Why did a VC giant just walk away from $21m?


March 11, 2020

Today, many entrepreneurs get ideas off the ground with VC cash. But old-school innovators didn’t have SoftBank. The Wright Brothers developed the airplane with profits from their bike shop; Samuel Morse and Alexander Graham Bell created the telegraph and telephone using cash borrowed from parents of kids they tutored; and Charles Goodyear invented vulcanized rubber with cash he scrounged up selling his kids’ school books [h/t Jason Crawford’s Roots of Progress]. Today: 

  • A big VC accidentally gives $21m away
  • A niche product to fight face-touching had a big day
  • Self-heating coffee cans may finally be here to stay

Editor’s note: In yesterday’s item about the crazy items you can buy at Costco, we goofed. A private aviation membership is listed for ~$17k, not $3.5k. The membership comes with $3.5k of Costco shop cards.

Free Money

A VC heavyweight just walked away from a $21m investment. Huh?

It seems like the kind of pickle that might only happen in Startupland.

One of the biggest names in venture capital pours $21m into a buzzy payments startup. Then it realizes 1 of the other major companies in its portfolio… is also a buzzy payments startup. Danger, Will Robinson!

What do you do? If you’re Sequoia Capital, you say: Finix, keep the (giant chunk of) change.

It’s a curious case of a confounding conflict of interest…

… and TechCrunch got the scoop. A brief recap:

  • Finix, a payments-infrastructure company, raised $35m in a Series B round this winter. Sequoia Capital led the way with $21m.
  • On Monday, Finix said Sequoia informed them of a “conflict of interest” because of Sequoia’s investment in Stripe, a competing payments startup.
  • Sequoia’s solution: It told Finix to keep the $21m. Finix flipped it into $10m in new investment money, and added Penny Pritzker, a former US Secretary of Commerce and Inspired Capital partner, to its board.

TechCrunch said Sequoia had never backed out of an announced deal in its nearly 5-decade history.

Soooo… Why the heck did this deal fall apart?

It’s hard to know for sure, but people have theories. Business Insider said the competition between Stripe and Finix was heating up. VC Starter Kit laid out a few possibilities:

  • Maybe Sequoia didn’t want to inflame that competition — or get a rep for double-dealing.
  • Maybe Stripe’s deal with Sequoia had a “no competing investments” clause.

Also: How much does $21m even matter? The windfall was a big deal to Finix, obviously, but to major investors, does it just feel like a Venmo payment?

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Entrepreneurship for Good

What happens when you make a product for a tiny niche — and then everyone wants it?

We’re about to find out, thanks to a startup called Slightly Robot.

The startup’s sole product — until last week — was a hand-tracking bracelet designed specifically to help people struggling with trichotillomania (compulsive hair-pulling), dermatillomania (compulsive skin-picking), and onychophagia (compulsive nail-biting).

The bracelet, which works by buzzing when its wearer moves their hand somewhere it shouldn’t go, is typically sold to a specific medical audience.

Then everyone said stop touching your face

Health agencies worldwide say keeping your hands away from your mug can help prevent the spread of COVID-19, the disease caused by the new coronavirus.

But it’s kinda hard to avoid face-touching… so Slightly Robot’s product was suddenly relevant in a new context.

Time for a REBRAND

The company relaunched its existing bracelets under a new name (“Immutouch”) and began selling them on a separate site featuring warnings from the World Health Organization, the CDC, and Harvard Medical School.

Slightly Robot’s founders told TechCrunch they’re “not looking to make money” here — and indeed they cut the bracelets’ price to sell them near cost (Slightly Robot’s original bracelets are $114; Immutouch bracelets — which work the exact same way — are $49.99).

The rapid response offers a case study in how startups can reinvent themselves by quickly adjusting to changing market conditions and trying to solve new problems as they arise.

As of yesterday, Immutouch bracelets were on backorder “due to an overwhelming response.”

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Sponsored

⚰️ R.I.P. The Khaki (1846-2020) ⚰️

We here at The Hustle are saddened (ok, not really) to report the passing of the traditional khaki.  

First worn in 1846 by the British Indian Army and kept alive almost entirely by Jake from State Farm, khakis had a long, uncomfortable, and poorly-fitting tenure draped over legs of middle-management everywhere. 

We’d say we’re upset to see them go, but they were dead to us the second we slipped on a pair of Revtown’s Khaki Jeans.

The Swiss Army knife of your wardrobe

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  • A modern fit replaces that baggy circus-clown styling.  
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  • It’s all topped off with killer color options like Bunker Green and Slate Blue.

Sharp enough for the office, comfy enough for happy hour, and durable enough to withstand an impromptu hike — yes, the Revtown Khaki Jean truly does it all. 

Get yours over at Revtown and wave “sayonara” to Jake from State Farm. 

Buy yours →
Spilled Guts, Spilled Data

Researchers say a security flaw meant your Whispers weren’t as secret as you might’ve thought

The internet loves a secret.

Frank Warren got famous for giving secret-keepers worldwide a chance to spill their guts in the mail. Campus confessional sites were once an entire internet genre. An app called Whisper put the confessional on your phone.

But what if they were careless whispers?

According to The Washington Post, researchers found a Whisper database on the open web. It left confessions exposed — and tied to details like users’ ages and locations.

The trove was huuuge: It gave access to ~900m records, dating back to the app’s release in 2012. A sample: “My son was conceived at a time when I cheated on his father… I just hope he will never find out.”

When asked about the findings, Whisper’s parent company, MediaLab, disputed them — and borrowed a favorite argument of app developers everywhere.

That’s a feature, not a bug!

A MediaLab VP said the detailed posts represented “a consumer facing feature of the application which users can choose to share or not share.”

But the researchers said bulk access isn’t exactly what the confessors bargained for. Access to the data was removed after it was brought to light.

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The Hustle Says

SXSW May be canceled, but we’re not. The Hustle is hosting Tequila & Tacos featuring Claudio Reyna, Sporting Director for Austin FC, next Tuesday, March 17. Click here to RSVP.

“Sure, I shop online 25-30 times a week, but I always use Honey to automatically apply every discount available before buying. Because life is all about finding the best sale.” – Cayla, The Hustle’s R.O.S. (Resident Online Shopper)* 

BounceX (soon to be Wunderkind) announced their “upbrand” the only way they know how — with a dancing flash mob. Check out the vid from one of the fastest-growing SaaS companies around, then start practicing your own moves.*

*This is a sponsored post.

Hot Stuff

La Colombe wants to crack open the market for self-heating coffee cans

Don’t be alarmed if the Wegmans superfans in your life start bragging about how hot their coffee is.

The Philadelphia-based chain La Colombe is brewing up a storm with a new line of self-heating coffee cans, which it plans to take to Wegmans. 

The cans are seemingly simple devices: With 1 twist and 2 minutes of time, the coffee inside spikes to 130 F. But the underlying technology is more retro — and more complicated — than you might think.

Self-heating cans have a bitter history

Turns out, the original Thermos enthusiasts were czarist Russians. In 1897, the engineer Yevgeny Fedorov introduced devices for heating meat stews, but self-heated cans didn’t catch sparks until World War II. 

During the Battle of Normandy, the US military slipped self-heated soup mugs into ration packs for its soldiers. Those mugs, however, had an unfortunate propensity for spontaneous combustion.

Caution: Coffee may be lukewarm

Since then, many of the biggest names in coffee have tried and failed to break the seal on the self-heating market. 

In the early 2000s, Nestlé UK experimented with its own product, called Hot When You Want. But the coffee underwhelmed in cold weather — inspiring customers to nickname it “warm when you want.”

That hasn’t stopped a handful of startups — like the 42 Degrees Company and HeatGen — from betting that they can beat the self-heating curse. 

But they might once again get the cold shoulder: As any market analyst can tell you, young coffee guzzlers have the hots for iced coffee right now.

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Snippets

🎽 Outdoor Voices was on a path to upend the athletic-apparel market. Then everything fell apart.

💻 A bunch of popular VPN and ad-blocking apps have been secretly harvesting user data.

😐 How does it feel when Google Maps loses track of your address? Like an endless journey full of wrong turns.

🌶 From Doritos Flamin’ Hot Limón to piquant pickle beer, spicy and sour is the latest flavor sensation.

🔑 These are the 10 items people leave behind in Ubers most often.

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Nick “Chump Change” DeSantis

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Les Moody

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