Unbundling the $700Bn Credit Card Market

I carry two primary credit cards in my wallet. If I don’t pay off my monthly balance I incur interest rates of 13.5% and 16.2%. But I also have an unsecured credit line from Wells Fargo that is only 9.25% APR. The underlying credit risk of all three credit products is exactly the same, and yet there is a massive gap in APRs. Sadly, this phenomenon is not unique to me. Data from the Consumer Finance Protection Bureau indicates that credit card banks typically overcharge consumers by 10-50% relative to their true credit risk.

One year ago Jason Brown and Jasper Platz identified this market inefficiency and set out to solve the problem. What they came to realize is that banks do this out of necessity. Many credit card customers use their credit card purely as a means of payment, not as a credit line. Since banks don’t generate interest revenue from these customers, banks must subsidize the cost of acquiring and servicing those customers through artificially high interest rates applied to customers carrying balances. Ultimately, the banks get away with it because they can. They bury high APRs in the fine print and lure in consumers with promises of rewards and cash back.

Today we are announcing Shasta’s most recent investment, leading the $15M series A financing for Tally, a financial technology company solving this problem.

Equipped with their unique and fundamental insight about the tallyt-redcredit card industry, Jason and Jasper set out to unbundle the credit card. The result is Tally. Pay and earn rewards with your existing credit cards. But use Tally to get the lower APR that you deserve. Use Tally to automatically manage multiple monthly bills and never again incur a late payment fee. Use Tally to maximize savings by intelligently optimizing grace periods and introductory rates. Set it, forget it, and save money.

The stakes are huge. Every year consumers lose billions to credit card companies through artificially high interest rates and late fees. More than $250 billion of the $700 billion credit card market is held by prime borrowers who carry balances, precisely the target customer that Tally can help most. Even a small dent will enable Tally to become a very large company.

But none of this matters without a phenomenal team making it happen. Jason and Jasper are entrepreneurial magnets. Their clear vision and charisma gives them unfair access to talent, press, partnerships and capital. They’ve built a world-class team of people like Jason Huynh, a seven-year veteran of Capital One now leading Tally’s credit underwriting. They’ve brought on best-in-class developers and designers that have built Tally’s simple, yet elegant product. And throughout their careers they have demonstrated the unwavering persistence and commitment common among the world’s best entrepreneurs.

Powerful vision for saving consumers billions of dollars. Intuitive and beautiful product experience. Massive market. Remarkable team. We couldn’t be more excited about investing and joining the team on their mission.

Unbundling the $700Bn Credit Card Market

Reinventing decision making for modern retailers

Long before Michael Lewis popularized sabermetrics with Moneyball, I’ve been fascinated by the idea of using data and math to get an unfair edge on the competition. The world’s best poker and blackjack players count cards and compute probabilities in real-time to beat the odds over time. High frequency traders use data science to find and exploit even the most miniscule of arbitrage opportunities to lock-in profits. And as described by Lewis, innovative professional sports teams evaluate athletes using non-traditional statistics to more accurately assess the players’ true worth. Quite simply, smart data analysis leads to actionable insights which leads to better decision-making and ultimately better performance.

Not surprisingly, this idea has large commercial applicability across a number of categories. At Shasta we’ve already made multiple investments leveraging the trend. For example, Apptio leverages data science to enable better decision making among Fortune 500 CIOs, and Anaplan is in hyper-growth mode providing a data modeling platform for enterprises to improve decision making across functional areas such as finance, sales, and marketing. We remain very bullish about this trend, and it is at the heart of our most boomerang_logorecent investment, the $12 million series B financing for Boomerang Commerce, the first guided analytics suite for modern retailers.

In the retail sector, Amazon has leveraged data analysis to grow from nothing to the top retailer in the planet. Unlike traditional retailers, Amazon makes product and pricing decisions based on numbers, not a category manager’s subjective experience and gut-feel. They continually adjust pricing in real-time to optimize for their core objective for any product, be it top-line revenue, gross margin contribution, or market share. In Moneyball, Lewis described how the subjective approach to player evaluation by traditional baseball scouts was inherently flawed. Likewise, the gut-based approach long employed by traditional retail insiders is overly subjective and flawed for the modern retail world.

To the benefit of consumers, this trend is thankfully changing rapidly. Retailers, falling further and further behind Amazon, have woken up to the power of this new way of thinking. Many have hired former Amazon executives to infuse the more modern data-driven decision making philosophy into their companies. However, changing the thinking is not enough. These retailers are not equipped to build the technology themselves. Going it alone would take years to catch up, and even then the results would be uncertain.

In 2012, Guru Hariharan left behind a career in online retail with Amazon and eBay to tackle this big idea. He clearly understood the power of Amazon’s approach from his own experience with the company, but was frustrated to observe traditional retailers losing ground and market share due to their outdated thinking. Fast forward three short years and he’s assembled a world-class team of technologists and data scientists, many coming from tech leaders like Google, Facebook and Saleforce. They have built a technology that provides retailers with real-time pricing recommendations for pricing competitively, yet profitably. It provides powerful insights about which products to stock or discontinue based on the impact to the bottom line. Ultimately, It provides customers an ability to effectively compete in the market in a manner that has been helplessly out of reach.

Most importantly for their customers, it is working. Their customers are not easy to please. They unapologetically demand a significant ROI. Thankfully, customer after customer that we spoke to witnessed a revenue and margin lift from Boomerang’s technology in weeks, not years. Typically that lift translates into a 10x ROI to their bottom line. This consistent and reliable performance has enabled the company to already win deals with nearly 20% of the top 50 internet retailers, including retailer heavyweights like Staples and Office Depot. In turn, Boomerang has grown its business 4x in just the last 12 months.

Yet for all of their early success, Guru and team have just scratched the surface. The foundation is set to rapidly grow their business and further enhance their product suite, and we could not be more excited about joining them on their mission to reinvent decision making for modern retailers.

Reinventing decision making for modern retailers

Socratic

Screen Shot 2015-03-25 at 8.12.20 AMToday we are announcing our most recent Shasta Ventures investment, leading a $6M series A round for Socratic, a question and answer community focused on high school and foundational college academics.

Online written content tends to be produced through one of two very different approaches. The first approach is professionally-driven publishing. The New York Times, ESPN, The Wall Street Journal. These companies employ professional writers to create their content. The alternative approach is community-driven publishing. Yelp, Wikipedia, TripAdvisor. Community-driven content publishers build communities anchored around a common passion, and their most active members contribute and share lots of content, not for a paycheck, but because of an authentic passion for the subject matter.

In the evolution of the Internet, professionally-driven publishing understandably emerged first since it was the most direct translation of the print publishing world. But community-driven content publishing has many inherent advantages. It costs less. Thanks to passionate experts it is as good, if not better, than professionally-created content. It improves over time and never goes stale. Finally, highly engaged communities exhibit a gravitational pull that create massive barriers to entry.

In category after category we’ve witnessed professionally-driven publishers getting surpassed by community-driven publishers. The Yellow Pages was surpassed by Yelp. Lonely Planet and Fodors were surpassed by TripAdvisor. Encyclopedia Britannica was surpassed by Wikipedia. And yet for all the advantages of the community-driven publishing model, it hasn’t overtaken every category yet. In the world of academic knowledge, the traditional textbook publishers have been very slow to move content online for fear it would diminish the value of their core print business. Therefore, when students search online for content they typically encounter a highly fragmented hodge-podge of sources like lecture handouts or websites built in 1995. Those sources are often unhelpful, unreliable or overwhelming.

In 2013 two mission-driven and product-obsessed founders, Chris Pedregal and Shreyans Bhansali, saw this gap in the market and created Socratic. It is a community where confused students can ask questions, and where passionate community members like Ernest Z., a retired Professor of Chemistry, collaboratively answer those questions. The result is the best answers that exist anywhere online. Answers that students love.

Socratic started a year ago with only Chemistry and now they have thriving communities across 12 subjects, ranging from Physics to Biology to Macroeconomics. They’ve been successful by focusing on the product experience and their community members. The product is thoughtfully designed to make it easy to write the best answer possible. Tools like their math formula writing software and in-line graphing functionality make this possible. And they focus on features that deepen engagement among their contributors. Contributors can see their impact, build their reputation and engage with like-minded community members. The result is contributors like Ernest answering 1,772 questions seen by over 1 million students across 215 countries, and an audience that has grown over 10x since the start of the most recent academic year.

At Shasta we have bet on this theme before to great success. In 2007 we invested in Spiceworks. Eight years later Spiceworks has raised $111 million and is now the definitive destination online for IT professionals. Six million IT pros turn to the Spiceworks community to ask questions and share advice. We see a similar potential in Socratic. Academic knowledge is an important category and yet there is no definitive online destination for it. With their community-driven approach and their phenomenal product intuition, we see Socratic becoming this place. Their impressive team has accomplished a lot in a short period of time on limited capital, and the company is on a rapid growth trajectory. We’re honored to join Chris, Shreyans, and their team to help make their bold vision a reality.

Socratic

Bloc

3 years ago Marc Andreessen famously declared that software is eating the world. The core idea – one that we strongly believe in at Shasta Ventures – is that over time all industries will be reinvented by advances in software. Just as software innovator Amazon overtook Borders and as Netflix surpassed Blockbuster, ultimately every industry will be reinvented through software innovations. But none of these advances are possible without the key building blocks in place. Inexpensive computing power, scale-as-you-go storage, and powerful developer tools are essential for this transformation, but on their own they are insufficient. None of this reinvention happens without talented software developers making it happen. And on this front we are woefully behind. Demand vastly outweighs supply, and our traditional liberal arts higher education system, great in many ways, is not suited to mass-producing computer science graduates with the necessary technical skills for today’s world.

In the spring of 2012, Roshan Choxi and Dave Paola (and later joined by Clint Schmidt) set out to attack this problem. From their own experience as aspiring programmers, they knew that they were more successful learning software development through the watchful mentorship of a co-worker or manager than they had ever been in university. They knew that they learned best through practical, hands-on creating, not through repetitive exercises. And they had grand ambitions to make their solution available to every person on the planet with an internet connection, not just those within close proximity to a physical-based education institution. From these insights, Bloc was born. Today, we are announcing Shasta’s investment into the company by leading its $6 million series A financing.

Screen Shot 2014-11-17 at 11.32.56 PMBloc offers mentor-led online courses in software development and design. The courses leverage Bloc’s proprietary curriculum, and students are matched with regular mentorship from experienced industry professionals. The intensive courses require significant commitment, but also are flexible to match a student’s individual life circumstances. The curriculum, world-class mentorship, and intensity result in students regularly completing courses with the skills necessary to be hired into full-time software development positions. In the online education space we have had hesitation investing in companies selling into bureaucratic educational institutions, but we are compelled by direct-to-student offerings such as Bloc’s that offer students a tangible financial return from their investment.

Like other managed marketplaces, Bloc’s success creates a virtuous cycle. Attracting the best mentors leads to the best student outcomes. The best student outcomes generate additional student demand. More student demand increases the utilization of mentors which drives up mentor earnings, thereby attracting more of the best mentors and perpetuating the virtuous cycle. Businesses like these can be difficult to get going, but once the flywheel starts moving they carry significant momentum. And for a business just over three years old, Bloc has tremendous momentum. It is rapidly growing its student enrollment, its revenue, and its mentor base, all while achieving profitability. Yet for all its early success, we see a business still in its relative infancy now poised to explode. The market demand for software developers will be tremendous for years to come, and we believe that Bloc has the best approach, product, community, and team to capitalize against this significant opportunity. We are thrilled to join Roshan, Dave, Clint and team on this exciting journey.

Bloc

Timehop

Thanks to Facebook, Twitter, Instagram and many other social media networks, Internet users are sharing more and more each year (see Zuckerberg’s Law). Taken in its entirety, social media sharing creates a rich story for each of us. It comprises our most noteworthy moments in life. This history is incredibly valuable to people, but all too often it lies buried. It lies buried across multiple networks. It lies buried behind the news feed consumption mode that narrowly focuses on only the most recent 24 hours.

Three years ago Jonathan Wegener and Benny Wong set out to solve this problem. Their mission was to empower people to easily collect their digital history, and to make it accessible, useful and meaningful. newlogo-751e104342da3b2ea3db5a436007c549The manifestation of these efforts is Timehop. As is the case with many of the best mobile experiences, the product is beautiful in is simplicity. Each day you open the app and you are presented with your memories from that day in history. Today we are announcing Shasta’s most recent investment, leading the company’s $10 million Series B financing.

Timehop is one of the fast growing mobile apps in the market. More people open and read their Timehop each day than read the New York Times. Of those that have registered for the service, more than half return daily. In the iOS app store it is consistently a top 50 overall application and a top 10 app in the social networking category. In summary, it’s a rocket ship with off-the-charts repeat engagement.

But even with such phenomenal growth, it’s a company still in its relative infancy. We believe it has the potential to ultimately serve hundreds of millions of people, but they have a long way to go to get there. As such, how they got here was equally important to our investment thesis as their successes to date, since it’s these characteristics that will enable the team to achieve their lofty aspirations. Specifically, they’ve gotten here by:

  • Keeping it simple. They’ve maintained focus on doing just one thing, but doing that one thing incredibly well.
  • Continual experimentation. Less than 15% of what they have experimented with is in the product today. This approach has led to a number of counterintuitive learnings that are critical to its success.
  • Focusing on repeat usage. As previously mentioned, more than 50% of their registered users open up Timehop daily. This is not by accident.
  • Making it social. Our best memories typically include good friends and family members. Naturally there is a strong desire to relive these experiences with others. They’ve made it seamless for anyone to publicly share via social media or to privately share via text messaging.
  • Growing from organic user acquisition. It would have been easy to cut corners and rely on paid customer acquisition to grow. Instead, they incessantly hammered away on the product and sharing features until they unlocked a more sustainable organic customer acquisition engine.

At Shasta, we don’t invest in ideas. We invest in the people that can successfully execute to make those ideas a reality. In Timehop, we found a team that we believe has the right mindset, playbook and DNA to achieve its big vision. We could not be more excited about joining them for this journey.

Timehop

Whisper

The Internet’s power to connect people is unparalleled.

  • Get married, find a new job, have a baby…share the special moment with friends and family on Facebook
  • Searching for new employees or potential customers…connect on LinkedIn.
  • Have a message for the masses…broadcast it on Twitter.
  • Missing your relatives across the globe…call them on Skype or Facetime.
  • Selling furniture, tickets, or just about anything else…find a buyer on Craigslist or eBay.
  • Move into a new neighborhood…meet your new neighbors on Nextdoor.

Humans have an inherent need for connection, and thankfully the internet enables human connections at an unprecedented scale.

However, we’re missing an important network. Where does one go to share his or her insecurities, fears, and doubts? Where does the husband go if he’s lost his job and doesn’t know how to tell his wife? Where does the war veteran go when struggling with PTSD? Where does the teenager go when he or she is questioning his or her sexual orientation? Even more trivial concerns that in the long-run may seem small need an outlet. For example, where does the teenage girl go when she doesn’t get asked to the prom? Despite there being many others having experienced similar feelings and emotions, these moments of despair make one feel as if they are totally alone; as if they are the only person to ever to face such a challenge.

whisperScreen Shot 2014-05-20 at 7.12.00 AM

Two years ago Michael Heyward and Brad Brooks saw this gaping need and created Whisper. They made it an anonymous network so people would feel comfortable sharing thoughts, emotions, fears, and doubts that they were not open to sharing from their public identities on Facebook. They added private messaging so that members could connect directly, providing a sounding board and an empathetic ear to those in need.

They set up the non-profit YourVoice dedicated to raising awareness of mental health issues on college campuses. They included a suicide hotline for any member expressing suicidal thoughts.

They implemented policies and strong community standards from the very beginning to ensure that Whisper would never become a place for trolling and bullying, a common issue with other anonymous networks. Create a negative comment about any individual and that whisper will never see the light of day. Furthermore, they surrounded you with strangers, ensuring there is little incentive to gossip or troll common connections.

In doing all of this, they built one of the most engaging networks that we’ve ever seen.

This week we announced Shasta’s recent investment into the company and we couldn’t be more excited. We led the company’s $36M series C round, along with new investors Tencent and Thrive Capital, as well as existing investors Sequoia Capital and Lightspeed Venture Partners.

We see a future where every human with a smartphone is a tap away from connecting with others around the world based on shared emotions and experiences. Those connections are profound, and we believe immensely valuable. Michael, Brad, and team have made tremendous strides in achieving this vision already, and we’re thrilled to join them on this mission.

Whisper

Secure Messaging in the Enterprise

At Shasta Ventures we are incredibly bullish about mobile technologies for the enterprise. Shasta’s very first investment was in Zenprise, a leading mobile device management company ultimately acquired by Citrix. Since then, we’ve continue to put substantial dollars behind this trend with companies like Mocana (mobile enterprise security), SpiderCloud Wireless (enhanced mobile connectivity), WatchDox (secure mobile file sync), Crittercism (mobile app performance management) and StrongLoop (Node.js mobile app platform). And today we are announcing our latest investment into TigerText, the leader in secure messaging for the enterprise.

Between SMS, iMessage, WhatsApp, and a handful of other similar services, consumers have an insatiable appetite for mobile messaging. Compared to email, phone and voicemail, it is simpler and lighter-weight. It saves time, enables multi-tasking and makes rapid back-and-forth communication more efficient. And as a real-time communication channel for priority messages, it is the best way to get a quick response for any time-sensitive matter. Given all of the benefits to mobile messaging, it is no surprise to see employees bring this technology into the enterprise at an astounding rate.

This is fantastic for the individual employee, but it creates some significant challenges for the enterprise, particularly in industries like health care, financial services and the legal industry. Privacy and data security are critically important in these sectors, and often there is even regulation that mandates increased levels of data security. However, in spite of that regulation you can walk into a hospital today and you are likely to see doctors and nurses using their smartphones to message with each other. Legacy pagers are clunky and difficult to use, cell phones typically result in a frustrating game of voicemail tag, and neither supports image sharing. Sometimes these messaging conversations are innocuous, but in many cases they are for clinical purposes and include private patient information, a big no-no for HIPAA compliance. A couple of years back these compliance infractions were rare enough to overlook, but today it has become much too common for hospitals to ignore.

32x32-tigertext-logoThree years ago Brad Brooks founded TigerText and set out to solve this problem. He and his team built a best-in-breed secure messaging product that brings all of the simplicity of SMS, but without the data security concerns. Features like self-deleting messages and message recall put the hospital compliance officer at ease and ensure that patients’ private data remains private. He built an experienced sales team with intimate knowledge of mobility solutions and the health care ecosystem that has quickly become a well-oiled machine. And he built an organization universally committed to customer success which leads to happy customers and strong retention. Three years later the foundation they built is translating into great business success. They have deployed across more than 3,000 healthcare facilities and have generated three consecutive years of triple-digit revenue growth, including 4x revenue growth over the last year alone. As venture capitalists we often ask the question “why now?”, and it is clear from speaking with potential customers that the timing could not be better for the company to capitalize against this massive opportunity.

We could not be more excited about partnering with Brad and the TigerText team. They have come a long way in three years and we look forward to supporting them in the future.

Secure Messaging in the Enterprise