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Will the Clubhouse model work in China?

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On Friday just past midnight, I stumbled across a Clubhouse room hosted by a well-known figure in the Chinese startup community, Feng Dahui. At half-past midnight, the room still had nearly 500 listeners, many of whom were engineers, product managers, and entrepreneurs from China.

The discussion centered around whether Clubhouse, an app that lets people join pop-up voice chats in virtual rooms, will succeed in China. That’s a question I have been asking myself in recent weeks. Given the current hype swirling in Silicon Valley about the audio social network, it’s unsurprising to see well-informed, tech-savvy Chinese users start flocking to the platform. Demand for invitations in China runs high, with people paying as much as $100 to buy one from scalpers.

Many users I talked to believe the app won’t reach its full potential or even just find product-market fit in China before it gets banned. Indeed, a handful of well-attended Chinese-language rooms touch on topics that are normally censored in China, from crypto trading to protests in Hong Kong.

If it’s of any consolation, Clubhouse clones and derivatives are already in the making in China. A Chinese entrepreneur and blogger who goes by the nickname Herock told me he is aware of at least “dozens of local teams” that are working on something similar. Moreover, voice-based networking has been around in China for years, albeit in different forms. If Clubhouse is blocked, will any of its alternatives go on to succeed?

Information control

A direct Clubhouse clone probably won’t work in China.

A few factors dim its prospects in the country, which has nearly one billion internet users. The major appeal of Clubhouse is the organic flow of conversations in real time. But “how could the Chinese government allow free-flowing discussions to happen and spread without control,” a founder of a Chinese audio app rhetorically asked, declining to be named for this story. Video live streaming in China, for example, is under close regulatory oversight limiting who can speak and what they can say.

The founder then cited a famous online protest back in 2011. Thousands of small vendors launched a cyber attack on Alibaba’s online mall over a proposed fee hike. The tool they used to coordinate with one another was YY, which started out as a voice-based chatting software for gamers and later became known for video live streaming.

“The authorities dread the power of real-time audio communication,” the founder added.

There are signs that Clubhouse may already be the target of censorship. While Clubhouse works perfectly in China without the need for a virtual private network (VPN) or other censorship-circumvention tools (at least for the moment), the iOS-exclusive app is unavailable on China’s App Store. Clubhouse was removed there shortly after its global release in late September, app analytics firm Sensor Tower said.

Currently, in order to install Clubhouse, Chinese users need to install the app by switching to an App Store located in another country, which further limits the product’s reach to users who have the means of using a non-local store.

It’s unclear whether Apple preemptively delisted Clubhouse in anticipation of government action, given that any later removal of a major foreign app in China could stir up accusations of censorship. Alternatively, Clubhouse might have voluntarily pulled the app itself knowing that any form of real-time broadcasting won’t go unchecked by Chinese regulators, which would inevitably compromise user experience.

Entering China could be way down on Clubhouse’s to-do list given the traction it is gaining elsewhere. The app has seen about 3.6 million worldwide installs so far, according to Sensor Tower estimates. The majority of its lifetime installs originate in the United States, where the app has seen nearly 2 million first-time downloads, followed by Japan and Germany both with over 400,000 downloads.

Clubhouse elites

Clubhouse room hosted by Feng Dahui, a respected figure in China’s startup world. (Screenshot by TechCrunch)

The improbability of uncensored and open discussions on the Chinese internet may explain why the market hasn’t seen its own Clubhouse. But even if an app like Clubhouse is allowed to exist in China, it may not reach the same massive scale across the country as Douyin (TikTok’s Chinese version) and WeChat did.

The app is “elitist,” sort of like a voice version of Twitter, said Marco Lai, CEO and founder of Lizhi, a NASDAQ-listed Chinese audio platform. So far, Clubhouse’s invite-only model has confined its American user base largely to the tech, arts and celebrity circles. Herock observed that its Chinese demographics mirror the trend, with users concentrated in fields like finance, startup and product management, as well as crypto traders.

Even among these users though, there is the question of free time. The other night, I was up at midnight eavesdropping on a group of ByteDance employees. In fact, I’ve mostly been on Clubhouse in the late evenings after work, because that’s when user activity in China appears to peak. “Who in China has that much time?” said Zhou Lingyu, founder of Rainmaker, a Chinese networking community for professionals, when I asked whether she thinks Clubhouse will attract the masses in China.

While her remark may not apply to everyone, the tech-centric, educated crowds in China — the demographic that Clubhouse appears to be targeting or at least attracting — are also those most likely to work the notorious “996” schedule, the long hours practice common in Chinese tech companies. The type of “meaningful conversations” that Clubhouse encourages is desirable, but the app’s real-time, spontaneous nature is also a lot to ask of 996 workers, who likely prefer more efficient and manageable use of time.

Moderators may also need material incentives to remain active aside from the pure passion in connecting with other human beings. One potential solution is to turn quality conversations into podcast episodes. “Clubhouse is for one-off, casual conversations. Those who produce high-quality content would want to record the conversation so it could be for repeatable consumption later on,” said Zhou.

Chinese counterparts

In China, audio networking has played out in slightly different shapes. Some companies place a great deal of focus on gamification, filling their apps with playful, interactive features.

Lizhi’s social podcast app, for example, is not just about listening. It also lets listeners message hosts, tip them through virtual gifts, record themselves shadowing a host who is reading a poem, compete in online karaoke contests, and more.

Interaction between hosts and listeners happens in a relatively orchestrated way, as Lizhi’s operational staff design campaigns and work with content creators behind the scenes to ensure content quality and user engagement. Clubhouse growth, in comparison, is more organic.

“The Chinese products focus more on spectatorship and performance, not so much translating natural social behavior in real life into a product. Clubhouse features are simple. It’s more like a coffee shop,” Lai said.

Lizhi’s other voice product Tiya is considered a close answer to Clubhouse, but Tiya’s users are young — the majority of whom are 15-22 years old — and it focuses on entertainment, letting users chat via audio while they play games and watch sports. That also feeds the need for companionship.

Dizhua, which launched in 2019, is another Chinese app that’s been compared to Clubhouse. Unlike Clubhouse, which relies on people’s existing networks for room discovery, Dizhua matches anonymous users based on their declared interests. Clubhouse conversations can start and die off casually. Dizhua encourages users to pick a theme and stay engaged.

“Clubhouse is a pure audio app, with no timeline, no comment, et cetera,” said Armin Li, an expert in residence with a venture capital firm in China. “It’s a kind of casual and drop-in style for the scenarios where user needs are not clear like hangout or multitasking … Its high community participation, content quality, and user quality are unseen in Chinese voice products.”

The bottom line is: The conversations that happen on Chinese platforms are monitored by content auditors. User registration requires real-name verification on internet platforms in China, so there’s no real anonymity online. The topics that users can discuss are limited, often leaning towards the fun and innocuous.

Why do people in China join Clubhouse anyway? Some, like me, joined out of FOMO. Entrepreneurs are always scouring for the next market opportunity, and product managers from internet giants hope to learn a thing or two from Clubhouse that they could apply to their own products. Bitcoin traders and activists, on the other hand, see Clubhouse as a haven outside the purview of Chinese regulators.

Technical support

One thing I find impressive about Clubhouse is how smoothly it works in China. Even when a foreign app isn’t banned in China, it often loads slowly due to its servers’ distance from China.

Clubhouse doesn’t actually build the technology supporting its enormous chat groups that sometimes reach thousands of participants. Instead, it uses a real-time audio SDK from Agora, two sources told me. The South China Morning Post also reported that. When asked to verify the partnership, Agora CEO Tony Zhao said via email he can’t confirm or deny any engagement between his company and Clubhouse.

Rather, he emphasized Agora’s “virtual network,” which overlays on top of the public internet running on more than 200 co-located data centers worldwide. The company then uses algorithms to plan traffic and optimize routing.

Noticeably, Agora’s operations teams are mainly in China and the U.S., a setup that inevitably raises questions about whether Clubhouse data are within the scope of Chinese regulations.

With real-time voice technology providers like Agora, opportunists are able to build Clubhouse clones quickly at low costs, Herock said. Chinese entrepreneurs are unlikely to copy Clubhouse directly due to local regulatory challenges and different user behavior, but they will race to crank out their own interpretations of voice networking before the hype around Clubhouse fades away.

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UK challenger bank Starling raises $376M, now valued at $1.9B

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Challenger banks continue to see huge infusions of cash from investors bullish on the opportunity for smaller and faster-moving tech-based banking startups to woo customers from their larger rivals. In the latest development, UK-based Starling announced that is has closed £272 million ($376 million at current rates), at a pre-money valuation of £1.1 billion.

This means that the round, a Series D, values the company at £1.372 billion ($1.9 billion) post-money.

Starling — which competes against incumbent banks, as well as other challengers like Monzo and Revolut — said it will be using the money to continue its growth. The bank is already profitable. In updated financials posted today, Starling said it generated revenue of £12 million ($16.6 million) in January of this year, up 400% compared to a year ago, with an annualized revenue run rate of £145 million. It posted operating profits for a fourth consecutive month, and net income currently exceeds £1.5 million per month.

Starling, founded in 2017, has now pased 2 million accounts, with 300,000 business accounts among them. It’s not clear how many of those accounts are active: the figures are for opened accounts, Starling said. Gross lending has passed £2 billion, with deposits at £5.4 billion.

Starling said it plans to use the funding both to expand its lending operations in the UK, to expand into other parts of Europe, and make some strategic acquisitions.

“Digital banking has reached a tipping point,” said Anne Boden, founder and CEO of Starling Bank, in a statement. “Customers now expect a fairer, smarter and more human alternative to the banks of the past and that is what we are giving them at Starling as we continue to grow and add new products and services. Our new investors will bring a wealth of experience as we enter the next stage of growth, while the continued support of our existing backers represents a huge vote of confidence.”

The round is being led by Fidelity Management & Research Company, with Qatar Investment Authority (QIA); RPMI Railpen (Railpen), the investment manager for the £31 billion Railways Pension Scheme; and global investment firm Millennium Management also participating, and it comes on the heels of us reporting in November that it was raising at least £200 million.

The funding comes at a critical time in consumer banking. The trend in the UK — the market where Starling is active — for the last several year has been a gradual shift to online and mobile banking, with those trends rapidly accelerating in the last year of lock-downs and enforced social distancing to slow down the spread of Covid-19.

Challenger (neo) banks have been some of the biggest winners of evolving consumer habits. Using rails provided as white-label services by way of APIs from banking infrastructure providers (another startup category in itself with companies like Rapyd, Plaid, Mambu, CurrencyCloud and others all involved) they will offer the same basic services such as checking and deposit, but they will typically do so with considerably  more flexibility, and additional savings and financial tips, and savings services to customers — all carried out over digital platforms.

Big, incumbent banks have scrambled to keep up with innovation, but newer generations of users are less beholden to their brands and incumbency, not least a result of the banking crisis last decade that revealed many of them to be cosiderably less competent and solid than many might have assumed.

That bigger market picture has also meant a surge of many neobanks, and so Starling competes with more than just the incumbents. Others include Monese, Revolut, Tide, Atom and Monzo — the latter a particularly acute competitor, founded by the ex-CTO of Starling.

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Deliveroo posted narrowed loss of $309M, with gross transactions surging to $5.7B in 2020, EITF shows

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The clock has officially started ticking on Deliveroo’s plans to go public in April. After announcing last week that it planned to list on the London Stock Exchange, today the on-demand food delivery company backed by Amazon and others published selected updated financials for the previous fiscal year, along with its Expected Intention to Float (EITF) — a more formal document that marks the two-week period until the company publishes its prospectus and, at the start of April, embarks on its subsequent IPO.

The bottom line is that Deliveroo is still unprofitable. It posted a 2020 underlying loss of £223.7 million ($309 million), but that figure was down by nearly £100 million from 2019, when it chalked up a loss of £317 million ($438 million). It did not disclose revenues (sometimes called turnover) in today’s statement.

The company said that it now serves some 6 million customers, with its three-sided marketplace also including more than 115,000 restaurants, takeaways and grocery stores, and 100,000 riders in 800 locations among 12 markets.

At the same time, Deliveroo showed some clear momentum in a year where many restaurants had to close their doors and shift operations to take-away models because of Covid-19.

It notes that it has been profitable on an “Adjusted EBITDA basis” over two quarters, with underlying gross profit up by 89.5% to £358 million ($495 million) compared to £189 million in 2019.

Its gross transaction volume (total amount spent by consumers ordering food) grew by 64% to £4.1 billion ($5.67 billion) with the run-rate in Q4 surging to £5 billion. This figure is unsurprising when you consider that Q4 represented the holiday period, and additionally the UK market (Deliveroo’s primary market and its home) went through not one but two different periods of being locked down in that quarter (the second of these is still in place).

It also notes that gross profit margin as a percentage of GTV has grown from 5.8% in 2018 to 8.8% in 2020, with some markets getting to 12%.

“The company remains focused on investing in driving growth in a nascent online food market,” it noted in the EITF, although I’m not sure nascent is exactly the word I’d use. Its drivers are easily the most visible of the many delivery services that exist in London. Deliveroo estimates that the restaurant and grocery sectors represent an addressable market of £1.2 trillion ($1.66 trillion) across the 12 regions where it offers services. In that figure, it says that just 3% of sales are estimated to be online, “equivalent to less than 1 out of the 21 weekly meal occasions being online.”

The company was valued at over $7 billion in it last fundraising, a $180 million round from Durable, Fidelity and others, as recently as January of this year.

It’s a huge leap that is the stuff that tech myths are made of (with untold hours of blood, sweat and tears, and a lot of luck too). I met Will Shu, the CEO and founder, when he was just really getting started at Deliveroo, and he seemed somewhat bewildered by how fast the startup was growing and where it was leading him. It’s interesting that he himself hasn’t forgotten those early days, either, which surely help keep the company focused at a time when there are a lot of opportunities, and therefore a lot of potential for focus unravelling.

“I never set out to be a founder or a CEO. I was never into start-ups, I didn’t read TechCrunch. I’m not one of those Silicon Valley types with a million ideas,” he noted in his letter published in the EITF. “I had one idea. One idea born out of personal frustration. An idea that I was fanatically obsessed with: I wanted to get great food delivered from amazing London restaurants.”

The prospectus will tell us how much the company intends to raise in its IPO so we’ll know those numbers soon. In the meantime, Deliveroo said that it plans to “invest in its long-term proposition by developing its core marketplace, enhancing its superior consumer experience, providing restaurant and grocery partners with unique tools to help them grow their businesses, and providing riders with the flexible work they value alongside security.”

It’s also going to continue building out “dark kitchens” (which it brands Editions); Signature, a white-label service for restaurants to offer delivery via their own online channels; Plus, a Prime-style loyalty subscription service; and on-demand grocery — which is also shaping up to be a huge market in Europe and the rest of the world.

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Porsche raises stake in electric car and components maker Rimac Automobili

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Rimac Automobili, the Croatian company known for its electric hypercars and battery and powertrain development, has gained yet another investment from Porsche AG.

Porsche said Monday it has invested 70 million euros ($83.3 miilion) into Rimac, a move that increases its stake from 15% to 24%.

This is the third time Porsche has invested into Rimac. The German automaker made its first investment into Rimac in 2018. Porsche increased its equity stake into Rimac in September 2019. A few months earlier, Hyundai Motor Company and Kia Motors jointly invested €80 million ($90 million at the time) into Rimac.

Rimac was founded by Mate Rimac in 2009 and is perhaps best known for its electric hypercars, such as the two-seater C Two that it debuted in 2018 at the Geneva International Motor Show. The vehicle produces an eye-popping 1,914 horsepower, has a top speed of 256 miles per hour and can accelerate from 0 to 60 mph in 1.85 seconds. Rimac plans to unveil C Two in its final form in 2021.

However, Rimac does more than produce hypercars. The company, which employs 1,000 people, also focuses on battery technology within the high-voltage segment, engineers and manufactures electric powertrains and develops digital interfaces between humans and machines.

Porsche is most interested in Rimac’s development of components, according to comments made by Lutz Meschke, the deputy chairman of Porsche AG’s executive board. Meschke noted that Rimac is “excellently positioned in prototype solutions and small series” and “is well on its way to becoming a Tier 1 supplier for Porsche and other manufacturers in the high-tech segment.”

Porsche has already placed its first orders with Rimac for the development of highly innovative series components, according to Meschke.

Despite its continued investments, Porsche said it doesn’t have a controlling stake in Rimac.

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