward temporary, flexible, high-service models has already gained a lot of traction for commercial spaces. Highly funded startups in this niche include Industrious, a provider of flexible-term, high-end office spaces, Knotel, a provider of customized workplaces, and Breather, which provides meeting and work rooms on demand. Collectively, those three companies have raised about $300 million to date.

At first glance, it may seem shared housing startups are scaling up at an off time. The millennial generation (born roughly 1980 to 1994) can no longer be stereotyped as a massive band of young folks new to “adulting.” The average member of the generation is 28, and older millennials are mid-to-late thirties. Many even own lawnmowers.

No worries. Gen Z, the group born after 1995, is another huge generation. So even if millennials age out of shared housing, demographic forecasts indicate there will plenty of twenty-somethings to rent those partitioned-off rooms.

Instagram opens a San Francisco office

Last year, Facebook was reportedly scouting for office space in San Francisco in order to find a space suitable to house some 100 Instagram employees. Today, the company is officially confirming its San Francisco plans with an announcement that it has leased four floors at 181 Fremont in San Francisco. It will initially house its under-200 person Creation & Communication team, which builds for Stories, Direct, Live and more, but plans to expand its San Francisco headcount in time.

TechCrunch had reported last summer that the Fremont location was being considered, among others. At the time, the 70-story tower wasn’t yet open, and no lease had been signed.

Today, Instagram confirms its lobby will be on the 7th floor of the Fremont building and will be connected to the TransBay Transit Center City Park.

 

Employees started moving in on May 7th, but that transition remains in progress. It’s also still putting the finishing touches on the space, but shared a few photos (see above and below) of what the space looks like today.

Instagram notes it has just under 200 employees in the Fremont office at present, but it expects that number to grow over the course of the year. It also has around 200 in New York, and 400 at its main office in Menlo Park.

Having a space in the city will likely help Instagram with its recruiting efforts – the new office may attract those who prefer to live in the city, for all its advantages, including the fact that they would no longer have to endure the hour-plus shuttle ride to Instagram’s Menlo Park headquarters, near the main Facebook campus.

“We have space to grow the team and plan to do so considerably this year,” an Instagram spokesperson said.

The company declined to share details like square footage or the cost of the lease at this time.

However, real estate data firm the CoStar Group told the San Francisco Chronicle that Facebook signed a lease for 432,000 square feet of office space in the tower, which could house around 2,000 employees. So this is clearly an investment in the future.

“This is not a pilot,” the spokesperson acknowledged, referencing the claims that it’s a way for the company to “test” out having San Francisco office space.

“Instagram is officially establishing a presence in San Francisco and growing the team on-the-ground here,” they said.

Amazon’s cashier-less Go stores are coming to Chicago and San Francisco

Amazon is looking to open more of its cashier-less Go stores across the United States and it looks like San Francisco and Chicago will be among the next cities to get them, according to new job postings in those cities.

In response to the postings, discovered by The Seattle Times, an Amazon spokesperson confirmed that stores were being planned for both of the cities, though they didn’t specify what timing looked like.

There aren’t many details beyond the general job listings, but they do list a couple of management positions around these two sites.

Earlier this week, the SF Chronicle reported that an Amazon Go store could be coming to SF’s heavily trafficked Union Square downtown area. Meanwhile, the company has a permit for what would be a much smaller 635-square-foot “Amazon store” inside Chicago’s Loop area.

Amazon’s Go store is designed with the idea of getting consumers in and out of a convenient store-like grocery without ever having to go through the check-out process. The store relies heavily on cameras tracking customers and seeing what they select while charging them directly through an Amazon Go app. The company’s “store of the future” is currently only in Seattle and appears to be a wholly separate initiative from Whole Foods, which Amazon acquired last year.

Update: In a bid to corner supply, Bird locks in exclusive deals with the biggest scooter vendors

Update: This story has been updated to indicate that the contract between Bird and its suppliers is worth tens of millions of dollars.

It seems like all is fair in love and scooter wars.

In the battle royal to become the last dock-less scooter startup standing (and un-besmirched by poop), Bird has inked what it is characterizing as exclusive deals with Ninebot (the parent company of Segway) and Xiaomi (yes, that Xiaomi), for rights to their supply of scooters for ride-sharing in the U.S.

Ninebot and Xiaomi are the current champions in the scooter manufacturing market, and locking in their supply may cut off a big source of hardware for competitors Spin and LimeBike, both of which used Ninebot and Xiaomi for scooters.

“That’s news to us, we have a contract with both,” wrote an executive at a leading scooter company, when asked about the deal and its implications for the scooter business.

A person familiar with the Bird transaction placed the deal in the tens of millions of dollars and declined to speculate on what the agreement with the two supplier could mean for its competitors.

Since its launch in Santa Monica, Calif. in September  2017, Bird has become synonymous with both the perils and promise that scooters hold for last mile mobility.

While they undoubtedly make traveling across campuses or in relatively small communities much more convenient than car services or shuttles, they’re also clogging sidewalks, parks, alleys, and even beaches, while creating untold numbers of minor visits to emergency rooms in the cities they’ve expanded into.

And Bird has expanded into a lot of cities. The company is currently operating in San Diego, Los Angeles, San Francisco, Austin, Washington, DC, Nashville and Atlanta.

San Francisco’s administrators are fighting back against the scooter companies storming the sidewalks by instituting a new permitting process. The city plans to limit the number of scooters in the city to 1,250 and will require companies to register with the MTA.

How 3D printing is revolutionizing the housing industry 

If you build it, they will come. And if you 3D print it, they will come faster, cheaper and more sustainably.

We live in an era of overpopulation and mass housing shortages. Yet  we also live in a time of phenomenal digital innovation. On the one hand we have major crises affecting the health, liberty and happiness of billions of people. But look at the other hand, where we have potential for life-changing technological breakthroughs at a rate never before seen on this planet.

Our challenges are vast, but our capabilities to produce solutions are even greater. In the future, we will remember this moment in time as a pivotal one. It is now — not tomorrow, and certainly not five years from now — when technology and innovation are disrupting multiple major industries, including those of housing and construction, at breathless and breakneck speed.

Innovators around the world are hard at work to change the way we design, build and produce our homes, and all of this will result in massive change to the housing status quo. Harnessing the revolutionary power of 3D printing, companies from Russia to China, the U.S. and the Netherlands have already proven that not only can a home be 3D printed, it can be done cheaply, efficiently and easily.

Here are just a few ways 3D printing is already transforming the way we live:

Speed

In March 2017, Apis Cor, 3D printing specialists with offices in Russia and San Francisco, announced they had produced a 3D printed home in just 24 hours. That means that from the time you drank your coffee yesterday to the time you sat down for cereal this morning, they produced the self-bearing walls, partitions and building envelopes of an entire home, installed it on-site, and added the roof and interior finishings. It happened in the dead of winter in a tiny Russian town named Stupino, and it was done using Apis Cor’s on-site printer, which means that the massive cost and logistical hurdle of transporting parts and building materials from factories to a home site was almost entirely eliminated.

Think about the possibilities: You select the site where you want to build your home, Apis Cor brings in their 4.5-meter-long printer, the raw materials are set up, and within one single day, your home is printed and ready for you. Compare that to the traditional six- or seven-month construction time the industry is used to, and you’ll begin to understand the scope of potential disruption.

The speed of technological innovation here is also exponential and mind-blowing; just one year before Apis Cor’s breakthrough, we in the 3D printing industry were marveling over Chinese construction company HuaShang Tengda, who set their own record by 3D printing a two-story home in a month and a half. Consider that, for a moment: this industry is moving so quickly that construction time has been slashed from 45 days to 24 mere hours, in the span of a single year.

Image: shanelinkcom/iStock

Cost

Housing prices in America have skyrocketed over the past 50 years, with the average price for a home now surpassing $200,000. And remember, that’s just the average — if you live on the East or West Coast, chances are you’re going to be shelling out something closer to the half-million dollar mark (or more!).

According to a report from the McKinsey Global Institute, a full one-third of people who live in cities will find decent housing out of their reach due to cost by the year 2025. And construction costs are the primary barrier — the report also states that it will take between $9 trillion and $11 trillion just to build the necessary houses to flip that supply-demand ratio and make housing affordable in that time.

Of course, that’s taking only traditional methods of construction into account. But Apis Cor’s 24-hour home was made for around $10,000. HuaSheng Tenga’s homes were made with only 40 percent of the materials traditional construction usually requires, in 30 percent of the time. That represents massive savings in labor and material costs. And these companies aren’t alone — dozens of other firms are exploring cheaper and less complicated methods for building the roofs we all need over our heads, and slashing prices in the process. 

New Story, a Silicon Valley-based nonprofit that builds housing in the developing world, just unveiled a new 3D printer at SXSW that can print a house in less than a day for $4,000. DUS Architects — a dutch architecture studio that has been 3D printing houses since 2012 — has

unveiled the KamerMaker, a huge 3D printer that can build using local recycled materials. This slashes transport, material and manufacturing costs, all driving down costs. 

The bottom line

What’s so revolutionary about 3D printing is that its potential is limited only by our imaginations. If the past few years have taught us anything about this industry, it’s that barriers of size, scope and material do not apply to the potential that 3D printing brings to the manufacturing market. From cars  to food,  to the houses we live in, the industry isn’t just gearing up for a shakeup. It’s in the throws of it already, because change is happening now.

 

In Canada’s cloud services market, venture investment opportunities abound

Canada will be home to a new venture capital fund that will invest in enterprise cloud startups. Its backer? Salesforce Ventures, the global investment arm of Salesforce, a leading cloud-hosted business software provider.

According to a recent press release from Salesforce, the $100 million Canada Trailblazer Fund has already taken stakes in four Canadian startups building cloud-based tools for the enterprise, including Tier1CRM, Traction Guest, Tulip and OSF Commerce.

(Disclosure: Salesforce’s venture arm is an investor in Crunchbase News’s parent, Crunchbase. As with all investors in Crunchbase, Salesforce Ventures has zero input in the operation or coverage of the News team.)

The companies mentioned above join a handful of other Canadian enterprise cloud companies in Salesforce’s broader investment portfolio. In the years prior to announcing the new Canada Trailblazer Fund, Salesforce Ventures made investments in Aislelabs, Vidyard and LeadSift. And Salesforce itself participated in Fredericton, New Brunswick-based Introhive’s $7.3 million Series B round back in 2015.

Almost exactly one year ago, Crunchbase News profiled Salesforce Ventures and a new AI-focused fund it announced at the time. But instead of revisiting the firm and its investments, this time we’re going to take a look at the state of the market it’s jumping into. 

Investors’ growing appetite for Canada’s cloud companies

Specifically, using Crunchbase data, we’re going to take a quick peek at Canadian companies in the “enterprise cloud” sector. To do so, we’ve pulled together a list of more than 1,000 companies in a wide variety of categories in Crunchbase. We used the enterprise applications, enterprise software, SaaS, CRM, sales automation, ERP, billing, meeting software, marketing animation, contact management and scheduling categories as a rough proxy for the kinds of markets on which Salesforce’s new fund may be interested.

And what did we find? 

For one, there’s been a general uptick in venture investment activity in Canadian cloud companies, but that growth has come in fits and starts. Below, you’ll find a chart displaying aggregated annual venture investment data for Canadian cloud companies.

The above chart is based on reported data in Crunchbase, which, especially for seed and early-stage rounds, carries some reporting delays. These may not affect dollar volume figures (fledgling companies don’t raise all that much money), but reported deal volumes will undershoot reality for up to two years.

Regardless, between 2012 and 2017, reported venture dollar volume grew by approximately 124 percent.

2018: Off to a strong start on the investment side

Although it’s not pictured in the chart, so far in 2018 there have been more than 20 reported venture funding rounds in Canada for cloud companies in the categories we searched above. Here are some of the highlights so far:

With help of the PointClickCare round, Canada’s enterprise-focused cloud service startups may be on track to raise more capital in 2018 than they did in the prior year.

Where do Canada’s cloud companies reside?

As for where the hot spots are for Canadian cloud companies, you shouldn’t be surprised that they’re based in the country’s major population centers. Below is a chart showing the distribution of headquarters for our list of cloud companies founded in the past decade.

This being said, it may make sense for Salesforce and other investors interested in Canadian cloud companies to start looking outside these major metro areas. The proportion of cloud companies founded elsewhere in Canada is on the rise. In our data set, around one-fifth of the cloud companies founded in 2008 were located outside the five major metro areas cited above. For companies founded in 2015 and 2017, half are headquartered in other Canadian metro areas.

It goes without saying that there are seemingly endless market niches in the enterprise cloud services market, and as such we just barely scratched the surface here. There are countless data points and anecdotes we didn’t cover here, like this fun fact: Slack, the seemingly ubiquitous workplace chat platform, was originally founded in Vancouver. (It’s since relocated HQ to San Francisco.) Another: Shopify, which is based in Ottawa, went public in May 2015 and raised nearly $131 million in the offering, making it one of Canada’s biggest-ever tech IPOs.

In its statement, Salesforce cited IDC research findings, which say that Canada’s public cloud software market will grow six times faster than on-premise deployments, reaching CA$4.1 billion by 2019. No doubt, there will be stiff competition among investors for an increasing number of Canadian companies seeking capital in years to come.

How did Thumbtack win the on-demand services market?

Earlier today, the services marketplace Thumbtack held a small conference for 300 of its best gig economy workers at an event space in San Francisco.

For the nearly ten-year-old company the event was designed to introduce some new features and a redesign of its brand that had softly launched earlier in the week. On hand, in addition to the services professionals who’d paid their way from locations across the U.S. were the company’s top executives.

It’s the latest step in the long journey that Thumbtack took to become one of the last companies standing with a consumer facing marketplace for services.

Back in 2008, as the global financial crisis was only just beginning to tear at the fabric of the U.S. economy, entrepreneurs at companies like Thumbtack andTaskRabbit were already hard at work on potential patches.

This was the beginning of what’s now known as the gig economy. In addition to Thumbtack and TaskRabbit, young companies like Handy, Zaarly, and several others — all began by trying to build better marketplaces for buyers and sellers of services. Their timing, it turns out, was prescient.

In snowy Boston during the winter of 2008, Kevin Busque and his wife Leah were building RunMyErrand, the marketplace service that would become TaskRabbit, as a way to avoid schlepping through snow to pick up dog food .

Meanwhile, in San Francisco, Marco Zappacosta, a young entrepreneur whose parents were the founders of Logitech, and a crew of co-founders including were building Thumbtack, a professional services marketplace from a home office they shared.

As these entrepreneurs built their businesses in northern California (amid the early years of a technology renaissance fostered by patrons made rich from returns on investments in companies like Google and Salesforce.com), the rest of America was stumbling.

In the two years between 2008 and 2010 the unemployment rate in America doubled, rising from 5% to 10%. Professional services workers were hit especially hard as banks, insurance companies, realtors, contractors, developers and retailers all retrenched — laying off staff as the economy collapsed under the weight of terrible loans and a speculative real estate market.

Things weren’t easy for Thumbtack’s founders at the outset in the days before its $1.3 billion valuation and last hundred plus million dollar round of funding. “One of the things that really struck us about the team, was just how lean they were. At the time they were operating out of a house, they were still cooking meals together,” said Cyan Banister, one of the company’s earliest investors and a partner at the multi-billion dollar venture firm, Founders Fund.

“The only thing they really ever spent money on, was food… It was one of these things where they weren’t extravagant, they were extremely purposeful about every dollar that they spent,” Banister said. “They basically slept at work, and were your typical startup story of being under the couch. Every time I met with them, the story was, in the very early stages was about the same for the first couple years, which was, we’re scraping Craigslist, we’re starting to get some traction.”

The idea of powering a Craigslist replacement with more of a marketplace model was something that appealed to Thumbtack’s earliest investor and champion, the serial entrepreneur and angel investor Jason Calcanis.

Thumbtack chief executive Marco Zappacosta

“I remember like it was yesterday when Marco showed me Thumbtack and I looked at this and I said, ‘So, why are you building this?’ And he said, ‘Well, if you go on Craigslist, you know, it’s like a crap shoot. You post, you don’t know. You read a post… you know… you don’t know how good the person is. There’re no reviews.'” Calcanis said. “He had made a directory. It wasn’t the current workflow you see in the app — that came in year three I think. But for the first three years, he built a directory. And he showed me the directory pages where he had a photo of the person, the services provided, the bio.”

The first three years were spent developing a list of vendors that the company had verified with a mailing address, a license, and a certificate of insurance for people who needed some kind of service. Those three features were all Calcanis needed to validate the deal and pull the trigger on an initial investment.

“That’s when I figured out my personal thesis of angel investing,” Calcanis said.

“Some people are market based; some people want to invest in certain demographics or psychographics; immigrant kids or Stanford kids, whatever. Mine is just, ‘Can you make a really interesting product and are your decisions about that product considered?’ And when we discuss those decisions, do I feel like you’re the person who should build this product for the world And it’s just like there’s a big sign above Marco’s head that just says ‘Winner! Winner! Winner!'”

Indeed, it looks like Zappacosta and his company are now running what may be their victory lap in their tenth year as a private company. Thumbtack will be profitable by 2019 and has rolled out a host of new products in the last six months.

Their thesis, which flew in the face of the conventional wisdom of the day, was to build a product which offered listings of any service a potential customer could want in any geography across the U.S. Other companies like Handy and TaskRabbit focused on the home, but on Thumbtack (like any good community message board) users could see postings for anything from repairman to reiki lessons and magicians to musicians alongside the home repair services that now make up the bulk of its listings.

“It’s funny, we had business plans and documents that we wrote and if you look back, the vision that we outlined then, is very similar to the vision we have today. We honestly looked around and we said, ‘We want to solve a problem that impacts a huge number of people. The local services base is super inefficient. It’s really difficult for customers to find trustworthy, reliable people who are available for the right price,'” said Sander Daniels, a co-founder at the company. 

“For pros, their number one concern is, ‘Where do I put money in my pocket next? How do I put food on the table for my family next?’ We said, ‘There is a real human problem here. If we can connect these people to technology and then, look around, there are these global marketplace for products: Amazon, Ebay, Alibaba, why can’t there be a global marketplace for services?’ It sounded crazy to say it at the time and it still sounds crazy to say, but that is what the dream was.”

Daniels acknowledges that the company changed the direction of its product, the ways it makes money, and pivoted to address issues as they arose, but the vision remained constant. 

Meanwhile, other startups in the market have shifted their focus. Indeed as Handy has shifted to more of a professional services model rather than working directly with consumers and TaskRabbit has been acquired by Ikea, Thumbtack has doubled down on its independence and upgrading its marketplace with automation tools to make matching service providers with customers that much easier.

Late last year the company launched an automated tool serving up job requests to its customers — the service providers that pay the company a fee for leads generated by people searching for services on the company’s app or website.

Thumbtack processes about $1 billion a year in business for its service providers in roughly 1,000 professional categories.

Now, the matching feature is getting an upgrade on the consumer side. Earlier this month the company unveiled Instant Results — a new look for its website and mobile app — that uses all of the data from its 200,000 services professionals to match with the 30 professionals that best correspond to a request for services. It’s among the highest number of professionals listed on any site, according to Zappacosta. The next largest competitor, Yelp, has around 115,000 listings a year. Thumbtack’s professionals are active in a 90 day period.

Filtering by price, location, tools and schedule, anyone in the U.S. can find a service professional for their needs. It’s the culmination of work processing nine years and 25 million requests for services from all of its different categories of jobs.

It’s a long way from the first version of Thumbtack, which had a “buy” tab and a “sell” tab; with the “buy” side to hire local services and the “sell” to offer them.

“From the very early days… the design was to iterate beyond the traditional model of business listing directors. In that, for the consumer to tell us what they were looking for and we would, then, find the right people to connect them to,” said Daniels. “That functionality, the request for quote functionality, was built in from v.1 of the product. If you tried to use it then, it wouldn’t work. There were no businesses on the platform to connect you with. I’m sure there were a million bugs, the UI and UX were a disaster, of course. That was the original version, what I remember of it at least.”

It may have been a disaster, but it was compelling enough to get the company its $1.2 million angel round — enough to barely develop the product. That million dollar investment had to last the company through the nuclear winter of America’s recession years, when venture capital — along with every other investment class — pulled back.

“We were pounding the pavement trying to find somebody to give us money for a Series A round,” Daniels said. “That was a very hard period of the company’s life when we almost went out of business, because nobody would give us money.”

That was a pre-revenue period for the company, which experimented with four revenue streams before settling on the one that worked the best. In the beginning the service was free, and it slowly transitioned to a commission model. Then, eventually, the company moved to a subscription model where service providers would pay the company a certain amount for leads generated off of Thumbtack.

“We weren’t able to close the loop,” Daniels said. “To make commissions work, you have to know who does the job, when, for how much. There are a few possible ways to collect all that information, but the best one, I think, is probably by hosting payments through your platform. We actually built payments into the platform in 2011 or 2012. We had significant transaction volume going through it, but we then decided to rip it out 18 months later, 24 months later, because, I think we had kind of abandoned the hope of making commissions work at that time.”

While Thumbtack was struggling to make its bones, Twitter, Facebook, and Pinterest were raking in cash. The founders thought that they could also access markets in the same way, but investors weren’t interested in a consumer facing business that required transactions — not advertising — to work. User generated content and social media were the rage, but aside from Uber and Lyft the jury was still out on the marketplace model.

“For our company that was not a Facebook or a Twitter or Pinterest, at that time, at least, that we needed revenue to show that we’re going to be able to monetize this,” Daniels said. “We had figured out a way to sign up pros at enormous scale and consumers were coming online, too. That was showing real promise. We said, ‘Man, we’re a hot ticket, we’re going to be able to raise real money.’ Then, for many reasons, our inexperience, our lack of revenue model, probably a bunch of stuff, people were reluctant to give us money.”

The company didn’t focus on revenue models until the fall of 2011, according to Daniels. Then after receiving rejection after rejection the company’s founders began to worry. “We’re like, ‘Oh, shit.’ November of 2009 we start running these tests, to start making money, because we might not be able to raise money here. We need to figure out how to raise cash to pay the bills, soon,” Daniels recalled. 

The experience of almost running into the wall put the fear of god into the company. They managed to scrape out an investment from Javelin, but the founders were convinced that they needed to find the right revenue number to make the business work with or without a capital infusion. After a bunch of deliberations, they finally settled on $350,000 as the magic number to remain a going concern.

“That was the metric that we were shooting towards,” said Daniels. “It was during that period that we iterated aggressively through these revenue models, and, ultimately, landed on a paper quote. At the end of that period then Sequoia invested, and suddenly, pros supply and consumer demand and revenue model all came together and like, ‘Oh shit.'”

Finding the right business model was one thing that saved the company from withering on the vine, but another choice was the one that seemed the least logical — the idea that the company should focus on more than just home repairs and services.

The company’s home category had lots of competition with companies who had mastered the art of listing for services on Google and getting results. According to Daniels, the company couldn’t compete at all in the home categories initially.

“It turned out, randomly … we had no idea about this … there was not a similarly well developed or mature events industry,” Daniels said. “We outperformed in events. It was this strategic decision, too, that, on all these 1,000 categories, but it was random, that over the last five years we are the, if not the, certainly one of the leading events service providers in the country. It just happened to be that we … I don’t want to say stumbled into it … but we found these pockets that were less competitive and we could compete in and build a business on.”

The focus on geographical and services breadth — rather than looking at building a business in a single category or in a single geography meant that Zappacosta and company took longer to get their legs under them, but that they had a much wider stance and a much bigger base to tap as they began to grow.

“Because of naivete and this dreamy ambition that we’re going to do it all. It was really nothing more strategic or complicated than that,” said Daniels. “When we chose to go broad, we were wandering the wilderness. We had never done anything like this before.”

From the company’s perspective, there were two things that the outside world (and potential investors) didn’t grasp about its approach. The first was that a perfect product may have been more competitive in a single category, but a good enough product was better than the terrible user experiences that were then on the market. “You can build a big company on this good enough product, which you can then refine over the course of time to be greater and greater,” said Daniels.

The second misunderstanding is that the breadth of the company let it scale the product that being in one category would have never allowed Thumbtack to do. Cross selling and upselling from carpet cleaners to moving services to house cleaners to bounce house rentals for parties — allowed for more repeat use.

More repeat use meant more jobs for services employees at a time when unemployment was still running historically high. Even in 2011, unemployment remained stubbornly high. It wasn’t until 2013 that the jobless numbers began their steady decline.

There’s a question about whether these gig economy jobs can keep up with the changing times. Now, as unemployment has returned to its pre-recession levels, will people want to continue working in roles that don’t offer health insurance or retirement benefits? The answer seems to be “yes” as the Thumbtack platform continues to grow and Uber and Lyft show no signs of slowing down.

“At the time, and it still remains one of my biggest passions, I was interested in how software could create new meaningful ways of working,” said Banister of the Thumbtack deal. “That’s the criteria I was looking for, which is, does this shift how people find work? Because I do believe that we can create jobs and we can create new types of jobs that never existed before with the platforms that we have today.”

The formula behind San Francisco’s startup success

Why has San Francisco’s startup scene generated so many hugely valuable companies over the past decade?

That’s the question we asked over the past few weeks while analyzing San Francisco startup funding, exit, and unicorn creation data. After all, it’s not as if founders of Uber, Airbnb, Lyft, Dropbox and Twitter had to get office space within a couple of miles of each other.

We hadn’t thought our data-centric approach would yield a clear recipe for success. San Francisco private and newly public unicorns are a diverse bunch, numbering more than 30, in areas ranging from ridesharing to online lending. Surely the path to billion-plus valuations would be equally varied.

But surprisingly, many of their secrets to success seem formulaic. The most valuable San Francisco companies to arise in the era of the smartphone have a number of shared traits, including a willingness and ability to post massive, sustained losses; high-powered investors; and a preponderance of easy-to-explain business models.

No, it’s not a recipe that’s likely replicable without talent, drive, connections and timing. But if you’ve got those ingredients, following the principles below might provide a good shot at unicorn status.

First you conquer, then you earn

Losing money is not a bug. It’s a feature.

First, lose money until you’ve left your rivals in the dust. This is the most important rule. It is the collective glue that holds the narratives of San Francisco startup success stories together. And while companies in other places have thrived with the same practice, arguably San Franciscans do it best.

It’s no secret that a majority of the most valuable internet and technology companies citywide lose gobs of money or post tiny profits relative to valuations. Uber, called the world’s most valuable startup, reportedly lost $4.5 billion last year. Dropbox lost more than $100 million after losing more than $200 million the year before and more than $300 million the year before that. Even Airbnb, whose model of taking a share of homestay revenues sounds like an easy recipe for returns, took nine years to post its first annual profit.

Not making money can be the ultimate competitive advantage, if you can afford it.

Industry stalwarts lose money, too. Salesforce, with a market cap of $88 billion, has posted losses for the vast majority of its operating history. Square, valued at nearly $20 billion, has never been profitable on a GAAP basis. DocuSign, the 15-year-old newly public company that dominates the e-signature space, lost more than $50 million in its last fiscal year (and more than $100 million in each of the two preceding years). Of course, these companies, like their unicorn brethren, invest heavily in growing revenues, attracting investors who value this approach.

We could go on. But the basic takeaway is this: Losing money is not a bug. It’s a feature. One might even argue that entrepreneurs in metro areas with a more fiscally restrained investment culture are missing out.

What’s also noteworthy is the propensity of so many city startups to wreak havoc on existing, profitable industries without generating big profits themselves. Craigslist, a San Francisco nonprofit, may have started the trend in the 1990s by blowing up the newspaper classified business. Today, Uber and Lyft have decimated the value of taxi medallions.

Not making money can be the ultimate competitive advantage, if you can afford it, as it prevents others from entering the space or catching up as your startup gobbles up greater and greater market share. Then, when rivals are out of the picture, it’s possible to raise prices and start focusing on operating in the black.

Raise money from investors who’ve done this before

You can’t lose money on your own. And you can’t lose any old money, either. To succeed as a San Francisco unicorn, it helps to lose money provided by one of a short list of prestigious investors who have previously backed valuable, unprofitable Northern California startups.

It’s not a mysterious list. Most of the names are well-known venture and seed investors who’ve been actively investing in local startups for many years and commonly feature on rankings like the Midas List. We’ve put together a few names here.

You might wonder why it’s so much better to lose money provided by Sequoia Capital than, say, a lower-profile but still wealthy investor. We could speculate that the following factors are at play: a firm’s reputation for selecting winning startups, a willingness of later investors to follow these VCs at higher valuations and these firms’ skill in shepherding portfolio companies through rapid growth cycles to an eventual exit.

Whatever the exact connection, the data speaks for itself. The vast majority of San Francisco’s most valuable private and recently public internet and technology companies have backing from investors on the short list, commonly beginning with early-stage rounds.

Pick a business model that relatives understand

Generally speaking, you don’t need to know a lot about semiconductor technology or networking infrastructure to explain what a high-valuation San Francisco company does. Instead, it’s more along the lines of: “They have an app for getting rides from strangers,” or “They have an app for renting rooms in your house to strangers.” It may sound strange at first, but pretty soon it’s something everyone seems to be doing.

It’s not a recipe that’s likely replicable without talent, drive, connections and timing. 

list of 32 San Francisco-based unicorns and near-unicorns is populated mostly with companies that have widely understood brands, including Pinterest, Instacart and Slack, along with Uber, Lyft and Airbnb. While there are some lesser-known enterprise software names, they’re not among the largest investment recipients.

Part of the consumer-facing, high brand recognition qualities of San Francisco startups may be tied to the decision to locate in an urban center. If you were planning to manufacture semiconductor components, for instance, you would probably set up headquarters in a less space-constrained suburban setting.

Reading between the lines of red ink

While it can be frustrating to watch a company lurch from quarter to quarter without a profit in sight, there is ample evidence the approach can be wildly successful over time.

Seattle’s Amazon is probably the poster child for this strategy. Jeff Bezos, recently declared the world’s richest man, led the company for more than a decade before reporting the first annual profit.

These days, San Francisco seems to be ground central for this company-building technique. While it’s certainly not necessary to locate here, it does seem to be the single urban location most closely associated with massively scalable, money-losing consumer-facing startups.

Perhaps it’s just one of those things that after a while becomes status quo. If you want to be a movie star, you go to Hollywood. And if you want to make it on Wall Street, you go to Wall Street. Likewise, if you want to make it by launching an industry-altering business with a good shot at a multi-billion-dollar valuation, all while losing eye-popping sums of money, then you go to San Francisco.

The 2017 TechCrunch Include Progress Report

This is the second annual TechCrunch Include Progress Report. Covering diversity and inclusion in the tech industry cannot be done in a vacuum. As aspects of identity are intersectional, so too should be the way in which media approaches its coverage of the tech industry. With each passing year, companies big and small release diversity data, highlighting the need for more inclusive hiring. As a media company, it is our job to report these stories through a diversity and inclusion lens. You can track our coverage here.

Complementing our editorial coverage is a series of annual events produced by our outstanding events team. Our editorial and events teams work hard together throughout the year to bring you the most unique tech events that give startups from around the world a chance to pitch judges from the most prestigious venture capital firms. In 2017, TechCrunch added to its slate of global events, bringing together startup founders, developers, scientists and technologists. From our Disrupts, Hardware Battlefield at CES, and the Crunchies to our inaugural Sessions and Battlefield X events, we set out to ensure that we had a diverse roster of speakers, judges and contestants.

The importance of diversity and inclusion in the tech industry has generated much attention since we published our last Include Program progress report. At TechCrunch, we understand the importance of diversity, and it begins with hiring. In keeping with our commitments in the core principles and mission for Include 2016, we assembled the following progress report on our initiatives, staff and workplace culture.

As in 2016, our methodology for collecting data on our event participants evolved. To date, we have tracked the gender and racial breakdown of our speakers, judges and Battlefield contestants through observed traits. In 2018, we will be implementing the use of anonymous, self-reporting surveys for all onstage participants in our events.

TechCrunch Events

Disrupt

In 2017, we hosted our TechCrunch Disrupt events in New York, San Francisco and Berlin. We continue to make strides in ensuring diverse attendance numbers in all facets of participation, from speakers, judges, Battlefield contestants, and nonprofit groups. We also host groups of underserved and underrepresented students from local schools, sourced via local groups and representatives.

For all Disrupt events, we offered a Battlefield Scholarship Fund, which we piloted in 2016, to offset the costs of participating in the program. Tickets to Disrupt have been and will always be free for Battlefield participants. Five teams applied and received financial support ranging from $200 to $7,000, which they used to cover airfare, housing and other associated costs.

Finally, to mark the start of TechCrunch Disrupt, TechCrunch parters with organizations to host the Women in Tech(Crunch) event. This is a private event specifically for female speakers, female judges, Battlefield female founders and the TechCrunch editorial team. In addition to our Women in Tech(Crunch) event in each city, we also hosted Women of Disrupt Breakfasts, all of which included programming.

Disrupt New York

The number of women who appeared onstage at Disrupt New York in May 2017 improved over the prior year, with an increase in judges (6 percent) and Battlefield founders (8 percent). However, we saw 8 percent fewer female speakers. We made gains with racial diversity onstage in 2017, as well. Speakers (5 percent) and Battlefield founders (18 percent) saw increases, but we had about 4 percent fewer judges who were people of color.

We hosted 100 female founders, investors and TechCrunch staff at the Women in Tech(Crunch) event in partnership with General Catalyst . And with Live a Moment, we hosted 80 attendees at the Women of Disrupt Breakfast.

Our efforts to ensure attendance from all groups included providing five free Startup Alley tables to nonprofits selected from a pool of over 30 applicants through an open application process announced on TechCrunch. In addition, we provided a 90 percent discount on Disrupt tickets for students.

 

 

 

Disrupt San Francisco

Disrupt San Francisco 2017 in September would be the last time we decided to hold this event at one of the piers off the San Francisco Bay. This year, Disrupt SF will be held at Moscone West, the sheer size of which will require us to step up our inclusion efforts.

In 2017, we saw an improvement over 2016 with female representation onstage, with speakers increasing 12 percent and judges increasing 13 percent. However, female representation on the Battlefield founder front decreased almost 6 percent.

To help introduce students from underserved communities, we hosted 86 middle and high school students from Dev Mission, Bishop O’Dowd High School, Hack the Hood, Founders Bootcamp and Albany High School. Student groups were selected from an applicant pool of over 35 student groups through an open application process announced on TechCrunch.

We partnered with Greylock Partners to host 165 attendees for Women in Tech(Crunch). And for our Women of Disrupt Breakfast, Silicon Valley Editor Connie Loizos moderated a conversation with female founders from Away and Science Exchange and discover Alice, an artificial intelligence platform for women. We partnered with Intuit for this event that held 120 attendees.

We also offered the same student ticket discount and free Startup Alley tables to nonprofits as we had in prior years; this year we expanded on that effort.

 

 

Disrupt Berlin

Disrupt returned to Berlin in December 2017 after three years in London. We saw a 14 percent increase in female judges on stage over 2016. But female speakers and Battlefield founders decreased year-over-year by about 3 percent and 12 percent, respectively.

As part of our inclusion efforts, we hosted 32 refugees learning at the ReDI School of Digital Integration. They brought a group of 30 students who had the opportunity to explore Startup Alley, listen to our speakers on the main stage and have an intimate conversation with Slack co-founder, Cal Henderson. We also supported some of the Battlefield companies with our scholarship fund and continued the student ticket discounts.

Factory Berlin helped us host 65 attendees at our Women in Tech(Crunch) event. In addition, we hosted 80 attendees at the Women of Disrupt Breakfast.

 

 

Hardware Battlefield at CES

In January 2017, we once again hosted a Hardware Battlefield at CES. Female representation for speakers, judges and Battlefield founders were down slightly from 2016. By contrast, for the first time in a Hardware Battlefield, minority founders were represented equally, with 50 percent.

 

 

Battlefield X

Building off of the overwhelming success of Disrupt Battlefield, we decided to spin it out into its own event and give it a new name: Battlefield X. In 2017, we sent teams to Africa and Australia with the intent to showcase startups doing amazing work in their respective corners of the globe.

Battlefield Africa

For the competition in Nairobi in October, we specifically looked for companies targeting social good, productivity and utility, and gaming and entertainment. Sub-Saharan African startups are helping unleash the region’s potential, from last-mile technologies that deliver edtech, agtech, and medtech to remote areas, to mobile-based fintech innovations that ease financial transactions and lending in bustling cities.

 

 

Battlefield Australia

To bring Battlefield to Australia in October 2017, TechCrunch partnered with the ELEVACAO Foundation, whose mission to empower women tech entrepreneurs globally aligns with TechCrunch’s Include program to encourage more diversity in tech. We are also joining forces with Founders for Founders, a group dedicated to supporting tech entrepreneurs across Australia, and Hoist, which is promoting innovation through collaboration between entrepreneurs and corporates.

 

 

 

Sessions

Last year we debuted Sessions, our new one-day events that dive deep on a single topic, bringing together experts in the field and those interested in the theme.

With these events, we intend to drop the barrier between speaker and attendee to allow for plenty of interaction with networking time and a big reception at the end of each day. Our very first event was Sessions: Justice in June followed by Sessions: Robotics in July.

Sessions: Justice

During the one-day event in June around diversity, inclusion and justice in tech, we heard from social justice activist DeRay Mckesson, Uber Global Head of Diversity and Inclusion Bernard Coleman, Salesforce Chief Equality Officer Tony Prophet, Safety Pin Box co-founder Leslie Mac, The Last Mile co-founder Chris Redlitz, Cryptoharlem founder Matt Mitchell and others.

TechCrunch Sessions: Justice was the most racially inclusive event we’ve ever put on. That said, we could’ve done better with getting more Latinx speakers on stage. In addition, we collected statistics about gender and sexual orientation.

 

 

 

 

Sessions: Robotics

Our aim with this one-day event, which was hosted at MIT in July, was to bring together the key players in robotics. MIT CSAIL, iRobot, CyPhy, DARPA and Mass Robotics were represented. As you can see from the data below, we need to ensure higher numbers of women and people of color are represented.

 

 

Crunchies

The 10th anniversary of the Crunchies was also the last. In 2017 we renewed our intention to showcase and reward the diversity across Silicon Valley and beyond. We gave Project Include the second-ever TechCrunch Include Award. The goal of Project Include is to make the the conversation a lot easier to have. Led by Erica Joy Baker, bethanye McKinney Blount, Tracy Chou, Laura I. Gómez, Y-Vonne Hutchinson, Freada Kapor Klein, Ellen Pao and Susan Wu, Project Include provides tools for tech CEOs to help foster working environments of inclusion for underrepresented groups.

 

 

Include Office Hours

Launched in 2014, TechCrunch’s Include program applies resources uniquely available to TechCrunch, including our editorial and events platforms, to create access and opportunity for underserved and underrepresented founders.

TechCrunch Include Office Hours are a part of this effort. The program, which launched in October 2015, Each month, TechCrunch partners with a VC in New York or San Francisco to host private 20-minute sessions that are valuable opportunities for entrepreneurs to gain key insights and advice from seasoned investors.

In 2017, we hosted eight Office Hours in San Francisco and New York. There were 317 total applications that resulted in 78 founders having meetings totaling 26 hours. The following firms participated:

  • Betaworks Ventures
  • BCV & Matrix
  • Flybridge
  • General Catalyst
  • Canaan Partners
  • Intel Capital
  • Greylock Partners
  • Cavalry Ventures

TechCrunch Staff/Culture

Beginning last year, TechCrunch made it a priority to improve our recruiting and hiring in order to make our workplace more diverse, and we will continue to do so.

With respect to gender representation, TechCrunch is ahead of typical tech companies. Compared to internet-based media companies, however, the TechCrunch editorial staff is in the range of most other publications, with women holding about 27 percent of newsroom jobs. This is far from where we aim to be. We have the most work to do, however, in the area of racial diversity, where we are over 80 percent white on the editorial staff and 78 white percent across all company departments.

As the issue of diversity and inclusion in tech continues to command conversations all over Silicon Valley and beyond, it will remain at the forefront of our coverage and around the world at our events.

With contributions from Alexandra Ames, director of marketing, and Neesha Tambe, Battlefield and Crunch Match manager.