A brave new world for Golden State tech

January 22, 2020

The Hustle

The sports page’s would-be killer just got a boatload of cash. The subscription-centric upstart The Athletic raised $50m in a new round of funding. We talked to Alex Mather, the company’s CEO, about its fast rise (see highlights below). Today:

  • Regulators stay on Big Tech’s tracks
  • GoPuff wants to be the king of snacks
  • A startup’s huge smile shows a few cracks
The Hustle Daily Email

The Golden State vanguard: Tech companies respond to California’s clampdown

The state of California entered a new era after the clock struck midnight at the close of 2019. 

Two major state laws took effect, and they could reshape Silicon Valley’s relationship with the lifeblood of the digital economy: real, live human beings.

Why the 2 measures matter

Three weeks into 2020, we’re starting to get a clearer picture of how companies will get by in the Brave New World of California. Here’s a rundown.

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Up first: Assembly Bill 5

What it does: Companies that hire independent contractors are now required to classify most of them as employees, giving them access to stronger benefits.

Why it matters: Tech companies rely on these gig workers in a huge way. They form the backbone of entire business models — looking at you, Uber and DoorDash.

What’s happening now: The law is forcing the companies to rethink how they operate. 

  • Uber is testing a new feature that allows some California drivers to set their own fares, The Wall Street Journal reported on Tuesday
  • Uber is also teaming up with other companies to raise money for a ballot initiative that would exempt them from the new rules

Next: The California Consumer Privacy Act

What it does: It gives consumers new rights around how their personal information is stored and shared.

Why it matters: Users can request the information that companies have collected about them — and the picture isn’t always pretty.

What’s happening now:

  • The Washington Post spot-checked Big Tech’s efforts to comply. The verdict? Spotty, at best
  • As for Uber: It’ll reveal a customer’s star rating, but not some customer service calls. The Post said the company “maintains other data undisclosed in CCPA requests,” too
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How does Rotten Tomatoes work, anyway? (Hint: It’s not all algorithms)

Rotten Tomatoes scores — those tomato-themed movie ratings that decide whether films are “Fresh” or “Rotten” and pop up everywhere from Google results to DirecTV listings — are determined not by an algorithm, but by a small group of people in a conference room.

The Tomatometer is surprisingly low tech. But, as Wired reports, Rotten Tomatoes scores are a big deal thanks to the company’s strange history of acquisitions and partnerships.

First things first: How does the Tomatometer work?

  1. Human curators track down all reviews of a movie/TV show from a huge group of preapproved critics.
  2. Those curators determine if those reviews are positive (“Fresh”) or negative (“Rotten”) — on a totally subjective scale.
  3. The percentage of positive reviews becomes the Tomatometer score: Under 60% = “Rotten”; 60% or higher = “Fresh.”

But despite the seemingly random process, Rotten Tomatoes scores are influential: ⅓ of Americans look at Rotten Tomatoes, and 63% of those people have decided not to watch something due to Rotten Tomatoes scores.

And Rotten Tomatoes got big almost by accident

The company was founded in 1998 by a bunch of grad-school students who wanted to rank Jackie Chan movies. 

But after becoming popular over the course of a decade, the site got sucked into an acquisition roller coaster:

  • In 2010 — Rotten Tomatoes bought by Flixster
  • In 2011 — Flixster bought by Warner Bros.
  • In 2016 — Rotten Tomatoes sold to Fandango (owned by Comcast NBCUniversal)

Then, under Comcast NBCUniversal ownership, Rotten Tomatoes partnered with huge movie-distributing platforms, including Google, Apple, and DirecTV — which helped make the Tomatometer score a nearly universal (and very subjective) indicator of whether a movie sucks.

» Certified Fresh

2019 was a big year for real estate investing

And Fundrise, our fav real estate investing platform, was extra busy. Last year, they… 

  • Reached over $4.7B in total property value
  • Acquired 75+ new assets
  • Launched their new iOS mobile app

Fundrise loaded up the office trophy cabinet, too…

They snagged a spot on Forbes’ Fintech 50 list for the 4th straight year, and were recognized by Deloitte Fast Tech 500 and Inc 5000 as one of the fastest growing companies in America.

And they’re just getting started, folks.

Kick 2020 off right by investing with Fundrise — they offer a smart, simple, and award-winning way to get into the real estate game

Let’s get to it →

FINE-ISH PRINT: If legal terms and disclaimers are your jam, call this Fundrise page jelly.

Can a snack-slinging startup deliver big profits? SoftBank hopes so

A snack delivery startup called goPuff received $750m in investment from SoftBank this past summer, The Information reports

Now, goPuff has to figure out if it can continue delivering growth despite heavy competition from competitors like DoorDash and Grubhub.

GoPuff started out catering to college kids

When it was founded in Philadelphia in 2013, goPuff focused on convenience items popular among college-aged consumers, and today its most popular items are still Doritos, Gushers, Gatorade, Flamin’ Hot Cheetos, and Juul pods.

Unlike other delivery companies like DoorDash, which send gig workers back-and-forth between food-sellers and customers, goPuff pays drivers to deliver all its orders from its own warehouses. 

But now goPuff will have to focus on expanding behind the munchies market…

And there are a lot of hungry players in the delivery biz

GoPuff will have to carve out its piece of the pie in an incredibly competitive market — something that has proven difficult for other SoftBank-funded startups in crowded markets like Brandless (ecommerce), Wag (dog-walking), or Compass (real estate).

These are the biggest companies in the industry by market share:

  • DoorDash: 33%
  • Grubhub: 32%
  • Uber Eats: 19%
  • Postmates: 10% 
  • All others: 6%
» goPuff or goPass?
The Hustle says…

How do I stay hydrated enough to write all the ads, you might wonder? With this 30oz Yeti mug. I fill it with water, I drink the water, I am the water. 

That Verge exposé on Away’s company culture was crazy. It also reminded us how important customer support teams are to eCommerce brands. Lucky for you, Aircall created this guide to help you build yours the right way.*

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*This is a sponsored post.

You can straighten your teeth yourself. But what if it doesn’t leave you smiling?

When it comes to beautifying crooked teeth, SmileDirectClub encourages its customers to open wide.

But when it comes to consumer complaints, the purple-hued company apparently wants people to shut up instead, The New York Times reports.

Even in the crowded — and growing — world of startups focused on health, SDC’s efforts to silence potential critics are unusual.

How SDC came to dominate its market

The company grew after it plastered the airwaves and social media with ads and saw a surge in patients. It rode the wave to an IPO in September, but the offering turned out to be one of the year’s most unsuccessful.

SDC says its service is more convenient for people who don’t have time for multiple trips to the dentist — not to mention more affordable. 

But some experts are worried that companies like it flourish inside a broken system, where mainstream care is out of reach for too many people.

Scrutiny of SDC’s practices is growing

Kaiser Health News reported that SmileDirectClub is facing a tide of lawsuits and consumer complaints. 1,600+ have been filed nationally with the Better Business Bureau in the last few years alone.

The company told the Times that the vast majority of those complaints were related to shipping concerns, with 3% covering clinical issues.

» Don’t say ahhh

The Athletic receives new funding and a $500m valuation 

Alex Mather, co-founder of the subscription sports site The Athletic, infamously told The New York Times that his company planned to “suck (newspapers) dry.” Turns out, The Athletic is operating in an almost entirely different universe than traditional media companies. 

The company just landed $50m in Series D funding, Axios reports, bringing its total investment haul to ~$140m. The 4-year-old company is valued at $500m. For comparison: The Washington Post sold to Jeff Bezos for $250m in 2013.

Mather recently talked to us about how he built The Athletic and his future plans for the site. 

From a text file to reality

Mather still has a text-editor file saved from August 18, 2011, in which he jotted down a few thoughts on the state of sports media. Among his musings:

  • Local newspapers were laying off expert reporters because of financial issues
  • And the smart, flavorful coverage he enjoyed by Bill Simmons and his (now-defunct) Grantland site was focused on major national stories

“My local teams weren’t covered,” says Mather, who is from the Philly area. “I thought there was a big company to build.”    

More than 8 years later, this is how that company looks

  • Nearly 1m subscribers who pay ~$60 a year
  • An 80% retention rate for subscribers, most of whom come to the site via word-of-mouth
  • A model where ~90% of total spending has gone to hiring 550 journalists

Other online news sites have received similarly flush valuations (VICE at $5.7B, BuzzFeed at $1.7B) before losing favor — and big money. But The Athletic investor Eric Stromberg said he expects the site to be profitable next year because of low consumer acquisition costs.

Want more insights on The Athletic’s rise? Read our full Trends profile.

» The Athletic is now valued at $500m

🎧 From $5k and a $300 laptop to a 7 figure exit with Amazon FBA!

Ever think your side-hustle could become a million-dollar company?

Paul Anderson did. Today on My First Million, we sit down with Paul who quit his 9-to-5 to focus on his Amazon FBA and how his passion became a full-blown multi-million dollar company. Side hustles, getting ‘em out there, increasing your profits, credit lines and more this week!

Listen to the episode now: Apple / Spotify / Google Play

Startup Tip #316

“The higher you fly, the harder you pivot.”
Alex Eklund headshot Alex “Series A” Eklund
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