Author: Sameer Ahuja

Happy weekend, folks, and welcome back to the TechCrunch Week in Review. Henry here, standing in for a vacationing Kyle Wiggers, who is standing in for a parental-leaving Greg Kumparak. Listen, we’ve got a deep bench, and both blokes will be back very soon. Until then, check out just a few of the top stories from the week.
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Netflix’s password-sharing crackdown: The streaming giant has grown tired of its customers sharing passwords with friends and loved ones around the world. So this week it announced guidelines designed to keep the passwords close to home. Literally inside the walls of the abode of the account holder.
Monetized ChatGPT: OpenAI this week launched a pilot subscription for its text-generating AI. For $20 a month, subscribers can access more than what the base level gets: access to ChatGPT during peak hours, faster response times and priority access to new features and improvements.
Human or AI?: That is the question, and apparently OpenAI wants to help. The company launched a tool that is designed to distinguish between human-written and AI-generated text, but the success rate is only around 26%. OpenAI did say, though, that when used with other methods, it could help prevent AI text generators from being abused.
Bypassing FB 2FA: Meta created a new centralized system so users could manage their logins for Facebook and Instagram, but a bug could have allowed malicious hackers to switch off 2FA just by knowing a user’s phone number. Yikes. A security researcher from Nepal discovered the bug and reported it to Meta Accounts Center last September. And he got paid.
Salesforce layoffs hit: In January, the company announced the imminent reduction of 10% of its workforce. Not everyone was notified at the time, however. This week, hundreds more of the company’s staff found out the fate of their jobs.
“Spill the tea”: Alphonzo “Phonz” Terrell lost his job at Twitter as its global head of Social & Editorial three months ago and promptly got to work on a new app. Called Spill, the app has already attracted a seed round and 60,000 handle reservations. The app is due to launch in alpha during the first quarter of this year.
Google Fi breach: The company said its cell network provider, Google Fi, confirmed a data breach, which, based on the timing of the notice, was likely related to the recent security incident at T-Mobile that allowed hackers to steal millions of customers’ information.
audio roundup
This week out of the TechCrunch Podcast Network, Equity covered the usual slate of venture and startup funding news, and Mary Ann spoke with Hans Tung, investor and managing partner of GGVC, a venture firm with more than $9 billion in assets under management. On Found, Darrell and Becca talked to Rosie Nguyen, a co-founder and the CMO of Fanhouse, about her journey from content creator to founder and how her experience as a creator informs every product decision at Fanhouse.
TechCrunch+
TC+ subscribers get access to in-depth commentary, analysis and surveys — which you know if you’re already a subscriber. If you’re not, consider signing up. I doubt you’ll regret it. Just check out the highlights from this week:
Not quite secondarily: Becca reports on data this week that shows secondary deals are breaking away from the downturned venture market this year.
Open source startups: Paul Sawers examines a report out this week that explores which commercial open source software startups are growing fast and raising cash.
Go team: Ever wonder which slide is the most important slide in a startup’s pitch deck? Why, it’s the team slide and Haje expresses his surprise at just how many startups fail to tell a good story about their teams. And speaking of pitch decks, Haje brings Laoshi’s $570K angel deck breakdown to you.
Dear Sophie: Immigration Sophie Alcorn answers the question, What H-1B and other immigration changes can we expect this year?
Netflix crackdown, monetizing ChatGPT and bypassing FB’s 2FA by Henry Pickavet originally published on TechCrunch

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elcome to the TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily TechCrunch+ column where it gets its name. Want it in your inbox every Saturday? Sign up here.
“It’s not either usage-based or subscription pricing,” VC firm OpenView wrote in its second State of Usage-Based Pricing report. These hybrid approaches call for new tools, but which ones? Let’s explore. — Anna
Complex pricing on the rise
As we learned earlier this week from OpenView’s latest report, usage-based pricing is rising, but not replacing other models. 
Sure, more SaaS companies are billing their customers based on how they are using the service. But this often comes in combination with other pricing approaches, such as tiered subscriptions.
OpenAI’s ChatGPT is the latest example of this hybrid pricing approach. In addition to its free tier, it introduced ChatGPT Plus, a fairly plain subscription model starting at $20 per month. But the company also said it was “actively exploring options for lower-cost plans, business plans, and data packs.” 
Data packs: That would be a form of usage-based pricing, but one that wouldn’t replace subscriptions. Meaning that ChatGPT would join the growing range of complexly priced products.
Does usage-based pricing call for a new growth infrastructure stack? by Anna Heim originally published on TechCrunch

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Five years ago, Google backed away from a Pentagon government contract because thousands of employees protested that its tech might be used for lethal drone targeting. Today, however, Silicon Valley has far fewer qualms about developing tech for the U.S. Department of Defense.
So said four investors — Trae Stephens of Founders Fund, Bilal Zuberi of Lux Capital, Raj Shah of Shield Capital and longtime In-Q-Tel president Steve Bowsher — speaking at a startup event for military veterans today in San Francisco. Said Shah of the shift in attitude that he has observed personally: “The number of companies, founders, and entrepreneurs interested in national security broadly — I’ve never seen it at this level.”
Bowsher argued that the “reluctance of Silicon Valley to work with the [Defense Department] and intel community” was always “overblown,” adding that across his 16 year with In-Q-Tel, which is the CIA’s venture fund, his team has met with roughly 1,000 companies each year and just “five to 10 have turned us down, saying they weren’t interested in working with the customers we represent.”
We’ll have more from the panel in TechCrunch+ but wanted to share parts of our conversation that centered on Things to Consider when selling to the U.S. government, given that founders with commercial customers may be thinking increasingly of trying to sell their products and applications to the U.S. military. (This is particularly true of AI and cybersecurity and automation startups.)
We talked with the investors, for example, about mission creep, meaning how a startup that begins working with the government can ensure it doesn’t wind up spending the bulk of its time catering to it, owing to new requests for this and that.
Here Trae Stephens — who also cofounded Anduril, the maker of autonomous weapons systems that has aggressively courted government agencies from its outset — said that this kind of gradual shift in objectives is “exactly what makes it hard to [cater to commercial customers and the government] at an early stage.”
He said that a “lot of the programs that [enable founders to] do early business with the Department of Defense requires some, like, DoD-ization of your product for that use case.”
Though In-Q-Tel backed Anduril early on (for which Stephens said he is thankful), he offered that many companies that take money from government, including through its Small Business Innovation Research (SBIR) program, “end up building all of these very specific workflow steps that take them away from the commercial businesses needed to make” the business truly work.
Stephens relatedly noted that very few outfits can afford to chase after the military early on as did Anduril, because it “takes so long to get into production with the DoD that you have to be able to raise, basically, an infinite amount of seed dollars; otherwise, the company is going to die.”
Relatedly, we asked how so-called dual-use companies deal with their intellectual property rights once they’ve begun selling to the government. For example, you can imagine a scenario in which a tech helps the NSA identify certain types of people who are making certain types of calls, tech that the government doesn’t want being released to adversaries. Is there a way to sort that out in advance, we wondered?
Here, there was no easy answer other than: get the right help, and do it as fast as possible.
Zuberi recounted one cautionary tale centered around a Lux portfolio company that he said is now a “unicorn” but that had to get over an unwitting entanglement first. Said Zuberi: “I have a company that received a $100,000 [National Science Foundation] grant. Two guys started it in my office. I didn’t think much of it; I thought it was nice to have on their resume. Then they started to do a Series B raise, and one of the [interested] firms does diligence on what other contracts [the team might] have, and there was a clause in that NSF grant that said, ‘Hey, if the government needs [what you’re building], we can use it.’ So we had to wait six months while we negotiated with [someone] at the NSF who didn’t care about it at all to get that right back.”
Zuberi said he “would have paid them double the amount of the grant just to make it go away, but they said ‘No, you can’t do this, we can’t go back.’ So you can run into problems.”
Again, we’ll have more from this discussion soon, including about AI in military applications; we learned a lot — hopefully you will, too.
When the government is the customer (some things to keep in mind) by Connie Loizos originally published on TechCrunch

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Toward the end of 2022, a number of entrepreneurs — some citing Elon Musk — told me they planned to bring back in-person work culture in the following year to help promote productivity and, in some cases, loyalty. One founder even told me over drinks that they weren’t worried about losing talent — claiming that those who leave just because there’s an in-person mandate weren’t truly mission-driven to begin with.
While some founders are clearly set on a return, others are confused. There’s the argument — sometimes coming from venture capitalists desperate to see portfolio companies succeed — that being in-person will help grow productivity and, eventually, the bottom line. And there’s also the counterargument that remote work allows for more inclusive and expansive hiring, which could also help, well, the bottom line.
And if 2023 isn’t the year for the bottom line, I don’t know what else it could be. Kruze Consulting, an accounting firm for startups, mined through over 750 companies’ finances — which includes upward of $300 million in quarterly revenue and over $750 million in quarterly spend. I spoke to Healy Jones, who runs financial planning and analysis for Kruze, about his findings. The results, he thinks, offer some balance to the debate.
Data hints at the value of startup offices by Natasha Mascarenhas originally published on TechCrunch

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Four months after closing its largest fund to date, Kapor Capital wants more. The firm is under new leadership after co-founders Freada and Mitch Kapor stepped back from the outfit, which focuses on funding social impact ventures and founders of color. Now, led by Uriridiakoghene “Ulili” Onovakpuri and Brian Dixon, Kapor Capital is hoping to raise a $50 million opportunity fund, according to an SEC filing.
The opportunity fund, if closed, would continue Kapor Capital’s new strategy of taking capital from outside investors. Up until last year, all of Kapor’s funds were directly from the founding partners; in September, though, the firm closed a $126 million Fund 3 backed by investors including Cambridge Associates, Align Impact, Ford Foundation, Bank of America, PayPal and Twilio.
At the time, Dixon told TechCrunch that turning to external investors helps the firm with access; Kapor is now writing checks between $250,000 and $3 million with a primary focus on participating in pre-seed and seed rounds. Onovakpuri said the larger fund would allow them to invest in more companies with bigger checks.
That said, with presumably a fresh chunk of capital to deploy, why would Kapor be eyeing an opportunity fund? It’s a trend-turned-standard among early-stage venture capital firms that want to get in on later rounds of their star portfolio companies. Last year, Khosla debuted an opportunity fund and last week, Cowboy raised its first of the kind as well.
Kapor Capital did not immediately return a request for comment.

Kapor Capital’s new leaders share which LPs are taking the firm ‘to a whole new level’

Kapor Capital’s new crew is raising an opportunity fund by Natasha Mascarenhas originally published on TechCrunch

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Mentions of the “metaverse” were relatively few and far between in Meta’s quarterly earnings call this week — we counted a mere seven mentions compared to 23 for “AI” — but the company’s investment into its vision of a VR-connected social future remains colossal.
Starting in 2021, Meta began breaking out its Reality Labs VR and AR division into its own segment for financial reporting purposes. That makes it possible to see just how much Meta is pouring into those areas, and the numbers are staggering.
Meta reported $13.7 billion in operating losses for Reality Labs for 2022, more than the already jaw-dropping $10.2 billion it sunk into the division in 2021. Reality Labs brought in $2.16 billion last year in revenue, a drop from $2.27 billion in 2021.
For scope, remember that Meta bought Oculus — the pioneering VR hardware company that formed a groundwork for its efforts — for $2 billion back in 2014. The company’s investment in the area has only escalated, with the company picking up a number of major software companies including Beat Saber’s creator and now Within, developer of the virtual workout app Supernatural.
Meta hasn’t disclosed its headcount numbers for Reality Labs, but the company reportedly had 17,000 employees in the division prior to layoffs late last year. Staffing and hardware development account for the lion’s share of the cash it’s spent in the area.
Meta CFO Susan Li said that the company expects its annual losses for Reality Labs to be even higher in 2023. “…We’re going to continue to invest meaningfully in this area given the significant long-term opportunities that we see,” Li said, calling its AR, VR and metaverse software efforts “a long-duration investment.”
Meta plans to launch a next-generation consumer headset later in 2023, like a revamped version of its Quest hardware featuring mixed reality. Apple, one of the only consumer-focused companies poised to compete with Meta in the sector, is widely expected to launch a new AR/VR headset soon.
In this week’s earnings call, Meta CEO Mark Zuckerberg emphasized the fact that Reality Labs encompasses AR, VR and metaverse-related software (Horizon Worlds, etc.) at the company. “I think the software and social platform might be the most critical part of what we’re doing, but software is just a lot less capital intensive to build than the hardware,” Zuckerberg said.
Meta may publicly de-emphasize its metaverse efforts to please skeptical investors, but the company appears ready to the stay the course on VR and AR.
“… None of the signals that I’ve seen so far suggests that we should shift the Reality Labs strategy long term,” Zuckerberg said. “We are constantly adjusting the specifics of how we execute this, so I think that we’ll certainly look at that as part of the ongoing efficiency work.”

Meta stock perks up as the company promises a ‘year of efficiency’

Meta’s Reality Labs lost $13.7 billion on VR and AR last year by Taylor Hatmaker originally published on TechCrunch

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Rebellyous, a startup that’s striving to build “a better chicken,” has raised at least $20 million in fresh funding, TechCrunch has learned.
Based in Seattle, the venture-backed company calls its production tech the “most advanced plant-based meat manufacturing system on the planet.”
Rebellyous aims to raise as much as $30.7 million in total, according to a public regulatory filing with the Securities and Exchange Commission. The report names previously announced backers YB Choi of Cercano Management, angel investor Owen Gunden and Mike Miller of Liquid 2 Ventures among its directors. The filing indicates that at least 55 undisclosed investors chipped in on the latest round, but as usual the SEC disclosure leaves us wanting more.
Reached for comment on the fundraise, Rebellyous chief of staff Tina Meredith declined to share details on the startup’s plan for the money. Still, the company’s website lays out efforts to build “the next-gen meat machine,” dubbed Mock Two. Rebellyous calls its tech an alternative to factory farming, which it bluntly and justifiably describes as “fucking disgusting.”
The filing comes as some of the most prominent names in faux meat struggle to realize their overarching vision of disrupting big meat (which is more popular than ever in the U.S., per somewhat dated reports).
Impossible Foods could soon lay off 20% of its staff, according to a January 30 Bloomberg report. Likewise, Beyond Meat announced it would lay off 19% of its staff in October amid reportedly weak sales. For early-stage startups such as Rebellyous, all eyes will be on profitability, differentiation and, as always, cost. 
Plant-based foods investor says her focus is more on teams than tastePlant-based Rebellyous is raising millions to ‘rethink the nugget’ by Harri Weber originally published on TechCrunch

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Elon Musk was found not liable in a class-action securities fraud trial that centered on the Tesla CEO’s now infamous “funding secured” tweet.
After less than 90 minutes of deliberation, a jury announced the verdict in the trial that kicked off three weeks ago in San Francisco. The outcome of the trial sent Tesla shares up about 1.5% in after-hours trading to $189.98.
Musk tweeted Friday following the jury’s verdict: “Thank goodness, the wisdom of the people has prevailed! I am deeply appreciative of the jury’s unanimous finding of innocence in the Tesla 420 take-private case.”
The central question in the lawsuit was whether Musk was liable for losses suffered by shareholders after he posted in August 2018 several messages on Twitter that he had secured funding to take Tesla private. Musk initially tweeted “Am considering taking Tesla private at $420. Funding secured.” Another pair of tweets soon followed: “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote” and then another stating that he doesn’t have a controlling vote now and “wouldn’t expect any shareholder to have one if we go private.”
Plaintiffs’ attorneys representing investors argued that these shareholders suffered financially as a result. Musk, Tesla and its board, faced billions of dollars in damages.
The trial was not to determine whether those tweets were true. That question had already been answered. Edward M. Chen, the federal judge overseeing the case, ruled that the tweets were untrue and Musk was reckless for posting them.
The three-week trial was largely a tug-of-war over language and intent.
Attorney Nicholas Porritt, who made closing arguments for the plaintiffs, argued that when Musk posted the tweets the company was nowhere near reaching a deal to go private, citing emails and texts to prove there was not an agreement or even a framework to reach one.
“To Elon Musk, if he believes it even just thinks about it, then it’s true no matter how objectively false or exaggerated it may be,” Porritt said. “That may work in his businesses. That’s not an issue for this trial. But it does not work in securities markets or public companies. Securities markets have rules governing what you can and cannot say. And one of those basic rules is that what you say must be true and accurate.”
Alex Spiro, who represented Musk, countered, stating throughout his closing arguments that funding was not the issue at all and Musk knew he could attain it if needed. Instead, Spiro pointed to a blog post several weeks after Musk’s tweets explaining that Musk would not take Tesla private because existing shareholders believed it was better off as a publicly traded company.
While Musk avoided a hefty bill in damages, the funding secured tweet has cost him.
The U.S. Securities and Exchange Commission filed a complaint in September 2018 alleging Musk lied when he tweeted that he had “funding secured” for a private takeover of the company at $420 per share. The complaint was filed after Musk and Tesla’s board abruptly walked away from an agreement with the SEC. The board not only pulled out of the agreement, it issued a bold statement of support for Musk after the charges were filed.
A settlement was eventually reached anyway, albeit with stiffer penalties than the original agreement. Musk agreed, in the settlement reached on September 29, to step down as chairman of Tesla and pay a $20 million fine. Tesla agreed to pay a separate $20 million penalty.
Elon Musk, Tesla found not liable in ‘funding secured’ tweet lawsuit by Kirsten Korosec originally published on TechCrunch

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A group of 40 YouTube Music workers went on strike Friday. Employed by Alphabet subcontractor Cognizant, the striking workers allege that both companies’ management have leveraged unfair labor practices to get in the way of their union drive.
“Right now, the vast majority of our department is ready to vote yes in a [National Labor Relations Board (NLRB)] election,” said YouTube Music generalist Sam Regan at a strike in Austin, Texas, viewed via Facebook livestream. “In an act of retaliation against our organizing efforts, our employer is forcing an end to remote work before the vote, which would dramatically interfere with the fair voting conditions mandated by federal law.”
YouTube Music’s content operations team is expected to return to the Austin office on Monday. But according to the Alphabet Workers Union (AWU), the majority of workers were hired remotely, and almost one quarter are not even based in Texas. Cognizant said that these jobs were always intended to return to office.
“Workers are paid as little as $19 dollars an hour and thus, cannot afford the relocation, travel or childcare costs associated with in person work,” the AWU said in a press release.
On January 23, the AWU — affiliated with the Communications Workers of America — filed an unfair labor practice charge with the NLRB. Per national law, it is illegal for employers to interfere with employee organizing, or retaliate against workers for participating in organizing efforts.
“Cognizant respects the right of our associates to disagree with our policies, and to protest them lawfully,” the company wrote in an emailed statement. “However, it is disappointing that some of our associates have chosen to strike over a return to office policy that has been communicated to them repeatedly since December 2021. Associates working on this project accepted their employment with the understanding that they were accepting in-office positions, and that the team would work together at a physical location based in Austin.”
Two weeks ago, the company laid off 12,000 people, or 6% of its global workforce — despite this reduction in headcount, on Thursday, Alphabet announced in its quarterly earnings report that it made $13.6 billion in profit. As Alphabet delivered its results, about 50 employees protested the recent layoffs outside a nearby Google store.
Another set of Google workers, a group of “search raters” — who train, test and evaluate search algorithms — held an action at Google headquarters on February 1. Alphabet has stated that all members of its extended workforce in the U.S. should be paid $15 per hour or more, plus other benefits like healthcare, tax free tuition reimbursement and employee assistance programs. But search raters say they “earn poverty wages, with no benefits.” The group delivered a petition to senior vice president Prabhakar Raghavan at Google’s Mountain View, California headquarters, calling on leadership to include these workers in Alphabet’s extended workforce.
Google did not respond to request for comment.
Update, 2/4/23, 9:45 AM ET with comment from Cognizant.

Google parent Alphabet cuts 6% of its workforce, impacting 12,000 people

YouTube Music contractors strike over alleged unfair labor practices by Amanda Silberling originally published on TechCrunch

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