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Sundae snags $36M to build out its distressed property marketplace

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Opendoor has opened the door, so to speak, for startups to apply their technical expertise in search, marketplaces and audience segmentation to rethink the very antiquated and analogue world of property. Today, a startup that is doing this in the specific area of distressed property is announcing a round of growth funding to ramp up its team and expand its business.

Sundae — which has built a marketplace for homeowners to list and sell dated or damaged homes, or homes that they may need to shift faster for financial reasons; for property investors/developers seeking to buy, fix up and then sell or rent out those properties; and for itself potentially to buy in a property and do the same — is today announcing that it has raised a Series B of $36 million.

The funding is being led by QED Investors; Founders Fund, Susa Ventures, Navitas Capital, and Prudence Holdings also participated. All are previous investors from the startup’s last round, a $16.55 million Series A also led by QED.

In an interview, CEO and co-founder Josh Stech, who describes the business he is in as the “homes that need love segment”, declined to talk about the company’s valuation, and he also declined to give specifics on a number of other points: Sundae is not disclosing how many homeowners and developers have used its service (“thousands”); the average selling price for a property; the number of properties it’s shifted; and how many of those it’s bought it versus sold to a third party (the “vast majority”, more than 50% but less than 100%, are purchased by investors, not Sundae itself, he said).

He did note that in the four markets where the company has gone live since launching its business in January 2019 — San Diego, Los Angeles, the Inland Empire, and Sacramento — has yielded an annualized revenue run rate of over $400 million in gross merchandise value (the total value of home sales transacted on its platform). That also speaks to the vast and interesting quantity of data that the startup is amassing on home sales, and how it can use that to power its platform in the future.

And as another measure of its momentum, that this latest round comes less than six months after its Series A.

With those two funding rounds all equity-based, to buy up property itself and provide $10,000 cash advances to all sellers, Sundae previously also raised a debt fund from high net worth individuals, and it has a “very large” debt facility from Goldman Sachs that it also non-dilutive, Stech said.

The opportunity that Sundae is tackling is one that has been a persistent cornerstone of the housing market, but one that might have become an even more keen factor in the last year.

In the US, there has long been a relentless push, both in newer cities with more room for geographical expansion and older cities where you have legacy buildings that get demolished, a drive for new-build homes. Interestingly, that demand has grown a lot during the pandemic, with demand for new homes as much as four times higher than demand for buying “existing” homes.

But at the same time, there has been a quickly dwindling supply of any housing stock, going down to as low as one month in terms of sales pace. As Stech puts it, that means that “In 30 days, if no homes get listed, there are no homes for sale.” That subsequently has put more of an emphasis on the sale of older homes to meet demand.

The issue with distressed property is that typically these days, people are not as interested in buying fixer-uppers as they may have been in the past. Those selling property want to present ready-to-inhabit homes for a quicker turnaround and to lower the barrier to sales. This means that usually distressed homes, where the owner either doesn’t want to or can’t make improvements before listing, are rejected for sale.

That’s presented an opportunity for developers (or as they are more commonly called in the US, property investors) who buy up those properties and put in the work themselves to make them more sales-friendly. They operate on the principle of five F’s: “find, finance, fix, fill or flip” as Stech puts it.

Sundae basically removes the friction both for the homeowners and the developers: those who want to sell their homes only have to deal with one entity, Sundae itself, which comes in to photograph (using Matterport) the property, provide some guidance on how to sell it and at what price, offer an advance on the sale in case the owner needs the money even faster, and ultimately bring in a number of interested prospects, including itself.

Those who are looking for investment properties can use the service to widen the funnel of homes that they can discover, buy and work on.

Stech said he had a brainwave about the opportunity when he finished graduate school at Stanford and moved to Las Vegas, which at the time was at the epicenter of the housing market crash of 2009. He bought a one-bedroom condo that sold for $267,000 in 2007 for $19,000 in cash and realized that the market was ripe for the taking.

It was a brainwave that came in part because of his experience. Stech has spent his whole professional life in property. Before Sundae, he and co-founder Andrew Swain were executives at LendingHome, providing loans to property investors; and before that Stech built a property business in Vegas.

There is admittedly something a little unsettling about any kind of business that focuses on distress: the implication is that those building services for people who are in difficult circumstances can take advantage of them and essentially operate in a predatory way.

Stech said that his intention is in fact to prevent that very situation, by creating a more transparent process where sellers are given the option of considering offers from multiple developers rather than just one that is not going to be operating with the seller’s interests in mind, but his own.

“It’s shameful what property developers have become,” Stech said. “The idea has become glamorized, and they make a ridiculous amount of money. Everyone forgets who lost in the process: the homeowner who is probably being forced to sell.”

That’s not to say that selling on a marketplace will remove that self-interest but it creates the option for more balanced dynamics where a seller might at least have more competition to consider. If especially tight markets like London’s are any example, in the best case scenarios sellers sitting in a property might even make an excellent turnaround on their homes, compared to the sums they initially paid to buy them, even if the home might still need a lot of “love” to become habitable by gentrified comparisons.

All of this is especially interesting in light of the bigger forces at play, which have brought us all closer to staying put in one place more than being nomadic, heightening the bigger urge to buy property rather than rent if we can manage it financially.

“The concept of homeownership is fundamentally changing. This is particularly true given COVID-19 which has caused more uncertainty and forced people to rethink their real estate decisions. Homeowners are looking for solutions that make the selling process more efficient, transparent, and reliable, particularly for the distressed property segment,” said Frank Rotman, founding partner at QED Investors, in a statement. “Sundae’s rapid growth is a testament to their differentiated offering and the trusted brand they’ve created through a customer-centric approach to the market.”

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Nigerian founders-turn-investors are now running syndicate funds

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The Future Africa Fund kicked off in 2015 when Iyinoluwa Aboyeji and Nadayar Enegesi, co-founders of US-based and African-focused talent company Andela, wrote checks to African startups as angel investors. This continued even as Aboyeji joined and left Flutterwave, the fintech company he co-founded.

In January 2020, the pair made the fund official, with Aboyeji as general partner and Enegesi as limited partner. Simultaneously, they announced that the fund had invested $1.5 million across 19 African companies.

The idea for a syndicate fund would come in the following months as the pandemic disrupted investment activities worldwide.

In the past year, syndicates have been emerging as a key force for investing — and for startups seeking capital to get going — on the continent. This is because most of the capital in Africa for promising startups is typically distributed among many investors. Syndicates are now emerging as one way of bringing the long tail together for more equity firepower.

During the onset of the pandemic, Aboyeji, via his blog post, said Future Africa Fund was looking to raise institutional investment. However, the whole process proved difficult and the fund wasn’t able to because he was stuck in Nigeria and could not visit London, New York and Washington DC, “where institutional and development finance capital sits.”

But in April, the fund decided to improvise by launching a syndicate arm called the Future Africa Collective.

“There’s a massive early-stage funding gap for African startups. All the data we were looking at pointed to the fact that work needed to be done to bridge that gap,” Aboyeji told TechCrunch. “We simply couldn’t go on the journey alone to fix the gap and decided to build Future Africa Collective to democratize access to African startups. We think of ourselves as pioneers in this field.”

Here, Future Africa acts as the syndicate lead sourcing investments, conducting due diligence, and securing allocations for investors called backers.

It’s a similar model employed by AngelList, the company founded by Indian-American entrepreneur Naval Ravikant and Babak Nivi as a fundraising platform for startups to raise money from angel investors. Over the years, the angel network has based its infrastructure on syndicates — investment vehicles that allow investors, referred to as backers, to co-invest with prominent investors — known as leaders.

Syndicate leads are often experienced angel investors or successful startup founders. They have a wealth of knowledge from playing different roles in the building of a startup ecosystem. On the other hand, backers don’t have much experience investing in startups most times, and for some that do, they will rather allow syndicate leads choose startups to invest in and manage their investments.

On AngelList, there are over 200 active syndicate leads listed with a typical check size ranging from $200,000 to $350,000. Collectively, they have invested more than $2 billion in startups globally.

Adopting syndicate funds for African startups

Like Aboyeji, two other Nigerian tech entrepreneurs — Bosun Tijani and Jason Njoku — have also launched syndicate funds within the past year.

Tijani is the co-founder and CEO of Co-Creation Hub (CcHub), a pan-African innovation hub with offices in Lagos and Nairobi. He is also an angel investor, and via CcHub’s accelerator programme and a partner fund called Growth Capital Fund, Tijani has invested in more than 40 startups.

So why launch a syndicate given the success of the other funds? According to Tijani, the syndicate hopes to solve the challenges that exist with traditionally structured investment vehicles. Here’s what he means.

In 2019, Nigeria accounted for more than 53% of the diaspora remittances to the African continent. Primarily, these remittances are channelled for domestic consumption. Tijani wants the CcHub Syndicate to be an avenue where a percentage of these remittances can come in to deepen the quality of capital available to local entrepreneurs. He believes the syndicate will help Africans in the diaspora who are passionate about nation-building but do not have the capacity to be limited partners in a typical fund structure, to co-invest alongside CcHUB in high growth tech companies across Africa.

“We see the syndicate as a complementary vehicle to our VC fund as it deploys bridge financing to companies with proven traction seeking to raise funds to meet critical milestones ahead of their next funding cycles,” he said.

But before CcHub launched its $500,000 accelerator programme and Aboyeji founded Andela in 2014, Jason Njoku of iROKO had already begun to invest in startups.

Two years after launching the African entertainment company in 2011, Njoku and his co-founder Bastian Gotter launched Spark, a self-described company builder and a $2 million fund. The fund whose LPs were HNIs investing between $100,000 to $500,000 has gone through several iterations to stay alive.

The fund is currently in harvest mode but that hasn’t stopped Njoku from investing personally. His personal portfolio and Spark’s successful exit in Paystack has earned him a reputation that allows him to run some online communities where he charges people for his insights as an angel investor. 

He tells me that Investzilla came into play when a couple of investors wanted to access his deal flow after Paystack’s acquisition.

“I have been advising and referring investors into companies informally for the last few years, so this just formalizes it,” he said. “Investzilla investors wouldn’t consider themselves HNIs but have the ambition to invest $3-10k in several early-stage companies annually. Investzilla is focused on unlocking that opportunity for them.”

In a nutshell, the Future Africa Collective, CcHub Syndicate, and Investzilla want to improve access to financing for African founders. The plan is to reduce venture flight which has become prevalent in the ecosystem in recent times. But how do they work, and what progress have they made so far?

The nitty-gritty details

Typically, leads allow backers to join the syndicate via an application. After vetting and then approving these backers, they gain access to the syndicate’s deal flow and can pick investments on a deal-by-deal basis. Also, they are mandated to pay a one-time fee to join.

For Investzilla, backers pay a membership fee of $500. Thereafter, investors can put between $5,000 to $15,000 checks in more than 10 early-stage companies annually. While there has been no public announcement yet on its launch, Njoku says the syndicate soft-launched with 20 investors in January, and deals are waiting to be completed in the pipeline.

CcHub Syndicate, on the other hand, launched in December 2020. Tijani doesn’t state how much the syndicate’s administration fee costs but says the minimum backers can invest is $5,000.

So far, the syndicate has signed up more than 400 individuals, investing groups and institutional investors. Out of that number, a little above 30 investors have undertaken the syndicate’s KYC (Know Your Customer) process. Last month, it announced that a total of $267,500 had been raised to support three Nigerian startups’ bridge financing rounds.

Meanwhile, the Future Africa Collective charges a membership due of $1000 a year and four times a year; it selects some backers to the syndicate. Each quarter, backers are presented with five startups they can invest in with a minimum of $5,000. In less than a year, Future Africa Collective has grown to over 160 members. Collectively, they have invested over $1 million in 14 startups across Africa.

L-R: Jason Njoku (Investzilla), Iyinoluwa Aboyeji (Future Africa Collective), and Bosun Tijani (CcHub Syndicate)

One important thing to note is that a transaction fee prorated by their check size is charged for every deal a backer makes across all three syndicates.

The three syndicates also charge carry, which is a cut of positive returns generated by the investment. For instance, Future Africa has a 20% carry. If a backer invests $5,000 in the syndicate and the investment returns $20,000, the syndicate would earn $3,000 in carry, leaving the backer with $12,000 profit. Like Future Africa, Investzilla charges a 20% carry, but CcHub Syndicate does 15%.

As to when the return on investments is scheduled to be made, Aboyeji says the Future Africa Collective is designed to return upon secondaries.

“We hold the right to decide when to exit, but if there are any opportunities, we discuss them with the syndicate. Returns are disbursed to the syndicate members who invested in specific startups should there be an exit,” he said.

And the timeline for this across the syndicates is designated around 5 to 10 years.

That said, with Africa’s seed-stage funding gap not closed enough yet, the founders believe that there will be increased participation from more players with varied syndication models

Njoku, who is enthused about more capital being pumped into Africa’s tech ecosystem, says if these syndicates can get more than 200 angels to commit between $3,000 to $10,000 in at least five startups in a year, the continent might start to see more high net worth individuals participate in tech investments

“If we can unlock that, then it would be $2 million to $10 million in early-stage funding annually, which may or may have been attracted in the first place. Like Iyin and Bosun, founders who have created a lot of wealth with African tech feel comfortable and breed confidence. That’s an attractive asset class for executives or HNIs.”

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Recovering from the SolarWinds hack could take 18 months

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Fully recovering from the SolarWinds hack will take the US government from a year to as long as 18 months, according to the head of the agency that is leading Washington’s recovery.

Brandon Wales, the acting director of CISA, the US Cybersecurity and Infrastructure Agency, says that it will be well into 2022 before officials have fully secured the government networks compromised by Russian hackers. The list includes at least nine federal agencies, including the Department of Homeland Security and the State Department. Even fully understanding the extent of the damage will take months.

“I wouldn’t call this simple,” Wales says. “There are two phases for response to this incident. There is the short-term remediation effort, where we look to remove the adversary from the network, shutting down accounts they control, and shutting down entry points the adversary used to access networks. But given the amount of time they were inside these networks—months—strategic recovery will take time.”

“Given the amount of time they were inside these networks… strategic recovery will take time.”

Brandon Wales, CISA

When the hackers have succeeded so thoroughly and for so long, the answer sometimes can be a complete rebuild from scratch. The hackers made a point of undermining trust in targeted networks, stealing identities, and gaining the ability to impersonate or create seemingly legitimate users in order to freely access victims’ Microsoft 365 and Azure accounts. By taking control of trust and identity, the hackers become that much harder to track.

“Most of the agencies going through that level of rebuilding will take in the neighborhood of 12 to 18 months to make sure they’re putting in the appropriate protections,” Wales says. 

The hack on SolarWinds, a US software firm with customers around the world, was first discovered in November 2020. But American intelligence agencies say Russian hackers first infiltrated in 2019. Subsequent investigation has shown that the hackers started using the company’s products to distribute malware by March 2020, and their first successful breach of the US federal government came early in the summer. That’s a long time to go unnoticed—longer than many organizations keep the kind of expensive forensic logs you need to do the level of investigation required to sniff the hackers out.

SolarWinds Orion, the network management product that was targeted, is used in tens of thousands of corporations and government agencies. Over 17,000 organizations downloaded the infected back door. The hackers were extraordinarily stealthy and specific in targeting, which is why it took so long to catch them—and why it’s taking so long to understand their full impact.

The difficulty of uncovering the extent of the damage was summarized by Brad Smith, the president of Microsoft, in a congressional hearing last week. 

“Who knows the entirety of what happened here?” he said. “Right now, the attacker is the only one who knows the entirety of what they did.”

Kevin Mandia, CEO of the security company FireEye, which raised the first alerts about the attack, told Congress that the hackers prioritized stealth above all else.

“Disruption would have been easier than what they did,” he said. “They had focused, disciplined data theft. It’s easier to just delete everything in blunt-force trauma and see what happens. They actually did more work than what it would have taken to go destructive.”

“This has a silver lining”

CISA first heard about a problem when FireEye discovered that it had been hacked and notified the agency. The company regularly works closely with the US government, and although it wasn’t legally obligated to tell anyone about the hack, it quickly shared news of the compromise with sensitive corporate networks.

It was Microsoft that told the US government federal networks had been compromised. The company shared that information with Wales on December 11, he said in an interview. Microsoft observed the hackers breaking into the Microsoft 365 cloud that is used by many government agencies. A day later, FireEye informed CISA of the back door in SolarWinds, a little-known but extremely widespread and powerful tool. 

This signaled that the scale of the hack could be enormous. CISA’s investigators ended up working straight through the holidays to help agencies hunt for the hackers in their networks.

These efforts were made even more complicated because Wales had only just taken over at the agency: days earlier, former director Chris Krebs had been fired by Donald Trump for repeatedly debunking White House disinformation about a stolen election. 

While headlines about the firing of Krebs focused on the immediate impact on election security, Wales had a lot more on his hands. 

The new man in charge at CISA is now faced with what he describes as “the most complex and challenging” hacking incident the agency has come up against.

The hack will almost certainly accelerate the already apparent rise of CISA by increasing its funding, authority, and support. 

CISA was recently given the legal authority to persistently hunt for cyber threats across the federal government, but Wales says the agency lacks the resources and personnel to carry out that mission. He argues that CISA also needs to be able to deploy and manage endpoint detection systems on computers throughout the federal government in order to detect malicious behavior. Finally, pointing to the fact that the hackers moved freely throughout the Microsoft 365 cloud, Wales says CISA needs to push for more visibility into the cloud environment in order to detect cyber espionage in the future.

In the last year, supporters of CISA have been pushing for it to become the nation’s lead cybersecurity agency. An unprecedented cybersecurity disaster could prove to be the catalyst it needs.

“This has a silver lining,” said Mark Montgomery, who served as executive director of the Cyberspace Solarium Commission, in a phone call. “This is among the most significant malicious cyber acts ever conducted against the US government. The story will continue to get worse for several months as more understanding of what happened is revealed. That will help focus the incoming administration on this issue. They have a lot of priorities, so it would be easy for cyber to get lost in the clutter. That’s not going to happen now.”

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TikTok calls in outside help with content moderation in Europe

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TikTok is bringing in external experts in Europe in fields such as child safety, young people’s mental health and extremism to form a Safety Advisory Council to help it with content moderation in the region.

The move, announced today, follows an emergency intervention by Italy’s data protection authority in January — which ordered TikTok to block users it cannot age verify after the death of a girl who was reported by local media to have died of asphyxiation as a result of participating in a black out challenge on the video sharing platform.

The social media platform has also been targeted by a series of coordinated complaints by EU consumer protection agencies, which put out two reports last month detailing a number of alleged breaches of the bloc’s consumer protection and privacy rules — including child safety-specific concerns.

“We are always reviewing our existing features and policies, and innovating to take bold new measures to prioritise safety,” TikTok writes today, putting a positive spin on needing to improve safety on its platform in the region.

“The Council will bring together leaders from academia and civil society from all around Europe. Each member brings a different, fresh perspective on the challenges we face and members will provide subject matter expertise as they advise on our content moderation policies and practices. Not only will they support us in developing forward-looking policies that address the challenges we face today, they will also help us to identify emerging issues that affect TikTok and our community in the future.”

It’s not the first such advisory body TikTok has launched. A year ago it announced a US Safety Advisory Council, after coming under scrutiny from US lawmakers concerned about the spread of election disinformation and wider data security issues, including accusations the Chinese-owned app was engaging in censorship at the behest of the Chinese government.

But the initial appointees to TikTok’s European content moderation advisory body suggest its regional focus is more firmly on child safety/young people’s mental health and extremism and hate speech, reflecting some of the main areas where it’s come under the most scrutiny from European lawmakers, regulators and civil society so far.

TikTok has appointed nine individuals to its European Council (listed here) — initially bringing in external expertise in anti-bullying, youth mental health and digital parenting; online child sexual exploitation/abuse; extremism and deradicalization; anti-bias/discrimination and hate crimes — a cohort it says it will expand as it adds more members to the body (“from more countries and different areas of expertise to support us in the future”).

TikTok is also likely to have an eye on new pan-EU regulation that’s coming down the pipe for platforms operating in the region.

EU lawmakers recently put forward a legislative proposal that aims to dial up accountability for digital service providers over the content they push and monetize. The Digital Services Act, which is currently in draft, going through the bloc’s co-legislative process, will regulate how a wide range of platforms must act to remove explicitly illegal content (such as hate speech and child sexual exploitation).

The Commission’s DSA proposal avoided setting specific rules for platforms to tackle a broader array of harms — such as issues like youth mental health — which, by contrast, the UK is proposing to address in its plan to regulate social media (aka the Online Safety bill). However the planned legislation is intended to drive accountability around digital services in a variety of ways.

For example, it contains provisions that would require larger platforms — a category TikTok would most likely fall into — to provide data to external researchers so they can study the societal impacts of services. It’s not hard to imagine that provision leading to some head-turning (independent) research into the mental health impacts of attention-grabbing services. So the prospect is platforms’ own data could end up translating into negative PR for their services — i.e. if they’re shown to be failing to create a safe environment for users.

Ahead of that oversight regime coming in, platforms have increased incentive to up their outreach to civil society in Europe so they’re in a better position to skate to where the puck is headed.

 

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